HTA 2015.3.31 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
|
| |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2015
or
|
| |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-35568 (Healthcare Trust of America, Inc.)
Commission File Number: 333-190916 (Healthcare Trust of America Holdings, LP)
_________________________
HEALTHCARE TRUST OF AMERICA, INC.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
(Exact name of registrant as specified in its charter)
|
| | |
Maryland (Healthcare Trust of America, Inc.) | | 20-4738467 |
Delaware (Healthcare Trust of America Holdings, LP) | | 20-4738347 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
16435 N. Scottsdale Road, Suite 320
Scottsdale, Arizona 85254
(Address of principal executive offices)
(480) 998-3478
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 | ¨ No | |
Healthcare Trust of America Holdings, LP | x Yes | ¨ 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 | ¨ No | |
Healthcare Trust of America Holdings, LP | x Yes | ¨ No | |
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 ¨ | Non-accelerated filer ¨ | Smaller reporting company ¨ |
| | | (Do not check if a smaller reporting company) | |
Healthcare Trust of America Holdings, LP | Large-accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ |
| | | (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. | ¨ Yes | x No | |
Healthcare Trust of America Holdings, LP | ¨ Yes | x No | |
As of May 1, 2015, there were 125,199,971 shares of Class A common stock of Healthcare Trust of America, Inc. outstanding.
Explanatory Note
This Quarterly Report combines the Quarterly Reports on Form 10-Q for the quarter ended March 31, 2015 of Healthcare Trust of America, Inc. (“HTA”), a Maryland corporation, and Healthcare Trust of America Holdings, LP (“HTALP”), a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this Quarterly Report to “we,” “us,” “our,” “the Company” or “our Company” refer to HTA and HTALP, collectively, and all references to “common stock” shall refer to the Class A common stock of HTA.
HTA operates as a real estate investment trust (“REIT”) and is the general partner of HTALP. As of March 31, 2015, 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 of HTALP, HTALP generates the capital required for the business through its operations and by direct or indirect incurrence of indebtedness or through the issuance of its partnership units.
Stockholders’ equity and partners’ capital are the primary areas of difference between the condensed consolidated financial statements of HTA and HTALP. Limited partnership units in HTALP are accounted for as partners’ capital in HTALP’s condensed consolidated balance sheets and as noncontrolling interest reflected within equity in HTA’s condensed consolidated balance sheets. The differences between HTA’s stockholders’ equity and HTALP’s partners’ capital are due to the differences in the equity issued by HTA and HTALP, respectively.
The Company believes combining the Quarterly Reports on Form 10-Q of HTA and HTALP, including the notes to the condensed consolidated financial statements, into this single Quarterly Report results in the following benefits:
| |
• | enhances stockholders’ understanding of HTA and HTALP by enabling stockholders to view the business as a whole in the same manner that management views and operates the business; |
| |
• | eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this Quarterly Report applies to both HTA and HTALP; and |
| |
• | creates time and cost efficiencies through the preparation of a single Quarterly Report instead of two separate Quarterly Reports. |
In order to highlight the material differences between HTA and HTALP, this Quarterly Report includes sections that separately present and discuss areas that are materially different between HTA and HTALP, including:
| |
• | the condensed consolidated financial statements; |
| |
• | certain accompanying notes to the condensed consolidated financial statements, including Note 6 - Debt, Note 9 - Stockholders’ Equity and Partners’ Capital, Note 11 - Per Share Data of HTA and Note 12 - Per Unit Data of HTALP; |
| |
• | the Funds From Operations (“FFO”) and Normalized FFO in Part I, Item 2 of this Quarterly Report; |
| |
• | the controls and procedures in Part I, Item 4 of this Quarterly Report; and |
| |
• | the certifications of the Chief Executive Officer and the Chief Financial Officer included as Exhibits 31 and 32 to this Quarterly Report. |
In the sections of this Quarterly Report that combine disclosure for HTA and HTALP, this Quarterly Report refers to actions or holdings as being actions or holdings of the Company. Although HTALP (directly or indirectly through one of its subsidiaries) is generally the entity that enters into contracts, holds assets and issues or incurs debt, management believes this presentation is appropriate for the reasons set forth above and because the business of the Company is a single integrated enterprise operated through HTALP.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
TABLE OF CONTENTS
|
| | |
| | Page |
|
| | |
Healthcare Trust of America, Inc. | |
| | |
| | |
| | |
| | |
Healthcare Trust of America Holdings, LP | |
| | |
| | |
| | |
| | |
Notes for Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| | |
| | |
| | |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
|
| | | | | | | | |
| | March 31, 2015 | | December 31, 2014 |
ASSETS | | | | |
Real estate investments: | | | | |
Land | | $ | 288,503 |
| | $ | 287,755 |
|
Building and improvements | | 2,699,979 |
| | 2,665,777 |
|
Lease intangibles | | 420,094 |
| | 419,288 |
|
| | 3,408,576 |
| | 3,372,820 |
|
Accumulated depreciation and amortization | | (583,166 | ) | | (549,976 | ) |
Real estate investments, net ($79,163 and $80,419 from consolidated VIEs, see Note 2) | | 2,825,410 |
| | 2,822,844 |
|
Cash and cash equivalents | | 13,517 |
| | 10,413 |
|
Restricted cash and escrow deposits | | 21,120 |
| | 20,799 |
|
Receivables and other assets, net | | 143,808 |
| | 144,106 |
|
Other intangibles, net | | 45,231 |
| | 43,488 |
|
Total assets | | $ | 3,049,086 |
| | $ | 3,041,650 |
|
LIABILITIES AND EQUITY | | | | |
Liabilities: | | | | |
Debt | | $ | 1,458,598 |
| | $ | 1,412,461 |
|
Accounts payable and accrued liabilities | | 84,823 |
| | 101,042 |
|
Derivative financial instruments - interest rate swaps | | 3,378 |
| | 2,888 |
|
Security deposits, prepaid rent and other liabilities | | 38,947 |
| | 32,687 |
|
Intangible liabilities, net | | 12,464 |
| | 12,425 |
|
Total liabilities | | 1,598,210 |
| | 1,561,503 |
|
Commitments and contingencies | |
| |
|
Redeemable noncontrolling interests | | 3,797 |
| | 3,726 |
|
Equity: | | | | |
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding | | — |
| | — |
|
Class A common stock, $0.01 par value; 1,000,000,000 shares authorized; 125,203,393 and 125,087,268 shares issued and outstanding as of March 31, 2015 and December 31, 2014, respectively | | 1,252 |
| | 1,251 |
|
Additional paid-in capital | | 2,282,553 |
| | 2,281,932 |
|
Cumulative dividends in excess of earnings | | (865,549 | ) | | (836,044 | ) |
Total stockholders’ equity | | 1,418,256 |
| | 1,447,139 |
|
Noncontrolling interests | | 28,823 |
| | 29,282 |
|
Total equity | | 1,447,079 |
| | 1,476,421 |
|
Total liabilities and equity | | $ | 3,049,086 |
| | $ | 3,041,650 |
|
| | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Revenues: | | | |
Rental income | $ | 98,452 |
| | $ | 90,452 |
|
Interest and other operating income | 68 |
| | 852 |
|
Total revenues | 98,520 |
| | 91,304 |
|
Expenses: | | | |
Rental | 30,697 |
| | 29,589 |
|
General and administrative | 6,575 |
| | 6,299 |
|
Acquisition-related | 1,357 |
| | 976 |
|
Depreciation and amortization | 36,595 |
| | 34,942 |
|
Total expenses | 75,224 |
| | 71,806 |
|
Income before other income (expense) | 23,296 |
| | 19,498 |
|
Interest expense: | | | |
Interest related to derivative financial instruments | (555 | ) | | (1,345 | ) |
Net loss on change in fair value of derivative financial instruments | (2,010 | ) | | (841 | ) |
Total interest related to derivative financial instruments, including net change in fair value of derivative financial instruments | (2,565 | ) | | (2,186 | ) |
Interest related to debt | (13,804 | ) | | (11,904 | ) |
Other income | 15 |
| | 26 |
|
Net income | $ | 6,942 |
| | $ | 5,434 |
|
Net income attributable to noncontrolling interests (1) | (138 | ) | | (142 | ) |
Net income attributable to common stockholders | $ | 6,804 |
| | $ | 5,292 |
|
Earnings per common share - basic: (2) | | | |
Net income attributable to common stockholders | $ | 0.05 |
| | $ | 0.04 |
|
Earnings per common share - diluted: (2) | | | |
Net income attributable to common stockholders | $ | 0.05 |
| | $ | 0.04 |
|
Weighted average number of common shares outstanding: (2) | | | |
Basic | 125,175 |
| | 118,644 |
|
Diluted | 127,105 |
| | 119,912 |
|
Dividends declared per common share (2) | $ | 0.29 |
| | $ | 0.29 |
|
| | | |
(1) Includes amounts attributable to redeemable noncontrolling interests. | | | |
(2) For the three months ended March 31, 2014, amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock (1) | | Additional Paid-In Capital (1) | | Cumulative Dividends in Excess of Earnings | | Total Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
| Shares | | Amount |
Balance as of December 31, 2013 | 118,440 |
| | $ | 1,184 |
| | $ | 2,128,082 |
| | $ | (742,060 | ) | | $ | 1,387,206 |
| | $ | 12,543 |
| | $ | 1,399,749 |
|
Share-based award transactions, net | 235 |
| | 3 |
| | 1,385 |
| | — |
| | 1,388 |
| | — |
| | 1,388 |
|
Repurchase and cancellation of common stock | (29 | ) | | (1 | ) | | (571 | ) | | — |
| | (572 | ) | | — |
| | (572 | ) |
Dividends | — |
| | — |
| | — |
| | (34,110 | ) | | (34,110 | ) | | (349 | ) | | (34,459 | ) |
Net income | — |
| | — |
| | — |
| | 5,292 |
| | 5,292 |
| | 98 |
| | 5,390 |
|
Balance as of March 31, 2014 | 118,646 |
| | $ | 1,186 |
| | $ | 2,128,896 |
| | $ | (770,878 | ) | | $ | 1,359,204 |
| | $ | 12,292 |
| | $ | 1,371,496 |
|
| | | | | | | | | | | | | |
Balance as of December 31, 2014 | 125,087 |
| | $ | 1,251 |
| | $ | 2,281,932 |
| | $ | (836,044 | ) | | $ | 1,447,139 |
| | $ | 29,282 |
| | $ | 1,476,421 |
|
Share-based award transactions, net | 164 |
| | 1 |
| | 1,913 |
| | — |
| | 1,914 |
| | — |
| | 1,914 |
|
Repurchase and cancellation of common stock | (48 | ) | | — |
| | (1,292 | ) | | — |
| | (1,292 | ) | | — |
| | (1,292 | ) |
Dividends | — |
| | — |
| | — |
| | (36,309 | ) | | (36,309 | ) | | (564 | ) | | (36,873 | ) |
Net income | — |
| | — |
| | — |
| | 6,804 |
| | 6,804 |
| | 105 |
| | 6,909 |
|
Balance as of March 31, 2015 | 125,203 |
| | $ | 1,252 |
| | $ | 2,282,553 |
| | $ | (865,549 | ) | | $ | 1,418,256 |
| | $ | 28,823 |
| | $ | 1,447,079 |
|
| | | | | | | | | | | | | |
(1) For the three months ended March 31, 2014, amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Cash flows from operating activities: | | | |
Net income | $ | 6,942 |
| | $ | 5,434 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and other | 35,788 |
| | 34,111 |
|
Share-based compensation expense | 1,914 |
| | 1,388 |
|
Bad debt expense | 146 |
| | 99 |
|
Change in fair value of derivative financial instruments | 2,010 |
| | 841 |
|
Changes in operating assets and liabilities: | | | |
Receivables and other assets, net | (723 | ) | | (1,739 | ) |
Accounts payable and accrued liabilities | (13,172 | ) | | (4,168 | ) |
Security deposits, prepaid rent and other liabilities | 4,290 |
| | (2,517 | ) |
Net cash provided by operating activities | 37,195 |
| | 33,449 |
|
Cash flows from investing activities: | | | |
Acquisition of real estate operating properties | (35,300 | ) | | — |
|
Capital expenditures | (6,524 | ) | | (5,570 | ) |
Restricted cash, escrow deposits and other assets | (321 | ) | | (396 | ) |
Net cash used in investing activities | (42,145 | ) | | (5,966 | ) |
Cash flows from financing activities: | | | |
Borrowings on unsecured revolving credit facility | 82,000 |
| | 30,000 |
|
Payments on unsecured revolving credit facility | (81,000 | ) | | (10,000 | ) |
Borrowings on unsecured term loans | 65,000 |
| | — |
|
Payments on secured real estate term loan and mortgage loans | (19,960 | ) | | (1,901 | ) |
Deferred financing costs | (31 | ) | | (1,077 | ) |
Security deposits | (17 | ) | | 247 |
|
Repurchase and cancellation of common stock | (1,292 | ) | | (572 | ) |
Dividends | (36,275 | ) | | (34,052 | ) |
Payment on earnout liability | — |
| | (375 | ) |
Distributions to noncontrolling interest of limited partners | (371 | ) | | (475 | ) |
Net cash provided by (used in) financing activities | 8,054 |
| | (18,205 | ) |
Net change in cash and cash equivalents | 3,104 |
| | 9,278 |
|
Cash and cash equivalents - beginning of period | 10,413 |
| | 18,081 |
|
Cash and cash equivalents - end of period | $ | 13,517 |
| | $ | 27,359 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
(Unaudited)
|
| | | | | | | | |
| | March 31, 2015 | | December 31, 2014 |
ASSETS | | | | |
Real estate investments: | | | | |
Land | | $ | 288,503 |
| | $ | 287,755 |
|
Building and improvements | | 2,699,979 |
| | 2,665,777 |
|
Lease intangibles | | 420,094 |
| | 419,288 |
|
| | 3,408,576 |
| | 3,372,820 |
|
Accumulated depreciation and amortization | | (583,166 | ) | | (549,976 | ) |
Real estate investments, net ($79,163 and $80,419 from consolidated VIEs, see Note 2) | | 2,825,410 |
| | 2,822,844 |
|
Cash and cash equivalents | | 13,517 |
| | 10,413 |
|
Restricted cash and escrow deposits | | 21,120 |
| | 20,799 |
|
Receivables and other assets, net | | 143,808 |
| | 144,106 |
|
Other intangibles, net | | 45,231 |
| | 43,488 |
|
Total assets | | $ | 3,049,086 |
| | $ | 3,041,650 |
|
LIABILITIES AND PARTNERS’ CAPITAL | | | | |
Liabilities: | | | | |
Debt | | $ | 1,458,598 |
| | $ | 1,412,461 |
|
Accounts payable and accrued liabilities | | 84,823 |
| | 101,042 |
|
Derivative financial instruments - interest rate swaps | | 3,378 |
| | 2,888 |
|
Security deposits, prepaid rent and other liabilities | | 38,947 |
| | 32,687 |
|
Intangible liabilities, net | | 12,464 |
| | 12,425 |
|
Total liabilities | | 1,598,210 |
| | 1,561,503 |
|
Commitments and contingencies | |
|
| |
|
|
Redeemable noncontrolling interests | | 3,797 |
| | 3,726 |
|
Partners’ Capital: | | | | |
Limited partners’ capital, 2,154,942 units issued and outstanding as of March 31, 2015 and December 31, 2014 | | 28,553 |
| | 29,012 |
|
General partners’ capital, 125,203,393 and 125,087,268 units issued and outstanding as of March 31, 2015 and December 31, 2014, respectively | | 1,418,526 |
| | 1,447,409 |
|
Total partners’ capital | | 1,447,079 |
| | 1,476,421 |
|
Total liabilities and partners’ capital | | $ | 3,049,086 |
| | $ | 3,041,650 |
|
| | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Revenues: | | | |
Rental income | $ | 98,452 |
| | $ | 90,452 |
|
Interest and other operating income | 68 |
| | 852 |
|
Total revenues | 98,520 |
| | 91,304 |
|
Expenses: | | | |
Rental | 30,697 |
| | 29,589 |
|
General and administrative | 6,575 |
| | 6,299 |
|
Acquisition-related | 1,357 |
| | 976 |
|
Depreciation and amortization | 36,595 |
| | 34,942 |
|
Total expenses | 75,224 |
| | 71,806 |
|
Income before other income (expense) | 23,296 |
| | 19,498 |
|
Interest expense: | | | |
Interest related to derivative financial instruments | (555 | ) | | (1,345 | ) |
Net loss on change in fair value of derivative financial instruments | (2,010 | ) | | (841 | ) |
Total interest related to derivative financial instruments, including net change in fair value of derivative financial instruments | (2,565 | ) | | (2,186 | ) |
Interest related to debt | (13,804 | ) | | (11,904 | ) |
Other income | 15 |
| | 26 |
|
Net income | $ | 6,942 |
| | $ | 5,434 |
|
Net income attributable to noncontrolling interests | (33 | ) | | (38 | ) |
Net income attributable to common unitholders | $ | 6,909 |
| | $ | 5,396 |
|
Earnings per common unit - basic: (1) | | | |
Net income attributable to common unitholders | $ | 0.05 |
| | $ | 0.04 |
|
Earnings per common unit - diluted: (1) | | | |
Net income attributable to common unitholders | $ | 0.05 |
| | $ | 0.04 |
|
Weighted average number of common units outstanding: (1) | | | |
Basic | 126,330 |
| | 120,170 |
|
Diluted | 126,330 |
| | 120,170 |
|
Distributions declared per common unit (1) | $ | 0.29 |
| | $ | 0.29 |
|
| | | |
(1) For the three months ended March 31, 2014, amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | | | |
| General Partners’ Capital | | Limited Partners’ Capital | | Total Partners’ Capital |
| Units (1) | | Amount | | Units (1) | | Amount | |
Balance as of December 31, 2013 | 118,440 |
| | $ | 1,387,476 |
| | 1,527 |
| | $ | 13,818 |
| | $ | 1,401,294 |
|
Share-based award transactions, net | 235 |
| | 1,388 |
| | — |
| | — |
| | 1,388 |
|
Redemptions of general partner units | (29 | ) | | (572 | ) | | — |
| | — |
| | (572 | ) |
Distributions | — |
| | (34,110 | ) | | — |
| | (372 | ) | | (34,482 | ) |
Net income | — |
| | 5,292 |
| | — |
| | 104 |
| | 5,396 |
|
Balance as of March 31, 2014 | 118,646 |
| | $ | 1,359,474 |
| | 1,527 |
| | $ | 13,550 |
| | $ | 1,373,024 |
|
| | | | | | | | | |
Balance as of December 31, 2014 | 125,087 |
| | $ | 1,447,409 |
| | 2,155 |
| | $ | 29,012 |
| | $ | 1,476,421 |
|
Share-based award transactions, net | 164 |
| | 1,914 |
| | — |
| | — |
| | 1,914 |
|
Redemption of general partner units | (48 | ) | | (1,292 | ) | | — |
| | — |
| | (1,292 | ) |
Distributions | — |
| | (36,309 | ) | | — |
| | (564 | ) | | (36,873 | ) |
Net income | — |
| | 6,804 |
| | — |
| | 105 |
| | 6,909 |
|
Balance as of March 31, 2015 | 125,203 |
| | $ | 1,418,526 |
| | 2,155 |
| | $ | 28,553 |
| | $ | 1,447,079 |
|
| | | | | | | | | |
(1) For the three months ended March 31, 2014, amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Cash flows from operating activities: | | | |
Net income | $ | 6,942 |
| | $ | 5,434 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and other | 35,788 |
| | 34,111 |
|
Share-based compensation expense | 1,914 |
| | 1,388 |
|
Bad debt expense | 146 |
| | 99 |
|
Change in fair value of derivative financial instruments | 2,010 |
| | 841 |
|
Changes in operating assets and liabilities: | | | |
Receivables and other assets, net | (723 | ) | | (1,739 | ) |
Accounts payable and accrued liabilities | (13,172 | ) | | (4,168 | ) |
Security deposits, prepaid rent and other liabilities | 4,290 |
| | (2,517 | ) |
Net cash provided by operating activities | 37,195 |
| | 33,449 |
|
Cash flows from investing activities: | | | |
Acquisition of real estate operating properties | (35,300 | ) | | — |
|
Capital expenditures | (6,524 | ) | | (5,570 | ) |
Restricted cash, escrow deposits and other assets | (321 | ) | | (396 | ) |
Net cash used in investing activities | (42,145 | ) | | (5,966 | ) |
Cash flows from financing activities: | | | |
Borrowings on unsecured revolving credit facility | 82,000 |
| | 30,000 |
|
Payments on unsecured revolving credit facility | (81,000 | ) | | (10,000 | ) |
Borrowings on unsecured term loans | 65,000 |
| | — |
|
Payments on secured real estate term loan and mortgage loans | (19,960 | ) | | (1,901 | ) |
Deferred financing costs | (31 | ) | | (1,077 | ) |
Security deposits | (17 | ) | | 247 |
|
Repurchase and cancellation of general partner units | (1,292 | ) | | (572 | ) |
Distributions to general partner | (36,275 | ) | | (34,052 | ) |
Payment on earnout liability | — |
| | (375 | ) |
Distributions to limited partners and redeemable noncontrolling interests | (371 | ) | | (475 | ) |
Net cash provided by (used in) financing activities | 8,054 |
| | (18,205 | ) |
Net change in cash and cash equivalents | 3,104 |
| | 9,278 |
|
Cash and cash equivalents - beginning of period | 10,413 |
| | 18,081 |
|
Cash and cash equivalents - end of period | $ | 13,517 |
| | $ | 27,359 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unless otherwise indicated or unless the context requires otherwise the use of the words “we,” “us” or “our” refers to Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP, collectively.
1. Organization and Description of Business
HTA, a Maryland corporation, and HTALP, a Delaware limited partnership, were incorporated or formed, as applicable, on April 20, 2006. HTA operates as a REIT and is the general partner of HTALP, which is the operating partnership. As of March 31, 2015, HTA owned a 98.5% partnership interest and other limited partners, including some of HTA’s directors, executive officers and their affiliates, owned the remaining partnership interest (including the 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. 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.
HTA is one of the largest publicly-traded REITs focused on medical office buildings (“MOBs”) in the United States (“U.S.”) based on gross leaseable area (“GLA”). 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. In addition, we have strong industry relationships, a stable and diversified tenant mix and an extensive and active acquisition network. Our primary objective is to maximize stockholder value with disciplined growth through strategic investments that provide an attractive risk-adjusted return for our stockholders by consistently increasing our cash flow. In pursuing this objective, we (i) seek internal growth through proactive asset management, leasing and property management oversight, (ii) target mid-sized acquisitions of MOBs in markets with dominant healthcare systems, and with attractive demographics that complement our existing portfolio, and (iii) actively manage our balance sheet to maintain flexibility with conservative leverage. HTA has qualified to be taxed as a REIT for federal income tax purposes and intends to continue to be taxed as a REIT.
We invest primarily in high quality MOBs in our target markets, and have acquired MOBs and other facilities that serve the healthcare industry with an aggregate purchase price of $3.4 billion through March 31, 2015.
Effective December 15, 2014, HTA completed a 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. HTA’s 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. The weighted average number of shares/units and per share/unit amounts for the three months ended March 31, 2014 have been adjusted retroactively to reflect the Reverse Stock Split.
Our principal executive office is located at 16435 North Scottsdale Road, Suite 320, Scottsdale, Arizona, 85254.
2. Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding our condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the U.S. (“GAAP”), in all material respects, and have been consistently applied in preparing our accompanying condensed consolidated financial statements.
Basis of Presentation
Our accompanying condensed consolidated financial statements include our accounts and those of our subsidiaries and any consolidated variable interest entities (“VIEs”). All inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our opinion, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such results may be less favorable for the full year. Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2014 Annual Report on Form 10-K.
Variable Interest Entities
As of March 31, 2015 and December 31, 2014, we had loans totaling $80.5 million to five entities to acquire MOBs in order to facilitate potential Internal Revenue Code Section 1031 tax-deferred exchanges (the “Exchanges”). As of March 31, 2015 and December 31, 2014, our condensed consolidated financial statements included five VIEs, as we are deemed to be the primary beneficiary. We operate each of the MOBs and have all the risk and rewards of ownership. The Exchange must be completed within 180 days after the acquisition date of the MOB in accordance with the applicable provisions of the Internal Revenue Code.
The assets of the VIEs primarily consist of real estate assets which have no restrictions on our use. We receive all the assets generated by the operating activities of the VIEs. The impact of consolidating the VIEs had an immaterial impact on our total assets at March 31, 2015 and December 31, 2014. The $80.5 million as of March 31, 2015 and December 31, 2014, represents our maximum risk of loss as the VIEs have no debt.
Real Estate Investments
Depreciation expense of buildings and improvements for the three months ended March 31, 2015 and 2014, was $23.3 million and $21.4 million, respectively.
Recently Issued or Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (i.e., payment) to which the company expects to be entitled in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. We are still evaluating the impact of adopting ASU 2014-09 on our financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidation - Amendments to the Consolidation Analysis (Topic 810). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. The amendments in ASU 2015-02 affect the following areas: (i) limited partnerships and similar legal entities; (ii) evaluating fees paid to a decision maker or a service provider as a variable interest; (iii) the effect of fee arrangements on the primary beneficiary determination; (iv) the effect of related parties on the primary beneficiary determination; and (v) certain investment funds. ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015 with early adoption permitted. We do not believe ASU 2015-02 will have a significant impact on our financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30). ASU 2015-03 changes the presentation of debt issuance costs by requiring these costs related to a recognized debt liability to be presented in the consolidated balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by these amendments. ASU 2015-03 is effective for the fiscal years beginning after December 15, 2015, and requires retrospective application. We are still evaluating the impact of adopting ASU 2015-03 on our financial statements.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
3. Business Combinations
For the three months ended March 31, 2015, we had acquisitions with an aggregate purchase price of $35.3 million. We incurred $0.2 million of costs attributable to these acquisitions, which were recorded in acquisition-related expenses in the accompanying condensed consolidated statements of operations.
Since the acquisitions were determined to be individually not significant, but significant on a collective basis, the allocations for the 2015 acquisitions are set forth below in the aggregate (in thousands):
|
| | | | |
Acquisitions through March 31, 2015 | | Total |
Land | | $ | 748 |
|
Building and improvements | | 30,086 |
|
Below market leasehold interests | | 2,350 |
|
Above market leases | | 398 |
|
In place leases | | 2,181 |
|
Below market leases | | (463 | ) |
Aggregate purchase price | | $ | 35,300 |
|
The acquired intangible assets and liabilities, referenced above, had weighted average lives of 16.9 years and 9.9 years, respectively.
During the three months ended March 31, 2015, we acquired $35.3 million of MOBs in Atlanta, Georgia.
During the three months ended March 31, 2014, we completed no acquisitions.
Subsequent to March 31, 2015, we completed acquisitions with an aggregate purchase price of $67.3 million. The following is a preliminary allocation of the aggregate purchase price of such acquisitions (in thousands):
|
| | | | |
Acquisitions Subsequent to March 31, 2015 | | Total |
Land | | $ | 6,239 |
|
Building and improvements | | 55,769 |
|
Lease and other intangibles, net | | 4,372 |
|
Net assets acquired | | 66,380 |
|
Other, net | | 940 |
|
Aggregate purchase price | | $ | 67,320 |
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
4. Intangible Assets and Liabilities
Intangible assets and liabilities consisted of the following as of March 31, 2015 and December 31, 2014 (in thousands, except weighted average remaining amortization period):
|
| | | | | | | | | | | | | |
| March 31, 2015 | | December 31, 2014 | | |
| Balance | | Weighted Average Remaining Amortization Period in Years | | Balance | | Weighted Average Remaining Amortization Period in Years | | Balance Sheet Classification |
Assets: | | | | | | | | | |
In place leases | $ | 233,112 |
| | 8.4 | | $ | 231,370 |
| | 8.8 | | Lease intangibles |
Tenant relationships | 186,982 |
| | 10.4 | | 187,918 |
| | 10.3 | | Lease intangibles |
Above market leases | 27,063 |
| | 5.6 | | 26,676 |
| | 5.5 | | Other intangibles, net |
Below market leasehold interests | 35,300 |
| | 64.3 | | 32,950 |
| | 67.3 | | Other intangibles, net |
| 482,457 |
| | | | 478,914 |
| | | | |
Accumulated amortization | (193,723 | ) | | | | (182,149 | ) | | | | |
Total | $ | 288,734 |
| | 15.3 | | $ | 296,765 |
| | 15.2 | | |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Below market leases | $ | 14,600 |
| | 11.4 | | $ | 14,188 |
| | 11.5 | | Intangible liabilities, net |
Above market leasehold interests | 3,857 |
| | 31.9 | | 3,857 |
| | 32.1 | | Intangible liabilities, net |
| 18,457 |
| | | | 18,045 |
| | | | |
Accumulated amortization | (5,993 | ) | | | | (5,620 | ) | | | | |
Total | $ | 12,464 |
| | 16.9 | | $ | 12,425 |
| | 17.1 | | |
The following is a summary of the net intangible amortization for the three months ended March 31, 2015 and 2014 (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Amortization recorded against rental income related to above or below market leases | $ | 475 |
| | $ | 520 |
|
Rental expense related to above or below market leasehold interests | 105 |
| | 148 |
|
Amortization expense related to in place leases and tenant relationships | 11,956 |
| | 12,482 |
|
5. Receivables and Other Assets
Receivables and other assets consisted of the following as of March 31, 2015 and December 31, 2014 (in thousands):
|
| | | | | | | |
| March 31, 2015 | | December 31, 2014 |
Accounts receivables, net | $ | 16,435 |
| | $ | 16,468 |
|
Other receivables | 7,989 |
| | 10,639 |
|
Deferred financing costs, net | 16,393 |
| | 16,929 |
|
Deferred leasing costs, net | 17,614 |
| | 17,281 |
|
Straight-line rent receivables, net | 59,102 |
| | 56,433 |
|
Prepaid expenses, deposits, equipment and other, net | 26,081 |
| | 24,642 |
|
Derivative financial instruments - interest rate swaps | 194 |
| | 1,714 |
|
Total | $ | 143,808 |
| | $ | 144,106 |
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following is a summary of amortization of deferred leasing costs and deferred financing costs for the three months ended March 31, 2015 and 2014 (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Amortization expense related to deferred leasing costs | $ | 986 |
| | $ | 874 |
|
Interest expense related to deferred financing costs | 842 |
| | 966 |
|
6. Debt
Debt consisted of the following as of March 31, 2015 and December 31, 2014 (in thousands):
|
| | | | | | | | |
| | March 31, 2015 | | December 31, 2014 |
Unsecured revolving credit facility | | $ | 37,000 |
| | $ | 36,000 |
|
Unsecured term loans | | 420,000 |
| | 355,000 |
|
Unsecured senior notes | | 600,000 |
| | 600,000 |
|
Fixed rate mortgages | | 372,554 |
| | 392,399 |
|
Variable rate mortgages | | 29,359 |
| | 29,474 |
|
| | 1,458,913 |
| | 1,412,873 |
|
Net discount | | (315 | ) | | (412 | ) |
Total | | $ | 1,458,598 |
| | $ | 1,412,461 |
|
Unsecured Credit Agreement
Unsecured Revolving Credit Facility
On February 11, 2015, HTA and HTALP executed an amendment to the unsecured revolving credit and term loan facility (the “Unsecured Credit Agreement”) which added an additional lender and increased the amount available under the unsecured revolving credit facility from $800.0 million to $850.0 million. The other existing terms of the Unsecured Credit Agreement were unchanged. The actual amount of credit available to us is a function of certain loan-to-value and debt service coverage ratios set forth in the credit facility. The maximum principal amount of the credit facility may be increased, subject to additional financing being provided by our existing lenders or new lenders being added to the unsecured revolving credit facility. The unsecured revolving credit facility matures on January 31, 2020.
Borrowings under the unsecured revolving credit facility accrue interest equal to adjusted LIBOR, plus a margin ranging from 0.875% to 1.55% per annum based on our credit rating. We also pay a facility fee ranging from 0.125% to 0.30% per annum on the aggregate commitments under the unsecured revolving credit facility. As of March 31, 2015, the margin associated with our borrowings was 1.05% per annum and the facility fee was 0.20% per annum.
Unsecured Term Loan
During the three months ended March 31, 2015, we borrowed an additional $65.0 million, increasing the amount outstanding to $265.0 million. We may borrow an additional $35.0 million through May 2015. Borrowings accrue interest equal to adjusted LIBOR, plus a margin ranging from 0.90% to 1.80% per annum based on our credit rating. The margin associated with our borrowings as of March 31, 2015 was 1.15% per annum. Including the impact of the interest rate swaps associated with our unsecured term loan, the interest rate was 1.58% per annum, based on our current credit rating. The unsecured term loan matures on January 31, 2019 and includes a one-year extension, at the option of the borrower, subject to certain conditions.
$155.0 million Unsecured Term Loan
As of March 31, 2015, HTALP had a $155.0 million unsecured term loan outstanding that is guaranteed by HTA. The loan matures on July 19, 2019 and the interest rate thereon is equal to LIBOR, plus a margin ranging from 1.55% to 2.40% per annum based on our credit rating. The margin associated with our borrowings as of March 31, 2015 was 1.70% per annum. We have interest rate swaps in place that fix the interest rate at 2.99% per annum, based on our current credit rating. The maximum principal amount under this unsecured term loan may be increased by us, subject to such additional financing being provided by our existing lender.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
$300.0 million Unsecured Senior Notes due 2021
As of March 31, 2015, HTALP had $300.0 million of unsecured senior notes outstanding that are guaranteed by HTA and mature on July 15, 2021. The unsecured senior notes are registered under the Securities Act of 1933, as amended (the “Securities Act”), bear interest at 3.375% per annum and are payable semi-annually. The unsecured senior notes were offered at 99.205% of the principal amount thereof, with an effective yield to maturity of 3.50% per annum.
$300.0 million Unsecured Senior Notes due 2023
As of March 31, 2015, HTALP had $300.0 million of unsecured senior notes outstanding that are guaranteed by HTA and mature on April 15, 2023. The unsecured senior notes are registered under the Securities Act, bear interest at 3.70% per annum and are payable semi-annually. The unsecured senior notes were offered at 99.186% of the principal amount thereof, with an effective yield to maturity of 3.80% per annum.
Fixed and Variable Rate Mortgages
As of March 31, 2015, HTALP and its subsidiaries had fixed and variable rate mortgages with interest rates ranging from 1.63% to 12.75% per annum and a weighted average interest rate of 5.35% per annum. Including the impact of the interest rate swap associated with our variable rate mortgage, the weighted average interest rate was 5.59% per annum.
Future Debt Maturities
The following table summarizes the debt maturities and scheduled principal repayments of our indebtedness as of March 31, 2015 (in thousands): |
| | | | |
Year | | Amount |
2015 | | $ | 53,835 |
|
2016 | | 69,985 |
|
2017 | | 116,977 |
|
2018 | | 14,803 |
|
2019 | | 429,680 |
|
Thereafter | | 773,633 |
|
Total | | $ | 1,458,913 |
|
The above scheduled debt maturities do not include the extension available to us under the Unsecured Credit Agreement as discussed above.
We are required by the terms of our applicable debt agreements to meet various affirmative and negative covenants that we believe are customary for these types of facilities, such as limitations on the incurrence of debt by us and our subsidiaries that own unencumbered assets, limitations on the nature of HTALP’s business, and limitations on distributions by HTALP and its subsidiaries that own unencumbered assets. Our debt agreements also impose various financial covenants on us, such as a maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a minimum tangible net worth covenant, a maximum ratio of unsecured indebtedness to unencumbered asset value, rent coverage ratios and a minimum ratio of unencumbered Net Operating Income (“NOI”) to unsecured interest expense. As of March 31, 2015, we believe that we were in compliance with all such financial covenants and reporting requirements. In addition, certain of our debt agreements include events of default provisions that we believe are customary for these types of facilities, including restricting HTA from making dividend distributions to its stockholders in the event HTA is in default thereunder, except to the extent necessary for HTA to maintain its REIT status.
7. Derivative Financial Instruments
The following table lists the derivative financial instrument assets and (liabilities) held by us as of March 31, 2015 (in thousands):
|
| | | | | | | | | | | | | | | |
Notional Amount | | Index | | Rate | | Fair Value | | Instrument | | Maturity |
$ | 100,000 |
| | LIBOR | | 0.86 | % | | $ | (508 | ) | | Swap | | 6/15/2016 |
50,000 |
| | LIBOR | | 1.39 |
| | (239 | ) | | Swap | | 7/17/2019 |
105,000 |
| | LIBOR | | 1.24 |
| | 194 |
| | Swap | | 7/17/2019 |
26,683 |
| | LIBOR + 145 bps | | 4.98 |
| | (2,631 | ) | | Swap | | 5/1/2020 |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table lists the derivative financial instrument assets and (liabilities) held by us as of December 31, 2014 (in thousands):
|
| | | | | | | | | | | | | | | |
Notional Amount | | Index | | Rate | | Fair Value | | Instrument | | Maturity |
$ | 100,000 |
| | LIBOR | | 0.86 | % | | $ | (443 | ) | | Swap | | 6/15/2016 |
50,000 |
| | LIBOR | | 1.39 |
| | 317 |
| | Swap | | 7/17/2019 |
105,000 |
| | LIBOR | | 1.24 |
| | 1,397 |
| | Swap | | 7/17/2019 |
26,874 |
| | LIBOR + 145 bps | | 4.98 |
| | (2,445 | ) | | Swap | | 5/1/2020 |
As of March 31, 2015 and December 31, 2014, the gross fair value of our derivative financial instruments was as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | Asset Derivatives | | Liability Derivatives |
| | | | Fair Value | | | | Fair Value |
Derivatives Not Designated as Hedging Instruments: | | Balance Sheet Location | | March 31, 2015 | | December 31, 2014 | | Balance Sheet Location | | March 31, 2015 | | December 31, 2014 |
Interest rate swaps | | Receivables and other assets | | $ | 194 |
| | $ | 1,714 |
| | Derivative financial instruments | | $ | 3,378 |
| | $ | 2,888 |
|
There were no derivatives offset in our accompanying condensed consolidated balance sheets as of March 31, 2015 and December 31, 2014. As of March 31, 2015 and December 31, 2014, we had derivatives subject to enforceable master netting arrangements which allowed for net cash settlement with the respective counterparties (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2015 | | December 31, 2014 |
| Gross Amounts | | Amounts Subject to Enforceable Master Netting Arrangements | | Net Amounts | | Gross Amounts | | Amounts Subject to Enforceable Master Netting Arrangements | | Net Amounts |
Asset derivatives | $ | 194 |
| | $ | (194 | ) | | $ | — |
| | $ | 1,714 |
| | $ | — |
| | $ | 1,714 |
|
Liability derivatives | 3,378 |
| | (194 | ) | | 3,184 |
| | 2,888 |
| | — |
| | 2,888 |
|
We have agreements with each of our interest rate swap derivative counterparties that contain a provision whereby if we default on certain of our unsecured indebtedness, then our counterparties could declare us in default on our interest rate swap derivative obligations resulting in an acceleration of the indebtedness. In addition, we are exposed to credit risk in the event of non-performance by our derivative counterparties. We believe we mitigate the credit risk by entering into agreements with credit-worthy counterparties. We record counterparty credit risk valuation adjustments on interest rate swap derivative assets in order to properly reflect the credit quality of the counterparty. In addition, our fair value of interest rate swap derivative liabilities is adjusted to reflect the impact of our credit quality. As of March 31, 2015, there have been no termination events or events of default related to our interest rate swaps.
8. Commitments and Contingencies
Litigation
We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material effect on our condensed consolidated financial position, results of operations or cash flows.
Environmental Matters
We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our condensed consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability at our properties that we believe would require additional disclosure or the recording of a loss contingency.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Other
Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In our opinion, these matters are not expected to have a material effect on our condensed consolidated financial position, results of operations or cash flows.
9. Stockholders’ Equity and Partners’ Capital
HTALP’s partnership agreement provides that it will distribute cash flows from operations and net sale proceeds to its partners in accordance with their overall ownership interests at such times and in such amounts as the general partner determines. Except for certain LTIP units that have not vested, dividend distributions are made such that a holder of one partnership unit will receive distributions from HTALP in an amount equal to the dividend distributions paid to the holder of one share of HTA’s common stock. In addition, for each share of common stock issued or redeemed by HTA, HTALP issues or redeems a corresponding number of partnership units.
Common Stock Offerings
On February 28, 2014, HTA amended the at-the-market (“ATM”) offering program of its common stock with an aggregate sales price of up to $300.0 million, primarily to add sales agents to the program. During the three months ended March 31, 2015, HTA did not issue and sell any shares of its common stock under the ATM offering program and as of March 31, 2015, $256.6 million remained available for issuance under the ATM.
Common Stock Dividends
See our accompanying condensed consolidated statements of operations for the dividends declared during three months ended March 31, 2015 and 2014. On May 5, 2015, HTA declared a quarterly cash dividend of $0.29 per share to be paid on July 3, 2015 to stockholders of record of its common stock on June 26, 2015.
Incentive Plan
HTA’s Amended and Restated 2006 Incentive Plan (the “Plan”) permits the grant of incentive awards to our employees, officers, non-employee directors and consultants as selected by our Board of Directors or the Compensation Committee. 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 HTALP; and cash-based awards. Subject to adjustment as provided in the Plan, the aggregate number of awards reserved and available for issuance under the Plan is 5,000,000. As of March 31, 2015, there were 2,126,745 awards available for grant under the Plan.
LTIP Units
Awards under the LTIP consist of Series C units in HTALP, and are subject to the achievement of certain performance and market conditions in order to vest. Once vested, the Series C units are converted into common units of HTALP, which may be converted into shares of HTA’s common stock. The LTIP awards were fully expensed in 2013, except for $4.5 million of expense associated with 225,000 units that will only vest in the event of a change in control prior to May 16, 2015. We will not recognize any expense associated with these units until such time as a change in control event occurs or is probable. As of March 31, 2015 and December 31, 2014, we had 225,000 LTIP units outstanding with a weighted average grant date fair value of $20.00.
Restricted Common Stock
For the three months ended March 31, 2015 and 2014, we recognized compensation expense of $1.9 million and $1.4 million, respectively, which was recorded in general and administrative expenses.
As of March 31, 2015, there was $7.1 million of unrecognized compensation expense net of estimated forfeitures, which will be recognized over a remaining weighted average period of 2.1 years.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following is a summary of the activity in our restricted common stock during 2015:
|
| | | | | | |
| Restricted Common Stock | | Weighted Average Grant Date Fair Value |
Balance as of December 31, 2014 | 463,050 |
| | $ | 20.90 |
|
Granted | 172,115 |
| | 26.98 |
|
Vested | (113,029 | ) | | 21.99 |
|
Forfeited | (8,000 | ) | | 22.08 |
|
Balance as of March 31, 2015 | 514,136 |
| | $ | 22.60 |
|
10. Fair Value of Financial Instruments
Financial Instruments Reported at Fair Value
The table below presents our assets and liabilities measured at fair value on a recurring basis as of March 31, 2015, aggregated by the applicable Level in the fair value hierarchy (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1 ) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Assets: | | | | | | | | |
Derivative financial instruments | | $ | — |
| | $ | 194 |
| | $ | — |
| | $ | 194 |
|
Liabilities: | | | | | | | | |
Derivative financial instruments | | $ | — |
| | $ | 3,378 |
| | $ | — |
| | $ | 3,378 |
|
The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2014, aggregated by the applicable Level in the fair value hierarchy (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1 ) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Assets: | | | | | | | | |
Derivative financial instruments | | $ | — |
|
| $ | 1,714 |
|
| $ | — |
| | $ | 1,714 |
|
Liabilities: | | | | | | | | |
Derivative financial instruments | | $ | — |
| | $ | 2,888 |
| | $ | — |
| | $ | 2,888 |
|
There have been no transfers of assets or liabilities between Levels. We will record any such transfers at the end of the reporting period in which a change of event occurs that results in a transfer. Although we have determined that the majority of the inputs used to value our interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate swap derivative positions and have determined that the credit valuation adjustments are not significant to their overall valuation. As a result, we have determined that our interest rate swap derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Financial Instruments Disclosed at Fair Value
We consider the carrying values of cash and cash equivalents, accounts and other receivables, restricted cash and escrow deposits and accounts payable and accrued liabilities to approximate fair value for these financial instruments because of the short period of time between origination of the instruments and their expected realization. All of these financial instruments are considered Level 2. The fair value of debt is estimated using borrowing rates available to us with similar terms and maturities. The following table sets forth the carrying value and fair value of our debt (in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | March 31, 2015 | | December 31, 2014 |
| Fair Value Level | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Debt | 2 | | $ | 1,458,598 |
| | $ | 1,507,720 |
| | $ | 1,412,461 |
| | $ | 1,447,432 |
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
11. Per Share Data of HTA
HTA includes unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” pursuant to the two-class method. The resulting classes are our common stock and restricted stock. For the three months ended March 31, 2015 and 2014, all of HTA’s earnings were distributed and the calculated earnings per share amount would be the same for all classes.
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per share of HTA common stock for the three months ended March 31, 2015 and 2014 (in thousands, except per share data):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Numerator: | | | |
Net income | $ | 6,942 |
| | $ | 5,434 |
|
Net income attributable to noncontrolling interests | (138 | ) | | (142 | ) |
Net income attributable to common stockholders | $ | 6,804 |
| | $ | 5,292 |
|
Denominator: (1) | | | |
Weighted average number of shares outstanding - basic | 125,175 |
| | 118,644 |
|
Dilutive shares | 1,930 |
| | 1,268 |
|
Weighted average number of shares outstanding - diluted | 127,105 |
| | 119,912 |
|
Earnings per common share - basic (1) | | | |
Net income attributable to common stockholders | $ | 0.05 |
| | $ | 0.04 |
|
Earnings per common share - diluted (1) | | | |
Net income attributable to common stockholders | $ | 0.05 |
| | $ | 0.04 |
|
| | | |
(1) For the three months ended March 31, 2014, amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014. |
12. Per Unit Data of HTALP
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per unit of HTALP for the three months ended March 31, 2015 and 2014 (in thousands, except per unit data):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Numerator: | | | |
Net income | $ | 6,942 |
| | $ | 5,434 |
|
Net income attributable to noncontrolling interests | (33 | ) | | (38 | ) |
Net income attributable to common unitholders | $ | 6,909 |
| | $ | 5,396 |
|
Denominator: (1) | | | |
Weighted average number of units outstanding - basic | 126,330 |
| | 120,170 |
|
Dilutive units | — |
| | — |
|
Weighted average number of units outstanding - diluted | 126,330 |
| | 120,170 |
|
Earnings per common unit - basic: (1) | | | |
Net income attributable to common unitholders | $ | 0.05 |
| | $ | 0.04 |
|
Earnings per common unit - diluted: (1) | | | |
Net income attributable to common unitholders | $ | 0.05 |
| | $ | 0.04 |
|
| | | |
(1) For the three months ended March 31, 2014, amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014. |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13. Supplemental Cash Flow Information
The following is the supplemental cash flow information for the three months ended March 31, 2015 and 2014 (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Interest paid | $ | 13,238 |
| | $ | 8,235 |
|
Income taxes paid | 99 |
| | 58 |
|
| | | |
Supplemental Disclosure of Noncash Activities: | | | |
Investing Activities: | | | |
Accrued capital expenditures | $ | 1,464 |
| | $ | 2,272 |
|
Financing Activities: | | | |
Dividend distributions declared, but not paid | $ | 36,309 |
| | $ | 34,148 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The use of the words “we,” “us” or “our” refers to HTA and HTALP, collectively.
The following discussion should be read in conjunction with our condensed consolidated financial statements and notes appearing elsewhere in this Quarterly Report on Form 10-Q, as well as with the audited consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2014 Annual Report on Form 10-K. Such condensed consolidated financial statements and information have been prepared to reflect HTA’s and HTALP’s financial position as of March 31, 2015 and December 31, 2014, together with results of operations and cash flows for the three months ended March 31, 2015 and 2014.
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; |
| |
• | Critical Accounting Policies; |
| |
• | Recently Issued or Adopted Accounting Pronouncements; |
| |
• | Factors Which May Influence Results of Operations; |
| |
• | Non-GAAP Financial Measures; |
| |
• | Liquidity and Capital Resources; |
| |
• | Commitments and Contingencies; |
| |
• | Debt Service Requirements; |
| |
• | Off-Balance Sheet Arrangements; |
| |
• | Federal Income Tax Changes and Updates for Incorporation in Existing Registration Statements. |
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q is filed with the SEC. We cannot guarantee the accuracy of any such forward-looking statements contained in this Quarterly Report on Form 10-Q, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Any such forward-looking statements reflect our current views about future events, are subject to unknown risks, uncertainties, and other factors, and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide dividends to stockholders and maintain the value of our real estate properties, may be significantly hindered. Factors that might impair our ability to meet such forward-looking statements include, without limitation, those discussed in Part I, Item 1A - Risk Factors in our 2014 Annual Report on Form 10-K, which is incorporated herein.
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 $3.4 billion to create a portfolio of MOBs and other healthcare assets totaling approximately 15.0 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 91.7% (includes leases which have been executed, but which have not yet commenced) and the occupancy rate was 91.3% as of March 31, 2015. Approximately 58% 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 March 31, 2015.
Our portfolio is diversified geographically across 28 states, with no state having more than 13% of our total GLA as of March 31, 2015. 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, Honolulu, Houston, Indianapolis, Miami, Orlando, Phoenix, Pittsburgh, Raleigh, Tampa and White Plains.
Company Highlights
Portfolio Operating Performance
| |
• | For the three months ended March 31, 2015, we had net income of $6.9 million, compared to $5.4 million for the three months ended March 31, 2014. |
| |
• | For the three months ended March 31, 2015, HTA’s Normalized FFO was $0.37 per diluted share, or $46.6 million, an increase of $0.02 per diluted share, or 6%, compared to the three months ended March 31, 2014. For the three months ended March 31, 2015, HTALP’s Normalized FFO was $0.37 per diluted unit, or $46.6 million, an increase of 0.02 per diluted unit, or 6%, compared to the three months ended March 31, 2014. |
| |
• | For additional information on Normalized FFO, see “FFO and Normalized FFO” below, which includes a reconciliation to net income attributable to common stockholders/unitholders and an explanation of why we present this non-GAAP financial measure. |
| |
• | For the three months ended March 31, 2015, our total revenue increased 7.9%, or $7.2 million, to $98.5 million, compared to the three months ended March 31, 2014. |
| |
• | For the three months ended March 31, 2015, our NOI increased 9.9%, or $6.1 million, to $67.8 million, compared to the three months ended March 31, 2014. |
| |
• | For the three months ended March 31, 2015, our Same-Property Cash NOI increased 3.0%, or $1.7 million, to $57.0 million, compared to the three months ended March 31, 2014. |
| |
• | For additional information on NOI and Same-Property Cash NOI, see “NOI, Cash NOI and Same-Property Cash NOI” below, which includes a reconciliation to net income and an explanation of why we present these non-GAAP financial measures. |
Internal Growth Through Proactive Asset Management Leasing and Property Management
| |
• | As of March 31, 2015, our leased rate (includes leases which have been executed, but which have not yet commenced) was 91.7% by GLA and our occupancy rate was 91.3% by GLA. |
| |
• | We entered into new and renewal leases on approximately 185,000 square feet of GLA during the three months ended March 31, 2015. |
| |
• | Tenant retention for the portfolio was 77% for the quarter, 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 $35.3 million of MOBs located in our key market of Atlanta during the three months ended March 31, 2015. |
| |
• | All of our acquisitions during the quarter 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 98%. |
Financial Strategy and Balance Sheet Flexibility
| |
• | As of March 31, 2015, we had total liquidity of $856.0 million, including cash and cash equivalents of $13.5 million and $842.5 million available on our Unsecured Credit Agreement (includes the impact of $5.5 million of outstanding letters of credit). Our leverage ratio of debt to capitalization was 29.2%. |
| |
• | In February 2015, we amended our Unsecured Credit Agreement. The amendment added an additional lender and increased the amount available under the unsecured revolving credit facility by $50.0 million to $850.0 million. The other existing terms of the Unsecured Credit Agreement were unchanged. |
Critical Accounting Policies
The complete list of our critical accounting policies was disclosed in our 2014 Annual Report on Form 10-K. There have been no material changes to our critical accounting policies as disclosed therein.
Recently Issued or Adopted Accounting Pronouncements
See Note 2 to our accompanying condensed 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 Part I, Item 1A - Risk Factors, in our 2014 Annual Report on Form 10-K, 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.
Acquisitions and Dispositions
During the three months ended March 31, 2015, we had acquisitions with an aggregate purchase price of $35.3 million and no dispositions. During the three months ended March 31, 2014, we had no acquisitions or dispositions. 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 Three Months Ended March 31, 2015 and 2014
As of March 31, 2015, we owned and operated approximately 15.0 million square feet of GLA, with a 91.7% leased rate (includes leases which have been executed, but which have not yet commenced) and a 91.3% occupancy rate. As of March 31, 2014, we owned and operated approximately 14.1 million square feet of GLA, with a 91.2% leased rate (includes leases which have been executed, but which have not yet commenced) and a 90.8% occupancy rate. All explanations are applicable to both HTA and HTALP unless otherwise noted.
NOI and Same-Property Cash NOI
NOI increased $6.1 million to $67.8 million for the three months ended March 31, 2015, compared to the three months ended March 31, 2014. This increase was primarily due to the $7.8 million of additional NOI from our 2014 and 2015 acquisitions, partially offset by a decrease in NOI as a result of the buildings we sold during 2014, a reduction of interest income from the real estate notes receivable paid off by the borrowers during 2014 and a reduction in straight-line rent from properties we owned during both periods.
Same-Property Cash NOI increased $1.7 million to $57.0 million for the three months ended March 31, 2015, compared to the three months ended March 31, 2014. The increase was primarily the result of rent escalations, an increase in average occupancy and improved operating efficiencies.
Rental Income
For the three months ended March 31, 2015 and 2014, rental income was comprised of the following (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Contractual rental income | $ | 95,243 |
| | $ | 87,385 |
|
Straight-line rent and amortization of above/below market leases | 2,131 |
| | 1,995 |
|
Other operating revenue | 1,078 |
| | 1,072 |
|
Total | $ | 98,452 |
| | $ | 90,452 |
|
| | | |
Contractual rental income increased $7.9 million for the three months ended March 31, 2015, compared to the three months ended March 31, 2014. The increase was primarily due to $10.2 million of additional contractual rental income from our 2014 and 2015 acquisitions and contractual rent increases, partially offset by a decrease in contractual rent as a result of the buildings we sold during 2014. For the three months ended March 31, 2015, we entered into new and renewal leases of approximately 185,000 square feet of GLA. The new and renewal leases commenced at an average starting annual base rent of $22.28 per square foot of GLA compared to an average ending annual base rent of $21.99 per square foot of GLA for expiring leases. Leases that expired thus far in 2015 had rents that we believed were generally at market rates. Generally, leasing concessions vary depending on lease type and term. For the three months ended March 31, 2015, new leases had tenant improvements, leasing commissions and tenant concessions of $23.49, $4.81 and $5.93 per square foot of GLA, respectively, compared to $16.63, $4.38 and $5.96 per square foot of GLA, respectively, for the three months ended March 31, 2014. Renewal leases had tenant improvements, leasing commissions and tenant concessions of $3.17, $0.82 and $0.36 per square foot of GLA, respectively, for the three months ended March 31, 2015, compared to $4.33, $2.12 and $1.81 per square foot of GLA, respectively, for the three months ended March 31, 2014.
Rental Expenses
For the three months ended March 31, 2015 and 2014, rental expenses attributable to our properties were $30.7 million and $29.6 million, respectively. The increase in rental expenses was primarily due to $3.3 million of additional rental expenses associated with our 2014 and 2015 acquisitions, partially offset by a $0.9 million decrease as a result of the buildings we sold during 2014.
General and Administrative Expenses
For the three months ended March 31, 2015 and 2014, general and administrative expenses were $6.6 million and $6.3 million, respectively. General and administrative expenses include such costs as salaries, corporate overhead and professional fees, among other items.
Acquisition-Related Expenses
For the three months ended March 31, 2015 and 2014, acquisition-related expenses were $1.4 million and $1.0 million, respectively. The increase in acquisition-related expenses was primarily due to increased acquisition activity during 2015.
Depreciation and Amortization Expense
For the three months ended March 31, 2015 and 2014, depreciation and amortization expense was $36.6 million and $34.9 million, respectively. The increase in depreciation and amortization expense was primarily due to the increase in the size of our portfolio.
Interest Expense and Net Change in Fair Value of Derivative Financial Instruments
Interest expense excluding the impact of the net change in fair value of derivative financial instruments increased by $1.1 million during the three months ended March 31, 2015, compared to the same period in 2014. 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 three months ended March 31, 2015, the fair market value of our derivatives decreased $2.0 million, compared to a net decrease of $0.8 million during the three months ended March 31, 2014.
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.
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 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) net gain or loss on change in fair value of derivative financial instruments; (iii) noncontrolling income or loss from partnership units included in diluted shares (only applicable to HTA); and (iv) 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.
The following is the reconciliation of HTA’s FFO and Normalized FFO to net income attributable to common stockholders for the three months ended March 31, 2015 and 2014 (in thousands, except per share data):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Net income attributable to common stockholders | $ | 6,804 |
| | $ | 5,292 |
|
Depreciation and amortization expense | 36,280 |
| | 34,942 |
|
FFO | $ | 43,084 |
| | $ | 40,234 |
|
Acquisition-related expenses | 1,357 |
| | 976 |
|
Net loss on change in fair value of derivative financial instruments | 2,010 |
| | 841 |
|
Noncontrolling income from partnership units included in diluted shares | 105 |
| | 104 |
|
Other normalizing items | 89 |
| | 209 |
|
Normalized FFO | $ | 46,645 |
| | $ | 42,364 |
|
| | | |
Net income attributable to common stockholders per diluted share (1) | $ | 0.05 |
| | $ | 0.04 |
|
FFO adjustments per diluted share, net (1) | 0.29 |
| | 0.30 |
|
FFO per diluted share (1) | $ | 0.34 |
| | $ | 0.34 |
|
Normalized FFO adjustments per diluted share, net (1) | 0.03 |
| | 0.01 |
|
Normalized FFO per diluted share (1) | $ | 0.37 |
| | $ | 0.35 |
|
| | | |
Weighted average number of diluted common shares outstanding (1) | 127,105 |
| | 119,912 |
|
| | | |
(1) For the three months ended March 31, 2014, 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 attributable to common unitholders for the three months ended March 31, 2015 and 2014 (in thousands, except per unit data):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Net income attributable to common unitholders | $ | 6,909 |
| | $ | 5,396 |
|
Depreciation and amortization expense | 36,280 |
| | 34,942 |
|
FFO | $ | 43,189 |
| | $ | 40,338 |
|
Acquisition-related expenses | 1,357 |
| | 976 |
|
Net loss on change in fair value of derivative financial instruments | 2,010 |
| | 841 |
|
Other normalizing items | 89 |
| | 209 |
|
Normalized FFO | $ | 46,645 |
| | $ | 42,364 |
|
| | | |
Net income attributable to common unitholders per diluted unit (1) | $ | 0.05 |
| | $ | 0.04 |
|
FFO adjustments per diluted unit, net (1) | 0.29 |
| | 0.30 |
|
FFO per diluted unit (1) | $ | 0.34 |
| | $ | 0.34 |
|
Normalized FFO adjustments per diluted unit, net (1) | 0.03 |
| | 0.01 |
|
Normalized FFO per diluted unit (1) | $ | 0.37 |
| | $ | 0.35 |
|
| | | |
Weighted average number of diluted common units outstanding (1) | 126,330 |
| | 120,170 |
|
| | | |
(1) For the three months ended March 31, 2014, amounts have been adjusted retroactively to reflect a 1-for-2 reverse stock split effected December 15, 2014. |
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) acquisition-related expenses; (iii) depreciation and amortization expense; (iv) interest expense and net change in fair value of derivative financial instruments; and (v) 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, net; (ii) amortization of below and above market leases/leasehold interests, net; 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 for the three months ended March 31, 2015 and 2014 (in thousands):
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Net income | $ | 6,942 |
| | $ | 5,434 |
|
General and administrative expenses | 6,575 |
| | 6,299 |
|
Acquisition-related expenses | 1,357 |
| | 976 |
|
Depreciation and amortization expense | 36,595 |
| | 34,942 |
|
Interest expense and net change in fair value of derivative financial instruments | 16,369 |
| | 14,090 |
|
Other income | (15 | ) | | (26 | ) |
NOI | $ | 67,823 |
| | $ | 61,715 |
|
Straight-line rent adjustments, net | (2,019 | ) | | (2,100 | ) |
Amortization of below and above market leases/leasehold interests, net | 580 |
| | 668 |
|
Lease termination fees | (11 | ) | | (13 | ) |
Cash NOI | $ | 66,373 |
| | $ | 60,270 |
|
Notes receivable interest income | — |
| | (781 | ) |
Non Same-Property Cash NOI | (9,377 | ) | | (4,161 | ) |
Same-Property Cash NOI (1) | $ | 56,996 |
| | $ | 55,328 |
|
| | | |
(1) Same-Property includes 268 buildings for the three months ended March 31, 2015 and 2014. |
Liquidity and Capital Resources
Our primary sources of cash include: (i) cash flow from operations; (ii) borrowings under our Unsecured Credit Agreement; and (iii) proceeds from the issuances of debt and equity securities. During the next 12 months our primary uses of cash are expected to include: (i) acquisitions of MOBs and other facilities that serve the healthcare industry; (ii) capital expenditures; (iii) the payment of operating expenses; (iv) debt service payments including principal payments; and (v) paying dividends to our stockholders. We anticipate cash flow from operations, restricted cash and reserve accounts and our Unsecured Credit Agreement, if needed, will be sufficient to fund our operating expenses, capital expenditures and dividends to stockholders. Acquisitions and maturing indebtedness may require funds from the issuance of debt and/or equity securities.
As of March 31, 2015, we had liquidity of $856.0 million, including $842.5 million available on our Unsecured Credit Agreement (includes the impact of $5.5 million of outstanding letters of credit) and $13.5 million of cash and cash equivalents.
As of March 31, 2015, $256.6 million was available for issuance under our $300.0 million ATM program. In addition, we had unencumbered properties with a gross book value of $2.6 billion. The unencumbered properties may be used as collateral to secure additional financings in future periods or refinance our current debt as it becomes due. Our ability to raise funds from future debt and equity issuances is dependent on our investment grade credit ratings, general economic and market conditions and our operating performance.
When we acquire a property, we prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs. As of March 31, 2015, we estimate that our expenditures for capital improvements for the remainder of 2015 will range from $15 million to $20 million depending on leasing activity. As of March 31, 2015, we had $9.5 million of restricted cash and reserve accounts for such capital expenditures. We cannot provide assurance, however, that we will not exceed these estimated expenditure levels.
If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewal leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of our leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs.
Cash Flows
The following is a summary of our cash flows for the three months ended March 31, 2015 and 2014 (in thousands):
|
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2015 | | 2014 | | Change |
Cash and cash equivalents - beginning of period | $ | 10,413 |
| | $ | 18,081 |
| | $ | (7,668 | ) |
Net cash provided by operating activities | 37,195 |
| | 33,449 |
| | 3,746 |
|
Net cash used in investing activities | (42,145 | ) | | (5,966 | ) | | (36,179 | ) |
Net cash provided by (used in) financing activities | 8,054 |
| | (18,205 | ) | | 26,259 |
|
Cash and cash equivalents - end of period | $ | 13,517 |
| | $ | 27,359 |
| | $ | (13,842 | ) |
Net cash provided by operating activities increased in 2015 primarily due to the impact of our 2014 and 2015 acquisitions. We anticipate cash flows from operating activities to increase as a result of contractual rent increases and continued leasing activity in our existing portfolio and as we continue to acquire more properties.
For the three months ended March 31, 2015, net cash used in investing activities primarily related to the acquisition of real estate operating properties of $35.3 million and capital expenditures of $6.5 million. For the three months ended March 31, 2014, net cash used in investing activities primarily related to capital expenditures of $5.6 million. We anticipate cash flows used in investing activities to increase as we continue to acquire more properties.
For the three months ended March 31, 2015, net cash provided by financing activities primarily related to net borrowings of $66.0 million on our Unsecured Credit Agreement, partially offset by dividends to holders of our common stock of $36.3 million and payments on our mortgage and term loans of $20.0 million. For the three months ended March 31, 2014, net cash used in financing activities primarily related to dividends to holders of our common stock of $34.1 million and payments on our mortgage loans of $1.9 million, partially offset by net borrowings on our Unsecured Credit Agreement of $20.0 million.
Dividends
The amount of dividends HTA pays to its stockholders is determined by its Board of Directors, in its sole discretion, and is dependent on a number of factors, including funds available, our financial condition, capital expenditure requirements and annual dividend distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended. HTA has paid dividends monthly or quarterly since February 2007, and if our investments produce sufficient cash flow, we expect to continue to pay dividends to our stockholders. Because our cash available for dividend distributions in any year may be less than 90% of our taxable income for the year, we may obtain the necessary funds through borrowings, issuing new securities or selling assets to pay out enough of our taxable income to satisfy our dividend distribution requirement. HTA’s organizational documents do not establish a limit on dividends that may constitute a return of capital for federal income tax purposes. The dividend HTA pays to its stockholders is equal to the distributions received from HTALP in accordance with the terms of HTALP’s partnership agreement. It is HTA’s intention to continue to pay dividends. However, HTA’s Board of Directors may reduce our dividend rate and HTA cannot guarantee the timing and amount of dividends that it may pay in the future, if any.
For the three months ended March 31, 2015, HTA paid cash dividends of $36.3 million. In April 2, 2015, HTA paid cash dividends of $36.3 million for the quarter ended March 31, 2015. On May 5, 2015, HTA’s Board of Directors authorized a quarterly cash dividend of $0.29 per share to be paid on July 3, 2015 to stockholders of record on June 26, 2015.
Financing
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. As of March 31, 2015, our leverage ratio of debt to capitalization was 29.2%.
As of March 31, 2015, we had debt outstanding of $1.5 billion and the weighted average interest rate was 3.63% per annum, inclusive of the impact of our interest rate swaps. The following is a summary of our unsecured and secured debt. See Note 6 to our accompanying condensed consolidated financial statements, for a further discussion of our debt.
Unsecured Revolving Credit Facility
As of March 31, 2015, $807.5 million was available on our unsecured revolving credit facility. Our unsecured revolving credit facility matures in January 2020. On February 11, 2015, we executed an amendment to the Unsecured Credit Agreement which added an additional lender and increased the amount available under the unsecured revolving credit facility by $50.0 million to total of $850.0 million. The other existing terms of the Unsecured Credit Agreement were unchanged.
Unsecured Term Loans
As of March 31, 2015, we had $420.0 million of unsecured term loans outstanding comprised of a $265.0 million term loan under our Unsecured Credit Agreement and a $155.0 million term loan, both maturing in 2019. During the three months ended March 31, 2015, we borrowed an additional $65.0 million on our term loan under our Unsecured Credit Agreement, and we may borrow an additional $35.0 million through May 2015. The $265.0 million term loan includes a one-year extension, at the option of the borrower, subject to certain conditions.
Unsecured Senior Notes
As of March 31, 2015, we have $300.0 million of unsecured senior notes that mature in July 2021 and $300.0 million of unsecured senior notes that mature in April 2023.
Mortgage Loans
During the three months ended March 31, 2015, we made payments of $20.0 million on our mortgage loans and we have $53.8 million of principal payments due on currently outstanding indebtedness during the remainder of 2015.
Commitments and Contingencies
See Note 8 to our accompanying condensed consolidated financial statements for a further discussion of our commitments and contingencies.
Debt Service Requirements
We are required by the terms of our applicable loan agreements to meet certain financial covenants, such as minimum net worth and liquidity, and reporting requirements, among others. As of March 31, 2015, we believe that we were in compliance with all such covenants and we are not aware of any covenants that it is reasonably likely that we would not be able to meet.
Off-Balance Sheet Arrangements
As of and during the three months ended March 31, 2015, we had no off-balance sheet arrangements.
Inflation
We are exposed to inflation risk as income from future long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that protect us from the impact of normal inflation. These provisions include rent escalations, reimbursement billings for operating expense pass-through charges and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of our leases, among other factors, the leases may not reset frequently enough to cover inflation.
Federal Income Tax Changes and Updates for Incorporation in Existing Registration Statements
The following discussion updates the disclosures under “Material U.S. Federal Income Tax Considerations” in the prospectus dated December 21, 2012 contained in our Registration Statement on Form S-3 filed with the SEC on December 24, 2012, and in our other registration statements into which this Quarterly Report on Form 10-Q is incorporated by reference.
The discussion under the heading “Additional U.S. Federal Income Tax Withholding Rules” is replaced in its entirety with the following:
“Sections 1471 through 1474 of the Code and the Treasury regulations promulgated thereunder (commonly referred to as “FATCA”) generally impose a 30% withholding tax on U.S. source dividends and, beginning January 1, 2017, gross proceeds from the sale or other disposition of stock or property that is capable of producing U.S. source dividends paid to (i) a foreign financial institution (as defined in Section 1471(d)(4) of the Code) unless such foreign financial institution agrees, pursuant to an agreement with the U.S. Treasury Department or otherwise, to collect and disclose certain information regarding its direct and indirect U.S. owners (which, for this purpose, can include certain debt and equity holders of such foreign financial institution as well as the direct and indirect owners of financial accounts maintained by such institution) and satisfies certain other requirements, and (ii) certain other non-U.S. entities unless such entities provide the payor with information regarding certain direct and indirect U.S. owners of the entity, or certify that they have no such U.S. owners, and comply with certain other requirements. Withholding under FATCA is imposed on payments to foreign financial