Healthcare Realty Trust Inc - Quarter Report: 2020 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2020
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from to
Commission File Number: 001-35568 (Healthcare Trust of America, Inc.)
Commission File Number: 333-190916 (Healthcare Trust of America Holdings, LP)
_________________________
HEALTHCARE TRUST OF AMERICA, INC.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
(Exact name of registrant as specified in its charter)
| Maryland | (Healthcare Trust of America, Inc.) | 20-4738467 | ||||||||||||||||||
| Delaware | (Healthcare Trust of America Holdings, LP) | 20-4738347 | ||||||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
| 16435 N. Scottsdale Road, Suite 320, | Scottsdale, | Arizona | 85254 | (480) | 998-3478 | ||||||||||||||||||||||||||||||
| (Address of Principal Executive Office and Zip Code) | (Registrant’s telephone number, including area code) | ||||||||||||||||||||||||||||||||||
www.htareit.com | ||
| (Internet address) | ||
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common stock, $0.01 par value | HTA | New York Stock Exchange | ||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Healthcare Trust of America, Inc. | ☒ | Yes | ¨ No | ||||||||
| Healthcare Trust of America Holdings, LP | ☒ | Yes | ¨ No | ||||||||
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| Healthcare Trust of America, Inc. | ☒ | Yes | ¨ No | ||||||||
| Healthcare Trust of America Holdings, LP | ☒ | Yes | ¨ No | ||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Healthcare Trust of America, Inc. | ☒ | Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ||||||||||||||
| Healthcare Trust of America Holdings, LP | ☐ | Large accelerated filer | ☐ | Accelerated filer | ☒ | Non-accelerated filer | ||||||||||||||
| Healthcare Trust of America, Inc. | ☐ | Smaller reporting company | ☐ | Emerging growth company | ||||||||||
| Healthcare Trust of America Holdings, LP | ☐ | Smaller reporting company | ☐ | Emerging growth company | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
| Healthcare Trust of America, Inc. | ☐ | ||||
| Healthcare Trust of America Holdings, LP | ☐ | ||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Healthcare Trust of America, Inc. | ☐ | Yes | x No | ||||||||
| Healthcare Trust of America Holdings, LP | ☐ | Yes | x No | ||||||||
As of April 30, 2020, there were 218,480,985 shares of Class A common stock of Healthcare Trust of America, Inc. outstanding.
Explanatory Note
This quarterly report combines the Quarterly Reports on Form 10-Q (“Quarterly Report”) for the quarter ended March 31, 2020, of Healthcare Trust of America, Inc. (“HTA”), a Maryland corporation, and Healthcare Trust of America Holdings, LP (“HTALP”), a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this Quarterly Report to “we,” “us,” “our,” “the Company” or “our Company” refer to HTA and HTALP, collectively, and all references to “common stock” shall refer to the Class A common stock of HTA.
HTA operates as a real estate investment trust (“REIT”) and is the general partner of HTALP. As of March 31, 2020, HTA owned a 98.4% partnership interest in HTALP, and other limited partners, including some of HTA’s directors, executive officers and their affiliates, owned the remaining partnership interest (including the long-term incentive plan (“LTIP” Units)) in HTALP. As the sole general partner of HTALP, HTA has the full, exclusive and complete responsibility for HTALP’s day-to-day management and control, including its compliance with the Securities and Exchange Commission (“SEC”) filing requirements.
We believe it is important to understand the few differences between HTA and HTALP in the context of how we operate as an integrated consolidated company. HTA operates as an umbrella partnership REIT structure in which HTALP and its subsidiaries hold substantially all of the assets. HTA’s only material asset is its ownership of partnership interests of HTALP. As a result, HTA does not conduct business itself, other than acting as the sole general partner of HTALP, issuing public equity from time to time and guaranteeing certain debts of HTALP. HTALP conducts the operations of the business and issues publicly-traded debt, but has no publicly-traded equity. Except for net proceeds from public equity issuances by HTA, which are generally contributed to HTALP in exchange for partnership units of HTALP, HTALP generates the capital required for the business through its operations and by direct or indirect incurrence of indebtedness or through the issuance of its partnership units (“OP Units”).
Noncontrolling interests, stockholders’ equity and partners’ capital are the primary areas of difference between the condensed consolidated financial statements of HTA and HTALP. Limited partnership units in HTALP are accounted for as partners’ capital in HTALP’s condensed consolidated balance sheets and as a noncontrolling interest reflected within equity in HTA’s condensed consolidated balance sheets. The differences between HTA’s stockholders’ equity and HTALP’s partners’ capital are due to the differences in the equity issued by HTA and HTALP, respectively.
We believe combining the Quarterly Reports of HTA and HTALP, including the notes to the condensed consolidated financial statements, into this single Quarterly Report results in the following benefits:
•enhances stockholders’ understanding of HTA and HTALP by enabling stockholders to view the business as a whole in the same manner that management views and operates the business;
•eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this Quarterly Report applies to both HTA and HTALP; and
•creates time and cost efficiencies through the preparation of a single combined Quarterly Report instead of two separate Quarterly Reports.
In order to highlight the material differences between HTA and HTALP, this Quarterly Report includes sections that separately present and discuss areas that are materially different between HTA and HTALP, including:
•the condensed consolidated financial statements;
•certain accompanying notes to the condensed consolidated financial statements, including Note 8 - Debt, Note 11 - Stockholders’ Equity and Partners’ Capital, Note 13 - Per Share Data of HTA, and Note 14 - Per Unit Data of HTALP;
•as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), the Funds From Operations (“FFO”) and Normalized FFO in Part 1, Item 2 of this Quarterly Report;
•the Controls and Procedures in Part 1, Item 4 of this Quarterly Report; and
•the Certifications of the Chief Executive Officer and the Chief Financial Officer included as Exhibits 31 and 32 to this Quarterly Report.
In the sections of this Quarterly Report that combine disclosure for HTA and HTALP, this Quarterly Report refers to actions or holdings as being actions or holdings of the Company. Although HTALP (directly or indirectly through one of its subsidiaries) is generally the entity that enters into contracts, holds assets and issues or incurs debt, management believes this presentation is appropriate for the reasons set forth above and because the business of the Company is a single integrated enterprise operated through HTALP.
2
HEALTHCARE TRUST OF AMERICA, INC. AND
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
TABLE OF CONTENTS
| Page | ||||||||
| Healthcare Trust of America, Inc. | ||||||||
| Healthcare Trust of America Holdings, LP | ||||||||
| Notes for Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP | ||||||||
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
(Unaudited)
| March 31, 2020 | December 31, 2019 | |||||||||||||
| ASSETS | ||||||||||||||
| Real estate investments: | ||||||||||||||
| Land | $ | 587,363 | $ | 584,546 | ||||||||||
| Building and improvements | 6,313,199 | 6,252,854 | ||||||||||||
| Lease intangibles | 630,535 | 628,066 | ||||||||||||
| Construction in progress | 40,350 | 28,150 | ||||||||||||
| 7,571,447 | 7,493,616 | |||||||||||||
| Accumulated depreciation and amortization | (1,519,845) | (1,447,815) | ||||||||||||
Real estate investments, net | 6,051,602 | 6,045,801 | ||||||||||||
| Investment in unconsolidated joint venture | 65,526 | 65,888 | ||||||||||||
| Cash and cash equivalents | 216,515 | 32,713 | ||||||||||||
| Restricted cash | 4,957 | 4,903 | ||||||||||||
| Receivables and other assets, net | 235,022 | 237,024 | ||||||||||||
| Right-of-use assets - operating leases, net | 238,516 | 239,867 | ||||||||||||
| Other intangibles, net | 12,041 | 12,553 | ||||||||||||
| Total assets | $ | 6,824,179 | $ | 6,638,749 | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Liabilities: | ||||||||||||||
| Debt | $ | 2,959,723 | $ | 2,749,775 | ||||||||||
| Accounts payable and accrued liabilities | 154,842 | 171,698 | ||||||||||||
| Derivative financial instruments - interest rate swaps | 19,480 | 29 | ||||||||||||
| Security deposits, prepaid rent and other liabilities | 49,895 | 49,174 | ||||||||||||
| Lease liabilities - operating leases | 198,628 | 198,650 | ||||||||||||
| Intangible liabilities, net | 36,659 | 38,779 | ||||||||||||
| Total liabilities | 3,419,227 | 3,208,105 | ||||||||||||
| Commitments and contingencies | ||||||||||||||
| Equity: | ||||||||||||||
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding | — | — | ||||||||||||
Class A common stock, $0.01 par value; 1,000,000,000 shares authorized; 218,482,526 and 216,453,312 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | 2,185 | 2,165 | ||||||||||||
| Additional paid-in capital | 4,909,397 | 4,854,042 | ||||||||||||
| Accumulated other comprehensive (loss) income | (17,592) | 4,546 | ||||||||||||
| Cumulative dividends in excess of earnings | (1,553,710) | (1,502,744) | ||||||||||||
| Total stockholders’ equity | 3,340,280 | 3,358,009 | ||||||||||||
| Noncontrolling interests | 64,672 | 72,635 | ||||||||||||
| Total equity | 3,404,952 | 3,430,644 | ||||||||||||
| Total liabilities and equity | $ | 6,824,179 | $ | 6,638,749 | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Revenues: | |||||||||||
| Rental income | $ | 185,531 | $ | 168,875 | |||||||
Interest and other operating income | 245 | 91 | |||||||||
| Total revenues | 185,776 | 168,966 | |||||||||
| Expenses: | |||||||||||
| Rental | 56,862 | 51,468 | |||||||||
| General and administrative | 11,518 | 11,290 | |||||||||
| Transaction | 140 | 40 | |||||||||
| Depreciation and amortization | 77,665 | 69,481 | |||||||||
Interest expense | 23,872 | 23,970 | |||||||||
| Total expenses | 170,057 | 156,249 | |||||||||
| Gain (loss) on sale of real estate, net | 1,991 | (37) | |||||||||
| Income from unconsolidated joint venture | 422 | 486 | |||||||||
| Other income | 76 | 535 | |||||||||
| Net income | $ | 18,208 | $ | 13,701 | |||||||
Net income attributable to noncontrolling interests (1) | (307) | (261) | |||||||||
| Net income attributable to common stockholders | $ | 17,901 | $ | 13,440 | |||||||
Earnings per common share - basic: | |||||||||||
Net income attributable to common stockholders | $ | 0.08 | $ | 0.07 | |||||||
Earnings per common share - diluted: | |||||||||||
Net income attributable to common stockholders | $ | 0.08 | $ | 0.06 | |||||||
Weighted average common shares outstanding: | |||||||||||
| Basic | 216,692 | 205,080 | |||||||||
| Diluted | 220,623 | 208,999 | |||||||||
(1) Includes amounts attributable to redeemable noncontrolling interests for the three months ended March 31, 2019.
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net income | $ | 18,208 | $ | 13,701 | |||||||
| Other comprehensive income (loss) | |||||||||||
Change in unrealized losses on cash flow hedges | (22,498) | (390) | |||||||||
| Total other comprehensive loss | (22,498) | (390) | |||||||||
| Total comprehensive (loss) income | (4,290) | 13,311 | |||||||||
Comprehensive loss (income) attributable to noncontrolling interests | 53 | (225) | |||||||||
Total comprehensive (loss) income attributable to common stockholders | $ | (4,237) | $ | 13,086 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
| Class A Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Cumulative Dividends in Excess of Earnings | Total Stockholders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2018 | 205,267 | $ | 2,053 | $ | 4,525,969 | $ | 307 | $ | (1,272,305) | $ | 3,256,024 | $ | 78,890 | $ | 3,334,914 | ||||||||||||||||||||||||||||||||
Share-based award transactions, net | 293 | 3 | 3,386 | — | — | 3,389 | — | 3,389 | |||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | (478) | (5) | (11,921) | — | — | (11,926) | — | (11,926) | |||||||||||||||||||||||||||||||||||||||
Redemption of noncontrolling interest and other | 18 | — | 527 | — | — | 527 | (527) | — | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.310 per common share) | — | — | — | — | (63,578) | (63,578) | (1,306) | (64,884) | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | 13,440 | 13,440 | 233 | 13,673 | |||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | (382) | — | (382) | (8) | (390) | |||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2019 | 205,100 | $ | 2,051 | $ | 4,517,961 | $ | (75) | $ | (1,322,443) | $ | 3,197,494 | $ | 77,282 | $ | 3,274,776 | ||||||||||||||||||||||||||||||||
Balance as of December 31, 2019 | 216,453 | $ | 2,165 | $ | 4,854,042 | $ | 4,546 | $ | (1,502,744) | $ | 3,358,009 | $ | 72,635 | $ | 3,430,644 | ||||||||||||||||||||||||||||||||
| Issuance of common stock, net | 1,675 | 17 | 50,003 | — | — | 50,020 | — | 50,020 | |||||||||||||||||||||||||||||||||||||||
Share-based award transactions, net | 236 | 2 | 3,201 | — | — | 3,203 | — | 3,203 | |||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | (154) | (2) | (4,622) | — | — | (4,624) | — | (4,624) | |||||||||||||||||||||||||||||||||||||||
Redemption of noncontrolling interest and other | 273 | 3 | 6,773 | — | — | 6,776 | (6,776) | — | |||||||||||||||||||||||||||||||||||||||
Dividends declared ($0.315 per common share) | — | — | — | — | (68,867) | (68,867) | (1,134) | (70,001) | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | 17,901 | 17,901 | 307 | 18,208 | |||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | (22,138) | — | (22,138) | (360) | (22,498) | |||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2020 | 218,483 | $ | 2,185 | $ | 4,909,397 | $ | (17,592) | $ | (1,553,710) | $ | 3,340,280 | $ | 64,672 | $ | 3,404,952 | ||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 18,208 | $ | 13,701 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 72,949 | 66,528 | |||||||||
| Share-based compensation expense | 3,203 | 3,389 | |||||||||
| Income from unconsolidated joint venture | (422) | (486) | |||||||||
| Distributions from unconsolidated joint venture | 885 | 750 | |||||||||
| (Gain) loss on sale of real estate, net | (1,991) | 37 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables and other assets, net | 1,196 | 2,546 | |||||||||
| Accounts payable and accrued liabilities | (19,662) | (40,402) | |||||||||
| Security deposits, prepaid rent and other liabilities | 1,055 | 2,492 | |||||||||
| Net cash provided by operating activities | 75,421 | 48,555 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Investments in real estate | (41,338) | (18,592) | |||||||||
| Development of real estate | (12,103) | (2,014) | |||||||||
| Proceeds from the sale of real estate | 6,420 | 1,193 | |||||||||
| Capital expenditures | (23,793) | (16,815) | |||||||||
| Collection of real estate notes receivable | 191 | 181 | |||||||||
| Advances on real estate notes receivable | (6,000) | — | |||||||||
| Net cash used in investing activities | (76,623) | (36,047) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings on unsecured revolving credit facility | 720,000 | — | |||||||||
| Payments on unsecured revolving credit facility | (415,000) | — | |||||||||
| Payments on secured mortgage loans | (95,602) | (587) | |||||||||
| Proceeds from issuance of common stock | 50,020 | — | |||||||||
| Repurchase and cancellation of common stock | (4,624) | (11,926) | |||||||||
| Dividends paid | (68,227) | (63,686) | |||||||||
| Distributions paid to noncontrolling interest of limited partners | (1,509) | (1,364) | |||||||||
| Net cash provided by (used in) financing activities | 185,058 | (77,563) | |||||||||
| Net change in cash, cash equivalents and restricted cash | 183,856 | (65,055) | |||||||||
| Cash, cash equivalents and restricted cash - beginning of period | 37,616 | 133,530 | |||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | 221,472 | $ | 68,475 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
(Unaudited)
| March 31, 2020 | December 31, 2019 | |||||||||||||
| ASSETS | ||||||||||||||
| Real estate investments: | ||||||||||||||
| Land | $ | 587,363 | $ | 584,546 | ||||||||||
| Building and improvements | 6,313,199 | 6,252,854 | ||||||||||||
| Lease intangibles | 630,535 | 628,066 | ||||||||||||
| Construction in progress | 40,350 | 28,150 | ||||||||||||
| 7,571,447 | 7,493,616 | |||||||||||||
| Accumulated depreciation and amortization | (1,519,845) | (1,447,815) | ||||||||||||
Real estate investments, net | 6,051,602 | 6,045,801 | ||||||||||||
| Investment in unconsolidated joint venture | 65,526 | 65,888 | ||||||||||||
| Cash and cash equivalents | 216,515 | 32,713 | ||||||||||||
| Restricted cash | 4,957 | 4,903 | ||||||||||||
| Receivables and other assets, net | 235,022 | 237,024 | ||||||||||||
| Right-of-use assets - operating leases, net | 238,516 | 239,867 | ||||||||||||
| Other intangibles, net | 12,041 | 12,553 | ||||||||||||
| Total assets | $ | 6,824,179 | $ | 6,638,749 | ||||||||||
| LIABILITIES AND PARTNERS’ CAPITAL | ||||||||||||||
| Liabilities: | ||||||||||||||
| Debt | $ | 2,959,723 | $ | 2,749,775 | ||||||||||
| Accounts payable and accrued liabilities | 154,842 | 171,698 | ||||||||||||
| Derivative financial instruments - interest rate swaps | 19,480 | 29 | ||||||||||||
| Security deposits, prepaid rent and other liabilities | 49,895 | 49,174 | ||||||||||||
| Lease liabilities - operating leases | 198,628 | 198,650 | ||||||||||||
| Intangible liabilities, net | 36,659 | 38,779 | ||||||||||||
| Total liabilities | 3,419,227 | 3,208,105 | ||||||||||||
| Commitments and contingencies | ||||||||||||||
| Partners’ Capital: | ||||||||||||||
Limited partners’ capital, 3,561,260 and 3,834,279 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | 64,402 | 72,365 | ||||||||||||
General partners’ capital, 218,482,526 and 216,453,312 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively | 3,340,550 | 3,358,279 | ||||||||||||
| Total partners’ capital | 3,404,952 | 3,430,644 | ||||||||||||
| Total liabilities and partners’ capital | $ | 6,824,179 | $ | 6,638,749 | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Revenues: | |||||||||||
| Rental income | $ | 185,531 | $ | 168,875 | |||||||
Interest and other operating income | 245 | 91 | |||||||||
| Total revenues | 185,776 | 168,966 | |||||||||
| Expenses: | |||||||||||
| Rental | 56,862 | 51,468 | |||||||||
| General and administrative | 11,518 | 11,290 | |||||||||
| Transaction | 140 | 40 | |||||||||
| Depreciation and amortization | 77,665 | 69,481 | |||||||||
| Interest expense | 23,872 | 23,970 | |||||||||
| Total expenses | 170,057 | 156,249 | |||||||||
| Gain (loss) on sale of real estate, net | 1,991 | (37) | |||||||||
| Income from unconsolidated joint venture | 422 | 486 | |||||||||
| Other income | 76 | 535 | |||||||||
| Net income | $ | 18,208 | $ | 13,701 | |||||||
Net income attributable to noncontrolling interests | — | (28) | |||||||||
| Net income attributable to common unitholders | $ | 18,208 | $ | 13,673 | |||||||
Earnings per common OP Unit - basic: | |||||||||||
Net income attributable to common unitholders | $ | 0.08 | $ | 0.07 | |||||||
Earnings per common OP Unit - diluted: | |||||||||||
Net income attributable to common unitholders | $ | 0.08 | $ | 0.07 | |||||||
Weighted average common OP Units outstanding: | |||||||||||
| Basic | 220,368 | 208,999 | |||||||||
| Diluted | 220,623 | 208,999 | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net income | $ | 18,208 | $ | 13,701 | |||||||
| Other comprehensive income (loss) | |||||||||||
Change in unrealized losses on cash flow hedges | (22,498) | (390) | |||||||||
| Total other comprehensive loss | (22,498) | (390) | |||||||||
| Total comprehensive (loss) income | (4,290) | 13,311 | |||||||||
Comprehensive income attributable to noncontrolling interests | — | (28) | |||||||||
Total comprehensive (loss) income attributable to common unitholders | $ | (4,290) | $ | 13,283 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
11
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
(In thousands)
(Unaudited)
| General Partners’ Capital | Limited Partners’ Capital | Total Partners’ Capital | |||||||||||||||||||||||||||
| Units | Amount | Units | Amount | ||||||||||||||||||||||||||
| Balance as of December 31, 2018 | 205,267 | $ | 3,256,294 | 3,929 | $ | 78,620 | $ | 3,334,914 | |||||||||||||||||||||
Share-based award transactions, net | 293 | 3,389 | — | — | 3,389 | ||||||||||||||||||||||||
Redemption and cancellation of general partner OP Units | (478) | (11,926) | — | — | (11,926) | ||||||||||||||||||||||||
Redemption of limited partner OP Units and other | 18 | 527 | (18) | (527) | — | ||||||||||||||||||||||||
Distributions declared ($0.310 per common OP Unit) | — | (63,578) | — | (1,306) | (64,884) | ||||||||||||||||||||||||
| Net income | — | 13,440 | — | 233 | 13,673 | ||||||||||||||||||||||||
| Other comprehensive loss | — | (382) | — | (8) | (390) | ||||||||||||||||||||||||
| Balance as of March 31, 2019 | 205,100 | 3,197,764 | 3,911 | 77,012 | 3,274,776 | ||||||||||||||||||||||||
Balance as of December 31, 2019 | 216,453 | $ | 3,358,279 | 3,834 | $ | 72,365 | $ | 3,430,644 | |||||||||||||||||||||
| Issuance of general partner OP Units | 1,675 | 50,020 | — | — | 50,020 | ||||||||||||||||||||||||
Share-based award transactions, net | 236 | 3,203 | — | — | 3,203 | ||||||||||||||||||||||||
Redemption and cancellation of general partner OP Units | (154) | (4,624) | — | — | (4,624) | ||||||||||||||||||||||||
Redemption of limited partner OP Units and other | 273 | 6,776 | (273) | (6,776) | — | ||||||||||||||||||||||||
Distributions declared ($0.315 per common OP Unit) | — | (68,867) | — | (1,134) | (70,001) | ||||||||||||||||||||||||
Net income | — | 17,901 | — | 307 | 18,208 | ||||||||||||||||||||||||
Other comprehensive loss | — | (22,138) | — | (360) | (22,498) | ||||||||||||||||||||||||
| Balance as of March 31, 2020 | 218,483 | 3,340,550 | 3,561 | 64,402 | 3,404,952 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 18,208 | $ | 13,701 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 72,949 | 66,528 | |||||||||
| Share-based compensation expense | 3,203 | 3,389 | |||||||||
| Income from unconsolidated joint venture | (422) | (486) | |||||||||
| Distributions from unconsolidated joint venture | 885 | 750 | |||||||||
| (Gain) loss on sale of real estate, net | (1,991) | 37 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables and other assets, net | 1,196 | 2,546 | |||||||||
| Accounts payable and accrued liabilities | (19,662) | (40,402) | |||||||||
| Security deposits, prepaid rent and other liabilities | 1,055 | 2,492 | |||||||||
| Net cash provided by operating activities | 75,421 | 48,555 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Investments in real estate | (41,338) | (18,592) | |||||||||
| Development of real estate | (12,103) | (2,014) | |||||||||
| Proceeds from the sale of real estate | 6,420 | 1,193 | |||||||||
| Capital expenditures | (23,793) | (16,815) | |||||||||
| Collection of real estate notes receivable | 191 | 181 | |||||||||
| Advances on real estate notes receivable | (6,000) | — | |||||||||
| Net cash used in investing activities | (76,623) | (36,047) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings on unsecured revolving credit facility | 720,000 | — | |||||||||
| Payments on unsecured revolving credit facility | (415,000) | — | |||||||||
| Payments on secured mortgage loans | (95,602) | (587) | |||||||||
| Proceeds from issuance of general partner units | 50,020 | — | |||||||||
| Repurchase and cancellation of general partner units | (4,624) | (11,926) | |||||||||
| Distributions paid to general partner | (68,227) | (63,686) | |||||||||
Distributions paid to limited partners and redeemable noncontrolling interests | (1,509) | (1,364) | |||||||||
| Net cash provided by (used in) financing activities | 185,058 | (77,563) | |||||||||
| Net change in cash, cash equivalents and restricted cash | 183,856 | (65,055) | |||||||||
| Cash, cash equivalents and restricted cash - beginning of period | 37,616 | 133,530 | |||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | 221,472 | $ | 68,475 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
13
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unless otherwise indicated or unless the context requires otherwise the use of the words “we,” “us,” or “our” refers to Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP, collectively.
1. Organization and Description of Business
HTA, a Maryland corporation, and HTALP, a Delaware limited partnership, were incorporated or formed, as applicable, on April 20, 2006. HTA operates as a REIT and is the general partner of HTALP, which is the operating partnership, in an umbrella partnership, or “UPREIT” structure. HTA has qualified and intends to continue to be taxed as a REIT for federal income tax purposes under the applicable sections of the Internal Revenue Code.
We own real estate primarily consisting of medical office buildings (“MOBs”) located on or adjacent to hospital campuses or in off-campus, community core outpatient locations across 33 states within the United States, and we lease space to tenants primarily consisting of health systems, research and academic institutions, and various sized physician practices. Through our full-service operating platform, we provide leasing, asset management, acquisitions, development and other related services for our properties.
Our primary objective is to maximize stockholder value with growth through strategic investments that provide an attractive risk-adjusted return for our stockholders by consistently increasing our cash flow. In pursuing this objective, we: (i) seek internal growth through proactive asset management, leasing, building services and property management oversight; (ii) target accretive acquisitions and developments of MOBs in markets with attractive demographics that complement our existing portfolio; and (iii) actively manage our balance sheet to maintain flexibility with conservative leverage. Additionally, from time to time we consider, on an opportunistic basis, significant portfolio acquisitions that we believe fit our core business and we expect to enhance our existing portfolio.
2. Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding our condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the U.S. (“GAAP”) in all material respects and have been consistently applied in preparing our accompanying condensed consolidated financial statements.
Basis of Presentation
Our accompanying condensed consolidated financial statements include our accounts and those of our subsidiaries and any consolidated variable interest entities (“VIEs”). All inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
Reclassifications
Certain prior year amounts related to the presentation of derivative financial instruments - cash flow hedges on the accompanying condensed consolidated balance sheets have been reclassified to conform to the current year presentation.
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our opinion, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such results may be less favorable for the full year. Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2019 Annual Report on Form 10-K.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of our subsidiaries and consolidated joint venture arrangements. The portions of the HTALP operating partnership not owned by us are presented as noncontrolling interests on the accompanying condensed consolidated balance sheets and statements of operations, condensed consolidated statements of comprehensive income, and condensed consolidated statements of equity and changes in partners’ capital. Holders of OP Units are considered to be noncontrolling interest holders in HTALP and their ownership interests are reflected as equity on the accompanying condensed consolidated balance sheets. Further, a portion of the earnings and losses of HTALP are allocated to noncontrolling interest holders based on their respective ownership percentages. Upon conversion of OP Units to common stock, any difference between the fair value of the common stock issued and the carrying value of the OP Units converted to
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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
common stock is recorded as a component of equity. As of March 31, 2020 and December 31, 2019, there were approximately 3.6 million and 3.8 million, respectively, of OP Units issued and outstanding held by noncontrolling interest holders.
VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following: (i) the power to direct the activities that most significantly impact the entity’s economic performance; (ii) the obligation to absorb the expected losses of the entity; and (iii) the right to receive the expected returns of the entity. We consolidate our investment in VIEs when we determine that we are the primary beneficiary. A primary beneficiary is one that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. The HTALP operating partnership and our other joint venture arrangements are VIEs because the limited partners in those partnerships, although entitled to vote on certain matters, do not possess kick-out rights or substantive participating rights. Additionally, we determined that we are the primary beneficiary of our VIEs. Accordingly, we consolidate our interests in the HTALP operating partnership and in our other joint venture arrangements. However, because we hold what is deemed a majority voting interest in the HTALP operating partnership and our other joint venture arrangements, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs. We will evaluate on an ongoing basis the need to consolidate entities based on the standards set forth in GAAP as described above.
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that effect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent asset and liabilities. These estimates are made and evaluated on an ongoing basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in adverse ways, and those estimates could be different under different assumptions or conditions.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased. Restricted cash is comprised of: (i) reserve accounts for property taxes, insurance, capital and tenant improvements; (ii) collateral accounts for debt and interest rate swaps; and (iii) deposits for future investments.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying condensed consolidated balance sheets to the combined amounts shown on the accompanying condensed consolidated statements of cash flows (in thousands):
| March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash and cash equivalents | $ | 216,515 | $ | 61,073 | |||||||
| Restricted cash | 4,957 | 7,402 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 221,472 | $ | 68,475 | |||||||
Revenue Recognition
Minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between rental income recognized and amounts contractually due under the lease agreements are recorded as straight-line rent receivables. Tenant reimbursements, which is comprised of additional amounts recoverable from tenants for real estate taxes, common area maintenance and other certain operating expenses are recognized as revenue on a gross basis in the period in which the related recoverable expenses are incurred. We accrue revenue corresponding to these expenses on a quarterly basis to adjust recorded amounts to our best estimate of the final annual amounts to be billed. Subsequent to year-end, on a calendar year basis, we perform reconciliations on a lease-by-lease basis and bill or credit each tenant for any differences between the estimated expenses we billed and the actual expenses that were incurred. We recognize lease termination fees when there is a signed termination letter agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. Rental income is reported net of amortization of inducements.
The revenue recognition process is based on a five-step model to account for revenue arising from contracts with customers as outlined in Topic 606. We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We have identified all of our revenue streams and we have concluded that rental income from leasing arrangements represents a substantial portion of our revenue and is governed and evaluated with the adoption of Topic 842.
Investments in Real Estate
Depreciation expense of buildings and improvements for the three months ended March 31, 2020 and 2019 was $58.9 million and $52.1 million, respectively.
15
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Leases
As a lessor, we lease space in our MOBs primarily to medical enterprises for terms ranging from to seven years in length. The assets underlying these leases consist of buildings and associated land which are included as real estate investments on our accompanying condensed consolidated balance sheets. All of our leases for which we are the lessor are classified as operating leases under Topic 842.
Leases, for which we are the lessee, are classified as separate components on our accompanying condensed consolidated balance sheets. Operating leases are included as right-of-use (“ROU”) assets - operating leases, net, with a corresponding lease liability. Financing lease assets are included in receivables and other assets, net, with a corresponding lease liability in security deposits, prepaid rent and other liabilities. A lease liability is recognized for our obligation related to the lease and an ROU asset represents our right to use the underlying asset over the lease term. Refer to Note 7 - Leases in the accompanying notes to the condensed consolidated financial statements for more detail relating to our leases.
Through the duration of the COVID-19 pandemic, many lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in Accounting Standards Codification (“ASC”) Topic 842 ("Topic 842") addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions getting rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic. In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, we would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows us, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. We have elected to apply such relief and will use the election to avoid performing a lease by lease analysis. The Lease Modification Q&A had no material impact on our condensed consolidated financial statements as of and for the three months ended March 31, 2020, however, its future impact to us is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by us at the time of entering into any such concessions.
Credit Losses
The Company adopted Topic 326 - Financial Instruments - Credit Losses as of January 1, 2020. See the "Recently Issued or Adopted Accounting Pronouncements" below for further information. Pursuant to the guidance, we adopted a policy to book current expected credit losses at the inception of loans qualifying for treatment under Topic 326. In the three months ended March 31, 2020, we financed a -year, $6 million loan to which we hold a first trust deed in the underlying property as collateral. Given the -year term, management's estimated loan-to-value at inception, and estimated probability of default, we determined that any current expected credit loss would be insignificant.
Redeemable Noncontrolling Interests
Prior to June 30, 2019, we had redeemable noncontrolling interests related to the noncontrolling interest in a joint venture in which we own the majority interest. The noncontrolling interest holders in the joint venture had the option to redeem their noncontrolling interest through the exercise of put options that were issued at the initial formation of the joint venture. The last exercisable put option lapsed on June 30, 2019, and, at that time, all holders of redeemable noncontrolling interests had either converted their interest to OP Units or received cash proceeds. For the three months ended March 31, 2019, we recognized $28 thousand of income related to the noncontrolling interests in the net income attributable to noncontrolling interests in our accompanying condensed consolidated statements of operations.
Unconsolidated Joint Ventures
We account for our investments in unconsolidated joint ventures using the equity method of accounting because we have the ability to exercise significant influence, but not control, over the financial and operational policy decisions of the investments. Using the equity method of accounting, the initial investment is recognized at cost and subsequently adjusted for our share of the net income and any distributions from the joint venture. As of March 31, 2020 and December 31, 2019, we had a 50% interest in one such investment with a carrying value and maximum exposure to risk of $65.5 million and $65.9 million, respectively, which is recorded in investment in unconsolidated joint venture on the accompanying condensed consolidated balance sheets. We record our share of net income in income from unconsolidated joint venture on the accompanying condensed consolidated statements of operations. For the three months ended March 31, 2020 and 2019, we recognized income of $0.4 million and $0.5 million, respectively.
16
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Recently Issued or Adopted Accounting Pronouncements
Recently Adopted Accounting Pronouncements
ASU 2016-13, Financial Instruments Credit Losses; Measurement of Credit Losses on Financial Instruments and ASU 2018-19, 2019-04 and 2019-05, Improvements to Topic 326, Financial Instruments-Credit Losses
In June 2016, the FASB issued ASU 2016-13, which is intended to improve financial reporting by requiring more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. ASU 2016-13 requires that financial statement assets measured at an amortized cost be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis. ASU 2018-19 also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of these receivables should be accounted for in accordance with Topic 842, Leases. ASU 2019-04 provides clarification on the measurement, presentation and disclosure of credit losses on financial assets. ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis for comparability to any new financial assets that elect the fair value option. We adopted, on a modified-retrospective basis, ASU 2016-13, ASU 2018-19, ASU 2019-04 and ASU 2019-05 collectively as of January 1, 2020. The adoption did not have a material effect on our financial statements and related footnotes. See the "Credit Losses" section above for further details.
ASU 2018-13, Fair Value Measurement; Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, which modifies the disclosure requirements on fair value measurements in Topic 820 as follows: (a) disclosure removals: (i) the amount of and reasons for transfers between Level 1 and Level 2; (ii) the policy for timing of transfers between levels; and (iii) the valuation process for Level 3 fair value measurements; (b) disclosure modifications: (i) no requirement to disclose the timing of liquidation unless the investee has communicated the timing to the reporting entity or announced the timing publicly; and (ii) for Level 3 fair value measurements, a narrative description of measurement uncertainty at the reporting date, not the sensitivity to future changes; and (c) disclosure additions: (i) for recurring Level 3 measurements, disclose the changes in unrealized gains and losses for the period included in OCI and the statement of comprehensive income; and (ii) for Level 3 fair value measurements in the table of significant input, disclose the range and weighted average of the significant unobservable inputs and the way it is calculated. We adopted ASU 2018-13 as of January 1, 2020 and as of March 31, 2020 there were no transfers between levels and no Level 3 inputs for the period. Refer to Note 12 - Fair Value of Financial Instruments in the accompanying notes to the condensed consolidated financial statements for more detail relating to our fair value disclosures.
Recently Issued Accounting Pronouncements
ASU 2020-04, Reference Rate Reform (Topic 848)
In March 2020, the FASB issued ASU 2020-04, which is intended to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Reference rate reform is necessary due to the phase out of LIBOR at the end of 2021. The ASU is optional and provides relief around modification and hedge accounting as it specifically arises from changing reference rates, in addition to optional expedients for cash flow hedges, which the Company has. The amendment is effective from March 12, 2020 through December 31, 2022. The Company is evaluating how the transition away from LIBOR will effect the Company and if the guidance in this standard will be adopted.
3. Investments in Real Estate
For the three months ended March 31, 2020, our investments had an aggregate purchase price of $41.7 million. As part of these investments, we incurred approximately $0.2 million of capitalized costs. The allocations for these investments, in which we own a controlling financial interest, are set forth below in the aggregate for the three months ended March 31, 2020 and 2019, respectively (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Land | $ | 2,817 | $ | 3,311 | |||||||
| Building and improvements | 35,259 | 13,449 | |||||||||
| In place leases | 3,621 | 1,927 | |||||||||
| Below market leases | (693) | (95) | |||||||||
| Above market leases | 334 | 160 | |||||||||
| Net real estate assets acquired | 41,338 | 18,752 | |||||||||
| Other, net | 334 | 74 | |||||||||
| Aggregate purchase price | $ | 41,672 | $ | 18,826 | |||||||
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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The acquired intangible assets and liabilities referenced above had weighted average lives of the following terms for the three months ended March 31, 2020 and 2019, respectively (in years):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Acquired intangible assets | 5.4 | 9.1 | |||||||||
| Acquired intangible liabilities | 3.8 | 9.1 | |||||||||
4. Dispositions and Impairment
Dispositions
During the three months ended March 31, 2020, we sold part of our interest in undeveloped land in Miami, Florida for a gross sales price of $7.6 million, resulting in a net gain of approximately $2.0 million. During the three months ended March 31, 2019, we completed the disposition of three MOB's in Hilton Head, South Carolina for a gross sales price of $1.2 million, resulting in a net loss of $37 thousand.
Impairment
During the three months ended March 31, 2020, and 2019, respectively, we recorded no impairment charges after the consideration of the impacts, on a qualitative and quantitative basis, of the ongoing COVID-19 pandemic in our quarterly assessment. As the COVID-19 pandemic continues to develop, we will monitor the performance of our buildings and other assets to determine whether any additional impairment indicators unique to the COVID-19 pandemic are present, including but not limited to, significant prolonged disruption in cash flows, tenant vacancies, or lease modifications, and that would indicate the recoverability of recorded values of these assets may be at risk. Accordingly, we will continue to apply the applicable accounting guidance in our consideration of our ongoing impairment analysis as conditions warrant.
5. Intangible Assets and Liabilities
Intangible assets and liabilities consisted of the following as of March 31, 2020 and December 31, 2019, respectively (in thousands, except weighted average remaining amortization terms):
| March 31, 2020 | December 31, 2019 | ||||||||||||||||||||||
| Balance | Weighted Average Remaining Amortization in Years | Balance | Weighted Average Remaining Amortization in Years | ||||||||||||||||||||
Assets: | |||||||||||||||||||||||
In place leases | $ | 483,834 | 9.5 | $ | 481,173 | 9.5 | |||||||||||||||||
Tenant relationships | 146,701 | 9.7 | 146,893 | 9.7 | |||||||||||||||||||
Above market leases | 37,804 | 6.1 | 37,613 | 6.2 | |||||||||||||||||||
| 668,339 | 665,679 | ||||||||||||||||||||||
| Accumulated amortization | (403,314) | (387,827) | |||||||||||||||||||||
| Total | $ | 265,025 | 9.4 | $ | 277,852 | 9.4 | |||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Below market leases | $ | 66,599 | 14.2 | $ | 65,966 | 13.9 | |||||||||||||||||
| Accumulated amortization | (29,940) | (27,187) | |||||||||||||||||||||
| Total | $ | 36,659 | 14.2 | $ | 38,779 | 13.9 | |||||||||||||||||
The following is a summary of the net intangible amortization for the three months ended March 31, 2020 and 2019, respectively (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
Amortization recorded against rental income related to above and (below) market leases | $ | (1,968) | $ | (491) | |||||||
Amortization expense related to in place leases and tenant relationships | 15,935 | 14,665 | |||||||||
18
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6. Receivables and Other Assets
Receivables and other assets consisted of the following as of March 31, 2020 and December 31, 2019, respectively (in thousands):
| March 31, 2020 | December 31, 2019 | ||||||||||
Tenant receivables, net | $ | 3,309 | $ | 11,801 | |||||||
Other receivables, net | 19,153 | 13,786 | |||||||||
Deferred financing costs, net | 3,894 | 4,325 | |||||||||
Deferred leasing costs, net | 38,224 | 36,586 | |||||||||
| Straight-line rent receivables, net | 112,093 | 107,800 | |||||||||
| Prepaid expenses, deposits, equipment and other, net | 51,547 | 48,505 | |||||||||
| Derivative financial instruments - interest rate swaps | — | 3,011 | |||||||||
| Finance ROU asset, net | 3,409 | 3,409 | |||||||||
Insurance receivable (1) | 3,393 | 3,817 | |||||||||
| Held for sale assets | — | 3,984 | |||||||||
| Total | $ | 235,022 | $ | 237,024 | |||||||
(1) Amount primarily related to an involuntary conversion at one of our properties in 2019 for the total amount of $3.7 million. Pursuant to applicable accounting guidance, we deemed the receipt of funds from the Company's insurance carrier probable and expect the funds to fully cover, less our immaterial deductible, the damages we experienced. As of March 31, 2020, we had received $200 thousand in insurance proceeds. Subsequent to March 31, 2020, we received an additional $500 thousand for a total of $700 thousand received pursuant to this claim.
The following is a summary of the amortization of deferred leasing costs and financing costs for the three months ended March 31, 2020 and 2019, respectively (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
Amortization expense related to deferred leasing costs | $ | 1,896 | $ | 2,154 | |||||||
| Interest expense related to deferred financing costs | 431 | 431 | |||||||||
7. Leases
Lessee - Maturity of Lease Liabilities
The following table summarizes the future minimum lease obligations of our operating leases as of March 31, 2020 (in thousands):
| Year | Operating Leases | Finance Leases | ||||||||||||
| 2020 | $ | 7,771 | $ | 21 | ||||||||||
| 2021 | 10,731 | 124 | ||||||||||||
| 2022 | 10,927 | 124 | ||||||||||||
| 2023 | 11,066 | 125 | ||||||||||||
| 2024 | 10,412 | 125 | ||||||||||||
| 2025 | 9,901 | 128 | ||||||||||||
| Thereafter | 624,109 | 9,295 | ||||||||||||
| Total undiscounted lease payments | $ | 684,917 | $ | 9,942 | ||||||||||
| Less: Interest | (486,289) | (6,604) | ||||||||||||
| Present value of lease liabilities | $ | 198,628 | $ | 3,338 | ||||||||||
Lessor - Lease Revenues and Maturity of Future Minimum Rents
For the three months ended March 31, 2020 and 2019, we recognized $184.3 million and $168.5 million, respectively, of rental and other lease-related income related to our operating leases, of which $42.8 million and $37.9 million, respectively, were variable lease payments.
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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table summarizes the future minimum rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of March 31, 2020 (in thousands):
| Year | Amount | |||||||
| 2020 | $ | 402,544 | ||||||
| 2021 | 499,747 | |||||||
| 2022 | 443,919 | |||||||
| 2023 | 390,144 | |||||||
| 2024 | 342,040 | |||||||
| 2025 | 294,869 | |||||||
| Thereafter | 1,071,163 | |||||||
| Total | $ | 3,444,426 | ||||||
8. Debt
Debt consisted of the following as of March 31, 2020 and December 31, 2019, respectively (in thousands):
| March 31, 2020 | December 31, 2019 | ||||||||||
| Unsecured revolving credit facility | $ | 405,000 | $ | 100,000 | |||||||
| Unsecured term loans | 500,000 | 500,000 | |||||||||
| Unsecured senior notes | 2,050,000 | 2,050,000 | |||||||||
| Fixed rate mortgages | 18,458 | 114,060 | |||||||||
| $ | 2,973,458 | $ | 2,764,060 | ||||||||
| Deferred financing costs, net | (15,619) | (16,255) | |||||||||
| Premium, net | 1,884 | 1,970 | |||||||||
| Total | $ | 2,959,723 | $ | 2,749,775 | |||||||
Unsecured Credit Agreement
Unsecured Revolving Credit Facility due 2022
In 2017, HTALP entered into an amended and restated $1.3 billion unsecured credit agreement (the “Unsecured Credit Agreement”) which increased the amount available under the unsecured revolving credit facility to $1.0 billion and extended the maturities of the unsecured revolving credit facility to June 30, 2022 and for the $300.0 million unsecured term loan referenced below to February 1, 2023. The maximum principal amount of the Unsecured Credit Agreement may be increased by up to $750.0 million, subject to certain conditions, for a total principal amount of $2.05 billion.
Borrowings under the unsecured revolving credit facility accrue interest at a rate equal to adjusted LIBOR, plus a margin ranging from 0.83% to 1.55% per annum based on our credit rating. We also pay a facility fee ranging from 0.13% to 0.30% per annum on the aggregate commitments under the unsecured revolving credit facility. As of March 31, 2020, HTALP had $405.0 million under this unsecured revolving credit facility outstanding and an interest rate of 2.00% per annum. The margin associated with our borrowings was 1.00% per annum and the facility fee was 0.20% per annum.
Unsecured Term Loan due 2023
In 2017, we entered into the Unsecured Credit Agreement as noted above. As part of this agreement, we obtained a $300.0 million unsecured term loan that was guaranteed by HTA with a maturity date of February 1, 2023. Borrowings under this unsecured term loan accrue interest equal to adjusted LIBOR, plus a margin ranging from 0.90% to 1.75% per annum based on our credit rating. The margin associated with our borrowings as of March 31, 2020 was 1.10% per annum. Including the impact of the interest rate swaps associated with our unsecured term loan, the interest rate was 2.52% per annum, based on our current credit rating. As of March 31, 2020, HTALP had $300.0 million under this unsecured term loan outstanding.
$200.0 Million Unsecured Term Loan due 2024
In 2018, HTALP entered into a modification of our $200.0 million unsecured term loan with a maturity date of January 15, 2024. Borrowings under the unsecured term loan accrue interest at a rate equal to LIBOR, plus a margin ranging from 0.75% to 1.65% per annum based on our credit rating. The margin associated with our borrowings as of March 31, 2020 was 1.00% per annum. HTALP had interest rate swaps on the balance, which resulted in a fixed interest rate at 2.32% per annum, based on our current credit rating. As of March 31, 2020, HTALP had $200.0 million under this unsecured term loan outstanding.
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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
$300.0 Million Unsecured Senior Notes due 2023
As of March 31, 2020, HTALP had $300.0 million of unsecured senior notes outstanding that are guaranteed by HTA. These unsecured senior notes are registered under the Securities Act of 1933, as amended (the “Securities Act”), bear interest at 3.70% per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.19% of the principal amount thereof, with an effective yield to maturity of 3.80% per annum. As of March 31, 2020, HTALP had $300.0 million of these unsecured senior notes outstanding that mature on April 15, 2023.
$600.0 Million Unsecured Senior Notes due 2026
In September 2019, in connection with the $650.0 million unsecured senior notes due 2030 referenced below, HTALP issued $250.0 million as additional unsecured senior notes to the $350.0 million aggregate principal of senior notes issued on July 12, 2016, all of which are guaranteed by HTA. These unsecured senior notes are registered under the Securities Act, bear interest at 3.50% per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 103.66% and 99.72%, respectively, of the principal amount thereof, with an effective yield to maturity of 2.89% and 3.53% per annum, respectively. As of March 31, 2020, HTALP had $600.0 million of these unsecured senior notes outstanding that mature on August 1, 2026.
$500.0 Million Unsecured Senior Notes due 2027
In 2017, HTALP issued $500.0 million of unsecured senior notes that are guaranteed by HTA. These unsecured senior notes are registered under the Securities Act, bear interest at 3.75% per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.49% of the principal amount thereof, with an effective yield to maturity of 3.81% per annum. As of March 31, 2020, HTALP had $500.0 million of these unsecured senior notes outstanding that mature on July 1, 2027.
$650.0 million Unsecured Senior Notes due 2030
In September 2019, in connection with the $250.0 million additional unsecured senior notes due 2026 referenced above, HTALP issued $650.0 million of unsecured senior notes that are guaranteed by HTA. These unsecured senior notes are registered under the Securities Act, bear interest at 3.10% per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.66% of the principal amount thereof, with an effective yield to maturity of 3.14% per annum. As of March 31, 2020, HTALP had $650.0 million of these unsecured senior notes outstanding that mature on February 15, 2030.
Fixed Rate Mortgages
As of March 31, 2020, HTALP and its subsidiaries had fixed rate mortgages with interest rates ranging from 2.85% to 3.95% per annum and a weighted average interest rate of 3.62% per annum. During the three months ended March 31, 2020, we repaid $95.6 million of our fixed rate mortgages. As of March 31, 2020, we had $18.5 million of fixed rate mortgages outstanding.
Future Debt Maturities
The following table summarizes the debt maturities and scheduled principal repayments of our indebtedness as of March 31, 2020 (in thousands):
| Year | Amount | |||||||
| 2020 | $ | 1,828 | ||||||
| 2021 | 2,504 | |||||||
| 2022 | 407,005 | |||||||
| 2023 | 612,121 | |||||||
| 2024 | 200,000 | |||||||
| Thereafter | 1,750,000 | |||||||
| Total | $ | 2,973,458 | ||||||
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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Deferred Financing Costs
As of March 31, 2020, the future amortization of our deferred financing costs is as follows (in thousands):
| Year | Amount | |||||||
| 2020 | $ | 2,293 | ||||||
| 2021 | 2,695 | |||||||
| 2022 | 2,697 | |||||||
| 2023 | 1,978 | |||||||
| 2024 | 1,475 | |||||||
| Thereafter | 4,481 | |||||||
| Total | $ | 15,619 | ||||||
Debt Covenants
We are required by the terms of our applicable loan agreements to meet various affirmative and negative covenants that we believe are customary for these types of facilities, such as limitations on the incurrence of debt by us and our subsidiaries that own unencumbered assets, limitations on the nature of HTALP’s business, and limitations on distributions by HTALP and its subsidiaries that own unencumbered assets. Our loan agreements also impose various financial covenants on us, such as a maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a minimum tangible net worth covenant, a maximum ratio of unsecured indebtedness to unencumbered asset value, rent coverage ratios and a minimum ratio of unencumbered Net Operating Income (“NOI”) to unsecured interest expense. As of March 31, 2020, we believe that we were in compliance with all such financial covenants and reporting requirements. In addition, certain of our loan agreements include events of default provisions that we believe are customary for these types of facilities, including restricting us from making dividend distributions to our stockholders in the event we are in default thereunder, except to the extent necessary for us to maintain our REIT status. We have also concluded as of March 31, 2020 we were not aware of non-compliance with any financial or non-financial covenants in light of the ongoing COVID-19 pandemic.
9. Derivative Financial Instruments and Hedging Activities
Risk Management Objective of Using Derivative Financial Instruments
We may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions. We do not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, we only enter into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which we and our affiliates may also have other financial relationships. We do not anticipate that any of the counterparties will fail to meet their obligations. We record counterparty credit risk valuation adjustments on interest rate swap derivative assets in order to properly reflect the credit quality of the counterparty. In addition, the fair value of derivative financial instruments designated as cash flow hedges are adjusted to reflect the impact of our credit quality.
Cash Flow Hedges of Interest Rate Risk
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps and treasury locks as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for us making fixed rate payments over the life of the agreements without exchange of the underlying notional amount. A treasury lock is a synthetic forward sale of a U.S. treasury note, which is settled in cash based upon the difference between an agreed upon treasury rate and the prevailing treasury rate at settlement. Such treasury locks are entered into to effectively fix the treasury component of an upcoming debt issuance.
Amounts reported in accumulated other comprehensive income in the accompanying condensed consolidated balance sheets related to derivatives will be reclassified to interest expense as interest payments are made on our variable rate debt. During the next twelve months, we estimate that an additional $5.4 million will be reclassified from other comprehensive income in the accompanying condensed consolidated balance sheets as an increase to interest related to derivative financial instruments in the accompanying condensed consolidated statements of operations.
During the three months ended March 31, 2020 we entered into two new forward starting interest rate swaps for a total notional amount of $225 million. These swaps were set up as forward starts for future debt issuances. As of March 31, 2020,
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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands, except number of instruments):
| Interest Rate Swaps | March 31, 2020 | |||||||
| Number of instruments | 9 | |||||||
| Notional amount | $ | 725,000 | ||||||
The table below presents the fair value of our derivative financial instruments designated as cash flow hedges as well as the classification in the accompanying condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively (in thousands):
| Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||||||||||||
| Fair Value at: | Fair Value at: | |||||||||||||||||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments: | Balance Sheet Location | March 31, 2020 | December 31, 2019 | Balance Sheet Location | March 31, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||
| Interest rate swaps | Receivables and other assets | $ | — | $ | 3,011 | Derivative financial instruments | $ | 19,480 | $ | 29 | ||||||||||||||||||||||||||||
The table below presents the gain or loss recognized on our derivative financial instruments designated as cash flow hedges as well as the classification in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019, respectively (in thousands):
| Gain (Loss) Recognized in OCI on Derivative | Gain (Loss) Reclassified from Accumulated OCI into Income | |||||||||||||||||||||||||||||||
| Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
| Derivatives Cash Flow Hedging Relationships: | 2020 | 2019 | Statement of Operations Location | 2020 | 2019 | |||||||||||||||||||||||||||
| Interest rate swaps | $ | (22,153) | $ | (21) | Interest expense | $ | 345 | $ | 369 | |||||||||||||||||||||||
Credit Risk Related Contingent Features
We have agreements with each of our derivative counterparties that contain a provision that if we default on any of our indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations.
We also have agreements with each of our derivative counterparties that incorporate provisions from our indebtedness with a lender affiliate of the derivative counterparty requiring it to maintain certain minimum financial covenant ratios on our indebtedness. Failure to comply with the covenant provisions would result in us being in default on any derivative instrument obligations covered by these agreements.
As of March 31, 2020, the fair value of derivatives in a net liability position, including accrued interest, but excluding any adjustment for nonperformance risk related to these agreements, was $19.9 million. As of March 31, 2020, we have not posted any collateral related to these agreements and we were not in breach of any of the provisions of these agreements. If we had breached any of the provisions of these agreements, we could have been required to settle our obligations under these agreements.
10. Commitments and Contingencies
Litigation
We engage in litigation from time to time with various parties as a routine part of our business, including tenant defaults. However, we are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows.
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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Environmental Matters
We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our condensed consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability at our properties that we believe would require additional disclosure or the recording of a loss contingency.
Other
Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In our opinion, these matters are not expected to have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows.
11. Stockholders’ Equity and Partners’ Capital
HTALP’s operating partnership agreement provides that it will distribute cash flow from operations and net sale proceeds to its partners in accordance with their overall ownership interests at such times and in such amounts as the general partner determines. Dividend distributions are made such that a holder of one OP Unit in HTALP will receive distributions from HTALP in an amount equal to the dividend distributions paid to the holder of one share of our common stock. In addition, for each share of common stock issued or redeemed by HTA, HTALP issues or redeems a corresponding number of OP Units.
Common Stock Offerings
In December 2018, we entered into new equity distribution agreements with various sales agents with respect to our at-the-market (“ATM”) offering program of common stock with an aggregate sales amount of up to $500.0 million. We contemporaneously terminated our prior ATM equity distribution agreements. In November 2019, we upsized this ATM offering program with an additional $750.0 million available for issuance.
During the first quarter of 2020, we issued approximately 1.7 million shares of our common stock under our ATM for net proceeds of approximately $50.0 million, adjusted for costs to borrow equating to a net price to us of $29.86 per share of common stock.
Additionally, we have four outstanding forward sale arrangements pursuant to forward equity agreements, with total anticipated net proceeds of $277.5 million, subject to adjustments as provided in the forward equity agreements. Three of the arrangements mature in late 2020 with the last one maturing in early 2021. As of March 31, 2020, $570.6 million remained available for issuance by us under our current ATM. Refer to Note 13 - Per Share Data of HTA to these condensed consolidated financial statements for a more detailed discussion related to our forward equity agreements.
Stock Repurchase Plan
In August 2018, our Board of Directors approved a stock repurchase plan authorizing us to purchase up to $300.0 million of our common stock from time to time prior to the expiration thereof on August 1, 2020. As of March 31, 2020, the remaining amount of common stock available for repurchase under our stock repurchase plan was approximately $224.3 million.
Common Stock Dividends
See our accompanying condensed consolidated statements of equity and condensed statements of changes in partners’ capital for the dividends declared during the three months ended March 31, 2020 and 2019. On May 5, 2020, our Board of Directors announced a quarterly cash dividend of $0.315 per share of common stock and per OP Unit to be paid on July 9, 2020 to stockholders of record of our common stock and holders of our OP Units on July 2, 2020.
Incentive Plan
Our Incentive Plan permits the grant of incentive awards to our employees, officers, non-employee directors and consultants as selected by our Board of Directors. This Plan authorizes us to grant awards in any of the following forms: options; stock appreciation rights; restricted stock; restricted or deferred stock units; performance awards; dividend equivalents; other stock-based awards, including units in HTALP; and cash-based awards. Subject to adjustment as provided in the Plan, the aggregate number of awards reserved and available for issuance under the Plan is 5,000,000 shares. As of March 31, 2020, there were 831,341 awards available for grant under the Plan.
Restricted Common Stock
For the three months ended March 31, 2020 and 2019, we recognized compensation expense of $3.2 million and $3.4 million, respectively. Substantially all compensation expense was recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations.
As of March 31, 2020, we had $8.7 million of unrecognized compensation expense, net of estimated forfeitures, which we will recognize over a remaining weighted average period of 1.9 years.
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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following is a summary of our restricted common stock activity as of March 31, 2020 and 2019, respectively:
| March 31, 2020 | March 31, 2019 | ||||||||||||||||||||||
| Restricted Common Stock | Weighted Average Grant Date Fair Value | Restricted Common Stock | Weighted Average Grant Date Fair Value | ||||||||||||||||||||
| Beginning balance | 600,987 | $ | 28.04 | 624,349 | $ | 29.35 | |||||||||||||||||
| Granted | 243,037 | 30.23 | 294,072 | 25.86 | |||||||||||||||||||
| Vested | (343,771) | 28.81 | (291,857) | 28.46 | |||||||||||||||||||
| Forfeited | (7,407) | 28.83 | (1,580) | 29.31 | |||||||||||||||||||
| Ending balance | 492,846 | $ | 28.57 | 624,984 | $ | 28.12 | |||||||||||||||||
12. Fair Value of Financial Instruments
Financial Instruments Reported at Fair Value - Recurring
The table below presents the carrying amounts and fair values of our financial instruments on a recurring basis as of March 31, 2020 and December 31, 2019 (in thousands):
| March 31, 2020 | December 31, 2019 | |||||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||
| Level 2 - Assets: | ||||||||||||||||||||||||||
| Derivative financial instruments | $ | — | $ | — | $ | 3,011 | $ | 3,011 | ||||||||||||||||||
| Level 2 - Liabilities: | ||||||||||||||||||||||||||
| Derivative financial instruments | $ | 19,480 | $ | 19,480 | $ | 29 | $ | 29 | ||||||||||||||||||
| Debt | 2,959,723 | 2,847,483 | 2,749,775 | 2,826,983 | ||||||||||||||||||||||
The carrying amounts of cash and cash equivalents, tenant and other receivables, restricted cash, accounts payable, and accrued liabilities approximate fair value. Although we have determined that the majority of the inputs used to value our cash flow hedges fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our cash flow hedge positions and have determined that the credit valuation adjustments are not significant to their overall valuation. As a result, we have determined that our cash flow hedge valuations in their entirety are classified in Level 2 of the fair value hierarchy. For further discussion of the assumptions considered, refer to Note 2 - Summary of Significant Accounting Policies.
Financial Instruments Reported at Fair Value - Non-Recurring
We also have assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. This generally includes assets subject to impairment.
13. Per Share Data of HTA
During the first quarter of 2020, we issued approximately 1.7 million shares of our common stock under our ATM for net proceeds of approximately $50.0 million, adjusted for costs to borrow equating to a net price to us of $29.86 per share of common stock.
Additionally, we have four outstanding forward sale arrangements pursuant to forward equity agreements, with total anticipated net proceeds of $277.5 million, with an average share price of $29.46, subject to adjustments as provided in the forward equity agreements. Three of the arrangements mature in late 2020 with the last one maturing in early 2021.
To account for the forward equity agreements, we considered the accounting guidance governing financial instruments and derivatives and concluded that our forward equity agreement was not a liability as it did not embody obligations to repurchase our shares of common stock nor did it embody obligations to issue a variable number of shares for which the monetary value was predominately fixed, varying with something other than the fair value of the shares, or varying inversely in relation to our shares. We also evaluated whether the agreement met the derivatives and hedging guidance scope exception to be accounted for as an equity instrument and concluded that the agreement can be classified as an equity contract based on the following assessment: (i) none of the agreements’ exercise contingencies were based on observable markets or indices besides those related to the market for our own stock price and operations; and (ii) none of the settlement provisions precluded the agreement from being indexed to our own common stock.
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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In addition, we considered the potential dilution resulting from the forward equity agreements mentioned above on our earnings per common share calculations. We use the treasury method to determine the dilution resulting from the forward equity agreements during the period of time prior to settlement. The impact to our weighted-average shares - diluted was approximately 255,000 for the three months ended March 31, 2020.
We include unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” pursuant to the two-class method. The resulting classes are our common stock and restricted stock. Our forward equity agreement is not considered a participating security and, therefore, is not included in the computation of earnings per share using the two-class method. For the three months ended March 31, 2020 and 2019, all of our earnings were distributed and the calculated earnings per share amount would be the same for all classes.
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per share of HTA for the three months ended March 31, 2020 and 2019, respectively (in thousands, except per share data):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Numerator: | |||||||||||
Net income | $ | 18,208 | $ | 13,701 | |||||||
| Net income attributable to noncontrolling interests | (307) | (261) | |||||||||
| Net income attributable to common stockholders | $ | 17,901 | $ | 13,440 | |||||||
| Denominator: | |||||||||||
| Weighted average shares outstanding - basic | 216,692 | 205,080 | |||||||||
| Dilutive shares - OP Units convertible into common stock | 3,676 | 3,919 | |||||||||
| Dilutive effect of forward equity sales agreement | 255 | — | |||||||||
| Adjusted weighted average shares outstanding - diluted | 220,623 | 208,999 | |||||||||
Earnings per common share - basic | |||||||||||
Net income attributable to common stockholders | $ | 0.08 | $ | 0.07 | |||||||
Earnings per common share - diluted | |||||||||||
Net income attributable to common stockholders | $ | 0.08 | $ | 0.06 | |||||||
14. Per Unit Data of HTALP
During the first quarter of 2020, we issued approximately 1.7 million shares of our common stock under our ATM for net proceeds of approximately $50.0 million, adjusted for costs to borrow equating to a net price to us of $29.86 per share of common stock.
Additionally, we have four outstanding forward sale arrangements pursuant to forward equity agreements, with total anticipated net proceeds of $277.5 million, subject to adjustments as provided in the forward equity agreements. Three of the arrangements mature in late 2020 with the last one maturing in early 2021. Refer to Note 13 - Per Share Data of HTA to these condensed consolidated financial statements for a more detailed discussion related to our forward equity agreements executed in 2019 and March 2020.
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per unit of HTALP for the three months ended March 31, 2020, and 2019, respectively (in thousands, except per unit data):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Numerator: | |||||||||||
Net income | $ | 18,208 | $ | 13,701 | |||||||
Net income attributable to noncontrolling interests | — | (28) | |||||||||
| Net income attributable to common unitholders | $ | 18,208 | $ | 13,673 | |||||||
Denominator: | |||||||||||
| Weighted average OP Units outstanding - basic | 220,368 | 208,999 | |||||||||
| Dilutive effect of forward equity sales agreement | 255 | — | |||||||||
| Adjusted weighted average units outstanding - diluted | 220,623 | 208,999 | |||||||||
Earnings per common unit - basic: | |||||||||||
Net income attributable to common unitholders | $ | 0.08 | $ | 0.07 | |||||||
Earnings per common unit - diluted: | |||||||||||
Net income attributable to common unitholders | $ | 0.08 | $ | 0.07 | |||||||
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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
15. Supplemental Cash Flow Information
The following is the supplemental cash flow information for the three months ended March 31, 2020 and 2019, respectively (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Interest paid, net of capitalized interest | $ | 34,062 | $ | 33,397 | |||||||
| Income taxes paid | 39 | 64 | |||||||||
| Cash paid for operating leases | 3,352 | 2,911 | |||||||||
| Supplemental Disclosure of Noncash Investing and Financing Activities: | |||||||||||
Accrued capital expenditures | $ | 8,923 | $ | 5,163 | |||||||
Dividend distributions declared, but not paid | 69,731 | 64,922 | |||||||||
Redemption of noncontrolling interest | 6,776 | 527 | |||||||||
ROU assets obtained in exchange for lease obligations | — | 197,099 | |||||||||
16. Subsequent Events
In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and it continues to spread throughout the United States and other countries across the world. Federal, state and local governments have taken various actions including the issuance of "stay-at-home" orders, social distancing guidelines and ordering the temporary closure of non-essential businesses to limit the spread of COVID-19. Subsequent to March 31, 2020, our buildings remain open, however, some tenants have temporarily suspended operations as a result of precautionary measures or government imposed orders. As a result, in late March and subsequent to the end of the quarter, the Company received rent relief requests from tenants stating that COVID-19 will have an impact on their ability to meet their contractual obligations under their leases. We have received and are currently evaluating rent deferral requests that total approximately 10% of our contractual rent over the next 90 days, while we have approved deferrals that total approximately 7% of our contractual rent over the next 90 days. These deferrals and other modifications were entered into subsequent to March 31, 2020. As of March 31, 2020 and to date, we have not and do not anticipate granting any forms of rent forgiveness. In addition, subsequent to March 31, 2020 we drew an additional $595M, the remaining amount of capacity under our credit facility, to provide additional liquidity and financial flexibility. The ultimate impact of the pandemic and secondary social and economic effects on the Company's results of operations, financial position, liquidity and capital resources remains unclear and cannot be reasonably forecasted at this time.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The use of the words “we,” “us,” or “our” refers to HTA and HTALP, collectively.
The following discussion should be read in conjunction with our condensed consolidated financial statements and notes appearing elsewhere in this Quarterly Report, as well as with the audited consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 Annual Report on Form 10-K.
The information set forth below is intended to provide readers with an understanding of our financial condition, changes in financial condition and results of operations.
•Forward-Looking Statements;
•Executive Summary;
•Company Highlights;
•Critical Accounting Policies;
•Recently Issued or Adopted Accounting Pronouncements;
•Factors Which May Influence Results of Operations;
•Results of Operations;
•Non-GAAP Financial Measures;
•Liquidity and Capital Resources;
•Commitments and Contingencies;
•Debt Service Requirements;
•Off-Balance Sheet Arrangements; and
•Inflation.
Forward-Looking Statements
Certain statements contained in this Quarterly Report constitute forward-looking statements within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Such statements include, in particular, statements about our plans, strategies, prospects and estimates regarding future MOB market performance. Additionally, such statements are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially and in adverse ways from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Forward-looking statements are generally identifiable by the use of such terms as “expect,” “project,” “may,” “should,” “could,” “would,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “opinion,” “predict,” “potential,” “pro forma” or the negative of such terms and other comparable terminology. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Quarterly Report is filed with the SEC. We cannot guarantee the accuracy of any such forward-looking statements contained in this Quarterly Report, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Any such forward-looking statements reflect our current views about future events, are subject to unknown risks, uncertainties, and other factors, and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide dividends to stockholders and maintain the value of our real estate properties, may be significantly hindered. Factors that might impair our ability to meet such forward-looking statements include, without limitation, those discussed in Part I, Item 1A - Risk Factors in our 2019 Annual Report on Form 10-K, which is incorporated herein and those discussed in Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q.
Forward-looking statements express expectations of future events. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties that could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, our stockholders are urged not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date made. In addition, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to projections over time, except as required by law.
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These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Executive Summary
We are the largest publicly-traded REIT focused on MOBs in the U.S. as measured by the Gross Leasable Area ("GLA") of our MOBs. We conduct substantially all of our operations through HTALP. We invest in MOBs that we believe will serve the future of healthcare delivery and MOBs that are primarily located on health system campuses, near university medical centers, or in core community outpatient locations. We also focus on key markets that have certain demographic and macro-economic trends and where we can utilize our institutional full-service operating platform to generate strong tenant and health system relationships and operating cost efficiencies. Our primary objective is to maximize stockholder value with disciplined growth through strategic investments that provide an attractive risk-adjusted return for our stockholders by consistently increasing our cash flow. In pursuing this objective, we: (i) seek internal growth through proactive asset management, leasing, building services and property management oversight; (ii) target accretive acquisitions and developments of MOBs in markets with attractive demographics that complement our existing portfolio; and (iii) actively manage our balance sheet to maintain flexibility with conservative leverage. Additionally, from time to time we consider, on an opportunistic basis, significant portfolio acquisitions that we believe fit our core business and could enhance our existing portfolio.
Since 2006, we have invested $7.3 billion primarily in MOBs, development projects, land and other healthcare real estate assets consisting of approximately 24.9 million square feet of GLA throughout the U.S. Approximately 66% of our portfolio is located on the campuses of, or adjacent to, nationally and regionally recognized healthcare systems. Our portfolio is diversified geographically across 33 states, with no state having more than 20% of our total GLA as of March 31, 2020. We are concentrated in 20 to 25 key markets that are experiencing higher economic and demographic trends than other markets, on average, that we expect will drive demand for MOBs. As of March 31, 2020, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 93% of our portfolio, based on GLA, is located in the top 75 Metropolitan Statistical Area ("MSAs"), with Dallas, Houston, Boston, Tampa and Hartford/New Haven being our largest markets by investment.
Company Highlights
Portfolio Operating Performance
•For the three months ended March 31, 2020, total revenue was $185.8 million, compared to $169.0 million for the three months ended March 31, 2019.
•For the three months ended March 31, 2020, net income was $18.2 million, compared to $13.7 million, for the three months ended March 31, 2019.
•For the three months ended March 31, 2020, net income attributable to common stockholders was $0.08 per diluted share, or $17.9 million, compared to $0.06 per diluted share, or $13.4 million for the three months ended March 31, 2019.
•For the three months ended March 31, 2020, HTA’s FFO, as defined by NAREIT, was $93.1 million, or $0.42 per diluted share, compared to $0.40 per diluted share, or $82.9 million, for the three months ended March 31, 2019.
•For the three months ended March 31, 2020, HTALP’s FFO was $93.4 million, or $0.42 per diluted OP Unit, compared to $0.40 per diluted OP unit, or $83.1 million, for the three months ended March 31, 2019.
•For the three months ended March 31, 2020, HTA’s and HTALP’s Normalized FFO was $0.42 per diluted share and OP Unit, or $93.6 million, compared to $0.40 per diluted share and OP Unit, or $83.1 million.
•For additional information on FFO and Normalized FFO, see “FFO and Normalized FFO” below, which includes a reconciliation to net income attributable to common stockholders/unitholders and an explanation of why we present this non-GAAP financial measure.
•For the three months ended March 31, 2020, NOI was $128.9 million, compared to $117.5 million for the three months ended March 31, 2019.
•For the three months ended March 31, 2020, Same-Property Cash NOI increased 2.7%, or $3.0 million, to $115.4 million, compared to $112.4 million for the three months ended March 31, 2019.
•For additional information on NOI and Same-Property Cash NOI, see “NOI, Cash NOI and Same-Property Cash NOI” below, which includes a reconciliation from net income and an explanation of why we present these non-GAAP financial measures.
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Key Market Focused Strategy and Investments
We believe we have been one of the most active investors in the medical office sector over the last decade. This has enabled us to create a high quality portfolio focused on MOBs serving the future of healthcare with scale and significance in 20 to 25 key markets.
•Our investment strategy includes alignment with key healthcare systems, hospitals, and leading academic medical universities. We are the largest owner of on-campus or adjacent MOBs in the country, with approximately 16.6 million square feet of GLA, or 66%, of our portfolio located in these locations. The remaining 34% of our portfolio is located in core community outpatient locations where healthcare is increasingly being delivered.
•Over the past decade, our investments have been focused in our 20 to 25 key markets which we believe will outperform the broader U.S. markets from an economic and demographic perspective. As of March 31, 2020, approximately 93% of our portfolio’s GLA is located in the top 75 MSAs. Our key markets represent top MSAs with strong growth metrics in jobs, household income and population, as well as low unemployment and mature healthcare infrastructures. Many of our key markets are also supported by strong university systems.
•Our key market focus has enabled us to establish scale across 20 to 25 key markets and effectively utilize our asset management and leasing platform to deliver consistent same store growth and additional yield on investments, as well as cost effective service to tenants. As of March 31, 2020, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 0.5 million square feet of GLA in 15 of our top 20 markets.
•During the three months ended March 31, 2020, we closed on $41.7 million worth of investments primarily located in our existing key markets totaling approximately 167,000 square feet of GLA.
Internal Growth through Proactive In-House Property Management and Leasing
We believe we have the largest full-service operating platform in the medical office sector that consists of our in-house asset management and leasing platform which allows us to better manage and service our existing portfolio. In each of these markets, we have established a strong in-house asset management and leasing platform that has allowed us to develop valuable relationships with health systems, physician practices, universities, and regional development firms that have led to investment and leasing opportunities. Our full-service operating platform has also enabled us to focus on generating cost efficiencies as we gain scale across individual markets and regions.
•As of March 31, 2020, our in-house asset management and leasing platform operated approximately 24.5 million square feet of GLA, or 98% of our total portfolio.
•As of March 31, 2020, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 90.8% by GLA and our occupancy rate was 89.9% by GLA.
•We entered into new and renewal leases on approximately 0.9 million square feet of GLA, or approximately 3.5% of the GLA of our total portfolio, during the three months ended March 31, 2020.
•During the three months ended March 31, 2020, tenant retention for the Same-Property portfolio was 85%, which included approximately 0.7 million square feet of GLA of expiring leases, which we believe is indicative of our commitment to maintaining buildings in desirable locations and fostering strong tenant relationships. Tenant retention is defined as the sum of the total leased GLA of tenants that renewed a lease during the period over the total GLA of leases that renewed or expired during the period.
Financial Strategy and Balance Sheet Flexibility
•As of March 31, 2020, we had total leverage, measured by debt less cash and cash equivalents to total capitalization, of 33.7%. Total liquidity was approximately $1.1 billion, inclusive of $0.6 billion available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, and cash and cash equivalents of $216.5 million as of March 31, 2020.
•As of March 31, 2020, the weighted average remaining term of our debt portfolio was 5.8 years.
•During the three months ended March 31, 2020, we entered into two new forward starting interest rate swaps for a total notional amount of $225 million.
•During the three months ended March 31, 2020, we settled a forward sale arrangement pursuant to a forward equity agreement that was entered into in 2019, which included the sale of approximately 1.7 million shares of our common stock for net proceeds of approximately $50.0 million, adjusted for costs to borrow equating to a net price to us of $29.86 per share of common stock.
•On May 5, 2020, our Board of Directors announced a quarterly cash dividend of $0.315 per share of common stock and per OP Unit to be paid on July 9, 2020 to stockholders of record of our common stock and holders of our OP Units on July 2, 2020.
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Critical Accounting Policies
The complete list of our critical accounting policies was disclosed in our 2019 Annual Report on Form 10-K. Additionally, in light of the COVID-19 pandemic, we believe we have included all relevant information when determining our management estimates and that these estimates are in line with our established policies. For further information on other significant accounting policies that impact us, see Note 2 - Summary of Significant Accounting Policies in the accompanying condensed consolidated financial statements.
Recently Issued or Adopted Accounting Pronouncements
On January 1, 2020 we adopted ASU 2016-13, Financial Instruments Credit Losses and ASU 2018-13, Fair Value Measurement. For more detail on the implementation and policies of these adoptions or other recently issued accounting pronouncements see Note 2 - Summary of Significant Accounting Policies in the accompanying condensed consolidated financial statements.
Factors Which May Influence Results of Operations
The current novel coronavirus, or COVID-19 pandemic, and measures taken to slow the spread and lessen its impacts, are having a significant impact on economies and markets worldwide. All our buildings remain in operation, however, some tenants, typically the more elective healthcare services, have temporarily suspended operations as a result of precautionary measures or national/local government imposed “stay-at-home” or “shelter-in-place” orders. We have taken steps to enhance our liquidity, in the form of draws against our line of credit, should cash flows become volatile throughout the remainder of the year. We are working with tenants through this unprecedented time, and subsequent to March 31, 2020, we have entered into certain rent deferral agreements and other lease modifications, however as of March 31, 2020 and to date, we have not and do not anticipate granting any forms of rent forgiveness.
We did not experience a significant deceleration of collections for the quarter ended March 31, 2020, as our March rents were due and payable as of March 1, 2020, however because of the evolving situation surrounding the COVID-19 pandemic, our results of operations in Q2 2020 and beyond may be materially impacted as the complete effects of the pandemic, including the decrease in commerce and the slowdown in the broader economy, and the corresponding impacts to our buildings and tenants, come to light. These impacts may take the form of an overall decrease in our results of operations, stemming from various factors, including, but not limited to: (a) the inability for us to collect a portion of our rents timely or at all, (b) potential slowdown of new lease leads and signings, (c) potential increases in expenses for vendors, critical supplies or materials, or costs of maintenance activities, (d) delays in construction projects to ready spaces for tenants, (e) delays in development projects and potential for increased material costs, (f) increased labor costs should we be required to increase salaries for hazardous working conditions, (g) potential impairments should we see a more than temporary reduction in cash flows, (h) potential delays in accretive acquisitions, and (i) increased costs due to borrowings as we look to maintain balance sheet flexibility.
Other than the above, we are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, the risk factors previously discussed in Part I, Item 1A - Risk Factors, in our 2019 Annual Report on Form 10-K, and this Quarterly Report on Form 10-Q under Item 1A. Risk Factors below, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the investment, management and operation of our properties.
Rental Income
The amount of rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that will become available from unscheduled lease terminations at the then applicable rental rates. Negative trends in one or more of these factors, including the ultimate collections of such rents, could adversely affect our rental income in future periods.
Investment Activity
During the three months ended March 31, 2020, we had investments with an aggregate gross purchase price of $41.7 million. During the three months ended March 31, 2019, we had investments with an aggregate gross purchase price of $18.8 million. The amount of any future acquisitions or dispositions could have a significant impact on our results of operations in future periods.
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Results of Operations
Comparison of the Three Months Ended March 31, 2020 and 2019
As of March 31, 2020 and 2019, we owned and operated approximately 24.9 million and 23.2 million square feet of GLA, respectively, with a leased rate of 90.8% and 91.8%, respectively (including leases which have been executed, but which have not yet commenced), and an occupancy rate of 89.9% and 90.6%, respectively. All explanations are applicable to both HTA and HTALP unless otherwise noted.
Comparison of the three months ended March 31, 2020 and 2019, respectively, is set forth below (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2020 | 2019 | Change | % Change | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental income | $ | 185,531 | $ | 168,875 | $ | 16,656 | 9.9 | % | |||||||||||||||
| Interest and other operating income | 245 | 91 | 154 | NM | |||||||||||||||||||
| Total revenues | 185,776 | 168,966 | 16,810 | 9.9 | |||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental | 56,862 | 51,468 | 5,394 | 10.5 | |||||||||||||||||||
| General and administrative | 11,518 | 11,290 | 228 | 2.0 | |||||||||||||||||||
| Transaction | 140 | 40 | 100 | NM | |||||||||||||||||||
| Depreciation and amortization | 77,665 | 69,481 | 8,184 | 11.8 | |||||||||||||||||||
| Interest expense | 23,872 | 23,970 | (98) | (0.4) | |||||||||||||||||||
| Total expenses | 170,057 | 156,249 | 13,808 | 8.8 | |||||||||||||||||||
| Gain (loss) on sale of real estate, net | 1,991 | (37) | 2,028 | NM | |||||||||||||||||||
| Income from unconsolidated joint venture | 422 | 486 | (64) | (13.2) | |||||||||||||||||||
| Other income | 76 | 535 | (459) | (85.8) | |||||||||||||||||||
| Net income | $ | 18,208 | $ | 13,701 | $ | 4,507 | 32.9 | % | |||||||||||||||
| NOI | $ | 128,914 | $ | 117,498 | $ | 11,416 | 9.7 | % | |||||||||||||||
| Same-Property Cash NOI | $ | 115,394 | $ | 112,385 | $ | 3,009 | 2.7 | % | |||||||||||||||
*NM- not meaningful.
Rental Income
For the three months ended March 31, 2020 and 2019, respectively, rental income was comprised of the following (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2020 | 2019 | Change | % Change | ||||||||||||||||||||
| Contractual rental income | $ | 175,839 | $ | 160,757 | $ | 15,082 | 9.4 | % | |||||||||||||||
Straight-line rent and amortization of above and (below) market leases | 6,094 | 4,774 | 1,320 | 27.6 | |||||||||||||||||||
| Other rental revenue | 3,598 | 3,344 | 254 | 7.6 | |||||||||||||||||||
| Total rental income | $ | 185,531 | $ | 168,875 | $ | 16,656 | 9.9 | % | |||||||||||||||
Contractual rental income, which includes expense reimbursements, increased $15.1 million for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase was primarily due to additional contractual rental income of $11.6 million from our 2019 and 2020 acquisitions, and contractual rent increases for the three months ended March 31, 2020, partially offset by $(0.2) million of reduced contractual rent as a result of buildings we sold during 2019 for the three months ended March 31, 2020.
Average starting and expiring base rents for new and renewal leases consisted of the following for the three months ended March 31, 2020 and 2019, respectively (in thousands, except in average base rents per square foot of GLA):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
New and renewal leases: | |||||||||||
| Average starting base rents | $ | 25.37 | $ | 17.77 | |||||||
| Average expiring base rents | 24.99 | 16.82 | |||||||||
| Square feet of GLA | 885 | 1,099 | |||||||||
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Lease rates can vary across markets, and lease rates that are considered above or below current market rent may change over time. Leases that expired in 2020 had rents that we believed were at market rates. In general, leasing concessions vary depending on lease type and term.
Tenant improvements, leasing commissions and tenant concessions for new and renewal leases consisted of the following for the three months ended March 31, 2020 and 2019, respectively (in per square foot of GLA):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| New leases: | |||||||||||
| Tenant improvements | $ | 36.09 | $ | 35.40 | |||||||
Leasing commissions | 2.51 | 1.88 | |||||||||
| Tenant concessions | 5.11 | 4.59 | |||||||||
| Renewal leases: | |||||||||||
| Tenant improvements | $ | 6.26 | $ | 15.63 | |||||||
Leasing commissions | 3.70 | 0.41 | |||||||||
| Tenant concessions | 0.60 | 0.26 | |||||||||
The average term for new and renewal leases executed consisted of the following for the three months ended March 31, 2020 and 2019, respectively (in years):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| New leases | 9.9 | 7.5 | |||||||||
| Renewal leases | 4.5 | 9.6 | |||||||||
Rental Expenses
For the three months ended March 31, 2020 and 2019, rental expenses attributable to our properties were $56.9 million and $51.5 million, respectively. The increase in rental expenses is primarily due to $4.3 million of additional rental expenses associated with our 2019 and 2020 acquisitions for the three months ended March 31, 2020, partially offset by $(0.1) million of reduced rental expenses as a result of buildings we sold during 2019, and improved operating efficiencies for the three months ended March 31, 2020.
General and Administrative Expenses
For the three months ended March 31, 2020 and 2019, general and administrative expenses were $11.5 million and $11.3 million, respectively. The increase was primarily due to an increase in the overall head count due to the continued growth of the Company and stock based compensation expense.
Depreciation and Amortization Expense
For the three months ended March 31, 2020 and 2019, depreciation and amortization expense was $77.7 million and $69.5 million, respectively. This increase was associated with our 2019 and 2020 acquisitions, partially offset by buildings we disposed during 2019.
Interest Expense
For the three months ended March 31, 2020 and 2019, interest expense was $23.9 million and $24.0 million, respectively. The decrease in interest expense is primarily due to lower average interest rates on our variable rate debt, partially offset by higher overall average debt compared to the same period in 2019.
To achieve our objectives, we borrow at both fixed and variable rates. From time to time, we also enter into derivative financial instruments, such as interest rate swaps, in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes.
Gain (Loss) on Sale of Real Estate, net
For the three months ended March 31, 2020, we realized a net gain of approximately $2.0 million on the sale of part of our interest in undeveloped land in Miami, Florida. For the three months ended March 31, 2019, we realized a net loss of $37 thousand on the disposition of three MOB's in Hilton Head, South Carolina.
Net Income
For the three months ended March 31, 2020 and 2019, net income was $18.2 million and $13.7 million, respectively. The increase is primarily the result of continued growth in our operations due to accretive acquisitions and improved operating efficiencies.
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NOI and Same-Property Cash NOI
For the three months ended March 31, 2020 and 2019, NOI was $128.9 million and $117.5 million, respectively. The increase in NOI was primarily due to additional NOI from our 2019 and 2020 acquisitions of $8.3 million for the three months ended March 31, 2020, partially offset by $(0.1) million of reduced NOI as a result of the buildings we sold during 2019, and a reduction in straight-line rent from properties we owned more than a year.
Same-Property Cash NOI increased 2.7% to $115.4 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The increase was primarily the result of rent escalations, improved operating efficiencies, offset by a slight decrease in average occupancy.
Non-GAAP Financial Measures
FFO and Normalized FFO
We compute FFO in accordance with the current standards established by NAREIT. NAREIT defines FFO as net income or loss attributable to common stockholders/unitholders (computed in accordance with GAAP), excluding gains or losses from sales of real estate property and impairment write-downs of depreciable assets, plus depreciation and amortization related to investments in real estate, and after adjustments for unconsolidated partnerships and joint ventures. Since FFO excludes depreciation and amortization unique to real estate, among other items, it provides a perspective not immediately apparent from net income or loss attributable to common stockholders/unitholders.
We also compute Normalized FFO, which excludes from FFO: (i) transaction expenses; (ii) gain or loss on extinguishment of debt; (iii) noncontrolling income or loss from OP Units included in diluted shares (only applicable to the Company); and (iv) other normalizing items, which include items that are unusual and infrequent in nature. Our methodology for calculating Normalized FFO may be different from the methods utilized by other REITs and, accordingly, may not be comparable to other REITs.
We present FFO and Normalized FFO because we consider them important supplemental measures of our operating performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Historical cost accounting assumes that the value of real estate assets diminishes ratably over time. Since real estate values have historically risen or fallen based on market conditions, many industry investors have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. FFO and Normalized FFO should not be considered as alternatives to net income or loss attributable to common stockholders/unitholders (computed in accordance with GAAP) as indicators of our financial performance, nor are they indicative of cash available to fund cash needs. FFO and Normalized FFO should be reviewed in connection with other GAAP measurements.
In addition, the amounts included in the calculation of FFO and Normalized FFO are generally the same for HTALP and HTA, except for net income or loss attributable to common stockholders/unitholders, noncontrolling income or loss from OP Units included in diluted shares (only applicable to the Company) and the weighted average shares of our common stock or HTALP OP Units outstanding.
The following is the reconciliation of HTA’s FFO and Normalized FFO to net income attributable to common stockholders for the three months ended March 31, 2020 and 2019, respectively (in thousands, except per share data):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net income attributable to common stockholders | $ | 17,901 | $ | 13,440 | |||||||
Depreciation and amortization expense related to investments in real estate | 76,737 | 68,926 | |||||||||
(Gain) loss on sale of real estate, net | (1,991) | 37 | |||||||||
Proportionate share of joint venture depreciation and amortization | 467 | 472 | |||||||||
| FFO attributable to common stockholders | $ | 93,114 | $ | 82,875 | |||||||
| Transaction expenses | 140 | 40 | |||||||||
Noncontrolling income from OP Units included in diluted shares | 307 | 233 | |||||||||
| Normalized FFO attributable to common stockholders | $ | 93,561 | $ | 83,148 | |||||||
Net income attributable to common stockholders per diluted share | $ | 0.08 | $ | 0.06 | |||||||
FFO adjustments per diluted share, net | 0.34 | 0.34 | |||||||||
FFO attributable to common stockholders per diluted share | $ | 0.42 | $ | 0.40 | |||||||
Normalized FFO adjustments per diluted share, net | 0.00 | 0.00 | |||||||||
Normalized FFO attributable to common stockholders per diluted share | $ | 0.42 | $ | 0.40 | |||||||
Weighted average diluted common shares outstanding | 220,623 | 208,999 | |||||||||
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The following is the reconciliation of HTALP’s FFO and Normalized FFO to net income attributable to common unitholders for the three months ended March 31, 2020 and 2019, respectively (in thousands, except per unit data):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net income attributable to common unitholders | $ | 18,208 | $ | 13,673 | |||||||
Depreciation and amortization expense related to investments in real estate | 76,737 | 68,926 | |||||||||
(Gain) loss on sale of real estate, net | (1,991) | 37 | |||||||||
Proportionate share of joint venture depreciation and amortization | 467 | 472 | |||||||||
| FFO attributable to common unitholders | $ | 93,421 | $ | 83,108 | |||||||
| Transaction expenses | 140 | 40 | |||||||||
| Normalized FFO attributable to common unitholders | $ | 93,561 | $ | 83,148 | |||||||
Net income attributable to common unitholders per diluted share | $ | 0.08 | $ | 0.07 | |||||||
FFO adjustments per diluted unit, net | 0.34 | 0.33 | |||||||||
FFO attributable to common unitholders per diluted unit | $ | 0.42 | $ | 0.40 | |||||||
Normalized FFO adjustments per diluted unit, net | 0.00 | 0.00 | |||||||||
Normalized FFO attributable to common unitholders per diluted unit | $ | 0.42 | $ | 0.40 | |||||||
Weighted average diluted common units outstanding | 220,623 | 208,999 | |||||||||
NOI, Cash NOI and Same-Property Cash NOI
NOI is a non-GAAP financial measure that is defined as net income or loss (computed in accordance with GAAP) before: (i) general and administrative expenses; (ii) transaction expenses; (iii) depreciation and amortization expense; (iv) impairment; (v) interest expense; (vi) gain or loss on sales of real estate; (vii) gain or loss on extinguishment of debt; (viii) income or loss from unconsolidated joint venture; and (ix) other income or expense. We believe that NOI provides an accurate measure of the operating performance of our operating assets because NOI excludes certain items that are not associated with the management of our properties. Additionally, we believe that NOI is a widely accepted measure of comparative operating performance of REITs. However, our use of the term NOI may not be comparable to that of other REITs as they may have different methodologies for computing this amount. NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. NOI should be reviewed in connection with other GAAP measurements.
Cash NOI is a non-GAAP financial measure which excludes from NOI: (i) straight-line rent adjustments; (ii) amortization of below and above market leases/leasehold interests and other GAAP adjustments; and (iii) notes receivable interest income. Contractual base rent, contractual rent increases, contractual rent concessions and changes in occupancy or lease rates upon commencement and expiration of leases are a primary driver of our revenue performance. We believe that Cash NOI, which removes the impact of straight-line rent adjustments, provides another measurement of the operating performance of our operating assets. Additionally, we believe that Cash NOI is a widely accepted measure of comparative operating performance of REITs. However, our use of the term Cash NOI may not be comparable to that of other REITs as they may have different methodologies for computing this amount. Cash NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. Cash NOI should be reviewed in connection with other GAAP measurements.
To facilitate the comparison of Cash NOI between periods, we calculate comparable amounts for a subset of our owned and operational properties referred to as “Same-Property”. Same-Property Cash NOI excludes (i) properties which have not been owned and operated by us during the entire span of all periods presented and disposed properties, (ii) our share of unconsolidated joint ventures, (iii) development, redevelopment and land parcels, (iv) properties intended for disposition in the near term which have (a) been approved by the Board of Directors, (b) is actively marketed for sale, and (c) an offer has been received at prices we would transact and the sales process is ongoing, and (v) certain non-routine items. Same-Property Cash NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. Same-Property Cash NOI should be reviewed in connection with other GAAP measurements.
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The following is the reconciliation of HTA’s and HTALP’s NOI, Cash NOI and Same-Property Cash NOI to net income for the three months ended March 31, 2020 and 2019, respectively (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net income | $ | 18,208 | $ | 13,701 | |||||||
| General and administrative expenses | 11,518 | 11,290 | |||||||||
| Transaction expenses | 140 | 40 | |||||||||
Depreciation and amortization expense | 77,665 | 69,481 | |||||||||
Interest expense | 23,872 | 23,970 | |||||||||
(Gain) loss on sale of real estate, net | (1,991) | 37 | |||||||||
| Income from unconsolidated joint venture | (422) | (486) | |||||||||
| Other income | (76) | (535) | |||||||||
| NOI | $ | 128,914 | $ | 117,498 | |||||||
| Straight-line rent adjustments, net | (3,245) | (3,258) | |||||||||
Amortization of (below) and above market leases/leasehold interests, net and other GAAP adjustments (1) | (1,699) | (222) | |||||||||
Notes receivable interest income | (138) | (27) | |||||||||
| Cash NOI | $ | 123,832 | $ | 113,991 | |||||||
Acquisitions not owned/operated for all periods presented and disposed properties Cash NOI | (8,296) | (352) | |||||||||
| Redevelopment Cash NOI | 44 | (1,077) | |||||||||
| Intended for sale Cash NOI | (186) | (177) | |||||||||
Same-Property Cash NOI (2) | $ | 115,394 | $ | 112,385 | |||||||
(1) The presentation includes certain adjustments to allow for the consistent treatment of items impacted by Topic 842-Leases. (2) Same-Property includes 412 buildings for the three months ended March 31, 2020 and 2019, respectively. | |||||||||||
Liquidity and Capital Resources
Our primary sources of cash include: (i) cash flow from operations; (ii) borrowings under our unsecured revolving credit facility; (iii) net proceeds from the issuances of debt and equity securities; and (iv) proceeds from our dispositions. During the next 12 months our primary uses of cash are expected to include: (a) the funding of acquisitions of MOBs, development properties and other facilities that serve the healthcare industry; (b) capital expenditures; (c) the payment of operating expenses; (d) debt service payments, including principal payments; and (e) the payment of dividends to our stockholders. We anticipate cash flow from operations, restricted cash and reserve accounts and our unsecured revolving credit facility, if needed, will be sufficient to fund our operating expenses, capital expenditures and dividends to stockholders. Investments and maturing indebtedness may require funds from borrowings under our unsecured revolving credit facility, the issuance of debt and/or equity securities or proceeds from sales of real estate.
During the COVID-19 pandemic, we continue to take a measured approach to our operations and cash flows, with an expectation that despite efforts by the US Government to provide liquidity and relief to certain of our tenants who qualify for aid under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, payments from tenants who do not qualify for such aid, or those medical practices focused on procedures that are of an elective nature, may decline appreciably until such time that there is a sustained reversal of government mandated "stay-at-home" or "shelter-in-place" orders and a corresponding normalized level of economic activity and commerce resumes. In addition, due to the recent volatility in capital markets, our access to such capital may be temporarily delayed, and/or we may not be able to raise debt or equity financing on terms that are favorable to us.
As of March 31, 2020, we had total liquidity of $1.1 billion, inclusive of $0.6 billion available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, and cash and cash equivalents of $216.5 million.
We believe that we have sufficient liquidity and options at our disposal to sustain operations for the foreseeable future. As the COVID-19 pandemic continues to unfold, we will assess cash flow requirements and deploy various strategies to preserve liquidity, including, but not limited to, continued utilization of our credit facility, settlement of equity raised on a forward basis, or if circumstances warrant, changes to the manner in which our dividends are paid and/or corresponding amounts distributed.
As of March 31, 2020, we had unencumbered assets with a gross book value of $7.6 billion. The unencumbered properties may be used as collateral to secure additional financings in future periods or refinance our current debt as it becomes due. Our ability to raise funds from future debt and equity issuances is dependent on our investment grade credit ratings, general economic and market conditions, and our operating performance.
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When we acquire a property, we prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs. Capital expenditures for the remainder of the year will be primarily targeted towards planned maintenance activities and other capital improvements that are either of an immediate need to preserve liquidity, or strategically necessary for revenue generation purposes. Currently these expenditures are estimated at approximately $5 million to $15 million per quarter, but may fluctuate materially depending on the ongoing impacts from COVID-19. Although we cannot provide assurance that we will not exceed these estimated expenditure levels, we believe our liquidity of $1.1 billion allows us the flexibility to fund such capital expenditures.
If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewal leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of our leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs.
Cash Flows
The following is a summary of our cash flows for the three months ended March 31, 2020 and 2019, respectively (in thousands):
| Three Months Ended March 31, | |||||||||||||||||
| 2020 | 2019 | Change | |||||||||||||||
| Cash, cash equivalents and restricted cash - beginning of period | $ | 37,616 | $ | 133,530 | $ | (95,914) | |||||||||||
| Net cash provided by operating activities | 75,421 | 48,555 | 26,866 | ||||||||||||||
| Net cash used in investing activities | (76,623) | (36,047) | (40,576) | ||||||||||||||
| Net cash provided by (used in) financing activities | 185,058 | (77,563) | 262,621 | ||||||||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | 221,472 | $ | 68,475 | $ | 152,997 | |||||||||||
Net cash provided by operating activities increased in 2020 primarily due to the impact of our 2019 and 2020 acquisitions, contractual rent increases and improved operational efficiencies, partially offset by our 2019 and 2020 dispositions. We anticipate cash flows from operating activities to increase as a result of the growth in our portfolio through new acquisitions and continued leasing activity in our existing portfolio.
For the three months ended March 31, 2020, net cash used in investing activities primarily related to investments in real estate of $41.3 million, capital expenditures of $23.8 million, development of real estate of $12.1 million, funding of a real estate loan of $6.0 million, partially offset by proceeds from the sale of real estate of $6.4 million. For the three months ended March 31, 2019, net cash used in investing activities primarily related to investments in real estate of $18.6 million, capital expenditures of $16.8 million, and development of real estate of $2.0 million.
For the three months ended March 31, 2020, net cash provided by financing activities primarily related to net borrowings on our unsecured revolving credit facility of $305.0 million, and proceeds from issuance of common stock of $50.0 million, offset by payments on our secured mortgage loans of $95.6 million, dividends paid to holders of our common stock of $68.2 million, and the repurchase and cancellation of common stock of $4.6 million. For the three months ended March 31, 2019, net cash used in financing activities primarily related to dividends paid to holders of our common stock of $63.7 million and the repurchase and cancellation of common stock of $11.9 million.
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Dividends
The amount of dividends we pay to our stockholders is determined by our Board of Directors, in their sole discretion, and is dependent on a number of factors, including funds available, our financial condition, capital expenditure requirements and annual dividend distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended. We have paid monthly or quarterly dividends since February 2007, and if our investments produce sufficient cash flow, we expect to continue to pay dividends to our stockholders. Because our cash available for dividend distributions in any year may be less than 90% of our taxable income for the year, we may obtain the necessary funds through borrowings, issuing new securities or selling assets to pay out enough of our taxable income to satisfy our dividend distribution requirement. Our organizational documents do not establish a limit on dividends that may constitute a return of capital for federal income tax purposes. The dividend we pay to our stockholders is equal to the distributions received from HTALP in accordance with the terms of the HTALP partnership agreement. It is our intention to continue to pay dividends. However, our Board of Directors may reduce our dividend rate and we cannot guarantee the timing and amount of dividends that we may pay in the future, if any.
For the three months ended March 31, 2020, we paid cash dividends of $68.2 million on our common stock. In April 2020 for the quarter ended March 31, 2020, we paid cash dividends on our common stock of $68.8 million.
Financing
We have historically maintained a low leveraged balance sheet and intend to continue to maintain this structure in the long term. However, our total leverage may fluctuate on a short-term basis as we execute our business strategy. As of March 31, 2020, our leverage ratio, measured by debt less cash and cash equivalents to total capitalization, was 33.7%.
As of March 31, 2020, we had debt outstanding of $3.0 billion and the weighted average interest rate therein was 3.09% per annum, inclusive of the impact of our cash flow hedges. The following is a summary of our unsecured and secured debt. See Note 8 - Debt in the accompanying condensed consolidated financial statements for a further discussion of our debt.
Unsecured Revolving Credit Facility
As of March 31, 2020, $0.6 billion was available on our $1.0 billion unsecured revolving credit facility. Our unsecured revolving credit facility matures in June 2022.
Unsecured Term Loans
As of March 31, 2020, we had $500.0 million of unsecured term loans outstanding, comprised of $300.0 million under our Unsecured Credit Agreement maturing in 2023, and $200.0 million under our unsecured term loan maturing in 2024.
Unsecured Senior Notes
As of March 31, 2020, we had $2.05 billion of unsecured senior notes outstanding, comprised of $300.0 million of senior notes maturing in 2023, $600.0 million of senior notes maturing in 2026, $500.0 million of senior notes maturing in 2027, and $650.0 million of senior notes maturing in 2030.
Fixed Rate Mortgages
During the three months ended March 31, 2020, we made payments on our fixed rate mortgages of $95.6 million and have $1.8 million of principal payments due during the remainder of 2020.
Commitments and Contingencies
There have been no material changes from the commitments and contingencies previously disclosed in our 2019 Annual Report on Form 10-K.
Debt Service Requirements
We are required by the terms of our applicable loan agreements to meet certain financial covenants, such as minimum net worth and liquidity, and reporting requirements, among others. As of March 31, 2020, we believe that we were in compliance with all such covenants and we are not aware of any covenants that it is reasonably likely that we would not be able to meet in accordance with our loan agreements.
Off-Balance Sheet Arrangements
As of and during the three months ended March 31, 2020, we had no material off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Inflation
We are exposed to inflation risk as income from future long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that protect us from the impact of normal inflation. These provisions include rent escalations, reimbursement billings for operating expense pass-through charges and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of our leases, among other factors, the leases may not reset frequently enough to cover inflation.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the quantitative and qualitative disclosures about market risk previously disclosed in our 2019 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Healthcare Trust of America, Inc.
HTA’s management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including HTA’s Chief Executive Officer (as the principal executive officer) and Chief Financial Officer (as the principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosures.
As of March 31, 2020, an evaluation was conducted by HTA under the supervision and with the participation of its management, including HTA’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, HTA’s Chief Executive Officer and Chief Financial Officer each concluded that HTA’s disclosure controls and procedures were effective as of March 31, 2020.
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably believed to be likely to materially affect, our internal control over financial reporting. This determination was reached after careful evaluation of the effects COVID-19 has had on our operations.
May 6, 2020
Healthcare Trust of America Holdings, LP
HTALP’s management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including HTA’s Chief Executive Officer (as the principal executive officer) and Chief Financial Officer (as the principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosures.
As of March 31, 2020, an evaluation was conducted by HTALP under the supervision and with the participation of its management, including HTA’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, HTA’s Chief Executive Officer and Chief Financial Officer, on behalf of HTA in its capacity as general partner of HTALP, each concluded that HTALP’s disclosure controls and procedures were effective as of March 31, 2020.
There were no changes in HTALP’s internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably believed to be likely to materially affect, HTALP’s internal control over financial reporting. This determination was reached after careful evaluation of the effects COVID-19 has had on our operations.
May 6, 2020
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to claims and litigation arising in the ordinary course of business. We do not believe any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on our accompanying condensed consolidated financial statements.
Item 1A. Risk Factors
The following risk factor supplements the risk factor disclosure contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 18, 2020.
Pandemics and other health concerns, and the measures intended to prevent its spread, including the currently ongoing COVID-19 pandemic, could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Pandemics, including both widespread and localized outbreaks of infectious diseases and other health concerns, and the measures taken to prevent the spread or lessen the impact, could cause a material disruption to our industry or the economy as a whole. The impacts of such an event could be severe and far-reaching, and may impact our operations in several ways. Such operational impacts include, but are not limited to, the following: (i) tenants could experience deteriorating financial conditions and be unable or unwilling to pay rent on time and in full; (ii) we may have to restructure tenants' obligations and may not be able to do so on terms that are favorable to us; (iii) inquiries and tours at our properties could decrease; (iv) move-ins and new tenanting efforts, and re-letting efforts could slow or stop altogether; (v) move-outs and potential early termination of leases thereunder could increase; (vi) operating expenses, including the costs of certain essential services or supplies, including payments to third-party contractors, service providers, and employees essential to ensure continuity in our building operations may increase; and (vii) costs of development, including expenditures for materials utilized in construction and labor essential to complete existing developments in progress may increase substantively.
Further, disruption in the real estate markets may restrict our ability to deploy capital for new investments, or limit our ability to make new investments on terms that are favorable to us.
Additionally, these types of events could cause severe economic, market and other disruptions worldwide which could stretch to bank lending, capital and other financial markets. If these markets are affected, future access to capital and other sources of funding could be constrained which could adversely affect the availability and terms of our future borrowings, our ability to refinance existing debt, our ability to draw on our revolving credit facility, and our ability to raise equity financing on terms that are favorable to us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the three months ended March 31, 2020, we repurchased shares of our common stock as follows:
| Period | Total Number of Shares Purchased (1) (2) | Average Price Paid per Share (1) (2) | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| January 1, 2020 to January 31, 2020 | 130,481 | $ | 30.15 | — | — | |||||||||||||||||||||
| February 1, 2020 to February 29, 2020 | 1,159 | 32.58 | — | — | ||||||||||||||||||||||
| March 1, 2020 to March 31, 2020 | 22,713 | 30.06 | — | — | ||||||||||||||||||||||
(1) Purchases represent shares withheld to satisfy withholding obligations on the vesting of restricted shares and shares repurchased under our stock repurchase plan. The price paid per share was the then closing price of our common stock on the NYSE. | ||||||||||||||||||||||||||
(2) For each share of common stock redeemed by HTA, HTALP redeems a corresponding number of OP Units in the HTALP operating partnership. Therefore, the OP Units in the HTALP operating partnership repurchased by HTALP are the same as the shares of common stock repurchased by HTA as shown above. | ||||||||||||||||||||||||||
Item 6. Exhibits
The exhibits listed on the Exhibit Index are included, and incorporated by reference, in this Quarterly Report.
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EXHIBIT INDEX
Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the exhibits.
The following exhibits are included, or incorporated by reference, in this Quarterly Report for the quarter ended March 31, 2020 (and are numbered in accordance with Item 601 of Regulation S-K).
| 3.1 | |||||
| 31.1* | |||||
| 31.2* | |||||
| 31.3* | |||||
| 31.4* | |||||
| 32.1** | |||||
| 32.2** | |||||
| 32.3** | |||||
| 32.4** | |||||
| 101.INS* | Inline XBRL Instance Document. | ||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | ||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | ||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | ||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||
| * | Filed herewith. | ||||
| ** | Furnished herewith. | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Healthcare Trust of America, Inc. | |||||||||||
| By: | /s/ Scott D. Peters | Chief Executive Officer, President and Chairman | |||||||||
| Scott D. Peters | (Principal Executive Officer) | ||||||||||
| Date: | May 6, 2020 | ||||||||||
| By: | /s/ Robert A. Milligan | Chief Financial Officer | |||||||||
| Robert A. Milligan | (Principal Financial Officer and Principal Accounting Officer) | ||||||||||
| Date: | May 6, 2020 | ||||||||||
| Healthcare Trust of America Holdings, LP | |||||||||||
| By: | Healthcare Trust of America, Inc., | ||||||||||
| its General Partner | |||||||||||
| By: | /s/ Scott D. Peters | Chief Executive Officer, President and Chairman | |||||||||
| Scott D. Peters | (Principal Executive Officer) | ||||||||||
| Date: | May 6, 2020 | ||||||||||
| By: | /s/ Robert A. Milligan | Chief Financial Officer | |||||||||
| Robert A. Milligan | (Principal Financial Officer and Principal Accounting Officer) | ||||||||||
| Date: | May 6, 2020 | ||||||||||
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