10-K 1 hta2014123110-k.htm 10-K HTA 2014.12.31 10-K

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2014
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to            
Commission File Number: 001-35568 (Healthcare Trust of America, Inc.)
Commission File Number: 333-190916 (Healthcare Trust of America Holdings, LP)
HEALTHCARE TRUST OF AMERICA, INC.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
(Exact name of registrant as specified in its charter)
Maryland (Healthcare Trust of America, Inc.)
20-4738467
Delaware (Healthcare Trust of America Holdings, LP)
20-4738347
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
16435 N. Scottsdale Road, Suite 320, Scottsdale, Arizona
85254
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (480) 998-3478
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Class A common stock, par value $0.01 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Healthcare Trust of America, Inc.
x Yes
o No
 
Healthcare Trust of America Holdings, LP
o Yes
x No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Healthcare Trust of America, Inc.
o Yes
x No
 
Healthcare Trust of America Holdings, LP
o Yes
x No
 
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.
x Yes
o No
 
Healthcare Trust of America Holdings, LP
x Yes
o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    
Healthcare Trust of America, Inc.
x Yes
o No
 
Healthcare Trust of America Holdings, LP
x Yes
o No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Healthcare Trust of America, Inc.
Large-accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
 
(Do not check if a smaller reporting company)
 
Healthcare Trust of America Holdings, LP
Large-accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o
 
 
 
(Do not check if a smaller reporting company)
 
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.
o Yes
x No
 
Healthcare Trust of America Holdings, LP
o Yes
x No
 
The aggregate market value of Healthcare Trust of America, Inc.’s Class A common stock held by non-affiliates as of June 30, 2014, the last business day of the most recently completed second fiscal quarter, was approximately $2,852,974,000, computed by reference to the closing price as reported on the New York Stock Exchange.
As of February 18, 2015, there were 125,170,080 shares of Class A common stock of Healthcare Trust of America, Inc. outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy statement for the Annual Meeting of Stockholders are incorporated by reference into Part III, Items 10-14 of this Annual Report on Form 10-K.
 



Explanatory Note
This Annual Report combines the Annual Reports on Form 10-K for the year ended December 31, 2014 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 Annual 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 December 31, 2014, HTA owned a 98.5% 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 in 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, 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.
Stockholders’ equity and partners’ capital are the primary areas of difference between the consolidated financial statements of HTA and HTALP. Limited partnership units in HTALP are accounted for as partners’ capital in HTALP’s consolidated balance sheets and as noncontrolling interest reflected within equity in HTA’s 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.
The Company believes combining the Annual Reports on Form 10-K of HTA and HTALP, including the notes to the consolidated financial statements, into this single Annual 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 Annual Report applies to both HTA and HTALP; and
creates time and cost efficiencies through the preparation of a single combined Annual Report instead of two separate reports.
In order to highlight the material differences between HTA and HTALP, this Annual Report includes sections that separately present and discuss areas that are materially different between HTA and HTALP, including:
the market for registrant’s common equity, related stockholder matters and issuer purchase of equity securities in Item 5 of this Annual Report;
the selected financial data in Item 6 of this Annual Report;
the Funds From Operations (“FFO”) and Normalized FFO in Item 7 of this Annual Report;
the controls and procedures in Item 9A of this Annual Report;
the consolidated financial statements in Item 15 of this Annual Report;
certain accompanying notes to the consolidated financial statements, including Note 3 - Business Combinations, Note 8 - Debt, Note 11 - Stockholders’ Equity and Partners’ Capital, Note 13 - Per Share Data of HTA, Note 14 - Per Unit Data of HTALP, Note 16 - Tax Treatment of Dividends of HTA; Note 18 - Selected Quarterly Financial Data of HTA and Note 19 - Selected Quarterly Financial Data of HTALP;
the statement regarding the computation of the ratio of earnings to fixed charges included as Exhibit 12.1 to this Annual Report; and
the certifications of the Chief Executive Officer and the Chief Financial Officer included as Exhibits 31 and 32 to this Annual Report.
In the sections of this Annual Report that combine disclosure for HTA and HTALP, this Annual 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.

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HEALTHCARE TRUST OF AMERICA, INC. AND
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 


3


PART I
Item 1. Business
BUSINESS OVERVIEW
HTA, a Maryland corporation, and HTALP, a Delaware limited partnership, were incorporated or formed, as applicable, on April 20, 2006.
HTA is a REIT and one of the leading owners and operators of medical office buildings (“MOBs”) in the United States (“U.S.”). Our primary objective is to generate stockholder value through consistent and growing dividends and appreciation of real property value. The Company has invested $3.3 billion to form a high quality portfolio of MOBs and other healthcare real estate assets located in core, critical locations in key markets throughout the U.S.
We invest in MOBs that we believe are core, critical to the delivery of healthcare in this changing environment. Healthcare is the fastest growing segment of the U.S. economy, with an expected average growth rate of 5.9% between 2014 and 2023, with overall spending expected to increase to 19.3% of GDP by 2023 according to the U.S. Centers for Medicare & Medicaid Services. Similarly, healthcare is experiencing the fastest employment growth in the U.S., a trend that is expected to continue over the next decade. These high levels of demand are driven by the aging U.S. population and the long-term impact of the Affordable Care Act of 2010 (the “Affordable Care Act”). As demand increases, healthcare services are increasingly being provided in the lower cost and more convenient outpatient settings, such as MOBs. As a result, HTA believes that well located MOBs will provide stable cash flows with relatively low vacancy risk, while allowing for potentially higher returns through their exposure to the fast growing healthcare sector.
As of December 31, 2014, our portfolio consisted of approximately 14.8 million square feet of gross leasable area (“GLA”). Approximately 96% of our portfolio, based on GLA, is located on the campuses of, or aligned with, nationally or regionally recognized healthcare systems. We believe these key locations and affiliations create significant demand from healthcare related tenants for our properties. Further, the portfolio is primarily concentrated within major U.S. metropolitan areas that we believe will grow economically and demographically over the coming years.
Effective December 15, 2014, HTA completed a 1-for 2 reverse stock split (the “Reverse Stock Split”) of its common stock. As a result of the Reverse Stock Split, every two issued and outstanding shares of common stock were converted into one share of common stock. The par value and shares authorized remained unchanged. Concurrently with the Reverse Stock Split, HTALP effected a corresponding Reverse Stock Split of its outstanding units of limited partnership interests. All prior periods have been adjusted to reflect the Reverse Stock Split.
Our principal executive office is located at 16435 North Scottsdale Road, Suite 320, Scottsdale, AZ 85254, and our telephone number is (480) 998-3478. We maintain a web site at www.htareit.com at which you may find additional information about us. The contents of the site are not incorporated by reference in, or otherwise a part of this filing. We make our periodic and current reports, as well as any amendments to such reports, available at www.htareit.com as soon as reasonably practicable after such materials are electronically filed with the SEC. These reports are also available in hard copy to any stockholder upon request.
HIGHLIGHTS
For the year ended December 31, 2014, we had net income of $46.0 million, compared to $24.7 million for the year ended December 31, 2013.
For the year ended December 31, 2014, HTA’s Normalized FFO was $1.46 per diluted share, or $176.6 million, an increase of $0.17 per diluted share, or 13%, compared to the year ended December 31, 2013. For the year ended December 31, 2014, HTALP’s Normalized FFO was $1.46 per diluted unit, or $176.6 million, an increase of $0.18 per diluted unit, or 14%, compared to the year ended December 31, 2013.
For additional information on Normalized FFO, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common stockholders/unitholders and an explanation of why we present this non-GAAP financial measure.
For the year ended December 31, 2014, we achieved Same-Property Cash Net Operating Income (“NOI”) growth of 3.0%. This achievement marks the second year of consistent quarterly growth of 3% or more.
During the year ended December 31, 2014, our leased rate (includes leases which have been executed, but which have not yet commenced) increased 40 basis points to 92.0% by GLA and our occupancy rate was 91.4% by GLA.
During 2014, our tenant retention for the portfolio was 83%, which we believe is indicative of our commitment to maintaining high quality MOBs in desirable locations and fostering strong tenant relationships.

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During the year ended December 31, 2014, we acquired $439.5 million of high quality MOBs, representing an expansion of approximately 15% by investment, based on purchase price. These acquisitions totaled approximately 1.2 million square feet of GLA and were primarily located in our key markets of Boston, Charleston, Denver, Miami, Raleigh, Tampa and White Plains, plus a new market of Honolulu, Hawaii. Based on GLA, 88% of our 2014 acquisitions were either on the campuses of, or aligned with, nationally or regionally recognized healthcare systems.
During 2014, we initiated our asset recycling program and sold three portfolios of MOBs for an aggregate sales price of $82.9 million. These dispositions generated gains of $27.9 million.
During the year ended December 31, 2014, we raised $300.0 million in senior notes maturing in 2021, and increased the unsecured revolving credit and term loan facility (the “Unsecured Credit Agreement”) capacity to $1.1 billion. The Company issued $171.2 million comprised of $154.2 million from the sale of shares of common stock at an average price of $24.21 per share, after giving effect to the reverse stock split, and $17.0 million from the issuance of Class A Units of HTALP. We ended the year with low leverage totaling 29.2% debt to capitalization.
In May 2014, Standard & Poor’s Rating Services (“Standard & Poor’s”) upgraded our investment grade credit rating to BBB, with a stable outlook.
As of December 31, 2014, we had total liquidity of $868.9 million, including cash and cash equivalents of $10.4 million and $858.5 million available on our Unsecured Credit Agreement.
BUSINESS STRATEGIES
Corporate Strategies
Invest in and Maintain a Portfolio of Properties that are in the Most Valuable Locations for Healthcare Delivery
The Company is focused on building and maintaining a portfolio comprised primarily of MOBs that allow for the efficient delivery of healthcare over the long-term. We believe that these types of properties that are located in key markets should increase in value over the long-term. To date, we have invested over $3.3 billion to create one of the largest portfolios of healthcare real estate focused on the MOB sector in the U.S. As a result, we look to allocate capital to properties that exhibit the following key attributes:
Located on the campuses of, or aligned with, nationally and regionally recognized healthcare systems in the U.S. We seek to invest in properties serving healthcare systems with dominant market share, high credit quality and those who are investing capital into their campuses. We believe our affiliations with these health systems help ensure long-term tenant demand. At December 31, 2014, 96% of our portfolio was located on the campuses of, or aligned with, nationally and regionally recognized healthcare systems.
Attractive markets. We seek to own MOBs in high growth primary and secondary markets with attractive demographics, economic growth and high barriers to entry. We also target markets where we can utilize our property management and leasing platform to achieve operational and leasing efficiency. At December 31, 2014, over 67% of our GLA was located in 16 key markets throughout the U.S.
Occupied with limited near term leasing risks. We seek to invest in and maintain well occupied properties that we believe are core, critical to the delivery of healthcare. We believe this in turn creates significant tenant demand for occupancy and also drives strong, long-term tenant retention as hospitals and physicians are reluctant to move or relocate, as evidenced by our 2014 retention rate of 83%. Further, we do not have an active development platform that seeks to invest in higher risk, lease-up opportunities.
Credit-worthy tenants. Our primary tenants are healthcare systems and leading physician groups. These groups typically have strong and stable financial performance. We believe this helps ensure stability in our rental income and tenant retention over time. At December 31, 2014, 57% of our annual base rent comes from credit-rated tenants, primarily health systems. A significant amount of our remaining rent comes from physician groups and medical healthcare system tenants that are credit-worthy, but do not have the size to benefit from a credit rating.
Balanced mix of tenants. Our primary focus is placed on ensuring an appropriate and balanced mix of tenants to provide synergies within both individual buildings and the broader health system campus. We actively invest in both multi-tenant properties, which generally have shorter term leases on smaller spaces, and single-tenant properties, which generally have longer term leases. The multi-tenant buildings provide for lower lease rollover risks in any particular year and regularly allow for rents to be reset to current market rates. We believe single-tenant buildings provide for steady long-term cash flow, but generally provide for more limited long-term growth.
Maximize Internal Growth through Proactive Asset Management, Leasing and Property Management Oversight
Our internal asset management team operates 90% of our total portfolio, a significant increase from 69% two years ago. We believe this direct approach allows us to maximize our internal growth by improving occupancy and operating efficiencies at our properties and optimizing rental rates. Specific components of our overall strategy include:

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Maintaining regional offices in markets where we have a significant presence. This enables our in-house property management and leasing platform to (i) create close relationships with national and regional healthcare systems and other tenants and (ii) respond more directly and efficiently to their needs. Our regional offices are located in Albany, Atlanta, Boston, Charleston, Dallas, Denver, Indianapolis, Miami, Pittsburgh and Scottsdale.
Improving the quality of service provided to our tenants by being attentive to their needs, managing expenses and strategically investing capital. During 2014, we consistently achieved tenant retention of 75% or more each quarter and tenant retention for the year of 83%.
Using market knowledge and economies of scale to seek to continually reduce our operating costs.
Maintaining or increasing our average rental rates, actively leasing our vacant space and reducing leasing concessions. These leasing results contributed to our 3.0% or more Same-Property Cash NOI growth each quarter during 2014. For additional information on Same-Property Cash NOI, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss and an explanation of why we present this non-GAAP financial measure.
Maintaining a core, critical portfolio of properties and building our reputation as a dedicated leading MOB owner and operator.
Achieve External Growth through Targeted Acquisitions
We plan to grow externally through targeted acquisitions that improve the quality of our portfolio and are accretive to our cost of capital. To achieve this growth in competitive markets, we seek:
Mid-sized acquisitions in the $25 million to $75 million range. These transactions allow us to focus on the quality of individual properties and ensure they are accretive to our cost of capital. They also allow us to exhibit meaningful growth given our current mid-market size.
Long-term relationships with key industry participants. We will continue our emphasis on long-term relationship building as we have over the last eight years. These relationships are cultivated by our senior management team, with key industry participants, including health systems and local and regional developers, which have traditionally provided us with valuable sources of potential investment opportunities.
Local knowledge through our internal asset management platform. Our local personnel are participants in local industry activities which can provide insightful information with respect to potential opportunities.
Actively Maintain Conservative Capital Structure
We seek to actively manage our balance sheet to maintain our investment grade credit rating, to maintain conservative leverage and to preserve financing flexibility. This positioning will allow us to take advantage of strategic investment opportunities. In addition, we may also pursue dispositions of properties that we believe no longer align with our strategic objectives in order to redeploy capital. The strength of our balance sheet is demonstrated by our investment grade credit ratings, which we first received in July 2011 and which was most recently upgraded in May 2014 to BBB. To maintain our strong and conservative balance sheet, we:
Continue to maintain a high level of liquidity. As of December 31, 2014, we had $858.5 million available on our Unsecured Credit Agreement. During 2014, we increased our unsecured revolving credit facility to $800.0 million and repaid $100.0 million of the unsecured term loan. We may re-borrow the $100.0 million repaid through May 2015.
Maintain access to multiple sources of capital, including public debt and equity, unsecured bank loans and secured property level debt. In 2014, we raised capital through all of these avenues.
Limit the amount of secured debt. During 2014, the percentage of secured debt, including net premiums/discounts to capitalization, decreased to 8.8% from 11.4% in 2013.
Maintain a low leverage ratio. Our leverage ratio of debt to capitalization was 29.2% as of December 31, 2014.
Maintain well laddered debt maturities. As of December 31, 2014, we had $73.9 million, $70.1 million, and $117.0 million of debt principal payments due in 2015, 2016 and 2017, respectively.
During 2014, we increased the weighted average remaining term of our debt portfolio to 5.6 years, including extension options, while simultaneously lowering the average interest rate on our debt portfolio to 3.76% per annum, including the impact of interest rate swaps.

6


HEALTHCARE INDUSTRY
Healthcare Sector Growth
We operate in the healthcare industry which we believe is benefiting from several significant macroeconomic events, including an aging population and the implementation of the Affordable Care Act. These trends are driving growth in healthcare spending at a rate significantly faster than the broader U.S. economy.
The U.S. population is experiencing a significant aging of its population, as advancements in medical technology and changes in treatment methods enable people to live longer. This is expected to drive healthcare utilization higher as individuals consume more healthcare as they get older. Between 2013 and 2020, the U.S. population over 65 years of age is projected to increase by more than 26% and total almost 17% of the U.S. population as the baby boomer generation enters retirement. Individuals of this age spend the highest amounts on healthcare, averaging almost $5,000 per individual over the age of 65 according to 2013 Consumer Expenditure Survey. This compares to healthcare expenditures of less than $1,000 per year for individuals under the age of 25. The older population group will increasingly require treatment and management of chronic and acute health ailments. We believe much of this increased care will take place in lower cost outpatient settings, which will continue to support MOB demand in the long term.
Source: Congressional Budget Office and Rosen Consulting Group.
The Affordable Care Act is a broad-based initiative that is expanding health insurance coverage for many Americans, further increasing the number of people who are able to utilize medical services. The Congressional Budget Office estimates an additional 25 million individuals will gain access to insurance coverage by 2016 as a result of this reform. Following the 2014 enrollment period, an additional eight million individuals have already received coverage through the health insurance marketplaces. The Affordable Care Act’s focus on preventative care is also expected to increase the utilization of outpatient care into the future.
Source: U.S Census Bureau and Rosen Consulting Group.

7


Employment in the healthcare industry has steadily increased for at least 20 years despite three recessions. Healthcare-related jobs are among the fastest growing occupations, projected to increase 24% between 2012 and 2022, significantly higher than the general U.S. employment growth of 11%, according to the Bureau of Labor Statistics. Additionally, the Bureau of Labor Statistics projects eight out of the top twelve occupations with the highest demand for workers will be in the healthcare sector. We expect the increased growth in the healthcare industry will correspond with a growth in demand for MOBs and other facilities that serve the healthcare industry.
Source: Bureau of Labor Statistics and Rosen Consulting Group.
According to the latest data from 2013, Americas spent nearly $2.9 trillion, or 17.2% of total GDP, on healthcare expenditures, an increase of 3.6% from the previous year. The U.S. Centers for Medicare & Medicaid Services project that total healthcare expenditures will reach approximately $5.2 trillion by 2023. Healthcare expenditures are projected to grow by 5.9% annually through 2023 and account for 19.3% of GDP by 2023. This growth in healthcare expenditures reflects the increasing demand for healthcare. It is also driving demand for cost effective care which generally takes place in outpatient settings such as MOBs.
Source: U.S. Centers for Medicare & Medicaid Services and Rosen Consulting Group.

8


Medical Office Building Supply and Demand
We believe that healthcare-related real estate, specifically MOBs, rents and valuations are less susceptible to changes in the general economy than general commercial real estate due to macroeconomic trends supporting the healthcare sector and the defensive nature of healthcare expenditures during economic downturns. For this reason, we believe MOB investments could potentially offer a more stable return to investors compared to other types of real estate investments. We also believe that demand for MOBs will increase due to a number of MOB specific factors, including:
Evolution in the healthcare industry whereby procedures that have traditionally been performed in hospitals, such as surgery, move to outpatient facilities as a result of shifting consumer preferences, limited space in hospitals, and lower costs. In addition, increased specialization within the medical field is driving the demand for MOBs suited specifically toward a particular specialty.
An increase in medical office visits due to the overall rise in healthcare utilization has in turn driven hiring within the healthcare sector. Additionally, the rate of employment growth in physicians’ offices and outpatient care facilities has outpaced employment growth in hospitals during the past decade, further supporting the trend of increased utilization of healthcare services outside of the hospital. According to the Bureau of Labor Statistics, employment in physicians’ offices is expected to increase by a cumulative 38.4% from 2013 to 2023 compared to a projected increase of 10.8% in total employment during this period.
High and improving credit quality of physician tenants. In recent years, MOB tenants have increasingly consisted of larger hospital and physician groups. These groups utilize their size and expertise to obtain high rates of reimbursement and share overhead operating expenses. We believe these larger groups are generally credit-worthy and provide stability and long term value for MOBs.
Construction of MOBs has been relatively constrained with little developable land and high-cost barriers to development.
Source: U.S. Census Bureau, Bureau Economic Analysis and Rosen Consulting Group.

9


PORTFOLIO OF PROPERTIES
As of December 31, 2014, our portfolio is comprised of approximately 14.8 million square feet of GLA, with a leased rate of 92.0% (includes leases which have been executed, but which have not yet commenced).
Our properties are primarily located on the campuses of, or aligned with, nationally and regionally recognized healthcare systems in the U.S. These include leading health systems such as Hospital Corporation of America, Community Health Systems, Highmark, Greenville Hospital System, Indiana University Health, Steward Health Care System and Tufts Medical Center. As of December 31, 2014, 96% of our portfolio, based on GLA, is located on the campuses of, or aligned with, nationally and regionally recognized healthcare systems.
Portfolio Diversification by Type
 
Number of
Buildings
 
Number of
States
 
GLA (1)
 
Percent of
Total GLA
 
Annualized Base Rent (1)
 
Percent of Annualized Base Rent
MOBs:
 
 

 
 
 
 

 
 

 
 
 
 
Single-tenant
 
74

 
17
 
3,758

 
25.3
%
 
$
76,091

 
25.2
%
Multi-tenant
 
206

 
24
 
9,852

 
66.4

 
194,224

 
64.4

Other Healthcare Facilities:
 
 
 
 
 
 
 
 

 
 
 
 
Hospitals
 
10

 
4
 
655

 
4.4

 
22,772

 
7.5

Senior care
 
9

 
3
 
581

 
3.9

 
8,813

 
2.9

Total
 
299

 
28
 
14,846

 
100
%
 
$
301,900

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) In thousands.
 
 
 
 
 
 
 
 
 
 
 
 

SIGNIFICANT TENANTS
As of December 31, 2014, none of the tenants at our properties accounted for more than 6% of our annualized base rent. The table below shows our key health system relationships.
Tenant
 
Weighted Average Remaining Years in Lease Term (1)
 
Total Leased GLA (1)(2)
 
Percent of Leased GLA
 
Annualized Base Rent (1) (2)(3)
 
Percent of Annualized Base Rent
Highmark
 
7

 
876

 
6.4
%
 
$
16,282

 
5.4
%
Greenville Hospital System
 
9

 
761

 
5.6

 
13,999

 
4.6

Hospital Corporation of America
 
5

 
403

 
3.0

 
9,479

 
3.1

Community Health Systems
 
4

 
333

 
2.4

 
7,245

 
2.4

Steward Health Care System
 
12

 
321

 
2.4

 
7,433

 
2.5

Aurora Health Care
 
9

 
315

 
2.3

 
6,684

 
2.2

Indiana University Health
 
3

 
293

 
2.1

 
4,752

 
1.6

Deaconess Health System
 
9

 
261

 
1.9

 
4,079

 
1.4

Tufts Medical Center
 
13

 
252

 
1.8

 
9,381

 
3.1

Capital District Physicians Health Plan
 
12

 
205

 
1.5

 
3,138

 
1.0

Wellmont Health System
 
8

 
158

 
1.2

 
2,751

 
0.9

Banner Health
 
4

 
138

 
1.0

 
3,128

 
1.0

Rush University Medical Center
 
5

 
137

 
1.0

 
4,547

 
1.5

Tenet Healthcare
 
4

 
124

 
0.9

 
3,062

 
1.0

Diagnostic Clinic (BCBS of FL)
 
15

 
117

 
0.9

 
3,189

 
1.1

Total
 
 
 
4,694

 
34.4
%
 
$
99,149

 
32.8
%
 
 
 
 
 
 
 
 
 
 
 
(1) Amounts only represent relationships with direct tenants.
(2) In thousands.
(3) Annualized base rent is calculated by multiplying contractual base rent as of December 31, 2014 by 12 (excluding the impact of abatements, concessions, and straight-line rent).


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GEOGRAPHIC CONCENTRATION
As of December 31, 2014, our portfolio was concentrated in key markets that we have determined to be strategic based on demographic trends and projected demand for healthcare.
Market
 
Investment (1)
 
GLA (1)
 
Percent of GLA
Boston, MA
 
$
248,100

 
610

 
4.1
%
Dallas, TX
 
223,448

 
682

 
4.6

Phoenix, AZ
 
190,182

 
1,022

 
6.9

Albany, NY
 
179,253

 
879

 
5.9

Greenville, SC
 
179,070

 
965

 
6.5

Miami, FL
 
155,607

 
753

 
5.1

Houston, TX
 
151,766

 
692

 
4.7

Pittsburgh, PA
 
148,612

 
1,094

 
7.4

Atlanta, GA
 
133,293

 
597

 
4.0

Tampa, FL
 
123,593

 
382

 
2.6

Indianapolis, IN
 
117,650

 
850

 
5.7

Denver, CO
 
111,700

 
371

 
2.5

White Plains, NY
 
92,750

 
276

 
1.9

Orlando, FL
 
62,300

 
289

 
1.9

Raleigh, NC
 
56,000

 
285

 
1.9

Charleston, SC
 
54,501

 
214

 
1.4

Total
 
$
2,227,825

 
9,961

 
67.1
%
 
 
 
 
 
 
 
(1) In thousands.
 
 
 
 
 
 
COMPETITION
We compete with many other real estate investment entities, including financial institutions, institutional pension funds, real estate developers, other REITs, other public and private real estate companies, and private real estate investors for the acquisition of MOBs and other facilities that serve the healthcare industry. During the acquisition process, we compete with others who may have a competitive advantage in terms of size, capitalization, local knowledge of the marketplace and extended contacts throughout the region. Any combination of these factors may result in an increased purchase price for properties or other real estate related assets of interest to us, which may reduce the number of opportunities available to us that meet our investment criteria. If the number of opportunities that meet our investment criteria are limited, our ability to increase stockholder value may be adversely impacted.
We face competition in leasing available MOBs and other facilities that serve the healthcare industry to prospective tenants. As a result, we may have to provide rent concessions, incur charges for tenant improvements, offer other inducements, or we may be unable to timely lease vacant space in our properties, all of which may have an adverse impact on our results of operations. At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchase opportunities.
We believe our focus on MOBs, our experience and expertise and our ongoing relationships with healthcare providers provide us with a competitive advantage. We have established an asset identification and acquisition network with healthcare providers and local developers, which provides for the early identification of and access to acquisition opportunities. In addition, we believe this broad network allows us to effectively lease available medical office space, retain our tenants and maintain and improve our assets.

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GOVERNMENT REGULATIONS
Healthcare-Related Regulations
Overview.  The healthcare industry is heavily regulated by federal, state and local governmental agencies. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affect the ability of our tenants to satisfy their contractual obligations, including making lease payments to us.
Healthcare Legislation.  The Patient Protection and Affordable Care Act of 2010 (the “Patient Protection and Affordable Care Act”) along with other healthcare reform efforts, provide comprehensive healthcare reform in the U.S. and will become effective through a phased approach, which began in 2010 and is scheduled to conclude in 2018. The laws are intended to reduce the number of individuals in the U.S. without health insurance and significantly change the means by which healthcare is organized, delivered and reimbursed. The Patient Protection and Affordable Care Act expanded reporting requirements and responsibilities related to facility ownership and management, patient safety and quality of care. In the ordinary course of their businesses, our tenants may be regularly subjected to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations. If they do not comply with the additional reporting requirements and responsibilities, our tenants’ ability to participate in federal healthcare programs may be adversely affected. Moreover, there may be other aspects of the comprehensive healthcare reform legislation for which regulations have not yet been adopted, which, depending on how they are implemented, could adversely affect our tenants and their ability to meet their lease obligations to us.
The Patient Protection and Affordable Care Act have faced numerous judicial challenges. The broadest attack on the law came from a constitutional challenge brought by the state of Florida and a group representing small businesses who argued that Congress had exceeded its authority under the Constitution by passing the law. In that case, the U.S. Supreme Court generally upheld the law’s constitutionality, with the exception of mandated Medicaid expansion that would have required states to cover nonelderly persons with incomes up to 133% of the poverty level. More recently, on November 7, 2014, the U.S. Supreme Court agreed to hear a challenge to the Patient Protection and Affordable Care Act regarding whether subsidies can lawfully be provided for health insurance obtained on federal exchanges. To the extent the court determines that such subsidies may not be provided, it may reduce the number of policies purchased under the law. In addition to the legal challenges, there have been numerous Congressional attempts to amend and repeal the law. After the November 2014 elections, Republicans control both the House of Representatives and Senate, which could result in additional attempts to amend or repeal the law. We cannot predict whether any of these attempts to amend or repeal the law will be successful. Furthermore, we cannot predict how this law might be modified, whether through the legislative or judicial process, and how it might impact our tenants’ operations or the net effect of this law on us. Both our tenants and us may be adversely affected by the law.
Reimbursement Programs.  Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers, health maintenance organizations, preferred provider arrangements and self-insured employers, among others. Medicare and Medicaid programs, as well as numerous private insurance and managed care plans, generally require participating providers to accept government-determined reimbursement levels as payment in full for services rendered, without regard to a facility’s charges. Changes in the reimbursement rate or methods of payment from third-party payors, including Medicare and Medicaid, could result in a substantial reduction in our tenants’ revenues. In fact, legislation governing Medicare physician fee-for-service reimbursements has, for a number of years, called for significant reductions in such rates. Congress, however, has repeatedly enacted superseding legislation postponing the implementation of physician rate cuts, most recently postponing the effective date of such cuts until March 2015. We cannot predict whether Congressional proposals to further postpone implementation of the cuts or to permanently address the issue will be successful. Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. Further, revenue realizable under third-party payor agreements can change after examination and retroactive adjustment by payors during the claims settlement processes or as a result of post-payment audits. Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable or because additional documentation is necessary or because certain services were not covered or were not medically necessary. The recently enacted healthcare reform law and regulatory changes could impose further limitations on government and private payments to healthcare providers. In some cases, states have enacted or are considering enacting measures designed to reduce their Medicaid expenditures and to make changes to private healthcare insurance. In addition, the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid and other government sponsored payment programs. The financial impact on our tenants could restrict their ability to make rent payments to us.

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Fraud and Abuse Laws.  There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from, or are in a position to make referrals in connection with, government-sponsored healthcare programs, including the Medicare and Medicaid programs. Additionally, the Patient Protection and Affordable Care Act includes program integrity provisions that both create new authorities and expand existing authorities for federal and state governments to address fraud, waste and abuse in federal healthcare programs. Our lease arrangements with certain tenants may also be subject to these fraud and abuse laws. These laws include, but are not limited to:
the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral or recommendation for the ordering of any item or service reimbursed by a federal healthcare program, including Medicare or Medicaid;
the Federal Physician Self-Referral Prohibition, commonly referred to as the Stark Law, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under Medicare or Medicaid programs to an entity with which the physician, or an immediate family member, has a financial relationship;
the False Claims Act, which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and Medicaid programs;
the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose monetary penalties for certain fraudulent acts and to exclude violators from participating in federal healthcare programs; and
the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act of the American Recovery and Reinvestment Act of 2009, which protects the privacy and security of personal health information.
In the ordinary course of their business, our tenants may be subject to inquiries, investigations and audits by federal and state agencies that oversee applicable laws and regulations. Private enforcement of healthcare fraud has also increased, due in large part to amendments to the civil False Claims Act that were designed to encourage private individuals to sue on behalf of the government. These whistleblower suits, known as qui tam suits, may be filed by almost anyone, including present and former employees or patients. Each of these laws includes criminal and/or civil penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid programs. Additionally, states in which the facilities are located may have similar fraud and abuse laws. Investigation by a federal or state governmental body for violation of fraud and abuse laws or imposition of any of these penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments to us.
Healthcare Licensure and Certification.  Some of our medical properties and our tenants may require a license or multiple licenses or a certificate of need (“CON”) to operate. Failure to obtain a license or a CON, or loss of a required license or a CON would prevent a facility from operating in the manner intended by the tenant. This event could adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate plant expansion, including the addition of new beds or services or acquisition of medical equipment and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws are not uniform throughout the U.S. and are subject to change. We cannot predict the impact of state CON laws on our facilities or the operations of our tenants.
Real Estate Ownership-Related Regulations
Many laws and governmental regulations are applicable to our properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.
Costs of Compliance with the Americans with Disabilities Act.  Under the Americans with Disabilities Act of 1990, as amended (the “ADA”), all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. Although we believe that we are in substantial compliance with present requirements of the ADA, none of our properties have been audited and we have only conducted investigations of a few of our properties to determine compliance. We may incur additional costs in connection with compliance with the ADA. Additional federal, state and local laws also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the cost of compliance with the ADA or other legislation. We may incur substantial costs to comply with the ADA or any other legislation.

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Costs of Government Environmental Regulation and Private Litigation.  Environmental laws and regulations hold us liable for the costs of removal or remediation of certain hazardous or toxic substances which may be on our properties. These laws could impose liability on us without regard to whether we are responsible for the presence or release of the hazardous materials. Government investigations and remediation actions may cause substantial costs and the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances and such persons oftentimes must incur the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. As the owner and operator of our properties, we may be deemed to have arranged for the disposal or treatment of hazardous or toxic substances.
Use of Hazardous Substances by Some of Our Tenants.  Some of our tenants routinely handle hazardous substances and wastes on our properties as part of their routine operations. Environmental laws and regulations subject these tenants, and potentially us, to liability resulting from such activities. We require our tenants in their leases with us to comply with these environmental laws and regulations and to indemnify us for any related liabilities. We are unaware of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of our properties.
Other Federal, State and Local Regulations.  Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may incur governmental fines or private damage awards. While we believe that our properties are currently in material compliance with all of these regulatory requirements, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely affect our ability to make distributions to our stockholders. We believe, based in part on engineering reports which are generally obtained by us at the time we acquire the properties, that all of our properties comply in all material respects with current regulations. However, if we were required to make significant expenditures under applicable regulations, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations and to pay distributions to our stockholders could be adversely affected.
EMPLOYEES
As of December 31, 2014, we had approximately 170 employees, of which 1% are subject to a collective bargaining agreement.
TAX MATTERS
We filed an election with our 2007 federal income tax return to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) and intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, we will not be taxed under federal and certain state income tax laws at the corporate level on our taxable net income to the extent taxable net income is distributed to our stockholders. We expect to make sufficient distributions to avoid income tax at the corporate level. While we believe that we are organized and qualified as a REIT and we intend to operate in a manner that will allow us to continue to qualify as a REIT, there can be no assurance that we will be successful in this regard. Qualification as a REIT involves the application of highly technical and complex provisions of the Code for which there are limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control.
EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding our executive officers included in Part III, Item 10 of this Annual Report on Form 10-K is incorporated herein by reference.


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Item 1A. Risk Factors
Risks Related to Our Business
We are dependent on investments in the healthcare property sector, making our profitability more vulnerable to a downturn or slowdown in that specific sector than if we were investing in multiple industries.
We concentrate our investments in the healthcare property sector. As a result, we are subject to risks inherent to investments in a single industry. A downturn or slowdown in the healthcare property sector would have a greater adverse impact on our business than if we had investments in multiple industries. Specifically, a downturn in the healthcare property sector could negatively impact the ability of our tenants to make lease payments to us as well as our ability to maintain rental and occupancy rates, which could adversely affect our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Our ability to make future acquisitions may be impeded, or the cost of these acquisitions may be increased, due to a variety of factors, including competition for the acquisition of MOBs and other facilities that serve the healthcare industry.
At any given time, we may be pursuing property acquisitions or have properties subject to non-binding letters of intent and cannot assure you that we will acquire any of such properties because the letters of intent are non-binding and potential transaction opportunities are subject to a variety of factors, including: (i) the willingness of the current property owner to proceed with a potential transaction; (ii) our completion of due diligence that is satisfactory to us and our receipt of internal approvals; (iii) the negotiation and execution of a mutually acceptable binding purchase agreement; and (iv) the satisfaction of closing conditions, including our receipt of third-party consents and approvals. We also compete with many other entities engaged in real estate investment activities for acquisitions of MOBs and other facilities that serve the healthcare industry, including national, regional and local operators, acquirers and developers of healthcare real estate properties. The competition for healthcare real estate properties may significantly increase the price we must pay for MOBs and other facilities that serve the healthcare industry or other real estate related assets we seek to acquire. The competition may also generally limit the number of suitable investment opportunities offered to us or the number of properties that we are able to acquire and may increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms. Our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more to acquire the properties or may have a more compatible operating philosophy. In particular, larger healthcare REITs may enjoy significant competitive advantages over us that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Moreover, these entities generally may be able to accept more risk than we can prudently manage or are willing to accept. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase, which could result in increased demand for these properties and, therefore, increased prices to acquire them. Because of an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices for the purchase of single properties in comparison with the purchase of multi-property portfolios. If we pay higher prices for MOBs and other facilities that serve the healthcare industry, or otherwise incur significant costs and divert management attention in connection with the evaluation and negotiation of potential acquisitions, including potential transactions that we are subsequently unable to complete, our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders may be adversely affected.
We may not be able to maintain or expand our relationships with our hospital and healthcare system clients, which may impede our ability to identify and complete acquisitions directly from hospitals and developers and may otherwise adversely affect our growth, business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
The success of our business depends to a large extent on our past, current and future relationships with hospital and healthcare system clients, including our ability to acquire properties directly from hospitals and developers. We invest a significant amount of time to develop and maintain these relationships, and these relationships have helped us to secure acquisition opportunities, with both new and existing clients. Facilities that are acquired directly from hospitals and developers are typically more attractive to us as a purchaser because of the absence of a formal marketing process, which could lead to higher prices. If any of our relationships with hospital or healthcare system clients deteriorates, or if a conflict of interest or non-compete arrangement prevents us from expanding these relationships, our professional reputation within the industry could be damaged and we may not be able to secure attractive acquisition opportunities directly from hospitals and developers in the future, which could adversely affect our ability to locate and acquire facilities at attractive prices.

15


Our results of operations, our ability to pay distributions to our stockholders and our ability to dispose of our investments are subject to general economic conditions affecting the commercial real estate and credit markets.
Our business is sensitive to national, regional and local economic conditions, as well as the commercial real estate and credit markets. For example, a financial disruption or credit crisis could negatively impact the value of commercial real estate assets, contributing to a general slowdown in our industry. A slow economic recovery could cause a reduction in overall transaction volume and size of sales and leasing activities of the type that we previously experienced. We are unable to predict future changes in national, regional or local economic, demographic or real estate market conditions.
Adverse economic conditions in the commercial real estate and credit markets may result in:
defaults by tenants at our properties due to bankruptcy, lack of liquidity or operational failures;
increases in vacancy rates due to tenant defaults, the expiration or termination of tenant leases and reduced demand for MOBs and other facilities that serve the healthcare industry;
increases in tenant inducements, tenant improvement expenditures, rent concessions or reduced rental rates, especially to maintain or increase occupancies;
reduced values of our properties, thereby limiting our ability to dispose of our assets at attractive prices or obtain debt financing secured by our properties as well as reducing the availability of unsecured loans;
the value and liquidity of our short-term investments and cash deposits being reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investment and other factors;
one or more lenders under our credit facilities refusing to fund their financing commitment to us and, in such event, we are unable to replace the financing commitment of any such lender or lenders on favorable terms, or at all;
a recession or rise in interest rates, which could make it more difficult for us to lease our properties or dispose of our properties or make alternative interest-bearing and other investments more attractive, thereby lowering the relative value of our existing real estate investments;
one or more counterparties to our interest rate swaps default on their obligations to us, thereby increasing the risk that we may not realize the benefits of these instruments;
increases in the supply of competing properties or decreases in the demand for our properties, which may impact our ability to maintain or increase occupancy levels and rents at our properties or to dispose of our investments;
reduced access to credit, which may result in tenant defaults or non-renewals under leases with our tenants; and
increased insurance premiums, real estate taxes or energy or other expenses, which may reduce funds available for distribution to our stockholders or, to the extent such increases are passed through to our tenants, may lead to tenant defaults or make it difficult for us to increase rents to tenants on lease turnover, which may limit our ability to increase our returns.
Our business, financial condition and results of operations, the market price of our common stock and our ability to pay distributions to our stockholders may be adversely affected to the extent an economic slowdown or downturn is prolonged or becomes more severe.
Our growth depends on external sources of capital that are outside of our control, which may affect our ability to seize strategic opportunities, satisfy debt obligations and make distributions to our stockholders.
In order to qualify as a REIT, we must distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we may need to rely on third-party sources to fund our capital needs, meet our debt service obligations, make distributions to our stockholders, or make future investments necessary to implement our business strategy. We may not be able to obtain financing on favorable terms, in the time period we desire, or at all. Our access to third-party sources of capital depends, in part, on general market conditions; the market’s perception of our growth potential; our current debt levels; our current and expected future earnings; our cash flow and cash distributions; and the market price per share of our common stock. If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, satisfy our principal and interest obligations, or make the cash distributions to our stockholders necessary to maintain our qualification as a REIT.

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Our success depends to a significant degree upon the continued contributions of certain key personnel, each of whom would be difficult to replace. If we were to lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating results could suffer.
Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our Board of Directors, our executive officers and our other employees, in the identification and acquisition of investments, the determination of any financing arrangements and the asset management of our investments and operation of our day-to-day activities. Our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in this Annual Report on Form 10-K or other periodic filings with the SEC. We rely primarily on the management ability of our executive officers and the governance by the members of our Board of Directors, each of whom would be difficult to replace. We do not have any key-person life insurance on our executive officers. Although we have entered into employment agreements with each of our executive officers, these employment agreements contain various termination rights. If we were to lose the benefit of the experience, efforts and abilities of these executives, our operating results could suffer. In addition, if any member of our Board of Directors were to resign, we would lose the benefit of such director’s governance, experience and familiarity with us and the sector within which we operate. As a result of the foregoing, we may be unable to achieve our investment objectives or to pay distributions to our stockholders.
Failure to maintain effective internal control over financial reporting could harm our business, results of operations and financial condition.
Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control. Changes to our business will necessitate ongoing changes to our internal control systems and processes. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business, results of operations and financial condition could be adversely harmed and we could fail to meet our reporting obligations.
We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business, results of operations and financial condition.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, and tenant and lease data. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have an adverse effect on our business, results of operations and financial condition.

17


Risks Related to our Organizational Structure
We may structure acquisitions of property in exchange for limited partnership units of our operating partnership on terms that could limit our liquidity or our flexibility.
We may continue to acquire properties by issuing limited partnership units of our operating partnership, HTALP, in exchange for a property owner contributing property to us. If we continue to enter into such transactions, in order to induce the contributors of such properties to accept units of our operating partnership rather than cash in exchange for their properties, it may be necessary for us to provide additional incentives. For instance, our operating partnership’s limited partnership agreement provides that any holder of units may exchange limited partnership units on a one-for-one basis for, at our option, cash equal to the value of an equivalent number of shares of common stock. We may, however, enter into additional contractual arrangements with contributors of property under which we would agree to repurchase a contributor’s units for shares of our common stock or cash, at the option of the contributor, at set times. If the contributor required us to repurchase units for cash pursuant to such a provision, it would limit our liquidity and, thus, our ability to use cash to make other investments, satisfy other obligations or make distributions to stockholders. Moreover, if we were required to repurchase units for cash at a time when we did not have sufficient cash to fund the repurchase, we might be required to sell one or more of our properties to raise funds to satisfy this obligation. Furthermore, we might agree that if distributions the contributor received as a limited partner in our operating partnership did not provide the contributor with an established return level, then upon redemption of the contributor’s units we would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to our operating partnership, we might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares. Such an agreement would prevent us from selling those properties, even if market conditions would cause such a sale to be favorable to us.
Our Board of Directors may change our investment objectives and major strategies and take other actions without seeking stockholder approval.
Our Board of Directors determines our investment objectives and major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our Board of Directors may amend or revise these and other strategies without a vote of the stockholders. Under our charter and Maryland law, our stockholders will have a right to vote only on the following matters:
the election or removal of directors;
our dissolution; 
certain mergers, consolidations, statutory share exchanges and sales or other dispositions of all or substantially all of our assets; and
amendments of our charter, except that our Board of Directors may amend our charter without stockholder approval to change our name or the name or other designation or the par value of any class or series of our stock and the aggregate par value of our stock, increase or decrease the aggregate number of our shares of stock or the number of our shares of any class or series that we have the authority to issue, or effect certain reverse stock splits.
As a result, our stockholders will not have a right to approve most actions taken by our Board of Directors.
Certain provisions of Maryland law could inhibit changes in control of us, which could lower the value of our common stock.
Certain provisions of the Maryland General Corporation Law (“MGCL”), applicable to us may have the effect of inhibiting or deterring a third party from making a proposal to acquire us or of delaying or preventing a change of control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
provisions of the MGCL that permit our Board of Directors, without our stockholders’ approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board;
“business combination” provisions that, subject to limitations, prohibit certain business combinations, asset transfers and equity security issuances or reclassifications between us and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of our then outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose supermajority voting requirements unless certain minimum price conditions are satisfied; and

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“control share” provisions that provide that “control shares” of HTA (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
Our Board of Directors has adopted a resolution providing that any business combination between us and any other person is exempted from this statute, provided that such business combination is first approved by our board. This resolution, however, may be altered or repealed in whole or in part at any time. In the case of the control share provisions of the MGCL, we have opted out of these provisions pursuant to a provision in our bylaws. We may, however, by amendment to our bylaws, opt in to the control share provisions of the MGCL. We may also choose to adopt a classified board or other takeover defenses in the future. Any such actions could deter a transaction that may otherwise be in the interest of our stockholders.
Risks Related to Investments in Real Estate and Other Real Estate Related Assets
We are dependent on the financial stability of our tenants.
Lease payment defaults by our tenants would cause us to lose the revenue associated with such leases. Although 57% of our annualized base rent was derived from tenants (or their parent companies) that have a credit rating, a credit rating is no guarantee of a tenant’s ability to perform its lease obligations and a parent company may choose not to satisfy the obligations of a subsidiary that fails to perform its obligations. If the property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment and re-leasing our property, and may not be able to re-lease the property for the rent previously received, if at all. Lease terminations could also reduce the value of our properties.
We face potential adverse consequences of bankruptcy or insolvency by our tenants.
We are exposed to the risk that our tenants could become bankrupt or insolvent. This risk would be magnified to the extent that a tenant leased multiple facilities from us. The bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization. For example, a debtor-tenant may reject its lease with us in a bankruptcy proceeding. In such a case, our claim against the debtor-tenant for unpaid and future rents would be limited by the statutory cap of the U.S. Bankruptcy Code. This statutory cap might be substantially less than the remaining rent actually owed to us under the lease, and it is quite likely that any claim we might have against the tenant for unpaid rent would not be paid in full. In addition, a debtor-tenant may assert in a bankruptcy proceeding that its lease should be re-characterized as a financing agreement. If such a claim is successful, our rights and remedies as a lender, compared to our rights and remedies as a landlord, would generally be more limited.
Our tenant base may not remain stable or could become more concentrated which could harm our operating results and financial condition.
Our tenant base may not remain stable or could become more concentrated among particular physicians and physician groups with varying practices and other medical service providers in the future. Subject to the terms of the applicable leases, our tenants could decide to leave our properties for numerous reasons, including, but not limited to, financial stress or changes in the tenant’s ownership or management. Our tenants service the healthcare industry and our tenant mix could become even more concentrated if a preponderance of our tenants practice in a particular medical field or are reliant upon a particular healthcare delivery system. If any of our tenants become financially unstable, our operating results and prospects could suffer, particularly if our tenants become more concentrated.
Our MOBs, other facilities that serve the healthcare industry and tenants may be subject to competition.
Our MOBs and other facilities that serve the healthcare industry often face competition from nearby hospitals and other MOBs that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, and others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of financial support are not available to buildings we own.

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Similarly, our tenants face competition from other medical practices in nearby hospitals and other medical facilities. Further, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. Competition and loss of referrals could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues. Any reduction in rental revenues resulting from the inability of our MOBs and our other facilities that serve the healthcare industry and our tenants to compete successfully may have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
The hospitals on whose campuses our MOBs are located and their affiliated healthcare systems could fail to remain competitive or financially viable, which could adversely impact their ability to attract physicians and physician groups to our MOBs and our other facilities that serve the healthcare industry.
Our MOB operations and other facilities that serve the healthcare industry depend on the viability of the hospitals on or near whose campuses our MOBs are located and their affiliated healthcare systems in order to attract physicians and other healthcare-related clients. The viability of these hospitals, in turn, depends on factors such as the quality and mix of healthcare services provided, competition, demographic trends in the surrounding community, market position and growth potential, as well as the ability of the affiliated healthcare systems to provide economies of scale and access to capital. If a hospital on or near whose campus one of our MOBs is located is unable to meet its financial obligations, and if an affiliated healthcare system is unable to support that hospital, the hospital may not be able to compete successfully or could be forced to close or relocate, which could adversely impact its ability to attract physicians and other healthcare-related clients. Because we rely on our proximity to and affiliations with these hospitals to create tenant demand for space in our MOBs, their inability to remain competitive or financially viable, or to attract physicians and physician groups, could adversely affect our MOB operations and have an adverse effect on us.
The unique nature of certain of our properties, including our senior healthcare properties, may make it difficult to lease or transfer our property or find replacement tenants, which could require us to spend considerable capital to adapt the property to an alternative use or otherwise negatively affect our performance.
Some of the properties we seek to acquire are specialized medical facilities or otherwise designed or built for a particular tenant of a specific type of use known as a single use facility. For example, senior healthcare facilities present unique challenges with respect to leasing and transfer. Skilled nursing, assisted living and independent living facilities are typically highly customized and may not be easily modified to accommodate non-healthcare-related uses. The improvements generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly and often times operator-specific. As a result, these property types may not be suitable for lease to traditional office tenants or other healthcare tenants with unique needs without significant expenditures or renovations. A new or replacement tenant may require different features in a property, depending on that tenant’s particular operations.
If we or our tenants terminate or do not renew the leases for our properties or our tenants lose their regulatory authority to operate such properties or default on their lease obligations to us for any reason, we may not be able to locate, or may incur additional costs to locate, suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to modify a property for a new tenant, or for multiple tenants with varying infrastructure requirements, before we are able to re-lease the space or we could otherwise incur re-leasing costs. Furthermore, because transfers of healthcare facilities may be subject to regulatory approvals not required for transfers of other types of property, there may be significant delays in transferring operations of senior healthcare facilities to successor operators. Any loss of revenues or additional capital expenditures required as a result may have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.

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Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce stockholder returns.
There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure our stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, we could suffer reduced earnings that would result in less cash to be distributed to stockholders. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase and could have an adverse effect on the net income from the property, and, thus, the cash available for distribution to our stockholders.
We may obtain only limited warranties when we purchase a property and would have only limited recourse in the event our due diligence did not identify any issues that lower the value of our property.
The seller of a property often sells such property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase and sale agreements may contain only limited warranties, representations and indemnifications that will only survive for a limited period after the closing. The purchase of properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, as well as the loss of rental income from that property.
We may fail to successfully operate acquired properties.
Our ability to successfully operate any acquired properties are subject to the following risks:
we may acquire properties that are not initially accretive to our results upon acquisition, and we may not successfully manage and lease those properties to meet our expectations;
we may be unable to finance the acquisition on favorable terms in the time period we desire, or at all;
even if we are able to finance the acquisition, our cash flow may be insufficient to meet our required principal and interest payments;
we may spend more than budgeted to make necessary improvements or renovations to acquired properties;
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations and, as a result, our results of operations and financial condition could be adversely affected;
market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
we may acquire properties subject to liabilities, including contingent liabilities, and without any recourse, or with only limited recourse, with respect to unknown liabilities for the clean-up of undisclosed environmental contamination, claims by tenants or other persons dealing with former owners of the properties, liabilities, claims, and litigation, including indemnification obligations, whether or not incurred in the ordinary course of business, relating to periods prior to or following our acquisitions, claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties, and liabilities for taxes relating to periods prior to our acquisitions.
If we are unable to successfully operate acquired properties, our financial condition, results of operations, the market price of our common stock, cash flow and ability to satisfy our principal and interest obligations and to make distributions to our stockholders could be adversely affected.
Our ownership of certain MOB properties and other facilities are subject to ground leases or other similar agreements which limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties.
As of December 31, 2014, we held interests in MOB properties and other facilities that serve the healthcare industry through leasehold interests in the land on which the buildings are located and we may acquire additional properties in the future that are subject to ground leases or other similar agreements. As of December 31, 2014, these properties represented 32% of our total GLA. Many of our ground leases and other similar agreements limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties, which may impair their value.

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Uncertain market conditions relating to the future disposition of properties or other real estate related assets could cause us to sell our properties or real estate assets on unfavorable terms or at a loss in the future.
We intend to hold our various real estate investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives. Our Chief Executive Officer and our Board of Directors may exercise their discretion as to whether and when to sell a property, and we will have no obligation to sell properties at any particular time. Our Board of Directors may also choose to effect a liquidity event in which we liquidate our investments in other real estate related assets. We generally intend to hold properties for an extended period of time and our investments in other real estate related assets until maturity, and we cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our properties, we may not be able to sell our properties at a profit in the future or at all, and we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Additionally, if we liquidate our other real estate related investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss. For instance, if we are required to liquidate mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values. Any inability to sell a property or liquidation prior to the maturity of our investments in real estate assets could adversely impact our business, financial condition and results of operation, the market price of our common stock and ability to pay distributions to our stockholders.
The mortgage or other real estate-related loans in which we have in the past, and may in the future, invest may be impacted by unfavorable real estate market conditions and delays in liquidation, which could decrease their value.
If we make additional investments in real estate notes receivable, we will be at risk of loss on those investments, including losses as a result of defaults on mortgage loans. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and lease expirations, interest rate levels and the other economic and liability risks associated with real estate as described elsewhere under this heading. Furthermore, if there are defaults under our mortgage loan investments, we may not be able to foreclose on or obtain a suitable remedy with respect to such investments. Specifically, we may not be able to repossess and sell the properties under our mortgage loans quickly, which could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. In the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan. Additionally, if we acquire property by foreclosure following defaults under our mortgage loan investments, we will have the economic and liability risks as the owner described above. Thus, we do not know whether the values of the property securing any of our investments in real estate related assets will remain at the levels existing on the dates we initially make the related investment. If the values of the underlying properties decline, our risk will increase and the value of our interests may decrease.
Lease rates under our long-term leases may be lower than fair market lease rates over time.
We have entered into and may in the future enter into long-term leases with tenants at certain of our properties. Certain of our long-term leases provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases is less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions could be lower than if we did not enter into long-term leases.
Rents associated with new leases for properties in our portfolio may be less than expiring rents (lease roll-down), which may adversely affect our financial condition, results of operations and cash flow.
Our operating results depend upon our ability to maintain and increase rental rates at our properties while also maintaining or increasing occupancy. The rental rates for expiring leases may be higher than starting rental rates for new leases and we may also be required to offer greater rental concessions than we have historically. The rental rate spread between expiring leases and new leases may vary both from property to property and among different leased spaces within a single property. If we are unable to obtain sufficient rental rates across our portfolio, our business, financial condition and results of operation, the market price of our common stock and ability to pay distributions to our stockholders could be adversely affected.

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We may not be able to control our operating costs or our expenses may remain constant or increase, even if our revenue does not increase, which could cause our results of operations to be adversely affected.
Factors that may adversely affect our ability to control operating costs include the need to pay for insurance and other operating costs, including real estate taxes, which could increase over time, the need periodically to repair, renovate and re-let space, the cost of compliance with governmental regulation, including zoning and tax laws, the potential for liability under applicable laws, interest rate levels and the availability of financing. If our operating costs increase as a result of any of the foregoing factors, our results of operations may be adversely affected. The expenses of owning and operating MOBs and other facilities that serve the healthcare industry are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property. As a result, if revenue declines, we may not be able to reduce our expenses accordingly. Certain costs associated with real estate investments may not be reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease. If a property is mortgaged and we are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take possession of the property, resulting in a further reduction in our net income.
Increases in property taxes could adversely affect our cash flow.
Our real properties are subject to real and personal property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. Some of our leases generally provide that the property taxes or increases therein are charged to the tenants as an expense related to the real properties that they occupy while other leases provide that we are generally responsible for such taxes. We are also generally responsible for real property taxes related to any vacant space. In any case, as the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if the tenant is obligated to do so under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale.
We face possible liability for environmental cleanup costs and damages for contamination related to properties we acquire, which could substantially increase our costs and reduce our liquidity and cash distributions to stockholders.
Because we own and operate real estate, we are subject to various federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including the release of asbestos-containing materials into the air, and third parties may seek recovery from owners or operators of real estate for personal injury or property damage associated with exposure to released hazardous substances. In addition, new or more stringent laws or stricter interpretations of existing laws could increase the cost of compliance or liabilities and restrictions arising out of such laws. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or paying personal injury or other claims or fines could be substantial, which would reduce our liquidity and cash available for distribution to our stockholders. In addition, the presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially impair our ability to use, lease or sell a property, or to use the property as collateral for borrowing. Our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our real properties, such as the presence of underground storage tanks, or activities of unrelated third parties may also adversely affect our properties.

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Costs associated with complying with the Americans with Disabilities Act of 1990 may result in unanticipated expenses.
Under the ADA all places of public accommodation are required to meet certain U.S. federal requirements related to access and use by disabled persons. A number of additional U.S. federal, state and local laws may also require modifications to our properties, or restrict certain further renovations of the properties, with respect to access thereto by disabled persons. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants and/or an order to correct any non-complying feature, which could result in substantial capital expenditures. We have not conducted an audit or investigation of all of our properties to determine our compliance and we cannot predict the ultimate cost of compliance with the ADA or other legislation. If one or more of our properties is not in compliance with the ADA or other related legislation, then we would be required to incur additional costs to bring the facility into compliance. If we incur substantial costs to comply with the ADA or other related legislation, our business, financial condition and results of operations, the market price of our common stock and ability to make distributions to our stockholders may be adversely affected.
Risks Related to the Healthcare Industry
New laws or regulations affecting the heavily regulated healthcare industry, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us.
The healthcare industry is heavily regulated by federal, state and local governmental agencies. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to make distributions to our stockholders.
Many of our medical properties and our tenants may require a license or multiple licenses or a CON to operate. Failure to obtain a license or a CON, or loss of a required license or a CON would prevent a facility from operating in the manner intended by the tenant. These events could adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of facilities that serve the healthcare industry, by requiring a CON or other similar approval. State CON laws are not uniform throughout the United States and are subject to change. We cannot predict the impact of state CON laws on our facilities or the operations of our tenants.
In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility and require new CON authorization to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Comprehensive healthcare reform legislation could adversely affect our business, financial condition and results of operations, the market price of our common stock and our ability to pay distributions to stockholders.
The Patient Protection and Affordable Care Act of 2010, along with other healthcare reform efforts, provide comprehensive healthcare reform in the United States and will become effective through a phased approach, which began in 2010 and will conclude in 2018. It remains difficult to predict the impact of these laws on us due to their complexity, lack of implementing regulations or interpretive guidance, and the gradual implementation of the laws over a multi-year period. Because of the many variables involved, we are unable to predict how these laws may impact our tenants’ operations or the net effect of these laws on us. Both our tenants and us may be adversely affected by these laws.
Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.
Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers, health maintenance organizations, preferred provider arrangements, and self-insured employers, among others. Changes in the reimbursement rate or methods of payment from third-party payors, including Medicare and Medicaid, could impact the revenue of our tenants.
The healthcare industry also faces various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. A focus on controlling costs could have an adverse effect on the financial condition of some or all of our tenants. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have an adverse effect on our business, financial condition and results of operations, and our ability to make distributions to our stockholders.

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Government budget deficits could lead to a reduction in Medicaid and Medicare reimbursement, which could adversely affect the financial condition of our tenants.
Adverse U.S. economic conditions have negatively affected state budgets, which may put pressure on states to decrease reimbursement rates with the goal of decreasing state expenditures under state Medicaid programs. The need to control Medicaid expenditures may be exacerbated by the potential for increased enrollment in state Medicaid programs due to unemployment, declines in family incomes, and eligibility expansions required by the recently enacted healthcare reform law. These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement rates under both the federal Medicare program and state Medicaid programs. Potential reductions in reimbursements under these programs could negatively impact the ability of our tenants and their ability to meet their obligations to us, which could, in turn, have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Some tenants at our MOBs and our other facilities that serve the healthcare industry are subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant’s ability to make rent payments to us.
As described in the Item 1 - Business, there are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from, or are in a position to make referrals in connection with, government-sponsored healthcare programs, including the Medicare and Medicaid programs. In the ordinary course of their business, our tenants may be subject to inquiries, investigations and audits by federal and state agencies as well as whistleblower suits under the False Claims Act from private individuals. An investigation by a federal or state governmental agency for violation of fraud and abuse laws, a whistleblower suit, or the imposition of criminal/civil penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments. In turn, this may have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Comprehensive healthcare reform legislation could adversely affect our business, financial condition and results of operations and our ability to pay distributions to stockholders.
The Patient Protection and Affordable Care Act of 2010 and the Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act”), along with other healthcare reform efforts, provide comprehensive healthcare reform in the United States and will become effective through a phased approach, which began in 2010 and will conclude in 2018. It remains difficult to predict the impact of these laws on us due to their complexity, lack of implementing regulations or interpretive guidance, and the gradual implementation of the laws over a multi-year period. Because of the many variables involved, we are unable to predict how these laws may impact our tenants’ operations or the net effect of these laws on us. Both our tenants and us may be adversely affected by these laws.
Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.
Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers, health maintenance organizations, preferred provider arrangements, and self-insured employers, among others. Changes in the reimbursement rate or methods of payment from third-party payors, including Medicare and Medicaid, could impact the revenue of our tenants.
The healthcare industry also faces various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. A focus on controlling costs could have an adverse effect on the financial condition of some or all of our tenants. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.

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Risks Related to Debt Financing
We have and intend to incur indebtedness, which may increase our business risks, could hinder our ability to make distributions and could decrease the value of our Company.
As of December 31, 2014, we had fixed and variable rate debt of $1.4 billion outstanding. We intend to continue to finance a portion of the purchase price of our investments in real estate and other real estate related assets by borrowing funds. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90% of our annual ordinary taxable income to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes. We have historically maintained a low leveraged balance sheet and intend to continue to maintain this structure over the long run. However, our total leverage may fluctuate on a short term basis as we execute our business strategy.
High debt levels will cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of the Company. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgage contains cross collateralization or cross default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected.
Covenants in the instruments governing our existing indebtedness limit our operational flexibility, and a covenant breach could adversely affect our operations.
The terms of the instruments governing our existing indebtedness require us to comply with a number of customary financial and other covenants. These provisions include, among other things: a limitation on the incurrence of additional indebtedness, limitations on mergers, investments, acquisitions, redemptions of capital stock, and transactions with affiliates; and maintenance of specified financial ratios. Our continued ability to incur debt and operate our business is subject to compliance with these covenants, which limit operational flexibility. Breaches of these covenants could result in defaults under applicable debt instruments, even if payment obligations are satisfied. Financial and other covenants that limit our operational flexibility, as well as defaults resulting from a breach of any of these covenants in our debt instruments, could have an adverse effect on our financial condition and results of operations.
Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on favorable terms, if at all, and negatively impact the market price of our securities, including our common stock.
Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us. Our credit ratings can affect the amount and type of capital we can access, as well as the terms of any financings we may obtain. There can be no assurance that we will be able to maintain our current credit ratings and in the event that our current credit ratings deteriorate, we would likely incur higher borrowing costs and it may be more difficult or expensive to obtain additional financing or refinance existing obligations and commitments. Also, a downgrade in our credit ratings would trigger additional costs or other potentially negative consequences under our current and future credit facilities and debt instruments.

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Risks Related to Joint Ventures
The terms of joint venture agreements or other joint ownership arrangements into which we have entered and may enter could impair our cash flow, our operating flexibility and our results of operations.
In connection with the purchase of real estate, we have entered and may continue to enter into joint ventures with third parties. We may also purchase or develop properties in co-ownership arrangements with the sellers of the properties, developers or other persons. These structures involve participation in the investment by other parties whose interests and rights may not be the same as ours. For instance, the economic terms of such relationships may provide for the distribution of income to us otherwise than in direct proportion to our ownership interest in the joint venture. While we and a co-venturer may invest an equal amount of capital in an investment, the investment may be structured such that we have a right to priority distributions of cash flow up to a certain target return while the co-venturer may receive a disproportionately greater share of cash flow than we are to receive once such target return has been achieved. This type of investment structure may result in the co-venturer receiving more of the cash flow, including appreciation, of an investment than we would receive. If we do not accurately judge the appreciation prospects of a particular investment or structure the venture appropriately, we may incur losses on joint venture investments or have limited participation in the profits of a joint venture investment, either of which could reduce our ability to make cash distributions to our stockholders.
Our joint venture partners may also have rights to take some actions over which we have no control and may take actions contrary to our interests. Joint ownership of an investment in real estate may involve risks not associated with direct ownership of real estate, including the following:
a venture partner may at any time have economic or other business interests or goals which become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in a joint venture or the timing of the termination and liquidation of the venture;
a venture partner might become bankrupt and such proceedings could have an adverse impact on the operation of the partnership or joint venture;
actions taken by a venture partner might have the result of subjecting the property to liabilities in excess of those contemplated; and
a venture partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT.
Under certain joint venture arrangements, neither venture partner may have the power to control the venture and an impasse could occur, which might adversely affect the joint venture and decrease potential returns to our stockholders. If we have a right of first refusal or buy/sell right to buy out a venture partner, we may be unable to finance such a buy-out or we may be forced to exercise those rights at a time when it would not otherwise be in our best interest to do so. If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to purchase an interest of a venture partner subject to the buy/sell right, in which case we may be forced to sell our interest when we would otherwise prefer to retain our interest. In addition, we may not be able to sell our interest in a joint venture on a timely basis or on acceptable terms if we desire to exit the venture for any reason, particularly if our interest is subject to a right of first refusal of our venture partner.
Federal Income Tax Risks
Failure to qualify as a REIT for U.S. federal income tax purposes would subject us to federal income tax on our taxable income at regular corporate rates, which would substantially reduce our ability to make distributions to our stockholders.
We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2007 and we believe that our current and intended manner of operation will enable us to continue to meet the requirements to be taxed as a REIT. To qualify as a REIT, we must meet various requirements set forth in the Code concerning, among other things, the ownership of our outstanding common stock, the nature of our assets, the sources of our income and the amount of our distributions to our stockholders. The REIT qualification requirements are extremely complex, and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT. It is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our REIT election, which it may do without stockholder approval.

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If we were to fail to qualify as a REIT for any taxable year, we would be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our qualification as a REIT. Losing our qualification as a REIT would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer be deductible in computing our taxable income, and we would no longer be required to make distributions. To the extent that distributions had been made in anticipation of our qualifying as a REIT, we might be required to borrow funds or liquidate some investments in order to pay the applicable corporate income tax.
As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and would substantially reduce our ability to make distributions to our stockholders.
To continue to qualify as a REIT and to avoid the payment of U.S. federal income and excise taxes, we may be forced to borrow funds, use proceeds from the issuance of securities, or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations or cause us to forgo otherwise attractive opportunities.
To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and by excluding net capital gains. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of: (a) 85% of our ordinary income; (b) 95% of our capital gain net income; and (c) 100% of our undistributed income from prior years. These requirements could cause us to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments. These requirements could additionally cause us to distribute amounts that otherwise would be spent on acquisitions of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities or sell assets in order to distribute enough of our taxable income to maintain our qualification as a REIT and to avoid the payment of federal income and excise taxes. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
To preserve our qualification as a REIT, our charter contains ownership limits with respect to our capital stock that may delay, defer or prevent a change of control of HTA or other transaction that may be benefit our stockholders.
To assist us in preserving our qualification as a REIT, our charter contains a limitation on ownership that prohibits any individual, entity or group from directly acquiring beneficial ownership of more than 9.8% of the value of HTA’s then outstanding capital stock (which includes common stock and any preferred stock HTA may issue) or more than 9.8% of the value or number of shares, whichever is more restrictive, of HTA’s then outstanding common stock.
Any attempted transfer of HTA’s stock which, if effective, would result in HTA’s stock being beneficially owned by fewer than 100 persons will be null and void. Any attempted transfer of HTA’s stock which, if effective, would result in violation of the ownership limits discussed above or in HTA being “closely held” under Section 856(h) of the Code or otherwise failing to qualify as a REIT, will cause the number of shares causing the violation (rounded up to the nearest whole share) to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries, and the proposed transferee will not acquire any rights in the shares.
These ownership limits may prohibit business combinations that would otherwise have otherwise been approved by our Board of Directors and our stockholders, and may also decrease our stockholders’ ability to sell their shares of our common stock. These ownership limits could also delay, defer or prevent a transaction, such as a tender offer, or a change of control that might involve a premium price for our common stock or might otherwise be in the best interests of our stockholders.

28


Risks Related to Our Common Stock
The price of our common stock has and may continue to fluctuate, which may make it difficult for you to sell our common stock when you want to do so, or at prices you find attractive.
The price of our common stock on the New York Stock Exchange (“NYSE”) constantly changes and has been subject to price fluctuations. We expect that the market price of our common stock will continue to fluctuate. Our stock price can fluctuate as a result of a variety of factors, many of which are beyond our control. These factors may include:
actual or anticipated variations in our quarterly operating results;
changes in our earnings estimates or publication of research reports about us or the real estate industry, although no assurance can be given that any research reports about us will be published;
future sales of substantial amounts of common stock by our existing or future stockholders;
increases in market interest rates, which may lead purchasers of our stock to demand a higher yield;
changes in market valuations of similar companies;
adverse market reaction to any increased indebtedness we incur in the future;
additions or departures of key personnel;
actions by institutional stockholders;
speculation in the press or investment community; and
general market and economic conditions.
In addition, the stock market in general may experience extreme volatility that may be unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the market price of our common stock.
Future offerings of debt securities, which would be senior to our common stock, or equity securities, which would dilute our existing stockholders and may be senior to our common stock, may adversely affect the market price of our common stock.
In the future, we may issue debt or equity securities, including medium term notes, senior or subordinated notes and classes of preferred or common stock. Debt securities or shares of preferred stock will generally be entitled to receive distributions, both current and in connection with any liquidation or sale, prior to the holders of our common stock. Our Board of Directors may issue such securities without stockholder approval and under Maryland law may amend our charter to increase the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series without stockholder approval. We are not required to offer any such additional debt or equity securities to existing holders of our common stock on a preemptive basis. Therefore, offerings by us of our common stock or other equity securities may dilute the percentage ownership interest of our existing stockholders. To the extent we issue additional equity interests, our stockholders’ percentage ownership interest in us will be diluted. Depending upon the terms and pricing of any additional offerings and the value of our properties and other real estate related assets, our stockholders may also experience dilution in both the book value and fair market value of their shares. As a result, future offerings of our debt or equity securities, or the perception that such offerings may occur, may reduce the market price of our common stock and/or the distributions that we pay with respect to our common stock.
The availability and timing of cash distributions to our stockholders is uncertain, which could adversely affect the market price of our common stock and may include a return of capital.
Our organizational documents do not establish a limit on the amount of net proceeds we may use to fund distributions. All distributions, however, will be at the sole discretion of our Board of Directors and will depend upon our actual and projected financial condition, results of operations, cash flows, liquidity and FFO, maintenance of our REIT qualification and such other matters as our Board of Directors may deem relevant from time to time. We bear all expenses incurred in our operations, which are deducted from cash funds generated by operations prior to computing the amount of cash distributions to our stockholders. We are also restricted by the terms of our existing debt instruments from paying distributions in excess of certain financial metrics. Thus, we cannot assure our stockholders that sufficient cash will be available to make distributions or that the amount of distributions will increase over time.

29


Our failure to meet the market’s expectations with regard to future cash distributions likely would adversely affect the market price of our common stock. In addition, we may choose to retain operating cash flow for investment purposes, working capital reserves or other purposes, and these retained funds, although increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. If we fail for any reason to distribute at least 90% of our ordinary taxable income, we would not qualify for the favorable tax treatment accorded to REITs. To maintain our qualification as a REIT, we may need to fund distributions from external sources, such as borrowed funds, which may reduce the amount of proceeds available for investment and operations. Additionally, if the aggregate amount of cash distributed in any given year exceeds the amount of our “REIT taxable income” generated during the year, the excess amount will be deemed a return of capital, which will decrease our stockholders’ tax basis in their investment in shares of our common stock.
Increases in market interest rates and related risks may cause the value of our investments in real estate related assets to be reduced and could result in a decrease in the value of our common stock.
One of the factors that may influence the price of our common stock will be the dividend distribution rate on our common stock (as a percentage of the price of our common stock) relative to market interest rates. If market interest rates rise, prospective purchasers of common stock may expect a higher distribution rate. Higher interest rates would not, however, result in more funds being available for distribution. In fact, if market interest rates rise, the market value of our fixed income securities would likely decline, our borrowing costs would likely increase and our funds available for distribution would likely decrease. During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below-market interest rate, increase the security’s duration and reduce the value of the security. During periods of declining interest rates, an issuer may be able to exercise an option to prepay principal earlier than scheduled, which may force us to reinvest in lower yielding securities. Preferred and debt securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. These risks may reduce the value of our investments in real estate related assets. Therefore, we may not be able, or we may not choose, to provide a higher distribution rate. As a result, prospective purchasers may decide to purchase other securities rather than our common stock, which would reduce the demand for, and result in a decline in the market price of, our common stock.
If securities analysts do not publish research or reports about our business or if they downgrade our common stock or the healthcare property sector, the price of our common stock could decline.
The trading market for our common stock will rely in part upon the research and reports that industry or financial analysts publish about us or our business. We have no control over these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our stock or our industry, or the stock of any of our competitors, the price of our common stock could decline. If one or more of these analysts ceases coverage of our Company, we could lose the attention of the market, which in turn could cause the price of our common stock to decline.
Our Board of Directors could increase or decrease the number of authorized shares of stock and issue stock without stockholder approval.
Our charter authorizes our Board of Directors, without stockholder approval, to amend the charter from time to time to increase or decrease the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series, to issue shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into other classes or series and set the preferences, rights and other terms of such classified or reclassified shares.  Although our Board of Directors has no such intention at the present time, it could establish a class or series of preferred stock that could, depending on the terms of such class or series, delay, defer or prevent a transaction or a change of control that might be in the best interest of stockholders.
Item 1B. Unresolved Staff Comments
Not applicable.

30


Item 2. Properties
We have invested $3.3 billion in MOBs and other facilities that serve the healthcare industry through December 31, 2014. As of December 31, 2014, our portfolio is comprised of approximately 14.8 million square feet of GLA, with a leased rate of 92.0% (includes leases which have been executed, but which have not yet commenced). Approximately 96% of our portfolio, based on GLA, is located on the campuses of, or aligned with, nationally or regionally recognized healthcare systems. Our portfolio is diversified geographically across 28 states, with no state having more than 13% of the total GLA as of December 31, 2014. All but one of our properties are 100% owned.
As of December 31, 2014, we owned fee simple interests in properties representing 68% of our total GLA. We hold long-term leasehold interests in the remaining properties in our portfolio, representing 32% of our total GLA. As of December 31, 2014, these leasehold interests had an average remaining term of 54.7 years.
The following information generally applies to our properties:
we believe all of our properties are adequately covered by insurance and are suitable for their intended purposes;
our properties are located in markets where we are subject to competition in attracting new tenants and retaining current tenants; and
depreciation is provided on a straight-line basis over the estimated useful lives of the buildings, up to 39 years, and over the shorter of the lease term or useful lives of the tenant improvements.
Lease Expirations
The following table presents the sensitivity of our annualized base rent due to lease expirations for existing leases for the next 10 years:
Expiration (1)
 
Number of
Leases
Expiring
 
Total GLA
of Expiring
Leases (2)
 
Percent of GLA Represented by Expiring Leases
 
Annualized Base Rent (2) (3)
 
Percent of Total Annualized Base Rent
Month-to-month
 
116

 
187

 
1.4
%
 
$
3,754

 
1.2
%
2015
 
326

 
739

 
5.4

 
17,594

 
5.8

2016
 
321

 
1,125

 
8.2

 
24,758

 
8.2

2017
 
344

 
1,373

 
10.1

 
29,783

 
9.9

2018
 
299

 
1,657

 
12.1

 
34,327

 
11.4

2019
 
246

 
1,159

 
8.5

 
27,622

 
9.1

2020
 
190

 
940

 
6.9

 
20,364

 
6.7

2021
 
185

 
1,464

 
10.7

 
29,748

 
9.9

2022
 
124

 
930

 
6.8

 
22,224

 
7.4

2023
 
47

 
695

 
5.1

 
13,467

 
4.5

2024
 
79

 
1,265

 
9.3

 
25,442

 
8.4

Thereafter
 
114

 
2,122

 
15.5

 
52,817

 
17.5

Total
 
2,391

 
13,656

 
100
%
 
$
301,900

 
100
%
 
 
 
 
 
 
 
 
 
 
 
(1) Leases scheduled to expire on December 31 of a given year are included within that year in the table.
(2) In thousands.
(3) Annualized base rent is calculated by multiplying contractual base rent as of December 31, 2014 by 12 (excluding the impact of abatements, concessions, and straight-line rent).


31


Geographic Diversification/Concentration Table
The following table lists the states in which our properties are located and provides certain information regarding our portfolio’s geographic diversification/concentration as of December 31, 2014:
State
 
GLA (1)
 
Percent of GLA
 
Annualized Base Rent (1) (2)
 
Percent of Annualized Base Rent
Arizona
 
1,237

 
8.3
%
 
$
21,837

 
7.2
%
California
 
283

 
1.9

 
5,109

 
1.7

Colorado
 
371

 
2.5

 
8,106

 
2.7

Florida
 
1,856

 
12.5

 
38,291

 
12.7

Georgia
 
669

 
4.5

 
13,929

 
4.6

Hawaii
 
140

 
1.0

 
3,641

 
1.2

Illinois
 
139

 
0.9

 
4,610

 
1.5

Indiana
 
1,270

 
8.6

 
19,150

 
6.3

Kansas
 
64

 
0.4

 
1,745

 
0.5

Maryland
 
181

 
1.2

 
4,387

 
1.5

Massachusetts
 
658

 
4.4

 
18,176

 
6.0

Michigan
 
203

 
1.4

 
4,995

 
1.7

Minnesota
 
158

 
1.1

 
1,636

 
0.5

Missouri
 
296

 
2.0

 
7,337

 
2.4

Nevada
 
73

 
0.5

 
1,621

 
0.5

New Hampshire
 
72

 
0.5

 
1,320

 
0.4

New Mexico
 
54

 
0.4

 
1,370

 
0.5

New York
 
1,185

 
8.0

 
24,663

 
8.2

North Carolina
 
285

 
1.9

 
5,794

 
1.9

Ohio
 
323

 
2.2

 
3,790

 
1.3

Oklahoma
 
186

 
1.3

 
3,628

 
1.2

Pennsylvania
 
1,204

 
8.1

 
21,689

 
7.2

South Carolina
 
1,209

 
8.1

 
22,729

 
7.5

Tennessee
 
441

 
3.0

 
8,078

 
2.7

Texas
 
1,799

 
12.1

 
45,102

 
14.9

Utah
 
112

 
0.8

 
1,903

 
0.6

Virginia
 
63

 
0.4

 
579

 
0.3

Wisconsin
 
315

 
2.0

 
6,685

 
2.3

Total
 
14,846

 
100
%
 
$
301,900

 
100
%
 
 
 
 
 
 
 
 
 
(1) In thousands.
 
 
(2) Annualized base rent is calculated by multiplying contractual base rent as of December 31, 2014 by 12 (excluding the impact of abatements, concessions, and straight-line rent).
 
 
Item 3. 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 consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable

32


PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Effective December 15, 2014, HTA completed a Reverse Stock Split of its common stock. As a result of the Reverse Stock Split, every two issued and outstanding shares of common stock were converted into one share of common stock. The par value and shares authorized remained unchanged. Concurrently with the Reverse Stock Split, HTALP effected a corresponding Reverse Stock Split of its outstanding units of limited partnership interests. All prior periods have been adjusted to reflect the Reverse Stock Split.
Market Information
The following table sets forth the high and low sales prices of its common stock as reported on the NYSE, after giving effect to the Reverse Stock Split.
 
 
2014
 
2013
 
 
High
 
Low
 
High
 
Low
First Quarter
 
$
23.32

 
$
19.44

 
$
24.42

 
$
19.80

Second Quarter
 
25.32

 
22.26

 
26.68

 
21.60

Third Quarter
 
25.18

 
23.02

 
22.80

 
19.86

Fourth Quarter
 
27.64

 
23.08

 
23.50

 
19.42

There is no established market for trading HTALP’s common units.
Stock Performance Graph
The graph below compares the cumulative returns of HTA, US REIT Index (RMS), S&P 500 Index and SNL Healthcare Index from the date of our listing on the NYSE on June 6, 2012 through December 31, 2014, after giving effect to the Reverse Stock Split. The total returns assume dividends are reinvested.
          
Stockholders
As of February 18, 2015, HTA had 3,148 stockholders of record.

33


Dividends
The following were the dividends declared per share by HTA, after giving effect to the Reverse Stock Split:
 
2014
 
2013
First Quarter
$
0.2875

 
$
0.2875

Second Quarter
0.2875

 
0.2875

Third Quarter
0.2900

 
0.2875

Fourth Quarter
0.2900

 
0.2875

Total
$
1.1550

 
$
1.1500

The dividend HTA pays to its stockholders is equal to the distributions received from HTALP according to the terms of HTALP’s partnership agreement. Therefore, the distribution amounts for HTALP are the same as the dividend amounts above for HTA.
On February 17, 2015, HTA’s Board of Directors authorized a quarterly cash dividend of $0.29 per share to be paid on April 2, 2015 to stockholders of record on March 27, 2015.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the three months ended December 31, 2014, HTA repurchased shares of its common stock as follows, after giving effect to the Reverse Stock Split:
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
October 1, 2014 to October 31, 2014
 
6,470

 
$
24.18

 

 

November 1, 2014 to November 30, 2014
 

 

 

 

December 1, 2014 to December 31, 2014
 
12,193

 
26.97

 

 

 
 
 
 
 
 
 
 
 
(1) Purchases mainly represent shares withheld to satisfy withholding obligations on the vesting of restricted shares. The price paid per share was the then closing price of our common stock on the NYSE.
(2) For each share of common stock redeemed by HTA, HTALP redeems a corresponding number of units in the operating partnership. Therefore, the units in the operating partnership repurchased by HTALP are the same as the shares of common stock repurchased by HTA above.
Securities Authorized for Issuance under Equity Compensation Plans
The Amended and Restated 2006 Incentive Plan (the “Plan”) authorizes the granting of 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 operating partnership; and cash-based awards. Subject to adjustment as provided in the Plan, the aggregate number of shares of our common stock reserved and available for issuance pursuant to awards granted under the Plan is 5,000,000, after giving effect to the Reverse Stock Split.
Recent Sales of Unregistered Securities, Use of Proceeds from Registered Securities Paid
In December 2014, in connection with certain acquisitions, we issued 692,234 Class A units of HTALP (“Class A Units”), after giving effect to the Reverse Stock Split. The Class A Units had a market value of $17.0 million upon issuance and were issued in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). At any time after the first anniversary of the issuance, the Class A Unit holder has the right to redeem its Class A Units for cash or shares of common stock of HTA. HTA has the sole and absolute discretion on whether the Class A Units are redeemed for cash or shares of common stock of HTA.


34


Item 6. Selected Financial Data
The following should be read with Item 1A - Risk Factors, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, our accompanying consolidated financial statements and the notes thereto, as acquisitions, changes in accounting policies and other items impact the comparability of our financial data. Our historical results are not necessarily indicative of results for any future period.
Healthcare Trust of America, Inc.
 
As of December 31,
(In thousands)
2014
 
2013
 
2012
 
2011
 
2010
Balance Sheet Data:
 

 
 

 
 

 
 

 
 

Real estate investments, net
$
2,822,844

 
$
2,526,991

 
$
2,231,530

 
$
2,038,339

 
$
2,057,814

Total assets
3,041,650

 
2,752,334

 
2,414,090

 
2,291,629

 
2,271,795

Debt
1,412,461

 
1,214,241

 
1,037,359

 
639,149

 
706,526

Noncontrolling interest
29,282

 
12,543

 
10,329

 

 

Total equity
1,476,421

 
1,399,749

 
1,264,595

 
1,567,340

 
1,487,246

 
Year Ended December 31,
(In thousands, except per share data)
2014
 
2013
 
2012
 
2011
 
2010
Statement of Operations Data:
 

 
 

 
 

 
 

 
 

Total revenues (1)
$
371,505

 
$
321,601

 
$
299,644

 
$
274,438

 
$
203,081

Rental expenses (1)
113,508

 
97,316

 
95,307

 
88,760

 
65,662

Net income (loss) attributable to common stockholders
45,371

 
24,261

 
(24,424
)
 
5,541

 
(7,903
)
Net income (loss) attributable to common stockholders per share - basic (2)
0.38

 
0.21

 
(0.22
)
 
0.05

 
(0.10
)
Net income (loss) attributable to common stockholders per share - diluted (2)
0.37

 
0.21

 
(0.22
)
 
0.05

 
(0.10
)
Statement of Cash Flows Data:
 
 
 
 
 
 
 
 
 

Cash flows provided by operating activities
$
168,499

 
$
147,824

 
$
116,785

 
$
111,807

 
$
58,503

Cash flows used in investing activities
(259,702
)
 
(374,700
)
 
(283,545
)
 
(65,958
)
 
(626,849
)
Cash flows provided by (used in) financing activities
83,535

 
229,001

 
113,225

 
(5,628
)
 
378,615

Other Data:
 
 
 
 
 
 
 
 
 
Dividends declared to stockholders
$
139,355

 
$
132,680

 
$
142,044

 
$
162,597

 
$
120,507

Dividends declared per share (2)
1.16

 
1.15

 
1.28

 
1.45

 
1.45

Dividends paid in cash to stockholders
137,158

 
129,360

 
93,273

 
84,800

 
60,176

Dividends reinvested

 

 
31,916

 
75,864

 
56,551

FFO (3)
157,746

 
145,908

 
91,994

 
113.083

 
70,658

Normalized FFO (3)
176,639

 
147,834

 
135,262

 
116,378

 
84,407

NOI (4)
257,997

 
224,285

 
204,337

 
185,678

 
137,419

 
 
 
 
 
 
 
 
 
 
(1) The amounts for 2010-2013 differ from amounts previously reported in our Annual Report on Form 10-K for the year ended December 31, 2013, as a result of discontinued operations of one property classified as held for sale in 2013. During 2014, this property was reclassified out of held for sale and the results of operations were included within the results of operating properties for all periods presented.
(2) Amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014.
(3) For additional information on FFO and Normalized FFO, see “FFO and Normalized FFO” in Item 7, which includes a reconciliation to net income or loss attributable to common stockholders and an explanation of why we present these non-GAAP financial measures.
(4) For additional information on NOI, see “NOI, Cash NOI and Same-Property Cash NOI” in Item 7, which includes a reconciliation to net income or loss and an explanation of why we present this non-GAAP financial measure.



35


Healthcare Trust of America Holdings, LP
 
As of December 31,
(In thousands)
2014
 
2013
 
2012
 
2011
 
2010
Balance Sheet Data:
 

 
 

 
 

 
 

 
 

Real estate investments, net
$
2,822,844

 
$
2,526,991

 
$
2,231,530

 
$
2,038,339

 
$
2,057,814

Total assets
3,041,650

 
2,752,334

 
2,414,090

 
2,291,629

 
2,271,795

Debt
1,412,461

 
1,214,241

 
1,037,359

 
639,149

 
706,526

Total partners’ capital
1,476,421

 
1,401,294

 
1,266,199

 
1,568,927

 
1,488,811

 
Year Ended December 31,
(In thousands, except per unit data)
2014
 
2013
 
2012
 
2011
 
2010
Statement of Operations Data:
 

 
 

 
 

 
 

 
 

Total revenues (1)
$
371,505

 
$
321,601

 
$
299,644

 
$
274,438

 
$
203,081

Rental expenses (1)
113,508

 
97,316

 
95,307

 
88,760

 
65,662

Net income (loss) attributable to common unitholders
45,861

 
24,633

 
(24,408
)
 
5,563

 
(7,894
)
Net Income (loss) attributable to common unitholders per unit - basic (2)
0.38

 
0.21

 
(0.22
)
 
0.05

 
(0.10
)
Net Income (loss) attributable to common unitholders per unit - diluted (2)
0.38

 
0.21

 
(0.22
)
 
0.05

 
(0.10
)
Statement of Cash Flows Data:
 
 
 
 
 
 
 
 
 

Cash flows provided by operating activities
$
168,499

 
$
147,824

 
$
116,785

 
$
111,807

 
$
58,503

Cash flows used in investing activities
(259,702
)
 
(374,700
)
 
(283,545
)
 
(65,958
)
 
(626,849
)
Cash flows provided by (used in) financing activities
83,535

 
229,001

 
113,225

 
(5,628
)
 
378,615

Other Data:
 
 
 
 
 
 
 
 
 
Distributions declared to general partner
$
139,355

 
$
132,680

 
$
141,944

 
$
162,483

 
$
120,451

Distributions declared per unit (2)
1.16

 
1.15

 
1.28

 
1.45

 
1.45

Distributions paid in cash to general partner
137,158

 
129,360

 
93,273

 
84,800

 
60,176

Distributions reinvested

 

 
31,916

 
75,864

 
56,551

FFO (3)
158,236

 
146,280

 
92,010

 
113,105

 
70,667

Normalized FFO (3)
176,639

 
147,835

 
135,262

 
116,378

 
84,416

NOI (4)
257,997

 
224,285

 
204,337

 
185,678

 
137,419

 
 
 
 
 
 
 
 
 
 
(1) The amounts for 2010-2013 differ from amounts previously reported in our Annual Report on Form 10-K for the year ended December 31, 2013, as a result of discontinued operations of one property classified as held for sale in 2013. During 2014, this property was reclassified out of held for sale and the results of operations were included within the results of operating properties for all periods presented.
(2) Amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014.
(3) For additional information on FFO and Normalized FFO, see “FFO and Normalized FFO” in Item 7, which includes a reconciliation to net income or loss attributable to common unitholders and an explanation of why we present these non-GAAP financial measures.
(4) For additional information on NOI, see “NOI, Cash NOI and Same-Property Cash NOI” in Item 7, which includes a reconciliation to net income or loss and an explanation of why we present this non-GAAP financial measure.


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Item 7. 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 consolidated financial statements and notes appearing elsewhere in this Annual Report on Form 10-K. Such consolidated financial statements and information have been prepared to reflect HTA’s and HTALP’s financial position as of December 31, 2014 and 2013, together with results of operations and cash flows for the years ended December 31, 2014, 2013, and 2012.
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;
Contractual Obligations;
Off-Balance Sheet Arrangements;
Inflation; and
Federal Income Tax Changes and Updates for Incorporation in Existing Registration Statements.
Forward-Looking Statements
Certain statements contained in this Annual Report on Form 10-K 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 and 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 Annual Report on Form 10-K is filed with the SEC. We cannot guarantee the accuracy of any such forward-looking statements contained in this Annual Report on Form 10-K, 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 are included herein and other filings with the SEC.

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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.
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
HTA is one of the largest publicly-traded REITs focused on MOBs in the U.S. based on GLA. HTA conducts substantially all of its operations through HTALP. We are primarily focused on acquiring, owning and operating high quality MOBs that are predominantly located on the campuses of, or aligned with, nationally or regionally recognized healthcare systems. Our primary objective is to maximize stockholder value with disciplined growth through strategic investments and to provide an attractive risk-adjusted return for our stockholders by consistently increasing our cash flow. In pursuing this objective we (i) generate internal growth through proactive asset management, leasing and property management, (ii) target accretive investments in MOBs that are on the campuses of, or aligned with, healthcare systems and located in markets with attractive demographics that complement our existing portfolio and (iii) actively manage our balance sheet to maintain flexibility with low leverage.
Since 2006, we have invested $3.3 billion to create a portfolio of MOBs and other healthcare assets totaling approximately 14.8 million square feet of GLA throughout the U.S. Approximately 96% of our portfolio, based on GLA, is located on the campuses of, or aligned with, nationally or regionally recognized healthcare systems. We continue to focus on building relationships with strong tenants and healthcare systems that are leaders in their markets. The leased rate for our portfolio was 92.0% (includes leases which have been executed, but which have not yet commenced) and the occupancy rate was 91.4% as of December 31, 2014. Approximately 57% of our annualized base rent was derived from tenants that have (or whose parent companies have) a credit rating from a nationally recognized rating agency as of December 31, 2014.
Our portfolio is diversified geographically across 28 states, with no state having more than 13% of our total GLA as of December 31, 2014. We are concentrated in locations that we have determined to be strategic based on demographic trends and projected demand for MOBs, and we expect to continue to invest in these markets. We have concentrations in the following key markets: Albany, Atlanta, Boston, Charleston, Dallas, Denver, Greenville, Houston, Indianapolis, Miami, Orlando, Phoenix, Pittsburgh, Raleigh, Tampa and White Plains.
Company Highlights
Portfolio Operating Performance
For the year ended December 31, 2014, we had net income of $46.0 million, compared to $24.7 million for the year ended December 31, 2013.
For the year ended December 31, 2014, HTA’s Normalized FFO was $1.46 per diluted share, or $176.6 million, an increase of $0.17 per diluted share, or 13%, compared to the year ended December 31, 2013. For the year ended December 31, 2014, HTALP’s Normalized FFO was $1.46 per diluted unit, or $176.6 million, an increase of $0.18 per diluted unit, or 14%, compared to the year ended December 31, 2013.
For additional information on Normalized FFO, see “FFO and Normalized FFO” below, which includes a reconciliation to net income or loss attributable to common stockholders/unitholders and an explanation of why we present this non-GAAP financial measure.
For the year ended December 31, 2014, our total revenue increased 15.5%, or $49.9 million, to $371.5 million, compared to the year ended December 31, 2013.
For the year ended December 31, 2014, our NOI increased 15.0%, or $33.7 million, to $258.0 million, compared to the year ended December 31, 2013.

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Internal Growth Through Proactive Asset Management Leasing and Property Management
For the year ended December 31, 2014, our Same-Property Cash NOI increased 3.0%, or $6.0 million, to $206.0 million, compared to the year ended December 31, 2013.
For additional information on Same-Property Cash NOI, see “NOI, Cash NOI and Same-Property Cash NOI” below, which includes a reconciliation to net income or loss and an explanation of why we present these non-GAAP financial measures.
As of December 31, 2014, our leased rate (includes leases which have been executed, but which have not yet commenced) was 92.0% by GLA and our occupancy rate was 91.4% by GLA.
We entered into new and renewal leases on approximately 1.6 million square feet of GLA during the year ended December 31, 2014.
Tenant retention for the portfolio was 83% for the year, which we believe is indicative of our commitment to maintaining buildings in desirable locations and fostering strong tenant relationships. Tenant retention is calculated by taking the sum of the total GLA of tenants that renew an expiring lease divided by the total GLA of expiring leases.
Relationship-Focused Strategy
We have been one of the most active investors in the medical office sector over the last eight years and have developed significant industry relationships with health systems, physician practices, regional medical office developers and management firms.
We acquired $439.5 million of MOBs in 2014, an increase in our portfolio size by approximately 15% based on purchase price.
Based on GLA, 88% of our 2014 acquisitions were either on the campuses of, or aligned with, nationally and regionally recognized healthcare systems. The leased rate at closing of these acquired properties was 95%.
We will continue our emphasis on long-term relationship building as we have over the last eight years. We believe these relationships will result in additional opportunities that will increase the growth and attractiveness of our portfolio over time.
Approximately 81% of our 2014 acquisitions by GLA were located in our target markets of Boston, Charleston, Denver, Miami, Raleigh, Tampa and White Plains. The remaining properties were located in markets of Baltimore and Honolulu.
Financial Strategy and Balance Sheet Flexibility
As of December 31, 2014, we had total liquidity of $868.9 million, including cash and cash equivalents of $10.4 million and $858.5 million available on our Unsecured Credit Agreement. Our leverage ratio of debt to capitalization was 29.2%.
In 2014, the Company issued a total of $171.2 million comprised of $154.2 million from the sale of shares of common stock at an average price of $24.21 per share, after giving effect to the Reverse Stock Split, and $17.0 million from the issuance of Class A Units of HTALP.
In May 2014, Standard & Poor’s upgraded our investment grade credit rating to BBB, with a stable outlook.
In June 2014, we issued and sold $300.0 million of 7-year unsecured senior notes at an interest rate of 3.375% per annum.
In January and November 2014, we amended our Unsecured Credit Agreement. The amendment increased the amount available under the unsecured revolving credit facility by $150.0 million to $800.0 million. In addition, the amendments extended the maturity dates to January 2020 (including extension options) and decreased borrowing costs.

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Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requires our management to use judgment in the application of accounting principles, including making estimates. We base our estimates on experience and various other assumptions we believe are reasonable under the circumstances. These estimates affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. However, if our judgment or interpretation of the facts and circumstances relating to the various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in different presentation of our financial statements. We periodically reevaluate our estimates and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates about matters that are inherently uncertain. Below is a discussion of accounting policies that we consider critical as they may require more complex judgment in their application or require estimates about matters that are inherently uncertain. For further information on significant accounting policies that impact us, see Note 2 to the accompanying consolidated financial statements.
Basis of Presentation
Our accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries and joint venture entities in which we own a majority interest with the ability control operations. We consolidate variable interest entities (“VIEs”) when we are the primary beneficiary. All inter-company balances and transactions have been eliminated in the accompanying consolidated financial statements.
We make judgments with respect to our level of influence or control and whether we are (or are not) the primary beneficiary of a VIE. Consideration of various factors includes, but is not limited to, our ability to direct the activities that most significantly impact the entity’s economic performance, our form or ownership interest, our representation on the entity’s governing body, the size and seniority of our investment, our ability and rights of other investors to participate in policy making decisions, replace the manager and/or liquidate the entity, if applicable. Our ability to correctly assess our influence or control over an entity when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. If we perform a primary beneficiary analysis at a date other than at inception of the VIE, our assumptions may be different and may result in the identification of a different primary beneficiary.
Revenue Recognition and Allowance for Uncollectible Accounts
Rental revenue is our primary source of revenue. At the inception of a new lease we assess the terms and conditions to determine proper classification. If the estimates utilized by us in our assessment were different, then our lease classification for accounting purposes may have been different, which could impact the timing and amount of revenue recognized.
We recognize rental revenue from operating leases on a straight-line basis over the term of the related lease (including rent holidays). Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Tenant receivables, including straight-line rent receivables, are carried net of the allowances for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their leases. Our determination of the adequacy of these allowances requires judgment and is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees, current economic conditions and other relevant factors. Our estimates may differ from actual results, which could significantly impact our consolidated financial statements.
Real Estate Acquisitions
We record the purchase price of completed business acquisitions to tangible and intangible assets and liabilities based on their respective fair values. Tangible assets primarily consist of land and buildings and improvements. Additionally, the purchase price of the applicable completed acquisition property is inclusive of above or below market leases, above or below market leasehold interests, in place leases, tenant relationships, above or below market debt assumed, interest rate swaps assumed and any contingent consideration. The determination of the fair value requires us to make certain estimates and assumptions.
The fair value of the land and buildings and improvements is based upon our determination of the value of the property as if it were to be replaced or as if it were vacant using discounted cash flow models similar to those used by market participants. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.
The value of in place leases is based on our evaluation of the specific characteristics of each tenant’s lease. The factors considered include estimated lease-up periods, market rent and other market conditions.

40


We analyze the acquired leases to determine whether the rental rates are above or below market. The value associated with above or below market leases is based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be received pursuant to the lease over its remaining term and (ii) our estimate of the amounts that would be received using fair market rates over the remaining term of the lease.
We analyze the acquired leasehold interests to determine whether the rental rates are above or below market. The value associated with above or below market leasehold interests is based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term and (ii) our estimate of the amounts that would be paid using fair market rates over the remaining term of the lease.
We record debt or interest rate swaps assumed at fair value. The amount of above or below market debt is determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage. The value of interest rate swaps is based upon a discounted cash flow analysis on the expected cash flows, taking into account interest rate curves and the period to maturity.
We record contingent consideration at fair value as of the acquisition date and reassess the fair value as of the end of each reporting period, with any changes being recognized in earnings.
We are required to make certain estimates in order to determine the fair value of the tangible and intangible assets and liabilities acquired in a business combination. Our assumptions directly impact our results of operations, as amounts allocated to certain assets and liabilities have different depreciation and amortization lives. In addition, the amortization and depreciation of these assets and liabilities are recorded in different line items in our accompanying consolidated statements of operations.
Recoverability of Real Estate and Real Estate Related Assets
We assess the impairment of a real estate asset when events or changes in circumstances indicate its carrying amount may not be recoverable. In the event that the carrying amount of a property exceeds the sum of the undiscounted cash flows that would be expected to result from the use and eventual disposition of the property, we would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the asset group related to the property. The fair value of the property is based on discounted cash flow analyses, which involve management’s best estimate of market participants’ holding periods, market comparables, future occupancy levels, rental rates, capitalization rates, lease-up periods and capital requirements. The estimation of expected future net cash flows is inherently uncertain and relies on subjective assumptions dependent upon future and current market conditions and events that affect the ultimate value of the property.
Also, we evaluate the carrying values of real estate notes receivable on an individual basis. Management periodically evaluates the realizability of future cash flows from real estate notes receivable when events or circumstances, such as the non-receipt of principal and interest payments and/or significant deterioration of the financial condition of the borrower, indicate that the carrying amount of the real estate notes receivable may not be recoverable. An impairment charge would be recognized in the current year as the difference between the carrying amount of the real estate notes receivable and the discounted cash flows expected to be received, or if foreclosure is probable, the fair value of the collateral securing the real estate notes receivable.
Recently Issued or Adopted Accounting Pronouncements
See Note 2 to our accompanying consolidated financial statements for a discussion of recently issued or adopted accounting pronouncements.
Factors Which May Influence Results of Operations
We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally and the risk factors previously listed in Item 1A - Risk Factors, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, 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 could adversely affect our rental income in future periods.

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Acquisitions and Dispositions
During the year ended December 31, 2014, we had acquisitions with an aggregate purchase price of $439.5 million. During the year ended December 31, 2014, we completed dispositions for an aggregate gross sales price of $82.9 million. During the year ended December 31, 2013, we completed acquisitions for an aggregate purchase price of $397.8 million. During the year ended December 31, 2012, we completed acquisitions for an aggregate purchase price of $294.9 million. The amount of any future acquisitions or dispositions could have a significant impact on our results of operations in future periods.
Results of Operations
Comparison of the Years Ended December 31, 2014, 2013 and 2012
As of December 31, 2014, we owned and operated approximately 14.8 million square feet of GLA, with a 92.0% leased rate (includes leases which have been executed, but which have not yet commenced) and a 91.4% occupancy rate. As of December 31, 2013, we owned and operated approximately 14.1 million square feet of GLA, with a 91.6% leased rate (includes leases which have been executed, but which have not yet commenced) and a 91.2% occupancy rate. As of December 31, 2012, we owned and operated approximately 12.6 million square feet of GLA, with a 91.1% leased rate (includes leases which have been executed, but which have not yet commenced) and a 90.6% occupancy rate. All explanations are applicable to both HTA and HTALP unless otherwise noted.
NOI and Same-Property Cash NOI
NOI increased $33.7 million to $258.0 million for the year ended December 31, 2014, compared to the year ended December 31, 2013. This increase was primarily due to the $31.8 million of additional NOI from our 2013 and 2014 acquisitions, partially offset by a $1.8 million decrease in NOI from our buildings disposed of by us during the year. NOI increased $19.9 million to $224.3 million for the year ended December 31, 2013, compared to the year ended December 31, 2012. The increase was primarily due to the $19.2 million of additional NOI from our 2012 and 2013 acquisitions and the decrease in operating expenses as discussed below.
Same-Property Cash NOI increased $6.0 million for the year ended December 31, 2014, compared to the year ended December 31, 2013. The increase was primarily the result of rent escalations, an increase in average occupancy and improved operating efficiencies. Same-Property Cash NOI increased $5.1 million for the year ended December 31, 2013, compared to the year ended December 31, 2012. The increase was primarily the result of rent escalators and the decrease in property operating expenses as a result of operating efficiencies from the transition of additional properties to our in-house property management and leasing platform.
Rental Income
For the years ended December 31, 2014, 2013 and 2012, rental income was comprised of the following (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Contractual rental income
$
357,704

 
$
308,911

 
$
284,667

Straight-line rent and amortization of above/below market leases
7,692

 
6,418

 
7,716

Other operating revenue
4,175

 
3,714

 
2,957

Total
$
369,571

 
$
319,043

 
$
295,340

 
 
 
 
 
 
Contractual rental income increased $48.8 million for the year ended December 31, 2014, compared to the year ended December 31, 2013. The increase was primarily due to $44.4 million of additional contractual rental income from our 2013 and 2014 acquisitions and contractual rent increases, partially offset by a $3.1 million decrease from our buildings disposed of by us during the year. For the year ended December 31, 2014, we entered into new and renewal leases of approximately 1.6 million square feet of GLA. The new and renewal leases commenced at an average starting annual base rent of $20.75 per square foot of GLA compared to an average ending annual base rent of $21.01 per square foot of GLA for expiring leases. Leases that expired in 2014 had rents that were generally at market rates. Generally, leasing concessions vary depending on lease type and term. For the year ended December 31, 2014, new leases had tenant improvements, leasing commissions and tenant concessions of $19.51, $4.14 and $5.20 per square foot of GLA, respectively, compared to $21.47, $5.43 and $3.63 per square foot of GLA, respectively, for the year ended December 31, 2013. Renewal leases had tenant improvements, leasing commissions and tenant concessions of $2.44, $1.14 and $1.08 per square foot of GLA, respectively, for the year ended December 31, 2014 compared to $4.35, $2.48 and $1.50, respectively, for the year ended December 31, 2013.

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Contractual rental income increased $24.2 million for the year ended December 31, 2013, compared to the year ended December 31, 2012. The increase was primarily due to $26.3 million of additional contractual rental income from our 2012 and 2013 acquisitions and contractual rent increases, partially offset by the decrease in expense reimbursement revenue as a result of the decrease in rental expense as discussed below. For the year ended December 31, 2013, we entered into new and renewal leases of approximately 1.4 million square feet of GLA. The new and renewal leases commenced at an average starting annual base rent of $21.19 per square foot of GLA compared to an average ending annual base rent of $21.06 per square foot of GLA for expiring leases. Leases that expired in 2013 had rents that were generally at market rates. Generally, leasing concessions vary depending on lease type and term. For the year ended December 31, 2013, new leases had tenant improvements, leasing commissions and tenant concessions of $21.47, $5.43 and $3.63 per square foot of GLA, respectively, compared to $22.45, $4.63 and $3.96 per square foot of GLA, respectively, for the year ended December 31, 2012. Renewal leases had tenant improvements, leasing commissions and tenant concessions of $4.35, $2.48 and $1.50 per square foot of GLA, respectively, for the year ended December 31, 2013 compared to $3.44, $1.52 and $1.00, respectively, for the year ended December 31, 2012.
Rental Expenses
For the years ended December 31, 2014, 2013 and 2012, rental expenses attributable to our properties were $113.5 million, $97.3 million and $95.3 million, respectively. The increase in rental expenses for the year ended December 31, 2014, compared to 2013, was primarily due to $15.7 million of additional rental expenses associated with our 2013 and 2014 acquisitions. The increase in rental expenses for the year ended December 31, 2013, compared to 2012, was primarily due to $8.7 million of additional rental expenses associated with our 2012 and 2013 acquisitions, partially offset by operating efficiencies as a result of the transition of additional properties to our in-house asset management platform.
General and Administrative Expenses
For the years ended December 31, 2014, 2013 and 2012, general and administrative expenses were $24.9 million, $24.4 million and $21.7 million, respectively. General and administrative expenses include such costs as salaries, corporate overhead, professional fees, among other items.
Non-Traded REIT Expenses
The year ended December 31, 2012 was the last year we incurred non-traded REIT expenses due to our listing on the NYSE in June 2012. Upon the listing, all unvested awards were accelerated and the associated expense was recorded in listing expense. For the years ended December 31, 2014, 2013 and 2012, non-traded REIT expenses were $0.0 million, $0.0 million and $4.3 million, respectively.
Acquisition-Related Expenses
For the years ended December 31, 2014, 2013 and 2012, acquisition-related expenses were $9.5 million, $7.5 million and $8.8 million, respectively. The increase in acquisition-related expenses for the year ended December 31, 2014, compared to 2013, is primarily due to increased acquisition activity during 2014. The decrease in acquisition-related expenses for the year ended December 31, 2013, compared to 2012, is primarily due to certain acquisition-related payments in 2012, partially offset by increased acquisition activity in 2013.
Depreciation and Amortization Expense
For the years ended December 31, 2014, 2013 and 2012, depreciation and amortization expense was $140.4 million, $121.6 million and $116.4 million, respectively. The increase in depreciation and amortization expense from year to year was primarily due to the increase in the size of our portfolio.
Listing Expenses
For the years ended December 31, 2014, 2013 and 2012, listing expenses were $0.0 million, $4.4 million and $22.6 million. Listing expenses primarily included professional fees and share-based compensation expense associated with the LTIP awards that were granted in connection with the listing and the acceleration of equity awards as discussed above in non-traded REIT expenses. As result of the listing in June 2012, listing expenses were higher in 2012 than in 2013. We did not incur any listing expenses subsequent to March 31, 2013.
Interest Expense and Net Change in the Fair Value of Derivative Financial Instruments
Interest expense excluding the impact of the net change in the fair value of derivative financial instruments increased by $5.1 million during the year ended December 31, 2014, compared to 2013. The increase was primarily due to the issuance of $300.0 million of unsecured senior notes in June 2014, partially offset by the decreased interest rate on our Unsecured Credit Agreement as a result of the amendments executed during 2014. During the year ended December 31, 2014, the fair market value of our derivatives decreased $2.9 million, compared to a net increase of $10.8 million during the year ended December 31, 2013.

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Interest expense excluding the impact of the net change in the fair value of derivative financial instruments increased by $7.1 million during the year ended December 31, 2013, compared to 2012. The increase was primarily due to the issuance of $300.0 million of unsecured senior notes in March 2013, partially offset by the payoff of the $125.5 million secured real estate term loan in March 2013. During the year ended December 31, 2013, the fair market value of our derivatives increased $10.8 million, compared to a net decrease of $7.7 million during the year ended December 31, 2012.
To achieve our objectives, we borrow at fixed rates and variable rates. 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. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements.
Gain on Sales of Real Estate
For the year ended December 31, 2014, we realized gains of $27.9 million from the disposition of three portfolios of MOBs. We did not sell any properties during the years ended December 31, 2013 and 2012.
Loss on Extinguishment of Debt
For the years ended December 31, 2014 and 2012, loss on extinguishment of debt was $4.7 million and $1.9 million, respectively, as a result of the early retirement of certain mortgage loans. There was no early retirement of mortgage loans during the year ended December 31, 2013.
Non-GAAP Financial Measures
FFO and Normalized FFO
We compute FFO in accordance with the current standards established by the National Association of Real Estate Investment Trusts (“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 property and impairment write-downs of depreciable assets, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We present this non-GAAP financial measure because we consider it an important supplemental measure of our operating performance and believe it is 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 asset 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. Because 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.
Our methodology for calculating FFO may be different from methods utilized by other REITs and, accordingly, may not be comparable to such other REITs. FFO should not be considered as an alternative to net income or loss attributable to common stockholders/unitholders (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of sufficient cash flow to fund all of our needs. FFO should be reviewed in connection with other GAAP measurements.
We also compute Normalized FFO, which excludes from FFO (i) acquisition-related expenses, (ii) listing expenses, (iii) net gain or loss on change in the fair value of derivative financial instruments, (iv) transitional expenses, (v) gain or loss on extinguishment of debt, (vi) noncontrolling income or loss from partnership units included in diluted shares (only applicable to HTA) and (vii) other normalizing items. We present this non-GAAP financial measure because it allows for the comparison of our operating performance to other REITs and between periods on a consistent basis. 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. Normalized FFO should not be considered as an alternative to net income or loss attributable to common stockholders/unitholders (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of sufficient cash flow to fund our needs. Normalized FFO should be reviewed in connection with other GAAP measurements.
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 partnership units included in diluted shares (only applicable to HTA) and the weighted average number of shares of HTA common stock or HTALP partnership units outstanding.

44


The following is the reconciliation of HTA’s FFO and Normalized FFO to net income or loss attributable to common stockholders for the years ended December 31, 2014, 2013 and 2012 (in thousands, except per share data):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Net income (loss) attributable to common stockholders
$
45,371

 
$
24,261

 
$
(24,424
)
Depreciation and amortization expense
140,269

 
121,647

 
116,418

Gain on sales of real estate
(27,894
)
 

 

FFO
$
157,746

 
$
145,908

 
$
91,994

Acquisition-related expenses
9,545

 
7,523

 
8,843

Listing expenses

 
4,405

 
22,573

Net (gain) loss on change in fair value of derivative financial instruments
2,870

 
(10,796
)
 
7,667

Transitional expenses

 

 
2,197

Loss on extinguishment of debt, net
4,663

 

 
1,886

Noncontrolling income from partnership units included in diluted shares
490

 
371

 
16

Other normalizing items (1)
1,325

 
423

 
86

Normalized FFO
$
176,639

 
$
147,834

 
$
135,262

 
 
 
 
 
 
Net income (loss) attributable to common stockholders per diluted share (2)
$
0.37

 
$
0.21

 
$
(0.22
)
FFO adjustments per diluted share, net (2)
0.93

 
1.06

 
1.05

FFO per diluted share (2)
$
1.30

 
$
1.27

 
$
0.83

Normalized FFO adjustments per diluted share, net (2)
0.16

 
0.02

 
0.38

Normalized FFO per diluted share (2)
$
1.46

 
$
1.29

 
$
1.21

 
 
 
 
 
 
Weighted average number of diluted common shares outstanding (2)
121,168

 
114,970

 
111,357

 
 
 
 
 
 
(1) For the year ended December 31, 2014, other normalizing items primarily include the write-off of deferred financing costs related to refinancing our Unsecured Credit Agreement.
(2) Amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014.
The following is the reconciliation of HTALP’s FFO and Normalized FFO to net income or loss attributable to common unitholders for the years ended December 31, 2014, 2013 and 2012 (in thousands, except per unit data):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Net income (loss) attributable to common unitholders
$
45,861

 
$
24,633

 
$
(24,408
)
Depreciation and amortization expense
140,269

 
121,647

 
116,418

Gain on sales of real estate
(27,894
)
 

 

FFO
$
158,236

 
$
146,280

 
$
92,010

Acquisition-related expenses
9,545

 
7,523

 
8,843

Listing expenses

 
4,405

 
22,573

Net (gain) loss on change in fair value of derivative financial instruments
2,870

 
(10,796
)
 
7,667

Transitional expenses

 

 
2,197

Loss on extinguishment of debt, net
4,663

 

 
1,886

Other normalizing items (1)
1,325

 
423

 
86

Normalized FFO
$
176,639

 
$
147,835

 
$
135,262

 
 
 
 
 
 
Net income (loss) attributable to common unitholders per diluted unit (2)
$
0.38

 
$
0.21

 
$
(0.22
)
FFO adjustments per diluted unit, net (2)
0.92

 
1.06

 
1.04

FFO per diluted unit (2)
$
1.30

 
$
1.27

 
$
0.82

Normalized FFO adjustments per diluted unit, net (2)
0.16

 
0.01

 
0.38

Normalized FFO per diluted unit (2)
$
1.46

 
$
1.28

 
$
1.20

 
 
 
 
 
 
Weighted average number of diluted common units outstanding (2)
121,340

 
115,565

 
112,341

 
 
 
 
 
 
(1) For the year ended December 31, 2014, other normalizing items primarily include the write-off of deferred financing costs related to refinancing our Unsecured Credit Agreement.
(2) Amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014.

45


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) non-traded REIT expenses, (iii) acquisition-related expenses, (iv) depreciation and amortization expense, (v) listing expenses, (vi) interest expense and net change in fair value of derivative financial instruments, (vii) gain or loss on sales of real estate, (viii) gain or loss on extinguishment of debt, 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 and (iii) lease termination fees. We believe that Cash NOI 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 properties referred to as “Same-Property.” Same-Property Cash NOI excludes properties which have not been owned and operated during the entire span of all periods presented or are intended to be sold in the near term, notes receivable interest income and 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.
The following is the reconciliation of HTA’s and HTALP’s NOI, Cash NOI and Same-Property Cash NOI to net income or loss for the years ended December 31, 2014, 2013 and 2012 (in thousands):
 
Year Ended December 31,
 
2014
 
2013
 
2012
Net income (loss)
$
45,994

 
$
24,684

 
$
(24,368
)
General and administrative expenses
24,947

 
24,448

 
21,741

Non-traded REIT expenses

 

 
4,340