Healthcare Realty Trust Inc 10-Q for FY2020 Q3
Healthcare Realty Trust Inc (HR)
10-Q
2020-11-04
For: 2020-09-30
View Original
Added on
April 07, 2026
About this 10-Q
Healthcare Realty Trust Inc filed this 10-Q on November 4, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $187.33M
- up 7.0% from $175M a year earlier
- Net loss
- $6.83M
- compared with a net loss of $8.46M a year earlier
- Diluted EPS
- -$0.03
- compared with -$0.04 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, 2020
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-35568 (Healthcare Trust of America, Inc.)
Commission File Number: 333-190916 (Healthcare Trust of America Holdings, LP)
_________________________
(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, 2020, there were 218,573,791 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, 2020, of Healthcare Trust of America, Inc. (“HTA”), a Maryland corporation, and Healthcare Trust of America Holdings, LP (“HTALP”), a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this Quarterly Report to “we,” “us,” “our,” “the Company” or “our Company” refer to HTA and HTALP, collectively, and all references to “common stock” shall refer to the Class A common stock of HTA.
HTA operates as a real estate investment trust (“REIT”) and is the general partner of HTALP. As of September 30, 2020, HTA owned a 98.4% partnership interest in HTALP, and other limited partners, including some of HTA’s directors, executive officers and their affiliates, owned the remaining partnership interest (including the long-term incentive plan (“LTIP” Units)) in HTALP. As the sole general partner of HTALP, HTA has the full, exclusive and complete responsibility for HTALP’s day-to-day management and control, including its compliance with the Securities and Exchange Commission (“SEC”) filing requirements.
We believe it is important to understand the few differences between HTA and HTALP in the context of how we operate as an integrated consolidated company. HTA operates as an umbrella partnership REIT structure in which HTALP and its subsidiaries hold substantially all of the assets. HTA’s only material asset is its ownership of partnership interests of HTALP. As a result, HTA does not conduct business itself, other than acting as the sole general partner of HTALP, issuing public equity from time to time and guaranteeing certain debts of HTALP. HTALP conducts the operations of the business and issues publicly-traded debt, but has no publicly-traded equity. Except for net proceeds from public equity issuances by HTA, which are generally contributed to HTALP in exchange for partnership units of HTALP, HTALP generates the capital required for the business through its operations and by direct or indirect incurrence of indebtedness or through the issuance of its partnership units (“OP Units”).
Noncontrolling interests, stockholders’ equity and partners’ capital are the primary areas of difference between the condensed consolidated financial statements of HTA and HTALP. Limited partnership units in HTALP are accounted for as partners’ capital in HTALP’s condensed consolidated balance sheets and as a noncontrolling interest reflected within equity in HTA’s condensed consolidated balance sheets. The differences between HTA’s stockholders’ equity and HTALP’s partners’ capital are due to the differences in the equity issued by HTA and HTALP, respectively.
We believe combining the Quarterly Reports of HTA and HTALP, including the notes to the condensed consolidated financial statements, into this single Quarterly Report results in the following benefits:
•enhances stockholders’ understanding of HTA and HTALP by enabling stockholders to view the business as a whole in the same manner that management views and operates the business;
•eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this Quarterly Report applies to both HTA and HTALP; and
•creates time and cost efficiencies through the preparation of a single combined Quarterly Report instead of two separate Quarterly Reports.
In order to highlight the material differences between HTA and HTALP, this Quarterly Report includes sections that separately present and discuss areas that are materially different between HTA and HTALP, including:
•the condensed consolidated financial statements;
•certain accompanying notes to the condensed consolidated financial statements, including Note 8 - Debt, Note 11 - Stockholders’ Equity and Partners’ Capital, Note 13 - Per Share Data of HTA, and Note 14 - Per Unit Data of HTALP;
•as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), the Funds From Operations (“FFO”) and Normalized FFO in Part 1, Item 2 of this Quarterly Report;
•the Controls and Procedures in Part 1, Item 4 of this Quarterly Report; and
•the Certifications of the Chief Executive Officer and the Chief Financial Officer included as Exhibits 31 and 32 to this Quarterly Report.
In the sections of this Quarterly Report that combine disclosure for HTA and HTALP, this Quarterly Report refers to actions or holdings as being actions or holdings of the Company. Although HTALP (directly or indirectly through one of its subsidiaries) is generally the entity that enters into contracts, holds assets and issues or incurs debt, management believes this presentation is appropriate for the reasons set forth above and because the business of the Company is a single integrated enterprise operated through HTALP.
2
HEALTHCARE TRUST OF AMERICA, INC. AND
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
TABLE OF CONTENTS
| Page | ||||||||
| Healthcare Trust of America, Inc. | ||||||||
| Healthcare Trust of America Holdings, LP | ||||||||
| Notes for Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP | ||||||||
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
(Unaudited)
| September 30, 2020 | December 31, 2019 | |||||||||||||
| ASSETS | ||||||||||||||
| Real estate investments: | ||||||||||||||
| Land | $ | $ | ||||||||||||
| Building and improvements | ||||||||||||||
| Lease intangibles | ||||||||||||||
| Construction in progress | ||||||||||||||
| Accumulated depreciation and amortization | ( | ( | ||||||||||||
Real estate investments, 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 | ||||||||||||||
| 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) income | ( | |||||||||||||
| Cumulative dividends in excess of earnings | ( | ( | ||||||||||||
| Total stockholders’ equity | ||||||||||||||
| Noncontrolling 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, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental income | $ | $ | $ | $ | |||||||||||||||||||
Interest and other operating income | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Transaction | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
Interest expense | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Gain (loss) on sale of real estate, net | ( | ||||||||||||||||||||||
| Loss on extinguishment of debt, net | ( | ( | ( | ( | |||||||||||||||||||
| Income from unconsolidated joint venture | |||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | ( | $ | $ | |||||||||||||||||
Net loss (income) attributable to noncontrolling interests(1) | ( | ( | |||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | ( | $ | ( | $ | $ | |||||||||||||||||
Earnings per common share - basic: | |||||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | ( | $ | ( | $ | $ | |||||||||||||||||
Earnings per common share - diluted: | |||||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | ( | $ | ( | $ | $ | |||||||||||||||||
Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
(1) Includes amounts attributable to redeemable noncontrolling interests for the nine months ended September 30, 2019.
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net (loss) income | $ | ( | $ | ( | $ | $ | |||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Change in unrealized gains (losses) on cash flow hedges | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Total comprehensive (loss) income | ( | ( | |||||||||||||||||||||
| Comprehensive loss (income) attributable to noncontrolling interests | ( | ( | |||||||||||||||||||||
| Total comprehensive (loss) income 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 | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2018 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Share-based award transactions, net | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | ( | ( | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Redemption of noncontrolling interest and other | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | ( | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2019 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of OP Units in HTALP | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Share-based award transactions, net | ( | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | ( | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Redemption of noncontrolling interest and other | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | ( | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2019 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Issuance of limited partner OP Units in connection with acquisitions | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Share-based award transactions, net | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Repurchase and cancellation of common stock | ( | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||
Redemption of noncontrolling interest and other | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Balance as of September 30, 2019 | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
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 | Noncontrolling 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 noncontrolling 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 noncontrolling 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 noncontrolling interest and other | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Balance as of September 30, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
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, | |||||||||||
| 2020 | 2019 | ||||||||||
| 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 | |||||||||||
| (Gain) loss 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 noncontrolling interest of limited partners | ( | ( | |||||||||
| Net cash provided by (used in) 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, 2020 | December 31, 2019 | |||||||||||||
| ASSETS | ||||||||||||||
| Real estate investments: | ||||||||||||||
| Land | $ | $ | ||||||||||||
| Building and improvements | ||||||||||||||
| Lease intangibles | ||||||||||||||
| Construction in progress | ||||||||||||||
| Accumulated depreciation and amortization | ( | ( | ||||||||||||
Real estate investments, 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 | ||||||||||||||
| 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 per unit data)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental income | $ | $ | $ | $ | |||||||||||||||||||
Interest and other operating income | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Transaction | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Gain (loss) on sale of real estate, net | ( | ||||||||||||||||||||||
| Loss on extinguishment of debt, net | ( | ( | ( | ( | |||||||||||||||||||
| Income from unconsolidated joint venture | |||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | ( | $ | $ | |||||||||||||||||
Net income attributable to noncontrolling interests | ( | ||||||||||||||||||||||
| Net (loss) income attributable to common unitholders | $ | ( | $ | ( | $ | $ | |||||||||||||||||
Earnings per common OP Unit - basic: | |||||||||||||||||||||||
| Net (loss) income attributable to common unitholders | $ | ( | $ | ( | $ | $ | |||||||||||||||||
Earnings per common OP Unit - diluted: | |||||||||||||||||||||||
| Net (loss) income 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 (LOSS)
(In thousands)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net (loss) income | $ | ( | $ | ( | $ | $ | |||||||||||||||||
| Other comprehensive income (loss) | |||||||||||||||||||||||
| Change in unrealized gains (losses) on cash flow hedges | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Total comprehensive (loss) income | ( | ( | |||||||||||||||||||||
Comprehensive income attributable to noncontrolling interests | ( | ||||||||||||||||||||||
| Total comprehensive (loss) income 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, 2018 | $ | $ | $ | ||||||||||||||||||||||||||
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, 2019 | |||||||||||||||||||||||||||||
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, 2019 | |||||||||||||||||||||||||||||
Issuance of general partner OP 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 loss | — | ( | — | ( | ( | ||||||||||||||||||||||||
| Other comprehensive income | — | — | |||||||||||||||||||||||||||
| Balance as of September 30, 2019 | $ | $ | $ | ||||||||||||||||||||||||||
13
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 | $ | $ | $ | ||||||||||||||||||||||||||
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, | |||||||||||
| 2020 | 2019 | ||||||||||
| 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 | |||||||||||
| (Gain) loss 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 noncontrolling interests | ( | ( | |||||||||
| Net cash provided by (used in) 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 33 states within the United States, and we lease space to tenants primarily consisting of health systems, research and academic institutions, and various sized physician practices. Through our full-service operating platform, we provide leasing, asset management, acquisitions, development and other related services for our properties.
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
Reclassifications
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our opinion, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such results may be less favorable for the full year. Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2019 Annual Report on Form 10-K.
Principles of Consolidation
16
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
common stock is recorded as a component of equity. As of September 30, 2020 and December 31, 2019, there were approximately 3.5 3.8
VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following: (i) the power to direct the activities that most significantly impact the entity’s economic performance; (ii) the obligation to absorb the expected losses of the entity; and (iii) the right to receive the expected returns of the entity. We consolidate our investment in VIEs when we determine that we are the primary beneficiary. A primary beneficiary is one that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. The HTALP operating partnership and our other joint venture arrangements are VIEs because the limited partners in those partnerships, although entitled to vote on certain matters, do not possess kick-out rights or substantive participating rights. Additionally, we determined that we are the primary beneficiary of our VIEs. Accordingly, we consolidate our interests in the HTALP operating partnership and in our other joint venture arrangements. However, because we hold what is deemed a majority voting interest in the HTALP operating partnership and our other joint venture arrangements, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs. We will evaluate on an ongoing basis the need to consolidate entities based on the standards set forth in GAAP as described above.
Use of Estimates
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying condensed consolidated balance sheets to the combined amounts shown on the accompanying condensed consolidated statements of cash flows (in thousands):
| September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
Revenue Recognition
17
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Investments in Real Estate
Depreciation expense of buildings and improvements for the three months ended September 30, 2020 and 2019 was $59.2 million and $54.9 million, respectively. Depreciation expense of buildings and improvements for the nine months ended September 30, 2020 and 2019 was $176.4 million and $158.9 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 2020 coronavirus ("COVID-19") pandemic, many lessors may elect to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in Accounting Standards Codification (“ASC”) Topic 842 ("Topic 842") addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions getting rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic. In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, we would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows us, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. In conformity with this guidance, we have elected to apply such relief and will use the election so as not to perform a lease by lease analysis where conditions warrant. The Lease Modification Q&A had no material impact on our condensed consolidated financial statements as of and for the three and nine months ended September 30, 2020, however, its future impact to us is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by us at the time of entering into any such concessions.
For the three and nine months ended September 30, 2020, 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 above was utilized, which provided relief from requiring a lease by lease analysis pursuant to Topic 842. These deferrals are generally for up to 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 total, we have approved deferral plans that total approximately $11.0 million, of which approximately $3.7 million have been repaid through October 28, 2020.
Credit Losses
18
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Redeemable Noncontrolling Interests
Unconsolidated Joint Ventures
Recently Issued or Adopted Accounting Pronouncements
Recently Adopted Accounting Pronouncements
ASU 2016-13, Financial Instruments Credit Losses; Measurement of Credit Losses on Financial Instruments and ASU 2018-19, 2019-04 and 2019-05, Improvements to Topic 326, Financial Instruments-Credit Losses
In June 2016, the FASB issued ASU 2016-13, which is intended to improve financial reporting by requiring more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. ASU 2016-13 requires that financial statement assets measured at an amortized cost be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis. ASU 2018-19 also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of these receivables should be accounted for in accordance with Topic 842, Leases. ASU 2019-04 provides clarification on the measurement, presentation and disclosure of credit losses on financial assets. ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis for comparability to any new financial assets that elect the fair value option. We adopted, on a modified-retrospective basis, ASU 2016-13, ASU 2018-19, ASU 2019-04 and ASU 2019-05 collectively as of January 1, 2020. The adoption did not have a material effect on our financial statements and related footnotes. See the "Credit Losses" section above for further details.
ASU 2018-13, Fair Value Measurement; Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, which modifies the disclosure requirements on fair value measurements in Topic 820 as follows: (a) disclosure removals: (i) the amount of and reasons for transfers between Level 1 and Level 2; (ii) the policy for timing of transfers between levels; and (iii) the valuation process for Level 3 fair value measurements; (b) disclosure modifications: (i) no requirement to disclose the timing of liquidation unless the investee has communicated the timing to the reporting entity or announced the timing publicly; and (ii) for Level 3 fair value measurements, a narrative description of measurement uncertainty at the reporting date, not the sensitivity to future changes; and (c) disclosure additions: (i) for recurring Level 3 measurements, disclose the changes in unrealized gains and losses for the period included in OCI and the statement of comprehensive income; and (ii) for Level 3 fair value measurements in the table of significant input, disclose the range and weighted average of the significant unobservable inputs and the way it is calculated. We adopted ASU 2018-13 as of January 1, 2020 and as of September 30, 2020 there were no transfers between levels and no Level 3 inputs for the period. Refer to Note 12 - Fair Value of Financial Instruments in the accompanying notes to the condensed consolidated financial statements for more detail relating to our fair value disclosures.
19
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Recently Issued Accounting Pronouncements
ASU 2020-04, Reference Rate Reform (Topic 848)
In March 2020, the FASB issued ASU 2020-04, which is intended to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Reference rate reform is necessary due to the phase out of LIBOR at the end of 2021. The ASU is optional and provides relief around modification and hedge accounting as it specifically arises from changing reference rates, in addition to optional expedients for cash flow hedges, which the Company has. For information related to the Company's current cash flow hedges, refer to Note 9 - Derivative Financial Instruments and Hedging Activities. The amendment is effective from March 12, 2020 through December 31, 2022. The Company is evaluating how the transition away from LIBOR will effect the Company and if the guidance in this standard will be adopted, however, if adopted, we do not expect that this ASU will have a material impact on our financial statements.
3. Investments in Real Estate
For the nine months ended September 30, 2020, our investments had an aggregate purchase price of $52.9 million. As part of these investments, we incurred approximately $0.3 million of capitalized costs. The allocations for these investments, in which we own a controlling financial interest, are set forth below in the aggregate for the nine months ended September 30, 2020 and 2019, respectively (in thousands):
| Nine Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Land | $ | $ | |||||||||
| Building and improvements | |||||||||||
| In place leases | |||||||||||
| Below market leases | ( | ( | |||||||||
| Above market leases | |||||||||||
| Below market leasehold interests | ( | ||||||||||
| Net real estate assets acquired | |||||||||||
| Other, net | |||||||||||
| Aggregate purchase price | $ | $ | |||||||||
The acquired intangible assets and liabilities referenced above had weighted average lives of the following terms for the nine months ended September 30, 2020 and 2019, respectively (in years):
| Nine Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Acquired intangible assets | |||||||||||
| Acquired intangible liabilities | |||||||||||
4. Dispositions and Impairment
Dispositions
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 of approximately $2.0 million. During the nine months ended September 30, 2019, we completed the disposition of three MOB's in Hilton Head, South Carolina for a gross sales price of $1.2 million, resulting in a net loss of $37 thousand.
Impairment
20
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
Intangible assets and liabilities consisted of the following as of September 30, 2020 and December 31, 2019, respectively (in thousands, except weighted average remaining amortization terms):
| September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||
| 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 | $ | $ | |||||||||||||||||||||
The following is a summary of the net intangible amortization for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
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
Receivables and other assets consisted of the following as of September 30, 2020 and December 31, 2019, respectively (in thousands):
| September 30, 2020 | December 31, 2019 | ||||||||||
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 | |||||||||||
| Derivative financial instruments - interest rate swaps | |||||||||||
| Finance ROU asset, net | |||||||||||
Insurance receivables (1) | |||||||||||
| Held for sale assets | |||||||||||
| Total | $ | $ | |||||||||
(1) Amount primarily related to an involuntary conversion at one of our properties in 2019 for the total amount of $3.7 million. In May 2020, this amount was adjusted to $2.1 million to reflect the revision in damages incurred and corresponding final agreement between HTA and our insurance carrier. Pursuant to applicable accounting guidance, we deemed the receipt of funds from the Company's insurance carrier probable and expect the funds to fully cover, less our immaterial
21
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following is a summary of the amortization of deferred leasing costs and financing costs for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
Amortization expense related to deferred leasing costs | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense related to deferred financing costs | |||||||||||||||||||||||
7. Leases
For the three and nine months ended September 30, 2020 and 2019, one
Lessee - Maturity of Lease Liabilities
The following table summarizes the future minimum lease obligations of our operating leases as of September 30, 2020 (in thousands):
| Year | Operating Leases | Finance Leases | ||||||||||||
| 2020 | $ | $ | ||||||||||||
| 2021 | ||||||||||||||
| 2022 | ||||||||||||||
| 2023 | ||||||||||||||
| 2024 | ||||||||||||||
| 2025 | ||||||||||||||
| 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, 2020 and 2019, we recognized $186.3 million and $173.1 million, respectively, of rental and other lease-related income related to our operating leases, of which $42.7 million and $39.1 million, respectively, were variable lease payments. For the nine months ended September 30, 2020 and 2019, we recognized $546.8 million and $511.5 million, respectively, of rental and other lease-related income related to our operating leases, of which $127.3 million and $115.2 million, respectively, were variable lease payments.
The following table summarizes the future minimum rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of September 30, 2020 (in thousands):
| Year | Amount | |||||||
| 2020 | $ | |||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
22
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
8. Debt
Debt consisted of the following as of September 30, 2020 and December 31, 2019, respectively (in thousands):
| September 30, 2020 | December 31, 2019 | ||||||||||
| 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
In 2017, HTALP entered into an amended and restated $1.3 billion unsecured credit agreement (the “Unsecured Credit Agreement”) which increased the amount available under the unsecured revolving credit facility to $1.0 billion and extended the maturities of the unsecured revolving credit facility to June 30, 2022 and for the $300.0 million unsecured term loan referenced below to February 1, 2023. The maximum principal amount of the Unsecured Credit Agreement may be increased by up to $750.0 million, subject to certain conditions, for a total principal amount of $2.05 billion.
Borrowings under the unsecured revolving credit facility accrue interest at a rate equal to adjusted LIBOR, plus a margin ranging from 0.83 % to 1.55 % per annum based on our credit rating. We also pay a facility fee ranging from 0.13 % to 0.30 % per annum on the aggregate commitments under the unsecured revolving credit facility. As of September 30, 2020, HTALP had no outstanding balance under this unsecured revolving credit facility. The current margin associated with any future borrowings is 1.00 % per annum and the facility fee was 0.20 % per annum.
Unsecured Term Loan due 2023
In 2017, we entered into the Unsecured Credit Agreement as noted above. As part of this agreement, we obtained a $300.0 million unsecured term loan that was guaranteed by HTA with a maturity date of February 1, 2023. Borrowings under this unsecured term loan accrue interest equal to adjusted LIBOR, plus a margin ranging from 0.90 % to 1.75 % per annum based on our credit rating. The margin associated with our borrowings as of September 30, 2020 was 1.10 % per annum. Including the impact of the interest rate swaps associated with our unsecured term loan, the interest rate was 2.52 % per annum, based on our current credit rating. As of September 30, 2020, HTALP had $300.0 million under this unsecured term loan outstanding.
$200.0 Million Unsecured Term Loan due 2024
In 2018, HTALP entered into a modification of our $200.0 million unsecured term loan with a maturity date of January 15, 2024. Borrowings under the unsecured term loan accrue interest at a rate equal to LIBOR, plus a margin ranging from 0.75 % to 1.65 % per annum based on our credit rating. The margin associated with our borrowings as of September 30, 2020 was 1.00 % per annum. HTALP had interest rate swaps on the balance, which resulted in a fixed interest rate at 2.32 % per annum, based on our current credit rating. As of September 30, 2020, HTALP had $200.0 million under this unsecured term loan outstanding.
$300.0 Million Unsecured Senior Notes due 2023
In September 2020, in connection with, HTALP’s issuance of $800.0 million of unsecured senior notes, all of the $300.0 million outstanding 2023 unsecured senior notes originally due to mature on April 15, 2023, including any accrued and unpaid interest and a make-whole provision, were redeemed in full, with net proceeds from the offering. The make-whole fee of $24.7 million is recorded in loss on extinguishment of debt in the accompanying condensed consolidated statements of operations.
$600.0 Million Unsecured Senior Notes due 2026
In September 2019, in connection with the $650.0 million unsecured senior notes due 2030 referenced below, HTALP issued $250.0 million as additional unsecured senior notes to the $350.0 million aggregate principal of senior notes issued on July 12, 2016, all of which are guaranteed by HTA. These unsecured senior notes are registered under the Securities Act, bear interest at 3.50 % per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 103.66 % and 99.72 %, respectively, of the principal amount thereof, with an effective yield to maturity of 2.89 % and 3.53 % per annum, respectively. As of September 30, 2020, HTALP had $600.0 million of these unsecured senior notes outstanding that mature on August 1, 2026.
23
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
$500.0 Million Unsecured Senior Notes due 2027
In 2017, HTALP issued $500.0 million of unsecured senior notes that are guaranteed by HTA. These unsecured senior notes are registered under the Securities Act, bear interest at 3.75 % per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.49 % of the principal amount thereof, with an effective yield to maturity of 3.81 % per annum. As of September 30, 2020, HTALP had $500.0 million of these unsecured senior notes outstanding that mature on July 1, 2027.
$650.0 million Unsecured Senior Notes due 2030
In September 2019, in connection with the $250.0 million additional unsecured senior notes due 2026 referenced above, HTALP issued $650.0 million of unsecured senior notes that are guaranteed by HTA. These unsecured senior notes are registered under the Securities Act, bear interest at 3.10 % per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.66 % of the principal amount thereof, with an effective yield to maturity of 3.14 % per annum. As of September 30, 2020, HTALP 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, bear interest at 2.00 % per annum and are 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, 2020, HTALP had $800.0 million of these unsecured senior notes outstanding that mature on March 15, 2031.
Fixed Rate Mortgages
During the nine months ended September 30, 2020, we repaid $114.1 million of our fixed rate mortgages and as of September 30, 2020, we had no fixed rate mortgages outstanding.
Future Debt Maturities
The following table summarizes the debt maturities and scheduled principal repayments of our indebtedness as of September 30, 2020 (in thousands):
| Year | Amount | |||||||
| 2020 | $ | |||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
Deferred Financing Costs
As of September 30, 2020, the future amortization of our deferred financing costs is as follows (in thousands):
| Year | Amount | |||||||
| 2020 | $ | |||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
24
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
9. Derivative Financial Instruments and Hedging Activities
Risk Management Objective of Using Derivative Financial Instruments
We may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions. We do not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, we only enter into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which we and our affiliates may also have other financial relationships. We do not anticipate that any of the counterparties will fail to meet their obligations. We record counterparty credit risk valuation adjustments on interest rate swap derivative assets in order to properly reflect the credit quality of the counterparty. In addition, the fair value of derivative financial instruments designated as cash flow hedges are adjusted to reflect the impact of our credit quality.
Cash Flow Hedges of Interest Rate Risk
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps and treasury locks as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for us making fixed rate payments over the life of the agreements without exchange of the underlying notional amount. A treasury lock is a synthetic forward sale of a U.S. treasury note, which is settled in cash based upon the difference between an agreed upon treasury rate and the prevailing treasury rate at settlement. Such treasury locks are entered into to effectively fix the treasury component of an upcoming debt issuance.
Amounts reported in accumulated other comprehensive income in the accompanying condensed consolidated balance sheets related to derivatives will be reclassified to interest expense as interest payments are made on our variable rate debt. During the next twelve months, we estimate that an additional $6.1 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.
As of September 30, 2020, 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, 2020 | |||||||
| Number of instruments | ||||||||
| Notional amount | $ | |||||||
25
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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, 2020 and December 31, 2019, respectively (in thousands):
| Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||||||||||||
| Fair Value at: | Fair Value at: | |||||||||||||||||||||||||||||||||||||
| Derivatives Designated as Hedging Instruments: | Balance Sheet Location | September 30, 2020 | December 31, 2019 | Balance Sheet Location | September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||
| Interest rate swaps | Receivables and other assets | $ | $ | Derivative financial instruments | $ | $ | ||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| Effect of Derivative Instruments | Location in Statement of Operations and Comprehensive Income (Loss) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||
| 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.
Environmental Matters
We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our condensed consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability at our properties that we believe would require additional disclosure or the recording of a loss contingency.
26
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Other
Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In our opinion, these matters are not expected to have a material adverse effect on our condensed consolidated financial position, results of operations or cash flows.
11. Stockholders’ Equity and Partners’ Capital
HTALP’s operating partnership agreement provides that it will distribute cash flow from operations and net sale proceeds to its partners in accordance with their overall ownership interests at such times and in such amounts as the general partner determines. Dividend distributions are made such that a holder of one OP Unit in HTALP will receive distributions from HTALP in an amount equal to the dividend distributions paid to the holder of one share of our common stock. In addition, for each share of common stock issued or redeemed by HTA, HTALP issues or redeems a corresponding number of OP Units.
Common Stock Offerings
In December 2018, we entered into new equity distribution agreements with various sales agents with respect to our at-the-market (“ATM”) offering program of common stock with an aggregate sales amount of up to $500.0 million. We contemporaneously terminated our prior ATM equity distribution agreements. In November 2019, we upsized this ATM offering program with an additional $750.0 million available for issuance.
During the nine months ended September 30, 2020, we issued approximately 1.7 million shares of our common stock under our ATM for net proceeds of approximately $50.0 million, adjusted for costs to borrow equating to a net price to us of $29.86 per share of common stock.
Additionally, we have four outstanding forward sale arrangements pursuant to forward equity agreements, with total anticipated net proceeds of $277.5 million, subject to adjustments as provided in the forward equity agreements. All four of the arrangements mature by the middle of 2021. As of September 30, 2020, $570.6
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, 2020, 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, 2020 and 2019.
Incentive Plan
Our Incentive Plan permits the grant of incentive awards to our employees, officers, non-employee directors and consultants as selected by our Board of Directors. This Plan authorizes us to grant awards in any of the following forms: options; stock appreciation rights; restricted stock; restricted or deferred stock units; performance awards; dividend equivalents; other stock-based awards, including units in HTALP; and cash-based awards. Subject to adjustment as provided in the Plan, the aggregate number of awards reserved and available for issuance under the Plan is 5,000,000 shares. As of September 30, 2020, there were 804,786 awards available for grant under the Plan.
Restricted Common Stock
For the three and nine months ended September 30, 2020, we recognized compensation expense of $1.8 million and $7.1 million, respectively. For the three and nine months ended September 30, 2019, we recognized compensation expense of $2.3 million and $7.8 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, 2020, we had $6.2 million of unrecognized compensation expense, net of estimated forfeitures, which we will recognize over a remaining weighted average period of 1.7 years.
27
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| September 30, 2020 | September 30, 2019 | ||||||||||||||||||||||
| 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
The table below presents the carrying amounts and fair values of our financial instruments on a recurring basis as of September 30, 2020 and December 31, 2019 (in thousands):
| September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||
| Level 2 - Assets: | ||||||||||||||||||||||||||
| 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. Although we have determined that the majority of the inputs used to value our cash flow hedges fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our cash flow hedge positions and have determined that the credit valuation adjustments are not significant to their overall valuation. As a result, we have determined that our cash flow hedge valuations in their entirety are classified in Level 2 of the fair value hierarchy. For further discussion of the assumptions considered, refer to Note 2 - Summary of Significant Accounting Policies.
Financial Instruments Reported at Fair Value - Non-Recurring
13. Per Share Data of HTA
During the nine months ended September 30, 2020, we issued approximately 1.7 million shares of our common stock under our ATM for net proceeds of approximately $50.0 million, adjusted for costs to borrow equating to a net price to us of $29.86 per share of common stock.
Additionally, we have four outstanding forward sale arrangements pursuant to forward equity agreements, with total anticipated net proceeds of $277.5 million, with an average share price of $29.46 , subject to adjustments as provided in the forward equity agreements. All four of the arrangements mature by the middle of 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 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.
28
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In addition, we considered the potential dilution resulting from the forward equity agreements mentioned above on our earnings per common share calculations. We use the treasury method to determine the dilution resulting from the forward equity agreements during the period of time prior to settlement. The impact to our weighted-average shares - diluted was anti-dilutive in nature and, thus, approximately 1.1 million and 0.8 million shares, respectively, were excluded from the calculation for the three and nine months ended September 30, 2020.
We include unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” pursuant to the two-class method. The resulting classes are our common stock and restricted stock. Our forward equity 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, 2020 and 2019, all of our earnings were distributed and the calculated earnings per share amount would be the same for all classes.
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per share of HTA for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands, except per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | ( | $ | $ | |||||||||||||||||
| Net loss (income) attributable to noncontrolling interests | ( | ( | |||||||||||||||||||||
| Net (loss) income 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 (loss) income attributable to common stockholders | $ | ( | $ | ( | $ | $ | |||||||||||||||||
Earnings per common share - diluted | |||||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | ( | $ | ( | $ | $ | |||||||||||||||||
14. Per Unit Data of HTALP
During the nine months ended September 30, 2020, we issued approximately 1.7 million shares of our common stock under our ATM for net proceeds of approximately $50.0 million, adjusted for costs to borrow equating to a net price to us of $29.86 per share of common stock.
Additionally, we have four outstanding forward sale arrangements pursuant to forward equity agreements, with total anticipated net proceeds of $277.5 million, subject to adjustments as provided in the forward equity agreements. All four of the arrangements mature by the middle of 2021. Refer to Note 13 - Per Share Data of HTA to these condensed consolidated financial statements for a more detailed discussion related to our forward equity agreements executed in 2019 and March 2020.
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per unit of HTALP for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands, except per unit data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | ( | $ | $ | |||||||||||||||||
| Net income attributable to noncontrolling interests | ( | ||||||||||||||||||||||
| Net (loss) income 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 (loss) income attributable to common unitholders | $ | ( | $ | ( | $ | $ | |||||||||||||||||
Earnings per common unit - diluted: | |||||||||||||||||||||||
| Net (loss) income attributable to common unitholders | $ | ( | $ | ( | $ | $ | |||||||||||||||||
29
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
15. Supplemental Cash Flow Information
The following is the supplemental cash flow information for the nine months ended September 30, 2020 and 2019, respectively (in thousands):
| Nine Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Supplemental Disclosure of Cash Flow Information: | |||||||||||
| Interest paid, net of capitalized interest | $ | $ | |||||||||
| Income taxes paid | |||||||||||
| 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 | |||||||||||
Issuance of OP Units in HTALP in connection with an acquisition | |||||||||||
Redemption of noncontrolling interest | |||||||||||
Redemption of redeemable noncontrolling interest | |||||||||||
ROU assets obtained in exchange for lease obligations | |||||||||||
30
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The use of the words “we,” “us,” or “our” refers to HTA and HTALP, collectively.
The following discussion should be read in conjunction with our condensed consolidated financial statements and notes appearing elsewhere in this Quarterly Report, as well as with the audited consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 Annual Report on Form 10-K.
The information set forth below is intended to provide readers with an understanding of our financial condition, changes in financial condition and results of operations.
•Forward-Looking Statements;
•Executive Summary;
•Company Highlights;
•Critical Accounting Policies;
•Recently Issued or Adopted Accounting Pronouncements;
•Factors Which May Influence Results of Operations;
•Results of Operations;
•Non-GAAP Financial Measures;
•Liquidity and Capital Resources;
•Commitments and Contingencies;
•Debt Service Requirements;
•Off-Balance Sheet Arrangements; and
•Inflation.
Forward-Looking Statements
Certain statements contained in this Quarterly Report constitute forward-looking statements within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Such statements include, in particular, statements about our plans, strategies, prospects and estimates regarding future MOB market performance. Additionally, such statements are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially and in adverse ways from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Forward-looking statements are generally identifiable by the use of such terms as “expect,” “project,” “may,” “should,” “could,” “would,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “opinion,” “predict,” “potential,” “pro forma” or the negative of such terms and other comparable terminology. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Quarterly Report is filed with the SEC. We cannot guarantee the accuracy of any such forward-looking statements contained in this Quarterly Report, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Any such forward-looking statements reflect our current views about future events, are subject to unknown risks, uncertainties, and other factors, and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide dividends to stockholders and maintain the value of our real estate properties, may be significantly hindered. Factors that might impair our ability to meet such forward-looking statements include, without limitation, those discussed in Part I, Item 1A - Risk Factors in our 2019 Annual Report on Form 10-K, which is incorporated herein and those discussed in Part II, Item 1A. Risk Factors in this Quarterly Report on Form 10-Q.
Forward-looking statements express expectations of future events. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties that could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, our stockholders are urged not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date made. In addition, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to projections over time, except as required by law.
31
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 $7.4 billion primarily in MOBs, development projects, land and other healthcare real estate assets consisting of approximately 25.1 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 33 states, with no state having more than 20% of our total GLA as of September 30, 2020. We are concentrated in 20 to 25 key markets that are experiencing higher economic and demographic trends than other markets, on average, that we expect will drive demand for MOBs. As of September 30, 2020, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 93% of our portfolio, based on GLA, is located in the top 75 Metropolitan Statistical Area ("MSAs"), with Dallas, Houston, Boston, Tampa and Hartford/New Haven being our largest markets by investment.
Company Highlights
Portfolio Operating Performance
•For the three months ended September 30, 2020, our total revenue was $187.3 million, compared to $175.0 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, our total revenue was $551.9 million, compared to $515.7 million for the nine months ended September 30, 2019.
•For the three months ended September 30, 2020, our net income was $(6.9) million, compared to $(8.6) million, for the three months ended September 30, 2019. For the nine months ended September 30, 2020, our net income was $25.0 million, compared to $21.7 million for the nine months ended September 30, 2019.
•For the three months ended September 30, 2020, our net income attributable to common stockholders was $(0.03) per diluted share, or $(6.8) million, compared to $(0.04) per diluted share, or $(8.5) million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, our net income attributable to common stockholders was $0.11 per diluted share, or $24.6 million, compared to $0.10 per diluted share, or $21.2 million for the nine months ended September 30, 2019.
•For the three months ended September 30, 2020, HTA’s FFO, as defined by NAREIT, was $68.5 million, or $0.31 per diluted share, compared to $0.31 per diluted share, or $65.0 million, for the three months ended September 30, 2019. For the nine months ended September 30, 2020, HTA’s FFO was $249.4 million, or $1.13 per diluted share, compared to $1.11 per diluted share, or $232.5 million, for the nine months ended September 30, 2019.
•For the three months ended September 30, 2020, HTALP’s FFO was $68.4 million, or $0.31 per diluted OP Unit, compared to $0.31 per diluted OP unit, or $64.9 million, for the three months ended September 30, 2019. For the nine months ended September 30, 2020, HTALP’s FFO was $249.8 million, or $1.13 per diluted OP Unit, compared to $1.11 per diluted OP Unit, or $232.9 million, for the nine months ended September 30, 2019.
•For the three months ended September 30, 2020, HTA’s and HTALP’s Normalized FFO was $0.43 per diluted share and OP Unit, or $96.2 million, compared to $0.42 per diluted share and OP Unit, or $87.1 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, HTA’s and HTALP’s Normalized FFO was $1.28 per diluted share and OP Unit, or $282.9 million, compared to $1.22 per diluted share and OP Unit, or $255.4 million for the nine months ended September 30, 2019.
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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, 2020, our NOI was $130.1 million, compared to $121.2 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, our NOI was $381.6 million, compared to $357.5 million for the nine months ended September 30, 2019.
•For the three months ended September 30, 2020, our Same-Property Cash NOI increased 0.5%, or $0.5 million, to $116.2 million, compared to $115.6 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, our Same-Property Cash NOI increased 1.3%, or $4.4 million, to $345.3 million, compared to $340.9 million for the nine months ended September 30, 2019.
•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
We believe we have been one of the most active investors in the medical office sector over the last decade. This has enabled us to create a high quality portfolio focused on MOBs serving the future of healthcare with scale and significance in 20 to 25 key markets.
•Our investment strategy includes alignment with key healthcare systems, hospitals, and leading academic medical universities. We are the largest owner of on-campus or adjacent MOBs in the country, with approximately 16.7 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, 2020, approximately 93% of our portfolio’s GLA is located in the top 75 MSAs. Our key markets represent top MSAs with strong growth metrics in jobs, household income and population, as well as low unemployment and mature healthcare infrastructures. Many of our key markets are also supported by strong university systems.
•Our key market focus has enabled us to establish scale across 20 to 25 key markets and effectively utilize our asset management and leasing platform to deliver consistent same store growth and additional yield on investments, as well as cost effective service to tenants. As of September 30, 2020, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 0.5 million square feet of GLA in 17 of our top 20 markets.
•During the nine months ended September 30, 2020, we closed on $52.6 million worth of investments primarily located in our existing key markets totaling approximately 214,000 square feet of GLA.
Internal Growth through Proactive In-House Property Management and Leasing
We believe we have the largest full-service operating platform in the medical office sector that consists of our in-house asset management and leasing platform which allows us to better manage and service our existing portfolio. In each of these markets, we have established a strong in-house asset management and leasing platform that has allowed us to develop valuable relationships with health systems, physician practices, universities, and regional development firms that have led to investment and leasing opportunities 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, 2020, our in-house asset management and leasing platform operated approximately 24.3 million square feet of GLA, or 97% of our total portfolio.
•As of September 30, 2020, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 90.1% by GLA and our occupancy rate was 89.5% by GLA.
•We entered into new and renewal leases on approximately 1.1 million and 3.3 million square feet of GLA, or approximately 4.4% and 13.1%, respectively, of the GLA of our total portfolio, during the three and nine months ended September 30, 2020.
•During the three and nine months ended September 30, 2020, tenant retention for the Same-Property portfolio was 89% and 88%, respectively, which included approximately 1.0 million and 3.3 million square feet of GLA of expiring leases, respectively, which we believe is indicative of our commitment to maintaining buildings in desirable locations and fostering strong tenant relationships. Tenant retention is defined as the sum of the total leased GLA of tenants that renewed a lease during the period over the total GLA of leases that renewed or expired during the period.
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Financial Strategy and Balance Sheet Flexibility
•As of September 30, 2020, we had total leverage, measured by debt less cash and cash equivalents to total capitalization, of 32.6%. Total liquidity was approximately $1.5 billion, inclusive of $1.0 billion available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, and cash and cash equivalents of $227.1 million as of September 30, 2020.
•As of September 30, 2020, the weighted average remaining term of our debt portfolio was 7.4 years.
•During the nine months ended September 30, 2020, we settled a forward sale arrangement pursuant to a forward equity agreement that was entered into in 2019, which included the sale of approximately 1.7 million shares of our common stock for net proceeds of approximately $50.0 million, adjusted for costs to borrow equating to a net price to us of $29.86 per share of common stock.
Critical Accounting Policies
The complete list of our critical accounting policies was disclosed in our 2019 Annual Report on Form 10-K. Additionally, in light of the COVID-19 pandemic, we believe we have included all relevant information when determining our management estimates and that these estimates are in line with our established policies. For further information on other significant accounting policies that impact us, see Note 2 - Summary of Significant Accounting Policies in the accompanying condensed consolidated financial statements.
Recently Issued or Adopted Accounting Pronouncements
On January 1, 2020 we adopted ASU 2016-13, Financial Instruments Credit Losses and ASU 2018-13, Fair Value Measurement. For more detail on the implementation and policies of these adoptions or other recently issued accounting pronouncements see Note 2 - Summary of Significant Accounting Policies in the accompanying condensed consolidated financial statements.
Factors Which May Influence Results of Operations
The current novel coronavirus, or COVID-19 pandemic, and measures taken to slow the spread and lessen its impacts, are having a significant impact on economies and markets worldwide. All our buildings remain in operation, however, some tenants, typically those engaged in the more elective healthcare services, have temporarily suspended operations as a result of precautionary measures or national/local government imposed “stay-at-home” or “shelter-in-place” orders. We have taken steps to enhance our liquidity, in the form of draws against our line of credit, should cash flows become volatile throughout the remainder of the year.
As healthcare providers have seen their near-term profitability and liquidity levels decline, we have addressed requests from many of our tenants about their ability to defer payment of a portion of their rents for a limited duration. While many of these requests have been in-bound from tenants, in the interest of strengthening our tenant relations, we have also proactively worked with key health system tenants to seek to help them work through their challenges during this period of time. Each request is evaluated on a case by case basis. In total, we have approved deferral plans that total approximately $11.0 million, of which approximately $3.7 million have been repaid through October 28, 2020. There are no substantial outstanding requests for assistance from tenants. Payments of rent deferrals are generally expected to be repaid within the next 6 to 12 months. As of October 31, 2020, 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.
For the three months ended September 30, 2020, we collected or deferred approximately 99% of our total monthly rents that are contractually due and owed, with cash collection totaling approximately 97% of monthly rents. Our October collections continue to be consistent with Q3.
In addition, we have entered into certain lease modifications in the form of early renewals where we provide concessions in the form of free rent, averaging three (3) months at the inception of the lease, in exchange for additional term, on average of approximately three (3) years. The total amount of free rent granted during the nine months ended September 30, 2020 as concessions to early renewals, was approximately $3.6 million, with $2.4 million taken in the three months ended September 30, 2020. Although we did not experience a significant deceleration of cash collections for the three and nine months ended September 30, 2020, because of the evolving situation surrounding the COVID-19 pandemic, our results of operations in Q4 2020 and beyond may be materially impacted as the complete effects of the pandemic, including the decrease in commerce and the slowdown and uncertainty in the broader economy, and the corresponding impacts to our buildings and tenants, come to light. In addition to those noted above, other impacts may take the form of an overall continued decrease in our results of operations, stemming from various factors, including, but not limited to: (a) the inability for us to collect a portion of our rents timely or at all, (b) potential slowdown of new lease leads and signings, (c) decreases in occupancy either from non-renewals or from tenant defaults, (d) potential increases in expenses for vendors, critical supplies or materials, or costs of maintenance activities, (e) delays in construction projects to ready spaces for tenants, (f) delays in development projects and the potential for increased material costs, (g) increased labor costs should we be required to increase salaries for hazardous working conditions,
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(h) potential impairments should we see a more than temporary reduction in cash flows, (i) potential delays in accretive acquisitions, and (j) increased costs due to borrowings as we look to maintain balance sheet flexibility. Refer to "Results of Operations - Comparison of the Three and Nine Months Ended September 30, 2020 and 2019" for additional details on certain current period impacts from the COVID-19 pandemic.
Other than the above, we are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, the risk factors previously discussed in Part I, Item 1A - Risk Factors, in our 2019 Annual Report on Form 10-K, and this Quarterly Report on Form 10-Q under Item 1A. Risk Factors below, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the investment, management and operation of our properties.
Rental Income
The amount of rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that will become available from unscheduled lease terminations at the then applicable rental rates. Negative trends in one or more of these factors, including the ultimate collections of such rents, could adversely affect our rental income in future periods.
Investment Activity
During the nine months ended September 30, 2020, we had investments with an aggregate gross purchase price of $52.9 million. During the nine months ended September 30, 2019, we had investments with an aggregate gross purchase price of $229.9 million. The amount of any future acquisitions or dispositions could have a significant impact on our results of operations in future periods.
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Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2020 and 2019
As of September 30, 2020 and 2019, we owned and operated approximately 25.1 million and 23.7 million square feet of GLA, respectively, with a leased rate of 90.1% and 90.6%, respectively (including leases which have been executed, but which have not yet commenced), and an occupancy rate of 89.5% and 89.7%, respectively. All explanations are applicable to both HTA and HTALP unless otherwise noted.
Comparison of the three months ended September 30, 2020 and 2019, respectively, is set forth below (in thousands):
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | Change | % Change | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental income | $ | 187,258 | $ | 174,844 | $ | 12,414 | 7.1 | % | |||||||||||||||
| Interest and other operating income | 68 | 160 | (92) | (57.5) | |||||||||||||||||||
| Total revenues | 187,326 | 175,004 | 12,322 | 7.0 | |||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental | 57,248 | 53,807 | 3,441 | 6.4 | |||||||||||||||||||
| General and administrative | 10,670 | 9,788 | 882 | 9.0 | |||||||||||||||||||
| Transaction | 125 | 522 | (397) | (76.1) | |||||||||||||||||||
| Depreciation and amortization | 75,892 | 73,820 | 2,072 | 2.8 | |||||||||||||||||||
| Interest expense | 23,136 | 24,625 | (1,489) | (6.0) | |||||||||||||||||||
| Total expenses | 167,071 | 162,562 | 4,509 | 2.8 | |||||||||||||||||||
| Loss on extinguishment of debt, net | (27,726) | (21,646) | (6,080) | (28.1) | |||||||||||||||||||
| Income from unconsolidated joint venture | 422 | 422 | — | — | |||||||||||||||||||
| Other income | 117 | 205 | (88) | (42.9) | |||||||||||||||||||
| Net (loss) income | $ | (6,932) | $ | (8,577) | $ | 1,645 | (19.2) | % | |||||||||||||||
| NOI | $ | 130,078 | $ | 121,197 | $ | 8,881 | 7.3 | % | |||||||||||||||
| Same-Property Cash NOI | $ | 116,180 | $ | 115,636 | $ | 544 | 0.5 | % | |||||||||||||||
Comparison of the nine months ended September 30, 2020 and 2019, respectively, is set forth below (in thousands):
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | Change | % Change | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental income | $ | 551,459 | $ | 515,328 | $ | 36,131 | 7.0 | % | |||||||||||||||
| Interest and other operating income | 488 | 399 | 89 | 22.3 | |||||||||||||||||||
| Total revenues | 551,947 | 515,727 | 36,220 | 7.0 | |||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Rental | 170,310 | 158,213 | 12,097 | 7.6 | |||||||||||||||||||
| General and administrative | 32,348 | 31,157 | 1,191 | 3.8 | |||||||||||||||||||
| Transaction | 297 | 858 | (561) | (65.4) | |||||||||||||||||||
| Depreciation and amortization | 228,484 | 211,730 | 16,754 | 7.9 | |||||||||||||||||||
| Interest expense | 71,285 | 72,601 | (1,316) | (1.8) | |||||||||||||||||||
| Total expenses | 502,724 | 474,559 | 28,165 | 5.9 | |||||||||||||||||||
| Gain (loss) on sale of real estate, net | 1,991 | (37) | 2,028 | NM | |||||||||||||||||||
| Loss on extinguishment of debt, net | (27,726) | (21,646) | (6,080) | (28.1) | |||||||||||||||||||
| Income from unconsolidated joint venture | 1,223 | 1,456 | (233) | (16.0) | |||||||||||||||||||
| Other income | 290 | 781 | (491) | (62.9) | |||||||||||||||||||
| Net income | $ | 25,001 | $ | 21,722 | $ | 3,279 | 15.1 | % | |||||||||||||||
| NOI | $ | 381,637 | $ | 357,514 | $ | 24,123 | 6.7 | % | |||||||||||||||
| Same-Property Cash NOI | $ | 345,272 | $ | 340,858 | $ | 4,414 | 1.3 | % | |||||||||||||||
*NM- not meaningful.
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Rental Income
For the three and nine months ended September 30, 2020 and 2019, respectively, rental income was comprised of the following (in thousands):
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | Change | % Change | ||||||||||||||||||||
| Contractual rental income | $ | 176,708 | $ | 166,338 | $ | 10,370 | 6.2 | % | |||||||||||||||
Straight-line rent and amortization of above and (below) market leases | 7,298 | 5,149 | 2,149 | 41.7 | |||||||||||||||||||
| Other rental revenue | 3,252 | 3,357 | (105) | (3.1) | |||||||||||||||||||
| Total rental income | $ | 187,258 | $ | 174,844 | $ | 12,414 | 7.1 | % | |||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2020 | 2019 | Change | % Change | ||||||||||||||||||||
| Contractual rental income | $ | 521,175 | $ | 491,132 | $ | 30,043 | 6.1 | % | |||||||||||||||
Straight-line rent and amortization of above and (below) market leases | 19,410 | 14,034 | 5,376 | 38.3 | |||||||||||||||||||
| Other rental revenue | 10,874 | 10,162 | 712 | 7.0 | |||||||||||||||||||
| Total rental income | $ | 551,459 | $ | 515,328 | $ | 36,131 | 7.0 | % | |||||||||||||||
Contractual rental income, which includes expense reimbursements, increased $10.4 million and $30.0 million for the three and nine months ended September 30, 2020, compared to the three and nine months ended September 30, 2019, respectively. The increases were primarily due to additional contractual rental income of $9.9 million and $33.1 million from our 2019 and 2020 acquisitions, and contractual rent increases for the three and nine months ended September 30, 2020, respectively.
In addition, for 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 related to three (3) former tenants currently in litigation and for which we evaluated collectability on an individual basis to determine whether collections continued to be deemed probable. While we fully intend to continue to pursue such collection efforts on amounts owed to us, we recorded this charge due to the recent prevailing economic conditions and resulting uncertainty of the timing and collections of such amounts previously supported by litigation affirmed in our favor and/or the defendant's former credit, which we now believe have recently eroded. Due to the non-routine nature and anticipated non-recurrence of this charge, we have normalized this amount from both Cash NOI and Normalized FFO results as presented in the section entitled "Non-GAAP Financial Measures" below and elsewhere in this document. This can be contrasted with periodic, recurring bad debt that is recorded for tenants either still in occupancy or those having vacated as a result of a tenant default, for which we also ordinarily record a reduction to revenues to account for uncollectible accounts receivable which are not subject to a normalizing adjustment in our Non-GAAP Financial Measures. We believe this latter amount carries similar characteristics of those charges in our results of operations that have a propensity of recurrence as an ongoing reduction of revenue either in the form of uncollectible accounts or as reduced occupancy due to tenant defaults and corresponding vacancy.
Average starting and expiring base rents for new and renewal leases consisted of the following for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands, except in average base rents per square foot of GLA):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
New and renewal leases: | |||||||||||||||||||||||
| Average starting base rents | $ | 26.45 | $ | 24.59 | $ | 27.04 | $ | 22.23 | |||||||||||||||
| Average expiring base rents | 24.70 | 23.94 | 25.84 | 21.51 | |||||||||||||||||||
| Square feet of GLA | 1,101 | 696 | 3,287 | 2,596 | |||||||||||||||||||
Lease rates can vary across markets, and lease rates that are considered above or below current market rent may change over time. Leases that expired in 2020 had rents that we believed were at market rates. In general, leasing concessions vary depending on lease type, term and geography.
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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, 2020 and 2019, respectively (in per square foot of GLA):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| New leases: | |||||||||||||||||||||||
| Tenant improvements | $ | 21.02 | $ | 22.91 | $ | 38.16 | $ | 29.95 | |||||||||||||||
Leasing commissions | 2.05 | 1.78 | 2.86 | 2.01 | |||||||||||||||||||
| Tenant concessions | 2.59 | 2.62 | 3.70 | 3.79 | |||||||||||||||||||
| Renewal leases: | |||||||||||||||||||||||
| Tenant improvements | $ | 4.43 | $ | 7.29 | $ | 5.58 | $ | 11.14 | |||||||||||||||
Leasing commissions | 2.07 | 1.72 | 2.87 | 2.01 | |||||||||||||||||||
| Tenant concessions | 0.94 | 0.39 | 1.99 | 3.79 | |||||||||||||||||||
The average term for new and renewal leases executed consisted of the following for the three and nine months ended September 30, 2020 and 2019, respectively (in years):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| New leases | 4.4 | 6.3 | 7.9 | 7.1 | |||||||||||||||||||
| Renewal leases | 7.7 | 5.9 | 5.4 | 7.4 | |||||||||||||||||||
Rental Expenses
For the three months ended September 30, 2020 and 2019, rental expenses attributable to our properties were $57.2 million and $53.8 million, respectively. For the nine months ended September 30, 2020 and 2019, rental expenses attributable to our properties were $170.3 million and $158.2 million, respectively. These increases in rental expenses were primarily due to $3.5 million and $12.3 million of additional rental expenses associated with our 2019 and 2020 acquisitions for the three and nine months ended September 30, 2020, respectively. Furthermore, we recorded an incremental $0.3 million related to hazard pay and increased personal protective equipment costs directly related to COVID-19 for the nine months ended September 30, 2020. Due to the incremental nature related to COVID-19, this amount was normalized out of both NOI and Normalized FFO results as presented below. There was not a substantive amount of incremental costs directly related to COVID-19 for the three months ended September 30, 2020.
General and Administrative Expenses
For the three months ended September 30, 2020 and 2019, general and administrative expenses were $10.7 million and $9.8 million, respectively. For the nine months ended September 30, 2020 and 2019, general and administrative expenses were $32.3 million and $31.2 million, respectively. These increases were primarily due to an increase in the overall head count due to the continued growth of the Company and stock based compensation expense.
Depreciation and Amortization Expense
For the three months ended September 30, 2020 and 2019, depreciation and amortization expense was $75.9 million and $73.8 million, respectively. For the nine months ended September 30, 2020 and 2019, depreciation and amortization expense was $228.5 million and $211.7 million, respectively. This increase was associated with our 2019 and 2020 acquisitions, partially offset by buildings we disposed of during 2019.
Interest Expense
For the three months ended September 30, 2020 and 2019, interest expense was $23.1 million and $24.6 million, respectively. For the nine months ended September 30, 2020 and 2019, interest expense was $71.3 million and $72.6 million, respectively. The decrease in interest expense is primarily due to lower average interest rates on our variable rate debt as compared to the same period in 2019.
To achieve our objectives, we borrow at both fixed and variable rates. From time to time, we also enter into derivative financial instruments, such as interest rate swaps, in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes.
Gain (Loss) on Sale of Real Estate, net
For the 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. For the nine months ended September 30, 2019, we realized a net loss of $37 thousand on the disposition of three MOB's in Hilton Head, South Carolina.
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Net Income
For the three months ended September 30, 2020 and 2019, net income was $(6.9) million and $(8.6) million, respectively. For the nine months ended September 30, 2020 and 2019, net income was $25.0 million and $21.7 million, respectively. The increase is primarily the result of continued growth in our operations due to accretive acquisitions and improved operating efficiencies.
NOI and Same-Property Cash NOI
For the three months ended September 30, 2020 and 2019, NOI was $130.1 million and $121.2 million, respectively. For the nine months ended September 30, 2020 and 2019, NOI was $381.6 million and $357.5 million, respectively. The increase in NOI was primarily due to additional NOI from our 2019 and 2020 acquisitions of $7.1 million and $23.6 million for the three and nine months ended September 30, 2020, respectively, partially offset by $0.1 million and $0.4 million of reduced NOI as a result of the buildings we sold during 2019 for the three and nine months ended September 30, 2020, respectively, and a reduction in straight-line rent from properties we owned for more than a year.
Same-Property Cash NOI increased 0.5% to $116.2 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Same-Property Cash NOI increased 1.3% to $345.3 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increases were primarily the result of rent escalations, improved operating efficiencies, offset by a slight decrease in average occupancy, and the $2.4 million and $3.6 million of incremental free rent provided related to early renewals of leases for the three months and nine months ended September 30, 2020, respectively.
Non-GAAP Financial Measures
FFO and Normalized FFO
We compute FFO in accordance with the current standards established by NAREIT. NAREIT defines FFO as net income or loss attributable to common stockholders/unitholders (computed in accordance with GAAP), excluding gains or losses from sales of real estate property and impairment write-downs of depreciable assets, plus depreciation and amortization related to investments in real estate, and after adjustments for unconsolidated partnerships and joint ventures. Since FFO excludes depreciation and amortization unique to real estate, among other items, it provides a perspective not immediately apparent from net income or loss attributable to common stockholders/unitholders.
We also compute Normalized FFO, which excludes from FFO: (i) transaction expenses; (ii) gain or loss on extinguishment of debt; (iii) noncontrolling income or loss from OP Units included in diluted shares (only applicable to the Company); and (iv) other normalizing 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, noncontrolling income or loss from OP Units included in diluted shares (only applicable to the Company) and the weighted average shares of our common stock or HTALP OP Units outstanding.
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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, 2020 and 2019, respectively (in thousands, except per share data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net (loss) income attributable to common stockholders | $ | (6,827) | $ | (8,463) | $ | 24,563 | $ | 21,236 | |||||||||||||||
Depreciation and amortization expense related to investments in real estate | 74,848 | 73,042 | 225,354 | 209,814 | |||||||||||||||||||
(Gain) loss on sale of real estate, net | — | — | (1,991) | 37 | |||||||||||||||||||
Proportionate share of joint venture depreciation and amortization | 468 | 468 | 1,443 | 1,390 | |||||||||||||||||||
| FFO attributable to common stockholders | $ | 68,489 | $ | 65,047 | $ | 249,369 | $ | 232,477 | |||||||||||||||
| Transaction expenses | 125 | 522 | 297 | 858 | |||||||||||||||||||
| Loss on extinguishment of debt, net | 27,726 | 21,646 | 27,726 | 21,646 | |||||||||||||||||||
| Noncontrolling (loss) income from OP Units included in diluted shares | (105) | (114) | 438 | 420 | |||||||||||||||||||
Other normalizing adjustments (1) | — | — | 5,031 | — | |||||||||||||||||||
| Normalized FFO attributable to common stockholders | $ | 96,235 | $ | 87,101 | $ | 282,861 | $ | 255,401 | |||||||||||||||
| Net (loss) income attributable to common stockholders per diluted share | $ | (0.03) | $ | (0.04) | $ | 0.11 | $ | 0.10 | |||||||||||||||
FFO adjustments per diluted share, net | 0.34 | 0.35 | 1.02 | 1.01 | |||||||||||||||||||
FFO attributable to common stockholders per diluted share | $ | 0.31 | $ | 0.31 | $ | 1.13 | $ | 1.11 | |||||||||||||||
Normalized FFO adjustments per diluted share, net | 0.12 | 0.11 | 0.15 | 0.11 | |||||||||||||||||||
Normalized FFO attributable to common stockholders per diluted share | $ | 0.43 | $ | 0.42 | $ | 1.28 | $ | 1.22 | |||||||||||||||
Weighted average diluted common shares outstanding | 222,101 | 209,072 | 221,521 | 209,026 | |||||||||||||||||||
(1) 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 for the nine months ended September 30, 2020. There were no other normalizing adjustments for the three months ended September 30, 2020.
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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, 2020 and 2019, respectively (in thousands, except per unit data):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net (loss) income attributable to common unitholders | $ | (6,932) | $ | (8,577) | $ | 25,001 | $ | 21,656 | |||||||||||||||
Depreciation and amortization expense related to investments in real estate | 74,848 | 73,042 | 225,354 | 209,814 | |||||||||||||||||||
(Gain) loss on sale of real estate, net | — | — | (1,991) | 37 | |||||||||||||||||||
Proportionate share of joint venture depreciation and amortization | 468 | 468 | 1,443 | 1,390 | |||||||||||||||||||
| FFO attributable to common unitholders | $ | 68,384 | $ | 64,933 | $ | 249,807 | $ | 232,897 | |||||||||||||||
| Transaction expenses | 125 | 522 | 297 | 858 | |||||||||||||||||||
| Loss on extinguishment of debt, net | 27,726 | 21,646 | 27,726 | 21,646 | |||||||||||||||||||
Other normalizing adjustments (1) | — | — | 5,031 | — | |||||||||||||||||||
| Normalized FFO attributable to common unitholders | $ | 96,235 | $ | 87,101 | $ | 282,861 | $ | 255,401 | |||||||||||||||
| Net (loss) income attributable to common unitholders per diluted share | $ | (0.03) | $ | (0.04) | $ | 0.11 | $ | 0.10 | |||||||||||||||
| FFO adjustments per diluted OP Unit, net | 0.34 | 0.35 | 1.02 | 1.01 | |||||||||||||||||||
| FFO attributable to common unitholders per diluted OP Unit | $ | 0.31 | $ | 0.31 | $ | 1.13 | $ | 1.11 | |||||||||||||||
| Normalized FFO adjustments per diluted OP Unit, net | 0.12 | 0.11 | 0.15 | 0.11 | |||||||||||||||||||
| Normalized FFO attributable to common unitholders per diluted OP Unit | $ | 0.43 | $ | 0.42 | $ | 1.28 | $ | 1.22 | |||||||||||||||
| Weighted average diluted common OP Units outstanding | 222,101 | 209,164 | 221,521 | 209,056 | |||||||||||||||||||
(1) 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 for the nine months ended September 30, 2020. There were no other normalizing adjustments for the three months ended September 30, 2020.
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 NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. Same-Property Cash NOI should be reviewed in connection with other GAAP measurements.
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The following is the reconciliation of HTA’s and HTALP’s NOI, Cash NOI and Same-Property Cash NOI to net income for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Net (loss) income | $ | (6,932) | $ | (8,577) | $ | 25,001 | $ | 21,722 | |||||||||||||||
| General and administrative expenses | 10,670 | 9,788 | 32,348 | 31,157 | |||||||||||||||||||
| Transaction expenses | 125 | 522 | 297 | 858 | |||||||||||||||||||
Depreciation and amortization expense | 75,892 | 73,820 | 228,484 | 211,730 | |||||||||||||||||||
Interest expense | 23,136 | 24,625 | 71,285 | 72,601 | |||||||||||||||||||
(Gain) loss on sale of real estate, net | — | — | (1,991) | 37 | |||||||||||||||||||
Loss on extinguishment of debt, net | 27,726 | 21,646 | 27,726 | 21,646 | |||||||||||||||||||
| Income from unconsolidated joint venture | (422) | (422) | (1,223) | (1,456) | |||||||||||||||||||
| Other income | (117) | (205) | (290) | (781) | |||||||||||||||||||
| NOI | $ | 130,078 | $ | 121,197 | $ | 381,637 | $ | 357,514 | |||||||||||||||
| Straight-line rent adjustments, net | (5,711) | (2,539) | (12,673) | (8,261) | |||||||||||||||||||
Amortization of (below) and above market leases/leasehold interests, net and other GAAP adjustments (1) | (113) | (1,390) | (2,203) | (1,872) | |||||||||||||||||||
Notes receivable interest income | (11) | (23) | (152) | (75) | |||||||||||||||||||
Other normalizing adjustments (2) | — | — | 5,031 | — | |||||||||||||||||||
| Cash NOI | $ | 124,243 | $ | 117,245 | $ | 371,640 | $ | 347,306 | |||||||||||||||
Acquisitions not owned/operated for all periods presented and disposed properties Cash NOI | (7,938) | (928) | (26,200) | (3,483) | |||||||||||||||||||
| Redevelopment Cash NOI | 57 | (536) | 387 | (2,468) | |||||||||||||||||||
| Intended for sale Cash NOI | (182) | (145) | (555) | (497) | |||||||||||||||||||
Same-Property Cash NOI (3) | $ | 116,180 | $ | 115,636 | $ | 345,272 | $ | 340,858 | |||||||||||||||
(1) The presentation includes certain adjustments to allow for the consistent treatment of items impacted by Topic 842-Leases.
(2) 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 for the nine months ended September 30, 2020. There were no other normalizing adjustments for the three months ended September 30, 2020.
(3) Same-Property includes 417 and 412 buildings for the three and nine months ended September 30, 2020 and 2019, respectively.
Liquidity and Capital Resources
Our primary sources of cash include: (i) cash flow from operations; (ii) borrowings under our unsecured revolving credit facility; (iii) net proceeds from the issuances of debt and equity securities; and (iv) proceeds from our dispositions. During the next 12 months our primary uses of cash are expected to include: (a) the funding of acquisitions of MOBs, development properties and other facilities that serve the healthcare industry; (b) capital expenditures; (c) the payment of operating expenses; (d) debt service payments, including principal payments; and (e) the payment of dividends to our stockholders. We anticipate cash flow from operations, restricted cash and reserve accounts and our unsecured revolving credit facility, if needed, will be sufficient to fund our operating expenses, capital expenditures and dividends to stockholders. Investments and maturing indebtedness may require funds from borrowings under our unsecured revolving credit facility, the issuance of debt and/or equity securities or proceeds from sales of real estate.
During the COVID-19 pandemic, we continue to take a measured approach to our operations and cash flows, with an expectation that despite efforts by the US Government to provide liquidity and relief to certain of our tenants who qualify for aid under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, payments from tenants who do not qualify for such aid, or those medical practices focused on procedures that are of an elective nature, may decline appreciably until such time that there is a sustained reversal of government mandated "stay-at-home" or "shelter-in-place" orders and a corresponding normalized level of economic activity and commerce resumes. In addition, due to the recent volatility in capital markets, our access to such capital may be temporarily delayed, and/or we may not be able to raise debt or equity financing on terms that are favorable to us.
As of September 30, 2020, we had total liquidity of $1.5 billion, inclusive of $1.0 billion available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, and cash and cash equivalents of $227.1 million.
We believe that we have sufficient liquidity and options at our disposal to sustain operations for the foreseeable future. As the COVID-19 pandemic continues to unfold, we will assess cash flow requirements and deploy various strategies to preserve liquidity, including, but not limited to, continued utilization of our credit facility, settlement of equity raised on a forward basis, or if circumstances warrant, changes to the manner in which our dividends are paid and/or corresponding amounts distributed.
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As of September 30, 2020, we had unencumbered assets with a gross book value of $7.7 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 $10 million to $20 million per quarter, but may fluctuate materially depending on the ongoing impacts from COVID-19. Although we cannot provide assurance that we will not exceed these estimated expenditure levels, we believe our liquidity of $1.5 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, 2020 and 2019, respectively (in thousands):
| Nine Months Ended September 30, | |||||||||||||||||
| 2020 | 2019 | Change | |||||||||||||||
| Cash, cash equivalents and restricted cash - beginning of period | $ | 37,616 | $ | 133,530 | $ | (95,914) | |||||||||||
| Net cash provided by operating activities | 269,668 | 238,382 | 31,286 | ||||||||||||||
| Net cash used in investing activities | (159,919) | (295,210) | 135,291 | ||||||||||||||
| Net cash provided by (used in) financing activities | 83,881 | (58,886) | 142,767 | ||||||||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | 231,246 | $ | 17,816 | $ | 213,430 | |||||||||||
Net cash provided by operating activities increased in 2020 primarily due to the impact of our 2019 and 2020 acquisitions and contractual rent increases, partially offset by our 2019 and 2020 dispositions and rents that have been deferred under our deferral program in light of COVID-19. 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, 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, 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, 2019, net cash used in investing activities primarily related to investments in real estate of $223.2 million and capital expenditures of $59.5 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. For the nine months ended September 30, 2019, net cash used in financing activities primarily related to payments on our unsecured senior notes of $700.0 million, dividends paid to holders of our common stock of $190.9 million, payments on our secured mortgage loans of $96.8 million, and the repurchase and cancellation of common stock of $12.2 million, which was partially offset by proceeds from the issuance of unsecured senior notes of $906.9 million, proceeds from issuance of common stock of $51.8 million and net borrowings on our unsecured revolving credit facility of $15.0 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, 2020, we paid cash dividends of $205.9 million on our common stock. In October 2020 for the quarter ended September 30, 2020, we paid cash dividends on our common stock of $69.9 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, 2020, our leverage ratio, measured by debt less cash and cash equivalents to total capitalization, was 32.6%.
As of September 30, 2020, we had debt outstanding of $3.0 billion and the weighted average interest rate therein was 2.89% 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, 2020, the full $1.0 billion was available on our $1.0 billion unsecured revolving credit facility. Our unsecured revolving credit facility matures in June 2022.
Unsecured Term Loans
As of September 30, 2020, we had $500.0 million of unsecured term loans outstanding, comprised of $300.0 million under our Unsecured Credit Agreement maturing in 2023, and $200.0 million under our unsecured term loan maturing in 2024.
Unsecured Senior Notes
As of September 30, 2020, 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.
Fixed Rate Mortgages
During the nine months ended September 30, 2020, we made payments on our fixed rate mortgages of $114.1 million and as of September 30, 2020, we had no fixed rate mortgages outstanding.
Commitments and Contingencies
There have been no material changes from the commitments and contingencies previously disclosed in our 2019 Annual Report on Form 10-K.
Debt Service Requirements
We are required by the terms of our applicable loan agreements to meet certain financial covenants, such as minimum net worth and liquidity, and reporting requirements, among others. As of September 30, 2020, we believe that we were in compliance with all such covenants and we are not aware of any covenants that it is reasonably likely that we would not be able to meet in accordance with our loan agreements.
Off-Balance Sheet Arrangements
As of and during the nine months ended September 30, 2020, we had no material off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Inflation
We are exposed to inflation risk as income from future long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that protect us from the impact of normal inflation. These provisions include rent escalations, reimbursement billings for operating expense pass-through charges and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of our leases, among other factors, the leases may not reset frequently enough to cover inflation.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes from the quantitative and qualitative disclosures about market risk previously disclosed in our 2019 Annual Report on Form 10-K.
Item 4. Controls and Procedures
Healthcare Trust of America, Inc.
HTA’s management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including HTA’s Chief Executive Officer (as the principal executive officer) and Chief Financial Officer (as the principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosures.
As of September 30, 2020, an evaluation was conducted by HTA under the supervision and with the participation of its management, including HTA’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, HTA’s Chief Executive Officer and Chief Financial Officer each concluded that HTA’s disclosure controls and procedures were effective as of September 30, 2020.
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2020 that have materially affected, or are reasonably believed to be likely to materially affect, our internal control over financial reporting. This determination was reached after careful evaluation of the effects COVID-19 has had on our operations.
November 4, 2020
Healthcare Trust of America Holdings, LP
HTALP’s management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including HTA’s Chief Executive Officer (as the principal executive officer) and Chief Financial Officer (as the principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosures.
As of September 30, 2020, an evaluation was conducted by HTALP under the supervision and with the participation of its management, including HTA’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, HTA’s Chief Executive Officer and Chief Financial Officer, on behalf of HTA in its capacity as general partner of HTALP, each concluded that HTALP’s disclosure controls and procedures were effective as of September 30, 2020.
There were no changes in HTALP’s internal control over financial reporting that occurred during the quarter ended September 30, 2020 that have materially affected, or are reasonably believed to be likely to materially affect, HTALP’s internal control over financial reporting. This determination was reached after careful evaluation of the effects COVID-19 has had on our operations.
November 4, 2020
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to claims and litigation arising in the ordinary course of business. We do not believe any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on our accompanying condensed consolidated financial statements.
Item 1A. Risk Factors
The following risk factor supplements the risk factor disclosure contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on February 18, 2020.
Pandemics and other health concerns, and the measures intended to prevent its spread, including the currently ongoing COVID-19 pandemic, could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Pandemics, including both widespread and localized outbreaks of infectious diseases and other health concerns, and the measures taken to prevent the spread or lessen the impact, could cause a material disruption to our industry or the economy as a whole. The impacts of such an event could be severe and far-reaching, and may impact our operations in several ways. Such operational impacts include, but are not limited to, the following: (i) tenants could experience deteriorating financial conditions and be unable or unwilling to pay rent on time and in full; (ii) we may have to restructure tenants' obligations and may not be able to do so on terms that are favorable to us; (iii) inquiries and tours at our properties could decrease; (iv) move-ins and new tenanting efforts, and re-letting efforts could slow or stop altogether; (v) move-outs and potential early termination of leases thereunder could increase; (vi) operating expenses, including the costs of certain essential services or supplies, including payments to third-party contractors, service providers, and employees essential to ensure continuity in our building operations may increase; and (vii) costs of development, including expenditures for materials utilized in construction and labor essential to complete existing developments in progress may increase substantively.
Further, disruption in the real estate markets may restrict our ability to deploy capital for new investments, or limit our ability to make new investments on terms that are favorable to us.
Additionally, these types of events could cause severe economic, market and other disruptions worldwide which could stretch to bank lending, capital and other financial markets. If these markets are affected, future access to capital and other sources of funding could be constrained which could adversely affect the availability and terms of our future borrowings, our ability to refinance existing debt, our ability to draw on our revolving credit facility, and our ability to raise equity financing on terms that are favorable to us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the three months ended September 30, 2020, we repurchased shares of our common stock as follows:
| Period | Total Number of Shares Purchased (1) (2) | Average Price Paid per Share (1) (2) | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| July 1, 2020 to July 31, 2020 | 9,087 | $ | 26.36 | — | — | |||||||||||||||||||||
| August 1, 2020 to August 31, 2020 | 2,039 | 27.54 | — | — | ||||||||||||||||||||||
| September 1, 2020 to September 30, 2020 | — | — | — | — | ||||||||||||||||||||||
(1) Purchases represent shares withheld to satisfy withholding obligations on the vesting of restricted shares and shares repurchased under our stock repurchase plan. The price paid per share was the then closing price of our common stock on the NYSE. | ||||||||||||||||||||||||||
(2) For each share of common stock redeemed by HTA, HTALP redeems a corresponding number of OP Units in the HTALP operating partnership. Therefore, the OP Units in the HTALP operating partnership repurchased by HTALP are the same as the shares of common stock repurchased by HTA as shown above. | ||||||||||||||||||||||||||
Item 6. Exhibits
The exhibits listed on the Exhibit Index are included, and incorporated by reference, in this Quarterly Report.
46
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, 2020 (and are numbered in accordance with Item 601 of Regulation S-K).
| 1.1 | |||||
| 3.1 | |||||
| 4.1 | |||||
| 5.1 | |||||
| 5.2 | |||||
| 8.1 | |||||
| 10.1* | |||||
| 23.1 | |||||
| 23.2 | |||||
| 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. | ||||
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Healthcare Trust of America, Inc. | |||||||||||
| By: | /s/ Scott D. Peters | Chief Executive Officer, President and Chairman | |||||||||
| Scott D. Peters | (Principal Executive Officer) | ||||||||||
| Date: | November 4, 2020 | ||||||||||
| By: | /s/ Robert A. Milligan | Chief Financial Officer | |||||||||
| Robert A. Milligan | (Principal Financial Officer and Principal Accounting Officer) | ||||||||||
| Date: | November 4, 2020 | ||||||||||
| Healthcare Trust of America Holdings, LP | |||||||||||
| By: | Healthcare Trust of America, Inc., | ||||||||||
| its General Partner | |||||||||||
| By: | /s/ Scott D. Peters | Chief Executive Officer, President and Chairman | |||||||||
| Scott D. Peters | (Principal Executive Officer) | ||||||||||
| Date: | November 4, 2020 | ||||||||||
| By: | /s/ Robert A. Milligan | Chief Financial Officer | |||||||||
| Robert A. Milligan | (Principal Financial Officer and Principal Accounting Officer) | ||||||||||
| Date: | November 4, 2020 | ||||||||||
48