Healthcare Realty Trust Inc 10-Q for FY2021 Q3
Healthcare Realty Trust Inc (HR)
10-Q
2021-11-05
For: 2021-09-30
View Original
Added on
April 07, 2026
About this 10-Q
Healthcare Realty Trust Inc filed this 10-Q on November 5, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $191.26M
- up 2.1% from $187.33M a year earlier
- Net income
- $21.67M
- compared with a net loss of $6.83M a year earlier
- Diluted EPS
- $0.10
- compared with -$0.03 a year earlier
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 September 30, 2021
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)
_________________________
(Exact name of registrant as specified in its charter)
| (Healthcare Trust of America, Inc.) | ||||||||||||||||||||
| (Healthcare Trust of America Holdings, LP) | ||||||||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||||||||
| (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 | ||||||||||||
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. | ☒ | ¨ No | |||||||||
| Healthcare Trust of America Holdings, LP | ☒ | ¨ 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. | ☒ | ¨ No | |||||||||
| Healthcare Trust of America Holdings, LP | ☒ | ¨ 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. | ☒ | ☐ | Accelerated filer | ☐ | Non-accelerated filer | |||||||||||||||
| Healthcare Trust of America Holdings, LP | ☐ | Large accelerated filer | ☐ | 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 October 28, 2021, there were 220,838,102 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 September 30, 2021, 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 September 30, 2021, HTA owned a 97.9% 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 units (“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 units 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”).
Non-controlling 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 non-controlling 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)
| September 30, 2021 | December 31, 2020 | |||||||||||||
| ASSETS | ||||||||||||||
| Real estate investments: | ||||||||||||||
| Land | $ | $ | ||||||||||||
| Building and improvements | ||||||||||||||
| Lease intangibles | ||||||||||||||
| Construction in progress | ||||||||||||||
| Accumulated depreciation and amortization | ( | ( | ||||||||||||
Real estate investments, net | ||||||||||||||
| Assets held for sale, net | ||||||||||||||
| Investment in unconsolidated joint venture | ||||||||||||||
| Cash and cash equivalents | ||||||||||||||
| Restricted cash | ||||||||||||||
| Receivables and other assets, net | ||||||||||||||
| Right-of-use assets - operating leases, net | ||||||||||||||
| Other intangibles, net | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Liabilities: | ||||||||||||||
| Debt | $ | $ | ||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||
| Liabilities of assets held for sale | ||||||||||||||
| Derivative financial instruments - interest rate swaps | ||||||||||||||
| Security deposits, prepaid rent and other liabilities | ||||||||||||||
| Lease liabilities - operating leases | ||||||||||||||
| Intangible liabilities, net | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies | ||||||||||||||
| Equity: | ||||||||||||||
Preferred stock, $ | ||||||||||||||
Class A common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Cumulative dividends in excess of earnings | ( | ( | ||||||||||||
| Total stockholders’ equity | ||||||||||||||
| Non-controlling interests | ||||||||||||||
| Total equity | ||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental income | $ | $ | $ | $ | |||||||||||||||||||
Interest and other operating income | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Transaction | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
Interest expense | |||||||||||||||||||||||
| Impairment | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Gain on sale of real estate, net | |||||||||||||||||||||||
| Loss on extinguishment of debt, net | ( | ( | |||||||||||||||||||||
| Income from unconsolidated joint venture | |||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
Net (income) loss attributable to non-controlling interests | ( | ( | ( | ||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | $ | $ | ||||||||||||||||||
Earnings per common share - basic: | |||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | $ | $ | ||||||||||||||||||
Earnings per common share - diluted: | |||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | $ | $ | ||||||||||||||||||
Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Change in unrealized gains (losses) on cash flow hedges | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Total comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive income (loss) attributable to non-controlling interests | ( | ( | ( | ||||||||||||||||||||
| Total comprehensive income (loss) attributable to common stockholders | $ | $ | ( | $ | $ | ||||||||||||||||||
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 | Non-controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Share-based award transactions, net | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | ( | ( | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Redemption of non-controlling interest and other | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | ( | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2020 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of OP Units in HTALP | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Share-based award transactions, net | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | ( | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Redemption of non-controlling interest and other | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Share-based award transactions, net | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | ( | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Redemption of non-controlling interest and other | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
7
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Cont’d)
(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 | Non-controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Share-based award transactions, net | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | ( | ( | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Redemption of non-controlling interest and other | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Share-based award transactions, net | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | ( | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Redemption of non-controlling interest and other | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of OP Units in HTALP in connection with acquisitions | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Share-based award transactions, net | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
| Redemption of non-controlling interest and other | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | |||||||||||
| Share-based compensation expense | |||||||||||
| Income from unconsolidated joint venture | ( | ( | |||||||||
| Distributions from unconsolidated joint venture | |||||||||||
| Impairment | |||||||||||
| Gain on sale of real estate, net | ( | ( | |||||||||
| Loss on extinguishment of debt, net | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables and other assets, net | ( | ||||||||||
| Accounts payable and accrued liabilities | ( | ( | |||||||||
| Security deposits, prepaid rent and other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Investments in real estate | ( | ( | |||||||||
| Development of real estate | ( | ( | |||||||||
| Proceeds from the sale of real estate | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Collection of real estate notes receivable | |||||||||||
| Advances on real estate notes receivable | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings on unsecured revolving credit facility | |||||||||||
| Payments on unsecured revolving credit facility | ( | ( | |||||||||
| Proceeds from unsecured senior notes | |||||||||||
| Payments on unsecured senior notes | ( | ||||||||||
| Payments on secured mortgage loans | ( | ||||||||||
| Deferred financing costs | ( | ||||||||||
| Debt extinguishment costs | ( | ||||||||||
| Proceeds from issuance of common stock | |||||||||||
| Issuance of OP Units | |||||||||||
| Repurchase and cancellation of common stock | ( | ( | |||||||||
| Dividends paid | ( | ( | |||||||||
| Distributions paid to non-controlling interest of limited partners | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash - beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
(Unaudited)
| September 30, 2021 | December 31, 2020 | |||||||||||||
| ASSETS | ||||||||||||||
| Real estate investments: | ||||||||||||||
| Land | $ | $ | ||||||||||||
| Building and improvements | ||||||||||||||
| Lease intangibles | ||||||||||||||
| Construction in progress | ||||||||||||||
| Accumulated depreciation and amortization | ( | ( | ||||||||||||
Real estate investments, net | ||||||||||||||
| Assets held for sale, net | ||||||||||||||
| Investment in unconsolidated joint venture | ||||||||||||||
| Cash and cash equivalents | ||||||||||||||
| Restricted cash | ||||||||||||||
| Receivables and other assets, net | ||||||||||||||
| Right-of-use assets - operating leases, net | ||||||||||||||
| Other intangibles, net | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND PARTNERS’ CAPITAL | ||||||||||||||
| Liabilities: | ||||||||||||||
| Debt | $ | $ | ||||||||||||
| Accounts payable and accrued liabilities | ||||||||||||||
| Liabilities of assets held for sale | ||||||||||||||
| Derivative financial instruments - interest rate swaps | ||||||||||||||
| Security deposits, prepaid rent and other liabilities | ||||||||||||||
| Lease liabilities - operating leases | ||||||||||||||
| Intangible liabilities, net | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies | ||||||||||||||
| Partners’ Capital: | ||||||||||||||
Limited partners’ capital, | ||||||||||||||
General partners’ capital, | ||||||||||||||
| Total partners’ capital | ||||||||||||||
| Total liabilities and partners’ capital | $ | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per unit data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental income | $ | $ | $ | $ | |||||||||||||||||||
Interest and other operating income | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Transaction | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Impairment | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Gain on sale of real estate, net | |||||||||||||||||||||||
| Loss on extinguishment of debt, net | ( | ( | |||||||||||||||||||||
| Income from unconsolidated joint venture | |||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
| Net income attributable to non-controlling interests | |||||||||||||||||||||||
| Net income (loss) attributable to common unitholders | $ | $ | ( | $ | $ | ||||||||||||||||||
Earnings per common OP Unit - basic: | |||||||||||||||||||||||
| Net income (loss) attributable to common unitholders | $ | $ | ( | $ | $ | ||||||||||||||||||
Earnings per common OP Unit - diluted: | |||||||||||||||||||||||
| Net income (loss) attributable to common unitholders | $ | $ | ( | $ | $ | ||||||||||||||||||
Weighted average common OP Units outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
11
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Change in unrealized gains (losses) on cash flow hedges | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Total comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive income attributable to non-controlling interests | |||||||||||||||||||||||
| Total comprehensive income (loss) attributable to common unitholders | $ | $ | ( | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
12
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, 2019 | $ | $ | $ | ||||||||||||||||||||||||||
| Issuance of general partner OP Units | — | — | |||||||||||||||||||||||||||
Share-based award transactions, net | — | — | |||||||||||||||||||||||||||
Redemption and cancellation of general partner OP Units | ( | ( | — | — | ( | ||||||||||||||||||||||||
Redemption of limited partner OP Units and other | ( | ( | |||||||||||||||||||||||||||
Distributions declared ($ | — | ( | — | ( | ( | ||||||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||||||||
| Other comprehensive loss | — | ( | — | ( | ( | ||||||||||||||||||||||||
| Balance as of March 31, 2020 | |||||||||||||||||||||||||||||
| Issuance of limited partner OP Units | |||||||||||||||||||||||||||||
Share-based award transactions, net | ( | — | — | ||||||||||||||||||||||||||
Redemption and cancellation of general partner OP Units | ( | ( | — | — | ( | ||||||||||||||||||||||||
Redemption of limited partner OP Units and other | ( | ( | |||||||||||||||||||||||||||
Distributions declared ($ | — | ( | — | ( | ( | ||||||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||||||||
| Other comprehensive loss | — | ( | — | ( | ( | ||||||||||||||||||||||||
| Balance as of June 30, 2020 | |||||||||||||||||||||||||||||
Share-based award transactions, net | — | — | |||||||||||||||||||||||||||
Redemption and cancellation of general partner OP Units | ( | ( | — | — | ( | ||||||||||||||||||||||||
Redemption of limited partner OP Units and other | ( | ( | |||||||||||||||||||||||||||
Distributions declared ($ | — | ( | — | ( | ( | ||||||||||||||||||||||||
| Net loss | — | ( | — | ( | ( | ||||||||||||||||||||||||
| Other comprehensive income | — | — | |||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | ||||||||||||||||||||||||||
13
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL (Cont’d)
(In thousands)
(Unaudited)
| General Partners’ Capital | Limited Partners’ Capital | Total Partners’ Capital | |||||||||||||||||||||||||||
| Units | Amount | Units | Amount | ||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | ||||||||||||||||||||||||||
Share-based award transactions, net | — | — | |||||||||||||||||||||||||||
Redemption and cancellation of general partner OP Units | ( | ( | — | — | ( | ||||||||||||||||||||||||
Redemption of limited partner OP Units and other | ( | ( | |||||||||||||||||||||||||||
Distributions declared ($ | — | ( | — | ( | ( | ||||||||||||||||||||||||
Net income | — | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | |||||||||||||||||||||||||||
| Balance as of March 31, 2021 | |||||||||||||||||||||||||||||
Share-based award transactions, net | ( | — | — | ||||||||||||||||||||||||||
Redemption and cancellation of general partner OP Units | ( | ( | — | — | ( | ||||||||||||||||||||||||
Redemption of limited partner OP Units and other | ( | ( | |||||||||||||||||||||||||||
Distributions declared ($ | — | ( | — | ( | ( | ||||||||||||||||||||||||
Net income | — | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | |||||||||||||||||||||||||||
| Balance as of June 30, 2021 | |||||||||||||||||||||||||||||
| Issuance of general partner units | — | — | |||||||||||||||||||||||||||
| Issuance of limited partner OP Units in connection with acquisitions | — | — | |||||||||||||||||||||||||||
Share-based award transactions, net | — | ( | — | — | ( | ||||||||||||||||||||||||
Redemption and cancellation of general partner OP Units | — | ( | — | — | ( | ||||||||||||||||||||||||
Redemption of limited partner OP Units and other | ( | ( | |||||||||||||||||||||||||||
Distributions declared ($ | — | ( | — | ( | ( | ||||||||||||||||||||||||
Net income | — | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | |||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
14
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | |||||||||||
| Share-based compensation expense | |||||||||||
| Income from unconsolidated joint venture | ( | ( | |||||||||
| Distributions from unconsolidated joint venture | |||||||||||
| Impairment | |||||||||||
| Gain on sale of real estate, net | ( | ( | |||||||||
| Loss on extinguishment of debt, net | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables and other assets, net | ( | ||||||||||
| Accounts payable and accrued liabilities | ( | ( | |||||||||
| Security deposits, prepaid rent and other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Investments in real estate | ( | ( | |||||||||
| Development of real estate | ( | ( | |||||||||
| Proceeds from the sale of real estate | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Collection of real estate notes receivable | |||||||||||
| Advances on real estate notes receivable | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings on unsecured revolving credit facility | |||||||||||
| Payments on unsecured revolving credit facility | ( | ( | |||||||||
| Proceeds from unsecured senior notes | |||||||||||
| Payments from unsecured senior notes | ( | ||||||||||
| Payments on secured mortgage loans | ( | ||||||||||
| Deferred financing costs | ( | ||||||||||
| Debt extinguishment costs | ( | ||||||||||
| Proceeds from issuance of general partner units | |||||||||||
| Issuance of OP Units | |||||||||||
| Repurchase and cancellation of general partner units | ( | ( | |||||||||
| Distributions paid to general partner | ( | ( | |||||||||
| Distributions paid to limited partners and redeemable non-controlling interests | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash - beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
15
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 32 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.
COVID-19 Pandemic
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
16
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 2020 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 non-controlling 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 non-controlling 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 non-controlling 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 common stock is recorded as a component of equity. As of September 30, 2021 and December 31, 2020, there were approximately 4.7 3.5
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.
In addition, from time to time, the Company acquires properties using a like-kind exchange structure pursuant to Section 1031 of the Internal Revenue Code (a “1031 exchange”) and, as such, the proceeds from a property or portfolio disposition are in the possession of an Exchange Accommodation Titleholder (“EAT”) until the 1031 exchange is completed. The EAT is classified as a VIE as it is a “thinly capitalized” entity. The Company consolidates the EAT because we are the primary beneficiary as we have the ability to control the activities that most significantly impact the EAT’s economic performance and can close out the 1031 exchange structure at any time. As of September 30, 2021, the Company had one such entity where the 1031 exchange had not completed. 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
17
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Cash, Cash Equivalents and Restricted Cash
| September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
Revenue Recognition
Investments in Real Estate
Depreciation expense of buildings and improvements for the three months ended September 30, 2021 and 2020 was $62.0 million and $59.2 million, respectively. Depreciation expense of buildings and improvements for the nine months ended September 30, 2021 and 2020 was $183.8 million and $176.4 million, respectively.
Leases
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 coronavirus (“COVID-19”) pandemic, changes to our leases as a result of COVID-19 have been in two categories. Leases are categorized based upon the impact of the modification on its cash flows. One category is rent deferrals for which the guidance provided by the Lease Modification Q&A issued by the Financial Accounting Standards Board (“FASB”) in April 2020 was utilized, which provided relief from requiring a lease by lease analysis pursuant to Topic 842. These deferrals are generally for up to three months of rent with a payback period from to twelve months once the deferral period has ended. Deferrals do not have an impact on cash flows over the lease term, rather, payments are made in different periods while the cash flows for the entirety of the lease term are the same. However, we have continued to recognize revenue and straight line revenue for amounts subject to deferral agreements in accordance with Topic 842. In 2020, which is the period that we believe constituted the majority of our COVID-related deferral requests, we approved deferral plans totaling approximately $11.1 million, of which approximately $10.8 million have been repaid through September 30, 2021.
18
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The second category is early renewals, where the Company renewed lease arrangements prior to their contractual expirations, providing concessions at the commencement of the lease in exchange for additional term, which additional term averages approximately three years. This category is treated as a modification under Topic 842, with the existing balance of the cumulative difference between rental income and payment amounts (existing straight line rent receivable) being recast over the new term, factoring in any changes attributable to the new lease arrangement and for which we performed a lease by lease analysis. Cash flows are impacted over the long term as customary free rent, at an average of three months in conjunction with these agreements, and is offset by more term and/or increased rental rates. For the nine months ended September 30, 2021, the Company has entered into very few new deferral arrangements or early renewal leases with substantive amounts of free rent or other forms of concessions at the onset of the lease term.
The Lease Modification Q&A had no material impact on our condensed consolidated financial statements as of and for the nine months ended September 30, 2021, 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.
Real Estate Held for Sale
| September 30, 2021 | |||||
| Land | $ | ||||
| Buildings and Improvements | |||||
| Lease intangibles | |||||
| Accumulated depreciation and amortization | ( | ||||
| Real estate assets held for sale, net | |||||
| Receivables and other assets, net | |||||
| Assets held for sale, net | $ | ||||
| Security deposits, prepaid rent & other liabilities | $ | ||||
| Intangible liabilities, net | |||||
| Liabilities of assets held for sale | $ | ||||
Real Estate Notes Receivable
Unconsolidated Joint Ventures
19
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 each of the three months ended September 30, 2021 and 2020, we recognized income of $0.4 1.2
Recently Issued or Adopted Accounting Pronouncements
Recently Adopted Accounting Pronouncements
S-X Rule 13-01
In March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule became effective on January 4, 2021, at which time we adopted S-X Rule 13-01. The adoption did not have a material effect on our financial statements and related footnotes.
Recently Issued Accounting Pronouncements
ASU 2021-01, Reference Rate Reform (Topic 848)
In January 2021, the FASB issued ASU 2021-01, which amends the scope of ASU 2020-04. The amendments of ASU 2021-01 clarify that certain optional expedients and exceptions to Topic 848 for contract modification and hedge accounting apply to derivatives that are affected by the discounting transition. For information related to the Company's current cash flow hedges, refer to Note 9 - Derivative Financial Instruments and Hedging Activities. The amendments are elective and effective immediately for contract modifications made through December 31, 2022. The Company is evaluating how the transition away from LIBOR will effect the Company and if the guidance with respect to this standard will be adopted, however, if adopted, we do not expect that this ASU will have a material impact on our financial statements.
ASU 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments
In July 2021, the FASB issued ASU 2021-05, which amends the lease classification requirements for lessors when classifying and accounting for a lease with variable lease payments that do not depend on a reference index or a rate. The update provides criteria, that if met, the lease would be classified and accounted for as an operating lease. The update is effective for reporting periods beginning after December 15, 2021, with early adoption permitted. At this time, the Company does not expect that the adoption of this standard will have a material impact on our financial statements.
3. Investments in Real Estate
For the nine months ended September 30, 2021, our investments had an aggregate purchase price of $189.2 million. As part of these investments, we incurred approximately $1.0 million of capitalized costs. As part of two of our acquisitions, we issued to the sellers 1.2 million OP Units with a market value at the time of issuance of approximately $35.8 million. The allocations for these investments, in which we own a controlling financial interest, are set forth below in the aggregate for the nine months ended September 30, 2021 and 2020, respectively (in thousands):
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Land | $ | $ | |||||||||
| Building and improvements | |||||||||||
| In place leases | |||||||||||
| Below market leases | ( | ( | |||||||||
| Above market leases | |||||||||||
| ROU assets | ( | ( | |||||||||
| Net real estate assets acquired | |||||||||||
| Other, net | |||||||||||
| Aggregate purchase price | $ | $ | |||||||||
Subsequent to September 30, 2021, we completed investments with an aggregate purchase price of $65.7 million. The
purchase price of these investments were subject to certain post-closing adjustments. Due to the recent timing of the
acquisition of these investments, we have not completed our purchase price allocation with respect to these investments and,
therefore, cannot provide disclosures at this time similar to those contained above in Note 3 - Investments in Real Estate to our
condensed consolidated financial statements.
20
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Acquired intangible assets | |||||||||||
| Acquired intangible liabilities | |||||||||||
4. Dispositions and Impairment
Dispositions
During the nine months ended September 30, 2021, we completed the disposition of 14 MOBs located in, one or more of Tennessee, Virginia and Minnesota for a gross sales price of $68.1 million, in addition to the sale of our interest in a land parcel on which the ground lessee exercised its purchase option for a gross sales price of $1.8 million, resulting in a net gain to us of approximately $32.9 million. During the nine months ended September 30, 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 to us of approximately $2.0 million.
Subsequent to September 30, 2021, we completed the disposition of one MOB located in Ohio for a gross sales price of $20.2 million.
Impairment
21
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. Intangible Assets and Liabilities
| September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Balance | Weighted Average Remaining Amortization in Years | Balance | Weighted Average Remaining Amortization in Years | ||||||||||||||||||||
Assets: | |||||||||||||||||||||||
In place leases | $ | $ | |||||||||||||||||||||
Tenant relationships | |||||||||||||||||||||||
Above market leases | |||||||||||||||||||||||
| Accumulated amortization | ( | ( | |||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Below market leases | $ | $ | |||||||||||||||||||||
| Accumulated amortization | ( | ( | |||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Amortization recorded against rental income related to above and (below) market leases | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Amortization expense related to in place leases and tenant relationships | |||||||||||||||||||||||
6. Receivables and Other Assets
| September 30, 2021 | December 31, 2020 | ||||||||||
Tenant receivables, net | $ | $ | |||||||||
Other receivables, net | |||||||||||
Deferred financing costs, net | |||||||||||
Deferred leasing costs, net | |||||||||||
| Straight-line rent receivables, net | |||||||||||
| Prepaid expenses, deposits, equipment and other, net | |||||||||||
| Real estate notes receivable, net | |||||||||||
| Finance ROU asset, net | |||||||||||
| Total | $ | $ | |||||||||
22
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
Amortization expense related to deferred leasing costs | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense related to deferred financing costs | |||||||||||||||||||||||
7. Leases
For the three months ended September 30, 2021, no new ground leases have commenced.
Lessee - Maturity of Lease Liabilities
| Year | Operating Leases | Finance Leases | ||||||||||||
| 2021 | $ | $ | ||||||||||||
| 2022 | ||||||||||||||
| 2023 | ||||||||||||||
| 2024 | ||||||||||||||
| 2025 | ||||||||||||||
| 2026 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total undiscounted lease payments | $ | $ | ||||||||||||
| Less: Interest | ( | ( | ||||||||||||
| Present value of lease liabilities | $ | $ | ||||||||||||
Lessor - Lease Revenues and Maturity of Future Minimum Rents
For the three months ended September 30, 2021 and 2020, we recognized $190.6 million and $186.3 million, respectively, of rental and other lease-related income related to our operating leases, of which $43.5 million and $42.7 million, respectively, were variable lease payments. For the nine months ended September 30, 2021, and 2020, we recognized $568.4 million and $546.8 million, respectively, of rental and other lease-related income related to our operating leases, of which $130.8 million and $127.3 million, respectively, were variable lease payments.
| Year | Amount | |||||||
| 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
23
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
8. Debt
| September 30, 2021 | December 31, 2020 | ||||||||||
| Unsecured revolving credit facility | $ | $ | |||||||||
| Unsecured term loans | |||||||||||
| Unsecured senior notes | |||||||||||
| Fixed rate mortgages | |||||||||||
| $ | $ | ||||||||||
| Deferred financing costs, net | ( | ( | |||||||||
| Premium, net | ( | ( | |||||||||
| Total | $ | $ | |||||||||
Unsecured Credit Agreement
Unsecured Revolving Credit Facility due 2022
Our amended and restated $1.3 billion unsecured credit agreement (the “Unsecured Credit Agreement”) includes an unsecured revolving credit facility of $1.0 billion and an unsecured term loan of $300.0 million. 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 if so increased. The unsecured revolving credit agreement and unsecured term loan had original maturities of June 30, 2022 and February 1, 2023, respectively. Subsequent to September 30, 2021, the Unsecured Credit Agreement was amended and restated in its entirety, by the Third Amended and Restated Revolving Credit and Term Loan Agreement referenced below, extending maturities to October 31, 2025.
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 September 30, 2021, we had $50.0 million outstanding under this unsecured revolving credit facility at an interest rate of 1.13 % 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
Under the Unsecured Credit Agreement as noted above, we have a $300.0 million unsecured term loan, guaranteed by HTA. 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 September 30, 2021 was 1.10 % per annum. We have interest rate swaps hedging the floating interest rate, which resulted in a fixed rate of 2.52 % per annum, based on our current credit rating. As of September 30, 2021, we had $300.0 million under this unsecured term loan outstanding.
Third Amended and Restated Revolving Credit and Term Loan Agreement
On October 6, 2021, we entered into a third amended and restated revolving credit and term loan agreement (the “Credit Agreement”), which includes an unsecured revolving credit facility in an aggregate maximum principal amount of $1.0 billion (the “Revolver”) and a term loan facility in an aggregate maximum principal amount of $300.0 million (the “Term Loan”). The Credit Agreement amends and restates, in its entirety, the Unsecured Credit Agreement referenced above and extends the maturities of the unsecured revolving credit facility and the unsecured term loan to October 31, 2025. Borrowings under the Revolver will bear interest at a per annum rate equal to LIBOR plus a margin ranging from 0.725 % to 1.60 % based on our credit rating. We are also required to pay a facility fee on the aggregate commitments under the Revolver at a per annum rate ranging from 0.125 % to 0.30 % based on our credit rating. Borrowings under the Term Loan will bear interest at a per annum rate equal to LIBOR plus a margin ranging from 0.80 % to 1.60 % based on our credit rating. Accrued interest under the Credit Agreement is payable quarterly and at maturity. The Credit Agreement also provides for borrowing at a base rate plus a margin ranging from 0.00 % to 0.40 % with respect to the Revolver and a base rate plus a margin of 0.00 % to 0.60 % with respect to the Term Loan, each based on our credit rating. The Credit Agreement includes customary LIBOR replacement terms and contains a sustainability-linked feature, which allows for a reduction in pricing upon our realization of certain sustainability ratings. The other terms of the Credit Agreement prior to the amendment thereof remain substantially unchanged.
24
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
$200.0 Million Unsecured Term Loan due 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 September 30, 2021 was 1.00 % per annum. We have interest rate swaps hedging the floating index rate, which resulted in a fixed interest rate at 2.32 % per annum, based on our current credit rating. As of September 30, 2021, we had $200.0 million under this unsecured term loan outstanding. This loan matures on January 15, 2024.
$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, and bear interest at 3.50 % per annum which is 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 September 30, 2021, we 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, and bear interest at 3.75 % per annum which is 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 September 30, 2021, we 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, and bear interest at 3.10 % per annum which is 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 September 30, 2021, we had $650.0 million of these unsecured senior notes outstanding that mature on February 15, 2030.
$800.0 million Unsecured Senior Notes due 2031
In September 2020, HTALP issued $800.0 million of unsecured senior notes that are guaranteed by HTA. These unsecured senior notes are registered under the Securities Act, and bear interest at 2.00 % per annum which is payable semi-annually. Additionally, these unsecured senior notes were offered at 99.20 % of the principal amount thereof, with an effective yield to maturity of 2.09 % per annum. As of September 30, 2021, we had $800.0 million of these unsecured senior notes outstanding that mature on March 15, 2031.
Future Debt Maturities
| Year | Amount | |||||||
| 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
25
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Deferred Financing Costs
| Year | Amount | |||||||
| 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
Debt Covenants
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 an 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 $6.6 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.
26
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of September 30, 2021, 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 | September 30, 2021 | |||||||
| Number of instruments | ||||||||
| Notional amount | $ | |||||||
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 September 30, 2021 and December 31, 2020, respectively (in thousands):
| Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||||||||||||
| Fair Value at: | Fair Value at: | |||||||||||||||||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments: | Balance Sheet Location | September 30, 2021 | December 31, 2020 | Balance Sheet Location | September 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||
| Interest rate swaps | Receivables and other assets | $ | $ | Derivative financial instruments | $ | $ | ||||||||||||||||||||||||||||||||
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 and nine months ended September 30, 2021 and 2020, respectively (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| Effect of Derivative Instruments | Location in Statement of Operations and Comprehensive Income (Loss) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||||
| Gain (loss) recognized in OCI | Change in unrealized losses on cash flow hedges | $ | ( | $ | $ | $ | ( | |||||||||||||||||||||||||
| Gain (loss) reclassified from accumulated OCI into income | Interest expense | ( | ( | ( | ( | |||||||||||||||||||||||||||
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.
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.
27
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Environmental Matters
We routinely monitor 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.
Unfunded Loan Commitments
Unfunded loan commitments include amounts undrawn on mezzanine loans. As of September 30, 2021, unfunded loan commitments totaled $15.4 million.
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 thereof 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 March 2021, we entered into 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 $750.0 million, which replaced our prior ATM offering program that expired in February 2021. As of September 30, 2021, $750.0 million remained available for issuance by us under our current ATM.
During the nine months ended September 30, 2021, we issued 2.0 million shares of our common stock under our prior ATM program for net proceeds of approximately $53.7 million, adjusted for costs to borrow, equating to a net price to us of $26.87 per share of common stock.
Additionally, we have three outstanding forward sale arrangements pursuant to forward equity agreements under our prior ATM program, with total anticipated net proceeds of $218.8 million based on an average initial forward price of $29.49 , subject to adjustments as provided in the forward equity agreements. All three of the arrangements have been extended and mature on December 31, 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.
Stock Repurchase Plan
In September 2020, our Board of Directors approved the reactivation of 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 September 22, 2023. As of September 30, 2021, the remaining amount of common stock available for repurchase under our stock repurchase plan was $300.0 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 and nine months ended September 30, 2021 and 2020. As of September 30, 2021, declared, but unpaid, dividends totaling $73.3 million were included in accounts payable and accrued liabilities. On November 4, 2021, our Board of Directors announced a quarterly cash dividend of $0.325
28
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Incentive Plan
On April 29, 2021, our Board of Directors approved and adopted the Amended and Restated 2006 Incentive Plan (the “Plan”), which was approved by our Stockholders on July 7, 2021 at our Annual Meeting of Stockholders. The Plan permits the grant of incentive awards to our employees, officers, non-employee directors and consultants as selected by our Board of Directors and 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; and other stock-based and cash-based awards. The aggregate number of awards reserved and available for issuance under the Plan is 10,000,000 shares. As of September 30, 2021, there were 9,854,721 awards available for grant under the Plan.
Restricted Common Stock
For the three and nine months ended September 30, 2021, we recognized compensation expense of $0.3 million and $5.0 million, respectively. For the three and nine months ended September 30, 2020, we recognized compensation expense of $1.8 million and $7.1 million, respectively. Substantially all compensation expense was recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations.
As of September 30, 2021, we had $8.3 million of unrecognized compensation expense, net of estimated forfeitures, which we will recognize over a remaining weighted average period of 1.7 years.
| September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||
| Restricted Common Stock | Weighted Average Grant Date Fair Value | Restricted Common Stock | Weighted Average Grant Date Fair Value | ||||||||||||||||||||
| Beginning balance | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Vested | ( | ( | |||||||||||||||||||||
| Forfeited | ( | ( | |||||||||||||||||||||
| Ending balance | $ | $ | |||||||||||||||||||||
12. Fair Value of Financial Instruments
Financial Instruments Reported at Fair Value - Recurring
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||
| Level 2 - Assets: | ||||||||||||||||||||||||||
| Real estate notes receivable, net | $ | $ | $ | $ | ||||||||||||||||||||||
| Derivative financial instruments | ||||||||||||||||||||||||||
| Level 2 - Liabilities: | ||||||||||||||||||||||||||
| Derivative financial instruments | $ | $ | $ | $ | ||||||||||||||||||||||
| Debt | ||||||||||||||||||||||||||
The carrying amounts of cash and cash equivalents, tenant and other receivables, restricted cash, accounts payable, and accrued liabilities approximate fair value. Fair values for real estate notes receivable are estimated based on rates currently prevailing for similar instruments of similar maturities and are based primarily on Level 2 inputs. 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.
29
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 category generally includes assets subject to impairment.
The table below presents our assets measured at fair value on a non-recurring basis as of September 30, 2021 and December 31, 2020 (in thousands):
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||
| Fair Value | Fair Value | |||||||||||||||||||||||||
| Level 2 - Assets: | ||||||||||||||||||||||||||
MOB (1) | $ | $ | ||||||||||||||||||||||||
(1) During the nine months ended September 30, 2021, we recognized $16.8 million of impairment charges to the carrying value of two MOBs, one of which was sold as of September 30, 2021. The estimated fair value as of September 30, 2021 for the remaining MOB was based on the purchase price set forth in an executed purchase option, less estimated closing costs.
13. Per Share Data of HTA
During the nine months ended September 30, 2021, we issued 2.0 million shares of our common stock under our ATM for net proceeds of approximately $53.7 million, adjusted for costs to borrow equating to a net price to us of $26.87 per share of common stock.
Additionally, we have three outstanding forward sale arrangements pursuant to forward equity agreements, with total anticipated net proceeds of $218.8 million, based on an average initial forward price of $29.49 , subject to adjustments as provided in the forward equity agreements. All three of the arrangements have been extended and mature on December 31, 2021.
To account for the forward equity agreements, we considered the accounting guidance governing financial instruments and derivatives and concluded that our forward equity agreements were not liabilities as they did not embody obligations to repurchase our shares of common stock nor did they 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 the fair value of our shares. We also evaluated whether the agreements met the derivatives and hedging guidance scope exception to be accounted for as equity instruments and concluded that the agreements 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 agreements from being indexed to our own common stock.
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 anti-dilutive in nature and, thus, approximately 96,000 and 324,000 shares were excluded from the calculation for the three and nine months ended September 30, 2021. For the three and nine months ended September 30, 2020, the impact to our weighted-average shares - diluted was anti-dilutive in nature and, thus, approximately 1.1 million and 0.8 million shares, respectively, were excluded from the calculation.
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 agreements are not considered a participating security and, therefore, are not included in the computation of earnings per share using the two-class method. For the three and nine months ended September 30, 2021 and 2020, all of our earnings were distributed and the calculated earnings per share amount would be the same for all classes.
30
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
| Net loss (income) attributable to non-controlling interests | ( | ( | ( | ||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | $ | $ | ||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares outstanding - basic | |||||||||||||||||||||||
| Dilutive shares - OP Units convertible into common stock | |||||||||||||||||||||||
| Adjusted weighted average shares outstanding - diluted | |||||||||||||||||||||||
Earnings per common share - basic | |||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | $ | $ | ||||||||||||||||||
Earnings per common share - diluted | |||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | $ | ( | $ | $ | ||||||||||||||||||
14. Per Unit Data of HTALP
During the nine months ended September 30, 2021, we issued 2.0 million shares of our common stock under our ATM for net proceeds of approximately $53.7 million, adjusted for costs to borrow equating to a net price to us of $26.87 per share of common stock.
Additionally, we have three outstanding forward sale arrangements pursuant to forward equity agreements, with total anticipated net proceeds of $218.8 million, based on an average initial forward price of $29.49 , subject to adjustments as provided in the forward equity agreements. All three of the arrangements have been extended and mature on December 31, 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.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||
| Net income attributable to non-controlling interests | |||||||||||||||||||||||
| Net income (loss) attributable to common unitholders | $ | $ | ( | $ | $ | ||||||||||||||||||
Denominator: | |||||||||||||||||||||||
| Weighted average OP Units outstanding - basic | |||||||||||||||||||||||
| Dilutive units - OP Units convertible into common units | |||||||||||||||||||||||
| Adjusted weighted average units outstanding - diluted | |||||||||||||||||||||||
Earnings per common unit - basic: | |||||||||||||||||||||||
| Net income (loss) attributable to common unitholders | $ | $ | ( | $ | $ | ||||||||||||||||||
Earnings per common unit - diluted: | |||||||||||||||||||||||
| Net income (loss) attributable to common unitholders | $ | $ | ( | $ | $ | ||||||||||||||||||
31
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
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Interest paid, net of capitalized interest | $ | $ | |||||||||
| Cash paid for operating leases | |||||||||||
| Supplemental Disclosure of Noncash Investing and Financing Activities: | |||||||||||
Accrued capital expenditures | $ | $ | |||||||||
Dividend distributions declared, but not paid | |||||||||||
| Issuance of OP Units in HTALP in connection with acquisitions | |||||||||||
| Redemption of non-controlling interest | |||||||||||
ROU assets obtained in exchange for lease obligations | |||||||||||
32
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 2020 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 2020 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 $7.7 billion primarily in MOBs, development projects, land and other healthcare real estate assets consisting of approximately 25.8 million square feet of GLA throughout the U.S. Approximately 67% of our portfolio is located on the campuses of, or adjacent to, nationally and regionally recognized healthcare systems. Our portfolio is diversified geographically across 32 states, with no state having more than 21% of our total GLA as of September 30, 2021. We are concentrated in 20 to 25 key markets that are generally experiencing higher economic and demographic trends than other markets that we expect will drive demand for MOBs. As of September 30, 2021, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 94% of our portfolio, based on GLA, is located in the top 75 Metropolitan Statistical Area ("MSAs"), with Dallas, Houston, Boston, Miami and Indianapolis being our largest markets by annualized base rent.
Company Highlights
Portfolio Operating Performance
•For the three months ended September 30, 2021, our total revenue was $191.3 million, compared to $187.3 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, our total revenue was $571.4 million, compared to $551.9 million for the nine months ended September 30, 2020.
•For the three months ended September 30, 2021, our net income was $22.0 million, compared to $(6.9) million, for the three months ended September 30, 2020. For the nine months ended September 30, 2021, our net income was $83.2 million, compared to $25.0 million for the nine months ended September 30, 2020.
•For the three months ended September 30, 2021, our net income attributable to common stockholders was $0.10 per diluted share, or $21.7 million, compared to $(0.03) per diluted share, or $(6.8) million, for the three months ended September 30, 2020. For the nine months ended September 30, 2021, our net income attributable to common stockholders was $0.37 per diluted share, or $81.7 million, compared to $0.11 per diluted share, or $24.6 million, for the nine months ended September 30, 2020.
•For the three months ended September 30, 2021, HTA’s FFO, as defined by NAREIT, was $97.3 million, or $0.44 per diluted share, compared to $0.31 per diluted share, or $68.5 million, for the three months ended September 30, 2020. For the nine months ended September 30, 2021, HTA’s FFO was $291.9 million, or $1.31 per diluted share, compared to $1.13 per diluted share, or $249.4 million, for the nine months ended September 30, 2020.
•For the three months ended September 30, 2021, HTALP’s FFO was $97.7 million, or $0.44 per diluted OP Unit, compared to $0.31 per diluted OP Unit, or $68.4 million, for the three months ended September 30, 2020. For the nine months ended September 30, 2021, HTALP’s FFO was $293.4 million, or $1.32 per diluted OP Unit, compared to $1.13 per diluted OP Unit, or $249.8 million, for the nine months ended September 30, 2020.
•For the three months ended September 30, 2021, HTA’s and HTALP’s Normalized FFO was $0.44 per diluted share and OP Unit, or $97.8 million, compared to $0.43 per diluted share and OP Unit, or $96.2 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, HTA’s and HTALP’s Normalized FFO was $1.32 per diluted share and OP Unit, or $293.7 million, compared to $1.28 per diluted share and OP Unit, or $282.9 million for the nine months ended September 30, 2020.
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•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 September 30, 2021, our Net Operating Income (“NOI”) was $131.7 million, compared to $130.1 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, our NOI was $394.8 million, compared to $381.6 million for the nine months ended September 30, 2020.
•For the three months ended September 30, 2021, our Same-Property Cash NOI increased 2.5%, or $2.8 million, to $115.2 million, compared to $112.3 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021, our Same-Property Cash NOI increased 2.1%, or $6.9 million, to $345.2 million, compared to $338.2 million for the nine months ended September 30, 2020.
•For additional information on our 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.
Key Market Focused Strategy and Investments
Over the last decade, we have been an active investor in the medical office sector. 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 17.4 million square feet of GLA, or 67%, of our portfolio located in these locations. The remaining 33% 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 September 30, 2021, approximately 94% 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 September 30, 2021, 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 17 of our top 20 markets.
•During the nine months ended September 30, 2021, we closed on $187.5 million worth of medical office investments totaling approximately 626,000 square feet of GLA. In addition, we funded $54.0 million of investments in real estate notes receivable.
Internal Growth through Proactive In-House Property Management and Leasing
We believe we have one of the largest full-service operating platforms 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 for us. 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 September 30, 2021, our in-house asset management and leasing platform operated approximately 24.8 million square feet of GLA, or 96% of our total portfolio.
•As of September 30, 2021, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 89.7% by GLA and our occupancy rate was 88.0% by GLA.
•We entered into new and renewal leases on approximately 0.7 million and 2.0 million square feet of GLA, or approximately 2.6% and 7.9% of the GLA of our total portfolio, during the three and nine months ended September 30, 2021, respectively.
•During the three and nine months ended September 30, 2021, tenant retention for the Same-Property portfolio was 83% and 76%, respectively. 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.
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Financial Strategy and Balance Sheet Flexibility
•As of September 30, 2021, we had total leverage, measured by debt less cash and cash equivalents to total capitalization, of 31.4%. Total liquidity was approximately $1.2 billion, inclusive of $950.0 million available on our unsecured revolving credit facility, $218.8 million of forward equity agreements, cash and cash equivalents of $12.8 million and $1.7 million of restricted cash for funds held in a 1031 exchange account as of September 30, 2021.
•As of September 30, 2021, the weighted average remaining term of our debt portfolio was 6.4 years.
Critical Accounting Policies
The complete list of our critical accounting policies was disclosed in our 2020 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
For detail on 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 novel coronavirus, or COVID-19 pandemic, continues to impact economies and markets worldwide. All our buildings have remained in operation throughout the course of the pandemic. However, we addressed periodic requests from a number of our tenants about their ability to defer payment of a portion of their rents for a limited duration. We evaluated each such request on a case by case basis. In 2020, which is the period that we believe constituted the majority of our COVID-related deferral requests, we approved deferral plans totaling approximately $11.1 million, of which approximately $10.8 million of these deferrals have been repaid through September 30, 2021. There are no material outstanding requests for assistance from tenants. Payments of rent deferrals are generally expected to be repaid within the next 3 to 6 months. As of September 30, 2021, we have not granted unilateral rent forgiveness in connection with our deferral program, however, we may do so in the future if conditions and the specific economics warrant the use of such measures.
In addition, in 2020 we entered into certain lease modifications in the form of early renewals where we provide concessions in the form of free rent, which averaged three months at the inception of the lease, in exchange for additional term, which, averaged approximately three years. During the nine months ended September 30, 2021, we have not entered into any material deferral arrangements or early renewal leases with substantive amounts of free rent or other forms of concession at the onset of the applicable lease as a result of COVID-19. Although we did not experience significant disruptions from the COVID-19 pandemic during the nine months ended September 30, 2021, should current and planned measures, including further development and delivery of vaccines and other measures intended to reduce or eliminate the spread of COVID-19, past and/or proposed economic stimulus, and other laws, acts and orders proposed or enacted by federal, state and local agencies or foreign governments, ultimately not be successful or limited in their efficacy, our business and the broader real estate industry may experience significant adverse consequences. These consequences include loss of revenues, increased expenses, increased costs of materials, difficulty in maintaining an active workforce, and constraints on our ability to secure capital or financing, among other factors.
Other than the above, we are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally and the risk factors previously discussed in Part I, Item 1A - Risk Factors, in our 2020 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 nine months ended September 30, 2021, we had investments with an aggregate gross purchase price of $189.2 million. During the nine months ended September 30, 2020, we had investments with an aggregate gross purchase price of $52.9 million. Subsequent to 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 and Nine Months Ended September 30, 2021 and 2020
As of September 30, 2021 and 2020, we owned and operated approximately 25.8 million and 25.1 million square feet of GLA, respectively, with a leased rate of 89.7% and 90.1%, respectively (including leases which have been executed, but which have not yet commenced), and an occupancy rate of 88.0% and 89.5%, respectively. All explanations are applicable to both HTA and HTALP unless otherwise noted.
Comparison of the three months ended September 30, 2021 and 2020, respectively, is set forth below (in thousands):
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2021 | 2020 | Change | % Change | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental income | $ | 189,832 | $ | 187,258 | $ | 2,574 | 1.4 | % | |||||||||||||||
| Interest and other operating income | 1,430 | 68 | 1,362 | NM | |||||||||||||||||||
| Total revenues | 191,262 | 187,326 | 3,936 | 2.1 | |||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental | 59,568 | 57,248 | 2,320 | 4.1 | |||||||||||||||||||
| General and administrative | 10,765 | 10,670 | 95 | 0.9 | |||||||||||||||||||
| Transaction | 137 | 125 | 12 | 9.6 | |||||||||||||||||||
| Depreciation and amortization | 76,056 | 75,892 | 164 | 0.2 | |||||||||||||||||||
| Interest expense | 23,331 | 23,136 | 195 | 0.8 | |||||||||||||||||||
| Total expenses | 169,857 | 167,071 | 2,786 | 1.7 | |||||||||||||||||||
| Gain on sale of real estate, net | 143 | — | 143 | NM | |||||||||||||||||||
| Loss on extinguishment of debt, net | — | (27,726) | 27,726 | 100.0 | |||||||||||||||||||
| Income from unconsolidated joint venture | 400 | 422 | (22) | (5.2) | |||||||||||||||||||
| Other income | 94 | 117 | (23) | (19.7) | |||||||||||||||||||
| Net income (loss) | $ | 22,042 | $ | (6,932) | $ | 28,974 | NM | ||||||||||||||||
| NOI | $ | 131,694 | $ | 130,078 | $ | 1,616 | 1.2 | % | |||||||||||||||
| Same-Property Cash NOI | $ | 115,158 | $ | 112,316 | $ | 2,842 | 2.5 | % | |||||||||||||||
Comparison of the nine months ended September 30, 2021 and 2020, respectively, is set forth below (in thousands):
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2021 | 2020 | Change | % Change | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental income | $ | 569,676 | $ | 551,459 | $ | 18,217 | 3.3 | % | |||||||||||||||
| Interest and other operating income | 1,694 | 488 | 1,206 | NM | |||||||||||||||||||
| Total revenues | 571,370 | 551,947 | 19,423 | 3.5 | |||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental | 176,556 | 170,310 | 6,246 | 3.7 | |||||||||||||||||||
| General and administrative | 32,254 | 32,348 | (94) | (0.3) | |||||||||||||||||||
| Transaction | 299 | 297 | 2 | 0.7 | |||||||||||||||||||
| Depreciation and amortization | 227,307 | 228,484 | (1,177) | (0.5) | |||||||||||||||||||
| Interest expense | 69,450 | 71,285 | (1,835) | (2.6) | |||||||||||||||||||
| Impairment | 16,825 | — | 16,825 | NM | |||||||||||||||||||
| Total expenses | 522,691 | 502,724 | 19,967 | 4.0 | |||||||||||||||||||
| Gain on sale of real estate, net | 32,896 | 1,991 | 30,905 | NM | |||||||||||||||||||
| Loss on extinguishment of debt, net | — | (27,726) | 27,726 | NM | |||||||||||||||||||
| Income from unconsolidated joint venture | 1,198 | 1,223 | (25) | (2.0) | |||||||||||||||||||
| Other income | 401 | 290 | 111 | 38.3 | |||||||||||||||||||
| Net income | $ | 83,174 | $ | 25,001 | $ | 58,173 | NM | ||||||||||||||||
| NOI | $ | 394,814 | $ | 381,637 | $ | 13,177 | 3.5 | % | |||||||||||||||
| Same-Property Cash NOI | $ | 345,158 | $ | 338,209 | $ | 6,949 | 2.1 | % | |||||||||||||||
*NM- not meaningful.
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Rental Income
For the three and nine months ended September 30, 2021 and 2020, respectively, rental income was comprised of the following (in thousands):
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2021 | 2020 | Change | % Change | ||||||||||||||||||||
| Contractual rental income | $ | 181,275 | $ | 176,708 | $ | 4,567 | 2.6 | % | |||||||||||||||
Straight-line rent and amortization of above and (below) market leases | 4,545 | 7,298 | (2,753) | (37.7) | |||||||||||||||||||
| Other rental revenue | 4,012 | 3,252 | 760 | 23.4 | |||||||||||||||||||
| Total rental income | $ | 189,832 | $ | 187,258 | $ | 2,574 | 1.4 | % | |||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2021 | 2020 | Change | % Change | ||||||||||||||||||||
| Contractual rental income | $ | 543,568 | $ | 521,175 | $ | 22,393 | 4.3 | % | |||||||||||||||
Straight-line rent and amortization of above and (below) market leases | 14,919 | 19,410 | (4,491) | (23.1) | |||||||||||||||||||
| Other rental revenue | 11,189 | 10,874 | 315 | 2.9 | |||||||||||||||||||
| Total rental income | $ | 569,676 | $ | 551,459 | $ | 18,217 | 3.3 | % | |||||||||||||||
Contractual rental income, which includes expense reimbursements, increased $4.6 million and $22.4 million for the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020. The increases were primarily due to additional contractual rental income of $6.5 million and $15.6 million from our 2020 and 2021 acquisitions, and contractual rent increases for the three and nine months ended September 30, 2021, partially offset by $2.8 million and $4.8 million of reduced contractual rental income as a result of the buildings we sold during 2020 and 2021 for the three and nine months ended September 30, 2021, respectively. In addition, during the nine months ended September 30, 2020, we recorded a non-recurring charge of $4.7 million of bad debt as a reduction in revenue.
Average starting and expiring base rents for new and renewal leases consisted of the following for the three and nine months ended September 30, 2021 and 2020, respectively (in thousands, except in average base rents per square foot of GLA):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
New and renewal leases: | |||||||||||||||||||||||
| Average starting base rents | $ | 23.89 | $ | 26.45 | $ | 24.50 | $ | 27.04 | |||||||||||||||
| Average expiring base rents | 20.35 | 24.70 | 21.74 | 25.84 | |||||||||||||||||||
| Square feet of GLA | 670 | 1,101 | 2,022 | 3,287 | |||||||||||||||||||
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 2021 had rents that we believed were at market rates. In general, leasing concessions vary depending on lease type, term, geography, and supply/demand dynamics.
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Tenant improvements, leasing commissions and tenant concessions for new and renewal leases consisted of the following for the three and nine months ended September 30, 2021 and 2020, respectively (in per square foot of GLA):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| New leases: | |||||||||||||||||||||||
| Tenant improvements | $ | 43.87 | $ | 21.02 | $ | 34.35 | $ | 38.16 | |||||||||||||||
Leasing commissions | 6.47 | 2.05 | 4.90 | 2.86 | |||||||||||||||||||
| Tenant concessions | 6.61 | 2.59 | 6.67 | 3.70 | |||||||||||||||||||
| Renewal leases: | |||||||||||||||||||||||
| Tenant improvements | $ | 11.04 | $ | 4.43 | $ | 6.99 | $ | 5.58 | |||||||||||||||
Leasing commissions | 2.27 | 2.07 | 2.17 | 2.87 | |||||||||||||||||||
| Tenant concessions | 0.14 | 0.94 | 0.15 | 1.99 | |||||||||||||||||||
The average term for new and renewal leases executed consisted of the following for the three and nine months ended September 30, 2021 and 2020, respectively (in years):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| New leases | 7.1 | 4.4 | 6.2 | 7.9 | |||||||||||||||||||
| Renewal leases | 4.5 | 7.7 | 4.1 | 5.4 | |||||||||||||||||||
Rental Expenses
For the three months ended September 30, 2021 and 2020, rental expenses attributable to our properties were $59.6 million and $57.2 million, respectively. For the nine months ended September 30, 2021 and 2020, rental expenses attributable to our properties were $176.6 million and $170.3 million, respectively. These increases in rental expenses were primarily due to $2.4 million and $5.1 million of additional rental expenses associated with our 2020 and 2021 acquisitions for the three and nine months ended September 30, 2021, respectively.
General and Administrative Expenses
For the three months ended September 30, 2021 and 2020, general and administrative expenses were $10.8 million and $10.7 million, respectively. For each of the nine months ended September 30, 2021 and 2020, general and administrative expenses were $32.3 million. For the three months ended September 30, 2021, general and administrative expenses included a reduction of approximately $(2.1) million in stock compensation expense principally related to the resignation of our former CEO net of new award activity with the appointments of our interim CEO and new board chairman, offset by approximately $0.5 million of incremental legal costs related to the whistleblower investigation, and increased costs related to our leasing efforts, travel-related expenses, professional services and other administrative costs.
Depreciation and Amortization Expense
For the three months ended September 30, 2021 and 2020, depreciation and amortization expense was $76.1 million and $75.9 million, respectively. For the nine months ended September 30, 2021 and 2020, depreciation and amortization expense was $227.3 million and $228.5 million, respectively. The slight variances were associated with our 2020 and 2021 acquisitions, offset by buildings we disposed of during 2020 and 2021.
Interest Expense
For the three months ended September 30, 2021 and 2020, interest expense was $23.3 million and $23.1 million, respectively. For the nine months ended September 30, 2021 and 2020, interest expense was $69.5 million and $71.3 million, respectively. The decreases in year-to-date interest expense is primarily due to lower average interest rates as compared to the same period in 2020.
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.
Impairment
For the nine months ended September 30, 2021, we recorded impairment charges of $16.8 million on two properties related to: (i) a purchase option included in a lease agreement that was exercised for a contractual sale price less than its carrying value; and (ii) an executed sales agreement for a sale price less than its carrying value. We recorded no impairment charges during the nine months ended September 30, 2020.
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Gain on Sale of Real Estate, net
For the nine months ended September 30, 2021, we realized a net gain of approximately $32.9 million, primarily as a result of the sale of a 13 property portfolio located in one or more of Tennessee and Virginia. For the nine months ended September 30, 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.
Net Income
For the three months ended September 30, 2021 and 2020, net income was $22.0 million and $(6.9) million, respectively. For the nine months ended September 30, 2021 and 2020, net income was $83.2 million and $25.0 million, respectively. The increases are primarily the result of gains associated with disposition of assets in non-key markets, as well as continued growth in our operations due to accretive acquisitions and improved operating efficiencies. Additionally, during the three and nine months ended September 30, 2020, we recorded a net loss on extinguishment of debt of approximately $27.7 million.
NOI and Same-Property Cash NOI
For the three months ended September 30, 2021 and 2020, NOI was $131.7 million and $130.1 million, respectively. For the nine months ended September 30, 2021 and 2020, NOI was $394.8 million and $381.6 million, respectively. The increases in NOI was primarily due to additional NOI from our 2020 and 2021 acquisitions of $5.0 million and $12.4 million for the three and nine months ended September 30, 2021, respectively, partially offset by $1.5 million and $2.7 million of reduced NOI as a result of the buildings we sold during 2020 and 2021 for the three and nine months ended September 30, 2021, respectively, and a reduction in straight-line rent from properties we owned for more than a year.
Same-Property Cash NOI increased 2.5% to $115.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Same-Property Cash NOI increased 2.1% to $345.2 million for the nine months ended September 30, 2021 compared to nine months ended September 30, 2020. The increases were primarily the result of rent escalations and 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) non-controlling income or loss from OP Units included in diluted shares (only applicable to the Company); and (iv) other normalizing adjustments, 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, non-controlling 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.
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The following is the reconciliation of HTA’s FFO and Normalized FFO to net income attributable to common stockholders for the three and nine months ended September 30, 2021 and 2020, respectively (in thousands, except per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | 21,672 | $ | (6,827) | $ | 81,713 | $ | 24,563 | |||||||||||||||
Depreciation and amortization expense related to investments in real estate | 75,264 | 74,848 | 224,814 | 225,354 | |||||||||||||||||||
| Gain on sale of real estate, net | (143) | — | (32,896) | (1,991) | |||||||||||||||||||
Impairment | — | — | 16,825 | — | |||||||||||||||||||
Proportionate share of joint venture depreciation and amortization | 487 | 468 | 1,462 | 1,443 | |||||||||||||||||||
| FFO attributable to common stockholders | $ | 97,280 | $ | 68,489 | $ | 291,918 | $ | 249,369 | |||||||||||||||
| Transaction expenses | 137 | 125 | 299 | 297 | |||||||||||||||||||
| Loss on extinguishment of debt, net | — | 27,726 | — | 27,726 | |||||||||||||||||||
| Non-controlling income from OP Units included in diluted shares | 370 | (105) | 1,461 | 438 | |||||||||||||||||||
Other normalizing adjustments (1) | — | — | — | 5,031 | |||||||||||||||||||
| Normalized FFO attributable to common stockholders | $ | 97,787 | $ | 96,235 | $ | 293,678 | $ | 282,861 | |||||||||||||||
| Net income (loss) attributable to common stockholders per diluted share | $ | 0.10 | $ | (0.03) | $ | 0.37 | $ | 0.11 | |||||||||||||||
FFO adjustments per diluted share, net | 0.34 | 0.34 | 0.94 | 1.02 | |||||||||||||||||||
FFO attributable to common stockholders per diluted share | $ | 0.44 | $ | 0.31 | $ | 1.31 | $ | 1.13 | |||||||||||||||
Normalized FFO adjustments per diluted share, net | 0.00 | 0.12 | 0.01 | 0.15 | |||||||||||||||||||
Normalized FFO attributable to common stockholders per diluted share | $ | 0.44 | $ | 0.43 | $ | 1.32 | $ | 1.28 | |||||||||||||||
Weighted average diluted common shares outstanding | 222,811 | 222,101 | 222,470 | 221,521 | |||||||||||||||||||
(1) For the nine months ended September 30, 2020, other normalizing adjustments includes the following: non-recurring bad debt of $4,672 thousand; incremental hazard pay to facilities employees of $314 thousand; and incremental personal protective equipment of $45 thousand.
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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 and nine months ended September 30, 2021 and 2020, respectively (in thousands, except per unit data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income (loss) attributable to common unitholders | $ | 22,042 | $ | (6,932) | $ | 83,174 | $ | 25,001 | |||||||||||||||
Depreciation and amortization expense related to investments in real estate | 75,264 | 74,848 | 224,814 | 225,354 | |||||||||||||||||||
| Gain on sale of real estate, net | (143) | — | (32,896) | (1,991) | |||||||||||||||||||
Impairment | — | — | 16,825 | — | |||||||||||||||||||
Proportionate share of joint venture depreciation and amortization | 487 | 468 | 1,462 | 1,443 | |||||||||||||||||||
| FFO attributable to common unitholders | $ | 97,650 | $ | 68,384 | $ | 293,379 | $ | 249,807 | |||||||||||||||
| Transaction expenses | 137 | 125 | 299 | 297 | |||||||||||||||||||
| Loss on extinguishment of debt, net | — | 27,726 | — | 27,726 | |||||||||||||||||||
Other normalizing adjustments (1) | — | — | — | 5,031 | |||||||||||||||||||
| Normalized FFO attributable to common unitholders | $ | 97,787 | $ | 96,235 | $ | 293,678 | $ | 282,861 | |||||||||||||||
| Net income (loss) attributable to common unitholders per diluted share | $ | 0.10 | $ | (0.03) | $ | 0.37 | $ | 0.11 | |||||||||||||||
| FFO adjustments per diluted OP Unit, net | 0.34 | 0.34 | 0.95 | 1.02 | |||||||||||||||||||
| FFO attributable to common unitholders per diluted OP Unit | $ | 0.44 | $ | 0.31 | $ | 1.32 | $ | 1.13 | |||||||||||||||
| Normalized FFO adjustments per diluted OP Unit, net | 0.00 | 0.12 | 0.00 | 0.15 | |||||||||||||||||||
| Normalized FFO attributable to common unitholders per diluted OP Unit | $ | 0.44 | $ | 0.43 | $ | 1.32 | $ | 1.28 | |||||||||||||||
| Weighted average diluted common OP Units outstanding | 222,811 | 222,101 | 222,470 | 221,521 | |||||||||||||||||||
(1) For the nine months ended September 30, 2020, other normalizing adjustments includes the following: non-recurring bad debt of $4,672 thousand; incremental hazard pay to facilities employees of $314 thousand; and incremental personal protective equipment of $45 thousand.
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; (iii) notes receivable interest income; and (iv) other normalizing adjustments. 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
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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.
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 and nine months ended September 30, 2021 and 2020, respectively (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net income (loss) | $ | 22,042 | $ | (6,932) | $ | 83,174 | $ | 25,001 | |||||||||||||||
| General and administrative expenses | 10,765 | 10,670 | 32,254 | 32,348 | |||||||||||||||||||
| Transaction expenses | 137 | 125 | 299 | 297 | |||||||||||||||||||
Depreciation and amortization expense | 76,056 | 75,892 | 227,307 | 228,484 | |||||||||||||||||||
Impairment | — | — | 16,825 | — | |||||||||||||||||||
Interest expense | 23,331 | 23,136 | 69,450 | 71,285 | |||||||||||||||||||
| Gain on sale of real estate, net | (143) | — | (32,896) | (1,991) | |||||||||||||||||||
Loss on extinguishment of debt, net | — | 27,726 | — | 27,726 | |||||||||||||||||||
| Income from unconsolidated joint venture | (400) | (422) | (1,198) | (1,223) | |||||||||||||||||||
| Other income | (94) | (117) | (401) | (290) | |||||||||||||||||||
| NOI | $ | 131,694 | $ | 130,078 | $ | 394,814 | $ | 381,637 | |||||||||||||||
| Straight-line rent adjustments, net | (3,012) | (5,711) | (10,408) | (12,673) | |||||||||||||||||||
| Amortization of (below) and above market leases/leasehold interests, net and other GAAP adjustments | (538) | (113) | (1,413) | (2,203) | |||||||||||||||||||
Notes receivable interest income | (1,264) | (11) | (1,273) | (152) | |||||||||||||||||||
Other normalizing adjustments (1) | — | — | — | 5,031 | |||||||||||||||||||
| Cash NOI | $ | 126,880 | $ | 124,243 | $ | 381,720 | $ | 371,640 | |||||||||||||||
Acquisitions not owned/operated for all periods presented and disposed properties Cash NOI | (5,245) | (2,245) | (15,775) | (8,158) | |||||||||||||||||||
| Redevelopment Cash NOI | (116) | (1,043) | (803) | (3,612) | |||||||||||||||||||
| Intended for sale Cash NOI | (6,361) | (8,639) | (19,984) | (21,661) | |||||||||||||||||||
Same-Property Cash NOI (2) | $ | 115,158 | $ | 112,316 | $ | 345,158 | $ | 338,209 | |||||||||||||||
(1) For the nine months ended September 30, 2020, other normalizing adjustments includes the following: non-recurring bad debt of $4,672 thousand, incremental hazard pay to facilities employees of $314 thousand, and incremental personal protective equipment of $45 thousand.
(2) Same-Property includes 421 and 414 buildings for the three and nine months ended September 30, 2021 and 2020, 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.
As of September 30, 2021, we had total liquidity of $1.2 billion, inclusive of $950.0 million available on our unsecured revolving credit facility, $218.8 million of unsettled forward equity agreements, cash and cash equivalents of $12.8 million and $1.7 million of restricted cash for funds held in a 1031 exchange account. We believe that we have sufficient liquidity and opportunities to obtain additional liquidity at our disposal to sustain operations for the foreseeable future.
On October 6, 2021, we entered into a third amended and restated revolving credit and term loan agreement (the “Credit Agreement”), which includes an unsecured revolving credit facility in an aggregate maximum principal amount of $1.0 billion (the “Revolver”) and a term loan facility in an aggregate maximum principal amount of $300.0 million (the “Term Loan”). The Credit Agreement amends and restates, in its entirety, the unsecured credit agreement referenced above, reduces our overall borrowing costs, and extends the maturities of the existing unsecured revolving credit facility to October 31, 2025.
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As of September 30, 2021, we had unencumbered assets with a gross book value of $8.0 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.
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 $20 million to $25 million per quarter. Although we cannot provide assurance that we will not exceed these estimated expenditure levels, we believe our liquidity of $1.2 billion allows us the flexibility to fund such capital expenditures as may be necessary or advisable.
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 nine months ended September 30, 2021 and 2020, respectively (in thousands):
| Nine Months Ended September 30, | |||||||||||||||||
| 2021 | 2020 | Change | |||||||||||||||
| Cash, cash equivalents and restricted cash - beginning of period | $ | 118,765 | $ | 37,616 | $ | 81,149 | |||||||||||
| Net cash provided by operating activities | 271,618 | 269,668 | 1,950 | ||||||||||||||
| Net cash used in investing activities | (257,332) | (159,919) | (97,413) | ||||||||||||||
| Net cash used in financing activities | (113,587) | 83,881 | (197,468) | ||||||||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | 19,464 | $ | 231,246 | $ | (211,782) | |||||||||||
Net cash provided by operating activities increased in 2021 primarily due to the impact of our 2020 and 2021 acquisitions and contractual rent increases, partially offset by our 2020 and 2021 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 nine months ended September 30, 2021, net cash used in investing activities primarily related to investments in real estate of $147.3 million, capital expenditures of $78.0 million, advances on real estate notes receivable of $66.5 million, and development of real estate of $48.5 million, partially offset by proceeds from the sale of real estate of $67.6 million and collection of real estate notes receivable of $15.4 million. For the nine months ended September 30, 2020, net cash used in investing activities primarily related to capital expenditures of $59.0 million, investments in real estate of $52.6 million, development of real estate of $49.5 million, and 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 nine months ended September 30, 2021, net cash used in financing activities primarily related to dividends paid to holders of our common stock of $210.0 million, distributions paid to non-controlling interest of limited partners of $3.9 million, and the repurchase and cancellation of common stock of $3.4 million, partially offset by proceeds from issuance of common stock of $53.7 million, and by net borrowings under our revolving credit facility of $50.0 million. For the nine months ended September 30, 2020, net cash provided by financing activities primarily related to proceeds from unsecured senior notes of $793.6 million and proceeds from issuance of common stock of $50.0 million partially offset by payments on unsecured senior notes of $300.0 million, dividends paid to holders of our common stock of $205.9 million, payments on our secured mortgage loans of $114.1 million, and net payments on our unsecured revolving credit facility of $100.0 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 nine months ended September 30, 2021, we paid cash dividends of $210.0 million on our common stock. In October 2021 for the quarter ended September 30, 2021, we paid cash dividends on our common stock of $71.8 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 September 30, 2021, our leverage ratio, measured by debt less cash and cash equivalents to total capitalization, was 31.4%.
As of September 30, 2021, we had debt outstanding of $3.1 billion and the weighted average interest rate therein was 2.86% 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 September 30, 2021, $950.0 million was available on our $1.0 billion unsecured revolving credit facility originally maturing in June 2022. Subsequent to September 30, 2021, the unsecured revolving credit facility was amended and restated, extending maturity to October 2025.
Unsecured Term Loans
As of September 30, 2021, we had $500.0 million of unsecured term loans outstanding, comprised of $300.0 million under our Unsecured Credit Agreement originally maturing in 2023 and extended to 2025 subsequent to September 30, 2021, and $200.0 million under our unsecured term loan maturing in 2024.
Unsecured Senior Notes
As of September 30, 2021, we had $2.55 billion of unsecured senior notes outstanding, comprised of $600.0 million of senior notes maturing in 2026, $500.0 million of senior notes maturing in 2027, $650.0 million of senior notes maturing in 2030 and $800.0 million of senior notes maturing in 2031.
Commitments and Contingencies
As of September 30, 2021, we had unfunded loan commitments totaling $15.4 million. See Note 10 - Commitments and Contingencies in the accompanying condensed consolidated financial statements for a further discussion of our commitments and contingencies.
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 September 30, 2021, 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 nine months ended September 30, 2021, 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 2020 Annual Report on Form 10-K. On March 5, 2021, the United Kingdom Financial Conduct Authority (“FCA”), a regulator of financial services firms and financial markets in the United Kingdom, formally announced the cessation of LIBOR as of June 30, 2023. The Alternative Reference Rates Committee, a group of private-market participant convened by the U.S. Federal Reserve Board and the New York Federal Reserve, has recommended Secured Overnight Financing Rate (“SOFR”) as a more robust reference rate alternative to U.S. dollar LIBOR. Concurrent with the FCA’s announcement, the International Swaps and Derivatives Association (“ISDA”) determined that the announcement constituted an index cessation event and consequently the fallback spread adjustments were fixed and published, with the spread adjustment between U.S. dollar 1-Month LIBOR and SOFR at 0.11%. Borrowings under our Unsecured Credit Agreement and our $200 million unsecured term loan accrue interest at a rate equal to LIBOR, plus a margin, as specified in Note 8 - Debt. On October 6, 2021, we entered into a third amended and restated revolving credit and term loan agreement, extending the maturities under the existing Unsecured Credit Agreement to October 31, 2025. However, the credit agreement, as amended, includes customary LIBOR replacement terms. The $200 million unsecured term loan matures on January 15, 2024, however, the loan agreement includes provisions for an alternative rate of interest in the event LIBOR is no longer a widely recognized benchmark rate. As of September 30, 2021, the fallback rate under SOFR was 0.16%. Comparatively, the U.S. dollar 1-Month LIBOR rate as of September 30, 2021 was 0.08%. Consequently, we do not anticipate the transition from LIBOR will have a material impact on our financial statements or results of operations.
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 September 30, 2021, 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 September 30, 2021.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021 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.
November 5, 2021
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 September 30, 2021, 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 September 30, 2021.
There were no changes in HTALP’s internal control over financial reporting that occurred during the quarter ended September 30, 2021 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.
November 5, 2021
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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 supplements the risk factors disclosed in Part I, Item 1A - Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 Form 10-K”). The following risk factor disclosure should be read in conjunction with the risk factors described in our 2020 Form 10-K. The discussion of risk factors, as so supplemented, sets forth the material risk factors that could materially affect our business, financial condition or future results. The risks described in our 2020 Form 10-K and this Quarterly Report on Form 10-Q are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely impact our business, financial condition, results of operations and cash flows.
Our success depends to a significant degree upon the continued contributions of our Board members, our interim Chief Executive Officer and other key personnel, each of whom would be difficult to replace. If we are unable to employ a satisfactory successor to our interim Chief Executive Officer or if we were to lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating results could suffer.
Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our Board of Directors, our executive officers and our other employees. A special committee of our Board is currently engaged in a search process to identify and employ a successor to our interim Chief Executive Officer who was appointed following the resignation of our former Chairman and Chief Executive Officer effective August 2, 2021. If we are unable to employ a satisfactory replacement Chief Executive Officer or are unable to do so on a timely basis, our operating results could suffer. Our Board of Directors establishes important policies, governance objectives and strategic goals, and our management team serves a critical role in the identification and acquisition of investments, the determination and finalization of our financing arrangements, the asset management of our investments, and the operation of our day-to-day activities. Our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in our 2020 From 10-K or other filings with the Securities and Exchange Commission. We rely primarily on the management ability of our executive officers and the governance by the members of our Board of Directors, each of whom would be difficult to replace. We do not have any key-person life insurance on our executive officers. Although we have entered into employment agreements with each of our executive officers, these employment agreements contain various termination and resignation rights. If we were to lose the benefit of the experience, efforts and abilities of these executives, without satisfactory replacements, our operating results could suffer. In addition, if any member of our Board of Directors were to resign, we would lose the benefit of such director’s governance expertise and experience, and familiarity with us and the sector within which we operate. As a result of the foregoing, we may be unable to achieve our investment objectives or to pay distributions to our stockholders.
Our recently substantially completed internal investigation into circumstances relating to reports pursuant to our whistleblower policy could result in adverse consequences that would adversely affect our financial condition or results of operations.
We, with the assistance of outside legal counsel, and our board’s audit committee, with the assistance of independent legal counsel, recently substantially completed an internal investigation into circumstances relating to reports pursuant to our whistleblower policy. On November 4, 2021, we filed a Current Report on Form 8-K in which we reported on the results of the internal investigation. Although we concluded that the matters that were the subject of the ongoing investigation have not had a material adverse impact on the Company’s financial condition or results of operations, we cannot exclude the possibility of unanticipated adverse consequences of the internal investigation, including, but not limited to, the possibility that the Securities and Exchange Commission or other governmental authorities or regulators may commence investigations into the facts underlying our internal investigation; the consequences of any such government investigations, including the imposition of civil or criminal penalties; the risk that we may become subject to shareholder lawsuits, the defense of which may be costly; potential reputational harm resulting from the facts underlying the internal investigation; the possibility that executives or other employees may resign or be terminated; the impact of the investigation on historical financial statements; the effect of the internal investigation on our conclusions regarding the effectiveness of our internal control over financial reporting and our disclosure controls and procedures and on our ability to timely file the reports we are required to file with the Securities and Exchange Commission.
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Significant stockholders may attempt to effect changes at our company or acquire control over our company, which could impact the pursuit of business strategies and adversely affect our results of operations and financial condition.
We recently received communications from an investor regarding our governance and strategic direction. Other investors could take steps to involve themselves in our governance and strategic direction. Activist investors may attempt to effect changes in our strategic direction and how we are governed, or to acquire control over the company. Some investors seek to increase short-term stockholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. While we welcome varying opinions from all shareholders, activist campaigns that contest or conflict with our strategic direction could have an adverse effect on our results of operations and financial condition as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our board and senior management from the pursuit of business strategies. In addition, perceived uncertainties as to our future direction as a result of changes to the composition of our board may lead to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, may cause concern to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
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 September 30, 2021, 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 | ||||||||||||||||||||||
| July 1, 2021 to July 31, 2021 | 426 | $ | 27.25 | — | — | |||||||||||||||||||||
| August 1, 2021 to August 31, 2021 | — | — | — | — | ||||||||||||||||||||||
| September 1, 2021 to September 30, 2021 | — | — | — | — | ||||||||||||||||||||||
| (1) Purchases represent shares of common stock withheld by us to satisfy withholding obligations on the vesting of restricted shares. 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 September 30, 2021 (and are numbered in accordance with Item 601 of Regulation S-K).
| 1.1 | |||||
| 1.2 | |||||
| 1.3 | |||||
| 1.4 | |||||
| 1.5 | |||||
| 1.6 | |||||
| 1.7 | |||||
| 1.8 | |||||
| 1.9 | |||||
| 1.10 | |||||
| 1.11 | |||||
| 1.12 | |||||
| 1.13 | |||||
| 1.14 | |||||
| 1.15 | |||||
| 1.16 | |||||
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| 1.17 | |||||
| 1.18 | |||||
| 5.1 | |||||
| 10.1† | |||||
| 10.2 | |||||
| 10.3 | |||||
| 23.1 | |||||
| 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. | ||||
| † | Compensatory plan or arrangement. | ||||
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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/ Peter N. Foss | Interim President and Chief Executive Officer | |||||||||
| Peter N. Foss | (Principal Executive Officer) | ||||||||||
| Date: | November 5, 2021 | ||||||||||
| By: | /s/ Robert A. Milligan | Chief Financial Officer | |||||||||
| Robert A. Milligan | (Principal Financial Officer and Principal Accounting Officer) | ||||||||||
| Date: | November 5, 2021 | ||||||||||
| Healthcare Trust of America Holdings, LP | |||||||||||
| By: | Healthcare Trust of America, Inc., | ||||||||||
| its General Partner | |||||||||||
| By: | /s/ Peter N. Foss | Interim President and Chief Executive Officer | |||||||||
| Peter N. Foss | (Principal Executive Officer) | ||||||||||
| Date: | November 5, 2021 | ||||||||||
| By: | /s/ Robert A. Milligan | Chief Financial Officer | |||||||||
| Robert A. Milligan | (Principal Financial Officer and Principal Accounting Officer) | ||||||||||
| Date: | November 5, 2021 | ||||||||||
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