10-Q 1 form10-q.htm 10-Q SEC Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 000-55201
Healthcare Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland
  
38-3888962
(State or other  jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
405 Park Ave., 14th Floor, New York, NY      
  
10022
(Address of principal executive offices)
  
(Zip Code)
(212) 415-6500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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. Yes x No o
Indicate by check mark whether the registrant 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
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 definition of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of April 30, 2016, the registrant had 87,204,088 shares of common stock outstanding.


HEALTHCARE TRUST, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


Part I — FINANCIAL INFORMATION
Item 1. Financial Statements.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)



 
 
March 31,
 
December 31,
 
 
2016
 
2015
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Real estate investments, at cost:
 
 
 
 
Land
 
$
192,790

 
$
192,790

Buildings, fixtures and improvements
 
1,887,134

 
1,885,713

Construction in progress
 
27,180

 
21,309

Acquired intangible assets
 
241,459

 
241,459

Total real estate investments, at cost
 
2,348,563

 
2,341,271

Less: accumulated depreciation and amortization
 
(171,672
)
 
(146,669
)
Total real estate investments, net
 
2,176,891

 
2,194,602

Cash and cash equivalents
 
36,509

 
24,474

Restricted cash
 
4,299

 
4,647

Investment securities, at fair value
 
1,070

 
1,078

Straight-line rent receivable, net
 
13,927

 
11,470

Prepaid expenses and other assets
 
22,237

 
21,707

Deferred costs, net
 
11,094

 
11,864

Total assets
 
$
2,266,027

 
$
2,269,842

LIABILITIES AND EQUITY
 
 
 
 
Mortgage notes payable, net of deferred financing costs
 
$
152,803

 
$
157,305

Mortgage premiums and discounts, net
 
1,889

 
2,403

Credit facility
 
460,000

 
430,000

Market lease intangible liabilities, net
 
22,355

 
22,994

Accounts payable and accrued expenses (including $781 and $536 due to related parties as of March 31, 2016 and December 31, 2015, respectively)
 
29,303

 
38,449

Deferred rent
 
4,740

 
4,356

Distributions payable
 
12,521

 
12,518

Total liabilities
 
683,611

 
668,025

Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding as of March 31, 2016 and December 31, 2015
 

 

Common stock, $0.01 par value, 300,000,000 shares authorized, 86,933,798 and 86,135,411 shares of common stock issued and outstanding as of March 31, 2016 and December 31, 2015, respectively
 
869

 
861

Additional paid-in capital
 
1,926,513

 
1,907,549

Accumulated other comprehensive income (loss)
 
(13
)
 
(6
)
Accumulated deficit
 
(354,472
)
 
(316,284
)
Total stockholders' equity
 
1,572,897

 
1,592,120

Non-controlling interests
 
9,519

 
9,697

Total equity
 
1,582,416

 
1,601,817

Total liabilities and equity
 
$
2,266,027

 
$
2,269,842

The accompanying notes are an integral part of these consolidated financial statements.

3

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except for share and per share data)
(Unaudited)



 
 
Three Months Ended March 31,
 
 
2016
 
2015
Revenues:
 
 
 
 
Rental income
 
$
26,592

 
$
20,856

Operating expense reimbursements
 
3,709

 
3,130

Resident services and fee income
 
45,202

 
33,135

Contingent purchase price consideration
 
6

 

Total revenues
 
75,509

 
57,121

 
 
 
 
 
Expenses:
 
 
 
 
Property operating and maintenance
 
38,792

 
27,477

Operating fees to related parties
 
5,155

 

Acquisition and transaction related
 
42

 
1,999

General and administrative
 
3,987

 
2,599

Depreciation and amortization
 
24,615

 
29,448

Total expenses
 
72,591

 
61,523

Operating income (loss)
 
2,918

 
(4,402
)
Other income (expense):
 
 
 
 
Interest expense
 
(4,984
)
 
(1,373
)
Interest and other income
 
22

 
273

Gain on sale of investment securities
 

 
286

Total other expenses
 
(4,962
)
 
(814
)
Loss before income tax and non-controlling interests
 
(2,044
)
 
(5,216
)
Income tax benefit (expense)
 
483

 
(29
)
Net loss
 
(1,561
)
 
(5,245
)
Net loss attributable to non-controlling interests
 
6

 
25

Net loss attributable to stockholders
 
(1,555
)
 
(5,220
)
 
 
 
 
 
Other comprehensive loss:
 
 
 
 
Unrealized gain (loss) on investment securities, net
 
(7
)
 
45

Comprehensive loss attributable to stockholders
 
$
(1,562
)
 
$
(5,175
)
 
 
 
 
 
Basic and diluted weighted-average shares outstanding
 
86,658,678

 
84,250,503

Basic and diluted net loss per share
 
$
(0.02
)
 
$
(0.06
)
Distributions declared per share
 
$
0.42

 
$
0.42


The accompanying notes are an integral part of these unaudited consolidated financial statements.


4

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 2016
(In thousands, except for share data)
(Unaudited)



 
Common Stock
 
 
 
Accumulated Other Comprehensive Income
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Additional
Paid-in
Capital
 
 
Accumulated Deficit
 
Total Stockholders' Equity
 
Non-controlling Interests
 
Total Equity
Balance, December 31, 2015
86,135,411

 
$
861

 
$
1,907,549

 
$
(6
)
 
$
(316,284
)
 
$
1,592,120

 
$
9,697

 
$
1,601,817

Common stock issued through distribution reinvestment plan
805,047

 
8

 
19,112

 

 

 
19,120

 

 
19,120

Common stock repurchases
(6,660
)
 

 
(163
)
 

 

 
(163
)
 

 
(163
)
Equity-based compensation, net

 

 
15

 

 

 
15

 

 
15

Distributions declared

 

 

 

 
(36,633
)
 
(36,633
)
 

 
(36,633
)
Distributions to non-controlling interest holders

 

 

 

 

 

 
(172
)
 
(172
)
Unrealized loss on investments

 

 

 
(7
)
 

 
(7
)
 

 
(7
)
Net loss

 

 

 

 
(1,555
)
 
(1,555
)
 
(6
)
 
(1,561
)
Balance, March 31, 2016
86,933,798

 
$
869

 
$
1,926,513

 
$
(13
)
 
$
(354,472
)
 
$
1,572,897

 
$
9,519

 
$
1,582,416


The accompanying notes are an integral part of this unaudited consolidated financial statement.


5

HEALTHCARE TRUST, INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
 
Three Months Ended March 31,
 
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(1,561
)
 
$
(5,245
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
24,615

 
29,448

Amortization of deferred financing costs
 
1,139

 
480

Amortization of mortgage premiums and discounts, net
 
(514
)
 
(332
)
Amortization of market lease and other intangibles, net
 
27

 
17

Bad debt expense
 
386

 
667

Equity-based compensation
 
15

 
1

Gain on sale of investment securities
 

 
(286
)
Changes in assets and liabilities:
 
 
 
 
Straight-line rent receivable
 
(3,161
)
 
(2,409
)
Prepaid expenses and other assets
 
1,699

 
(1,430
)
Accounts payable, accrued expenses and other liabilities
 
2,707

 
2,796

Deferred rent
 
384

 
1,032

Restricted cash
 
348

 
(208
)
Net cash provided by operating activities
 
26,084

 
24,531

Cash flows from investing activities:
 
 
 
 
Investments in real estate
 
(5,872
)
 
(90,553
)
Deposits paid for unconsummated acquisitions
 
(2,000
)
 
(2,025
)
Capital expenditures
 
(1,813
)
 
(1,088
)
Purchases of investment securities
 

 
(49
)
Proceeds from sales of investment securities
 

 
4,207

Net cash used in investing activities
 
(9,685
)
 
(89,508
)
Cash flows from financing activities:
 
 
 
 

Proceeds from credit facility
 
30,000

 

Payments of mortgage notes payable
 
(4,664
)
 
(286
)
Payments of deferred financing costs
 
(3
)
 
(594
)
Proceeds from issuance of common stock
 

 
6

Common stock repurchases
 
(12,015
)
 
(1,292
)
Payments of offering costs and fees related to common stock issuances
 

 
(629
)
Distributions paid
 
(17,510
)
 
(16,009
)
Distributions to non-controlling interest holders
 
(172
)
 
(178
)
Net cash used in financing activities
 
(4,364
)
 
(18,982
)
Net change in cash and cash equivalents
 
12,035

 
(83,959
)
Cash and cash equivalents, beginning of period
 
24,474

 
182,617

Cash and cash equivalents, end of period
 
$
36,509

 
$
98,658


6

HEALTHCARE TRUST, INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
 
Three Months Ended March 31,
 
 
2016
 
2015
Supplemental disclosures of cash flow information:
 
 
 
 
Cash paid for interest
 
$
4,543

 
$
1,229

Cash paid for taxes
 

 
44

 
 
 
 
 
Non-cash investing and financing activities:
 
 
 
 
Accrued repurchases included in accounts payable and accrued expenses
 
$
163

 
$
1,678

Assumption of mortgage notes payable used to acquire investments in real estate
 

 
31,536

Premiums on assumed mortgage notes payable
 

 
2,536

Common stock issued through distribution reinvestment plan
 
19,120

 
19,235


The accompanying notes are an integral part of these unaudited consolidated financial statements.


7

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)


Note 1 — Organization
Healthcare Trust, Inc. (including, as required by context, Healthcare Trust Operating Partnership, LP (the "OP") and its subsidiaries, the "Company") invests in healthcare real estate, such as seniors housing and medical office buildings ("MOB"), located in the United States for investment purposes. As of March 31, 2016, the Company owned 166 properties located in 29 states and comprised of 8.5 million rentable square feet.
The Company, which was incorporated on October 15, 2012, is a Maryland corporation that elected and qualified to be taxed as a real estate investment trust for U.S. federal income tax purposes ("REIT") beginning with its taxable year ended December 31, 2013. Substantially all of the Company's business is conducted through the OP.
In February 2013, the Company commenced its initial public offering (the "IPO") on a "reasonable best efforts" basis of up to $1.7 billion of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts. The Company closed its IPO in November 2014. As of March 31, 2016, the Company had received $2.2 billion from its IPO including proceeds received under the distribution reinvestment plan ("DRIP").
In 2015, the Company’s board of directors determined that it was in the Company’s best interest to evaluate strategic alternatives, including a listing on a national securities exchange. The Company's board of directors, led by its independent directors, announced in April 2016 that it had initiated a strategic review process to identify, examine, and consider a range of strategic alternatives available to the Company with the objective of maximizing shareholder value. See Note 16 — Subsequent Events — Review of Strategic Alternatives.
On April 11, 2016 (the "NAV Pricing Date"), the Company's board of directors approved an estimate of per share net asset value ("NAV"). Subsequent valuations will occur periodically, at the discretion of the Company's board of directors, provided that such calculations will be made at least annually. Pursuant to the DRIP, the Company's stockholders can elect to reinvest distributions by purchasing shares of the Company's common stock. Prior to the NAV Pricing Date, the Company offered shares pursuant to the DRIP at $23.75 per share, which was 95% of the initial offering price of shares of common stock in the IPO. Effective April 11, 2016, the Company began offering shares pursuant to the DRIP at the then-current NAV approved by the Company's board of directors (see Note 8 — Common Stock).
The Company has no employees. Healthcare Trust Advisors, LLC (the "Advisor") has been retained by the Company to manage the Company's affairs on a day-to-day basis. The Company has retained Healthcare Trust Properties, LLC (the "Property Manager") to serve as the Company's property manager. The Advisor and Property Manager are under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"), the parent of the Company's sponsor, American Realty Capital VII, LLC (the "Sponsor"), as a result of which they are related parties, and each have received or will receive compensation, fees and expense reimbursements from the Company for services related to managing its business. The Advisor, Healthcare Trust Special Limited Partnership, LLC (the "Special Limited Partner") and Property Manager also have received or will receive compensation, fees and expense reimbursements related to the investment and management of the Company's assets.
Note 2 — Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results for the entire year or any subsequent interim period.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2015, which are included in the Company's Annual Report on Form 10-K filed with the SEC on March 11, 2016. There have been no significant changes to the Company's significant accounting policies during the three months ended March 31, 2016 other than the updates described below.

8

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Reclassifications
Certain prior year amounts within rental income, resident services and fee income, cash flows from operating activities and cash flows from financing activities have been reclassified to conform with the current year presentation.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and consolidated joint venture arrangements in which the Company has controlling financial interests. The portions of the consolidated joint venture arrangements not owned by the Company are presented as non-controlling interests as of and during the period consolidated. All inter-company accounts and transactions have been eliminated in consolidation.
The Company evaluates its relationships and investments to determine if it has variable interests. A variable interest is an investment or other interest that will absorb portions of an entity's expected losses or receive portions of the entity's expected residual returns. If the Company determines that it has a variable interest in an entity, it evaluates whether such interest is in a variable interest entity ("VIE"). A VIE is broadly defined as an entity where either (1) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity's economic performance or (2) the equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support. The Company consolidates any VIEs when it is determined to be the primary beneficiary of the VIE's operations.
A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity's economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. Consideration of various factors include, but are not limited to, the Company's ability to direct the activities that most significantly impact the entity's economic performance, its form of ownership interest, its representation on the entity's governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions and to replace the manager of and/or liquidate the entity.
The Company continually evaluates the need to consolidate joint ventures based on standards set forth in GAAP. In determining whether the Company has a controlling interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, power to make decisions and contractual and substantive participating rights of the partners/members as well as whether the entity is a VIE for which the Company is the primary beneficiary.
The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company's assets and liabilities are held by the OP.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance was to become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. In July 2015, the FASB deferred the effective date of the revised guidance by one year to annual reporting periods beginning after December 15, 2017, although entities will be allowed to early adopt the guidance as of the original effective date. The Company has not yet selected a transition method and is currently evaluating the impact of this new guidance.
In January 2015, the FASB issued updated guidance that eliminates from GAAP the concept of an event or transaction that is unusual in nature and occurs infrequently being treated as an extraordinary item. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Any amendments may be applied either prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption was permitted provided that the guidance was applied from the beginning of the fiscal year of adoption. The Company elected to adopt this new guidance as of September 30, 2015. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations and cash flows.

9

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted, including adoption in an interim period. The Company has elected to adopt this guidance effective January 1, 2016. The Company has evaluated the impact of the adoption of this new guidance on its consolidated financial statements and has determined that the OP is considered a VIE. However, the Company meets the disclosure exemption criteria as the Company is the primary beneficiary of the VIE and the Company’s partnership interest in a business and the assets of the OP can be used for purposes other than settling its obligations, such as paying distributions. As such, this standard did not have a material impact on the Company's consolidated financial statements.
In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendment requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB added that, for line of credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line, regardless of whether or not there are any outstanding borrowings. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted for financial statements that have not previously been issued. The Company has elected to adopt this guidance effective January 1, 2016. The adoption of this revised guidance resulted in the reclassification of $2.0 million and $2.2 million of deferred financing costs related to the Company's mortgage notes payable from deferred costs, net to mortgage notes payable, net of deferred financing costs in the Company's consolidated balance sheets as of March 31, 2016 and December 31, 2015, respectively.
In September 2015, the FASB issued an update that eliminates the requirement to adjust provisional amounts from a business combination and the related impact on earnings by restating prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of measurement period adjustments on current and prior periods, including the prior period impact on depreciation, amortization and other income statement items and their related tax effects, shall be recognized in the period the adjustment amount is determined. The cumulative adjustment would be reflected within the respective financial statement line items affected. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted. The Company elected to adopt this guidance as of September 30, 2015. The adoption of this guidance did not have a material impact to the Company's financial position, results of operations and cash flows.
In January 2016, the FASB issued an update that amends the recognition and measurement of financial instruments. The new guidance revises an entity’s accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update. The Company is currently evaluating the impact of this new guidance.
In February 2016, the FASB issued an update that sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The revised guidance is effective on January 1, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
In March 2016, the FASB issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.

10

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

In March 2016, the FASB issued an update that changes the accounting for certain aspects of share-based compensation. Among other things, the revised guidance allows companies to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company has adopted the provisions of this guidance beginning January 1, 2016 and determined that there is no impact to the Company’s consolidated financial position, results of operations and cash flows.
Note 3 — Real Estate Investments
The Company owned 166 properties as of March 31, 2016. The Company invests in medical office buildings ("MOB"), seniors housing communities and other healthcare-related facilities primarily to expand and diversify its portfolio and revenue base. The following table presents the allocation of the assets acquired during the three months ended March 31, 2016 and 2015.
 
 
Three Months Ended March 31,
(Dollar amounts in thousands)
 
2016
 
2015
Real estate investments, at cost:
 
 
 
 
Land
 
$

 
$
15,892

Buildings, fixtures and improvements
 

 
102,168

Construction in progress
 
5,872

 

Total tangible assets
 
5,872

 
118,060

Acquired intangibles:
 
 
 
 
In-place leases
 

 
14,286

Market lease liabilities
 

 
(4,722
)
Total assets and liabilities acquired, net
 
5,872

 
127,624

Mortgage notes payable assumed to acquire real estate investments
 

 
(31,536
)
Premiums on mortgages assumed
 

 
(2,535
)
Deposits for real estate acquisitions
 

 
(3,000
)
Cash paid for acquired real estate investments
 
$
5,872

 
$
90,553

Number of properties purchased
 

 
10

Acquired intangible assets and liabilities consisted of the following as of the periods presented:
 
 
March 31, 2016
 
December 31, 2015
(In thousands)
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
In-place leases
 
$
202,608

 
$
91,868

 
$
110,740

 
$
202,608

 
$
82,390

 
$
120,218

Intangible market lease assets
 
28,262

 
4,013

 
24,249

 
28,262

 
3,393

 
24,869

Other intangible assets
 
10,589

 
375

 
10,214

 
10,589

 
309

 
10,280

Total acquired intangible assets
 
$
241,459

 
$
96,256

 
$
145,203

 
$
241,459

 
$
86,092

 
$
155,367

Intangible market lease liabilities
 
$
25,613

 
$
3,258

 
$
22,355

 
$
25,613

 
$
2,619

 
$
22,994


11

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

For the three months ended March 31, 2016 and 2015, amortization of in-place leases and other intangible assets of $9.5 million and $18.3 million, respectively, is included in depreciation and amortization expense on the consolidated statements of operations and comprehensive loss. For the three months ended March 31, 2016 and 2015, net amortization of intangible market lease assets and liabilities relating to assumed tenant leases of $0.1 million and approximately $38,000, respectively, is deducted from rental income on the consolidated statements of operations and comprehensive loss. For the three months ended March 31, 2016 and 2015, net amortization of intangible market lease assets and liabilities related to assumed leasehold interests of approximately $43,000 and $0.1 million, respectively, is included in property operating and maintenance expense on the consolidated statements of operations and comprehensive loss.
The following table provides the projected amortization expense and adjustments to revenues for the next five years:
(In thousands)
 
April 1, 2016 — December 31, 2016
 
2017
 
2018
 
2019
 
2020
In-place lease assets
 
$
25,037

 
$
16,322

 
$
14,031

 
$
11,465

 
$
9,106

Other intangible assets
 
199

 
265

 
265

 
265

 
265

Total to be added to amortization expense
 
$
25,236

 
$
16,587

 
$
14,296

 
$
11,730

 
$
9,371

 
 
 
 
 
 
 
 
 
 
 
Above-market lease assets
 
$
(1,642
)
 
$
(1,888
)
 
$
(1,367
)
 
$
(1,079
)
 
$
(737
)
Below-market lease liabilities
 
1,801

 
2,115

 
1,886

 
1,605

 
1,450

Total to be added to rental income
 
$
159

 
$
227

 
$
519

 
$
526

 
$
713

 
 
 
 
 
 
 
 
 
 
 
Below-market ground lease assets
 
$
159

 
$
212

 
$
212

 
$
212

 
$
212

Above-market ground lease liabilities
 
(30
)
 
(39
)
 
(39
)
 
(39
)
 
(39
)
Total to be added to property operating and maintenance expense
 
$
129

 
$
173

 
$
173

 
$
173

 
$
173

The following table presents future minimum base rental cash payments due to the Company over the next five years and thereafter as of March 31, 2016.  These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes, among other items.
(In thousands)
 
Future Minimum
Base Rent Payments
April 1, 2016 — December 31, 2016
 
$
71,180

2017
 
94,720

2018
 
89,971

2019
 
83,871

2020
 
77,696

Thereafter
 
511,921

Total
 
$
929,359


12

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

As of March 31, 2016 and 2015, the Company did not have any tenants (including for this purpose, all affiliates of such tenants) whose annualized rental income on a straight-line basis represented 10% or greater of total annualized rental income for the portfolio on a straight-line basis.
The following table lists the states where the Company had concentrations of properties where annualized rental income on a straight-line basis represented 10% or more of consolidated annualized rental income on a straight-line basis for all properties as of March 31, 2016 and 2015:
 
 
March 31,
State
 
2016
 
2015
Florida
 
18.7%
 
23.6%
Iowa
 
10.1%
 
13.0%
Pennsylvania
 
11.7%
 
14.3%
Note 4 — Investment Securities
As of March 31, 2016 and December 31, 2015, the Company had investment securities with an aggregate fair value of $1.1 million. These investments are considered available-for-sale securities and, therefore, increases or decreases in the fair value of these investments are recorded in accumulated other comprehensive income as a component of equity on the consolidated balance sheets unless the securities are considered to be other than temporarily impaired, at which time the losses would be reclassified to expense.
The following table details the unrealized gains and losses on investment securities as of March 31, 2016 and December 31, 2015:
(In thousands)
 
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
March 31, 2016
 
 
 
 
 
 
 
 
Equity securities
 
$
1,084

 
$
11

 
$
(25
)
 
$
1,070

December 31, 2015
 
 
 
 
 
 
 
 
Equity securities
 
$
1,084

 
$
19

 
$
(25
)
 
$
1,078

The Company's investments in preferred stock have not been in a continuous unrealized loss position during the last twelve months. The Company believes that the decline in fair value is a factor of current market conditions and, as such, considers the unrealized losses as of March 31, 2016 to be temporary. Therefore no impairment was recorded during the three months ended March 31, 2016.
During the three months ended March 31, 2015, the Company sold certain of its investments in preferred stock and its investment in a senior note with a cost of $3.9 million for $4.2 million which resulted in a realized gain on sale of investment of $0.3 million. No investment securities were sold by the Company during the three months ended March 31, 2016.
The Company's preferred stock investments, with an aggregate fair value of $1.1 million as of March 31, 2016, are redeemable at the respective issuer's option five years after issuance.
Note 5 — Revolving Credit Facility
On March 21, 2014, the Company entered into a senior secured credit facility in the amount of $50.0 million (the "Credit Facility"). On April 15, 2014 the amount available under the Credit Facility was increased to $200.0 million.
On June 26, 2015, the Company entered into an amendment to the Credit Facility which, among other things, allowed for borrowings of up to $500.0 million. On July 31, 2015, the available borrowings were increased to $565.0 million. The Credit Facility also contains a subfacility for letters of credit of up to $25.0 million. The Credit Facility contains an "accordion" feature to allow the Company, under certain circumstances, to increase the aggregate borrowings under the Credit Facility to a maximum of $750.0 million.

13

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The Company has the option, based upon its leverage, to have the Credit Facility priced at either: (a) LIBOR, plus an applicable margin that ranges from 1.60% to 2.20%; or (b) the Base Rate, plus an applicable margin that ranges from 0.35% to 0.95%. Base Rate is defined in the Credit Facility as the greater of (i) the fluctuating annual rate of interest announced from time to time by the lender as its “prime rate,” (ii) 0.5% above the federal funds effective rate or (iii) the applicable one-month LIBOR plus 1.0%.
The Credit Facility provides for monthly interest payments for each Base Rate loan and periodic payments for each LIBOR loan, based upon the applicable LIBOR loan period, with all principal outstanding being due on the maturity date of March 21, 2019. The Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty (subject to standard breakage costs). In the event of a default, the lender has the right to terminate its obligations under the Credit Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans.
As of March 31, 2016, the balance outstanding under the Credit Facility was $460.0 million, with an effective interest rate of 2.7%. The Company's unused borrowing capacity was $105.0 million, based on assets assigned to the Credit Facility as of March 31, 2016. Availability of borrowings is based on a pool of eligible unencumbered real estate assets. There was $430.0 million in advances outstanding as of December 31, 2015.
The Credit Facility requires the Company to meet certain financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) as well as the maintenance of a minimum net worth. As of March 31, 2016, the Company was in compliance with the financial covenants under the Credit Facility.
Note 6 — Mortgage Notes Payable
The following table reflects the Company's mortgage notes payable as of March 31, 2016 and 2015:
 
 
 
 
Outstanding Loan Amount as of
 
Effective Interest Rate
 
 
 
 
Portfolio
 
Encumbered Properties
 
March 31, 2016
 
December 31, 2015
 
 
Interest Rate
 
Maturity
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
Bowie Gateway Medical Center - Bowie, MD
 
1
 
$
5,946

 
$
5,969

 
6.18
%
 
Fixed
 
Sep. 2016
Medical Center of New Windsor - New Windsor, NY
 
1
 
8,691

 
8,720

 
6.39
%
 
Fixed
 
Sep. 2017
Plank Medical Center - Clifton Park, NY
 
1
 
3,449

 
3,461

 
6.39
%
 
Fixed
 
Sep. 2017
Cushing Center - Schenectady, NY
 
 

 
4,184

 
5.71
%
 
Fixed
 
Feb. 2016
Countryside Medical Arts - Safety Harbor, FL
 
1
 
5,970

 
5,992

 
6.07
%
 
Fixed
(1) 
Apr. 2019
St. Andrews Medical Park - Venice, FL
 
3
 
6,599

 
6,623

 
6.07
%
 
Fixed
(1) 
Apr. 2019
Campus at Crooks & Auburn Building C - Rochester Hills, MI
 
1
 
3,537

 
3,555

 
5.91
%
 
Fixed
 
Apr. 2016
Slingerlands Crossing Phase I - Bethlehem, NY
 
1
 
6,657

 
6,680

 
6.39
%
 
Fixed
 
Sep. 2017
Slingerlands Crossing Phase II - Bethlehem, NY
 
1
 
7,751

 
7,777

 
6.39
%
 
Fixed
 
Sep. 2017
Benedictine Cancer Center - Kingston, NY
 
1
 
6,788

 
6,811

 
6.39
%
 
Fixed
 
Sep. 2017
Aurora Healthcare Center Portfolio - WI
 
6
 
31,157

 
31,257

 
6.55
%
 
Fixed
 
Jan. 2018
Palm Valley Medical Plaza - Goodyear, AZ
 
1
 
3,501

 
3,525

 
4.21
%
 
Fixed
 
Jun. 2023
Medical Center V - Peoria, AZ
 
1
 
3,212

 
3,232

 
4.75
%
 
Fixed
 
Sep. 2023
Courtyard Fountains - Gresham, OR
 
1
 
24,999

 
24,999

 
3.82
%
 
Fixed
(2) 
Jan. 2020
Fox Ridge Bryant - Bryant, AR
 
1
 
7,794

 
7,825

 
3.98
%
 
Fixed
 
May 2047
Fox Ridge Chenal - Little Rock, AR
 
1
 
17,735

 
17,800

 
3.98
%
 
Fixed
 
May 2049
Fox Ridge North Little Rock - North Little Rock, AR
 
1
 
11,005

 
11,045

 
3.98
%
 
Fixed
 
May 2047
Gross mortgage notes payable
 
23
 
154,791

 
159,455

 
5.31
%
(3) 
 
 
 
Deferred financing costs, net of accumulated amortization
 
 
 
(1,988
)
 
(2,150
)
 
 
 
 
 
 
Mortgage notes payable, net of deferred financing costs
 
 
 
$
152,803

 
$
157,305

 
 
 
 
 
 
_______________
(1)    Fixed interest rate through May 10, 2017. Interest rate changes to variable rate starting in June 2017.
(2)    Interest only payments through July 1, 2016. Principal and interest payments starting in August 2016.
(3)    Calculated on a weighted average basis for all mortgages outstanding as of March 31, 2016.

14

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

As of March 31, 2016, the Company had pledged $279.3 million in real estate as collateral for these mortgage notes payable. This real estate is not available to satisfy other debts and obligations unless first satisfying the mortgage notes payable on the properties. Except as noted above, the Company makes payments of principal and interest on all of its mortgage notes payable on a monthly basis.
The following table summarizes the scheduled aggregate principal payments on mortgage notes payable for the five years subsequent to March 31, 2016:
(In thousands)
 
Future Principal
Payments
April 1, 2016 — December 31, 2016
 
$
10,986

2017
 
34,832

2018
 
31,893

2019
 
13,324

2020
 
24,279

Thereafter
 
39,477

Total
 
$
154,791

Some of the Company's mortgage note agreements require the compliance with certain property-level financial covenants including debt service coverage ratios. As of March 31, 2016, the Company was in compliance with the financial covenants under its mortgage note agreements.
Note 7 — Fair Value of Financial Instruments
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair value. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 — Unobservable inputs that reflect the entity's own assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
The Company has or had investments in common stock, redeemable preferred stock, real estate income funds and a senior note that are traded in active markets and therefore, due to the availability of quoted market prices in active markets, the Company has classified these investments as Level 1 in the fair value hierarchy.

15

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The following table presents information about the Company's assets measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015, aggregated by the level in the fair value hierarchy within which those instruments fall.
(In thousands)
 
Quoted Prices in Active Markets
Level 1
 
Significant Other Observable Inputs
Level 2
 
Significant Unobservable Inputs
Level 3
 
Total
March 31, 2016
 
 
 
 
 
 
 
 
Investment securities
 
$
1,070

 
$

 
$

 
$
1,070

December 31, 2015
 
 
 
 
 
 
 
 
Investment securities
 
$
1,078

 
$

 
$

 
$
1,078

The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, receivable for sale of common stock, straight-line rent receivable, prepaid expenses and other assets, deferred costs, net, accounts payable and accrued expenses, deferred rent and distributions payable approximates their carrying value on the consolidated balance sheets due to their short-term nature. The fair values of the Company's remaining financial instruments that are not reported at fair value on the consolidated balance sheets are reported below:
 
 
 
 
Carrying
Amount(1) at
 
Fair Value at
 
Carrying
Amount(1) at
 
Fair Value at
(In thousands)
 
Level
 
March 31,
2016
 
March 31,
2016
 
December 31,
2015
 
December 31,
2015
Mortgage notes payable
 
3
 
$
156,680

 
$
159,802

 
$
161,858

 
$
162,654

Credit Facility
 
3
 
$
460,000

 
$
460,000

 
$
430,000

 
$
430,000

_______________________________
(1)
Carrying value includes gross mortgage notes payable of $154.8 million and $159.5 million and mortgage premiums and discounts, net of $1.9 million and $2.4 million as of March 31, 2016 and December 31, 2015, respectively.
The fair value of the mortgage notes payable is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of borrowing arrangements. Advances under the Credit Facility are considered to be reported at fair value, because the Credit Facility's interest rate varies with changes in LIBOR.
Note 8 — Common Stock
As of March 31, 2016 and December 31, 2015, the Company had 86.9 million and 86.1 million shares of common stock outstanding, respectively, including unvested restricted shares and shares issued pursuant to the DRIP and had received total proceeds of $2.2 billion and $2.1 billion, respectively, including proceeds from shares issued pursuant to the DRIP.
In April 2013, the Company's board of directors authorized, and the Company declared, a distribution payable on a monthly basis to stockholders of record on a daily basis at a rate equal to $0.0046575343 per day, which is equivalent to $1.70 per annum, per share of common stock, which began in May 2013. In March 2016, the Company's board of directors ratified the existing distribution amount equivalent to $1.70 per annum, and, for calendar year 2016, affirmed a change to the daily distribution payable to stockholders of record each day during the applicable period to $0.0046448087 per day per share of common stock to accurately reflect that 2016 is a leap year. Distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The Company's board of directors may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.
Share Repurchase Program
The Company's board of directors has adopted a Share Repurchase Program (as amended, the "SRP") which enables stockholders to sell their shares to the Company in limited circumstances. The SRP permits investors to sell their shares back to the Company after they have held them for at least one year, subject to the significant conditions and limitations described below.

16

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Prior to the time that the Company’s shares are listed on a national securities exchange and until the NAV Pricing Date (other than with respect to a repurchase request that is made in connection with a stockholder's death or disability), the repurchase price per share depends on the length of time investors have held such shares, as follows: after one year from the purchase date — the lower of $23.13 or 92.5% of the amount they actually paid for each share; after two years from the purchase date — the lower of $23.75 or 95.0% of the amount they actually paid for each share; after three years from the purchase date — the lower of $24.38 or 97.5% of the amount they actually paid for each share; and after four years from the purchase date — the lower of $25.00 or 100.0% of the amount they actually paid for each share (in each case, as adjusted for any stock distributions, combinations, splits and recapitalizations). In cases of requests for death and disability, the repurchase price will be equal to the price actually paid for each share.
In accordance with the SRP Amendment (described below) and beginning with the NAV Pricing Date, the price per share that the Company will pay to repurchase its shares will be equal to its NAV multiplied by a percentage equal to (i) 92.5%, if the person seeking repurchase has held his or her shares for a period greater than one year and less than two years; (ii) 95.0%, if the person seeking repurchase has held his or her shares for a period greater than two years and less than three years; (iii) 97.5%, if the person seeking repurchase has held his or her shares for a period greater than three years and less than four years; or (iv) 100.0%, if the person seeking repurchase has held his or her shares for a period greater than four years. In cases of requests for death and disability, the repurchase prices will be equal to NAV at the time of repurchase. Subject to limited exceptions, stockholders who redeem their shares of our common stock within the first four months from the date of purchase will be subject to a short-term trading fee of 2% of the aggregate NAV per share of the shares of common stock received.
Repurchases of shares of the Company's common stock, when requested, are at the sole discretion of the board of directors. Until the SRP Amendment (described below), the Company limited the number of shares repurchased during any calendar year to 5% of the weighted average number of shares of common stock outstanding on December 31st of the previous calendar year. In addition, the Company was only authorized to repurchase shares in a given quarter up to the amount of proceeds received from its DRIP in that same quarter.
On January 26, 2016, the Company's board of directors approved and amended the SRP (the "SRP Amendment") to supersede and replace the existing SRP. Under the SRP Amendment, repurchases of shares of the Company's common stock, when requested, are at the sole discretion of the Company's board of directors and generally will be made semiannually (each six-month period ending June 30 or December 31, a “fiscal semester”). Repurchases for any fiscal semester will be limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year, with a maximum for any fiscal year of 5.0% of the weighted average number of shares of common stock outstanding during the previous fiscal year. In addition, the Company is only authorized to repurchase shares in a given fiscal semester up to the amount of proceeds received from its DRIP in that same fiscal semester. If the NAV Pricing Date occurs during any fiscal semester, any repurchase requests received during such fiscal semester will be paid at the applicable NAV then in effect.
When a stockholder requests redemption and the redemption is approved, the Company will reclassify such obligation from equity to a liability based on the settlement value of the obligation. Shares purchased under the SRP will have the status of authorized but unissued shares. The following table reflects the number of shares repurchased cumulatively through March 31, 2016:
 
 
Number of Shares Repurchased
 
Average Price per Share
Cumulative repurchases as of December 31, 2015(1)
 
968,370

 
$
23.72

Three months ended March 31, 2016 (2)
 
6,660

 
24.36

Cumulative repurchases as of March 31, 2016 (1)(2)
 
975,030

 
$
23.73

_____________________________
(1)
Excludes rejected repurchases of 201,367 shares for $4.6 million at an average price per share of $23.04 were unfulfilled. There were no other unfulfilled share repurchases for the period from October 15, 2012 (date of inception) to March 31, 2016.
(2)
Includes additional accrued repurchases consisting of 6,660 shares for $0.2 million at an average repurchase price per share of $24.36, which were completed in April and May 2016. The accrual for these repurchases is reflected in the accounts payable and accrued expenses line of the accompanying consolidated balance sheets. The additional shares will be deducted from the applicable limits of the SRP Amendment when processing share repurchases for the first fiscal semester of 2016.

17

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Distribution Reinvestment Plan
Pursuant to the DRIP, stockholders may elect to reinvest distributions by purchasing shares of common stock in lieu of receiving cash. No dealer manager fees or selling commissions are paid with respect to shares purchased under the DRIP. Participants purchasing shares pursuant to the DRIP have the same rights and are treated in the same manner as if such shares were issued pursuant to the IPO. The board of directors may designate that certain cash or other distributions be excluded from reinvestment pursuant to the DRIP. The Company has the right to amend any aspect of the DRIP or terminate the DRIP with ten days' notice to participants. Shares issued under the DRIP are recorded as equity in the accompanying consolidated balance sheet in the period distributions are declared. During the three months ended March 31, 2016 and 2015, the Company issued 0.8 million shares of common stock pursuant to the DRIP, generating aggregate proceeds of $19.1 million and $19.2 million, respectively.
Note 9 — Related Party Transactions and Arrangements
As of March 31, 2016 and December 31, 2015, the Special Limited Partner owned 8,888 shares of the Company's outstanding common stock. The Advisor and its affiliates may incur and pay costs and fees on behalf of the Company.
Realty Capital Securities, LLC (the "Former Dealer Manager") served as the dealer manager of the IPO. American National Stock Transfer, LLC ("ANST"), a subsidiary of the parent company of the Former Dealer Manager, provided other general professional services through January 2016. RCS Capital Corporation, the parent company of the Former Dealer Manager and certain of its affiliates that provided the Company with services, filed for Chapter 11 bankruptcy protection in January 2016, prior to which it was also under common control with AR Global, the parent of the Company's Sponsor.
On January 14, 2015, the Company purchased the Acuity Specialty Hospital portfolio from American Realty Capital Healthcare Trust, Inc. ("HCT") for a contract purchase price of $39.4 million. At the time of such purchase, the Sponsor and Advisor and the sponsor and advisor of HCT were under common control.
The limited partnership agreement of the OP provides for a special allocation, solely for tax purposes, of excess depreciation deductions of up to $10.0 million to the Company's Advisor, a limited partner of the OP.  In connection with this special allocation, the Company's Advisor has agreed to restore a deficit balance in its capital account in the event of a liquidation of the OP and has agreed to provide a guaranty or indemnity of indebtedness of the OP.

18

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Fees Paid in Connection with the IPO
The Former Dealer Manager was paid fees in connection with the sale of the Company's common stock in the IPO. The Company paid the Former Dealer Manager a selling commission of up to 7.0% of the per share purchase price of offering proceeds before reallowance of commissions earned by participating broker-dealers. In addition, the Company paid the Former Dealer Manager up to 3.0% of the gross proceeds from the sale of shares, before reallowance to participating broker-dealers, as a dealer manager fee. The Former Dealer Manager was permitted to reallow its dealer manager fee to participating broker-dealers. A participating broker-dealer could elect to receive a fee equal to 7.5% of the gross proceeds from the sale of shares by such participating broker-dealer, with 2.5% thereof paid at the time of such sale and 1.0% thereof paid on each anniversary of the closing of such sale up to and including the fifth anniversary of the closing of such sale. If this option had been elected, the dealer manager fee would have been reduced to 2.5% of gross proceeds. During the three months ended March 31, 2015, the Company received approximately $2,000 from the Former Dealer Manager for a unconsummated share transaction. The Company did not incur any commissions or fees in connection with the sale of the Company's common stock in the IPO from the Former Dealer Manager during the three months ended March 31, 2016. The Company did not have any amounts outstanding to the Former Dealer Manager for fees in connection with the sale of the Company's common stock in the IPO as of March 31, 2016 or December 31, 2015.
The Advisor and its affiliates received compensation and reimbursement for services relating to the IPO, including transfer agent services provided by an affiliate of the Former Dealer Manager. All offering costs incurred by the Company or its affiliated entities on behalf of the Company were charged to additional paid-in capital on the accompanying balance sheet during the IPO. The Company did not incur any charges or reimbursements for services relating to the IPO from the Advisor or any of its affiliates during the three months ended March 31, 2016 or 2015. The Company did not have any amounts outstanding to the Advisor or any of its affiliates for charges or reimbursements for services relating to the IPO as of March 31, 2016 or December 31, 2015.
The Company was responsible for paying offering and related costs from the IPO, excluding commissions and dealer manager fees, up to a maximum of 2.0% of gross proceeds received from the IPO, measured at the end of the IPO. Offering costs, excluding selling commissions and dealer manager fees, in excess of the 2.0% cap as of the end of the IPO were to be the Advisor's responsibility. As of the end of the IPO, offering and related costs, excluding selling commissions and dealer manager fees, did not exceed 2.0% of gross proceeds received from the IPO. In aggregate, offering costs including selling commissions and dealer manager fees were the Company's responsibility up to a maximum of 12.0% of the gross proceeds received from the IPO as determined at the end of the IPO. As of the end of the IPO in November 2014, offering costs were less than 12.0% of the gross proceeds received in the IPO.
Fees Paid in Connection With the Operations of the Company
The Advisor is paid an acquisition fee equal to 1.0% of the contract purchase price of each acquired property and 1.0% of the amount advanced for a loan or other investment. The Advisor is also reimbursed for services provided for which it incurs investment-related expenses, or insourced expenses. The amount reimbursed for insourced expenses may not exceed 0.5% of the contract purchase price of each acquired property and 0.5% of the amount advanced for a loan or other investment. Additionally, the Company reimburses the Advisor for third party acquisition expenses. The aggregate amount of acquisition fees and financing coordination fees (as described below) may not exceed 1.5% of the contract purchase price and the amount advanced for a loan or other investment for all the assets acquired. In no event will the total of all acquisition fees, acquisition expenses and any financing coordination fees payable with respect to the Company's portfolio of investments or reinvestments exceed 4.5% of the contract purchase price of the Company's portfolio to be measured at the close of the acquisition phase or 4.5% of the amount advanced for all loans or other investments.
If the Advisor provides services in connection with the origination or refinancing of any debt that the Company obtains and uses to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company will pay the Advisor a financing coordination fee equal to 0.75% of the amount available and/or outstanding under such financing, subject to certain limitations.

19

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Until March 31, 2015, for its asset management services, the Company issued the Advisor an asset management subordinated participation by causing the OP to issue (subject to periodic approval by the board of directors) to the Advisor performance-based restricted, forfeitable partnership units of the OP designated as "Class B Units." The Class B Units were intended to be profit interests and vest, and are no longer subject to forfeiture, at such time as: (x) the value of the OP's assets plus all distributions made equals or exceeds the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the "economic hurdle"); (y) any one of the following occurs: (1) a listing; (2) an other liquidity event or (3) the termination of the advisory agreement by an affirmative vote of a majority of the Company's independent directors without cause; and (z) the Advisor is still providing advisory services to the Company (the "performance condition"). Unvested Class B Units will be forfeited immediately if: (a) the advisory agreement is terminated for any reason other than a termination without cause; or (b) the advisory agreement is terminated by an affirmative vote of a majority of the Company's independent directors without cause before the economic hurdle has been met.
When approved by the board of directors, the Class B Units were issued to the Advisor quarterly in arrears pursuant to the terms of the limited partnership agreement of the OP. The number of Class B Units issued in any quarter was equal to: (i) the excess of (A) the product of (y) the cost of assets multiplied by (z) 0.1875% over (B) any amounts payable as an oversight fee (as described below) for such calendar quarter; divided by (ii) the value of one share of common stock as of the last day of such calendar quarter, which is equal initially to $22.50 (the IPO price minus the selling commissions and dealer manager fees). The value of issued Class B Units will be determined and expensed when the Company deems the achievement of the performance condition to be probable. As of March 31, 2016, the Company cannot determine the probability of achieving the performance condition. The Advisor receives distributions on vested and unvested Class B Units equal to the distribution rate received on the Company's common stock. Such distributions on issued Class B Units are included in general and administrative expenses in the consolidated statement of operations and comprehensive loss until the performance condition is considered probable to occur. As of March 31, 2016, the Company's board of directors had approved the issuance of 359,250 Class B Units to the Advisor in connection with this arrangement.
On May 12, 2015, the Company, the OP and the Advisor entered into an amendment (the “Amendment”) to the advisory agreement, which, among other things, provides that the Company will cease causing the OP to issue Class B Units in the OP to the Advisor or its assignees related to any period ending after March 31, 2015. Effective April 1, 2015, the Company began paying an asset management fee to the Advisor or its assignees as compensation for services rendered in connection with the management of the Company’s assets. The asset management fee is payable on the first business day of each month in the amount of 0.0625% multiplied by the cost of assets for the preceding monthly period. The asset management fee is payable to the Advisor or its assignees in cash, in shares, or a combination of both, the form of payment to be determined in the sole discretion of the Advisor. For the purposes of the payment of any fees in shares (a) prior to the NAV Pricing Date, each share will be valued at $22.50, (b) after the NAV Pricing Date and prior to any listing on a national securities exchange, if it occurs, each share will be valued at the then-current NAV per share and (c) at all other times, each share shall be valued by the board of directors in good faith at the fair market value.
Unless the Company contracts with a third party, the Company pays the Property Manager a property management fee of 1.5% of gross revenues from the Company's stand-alone single-tenant net leased properties and 2.5% of gross revenues from all other types of properties, respectively. The Company also reimburses the Property Manager for property level expenses. If the Company contracts directly with third parties for such services, the Company will pay them customary market fees and will pay the Property Manager an oversight fee of up to 1.0% of the gross revenues of the property managed. In no event will the Company pay the Property Manager or any affiliate of the Property Manager both a property management fee and an oversight fee with respect to any particular property.
Effective June 1, 2013, the Company entered into an agreement with the Former Dealer Manager to provide strategic advisory services and investment banking services required in the ordinary course of the Company's business, such as performing financial analysis, evaluating publicly traded comparable companies and assisting in developing a portfolio composition strategy, a capitalization structure to optimize future liquidity options and structuring operations. Strategic advisory fees were amortized over the estimated remaining term of the IPO and, as such, have been fully amortized as of December 31, 2014. The Former Dealer Manager and its affiliates also previously provided transfer agency services, as well as transaction management and other professional services. These fees were included in general and administrative expenses in the accompanying consolidated statement of operations and comprehensive loss.

20

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The following table details amounts incurred, forgiven and payable in connection with the Company's operations-related services described above as of and for the periods presented:
 
 
Three Months Ended March 31,
 
Payable (Receivable) as of
 
 
2016
 
2015
 
March 31,
 
December 31,
(In thousands)
 
Incurred
 
Forgiven
 
Incurred
 
Forgiven
 
2016
 
2015
One-time fees and reimbursements:
 
 
 
 
 
 
 
 
 
 
 
 
Acquisition fees
 
$

 
$

 
$
857

 
$

 
$

 
$

Acquisition cost reimbursements
 

 

 
429

 

 

 

Financing coordination fees
 

 

 
236

 

 

 

Ongoing fees:
 
 
 
 
 
 
 
 
 
 
 
 
Asset management fees (1)
 
4,384

 

 

 

 

 
(5
)
Property management fees
 
771

 

 

 
589

 
(5
)
 
(10
)
Professional fees and reimbursements
 
1,003

 

 
857

 

 
786

 
499

Distributions on Class B Units
 
152

 

 
45

 

 

 
52

Total related party operation fees and reimbursements
 
$
6,310

 
$

 
$
2,424

 
$
589

 
$
781

 
$
536

_______________
(1)
Prior to April 1, 2015, the Company caused the OP to issue (subject to periodic approval by the board of directors) to the Advisor restricted performance based Class B Units for asset management services. As of March 31, 2016, the Company's board of directors had approved the issuance of 359,250 Class B Units to the Advisor in connection with this arrangement. Effective April 1, 2015, in connection with the Amendment, the Company will pay an asset management fee to the Advisor or its assignees in cash, in shares, or a combination of both and will no longer issue any Class B Units.
The Company reimburses the Advisor's costs of providing administrative services, subject to the limitation that the Company did not reimburse the Advisor for any amount by which the Company's operating expenses at the end of the four preceding fiscal quarters exceeded the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt or other similar non-cash expenses and excluding any gain from the sale of assets for that period (the "2%/25% Limitation"), unless the Company's independent directors determined that such excess was justified based on unusual and nonrecurring factors which they deemed sufficient, in which case the excess amount could be reimbursed to the Advisor in subsequent periods. Additionally, the Company reimburses the Advisor for personnel costs; however, the Company may not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees, acquisition expenses or real estate commissions or for persons serving as executive officers of the Company. The 2%/25% Limitation was removed from the advisory agreement in connection with the amendment and restatement of to the advisory agreement in June 2015.
In order to improve operating cash flows and the ability to pay distributions from operating cash flows, the Advisor may elect to forgive and absorb certain fees. Because the Advisor may forgive or absorb certain fees, cash flow from operations that would have been paid to the Advisor may be available to pay distributions to stockholders. The fees that are forgiven are not deferrals and, accordingly, will not be paid to the Advisor in the future. During the three months ended March 31, 2015, the Advisor elected to forgive $0.6 million in fees. There were no such fees forgiven during the three months ended March 31, 2016. In certain instances, to improve the Company's working capital, the Advisor may elect to absorb a portion of the Company's property operating and general and administrative costs, which the Company will not repay. No such fees were absorbed during the three months ended March 31, 2016 or 2015.
The predecessor to AR Global is a party to a services agreement with RCS Advisory Services, LLC, a subsidiary of the parent company of the Former Dealer Manager (“RCS Advisory”), pursuant to which RCS Advisory and its affiliates provided the Company and certain other companies sponsored by AR Global with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. The predecessor to AR Global instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided by RCS Advisory.

21

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The Company was also party to a transfer agency agreement with ANST, a subsidiary of the parent company of the Former Dealer Manager, pursuant to which ANST provided the Company with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by DST Systems, Inc., a third-party transfer agent ("DST"). AR Global received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. On February 26, 2016, the Company entered into a definitive agreement with DST to provide the Company directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services).
Fees and Participations Paid in Connection with a Listing or the Liquidation of the Company's Real Estate Assets
Fees Incurred in Connection with a Listing
In 2015, the Company’s board of directors determined that it was in the Company’s best interest to evaluate strategic alternatives, including a listing on a national securities exchange. Accordingly, in March 2015, the Company formally engaged KeyBanc Capital Markets Inc. ("KeyBanc") and RCS Capital ("RCS Capital"), the investment banking and capital markets division of the Former Dealer Manager, and in May 2015, the Company formally engaged BMO Capital Markets Corp. ("BMO"), as financial advisors. Pursuant to the agreements with KeyBanc, BMO and RCS Capital, they each would have received a listing advisory fee equal to $1.5 million if the Company's shares were listed on a national securities exchange. In the event of a sale or acquisition transaction, KeyBanc, BMO and RCS Capital each would have received a proposed transaction fee equal to 0.25% of the value of the transaction. The agreements with KeyBanc, RCS Capital and BMO were terminated in January 2016. No fees were incurred in connection with these agreements during the three months ended March 31, 2016 or 2015.
The Company’s board of directors, led by its independent directors, announced in April 2016 that it had initiated a strategic review process to identify, examine and consider a range of strategic alternatives available to the Company with the objective of maximizing shareholder value. See Note 16 — Subsequent Events — Review of Strategic Alternatives.
Other Liquidation Related Fees and Participations
The Company will pay the Advisor an annual subordinated performance fee calculated on the basis of the Company's total return to stockholders, payable annually in arrears, such that for any year in which the Company's total return on stockholders' capital exceeds 6.0% per annum, the Advisor will be entitled to 15.0% of the excess total return but not to exceed 10.0% of the aggregate total return for such year. This fee will be paid only upon the sale of assets, distributions or other event which results in the return on stockholders' capital exceeding 6.0% per annum. No subordinated performance fees were incurred during the three months ended March 31, 2016 or 2015.
The Company will pay the Advisor a brokerage commission on the sale of property, not to exceed the lesser of 2.0% of the contract sale price of the property and 50.0% of the total brokerage commission paid if a third party broker is also involved; provided, however, that in no event may the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed the lesser of 6.0% of the contract sales price and a reasonable, customary and competitive real estate commission, in each case, payable to the Advisor if the Advisor or its affiliates, as determined by a majority of the independent directors, provided a substantial amount of services in connection with the sale. No such fees were incurred during the three months ended March 31, 2016 or 2015.
The Special Limited Partner will be entitled to receive a subordinated participation in the net sales proceeds of the sale of real estate assets from the OP equal to 15.0% of remaining net sale proceeds after return of capital contributions to investors plus payment to investors of a 6.0% cumulative, pre-tax non-compounded annual return on the capital contributed by investors. The Special Limited Partner will not be entitled to the subordinated participation in net sale proceeds unless the Company's investors have received a 6.0% cumulative, pre-tax non-compounded annual return on their capital contributions. No such participation in net sales proceeds became due and payable during the three months ended March 31, 2016 or 2015.

22

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

If the common stock of the Company is listed on a national exchange, the Special Limited Partner will be entitled to receive a subordinated incentive listing distribution from the OP equal to 15.0% of the amount by which the adjusted market value of real estate assets plus distributions exceeds the aggregate capital contributed by investors plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to investors. The Special Limited Partner will not be entitled to the subordinated incentive listing distribution unless investors have received a 6.0% cumulative, pre-tax non-compounded annual return on their capital contributions. No such distribution was incurred during the three months ended March 31, 2016 or 2015. Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in the net sales proceeds and the subordinated incentive listing distribution.
Upon termination or non-renewal of the advisory agreement with the Advisor, with or without cause, the Special Limited Partner will be entitled to receive distributions from the OP equal to 15.0% of the amount by which the sum of the Company's market value plus distributions exceeds the sum of the aggregate capital contributed by investors plus an amount equal to an annual 6.0% cumulative, pre-tax, non-compounded annual return to investors. The Special Limited Partner may elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurs.
Note 10 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common control with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company and asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting services and investor relations.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that the Advisor and its affiliates are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
Note 11 — Equity-Based Compensation
Restricted Share Plan
The Company has an employee and director incentive restricted share plan (the "RSP"), which provides for the automatic grant of 1,333 restricted shares of common stock to each of the independent directors, without any further approval by the Company's board of directors or the stockholders, after initial election to the board of directors and after each annual stockholder meeting, with such shares vesting annually beginning with the one year anniversary of initial election to the board of directors and the date of the next annual meeting, respectively. Restricted stock issued to independent directors will vest over a five-year period in increments of 20.0% per annum. The RSP provides the Company with the ability to grant awards of restricted shares to the Company's directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company. The total number of common shares granted under the RSP may not exceed 5.0% of the Company's outstanding shares of common stock on a fully diluted basis at any time and in any event will not exceed 3.4 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events).

23

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Restricted share awards entitle the recipient to receive shares of common stock from the Company under terms that provide for vesting over a specified period of time. For restricted share awards granted prior to July 1, 2015, such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient's employment or other relationship with the Company. For restricted share awards granted on or after July 1, 2015, such awards provide for accelerated vesting of the portion of the unvested shares scheduled to vest in the year of the recipient's voluntary termination or the failure to be re-elected to the board. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions payable in shares of common stock shall be subject to the same restrictions as the underlying restricted shares. The following table reflects restricted share award activity for the period presented:
 
 
Number of Common Shares
 
Weighted-Average Issue Price
Unvested, December 31, 2015
 
11,731

 
$
22.50

Granted
 

 

Vested
 
(800
)
 
22.50

Forfeitures
 

 

Unvested, March 31, 2016
 
10,931

 
$
22.50

As of March 31, 2016, the Company had $0.2 million of unrecognized compensation cost related to unvested restricted share awards granted under the Company's RSP. That cost is expected to be recognized over a weighted-average period of 3.5 years. Compensation expense related to restricted stock was approximately $15,000 and $1,000 during the three months ended March 31, 2016 and 2015, respectively. Compensation expense related to restricted stock is recorded as general and administrative expense in the accompanying consolidated statement of operations and comprehensive loss.
Other Share-Based Compensation
The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors at the respective director's election. There are no restrictions on the shares issued since these payments in lieu of cash relate to fees earned for services performed. No such shares were issued during the three months ended March 31, 2016 or 2015.
Note 12 — Non-controlling Interests
The Company is the sole general partner and holds substantially all of the units of limited partner interests in the OP ("OP Units"). As of March 31, 2016 and 2015, the Advisor held 90 OP Units, which represents a nominal percentage of the aggregate OP ownership.
In November 2014, the Company partially funded the purchase of an MOB with the issuance of 405,908 OP Units, with a value of $10.1 million or $25.00 per unit, from an unaffiliated third party.
A holder of OP Units has the right to distributions and has the right to convert OP Units for the cash value of a corresponding number of shares of the Company's common stock or, at the option of the OP, a corresponding number of shares of the Company's common stock, in accordance with the limited partnership agreement of the OP, provided, however, that such OP Units must have been outstanding for at least one year. The remaining rights of the limited partners in the OP are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets. During the three months ended March 31, 2016 and 2015, non-controlling interest holders were paid distributions of $0.2 million.
The Company has an investment arrangement with an unaffiliated third party whereby such investor receives an ownership interest in certain of the Company's property-owning subsidiaries and is entitled to receive a proportionate share of the net operating cash flow derived from the subsidiaries' property. Upon disposition of a property subject to non-controlling interest, the investor will receive a proportionate share of the net proceeds from the sale of the property. The investor has no recourse to any other assets of the Company. Due to the nature of the Company's involvement with the arrangement and the significance of its investment in relation to the investment of the third party, the Company has determined that it controls each entity in this arrangement and therefore the entities related to this arrangement are consolidated within the Company's financial statements. A non-controlling interest is recorded for the investor's ownership interest in the properties.

24

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The following table summarizes the activity related to investment arrangements with the unaffiliated third party:
 
 
 
 
 
 
 
 
As of March 31, 2016
 
As of December 31, 2015
 
Distributions for the Three Months Ended March, 31
Property Name
(Dollar amounts in thousands)
 
Investment Date
 
Third Party Net Investment Amount as of March 31, 2016
 
Non-Controlling Ownership Percentage as of March 31, 2016
 
Net Real Estate Assets Subject to Investment Arrangement
 
Mortgage Notes Payable Subject to Investment Arrangement
 
Net Real Estate Assets Subject to Investment Arrangement
 
Mortgage Notes Payable Subject to Investment Arrangement
 
2016
 
2015
Plaza Del Rio Medical Office Campus Portfolio - Peoria, AZ
 
May 2015
 
$
500

 
4.1
%
 
$
10,577

 
$

 
$
10,561

 
$

 
$

 
$

Note 13 — Net Loss Per Share
The following is a summary of the basic and diluted net loss per share computation for the years ended March 31, 2016 and 2015:
 
 
Three Months Ended March 31,
 
 
2016
 
2015
Net loss attributable to stockholders (in thousands)
 
$
(1,555
)
 
$
(5,220
)
Basic and diluted weighted-average shares outstanding
 
86,658,678

 
84,250,503

Basic and diluted net loss per share
 
$
(0.02
)
 
$
(0.06
)
The Company had the following potentially dilutive securities as of March 31, 2016 and 2015, which were excluded from the calculation of diluted loss per share attributable to stockholders as the effect would have been antidilutive:
 
 
March 31,
 
 
2016
 
2015
Unvested restricted stock
 
10,931

 
5,599

OP Units
 
405,998

 
405,998

Class B units
 
359,250

 
107,885

Total common share equivalents
 
776,179

 
519,482

Note 14 — Segment Reporting
During the three months ended March 31, 2016 and 2015, the Company operated in three reportable business segments for management and internal financial reporting purposes: medical office buildings, triple-net leased healthcare facilities, and seniors housing — operating properties ("SHOP").

25

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

These operating segments are the segments of the Company for which separate financial information is available and for which segment results are evaluated by the Company's executive officers in deciding how to allocate resources and in assessing performance. The medical office building segment primarily consists of MOBs leased to healthcare-related tenants under long-term leases, which may require such tenants to pay a pro rata share of property-related expenses. The triple-net leased healthcare facilities segment primarily consists of investments in seniors housing communities, hospitals, inpatient rehabilitation facilities and skilled nursing facilities under long-term leases, under which tenants are generally responsible to directly pay property-related expenses. The SHOP segment consists of direct investments in seniors housing communities, primarily providing assisted living, independent living and memory care services, which are operated through engaging independent third-party managers. The Company evaluates the performance of the combined properties in each segment based on net operating income. Net operating income is defined as total revenues less property operating and maintenance expenses. There are no intersegment sales or transfers. The Company uses net operating income to evaluate the operating performance of real estate investments and to make decisions concerning the operation of the properties. The Company believes that net operating income is useful to investors in understanding the value of income-producing real estate. Net income (loss) is the GAAP measure that is most directly comparable to net operating income; however, net operating income should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as operating fees to the Advisor, acquisition and transaction related expenses, general and administrative expenses, depreciation and amortization expense, interest expense, interest and other income, gain on sale of investment securities, and income tax expense. Additionally, net operating income as defined by the Company may not be comparable to net operating income as defined by other REITs or companies.
The following tables reconcile the segment activity to consolidated net loss for the three months ended March 31, 2016 and 2015:
 
 
Three Months Ended March 31, 2016
(In thousands)
 
Medical Office Buildings
 
Triple-Net Leased Healthcare Facilities
 
Seniors Housing — Operating Properties
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
16,603

 
$
9,989

 
$

 
$
26,592

Operating expense reimbursements
 
3,677

 
32

 

 
3,709

Resident services and fee income
 

 

 
45,202

 
45,202

Contingent purchase price consideration
 
6

 

 

 
6

Total revenues
 
20,286

 
10,021

 
45,202

 
75,509

Property operating and maintenance
 
5,771

 
636

 
32,385

 
38,792

Net operating income
 
$
14,515

 
$
9,385

 
$
12,817

 
36,717

Operating fees to related parties
 
 
 
 
 
 
 
(5,155
)
Acquisition and transaction related
 
 
 
 
 
 
 
(42
)
General and administrative
 
 
 
 
 
 
 
(3,987
)
Depreciation and amortization
 
 
 
 
 
 
 
(24,615
)
Interest expense
 
 
 
 
 
 
 
(4,984
)
Interest and other income
 
 
 
 
 
 
 
22

Income tax benefit (expense)
 
 
 
 
 
 
 
483

Net loss attributable to non-controlling interests
 
 
 
 
 
 
 
6

Net loss attributable to stockholders
 
 
 
 
 
 
 
$
(1,555
)

26

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

 
 
Three Months Ended March 31, 2015
(In thousands)
 
Medical Office Buildings
 
Triple-Net Leased Healthcare Facilities
 
Seniors Housing — Operating Properties
 
Consolidated
Revenues:
 
 
 
 
 
 
 
 
Rental income
 
$
11,480

 
$
9,376

 
$

 
$
20,856

Operating expense reimbursements
 
3,098

 
32

 

 
3,130

Resident services and fee income
 

 

 
33,135

 
33,135

Total revenues
 
14,578

 
9,408

 
33,135

 
57,121

Property operating and maintenance
 
4,849

 
72

 
22,556

 
27,477

Net operating income
 
$
9,729

 
$
9,336

 
$
10,579

 
29,644

Acquisition and transaction related
 
 
 
 
 
 
 
(1,999
)
General and administrative
 
 
 
 
 
 
 
(2,599
)
Depreciation and amortization
 
 
 
 
 
 
 
(29,448
)
Interest expense
 
 
 
 
 
 
 
(1,373
)
Interest and other income
 
 
 
 
 
 
 
273

Gain on sale of investment securities
 
 
 
 
 
 
 
286

Income tax benefit (expense)
 
 
 
 
 
 
 
(29
)
Net loss attributable to non-controlling interests
 
 
 
 
 
 
 
25

Net loss attributable to stockholders
 
 
 
 
 
 
 
$
(5,220
)
The following table reconciles the segment activity to consolidated total assets as of the periods presented:
 
 
March 31,
 
December 31,
(In thousands)
 
2016
 
2015
ASSETS
 
 
 
 
Investments in real estate, net:
 
 
 
 
Medical office buildings
 
$
829,928

 
$
839,041

Triple-net leased healthcare facilities
 
443,888

 
447,893

Construction in progress
 
37,180

 
31,309

Seniors housing — operating properties
 
865,895

 
876,359

Total investments in real estate, net
 
2,176,891

 
2,194,602

Cash and cash equivalents
 
36,509

 
24,474

Restricted cash
 
4,299

 
4,647

Investment securities, at fair value
 
1,070

 
1,078

Straight-line rent receivable, net
 
13,927

 
11,470

Prepaid expenses and other assets
 
22,237

 
21,707

Deferred costs, net
 
11,094

 
11,864

Total assets
 
$
2,266,027

 
$
2,269,842


27

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

The following table reconciles capital expenditures by reportable business segment, excluding corporate non-real estate expenditures, for the periods presented:
 
 
Three Months Ended March 31,
(In thousands)
 
2016
 
2015
Medical office buildings
 
$
664

 
$
445

Triple-net leased healthcare facilities
 
99

 
60

Seniors housing — operating properties
 
1,050

 
162

Total capital expenditures
 
$
1,813

 
$
667

Note 15 — Commitments and Contingencies
The Company has entered into operating and capital lease agreements related to certain acquisitions under leasehold interests arrangements. The following table reflects the minimum base cash rental payments due from the Company over the next five years and thereafter under these arrangements, including the present value of the net minimum payment due under capital leases. These amounts exclude contingent rent payments, as applicable, that may be payable based on provisions related to increases in annual rent based on exceeding certain economic indexes among other items.
 
 
Future Minimum Base Rent Payments
(In thousands)
 
Operating Leases
 
Capital Leases
April 1, 2016 — December 31, 2016
 
$
497

 
$
56

2017
 
664

 
76

2018
 
668

 
78

2019
 
673

 
80

2020
 
671

 
82

Thereafter
 
79,997

 
7,847

Total minimum lease payments
 
$
83,170

 
8,219

Less: amounts representing interest
 
 
 
(3,414
)
Total present value of minimum lease payments
 
 
 
$
4,805

Total rental expense from operating leases was $0.2 million and $0.1 million during the three months ended March 31, 2016 and 2015, respectively. During the three months ended March 31, 2016 and 2015, interest expense related to capital leases was approximately $21,000.
Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory proceedings pending or known to be contemplated against the Company or its properties.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. As of March 31, 2016, the Company had not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations.
Development Project Funding
In August 2015, the Company entered into an asset purchase agreement and development agreement to acquire land and construction in progress, and subsequently fund the remaining construction, of a skilled nursing facility in Jupiter, Florida for $82.0 million. As of March 31, 2016, the Company had funded $10.0 million and $27.2 million for the land and construction in progress, respectively. Concurrent with the acquisition, the Company entered into a loan agreement and lease agreement with an affiliate of the project developer. The loan agreement is intended to provide working capital to the tenant during the initial operating period of the facility and allows for borrowings of up to $2.7 million from the Company on a non-revolving basis. Any outstanding principal balances under the loan will bear interest at 7.0% per year, payable on the first day of each fiscal quarter. As of March 31, 2016, there were no amounts outstanding due to the Company pursuant to the loan agreement.

28

HEALTHCARE TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)

Note 16 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q, and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements except for the following:
Net Asset Value
On April 11, 2016, the Company's board of directors approved an estimate of per share NAV. As of this date, the Company began offering shares pursuant to the DRIP at the then-current NAV approved by the Company's board of directors.
Review of Strategic Alternatives
The Company's board of directors, led by its independent directors, announced on April 22, 2016 that it had initiated a strategic review process to identify, examine, and consider a range of strategic alternatives available to the Company with the objective of maximizing shareholder value. In connection with such process, the Company's board of directors has, among other things, (i) formed a special committee to address conflicts of interest; (ii) engaged financial advisors; and (iii) retained Gibson, Dunn & Crutcher LLP as special legal counsel for the process.
The board of directors has not made a decision to enter into any transaction at this time, and there are no assurances that the consideration of strategic alternatives will result in any transaction. The Company does not intend to comment on or disclose developments regarding the process unless it deems further disclosure is appropriate or required.

29


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Healthcare Trust, Inc. and the notes thereto. As used herein, the terms the "Company," "we," "our" and "us" refer to Healthcare Trust, Inc., a Maryland corporation, including, as required by context, Healthcare Trust Operating Partnership, LP (our "OP"), a Delaware limited partnership, and its subsidiaries. The Company is externally managed by Healthcare Trust Advisors, LLC (our "Advisor"), a Delaware limited liability company. Capitalized terms used herein, but not otherwise defined, have the meaning ascribed to those terms in "Part I — Financial Information" included in the notes to the consolidated financial statements and contained herein.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of the Company and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
Certain of our executive officers and directors are also officers, managers or holders of a direct or indirect controlling interest in our Advisor and other entities affiliated with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"), the parent of our sponsor, American Realty Capital VII, LLC (the "Sponsor"). As a result, certain of our executive officers and directors, our Advisor and its affiliates face conflicts of interest, including significant conflicts created by our Advisor's compensation arrangements with us and other investment programs advised by affiliates of AR Global and conflicts in allocating time among these investment programs and us. These conflicts could result in unanticipated actions.
Because investment opportunities that are suitable for us may also be suitable for other investment programs advised by affiliates of AR Global, our Advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders.
Although we intend to list our shares of common stock on a national stock exchange when we believe market conditions are favorable to do so, there is no assurance that our shares of common stock will be listed. No public market currently exists, or may ever exist, for shares of our common stock and our shares are, and may continue to be, illiquid.
We focus on acquiring a diversified portfolio of healthcare-related assets located in the United States and are subject to risks inherent in concentrating investments in the healthcare industry.
If our Advisor loses or is unable to obtain qualified personnel, our ability to implement our investment strategies could be delayed or hindered.
The healthcare industry is heavily regulated, and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of tenants to make lease payments to us.
We are depending on our Advisor to select investments and conduct our operations. Adverse changes in the financial condition of our Advisor or our relationship with our Advisor could adversely affect us.
We may be unable to pay distributions with cash flows from operations, or maintain cash distributions or increase distributions over time.
We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates.
We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants.
We may not be able to achieve our rental rate objectives on new and renewal leases and our expenses could be greater, which may impact our results of operations.
Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions.

30


We are permitted to pay distributions of unlimited amounts from any source. There are no established limits on the amount of borrowings that we may use to fund distribution payments, except for those imposed by Maryland law.
Any distributions, especially those not covered by our cash flows from operations, may reduce the amount of capital we ultimately invest in properties and other permitted investments and negatively impact the value of our stockholders' investment.
We have not and may not in the future generate cash flows sufficient to pay our distributions to stockholders and, as such, we may be required to fund distributions from borrowings, which may be at unfavorable rates and could restrict the amount we can borrow for investments and other purposes, or depend on our Advisor or our property manager, Healthcare Trust Properties, LLC (the "Property Manager") to waive fees or reimbursement of certain expenses and fees to fund our operations. There is no assurance these entities will waive such amounts or that we will be able to borrow funds at all.
We are subject to risks associated with any dislocations or liquidity disruptions that may exist or occur in the credit markets of the United States from time to time.
We are subject to risks associated with changes in general economic, business and political conditions including the possibility of intensified international hostilities, acts of terrorism, and changes in conditions of United States or international lending, capital and financing markets.
We may fail to continue to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes ("REIT"), which would result in higher taxes, may adversely affect our operations and would reduce the value of an investment in our common stock and the cash available for distributions.
We may be deemed to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and thus subject to regulation under the Investment Company Act.
Commencing on April 11, 2016, the day we published our net asset value ("NAV"), the offering price and repurchase price for our shares, including shares sold pursuant to our distribution reinvestment plan ("DRIP"), will be based on NAV, which may not accurately reflect the value of our assets and may not represent what stockholders may receive upon a liquidation of our assets.
Overview
We invest in healthcare real estate, such as seniors housing and medical office buildings ("MOB"), located in the United States for investment purposes. As of March 31, 2016, we owned 166 properties located in 29 states and comprised of 8.5 million rentable square feet.
We were incorporated on October 15, 2012 as a Maryland corporation that elected and qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2013. Substantially all of our business is conducted through the OP.
In February 2013, we commenced our initial public offering ("IPO") on a "reasonable best efforts" basis of up to $1.7 billion of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts. We closed our IPO in November 2014. As of March 31, 2016, we have received $2.2 billion from our IPO including proceeds received under the DRIP.
In 2015, our board of directors determined that it was in our best interest to evaluate strategic alternatives, including a listing on a national securities exchange. Our board of directors, led by its independent directors, announced on April 22, 2016 that it had initiated a strategic review process to identify, examine, and consider a range of strategic alternatives available to us with the objective of maximizing shareholder value. In connection with such process, our board of directors has, among other things, (i) formed a special committee to address conflicts of interest; (ii) engaged financial advisors; and (iii) retained Gibson, Dunn & Crutcher LLP as special legal counsel for the process.
Our board of directors has not made a decision to enter into any transaction at this time, and there are no assurances that the consideration of strategic alternatives will result in any transaction. We do not intend to comment on or disclose developments regarding the process unless we deem further disclosure is appropriate or required.
On April 11, 2016 (the "NAV Pricing Date"), our board of directors approved a NAV equal to $22.27 as of December 31, 2015. Subsequent valuations will occur periodically, at the discretion of our board of directors, provided that such calculations will be made at least annually. Pursuant to the DRIP, our stockholders can elect to reinvest distributions by purchasing shares of our common stock. Prior to the NAV Pricing Date, we offered shares pursuant to the DRIP at $23.75 per share, which was 95% of the initial offering price of shares of common stock in the IPO. Effective April 11, 2016, we began offering shares pursuant to the DRIP at the then-current NAV approved by our board of directors

31


We have no employees. The Advisor has been retained by us to manage our affairs on a day-to-day basis. We have retained the Property Manager to serve as our property manager. The Advisor and Property Manager are under common control with AR Global, the parent of our Sponsor, as a result of which they are related parties, and each have received or will receive compensation, fees and expense reimbursements for services related to managing of our business. The Advisor, Healthcare Trust Special Limited Partnership, LLC and Property Manager also have received or will receive compensation, fees and expense reimbursements from us related to the investment and management of our assets.
Significant Accounting Estimates and Critical Accounting Policies
Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:
Revenue Recognition
Our rental income is primarily related to rent received from tenants in our medical office buildings ("MOB") and triple-net leased healthcare facilities. Rent from tenants in our MOB and triple-net leased healthcare facilities operating segments is recorded in accordance with the terms of each lease on a straight-line basis over the initial term of the lease. Because many of the leases provide for rental increases at specified intervals, accounting principles generally accepted in the United States ("GAAP") require us to record a receivable, and include in revenues on a straight-line basis, unbilled rent receivables that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When we acquire a property, the acquisition date is considered to be the commencement date for purposes of this calculation.
Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.
Resident services and fee income primarily relates to rent from residents in our seniors housing — operating properties ("SHOP") held using a structure permitted by the REIT Investment Diversification and Empowerment Act of 2007 and to fees for ancillary services performed for residents in our SHOPs. Rental income from residents of our SHOP operating segment is recognized as earned. Residents pay monthly rent that covers occupancy of their unit and basic services, including utilities, meals and some housekeeping services. The terms of the rent are short term in nature, primarily month-to-month. Fees for ancillary services are recorded in the period in which the services are performed.
We defer the revenue related to lease payments received from tenants and residents in advance of their due dates.
We continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, we record an increase in the allowance for uncollectible accounts on the consolidated balance sheets or record a direct write-off of the receivable in the consolidated statements of operations and comprehensive loss.
Real Estate Investments
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred.
We evaluate the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive loss. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets.
In business combinations, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets may include the value of in-place leases and above- and below-market leases. In addition, any assumed mortgages receivable or payable and any assumed or issued non-controlling interests are recorded at their estimated fair values.
We generally determine the value of construction in progress based upon the replacement cost. During the construction period, we capitalize interest, insurance and real estate taxes until the development has reached substantial completion.

32


The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases. The fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining term of the lease including any below-market fixed rate renewal options for below-market leases.
In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including real estate valuations prepared by independent valuation firms. We also consider information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real estate, i.e. location, size, demographics, value and comparative rental rates, tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business.
In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above- or below-market interest rates.
In allocating the fair value to non-controlling interests, amounts are recorded based on the fair value of units issued at the date of acquisition, as determined by the terms of the applicable agreement.
Real estate investments that are intended to be sold are designated as "held for sale" on the consolidated balance sheets at the lesser of the carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale. Real estate investments are no longer depreciated when they are classified as held for sale. If the disposal, or intended disposal, of certain real estate investments represents a strategic shift that has had or will have a major effect on our operations and financial results, the operations of such real estate investments would be presented as discontinued operations in the consolidated statements of operations and comprehensive loss for all applicable periods.
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and improvements, and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
Construction in progress, including capitalized interest, insurance and real estate taxes, is not depreciated until the development has reached substantial completion.
Capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-market lease values are accreted as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.
Capitalized above-market ground lease values are accreted as a reduction of property operating expense over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods.
The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases.
The assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining term of the respective mortgages.
Impairment of Long Lived Assets
If circumstances indicate that the carrying value of a property may not be recoverable, we review the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.

33


Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance was to become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. In July 2015, the FASB deferred the effective date of the revised guidance by one year to annual reporting periods beginning after December 15, 2017, although entities will be allowed to early adopt the guidance as of the original effective date. We have not yet selected a transition method and are currently evaluating the impact of this new guidance.
In January 2015, the FASB issued updated guidance that eliminates from GAAP the concept of an event or transaction that is unusual in nature and occurs infrequently being treated as an extraordinary item. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Any amendments may be applied either prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption was permitted provided that the guidance was applied from the beginning of the fiscal year of adoption. We elected to adopt this new guidance as of September 30, 2015. The adoption of this guidance did not have a material impact to our financial position, results of operations and cash flows.
In February 2015, the FASB amended the accounting for consolidation of certain legal entities. The amendments modify the evaluation of whether certain legal entities are variable interest entities ("VIEs") or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affect the consolidation analysis of reporting entities that are involved with VIEs (particularly those that have fee arrangements and related party relationships). The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted, including adoption in an interim period. We have elected to adopt this guidance effective January 1, 2016. We have evaluated the impact of the adoption of this new guidance on our consolidated financial statements and have determined that the OP is considered a VIE. However, we meet the disclosure exemption criteria as we are the primary beneficiary of the VIE and our partnership interest in a business and the assets of the OP can be used for purposes other than settling its obligations, such as paying distributions. As such, this standard did not have a material impact to our consolidated financial statements.
In April 2015, the FASB amended the presentation of debt issuance costs on the balance sheet. The amendment requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB added that, for line of credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line, regardless of whether or not there are any outstanding borrowings. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted for financial statements that have not previously been issued. We have elected to adopt this guidance effective January 1, 2016. The adoption of this revised guidance resulted in the reclassification of $2.0 million and $2.2 million of deferred financing costs related to our mortgage note payable from deferred costs, net to mortgage note payable, net of deferred financing costs in our consolidated balance sheets as of March 31, 2016 and December 31, 2015, respectively.
In September 2015, the FASB issued an update that eliminates the requirement to adjust provisional amounts from a business combination and the related impact on earnings by restating prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of measurement period adjustments on current and prior periods, including the prior period impact on depreciation, amortization and other income statement items and their related tax effects, shall be recognized in the period the adjustment amount is determined. The cumulative adjustment would be reflected within the respective financial statement line items affected. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption was permitted. We elected to adopt this guidance as of September 30, 2015. The adoption of this guidance did not have a material impact to our financial position, results of operations or cash flows.
In January 2016, the FASB issued an update that amends the recognition and measurement of financial instruments. The new guidance revises an entity’s accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update. We are currently evaluating the impact of this new guidance.

34


In February 2016, the FASB issued an update that sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The revised guidance is effective on January 1, 2019. Early adoption is permitted. We are currently evaluating the impact of this new guidance.
In March 2016, the FASB issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.
In March 2016, the FASB issued an update that changes the accounting for certain aspects of share-based compensation. Among other things, the revised guidance allows companies to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. We have adopted the provisions of this guidance beginning January 1, 2016 and determined that there is no impact to our consolidated financial position, results of operations and cash flows.
Properties
The following table presents certain additional information about the properties we owned as of March 31, 2016:
Portfolio
 
Number
of Properties
 
Rentable
Square Feet
 
Occupancy
 
Remaining
Lease Term
 
Gross Asset Value
 
 
 
 
 
 
 
 
 
 
(In thousands)