UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM_______________
Form 10-K
|
| | | | |
x(Mark One)
|
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the year ended December 31, 2017
Or
For the fiscal year ended: December 31, 2022
|
| OR |
o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to |
For the transition period from to
Commission File Number: 001-35568 (Healthcare Trust of America, Inc.)
Commission File Number: 333-190916 (Healthcare Trust of America Holdings, LP)
HEALTHCARE REALTY TRUST OF AMERICA, INC.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LPINCORPORATED
(Exact name of registrantRegistrant as specified in its charter)
|
| | | | |
Maryland (Healthcare Trust of America, Inc.) | 20-4738467 |
Delaware (Healthcare Trust of America Holdings, LP) | 20-4738347 |
(State or other jurisdiction of incorporation Incorporation or organization) | (I.R.S. Employer Identification No.) |
16435 N. Scottsdale Road, Suite 320, Scottsdale, Arizona | 85254 |
(Address of principal executive offices) | (Zip Code) |
3310 West End Avenue
Suite 700
Nashville, Tennessee 37203
(Address of principal executive offices)
(615) 269-8175
(Registrant’s telephone number, including area code: (480) 998-3478code)
Securities registered pursuantRegistered Pursuant to Section 12(b) of the Act:
|
| | | | | | | | | | | | | |
Title of each classEach Class | | Trading Symbol | | Name of each exchangeEach Exchange on which registeredWhich Registered |
Class A common stock,Common Stock, $0.01 par value $0.01 per share | | HR | | New York Stock Exchange |
Securities registered pursuantRegistered Pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
|
| | | | | | |
Healthcare Trust of America, Inc. | x Yes
| o No
| | Healthcare Trust of America Holdings, LP | x Yes
| o No
|
Yes ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
|
| | | | | | |
Healthcare Trust of America, Inc. | o Yes
| x No
| | Healthcare Trust of America Holdings, LP | o Yes
| x No
|
Yes ☐ No ☒Indicate by check mark whether the registrant:Registrant (1) has filed all reports required to be filed by SectionsSection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
|
| | | | | | |
Healthcare Trust of America, Inc. | x Yes
| o No
| | Healthcare Trust of America Holdings, LP | x Yes
| o No
|
Yes ☒ No ☐Indicate by check mark whether the registrantRegistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
|
| | | | | | |
Healthcare Trust of America, Inc. | x Yes
| o No
| | Healthcare Trust of America Holdings, LP | x Yes
| o No
|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xYes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer ☒ Accelerated filer ☐ |
| | | | | |
Healthcare Trust of America, Inc. | Large-accelerated filer x
| Accelerated filer o
| Non-accelerated filer o
| Smaller reporting company o
| Emerging growth company o
|
| | | (Do not check if a smaller reporting company) | | |
Healthcare Trust of America Holdings, LP | Large-accelerated filer o
| Accelerated filer o
| Non-accelerated filer x
| Smaller reporting company o
| Emerging growth company o
|
| | | (Do not check if a smaller reporting company) | | |
Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section
13 (a)13(a) of the Exchange Act.
|
| | | | | | |
Healthcare Trust of America, Inc. | | o
| | Healthcare Trust of America Holdings, LP | | o
|
☐Indicate by check mark whether the registrant has filed a report on and attestation to management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15- U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the Registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
|
| | | | | | |
Healthcare Trust of America, Inc. | o Yes
| x No
| | Healthcare Trust of America Holdings, LP | o Yes
| x No
|
Act.) Yes ☐ No ☒The aggregate market value of Healthcare Trustthe shares of America, Inc.’s Class A common stock held by non-affiliates as of June 30, 2017, the last business day of the most recently completed
second fiscal quarter, was approximately $6,215,283,195, computed by reference toRegistrant (based upon the closing price as reportedof these shares on the New York Stock Exchange.Exchange on June 30, 2022 held by non-affiliates on June 30, 2022 was $6,374,706,546.
As of February 14, 2018,24, 2023, there were 205,047,836380,779,861 shares of Class Athe Registrant’s common stock of Healthcare Trust of America, Inc. outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy statement forStatement relating to the Annual Meeting of Stockholders to be held on June 5, 2023 are incorporated by reference into Part III Items 10-14of this Report.
Explanatory Note
On July 20, 2022, pursuant to that certain Agreement and Plan of Merger dated as of February 28, 2022 (the “Merger Agreement”), by and among Healthcare Realty Trust Incorporated, a Maryland corporation (now known as HRTI, LLC, a Maryland limited liability company) (“Legacy HR”), Healthcare Trust of America, Inc., a Maryland corporation (now known as Healthcare Realty Trust Incorporated) (“Legacy HTA”), Healthcare Trust of America Holdings, LP, a Delaware limited partnership (now known as Healthcare Realty Holdings, L.P.) (the “OP”), and HR Acquisition 2, LLC, a Maryland limited liability company (“Merger Sub”), Merger Sub merged with and into Legacy HR, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA (the “Merger”). Immediately following the Merger, Legacy HR converted to a Maryland limited liability company and changed its name to “HRTI, LLC” and Legacy HTA changed its name to “Healthcare Realty Trust Incorporated.” In addition, the equity interests of Legacy HR were contributed by means of a contribution and assignment agreement to the OP such that Legacy HR became a wholly-owned subsidiary of the OP. As a result, Legacy HR became a part of an umbrella partnership REIT (“UPREIT”) structure. The consolidated company operates under the name “Healthcare Realty Trust Incorporated” and its shares of class A common stock, $0.01 par value per share, trade on the New York Stock Exchange (the “NYSE”) under the ticker symbol “HR”.
For accounting purposes, the Merger was treated as a “reverse acquisition” in which Legacy HR was considered the accounting acquirer. As a result, the historical financial statements of the accounting acquirer, Legacy HR, became the historical financial statements of the Company, as defined below. For the full year of 2022, the Company's financial statements reflect the financial position and results of operations of Legacy HR prior to July 20, 2022 and the consolidated company after giving effect to the Merger from July 20, 2022 through December 31, 2022. The Merger was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”), which requires, among other things, the assets acquired and the liabilities assumed to be recognized at their acquisition date fair value.
For purposes of this Annual Report on Form 10-K.10-K, references to the "Company", "we", "us", and "our" are to Legacy HR for periods prior to the closing of the Merger and thereafter to Legacy HR and Legacy HTA after giving effect to the Merger.
In addition, the OP has issued unsecured notes described in Note 10 to the Company's Consolidated Financial Statements included in this report. All unsecured notes are fully and unconditionally guaranteed by the Company, and the OP is 98.9% owned by the Company. Effective January 4, 2021, the SEC adopted amendments to the financial disclosure requirements which permit subsidiary issuers of obligations guaranteed by the parent to omit separate financial statements if the consolidated financial statements of the parent company have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent. Accordingly, separate consolidated financial statements of the OP have not been presented.
HEALTHCARE REALTY TRUST INCORPORATED
FORM 10-K
December 31, 2022
Table of Contents
Explanatory Note
This annual report combines the Annual Reports on Form 10-K (“Annual Report”) for the year ended December 31, 2017, of Healthcare Trust of America, Inc. (“HTA”), a Maryland corporation, and Healthcare Trust of America Holdings, LP (“HTALP”), a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this Annual Report to “we,” “us,” “our,” “the Company” or “our Company” refer to HTA and HTALP, collectively, and all references to “common stock” shall refer to the Class A common stock of HTA.
HTA operates as a real estate investment trust (“REIT”) and is the general partner of HTALP. As of December 31, 2017, HTA owned a 98.1% partnership interest in HTALP, and other limited partners, including some of HTA’s directors, executive officers and their affiliates, owned the remaining partnership interest (including the long-term incentive plan (“LTIP” Units) in HTALP. As the sole general partner of HTALP, HTA has the full, exclusive and complete responsibility for HTALP’s day-to-day management and control, including its compliance with the Securities and Exchange Commission (“SEC”) filing requirements.
We believe it is important to understand the few differences between HTA and HTALP in the context of how we operate as an integrated consolidated company. HTA operates as an umbrella partnership REIT structure in which HTALP and its subsidiaries hold substantially all of the assets. HTA’s only material asset is its ownership of partnership interests of HTALP. As a result, HTA does not conduct business itself, other than acting as the sole general partner of HTALP, issuing public equity from time to time and guaranteeing certain debts of HTALP. HTALP conducts the operations of the business and issues publicly-traded debt, but has no publicly-traded equity. Except for net proceeds from public equity issuances by HTA, which are generally contributed to HTALP in exchange for partnership units of HTALP, HTALP generates the capital required for the business through its operations and by direct or indirect incurrence of indebtedness or through the issuance of its partnership units (“OP Units”).
Noncontrolling interests, stockholders’ equity and partners’ capital are the primary areas of difference between the consolidated financial statements of HTA and HTALP. Limited partnership units in HTALP are accounted for as partners’ capital in HTALP’s consolidated balance sheets and as noncontrolling interest reflected within equity in HTA’s consolidated balance sheets. The differences between HTA’s stockholders’ equity and HTALP’s partners’ capital are due to the differences in the equity issued by HTA and HTALP, respectively.
We believe combining the Annual Reports of HTA and HTALP, including the notes to the consolidated financial statements, into this single Annual Report results in the following benefits:
enhances stockholders’ understanding of HTA and HTALP by enabling stockholders to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this Annual Report applies to both HTA and HTALP; and
creates time and cost efficiencies through the preparation of a single combined Annual Report instead of two separate Annual Reports.
In order to highlight the material differences between HTA and HTALP, this Annual Report includes sections that separately present and discuss areas that are materially different between HTA and HTALP, including:
the Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities in Item 5 of this Annual Report;
the Selected Financial Data in Item 6 of this Annual Report;
the Funds From Operations (“FFO”) and Normalized FFO in Item 7 of this Annual Report;
the Controls and Procedures in Item 9A of this Annual Report;
the consolidated financial Statements in Item 15 of this Annual Report;
certain accompanying notes to the consolidated financial statements, including Note 7 - Debt, Note 10 - Stockholders’ Equity and Partners’ Capital, Note 12 - Per Share Data of HTA, Note 13 - Per Unit Data of HTALP, Note 15 - Tax Treatment of Dividends of HTA, Note 17 - Selected Quarterly Financial Data of HTA and Note 18 - Selected Quarterly Financial Data of HTALP;
the Statement Regarding the Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends included as Exhibit 12.1 to this Annual Report; and
the Certifications of the Chief Executive Officer and the Chief Financial Officer included as Exhibits 31 and 32 to this Annual Report.
In the sections of this Annual Report that combine disclosure for HTA and HTALP, this Annual Report refers to actions or holdings as being actions or holdings of the Company. Although HTALP (directly or indirectly through one of its subsidiaries) is generally the entity that enters into contracts, holds assets and issues or incurs debt, management believes this presentation is appropriate for the reasons set forth above and because the business of the Company is a single integrated enterprise operated through HTALP.
HEALTHCARE TRUST OF AMERICA, INC. AND
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
TABLE OF CONTENTS
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | Page |
|
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| [Reserved] | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| | |
| | |
| | |
| |
PART I
Item 1. Business
BUSINESS OVERVIEW
HTA, a Maryland corporation, and HTALP, a Delaware limited partnership, were incorporated or formed, as applicable, on April 20, 2006.
HTAThe Company is a publicly-tradedself-managed and self-administered real estate investment trust (“REIT”) that owns, leases, manages, acquires, finances, develops and redevelops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States.
The Company operates so as to qualify as a REIT and onefor federal income tax purposes. As a REIT, the Company is not subject to corporate federal income tax with respect to taxable income distributed to its stockholders. See “Item 1A. Risk Factors” for a discussion of the leading owners and operators of medical office buildings (“MOBs”)risks associated with qualifying as a REIT.
As described in the United States (“U.S.”). We focusExplanatory Note above and elsewhere in this report, on owningJuly 20, 2022, Legacy HR and operating MOBs that serveLegacy HTA completed a merger between the futurecompanies in which Legacy HR merged with and into a wholly-owned subsidiary of healthcare deliveryLegacy HTA, with Legacy HR continuing as the surviving entity and are located on health system campuses, near university medical centers, ora wholly-owned subsidiary of Legacy HTA. Immediately following the Merger, Legacy HTA changed its name to “Healthcare Realty Trust Incorporated.” For accounting purposes, the Merger was treated as a “reverse acquisition” in community core outpatient locations. We also focus on key markets that have attractive demographicswhich Legacy HR was considered the acquirer. The consolidated company operates under the name “Healthcare Realty Trust Incorporated” and macro-economic trends and where we can utilize our institutional full-service property management, leasing and development services platform to generate strong tenant and health system relationships and operating cost efficiencies. Our primary objective is to enhanceits shares of class A common stock, $0.01 par value per share, trade under the valueticker symbol “HR”.
Real Estate Properties
The Company had gross investments of ourapproximately $14.1 billion in 688 real estate properties, construction in progress, redevelopments, financing receivables, financing lease right-of-use assets, through our dedicated assetland held for development and corporate property as of December 31, 2022. In addition, the Company had a weighted average ownership interest of approximately 48% in 33 real estate properties held in joint ventures as of December 31, 2022. The Company provided leasing and property management platform, which generates consistent revenue streams and manageable expenses. As a result of our core business strategy, we seek to generate stockholder value through consistent and growing dividends, which are attainable through sustainable cash flows.
We invest in MOBs that we believe are critical to the delivery of healthcare in a changing environment. Healthcare is one of the fastest growing segments of the U.S. economy, with an expected average growth rate of nearly 6% between 2017 and 2025. Overall U.S. spending is expected to increase to 19.9% of GDP by 2025 according to the U.S. Centers for Medicare & Medicaid Services. In addition, healthcare is experiencing the fastest employment growth in the U.S., a trend that is expected to continue over the next decade. These high levels of demand are primarily driven by an aging U.S. population and the long-term impact of an increasing number of insured individuals nationwide. This increase in demand, combined with advances in less invasive medical procedures, is driving many healthcare services to lower costs and to more convenient outpatient settings that are less reliant on hospital campuses. As a result, HTA believes that well-located MOBs should provide stable cash flows with relatively low vacancy risk, resulting in consistent long-term growth.
Since inception, the Company has invested $7.0 billion primarily in MOBs, development projects, land, and other healthcare real estate assets that are primarily located in 20 to 25 high quality markets that possess above average economic and socioeconomic drivers. Our93% of its portfolio consists of approximately 24.1 million square feet of gross leasable area (“GLA”) throughout the U.S. Asnationwide as of December 31, 2017, approximately 70% of our portfolio was located on2022. The Company’s real estate property investments by geographic area are detailed in Note 3 to the campuses of, or adjacent to, nationally and regionally recognized healthcare systems. We believe these key locations and affiliations create significant demand from healthcare related tenants for our properties. Further, our portfolio is primarily concentrated within major U.S. metropolitan statistical areas (“MSAs”) that we believe will provide above-average economic growth and socioeconomic benefits overConsolidated Financial Statements. The following table details the coming years. AsCompany's owned properties by facility type as of December 31, 2017, we had approximately 2022:
| | | | | | | | | | | | | | |
| | | | |
| | | December 31, 2022 |
Dollars and square feet in thousands | GROSS INVESTMENT | SQUARE FEET | NUMBER OF PROPERTIES | OCCUPANCY 1 |
Medical office/outpatient | $ | 12,570,933 | | 36,800 | | 656 | | 87.2 | % |
Inpatient | 653,648 | | 1,528 | | 20 | | 91.2 | % |
Office | 508,741 | | 1,789 | | 10 | | 96.2 | % |
| 13,733,322 | | 40,117 | | 686 | | 87.7 | % |
Construction in progress | 35,560 | | | | |
Land held for development | 74,265 | | | | |
Investments in financing receivables, net 2,3 | 120,236 | | 187 | | 1 | | 100.0 | % |
Financing lease right-of-use assets 3 | 83,824 | | 45 | | 1 | | 77.8 | % |
Corporate property | 10,418 | | | | |
Total real estate investments | 14,057,625 | | 40,349 | | 688 | | 87.8 | % |
Unconsolidated joint ventures 4 | 350,305 | | 1,913 | | 33 | | 85.4 | % |
Total investments | $ | 14,407,930 | | 42,262 | | 721 | | 87.7 | % |
1 millionThe occupancy column represents the percentage of total rentable square feet leased (including month-to-month and holdover leases). There was one property excluded from the table above that was classified as held for sale as of GLADecember 31, 2022.
2Investments in eachfinancing receivables, net includes a single-tenant net lease property in San Diego, CA in a sale-leaseback transaction totaling $112.9 million.
3Financing lease right-of-use assets includes a multi-tenant lease property in Columbus, OH in a sale-leaseback transaction totaling $16.1 million, of our top ten marketswhich $8.7 million was accounted for as an imputed lease arrangement as required under ASC 842, Leases. The remaining $7.4 million was accounted for as a financing arrangement and approximately 93% of our portfolio, based on GLA, is locatedincluded in the top 75 MSAs, with Dallas, Houston, Boston, TampaInvestments in financing receivables, net and Atlanta being our largest markets by investment.
Our principal executive office is located at 16435 North Scottsdale Road, Suite 320, Scottsdale, AZ 85254, and our telephone number is (480) 998-3478. We maintain a website at www.htareit.com where additional information about us can be accessed. The contentsincludes its relative portion of the site aresquare feet and occupancy.
4Gross investment includes the Company's pro rata share of unconsolidated joint ventures, net of mortgage note payable. Square feet has not incorporatedbeen adjusted by reference in, or otherwisethe Company's ownership percentage.
Financial Concentrations
The Company’s real estate portfolio is leased to a part of this filing. We make our periodic and current reports, as well as any amendments to such reports, available at www.htareit.com as soon as reasonably practicable after such materials are electronically filed with the SEC. These reports are also available in hard copy to any stockholder upon request by contacting our investor relations staff at the number above or via email at info@htareit.com.
HIGHLIGHTS
diverse tenant base. For the year ended December 31, 2017, our total revenue increased 33.2%,2022, the Company did not have any tenants that accounted for 10% or $153.1 million, to $614.0 million, comparedmore of the Company’s consolidated revenues. See Note 3 to the year endedConsolidated Financial Statements for additional information regarding the Company's gross investments by geographic market.
Expiring Leases
As of December 31, 2016.
For2022, the year endedweighted average remaining years to expiration pursuant to the Company’s leases was approximately 4.5 years, with expirations through 2052. The table below details the Company’s lease expirations as of December 31, 2017, net income attributable2022, excluding the Company's unconsolidated joint ventures, financing receivables and right-of-use assets.
| | | | | | | | | | | |
EXPIRATION YEAR | NUMBER OF LEASES | LEASED SQUARE FEET | PERCENTAGE OF LEASED SQUARE FEET |
2023 (1) | 1,459 | | 5,004,436 | | 14.2 | % |
2024 | 1,171 | | 5,150,146 | | 14.6 | % |
2025 | 1,020 | | 4,442,560 | | 12.6 | % |
2026 | 814 | | 3,610,265 | | 10.2 | % |
2027 | 807 | | 4,420,368 | | 12.5 | % |
2028 | 440 | | 2,547,615 | | 7.2 | % |
2029 | 381 | | 2,484,979 | | 7.1 | % |
2030 | 288 | | 2,206,923 | | 6.3 | % |
2031 | 227 | | 1,203,587 | | 3.5 | % |
2032 | 267 | | 2,106,365 | | 6.0 | % |
Thereafter | 184 | | 2,053,288 | | 5.8 | % |
| 7,058 | | 35,230,532 | | 100.0 | % |
1Includes 177 leases totaling 311,889 square feet that expired prior to common stockholders was $0.34 per diluted share, or $63.9 million, compared to $0.33 per diluted share, or $45.9 million, for the year ended December 31, 2016.2022 and were on month-to-month terms.
For the year ended December 31, 2017, HTA’s FFO,See "Trends and Matters Impacting Operating Results" as defined by the National Associationpart of Real Estate Investment Trusts (“NAREIT”), was $284.2 million, or $1.53 per diluted share, compared to $1.54 per diluted share, or $215.6 million for the year ended December 31, 2016.
For the year ended December 31, 2017, HTALP’s FFO was $285.8 million, or $1.54 per diluted OP Unit, compared to $1.55 per diluted OP Unit, or $216.9 million for the year ended December 31, 2016.
For the year ended December 31, 2017, HTA’s and HTALP’s Normalized FFO was $1.63 per diluted share and OP Unit, or $302.0 million, an increase of $0.02 per diluted share and OP Unit, or 1.2%, compared to the year ended December 31, 2016.
For additional information on FFO and Normalized FFO, see Item 7 - Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of this report for additional information regarding the Company's leases and leasing efforts.
Liquidity
The Company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements. The Company expects to meet its liquidity needs through cash on hand, cash flows from operations, property dispositions, equity and debt issuances in the public or private markets and borrowings under commercial credit facilities.
Business Strategy
The Company owns and operates properties that facilitate the delivery of healthcare services in primarily outpatient settings. To execute its strategy, the Company engages in a broad spectrum of integrated services including leasing, management, acquisition, financing, development and redevelopment of such properties. The Company seeks to generate stable, growing income and lower the long-term risk profile of its portfolio of properties by focusing on facilities primarily located on or near the campuses of acute care hospitals associated with leading health systems. The Company seeks to reduce financial and operational risk by owning properties in high-growth markets with a broad tenant mix that includes over 30 physician specialties, as well as surgery, imaging, cancer, and diagnostic centers.
2022 Investment Activity
In 2022, the Company acquired 33 medical office buildings through acquisitions and investments in joint ventures. The total purchase price of the acquisitions was $504.6 million and the weighted average capitalization rate for these investments was 5.3%. The following bullets provide further detail of the 2022 acquisition activity.
•The Company (exclusive of joint ventures) acquired 28 medical office buildings for purchase prices totaling $403.6 million.
•Through its joint ventures, the Company acquired interests in five medical office buildings for purchase prices totaling $101.0 million.
The Company disposed of 44 properties during 2022 for sales prices totaling $1.2 billion, including 10 properties contributed into joint ventures in which includesthe Company maintained a reconciliation to net income attributable to common stockholders/unitholders and an explanation of why we presentnon-controlling interest. The weighted average capitalization rate for these non-generally accepted accounting principles (“GAAP”) financial measures.
Forproperties was 4.8%. The Company calculates the year ended December 31, 2017, ourcapitalization rate for dispositions as the in-place cash net operating income (“NOI”) increased 33.0%, or $104.7divided by the sales price.
In 2022, the Company funded $60.8 million to $421.8 million, comparedtoward development and redevelopment of properties.
See the Company's discussion regarding the 2022 acquisition, joint venture and disposition activity in Note 5 to the year ended December 31, 2016.
For the year ended December 31, 2017, our Same-Property Cash NOI increased 2.9%, or $8.0 million, to $284.8 million, comparedConsolidated Financial Statements and development activity in Note 15 to the year ended December 31, 2016.
For additional information on NOIConsolidated Financial Statements. Also, please refer to the Company's discussion in "Trends and Same-Property Cash NOI, seeMatters Impacting Operating Results" as part of Item 7 - Management’s7. Management's Discussion and Analysis of Financial Condition and Results of Operations which includes a reconciliation to net income attributable to common stockholders/unitholders and an explanationincluded in Part II of why we present this non-GAAP financial measure.report.
As of December 31, 2017, our leased rate (includes leases which have been executed, but which have not yet commenced) was 91.8% by GLA and our occupancy rate was 91.0% by GLA. The leased rate for our Same-Property portfolio was 91.6%.
As of December 31, 2017, tenant retention for the Same-Property portfolio was 78%, which included approximately 1.5 million square feet of GLA of expiring leases, which we believe is indicative of our commitment to maintaining buildings in desirable locations and fostering strong tenant relationships. Tenant retention is defined as the sum of the total leased GLA of tenants that renewed a lease during the period over the total GLA of leases that renewed or expired during the period.
During the year ended December 31, 2017, we completed investments totaling $2.7 billion, including the acquisition of Duke Realty’s Medical Office Building portfolio and platform (the “Duke Acquisition”) for $2.25 billion, net of development credits we received at closing. These 2017 investments totaled approximately 6.8 million square feet of GLA and 90% were located in certain of our 20 to 25 key markets. This represents an increase of approximately 36% of GLA compared to 2016.
Part of our investment strategy also includes recycling assets that we consider non-core or are located outside our key markets. During the year ended December 31, 2017, we completed dispositions of four MOBs located in Wisconsin, California and Texas for an aggregate gross sales price of $85.2 million, generating gains of $37.8 million.
During the year ended December 31, 2017, we raised over $4 billion in new capital to finance our acquisitions and refinance debt. This included $1.8 billion in common equity issued at an average price of $28.76 per share through marketed offerings and our at-the-market (“ATM”) offering program. We also issued or entered into new debt agreements totaling $2.5 billion, which included $900.0 million in senior unsecured notes, $286.0 million promissory note (the “Promissory Note”), and entered into an amended and restated $1.3 billion unsecured credit agreement (the “Unsecured Credit Agreement”) which increased the amount available under the unsecured revolving credit facility to $1.0 billion and extended the maturities of the unsecured revolving credit facility to June 30, 2022 and for the $300.0 million unsecured term loan until February 1, 2023. The interest rate on the unsecured revolving credit facility is adjusted LIBOR plus a margin ranging from 0.83% to 1.55% per annum based on HTA’s credit rating.
As of December 31, 2017, we had total leverage, measured by net debt (total debt less cash and cash equivalents) to total capitalization, of 29.9%. Total liquidity as of December 31, 2017 was $1.2 billion, which included $100.4 million of cash and cash equivalents, $991.2 million available on our unsecured revolving credit facility (includes the impact of $8.8 million of outstanding letters of credit), and a $75.0 million forward equity agreement resulting from an equity issuance under our ATM offering program in October 2017 that had not been utilized as of December 31, 2017.
BUSINESS STRATEGIES
Corporate Strategies
Invest in and Maintain a Portfolio of Properties that are Valuable for the Future of Healthcare DeliveryCompetition
The Company is focused on investing incompetes for the acquisition and maintaining adevelopment of real estate portfolio that consistsproperties with private investors, healthcare providers, other REITs, real estate partnerships and financial institutions, among others. The business of well-located MOBs that allow foracquiring and developing new healthcare facilities is highly competitive and is subject to price, construction and operating costs, and other competitive pressures. Some of the efficient deliveryCompany's competitors may have lower costs of capital.
The financial performance of all of the Company’s properties is subject to competition from similar properties. The extent to which the Company’s properties are utilized depends upon several factors, including the number of physicians using or referring patients to an associated healthcare facility, healthcare employment, competitive systems of healthcare overdelivery, and the long-term. To date, wearea’s population, size and composition. Private, federal and state health insurance programs and other laws and regulations may also have invested $7.0 billion to create onean effect on the utilization of the largest portfolios (based on GLA) of healthcare real estate that is focused on the MOB sectorproperties. The Company’s properties operate in the U.S. We look to allocate capital to properties that exhibit the following key attributes:
Located on the campuses of, or aligned with, nationallya competitive environment, and regionally recognized healthcare systems in the U.S. We seek to invest in properties that have long-term value for healthcare providers, including those that benefit from their proximity to and/or affiliation with prominent healthcare systems. These healthcare systems typically possess high credit quality and are capable of investing capital into their campuses. We believe our affiliations with these health systems helps ensure long-term tenant demand. As of December 31, 2017, approximately 70% of our portfolio was located on the campuses of, or adjacent to, nationally and regionally recognized healthcare systems.
Located in core community outpatient locations. We seek to invest in properties that will have long-term value for healthcare providers, including those that are located in key outpatient medical hubs that are located in communities. These properties benefit from their proximity to attractive patient populations, maintain a mix of physician practices and specialties, and are convenient for patients and physicians alike. In addition, these properties and medical hubs can be centers for healthcare away from hospital campuses while benefiting from the advancement of healthcare technology, which allow for lower cost settings, more services and procedures to be performed away from hospitals, and the growing requirement for convenient healthcare. We believe these factors ensure long-term tenant demand. At December 31, 2017, approximately 30% of our portfolio was located in core community outpatient locations.
Attractive markets where we can maximize efficiencies through our asset management and leasing platform. We seek to own MOBs in markets with attractive demographics, economic growth and higher barriers to entry which support growing tenant demand. We have developed a strong presence across 20 to 25 key markets since our inception, with approximately 93% of our total GLA located in top 75 MSAs as of December 31, 2017. In addition, we have developed scale in these key markets, reaching approximately 1 million square feet of GLA in each of our top ten markets, and approximately 500,000 square feet of GLA in our top 16 markets. Our scale in markets has allowed us to create the largest, institutionally owned asset management platform which includes leasing, property management, building maintenance, construction, and development capabilities. In each of these markets, we have established a strong asset management, leasing and development services platform that has allowed us to develop valuable relationships with health systems, physician practices, universities and regional development firms that have led to investment and leasing opportunities. Our property management platform utilizes our scale to provide services to our properties at cost effective rates and with a focus on generating cost efficiencies and superior service for our tenants.
Occupied with limited near term leasing risks. We seek to invest in and maintain well-occupied properties that we believe are critical to the delivery of healthcare within that specific market. As of December 31, 2017, our portfolio was 91.8% leased. We believe this creates tenant demand that supports higher occupancy and drives strong, long-term tenant retention as hospitals and physicians are reluctant to move or relocate, as evidenced by our Same-Property portfolio tenant retention rate of 78% as of the year ended December 31, 2017.
Diversified and synergistic mix of tenants. Our primary focus is placed on ensuring an appropriate and diversified mix of tenants from different practice types, as well as complimentary practices that provide synergies within both individual buildings and the broader health system campuses. We actively invest in both multi-tenant properties, which generally have shorter-term leases on smaller spaces, and single-tenant properties, which generally have longer-term leases. The multi-tenant buildings provide for lower lease rollover risks in any particular year and typically allow rents to reset to current market rates that may be higher than the in-place rental rates. We believe single-tenant buildings provide steady long-term cash flow, but generally provide for more limited long-term growth.
Credit-worthy tenants. Our primary tenants are healthcare systems, academic medical centers and leading physician groups. These groups typically have strong and stable financial performance, which we believe helps ensure stability in our long-term rental income and tenant retention. As of December 31, 2017, 61% of our annual base rent was derived from credit-rated tenants, primarily health systems. A significant amount of our remaining rent comes from physician groups and medical healthcare system tenants that are credit-worthy based on our internal underwriting and due diligence, but do not have the size to benefit from a formal credit rating by a nationally recognized rating agency.
Internal Growth through Proactive In-House Property Management and Leasing
Our internal property management and leasing team operates approximately 22.4 million square feet of GLA, or 93%, of our total portfolio. This is a significant increase since our public listing on the New York Stock Exchange (“NYSE”) in 2012 when we managed approximately 8.8 million square feet, or 70%, of our GLA. We believe this direct asset management approach allows us to maximize our internal growth by improving occupancy, achieving operating efficiencies and creating long-term tenant relationships at our properties, resulting in optimized rental rates. Specific components of our overall asset management strategy include:
Maintaining regional offices in markets where we have a significant presence. HTA has local offices in 24 markets, including its corporate headquarters in Scottsdale, Arizona, primarily in our key markets across the U.S.
Creating local relationships with local healthcare providers, including national and regional healthcare systems, physicians and other providers.
Maintaining or increasing our average rental rates, actively leasing vacant space and reducing leasing concessions. These leasing results contributed to our 2.8% or more Same-Property Cash NOI growth each quarter during the year ended December 31, 2017.
Improving the quality of service provided to our tenants by being attentive to their needs, managing expenses and strategically investing capital to remain competitive within our markets. During the year ended December 31, 2017, we achieved tenant retention for the Same-Property portfolio of 78%.
Maintaining a portfolio of high-quality medical office buildings that we believe are critical to the delivery of healthcare now and in the future, while enhancing our reputation as a dedicated leading MOB owner and operator.
Utilizing local and regional economies of scale to focus on operating cost efficiencies for our properties and utilizing our building service operations to generate profits for shareholders while providing more efficient services.
Key Market Focused Strategy and Investments
We plan to grow externally through targeted investments and developments that improve the quality of our portfolio and are accretive to our cost of capital. To achieve this growth in competitive markets we seek:
Targeted property investments, generally located within our key markets. These transactions allow us to focus on the quality of individual properties and ensure they are accretive to our cost of capital. They also allow us to exhibit meaningful growth given our current mid-market size.
Long-term relationships with key industry participants. We will continue our emphasis on long-term relationship building as we have since inception. These relationships are cultivated by our senior management team, with key industry participants, including health systems as well as local and regional developers, which have traditionally provided us with valuable investment opportunities.
Local knowledge through our internal full-service operational platform. Our local personnel participate in local industry activities that can provide insightful information with respect to potential opportunities.
Actively Maintain Conservative Capital Structure
We have and continue to actively manage our balance sheet to maintain an attractive investment grade credit rating, to maintain conservative leverage and to preserve financing flexibility, which ultimately hedges inherent risk and provides us with attractive capital sources that allow us to take advantage of strategic external growth opportunities. In addition, we may also strategically dispose of properties that we believe no longer align with our strategic growth objectives in order to redeploy the capital generated by these dispositions into higher yielding MOBs that we believe have better longer-term growth prospects. The strength of our balance sheet is demonstrated by our investment grade credit ratings. To maintain our strong and conservative balance sheet, we:
Maintain a low leverage ratio. Our leverage ratio, measured by net debt (total debt less cash and cash equivalents) to total capitalization, was 29.9% as of December 31, 2017.
Continue to maintain a high level of liquidity. As of December 31, 2017, we had approximately $1.2 billion of liquidity, primarily consisting of $991.2 million available on our unsecured revolving credit facility and $100.4 million of cash and cash equivalents.
Utilize multiple capitalreferral sources, including public debt and equity, unsecured bank loans and secured property level debt.physicians, may change their preferences for a healthcare facility from time to time.
Maintain well-laddered debt maturities, which extend through 2027 with no significant exposure in any one year.
As of December 31, 2017, the weighted average remaining term of our debt portfolio was 5.7 years.
HEALTHCARE INDUSTRY
Healthcare Sector Growth
We operate MOBs within the healthcare industry, which we believe are benefiting from several significant macroeconomic drivers, such as an aging population, millennials beginning to form families, and an increase in the insured population. These trends are driving growth in healthcare spending at a rate significantly faster than the broader U.S. economy.Government Regulation
The U.S. population is experiencing significant aging of its population, as advancements infacilities owned by the Company are utilized by medical technologytenants which are required to comply with extensive regulation and changes in treatment methods enable peoplelegislation at the federal, state and local levels, including, but not limited to, live longer. This is expected to drive healthcare utilization higher as individuals consume more healthcare as they get older. Between 2016 and 2026, the U.S. population over 65 years of age is projected to increase by more than 32% and total over 19% of the U.S. population as the baby boomer generation enters retirement. Individuals of this age spend the highest amounts on healthcare, averaging approximately $6,000 per individual over the age of 65 according to a 2016 Consumer Expenditure Survey. This compares to healthcare expenditures of less than $1,200 per year for individuals under the age of 25. The older population group will increasingly require treatment and management of chronic and acute health ailments. We believe much of this increased care will take place in lower cost outpatient settings, which should continue to support MOB demand in the long term.
In addition, the large millennial generation is just now starting to reach their thirties and form families. During this age period, healthcare expenditures double on average. As this large generation utilizes additional healthcare services, it is expected they will do so in more convenient outpatient settings.
The number of insured individuals in the U.S. continues to increase, as the population grows and as a result of the impact of U.S. government actions, including the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (the “Affordable(collectively, the "Affordable Care Act”Act"). Since 1999,, the numberBipartisan Budget Act of individuals covered by healthcare insurance in the U.S. has increased over 20%. Although the current political administration has sought to unsuccessfully repeal the Affordable Care Act, Medicaid expansion remains in place with some states seeking to expand coverage. Thus far, the removal of the individual mandate in the Tax Cuts and Jobs Act (the “TCJA”) has seen limited noticeable impact.
As a result of these factors, the healthcare sector is one of the fastest growing sectors of the U.S. economy and is growing faster than GDP. According to the latest data from 2017, Americans spent nearly $3.3 trillion, or 17.9% of total GDP, on healthcare expenditures in 2016, an increase of 4.3% over the previous year. The U.S. Centers for Medicare & Medicaid Services project that total healthcare expenditures will reach approximately $5.6 trillion by 2025. Healthcare expenditures are projected to grow an average of 5.6% annually through 2025 and account for 19.9% of GDP by 2025. This growth in healthcare expenditures reflects the increasing demand for healthcare. It is also driving demand for cost effective healthcare which generally takes place in outpatient settings such as MOBs.
Employment in the healthcare industry has steadily increased for at least 20 years despite three recessions. Healthcare-related jobs are among the fastest growing occupations, projected to increase by 18% between 2016 and 2026, significantly higher than the general U.S. employment growth projection of 7%, according to the Bureau of Labor Statistics. Additionally, the Bureau of Labor Statistics projects ten out of the top twenty occupations with the highest growth for workers will be in the healthcare sector. We expect the increased growth in the healthcare industry will correspond with a growth in demand for MOBs and other facilities that serve the healthcare industry.
Medical Office Building Supply and Demand
We believe that healthcare real estate, specifically MOBs, and its rents and valuations are less susceptible to changes in the general economy than general commercial real estate due to macroeconomic trends supporting the healthcare sector and the defensive nature of healthcare expenditures during economic downturns. For this reason, we believe MOB investments provide more consistent rental revenue streams, higher occupancies and tenant retention that could potentially translate into a more stable return to investors compared to other types of real estate investments which may be more susceptible to higher vacancies and unreliable rental revenue streams. We also believe that demand for MOBs will increase due to a number of MOB specific factors, including:
The MOB sector is highly fragmented with approximately 30% of the MOBs owned by public REITs and private equity firms. There is vast room for growth for both public and private firms to expand within the industry given the lack of institutional ownership compared to other real estate sectors.
Evolution in the healthcare industry resulting in more efficient and less invasive procedures that have traditionally been performed in hospitals, such as surgery, that have moved to outpatient facilities as a result of shifting consumer preferences, limited space in hospitals and lower costs.
An increase in medical office visits due to the overall rise in healthcare utilization which in turn has driven hiring within the healthcare sector. Additionally, the rate of employment growth in physicians’ offices and outpatient care facilities has outpaced employment growth in hospitals during the past decade, further supporting the trend of increased utilization of healthcare services outside of the hospital. This trend is forecast to continue, with the number of healthcare providers, particularly nurses, physicians, and technical specialists, growing significantly faster than the U.S. average.
High credit quality of physician tenants. In recent years, MOB tenants have increasingly consisted of larger hospital and physician groups. These groups utilize their size and expertise to obtain high rates of reimbursement and share overhead operating expenses which creates significant rent coverage, or an ability to pay rent. We believe these larger groups are generally credit-worthy and provide stability and long-term value for MOBs.
Construction of MOBs has been relatively constrained over the last five years, with high cost barriers to development in markets in which we invest.
PORTFOLIO OF PROPERTIES
As of December 31, 2017, our portfolio consisted of approximately 24.1 million square feet of GLA, with a leased rate of 91.8% (includes leases which have been executed, but which have not yet commenced).
Our properties were primarily located on the campuses of, or aligned with, nationally and regionally recognized healthcare systems in the U.S. These properties include leading health systems, such as Baylor Scott & White Health, Highmark-Allegheny Health Network, Community Health Systems, Greenville Health System and Ascension Health. The Company is the largest owner of on-campus or adjacent MOBs in the country, with approximately 16.9 million square feet of GLA, or 70%, of our portfolio located in these locations. The remaining 30% are located in core community outpatient locations where healthcare is increasingly being delivered.
|
| | | | | | | | | | | | | | | | | | | |
Portfolio Diversification by Type | | Number of Buildings | | Number of States | | GLA (1) | | Percent of Total GLA | | Annualized Base Rent (1)(2) | | Percent of Annualized Base Rent |
Medical Office Buildings | | |
| | |
| | | | | | | | |
Single-tenant | | 118 |
| | 22 |
| | 6,408 |
| | 26.6 | % | | $ | 146,821 |
| | 27.9 | % |
Multi-tenant | | 312 |
| | 31 |
| | 16,397 |
| | 68.0 |
| | 341,838 |
| | 65.0 |
|
Other Healthcare Facilities | | | | | | | | | | | | |
Hospitals | | 15 |
| | 7 |
| | 954 |
| | 3.9 |
| | 32,377 |
| | 6.1 |
|
Senior care | | 3 |
| | 1 |
| | 355 |
| | 1.5 |
| | 5,242 |
| | 1.0 |
|
Total | | 448 |
| | 33 |
| | 24,114 |
| | 100 | % | | $ | 526,278 |
| | 100 | % |
| | | | | | | | | | | | |
(1) Amounts presented in thousands. | | | | | | | | | | | | |
(2) Annualized base rent is calculated by multiplying contractual base rent as of the end of the year by 12 (excluding the impact of abatements, concessions, and straight-line rent). |
SIGNIFICANT TENANTS
As of December 31, 2017, none of the tenants at our properties accounted for more than 4.4% of our annualized base rent. The table below shows our key health system relationships as of December 31, 2017.
|
| | | | | | | | | | | | | | | | |
Health System (1) | | Weighted Average Remaining Lease Term (2) | | Total Leased GLA (3) | | Percent of Leased GLA | | Annualized Base Rent (3)(4) | | Percent of Annualized Base Rent |
Baylor Scott & White Health | | 8 |
| | 849 |
| | 3.8 | % | | $ | 22,752 |
| | 4.3 | % |
Highmark-Allegheny Health Network | | 5 |
| | 914 |
| | 4.1 |
| | 17,645 |
| | 3.3 |
|
Community Health Systems (TN) | | 7 |
| | 738 |
| | 3.3 |
| | 16,227 |
| | 3.1 |
|
Greenville Health System | | 6 |
| | 806 |
| | 3.7 |
| | 15,976 |
| | 3.0 |
|
Ascension Health | | 2 |
| | 467 |
| | 2.1 |
| | 11,672 |
| | 2.2 |
|
Tufts Medical Center | | 10 |
| | 252 |
| | 1.1 |
| | 10,251 |
| | 2.0 |
|
Steward Health Care System | | 9 |
| | 380 |
| | 1.7 |
| | 9,418 |
| | 1.8 |
|
Hospital Corporation of America | | 3 |
| | 342 |
| | 1.6 |
| | 9,407 |
| | 1.8 |
|
Tenet Healthcare System | | 8 |
| | 384 |
| | 1.7 |
| | 9,171 |
| | 1.7 |
|
Providence St. Joseph Health | | 2 |
| | 262 |
| | 1.2 |
| | 8,942 |
| | 1.7 |
|
SCL Health | | 14 |
| | 167 |
| | 0.8 |
| | 8,238 |
| | 1.6 |
|
Harbin Clinic | | 10 |
| | 313 |
| | 1.4 |
| | 6,687 |
| | 1.3 |
|
Adventist Health | | 4 |
| | 285 |
| | 1.3 |
| | 6,228 |
| | 1.2 |
|
Mercy Health | | 9 |
| | 251 |
| | 1.1 |
| | 6,184 |
| | 1.2 |
|
Atrium Health | | 3 |
| | 190 |
| | 0.9 |
| | 5,727 |
| | 1.1 |
|
Total | | | | 6,600 |
| | 29.8 | % | | $ | 164,525 |
| | 31.3 | % |
| | | | | | | | | | |
(1) The amounts in this table illustrate only direct leases with selected top health systems in our portfolio and are not inclusive of all health system tenants. |
(2) Amounts presented in years. |
(3) Amounts presented in thousands. |
(4) Annualized base rent is calculated by multiplying contractual base rent as of the end of the year by 12 (excluding the impact of abatements, concessions, and straight-line rent). |
GEOGRAPHIC CONCENTRATION
As of December 31, 2017, our portfolio was concentrated in key markets that we have determined to be strategic based on demographic trends, projected demand for healthcare and overall asset management efficiencies.
|
| | | | | | | | | | | | | | | | | |
Key Markets | | Investment (1) | | Percent of Investment | | Total GLA (1) | | Annualized Base Rent (1)(2) | | Percent of Annualized Base Rent |
Dallas, TX | | $ | 843,274 |
| | 12.1 | % | | 2,053 |
| | $ | 49,243 |
| | 9.4 | % |
Houston, TX | | 430,979 |
| | 6.2 |
| | 1,484 |
| | 31,333 |
| | 6.0 |
|
Boston, MA | | 410,730 |
| | 5.9 |
| | 1,037 |
| | 33,440 |
| | 6.4 |
|
Tampa, FL | | 347,764 |
| | 5.0 |
| | 943 |
| | 22,479 |
| | 4.3 |
|
Atlanta, GA | | 325,186 |
| | 4.7 |
| | 1,088 |
| | 23,197 |
| | 4.4 |
|
Indianapolis, IN | | 281,768 |
| | 4.0 |
| | 1,396 |
| | 24,742 |
| | 4.7 |
|
Hartford/New Haven, CT | | 277,509 |
| | 4.0 |
| | 969 |
| | 20,935 |
| | 4.0 |
|
Phoenix, AZ | | 267,781 |
| | 3.8 |
| | 1,315 |
| | 24,716 |
| | 4.7 |
|
Denver, CO | | 246,957 |
| | 3.5 |
| | 538 |
| | 17,193 |
| | 3.3 |
|
Orange County/Los Angeles, CA | | 241,242 |
| | 3.5 |
| | 513 |
| | 13,550 |
| | 2.6 |
|
Miami, FL | | 228,624 |
| | 3.3 |
| | 996 |
| | 21,416 |
| | 4.1 |
|
Chicago, IL | | 190,778 |
| | 2.7 |
| | 382 |
| | 11,237 |
| | 2.1 |
|
Raleigh, NC | | 185,564 |
| | 2.7 |
| | 608 |
| | 14,977 |
| | 2.8 |
|
Albany, NY | | 179,253 |
| | 2.6 |
| | 881 |
| | 16,042 |
| | 3.0 |
|
Greenville, SC | | 179,070 |
| | 2.6 |
| | 965 |
| | 18,014 |
| | 3.4 |
|
Austin, TX | | 164,425 |
| | 2.3 |
| | 408 |
| | 8,320 |
| | 1.6 |
|
Orlando, FL | | 156,300 |
| | 2.2 |
| | 511 |
| | 10,754 |
| | 2.0 |
|
Pittsburgh, PA | | 148,612 |
| | 2.1 |
| | 1,094 |
| | 20,735 |
| | 3.9 |
|
White Plains, NY | | 126,144 |
| | 1.8 |
| | 333 |
| | 7,818 |
| | 1.5 |
|
Milwaukee, WI | | 116,082 |
| | 1.7 |
| | 368 |
| | 7,492 |
| | 1.4 |
|
Top 20 MSAs | | 5,348,042 |
| | 76.7 |
| | 17,882 |
| | 397,633 |
| | 75.6 |
|
Additional Top MSAs | | 1,198,886 |
| | 17.2 |
| | 4,527 |
| | 92,364 |
| | 17.5 |
|
Total Key Markets & Top 75 MSAs | | $ | 6,546,928 |
| | 93.9 | % | | 22,409 |
| | $ | 489,997 |
| | 93.1 | % |
| | | | | | | | | | |
(1) Amounts presented in thousands. |
(2) Annualized base rent is calculated by multiplying contractual base rent as of the end of the year by 12 (excluding the impact of abatements, concessions, and straight-line rent). |
COMPETITION
We compete with many other real estate investment entities, including financial institutions, pension funds, real estate developers, other REITs, other public and private real estate companies, and private real estate investors for the acquisition of MOBs and other facilities that serve the healthcare industry. During the acquisition process, we compete with others who may have a competitive advantage over us at this time in terms of size, capitalization, local knowledge of the marketplace and extended contacts throughout the region. Any combination of these factors may result in an increased purchase price for properties or other real estate related assets of interest to us, which may reduce the number of opportunities available to us that meet our investment criteria. If the number of opportunities that meet our investment criteria are limited, our ability to increase stockholder value may be adversely impacted.
We face competition in leasing available MOBs and other facilities that serve the healthcare industry to prospective tenants. As a result, we may have to provide rent concessions, incur charges for tenant improvements, offer other inducements, or we may be unable to timely lease vacant space in our properties, all of which may have an adverse impact on our results of operations. At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchase opportunities.
We believe our focus on MOBs, our experience and expertise, and our ongoing relationships with healthcare providers provide us with a competitive advantage. We have established an asset identification and acquisition network with healthcare providers and local developers which provides for the early identification of and access to acquisition opportunities. In addition, we believe this broad network allows us to effectively lease available space, retain our tenants, and maintain and improve our assets.
GOVERNMENT REGULATIONS
Healthcare-Related Regulations
Overview. The healthcare industry is heavily regulated by federal, state and local governmental agencies. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, fraud and abuse, relationships with physicians and other referral sources, and reimbursement. Changes in these laws and regulations could negatively affect the ability of our tenants to satisfy their contractual obligations, including making lease payments to us.
Healthcare Legislation. In March 2010, President Obama signed the Affordable Care Act into law. The Affordable Care Act, along with other healthcare reform efforts, has resulted in comprehensive healthcare reform in the U.S. through a phased approach, which began in 2010 and will conclude in 2018. The laws are intended to reduce the number of individuals in the U.S. without health insurance and significantly change the means by which healthcare is organized, delivered and reimbursed. The Affordable Care Act expanded reporting requirements and responsibilities related to facility ownership and management, patient safety, quality of care, and certain financial transactions, including payments by the pharmaceutical and medical industry to doctors and teaching hospitals. In the ordinary course of their businesses, our tenants may be regularly subjected to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations. If they do not comply with the additional reporting requirements and responsibilities, our tenants’ ability to participate in federal healthcare programs may be adversely affected. Moreover, there may be other aspects of the comprehensive healthcare reform legislation for which regulations have not yet been adopted, which, depending on how they are implemented, could adversely affect our tenants and their ability to meet their lease obligations to us.
The Affordable Care Act has faced numerous judicial, legislative and executive challenges. Although there continue to be judicial challenges to the Affordable Care Act, the Supreme Court has thus far upheld the Affordable Care Act, including, most recently, in their June 25, 2015 ruling on King v. Burwell. However, President Trump and Congressional, Republicans promised they would seek the repeal of the Affordable Care Act. On January 20, 2017, newly-sworn-in President Trump issued an executive order aimed at seeking the prompt repeal of the Affordable Care Act, and directed the heads of all executive departments and agencies to minimize the economic and regulatory burdens of the Affordable Care Act to the maximum extent permitted by law. In addition, there have been and continue to be numerous Congressional attempts to amend and repeal the Affordable Care Act. On December 22, 2017, President Trump signed the TCJA, which amends certain provisions of the Affordable Care Act including the elimination of the individual insurance mandate. We cannot predict whether any future attempts to amend or repeal the Affordable Care Act will be successful. The future of the Affordable Care Act is uncertain and any changes to existing laws and regulations, including the Affordable Care Act’s repeal, modification or replacement, could have a long-term financial impact on the delivery of and payment for healthcare. Both our tenants and us may be adversely affected by the law or its repeal, modification or replacement.
Reimbursement Programs. Sources of revenue for our tenants may include the federal Medicare program, Tricare, state Medicaid programs, private insurance carriers, health maintenance organizations, preferred provider arrangements and self-insured employers, among others. Medicare, Tricare and Medicaid programs, as well as numerous private insurance and managed care plans, generally require participating providers to accept government-determined reimbursement levels as payment in full for services rendered, without regard to facility charges. Changes in the reimbursement rate or methods of payment from third-party payors, including Medicare and Medicaid, could result in a substantial reduction in our tenants’ revenues.
In previous years, Medicare’s physician fee-for-service reimbursements were subject to a significant, automatic reduction in rates. Congress repeatedly enacted temporary legislation postponing the implementation of these physician rate cuts. In April 2015, the Medicare Access and CHIP Reauthorization Act of 2015, enacted rules that establishes physician reimbursement rates that allow for steady increases in rates overand laws intended to combat fraud, waste and abuse such as the near future.
Despite this “doc-fix” legislation, we cannot predict whether future Congressional proposals will seek to reduce physician reimbursements. Efforts by other such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. Further, revenue realizable under third-party payor agreements can change after examinationAnti-Kickback Statute, Stark Law and retroactive adjustment by payors during the claims settlement processes or as a result of post-payment audits. Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable, because additional documentation is necessary or because certain services were not covered or were not medically necessary.
Amendments to or repeal of the Affordable CareFalse Claims Act, and regulatory changes could impose further limitations on governmentlaws intended to protect the privacy and private paymentssecurity of patient information, such as the Health Insurance Portability and Accountability Act of 1996. These laws and regulations establish, among other things, requirements for state licensure and criteria for medical tenants to healthcare providers. The Affordable Care Act expanded Medicaid coverage to all individuals under age 65 with incomes up to 133% ofparticipate in government-sponsored reimbursement programs, including the federal poverty level. While the federal government agreed to pay the Medicaid expansion costs for newly eligible beneficiaries from 2014 through 2016, the federal government’s portion began declining in 2017. Further, the U.S. Supreme Court held in 2012 that states could not be required to expand their Medicaid programs, which has resulted in some states deciding not to expand theirMedicare and Medicaid programs. More recently,The Company's leases generally require the Trump administration has enacted, or is considering enacting, measures designed to reduce Medicaid expenditures. In some other cases, states have enacted or are considering enacting measures designed to reduce their Medicaid expenditures and to make changes to private healthcare insurance. Efforts to reduce costs will likely continue, which may result in reduced or slower growth in reimbursement for certain services provided by our tenants. In addition, the failure of any of our tenantstenant to comply with variousall applicable laws relating to the tenant's use and occupation of the leased premises. Although lease payments to the Company are not directly affected by these laws and regulations, could jeopardize theirchanges in these programs or the loss by a tenant of its license or ability to continue participatingparticipate in Medicare, Tricare, Medicaid and other government sponsored payment programs. The financial impactgovernment-sponsored reimbursement programs could have a material adverse effect on our tenants’ failure to comply with such laws and regulations could restrict theirthe tenant's ability to make rentlease payments to us.the Company.
Various lawsGovernment healthcare programs have increased over time as a significant percentage of the U.S. population’s health insurance coverage. The Medicare and CenterMedicaid programs are highly regulated and subject to frequent evaluation and change. Changes from year to year in reimbursement methodology, rates and other regulatory requirements may cause the profitability of providing care to Medicare and Medicaid patients to decline, which could adversely affect tenants' ability to make lease payments to the Company.
The Centers for Medicare and Medicaid Services (“CMS”) initiativescontinued to adjust Medicare payment rates in 2022 to implement site-neutral payment policies. These changes have lowered Medicare payments for services delivered in off-campus hospital outpatient departments in an effort to lessen reimbursement disparity in off-campus medical office and rulesoutpatient facilities. The Company’s medical office buildings that are also reducinglocated on hospital campuses could become more valuable as hospital tenants will keep their higher Medicare rates for on-campus outpatient services. However,
the Company has not seen a measurable impact from site-neutral Medicare payment policy, positively or changing medicalnegatively. The Company cannot predict the amount of benefit from these measures or if other federal health policy will ultimately require cuts to reimbursement rates for services provided in other settings. The Company cannot predict the degree to which these changes, or changes to federal healthcare programs in general, may affect the economic performance of some or all of the Company's tenants, positively or negatively.
Since 2018, physicians have been required to report patient data on quality and performance measures that began to affect their Medicare payments in 2020. Implementation of the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), and the ongoing debate over the most effective payment system to use to promote value-based reimbursement, along with its budget-neutrality rule that requires any increases in payments to be offset by decreases, present the industry and its individual participants with uncertainty and financial risk. The Company cannot predict the degree to which any such changes may affect the economic performance of the Company's tenants or, indirectly, the Company.
Legislative Developments
Taxation of Dividends
The Tax Cuts and Jobs Act of 2017 generally allows a deduction for individuals equal to 20% of certain income from pass-through entities, including ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income). In addition, the deduction for ordinary REIT dividends is not subject to the wage and tax basis limitations applicable to the deduction for other qualifying pass-through income. The Tax Cuts and Jobs Act of 2017 was a far-reaching and complex revision to the existing U.S. federal income tax laws. Many of the provisions of this act, such as the 20% deduction mentioned above, will expire at the end of 2025, unless extended by legislative action.
Healthcare
Each year, legislative proposals for health policy are introduced in Congress and state legislatures, and regulatory changes are proposed and enacted by government agencies. These proposals, individually or in the aggregate, could significantly change the delivery of healthcare services, either nationally or at the state level, if implemented. Examples of significant legislation or regulatory action recently proposed, enacted, or in the process of implementation include:
•the Coronavirus Aid, Relief and Economic Security Act of 2020, along with subsequent stimulus and COVID-19 relief bills and federal spending legislation, which provided relief funding and financial aid to businesses, individuals, and healthcare providers impacted by COVID-19, including higher Medicare reimbursement rates, forgiveness of small business loans to providers for payroll and rent, and additional resources for testing and vaccine distribution;
•the expansion of Medicaid benefits and health insurance exchanges established by the Affordable Care Act, whereby individuals and small businesses purchase health insurance with assistance from federal subsidies;
•various state legislature proposals for state-funded single-payer health insurance and a limit on allowable rates of reimbursement to healthcare providers;
•the implementation of quality control, cost containment, and value-based payment system reforms for Medicaid and Medicare, such as expansion of pay-for-performance criteria, bundled provider compensationpayments, accountable care organizations, comparative effectiveness research, and reimbursement. Recent changes include, among others:lower payments for hospital readmissions;
•ongoing evaluation of and transition toward value-based reimbursement models for Medicare payments to physicians as designated under MACRA;
•annual regulatory updates to Medicare policy for healthcare providers that can broadly change reimbursement methodology under budget-neutral guidelines, with the effect of lowering payments for some services and increasing payments for others, having a varying impact, positively or negatively, on providers;
•ongoing efforts to equalize Medicare payment rates across different facility-type settings, according to Section 603 of the Bipartisan Budget Act of 2015, which eliminates certain facility fee reimbursementslowered Medicare payment rates, effective January
1, 2017, for services provided in off-campus, provider-based outpatient centers that are located further than 250 yards fromdepartments to the main hospital campus. Existing health system facilities will continue to receive these facility fee reimbursements, but new facilities will not, resulting in minimal impact to our existing tenants’ operations.
Alternative payment models and payment reforms that compensate medical providers by qualitysame level of care and other criteria over quantity of care. The Health Care Payment Learning and Action Network is a network which is seeking to implement these reforms and CMS has various rules, such as the Merit-Based Incentive Payment System and Alternative Payment Models, which are changing how it compensates medical providers.
Proposed and finalized CMS rules which impact payments for specific types of services such as the “Lower Extremity Joint Replacement” and adjust reimbursement rates for specific typesphysician office settings;
•the continued adoption by providers of healthcare facilities.
These new laws, initiatives and CMS rules reflect an ongoing effort to reduce healthcare costs and reimburse medical providers based on criteria other than fee-for-service. Although their impact is difficult to predict, these laws, initiatives and CMS rules may adversely impact medical providers’ reimbursement and our tenants’ ability to make rent payments to us.
Fraud and Abuse Laws. There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from, or are in a position to make referrals in connection with, government-sponsored healthcare programs, includingstandards for the Medicare and Medicaid programs. Additionally,Promoting Interoperability Program;
•reforms to the Affordable Care Act includes program integrity provisions that both create new authorities and expand existing authorities for federal and state governments to address fraud, waste and abuse in federal healthcare programs. Our lease arrangements with certain tenants may also be subject to these fraud and abuse laws. Thesephysician self-referral laws, include, among others:
the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral or recommendation for the ordering of any item or service reimbursed by a federal healthcare program, including Medicare or Medicaid;
the Federal Physician Self-Referral Prohibition, commonly referred to as the “StarkStark Law,” which: (1) requires hospital landlords as adjusted in 2020 in order to promote the transition toward value-based, coordinated care among providers, although clear intent to boost referrals could still yield provider penalties;
•consideration of facilities with financial relationshipsbroad reforms to charge a fair market value rent that does not take into account the volume or value of referrals and subject to specific exceptions; and (2) restricts physicians from making referrals for specifically designated health services for which payment may be made under Medicare and Medicaid, programsincluding a significant expansion of Medicare coverage to the greater U.S. population;
•more stringent regulatory criteria by which federal antitrust agencies evaluate the potential for anti-competitive practices as a result of mergers and acquisitions of health systems and physicians;
•regulations requiring the publication of hospital prices for certain services, as well as hospitals’ negotiated rates with insurers for these services;
•limits on price increases in pharmaceutical drugs and the cost to Medicare beneficiaries, including the potential for setting prices according to an entity with which international standard; and
•the prohibition of “surprise billing,” or high payment rates charged to consumers for out-of-network physician or an immediate family member, has a financial relationship;services.
the False Claims Act, which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and Medicaid programs;
the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose monetary penalties for certain fraudulent acts and regulatory violations and to exclude violators from participating in federal healthcare programs;
the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act of the American Recovery and Reinvestment Act of 2009, which protects the privacy and security of personal health information; and
State laws which prohibit kickbacks, self-referrals and false claims, and are generally applicable to commercial and state payors.
In the ordinary course of their business, our tenants may be subject to inquiries, investigations and audits by federal and state agencies that oversee applicable laws and regulations. Private enforcement of healthcare fraud has also increased, due in large part to amendments to the civil False Claims Act that were designed to encourage private individuals to sue on behalf of the government. These whistleblower suits, known as qui tam suits, may be filed by almost anyone, including present and former employees or patients. In addition to the False Claims Act, there may be civil litigation between private parties which seek damages for violations of federal and state laws. These types of actions may result in monetary penalties, punitive sanctions, damage assessments, imprisonment, increased governmental oversight, denial of Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid programs. Investigation by a federal or state governmental body for violation of fraud and abuse laws, imposition of any of these penalties upon one of our tenants, and civil litigation could jeopardize that tenant’s ability to operate or to make rent payments to us.
Healthcare Licensure and Certification. Some of our medical properties and our tenants may require a license, multiple licenses, a certificate of need (“CON”), or other certification to operate. Failure to obtain a license, CON, other certification, or loss of a required license, CON, or some other certification would prevent a facility from operating in the manner intended by the tenant. This event could adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate plant expansion, including the addition of new beds or services or acquisition of medical equipment and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws are not uniform throughout the U.S. and are subject to change. WeThe Company cannot predict whether any proposals, rulings, or legislation will be fully implemented, adopted, repealed, or amended, or what effect, whether positive or negative, such developments might have on the impact of state CON laws on our facilities or the operations of our tenants.Company's business.
Real Estate Ownership-Related RegulationsEnvironmental Matters
Many laws and governmental regulations are applicable to our properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently. For example:
Costs of Compliance with the Americans with Disabilities Act.Under the Americans with Disabilities Act of 1990, as amended (the “ADA”), all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. Although we believe that we are in substantial compliance with present requirements of the ADA, none of our properties have been audited and we have only conducted investigations of a few of our properties to determine compliance. We may incur additional costs in connection with compliance with the ADA. Additionalvarious federal, state and local environmental laws, also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the cost of compliance with the ADA or other legislation. We may incur substantial costs to comply with the ADA or any other legislation.
Costs of Government Environmental Regulation and Private Litigation. Environmental lawsordinances and regulations, hold usan owner of real property (such as the Company) may be liable for the costs of removal or remediation of certain hazardous or toxic substances which may be on our properties. Theseat, under, or disposed of in connection with such property, as well as certain other potential costs (including government fines and injuries to persons and adjacent property) relating to hazardous or toxic substances. Most, if not all, of these laws, couldordinances and regulations contain stringent enforcement provisions including, but not limited to, the authority to impose substantial administrative, civil, and criminal fines and penalties upon violators. Such laws often impose liability on us without regard to whether we arethe owner knew of, or was responsible for, the presence or releasedisposal of such substances, and liability may be imposed on the owner in connection with the activities of a tenant or operator of the hazardous materials. Government investigationsproperty. The cost of any required remediation, removal, fines or personal or property damages and remediation actions may cause substantial costs andthe owner’s liability therefore could exceed the value of the property and/or the aggregate assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or lease such property or to borrow using such property as collateral. A property can also be negatively impacted either through physical contamination, or by virtue of an adverse effect on value, from contamination that has or may have emanated from other properties.
Operations of the properties owned, developed or managed by the Company are and will continue to be subject to numerous federal, state, and local environmental laws, ordinances and regulations, including those relating to the following: the generation, segregation, handling, packaging and disposal of medical wastes; air quality requirements related to operations of generators, incineration devices, or sterilization equipment; facility siting and construction; disposal of non-medical wastes and ash from incinerators; and underground storage tanks. Certain properties owned, developed or managed by the Company contain, and others may contain or at one time may have contained, underground storage tanks that are or were used to store waste oils, petroleum products or other hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability on persons who arrange forsubstances. Such underground storage tanks can be the disposal or treatmentsource of releases of hazardous or toxic substancesmaterials. Operations of nuclear medicine departments at some properties also involve the use and handling, and subsequent disposal of, radioactive isotopes and similar materials, activities which are closely regulated by the Nuclear Regulatory Commission and state regulatory agencies. In addition, several of the Company's properties were built during the period that asbestos was commonly used in building construction and other such persons oftentimes must incur the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. As the owner and operator of our properties, wefacilities may be deemed to have arranged foracquired by the disposal
Company in the future. The presence of such materials could result in significant costs in the event that any asbestos-containing materials requiring immediate removal and/or treatment of hazardousencapsulation are located in or toxic substances.
Use of Hazardous Substances by Some of Our Tenants. Some of our tenants routinely handle hazardous substances and wastes on our properties as part of their routine operations. Environmental laws and regulations subject these tenants, and potentially us, to liability resulting from such activities. Our leases require our tenants to comply with these environmental laws and regulations and to indemnify us for any related liabilities. We are unawarefacilities or in the event of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of our properties.future renovation activities.
Other Federal, State and Local Regulations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may incur governmental fines or private damage awards. While we believe that our properties are currently in material compliance withThe Company has had environmental site assessments conducted on substantially all of these regulatory requirements, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely affect our ability to make distributions to our stockholders. We believe, based in part on engineering reports which are generally obtained by us at the time we acquire the properties that allit currently owns. These site assessments are limited in scope and provide only an evaluation of our properties comply in all material respectspotential environmental conditions associated with current regulations. However, if we were requiredthe property, not compliance assessments of ongoing operations. While it is the Company’s policy to make significant expenditures under applicable regulations, our financial condition, results of operations, cash flow, abilityseek indemnification from tenants relating to satisfy our debt service obligations and to pay distributions to our stockholders could be adversely affected.
EMPLOYEES
As of December 31, 2017, we had approximately 270 employees, of which less than 1% are subject to a collective bargaining agreement.
TAX MATTERS
We filed an election with our 2007 federal income tax return to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). We believe we have satisfied the requirements to qualify as a REIT for all tax years starting in 2007 and we intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, we are generally not subject to federal and certain state income tax on net income that we currently distribute to stockholders. We expect to continue to make distributions sufficient to avoid income tax.
While we believe that we are organized and qualified as a REIT and we intend to operate in a manner that will allow us to continue to qualify as a REIT,environmental liabilities or conditions, even where leases do contain such provisions, there can be no assurance that wethe tenant will be successful in this regard. Our qualification as a REIT depends upon our abilityable to meet, through our annual operating results, asset diversification, distribution levels and diversity of stock ownership andfulfill its indemnification obligations. In addition, the various qualification tests imposed under the Code. If we fail to maintain our qualification as a REIT, corporate level income tax would apply to our taxable income at the current corporate tax rates. As a result, the amount available for distributions to stockholders would be reduced and we would no longer be required to make distributions. Failure to qualify as a REIT could also adversely affect our ability to make investments and raise capital.
Qualification as a REIT involves the application of highly technical and complex provisionsterms of the Code for which there are limited judicial and administrative interpretations and involvesCompany’s leases do not give the determinationCompany control over the operational activities of a variety of factual matters and circumstances not entirely within our control.
Federal Income Tax Changes and Updates for Incorporation in Existing Registration Statements
The following discussion supplements and updatesits tenants or healthcare operators, nor will the disclosures under “Material U.S. Federal Income Tax Considerations” inCompany monitor the prospectus dated February 27, 2015 contained in our Registration Statement on Form S-3 filed with the SEC on February 27, 2015 (the “Prospectus”), and in our other registration statements into which this Annual Report is incorporated by reference.
Taxation of Our Company
As discussed in the Prospectus under “Material U.S. Federal Income Tax Considerations - Taxation of Our Company” and “Material U.S. Federal Income Tax Considerations - Investments in TRSs,” even if we qualify for taxation as a REIT, we will be subject to U.S. federal income tax in certain circumstances. Among those circumstances, we will be subject to a 100% tax on the amounts of any rents from real property, deductions,tenants or excess interest received from a taxable REIT subsidiary (a “TRS”) that would be reduced under the Code, in order to clearly reflect the income of the TRS or to the extent that such interest payments are in excess of a rate that is commercially reasonable. Pursuant to the Protecting Americans from Tax Hikes Act of 2015, which was signed into law on December 18, 2015 (the “Act”) and effective for taxable years beginning after December 31, 2015, we will also be subject to a 100% tax on certain income (net of certain deductions) imputed to a TRS, as a result of redetermining or reallocating income among related or commonly controlled entities.
Qualification as a REIT
Income Tests
Gain from the Sale of Real Estate Assets. As discussed in the Prospectus under “Material U.S. Federal Income Tax Considerations - Qualification as a REIT - Income Tests,” we must satisfy two gross income requirements annually to maintain our qualification as a REIT. Qualifying income for purposes of the 95% gross income test described therein generally includes the items identified in the second bullet point under “Income Tests”; however, effective for taxable years beginning after December 31, 2015, gain from the sale of “real estate assets” also includes gain from the sale of a debt instrument issued by a “publicly offered REIT” (i.e., a REIT that is required to file annual and periodic reports with the SEC under the Exchange Act) even if not secured by real property or an interest in real property. However, for purposes of the 75% income test, gain from the sale of a debt instrument issued by a publicly offered REIT would not be treated as qualifying income to the extent such debt instrument would not be a real estate asset but for the inclusion of debt instruments of publicly offered REITs in the meaning of real estate assets effective for taxable years beginning after December 31, 2015, as described below under “Asset Tests - Qualifying Assets.”
Investments in Certain Debt Instruments. As discussed in the Prospectus under “Material U.S. Federal Income Tax Considerations - Investments in Certain Debt Instruments,” interest income generally constitutes qualifying mortgage interest for purposes of the 75% gross income test to the extent that the obligation upon which such interest is paid is secured by a mortgage on real property or an interest in real property. Except as provided in the following sentence, if we receive interest incomehealthcare operators with respect to a mortgage loan that is secured by both real and other property, and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property on the date that we committed to acquire the loan, or agreed to modify the loan in a manner that is treated as an acquisition of a new loan for U.S. federal income tax purposes, the interest income will be apportioned between the real property and the other collateral, and our income from the arrangement will qualify for purposes of the 75% gross income requirement only to the extent that the interest is allocable to the real property. For taxable years beginning after December 31, 2015, in the case of mortgage loans secured by both real and personal property, if the fair market value of such personal property does not exceed 15% of the total fair market value of all property securing the loan, then the personal property securing the loan will be treated as real property for purposes of determining whether the mortgage is qualifying under the 75% asset requirement and the interest income from such loan qualifies for purposes of the 75% gross income requirement.environmental matters.
Hedging Transactions. The discussion in the Prospectus under “Material U.S. Federal Income Tax Considerations - Qualification as a REIT - Income Tests - Hedging transactions” is replaced in its entirety with the following:Human Capital Resources
We may enter into hedging transactions with respectbelieve our employees are a critical component to one or more of our assets or liabilities. Hedging transactions could take a variety of forms, including interest rate swaps or cap agreements, options, futures contracts, forward rate agreements or similar financial instruments. Except to the extent as may be provided by future Treasury Regulations, any income from a hedging transaction which is clearly identified as such before the close of the day on which it was acquired, originated or entered into, including gain from the disposition or termination of such a transaction, will not constitute gross income for purposes of the 95% and 75% gross income tests, provided that the hedging transaction is entered into (i) in the normal courseachievement of our business primarilyobjectives and recognition as a trusted owner and operator of medical office properties. At December 31, 2022, the Company employed 583 people. Our employees are comprised of accountants, maintenance engineers, property managers, leasing personnel, architects, administrative staff, an investments team, and the corporate management team. By supporting, recognizing, and investing in our employees, we believe that we are able to manage riskattract and retain the highest quality talent. We are committed to fostering, cultivating, and preserving a culture of interest rate or price changes or currency fluctuations with respectdiversity and inclusion. We embrace employee differences in race, color, religion, sex, sexual orientation, national origin, age, disability, veteran status, and other characteristics that make our employees unique.
To retain talented employees that contribute to indebtedness incurred orthe Company’s strategic objectives, we offer an attractive set of employee benefits, including:
•Health benefits and 401(k) starting on the first day of employment;
•Auto-enrollment of new employees in our 401(k) plan at 3%;
•Dollar-for-dollar match on 401(k) contributions up to be incurred by us$2,800, encouraging higher employee savings;
•100% of long-term disability and life insurance premiums paid; and
•Tuition reimbursement up to acquire or carry$3,000 annually for any employee pursuing higher education.
In addition, we are committed to supporting the performance and career development of all employees, from encouraging staff accountants to sit for the CPA exam to supporting our maintenance engineers in earning various certifications. As owners and operators of medical real estate, assets or (ii) primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% income tests (or any property which generates such income or gain).
Effective for taxable years beginning after December 31, 2015, if we have entered into a qualifying hedge described above with respect to certain indebtedness or property, or the Original Hedge, and a portion of the hedged indebtedness is extinguished or property hedged is disposed of and in connection with such extinguishment or disposition we enter into one or more clearly identified hedging transactions that would, in general, hedge the Original Hedge, or the Counteracting Hedge, income from the applicable Original Hedge and income from the Counteracting Hedge (including gain from the disposition of the Original Hedge or the Counteracting Hedge) will not be treated as gross income for purposes of the 95% and 75% gross income tests to the extent that the Counteracting Hedge hedges the Original Hedge.
To the extent we enter into other types of hedging transactions, the income from those transactions is likely to be treated as nonqualifying income for purposes of both the 75% and 95% gross income tests. We intend to structure and monitor our hedging transactions so that such transactions do not jeopardize our ability to qualify as a REIT.
Asset Tests
Qualifying Assets. As discussed in the Prospectus under “Material U.S. Federal Income Tax Considerations - Qualification as a REIT - Asset Tests,” to maintain our qualification as a REIT, we also must satisfy several asset tests at the end of each quarter of each taxable year. Under the first test described in the Prospectus, at least 75% ofrecognize the value of health and wellbeing among our total assets must consist of the qualifying assets describedown employees. As we have for many years, Healthcare Realty provides corporate employees with gym membership discounts to encourage fitness. In addition, we offer monthly wellness challenges and resources that provide our employees with tools to enhance their wellbeing. Additional information regarding employee and community engagement is available in the Prospectus. In addition2022 Corporate Responsibility Report, which is posted on the Company's website (www.healthcarerealty.com).
Environment, Social, and Governance (“ESG”)
Our goal is to those items describedcreate long-term value for all stakeholders, including our employees and investors who expect responsible financial and environmental stewardship, and for our healthcare system partners who rely on the Company to provide well-operated facilities that allow them to effectively serve and care for their local communities.
We seek to help healthcare professionals deliver the best care by providing the highest level of service in the Prospectus, pursuant to the Act, effective for taxable years beginning after December 31, 2015, qualifying assets for purposes of the 75% asset test includes: (i) personal property leased in connection with real property to the extent that rents attributable to such personal property are treated as “rents from real property” for purposes of the 75% gross income test and (ii) debt instruments issued by “publicly offered REITs.” However, the Act further provides an additional test, effective for taxable years beginning after December 31, 2015, under which not more than 25% of the valuemost desirable outpatient settings. Our ESG objectives include full integration of our total assets maysustainability strategy, improved transparency and reporting, enhanced operational frameworks, and continued stakeholder engagement.
As we implement our strategy and pursue our objectives, the Company’s actions are guided by our Sustainability Principles and Policies, to ensure continuous improvement and long-term success. Our Sustainability Principles and Policies include:
a.Integration: Embed and integrate leading environmental, social and governance practices designed to enhance portfolio performance into the Company’s daily operations.
b.Impact: Drive positive impact across the Company while mitigating risk and creating long-term value for stakeholders, including our tenants, investors, employees, and the communities in which we live, work and invest.
c.Integrity: Conduct business with integrity, respect and excellence, earning the right to be represented by debt instruments issued by publicly offered REITsa preferred provider of medical office properties.
The Company’s Board of Directors is committed to overseeing the extent those debt instruments would not be real estate assets but forintegration of our ESG principles throughout the inclusion of debt instruments of publicly offered REITs in the meaning of real estate assets effective for taxable years beginning after December 31, 2015, as described above.
Securities of TRSs.Company. In addition, the fourth test describedCompany's incentive program for executive officers includes ESG performance measures.
To more effectively track and communicate the Company’s ESG performance, we have adopted various frameworks and methodologies, including participation in the Prospectus under “Material U.S. Federal Income Tax Considerations - Qualification as a REIT - Asset Tests,” that securities of TRSs cannot represent more than 25% of our total assets, has been modified by the Act such that, for taxable years beginning after December 31, 2017, securities of TRSs cannot represent more than 20% of our total assets.
Annual Distribution Requirements
Elective Cash/Stock Dividends. On August 11, 2017, the Internal Revenue Service (“IRS”) issued Revenue Procedure 2017-45 authorizing elective cash/stock dividends to be made by publicly offered REITs (i.e., REITs that are required to file annual and periodic reportsGRESB Assessment; reporting disclosures in alignment with the U.S. SecuritiesSustainability Accounting Standards Board; establishing goals and Exchange Commissionkey performance indicators under the Sustainable Development Goals, and we are working toward expanding our climate risk and resiliency strategies in alignment with the Task Force on Climate-Related Disclosure.
More information regarding the Company’s Sustainability Principles and Policies and ESG performance can be found in the Company’s 2022 Corporate Responsibility Report on its website (www.healthcarerealty.com).
Available Information
The Company makes available to the public free of charge through its website the Company’s Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934)1934, as amended (the "Exchange Act"), as soon as reasonably practicable after the Company electronically files such reports with, or furnishes such reports to, the Securities and Exchange Commission ("SEC"). PursuantThe Company’s website address is www.healthcarerealty.com.
Corporate Governance Principles
The Company has adopted Corporate Governance Principles relating to Revenue Procedure 2017-45, effective for distributions declared on or after August 11, 2017, the IRS will treat the distribution of stock pursuant to an elective cash/stock dividend as a distribution of property under Section 301conduct and operations of the Code (i.e.,Board of Directors. The Corporate Governance Principles are posted on the Company’s website (www.healthcarerealty.com) and are available in print to any stockholder who requests a dividend), as long as at least 20%copy.
Committee Charters
The Board of Directors has an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The Board of Directors has adopted written charters for each committee, which are posted on the Company’s website (www.healthcarerealty.com) and are available in print to any stockholder who requests a copy.
Executive Officers
Information regarding the executive officers of the total dividendCompany is available in cash and certain other parameters detailed in the Revenue Procedure are satisfied.
Preferential Dividends. The Prospectus discusses our distribution requirements under the caption “Material U.S. Federal Income Tax Considerations - Qualification as a REIT - Annual Distribution Requirements.” The prohibition against “preferential dividends” described in that section is applicable for distributions in taxable years beginning on or before December 31, 2014. For all subsequent taxable years, so long as we continue to be a “publicly offered REIT,” the preferential dividend rule will not apply.
Interest Expense Deductions
The TCJA, signed into law in December 2017 generally imposes certain limitations on the ability of taxpayers top deduct net business interest expenses for federal income tax purposes beginning on or after January 1, 2018. However, the TCJA provides an election whereby certain taxpayers engaged in a real estate trade or business, generally including for this purpose a REIT, may elect for this limitation not to apply. However, taxpayers that make this election generally are not eligible for certain depreciation methodologies. We may make this election for applicable tax years, in which case the above limitations on interest expense deductions generally would not apply to us.
In addition, the above described limitations on net business interest expense deductions generally would be determined at the entity-level. As a result, the ability of our TRSs to deduct business interest expense for tax years beginning on or after January 1, 2018 may be subject to limitations under the TCJA even if we make such an election.
Net Operating Losses
The TCJA also generally restricts the ability of taxpayers to utilize net operating losses to no more than 80% their taxable income and precludes them from carry-back net operating losses to prior tax years for tax years beginning on or after January 1, 2018.
Taxation of U.S. Stockholders
Distributions. The Prospectus discusses the taxation of U.S. stockholders on distributions with respect to “qualified dividend income” and “capital gain dividends” under the caption “Material U.S. Federal Income Tax Considerations - Taxation of U.S. Stockholders - Distributions.” In addition to the discussion contained therein, effective for distributions in taxable years beginning after December 31, 2015, the aggregate amount of dividends that we may designate as “capital gain dividends” or “qualified dividend income” with respect to any taxable year may not exceed the dividends paid by us with respect to such year, including dividends that are paid in the following year that are treated as paid with respect to such year.
Furthermore, pursuant to the TCJA, dividends received from REITs that are treated as “qualified REIT dividends” received by certain individuals, trusts and estates generally qualify for a 20% deduction, subject to certain limitations, for taxable years beginning after December 31, 2017 and before January 1, 2026. For this purpose, a “qualified REIT dividend” generally includes any dividend from a REIT received during a taxable year that is not (i) a “capital gain dividend” or (ii) “qualified dividend income.”
Taxation of Non-U.S. Stockholders
Distributions
FIRPTA Ownership Exemptions. The Prospectus discusses the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) exemption with respect to non-U.S. stockholders that own no more than 5% of our Class A common stock during the specified period on distributions attributable to gain from sales or exchanges by us of “United States real property interests” under the caption “Material U.S. Federal Income Tax Considerations - Taxation of Non-U.S. Stockholders - Distributions.” This FIRPTA exemption limit on distributions on publicly-traded REIT stock has been increased from ownership of more than 5% of such stock to ownership of more than 10% of such stock for distributions on or after December 18, 2015. In addition, the Prospectus notes that we may be required to withhold 10% of any distribution that exceeds our current and accumulated earnings and profits. This 10% withholding requirement was increased to 15% under the Act for distributions after February 16, 2016. Consequently, although we intend to withhold at a rate of 30% on the entire amount of any relevant distribution, to the extent we do not do so, we may withhold at a rate of 15% on any portion of a distribution not subject to withholding at a rate of 30%.
FIRPTA Withholding. The Prospectus discusses that we generally must withhold 35% of any distributions attributable to gain from the sale or exchange of “United States real property interests” described in the Prospectus under the caption “Material U.S. Federal Income Tax Considerations - Taxation of Non-U.S. Stockholders - Distributions” (defined as “35% FIRPTA Withholding”). Pursuant to the TCJA, for taxable years beginning on or after January 1, 2018, this rate is 21% and references to “35% FIRPTA Withholding” should be replaced for such periods with “21% FIRPTA Withholding.” Moreover, the Prospectus notes that it is not entirely clear to what extent we are required to withhold on distributions to non-U.S. stockholders that are not treated as ordinary income and are not attributable to the disposition of the United States real property interest. The Prospectus further notes that unless the law is clarified to the contrary, we will generally withhold and remit to the IRS 35% of any distribution to a non-U.S. stockholder that is designated as a capital gain dividend (or, if greater, 35% of a distribution that could have been designated as a capital gain dividend). Pursuant to the TCJA, for taxable years beginning on or after January 1, 2018, references to 35% are replaced with 21%.
Distributions to Qualified Shareholders. In addition, the discussion in the Prospectus is further supplemented by inserting the paragraphs below at the end of the subsection with the heading “Material U.S. Federal Income Tax Considerations - Taxation of Non-U.S. Stockholders - Distributions.”
Distributions to Qualified Shareholders. Subject to the exception discussed below, for purposes of any distribution on or after December 18, 2015 to a “qualified shareholder” who holds REIT stock directly (or indirectly through one or more partnerships), such REIT stock will not be treated as a “United States real property interest” and, thus, such distribution should not be subject to special rules under FIRPTA. However, a “qualified shareholder” with one or more “applicable investors” (i.e., persons other than “qualified shareholders” who hold interests in the “qualified shareholder” (other than interests solely as a creditor), and hold (or are deemed to hold under attribution rules) more than 10% of the stock of such REIT (whether or not by reason of the investor’s ownership in the “qualified shareholder”)), as well as such applicable investors, may be subject to FIRPTA rules.
A “qualified shareholder” is a foreign person that (i) either is eligible for the benefits of a comprehensive income tax treaty with the United States which includes an exchange of information program and whose principal class of interests is listed and regularly traded on one or more recognized stock exchanges (as defined in such comprehensive income tax treaty), or is a foreign partnership that is created or organized under foreign law as a limited partnership in a jurisdiction that has an agreement for the exchange of information with respect to taxes with the United States and has a class of limited partnership units that is regularly traded on the NYSE or NASDAQ markets representing greater than 50% of the value of all the partnership units, (ii) is a qualified collective investment vehicle (defined below), and (iii) maintains records on the identity of each person who, at any time during the foreign person’s taxable year, is the direct owner of 5% or more of the class of interests or units (as applicable) described in (i), above.
A qualified collective investment vehicle is a foreign person that (i) would be eligible for a reduced rate of withholding with respect to ordinary dividends paid by a REIT under the comprehensive income tax treaty described above, even if such entity holds more than 10% of the stock of such REIT, (ii) is publicly traded, is treated as a partnership under the Code, is a withholding foreign partnership, and would be treated as a “United States real property holding corporation” during a specified period if it were a domestic corporation, or (iii) is designated as such by the Secretary of the Treasury and is either (a) fiscally transparent within the meaning of Section 894 of the Code, or (b) required to include dividends in its gross income, but is entitled to a deduction for distributions to its investors.
Qualified Foreign Pension Funds. With respect to any distribution after December 18, 2015 to a “qualified foreign pension fund” or an entity all of the interests of which are held by a “qualified foreign pension fund” who holds REIT stock directly (or indirectly through one or more partnerships), such distribution will not be subject to special rules under FIRPTA.
A qualified foreign pension fund is any trust, corporation, or other organization or arrangement (i) which is created or organized under the law of a country other than the U.S., (ii) which is established to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (or persons designated by such employees) of one or more employers in consideration for services rendered, (iii) which does not have a single participant or beneficiary with a right to more than 5% of its assets or income, (iv) which is subject to government regulation and provides annual information reporting about its beneficiaries to the relevant tax authorities in the country in which it is established or operates, and (v) with respect to which, under the laws of the country in which it is established or operates, (A) contributions to such trust, corporation, organization or arrangement that would otherwise be subject to tax under such laws are deductible or excluded from the gross income of such entity or taxed at a reduced rate, or (B) taxation of any investment income of such trust, corporation, organization or arrangement is deferred or such income is taxed at a reduced rate.
The provisions of the Act relating to qualified shareholders, applicable investors, and qualified foreign pension funds are complex. Stockholders should consult their tax advisors with respect to the impact of the Act on them.
Dispositions
In addition, the discussion in the Prospectus is further supplemented by inserting the paragraphs below at the end of the subsection with the heading “Material U.S. Federal Income Tax Considerations - Taxation of Non-U.S. Stockholders - Dispositions.”
Qualified Shareholders and Qualified Pension Funds. After December 18, 2015, a sale of our Class A common stock by:
a “qualified shareholder” without one or more applicable investors or
a “qualified pension fund”
who holds such Class A common stock directly (or indirectly through one or more partnerships) will not be subject to U.S. federal income taxation under FIRPTA. A “qualified shareholder” with one or more applicable investors may be subject to such rules.
The provisions of the Act relating to qualified shareholders, applicable investors and qualified foreign pension funds are complex. Stockholders should consult their tax advisors with respect to the impact of the Act on them.
FATCA Withholding
The discussion in the Prospectus under “Material U.S. Federal Income Tax Considerations - FATCA Withholding” is replaced in its entirety with the following:
Sections 1471 through 1474 of the Code and the Treasury regulations promulgated thereunder (commonly referred to as “FATCA”) generally impose a 30% withholding tax on U.S. source dividends and, beginning January 1, 2019, gross proceeds from the sale or other disposition of stock or property that is capable of producing U.S. source dividends paid to (i) a foreign financial institution (as defined in Section 1471(d)(4) of the Code) unless such foreign financial institution agrees, pursuant to an agreement with the U.S. Treasury Department or otherwise, to collect and disclose certain information regarding its direct and indirect U.S. owners (which, for this purpose, can include certain debt and equity holders of such foreign financial institution as well as the direct and indirect owners of financial accounts maintained by such institution) and satisfies certain other requirements, and (ii) certain other non-U.S. entities unless such entities provide the payor with information regarding certain direct and indirect U.S. owners of the entity, or certify that they have no such U.S. owners, and comply with certain other requirements. Withholding under FATCA is imposed on payments to foreign financial institutions and other applicable payees whether they receive such payments in the capacity of an intermediary or for their own account. Certain countries have entered into, and other countries are expected to enter into, agreements with the United States to facilitate the type of information reporting required under FATCA. While the existence of such agreements will not eliminate the risk that payments in respect of our Class A common stock will be subject to the withholding described above, these agreements are expected to reduce the risk of the withholding for investors in (or indirectly holding our Class A common stock through financial institutions in) those countries. Each non-U.S. stockholder and any U.S. stockholder holding our Class A common stock through a foreign financial institution is urged to consult its tax advisor about the possible impact of these rules on their investment in our Class A common stock, and the entities through which they hold our Class A common stock, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent the imposition of this 30% withholding of tax under FATCA.
Tax Cuts and Jobs Act
As discussed above, the TCJA was enacted on December 22, 2017. The TCJA made a number of fundamental changes to the U.S. federal income taxation of individuals, corporations and estates. Moreover, the rules relating to REITS are constantly under review by the IRS and the U.S Treasury Department, which may result in new or significant changes to existing Treasury Regulations, statutes or interpretations thereof.
In addition to the statutory changes enacted by the TCJA referenced above, the TCJA generally reduced the U.S. federal income tax rate applicable to corporations from 35% to 21% for taxable years beginning after December 31, 2017. As a result, the relative competitive advantage a REIT may enjoy to the extent the REIT is not typically subject to corporate income tax may be diminished. On the other hand, as described above, the TCJA generally reduced the maximum U.S. federal income tax rate on ordinary REIT dividends received by non-corporate taxpayers from 39.6% to 37% and generally permits non-corporate taxpayers to deduct 20% of qualified REIT dividends. As further described above, the tax law changes enacted by the TCJA could significantly impact both business and financial results, as well as the tax consequences of an investment in our common stock.
Prospective investors are urged to consult their tax advisors regarding the effect of the TCJA and any other potential changes to United States federal tax law on an investment in our common stock.
EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding our executive officers includedset forth in Part III, Item 10 of this Annual Reportreport and is incorporated herein by reference.
Item 1A. Risk Factors
Risks Related to Our Business
WeThe following are dependent on investments insome of the healthcare property sector, making our profitability more vulnerable to a downturn or slowdown inrisks and uncertainties that specific sector than if we were investing in multiple industries.
We concentrate our investments in the healthcare property sector. As a result, we are subject to risks inherent to investments in a single industry. A downturn or slowdown in the healthcare property sector would have a greater adverse impact on our business than if we had investments in multiple industries. Specifically, a downturn in the healthcare property sector could negatively impactaffect the abilityCompany’s consolidated financial condition, results of our tenantsoperations, business and prospects. These risk factors are grouped into four categories: risks relating to make lease paymentsthe Company's merger and integration of Legacy HR and Legacy HTA businesses; risks relating to usthe Company’s business and operations; risks relating to the Company’s capital structure and financings; and risks relating to government regulations.
These risks, as well as our abilitythe risks described in Item 1 under the headings “Competition,” “Government Regulation,” “Legislative Developments,” and “Environmental Matters,” and in Item 7 under the heading “Disclosure Regarding Forward-Looking Statements,” should be carefully considered before making an investment decision regarding the
Company. The risks and uncertainties described below are not the only ones facing the Company, and there may be additional risks that the Company does not presently know of or that the Company currently considers not likely to maintain rentalhave a material impact. If any of the events underlying the following risks actually occurred, the Company’s business, consolidated financial condition, operating results and occupancy rates,cash flows, including distributions to the Company's stockholders, could suffer, and the trading price of its common stock could decline.
Merger and Integration Risks
The Company incurred substantial expenses related to the Merger.
The Company incurred substantial expenses in connection with completing the Merger and expects to incur substantial expenses integrating the business, operations, networks, systems, technologies, policies and procedures of the two companies, including severance costs. In addition, there are a large number of systems that must be integrated, including billing, management information, asset management, accounting and finance, payroll and benefits, lease administration and regulatory compliance. Although the Company assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of its integration expenses. The transaction and integration expenses associated with the Merger could, particularly in the near term, exceed the savings that the Company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the businesses.
The Company may be unable to integrate the businesses of Legacy HR and Legacy HTA successfully and realize the anticipated synergies and related benefits of the Merger or do so within the anticipated timeframe.
The Merger involved the combination of two companies that operated as independent public companies. The Company is devoting significant management attention and resources to integrate the business practices and operations of Legacy HR and Legacy HTA. Potential difficulties the Company may encounter in the integration process include the following:
1.the inability to successfully combine the businesses of Legacy HR and Legacy HTA in a manner that permits the Company to achieve the cost savings anticipated to result from the Merger, which would result in the anticipated benefits of the Merger not being realized in the timeframe currently anticipated or at all;
2.the complexities associated with managing the combined businesses out of different locations and integrating personnel from the two companies;
3.the additional complexities of combining two companies with different histories, cultures, markets and tenant bases;
4.the failure to retain key employees of the Company; and
5.potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger.
For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of the Company's management, the disruption of the Company's ongoing business or inconsistencies in the Company's services, standards, controls, procedures and policies, any of which could adversely affect the ability of the Company to maintain relationships with tenants, health systems, vendors and employees or to achieve the anticipated benefits of the Merger, or could otherwise adversely affect the business and financial results of the Company.
The Company may be unable to retain key employees.
The success of the Company depends in part upon its ability to retain key employees. Key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Company following the Merger or for other reasons. Accordingly, no assurance can be given that the Company will be able to retain key employees.
The trading price of shares of common stock of the Company may be affected by factors different from those that affected the price of shares of Legacy HR's common stock or Legacy HTA’s common stock before the Merger.
The results of operations of the Company, as well as the trading price of the shares of common stock of the Company, may be affected by factors different from those that affected Legacy HR's or Legacy HTA's results of operations and the trading prices of their respective shares of common stock. These factors include: (i) a greater number of shares of common stock of the Company outstanding; (ii) different stockholders; (iii) different businesses; and (iv) different assets and capitalizations.
In addition, the Company may take actions in the future—such as a share split, reverse share split, stock repurchases, or reclassification—that could affect the trading price of its shares of common stock.
Accordingly, the historical trading prices and financial results of Legacy HR and Legacy HTA may not be indicative of these matters for the Company after the Merger.
The Company cannot assure you that it will be able to continue paying dividends at or above the rates paid by Legacy HR and Legacy HTA.
The stockholders of the Company may not receive dividends at the same rate they received dividends as stockholders of Legacy HR and stockholders of Legacy HTA for various reasons, including the following: (i) the Company may not have enough cash to pay such dividends due to changes in the Company's cash requirements, capital spending plans, cash flow or financial position; (ii) decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Board of Directors of the Company, which reserves the right to change the Company's current dividend practices at any time and for any reason; (iii) the Company may desire to retain cash to maintain or improve its credit ratings; and (iv) the amount of dividends that the Company's subsidiaries may distribute to the Company may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.
Stockholders of the Company do not have contractual or other legal right to dividends that have not been authorized by the Board of Directors of the Company.
Risk relating to our business and operations
The Company's expected results may not be achieved.
The Company's expected results may not be achieved, and actual results may differ materially from expectations. This may be the result of various factors, including, but not limited to: changes in the economy; the availability and cost of capital at favorable rates; increases in property taxes, utilities and other operating expenses; changes to facility-related healthcare regulations; changes in interest rates; competition for quality assets; negative developments in the operating results or financial condition of the Company's tenants, including, but not limited to, their ability to pay rent; the Company's ability to reposition or sell facilities with profitable results; the Company's ability to re-lease space at similar rates as vacancies occur; the Company's ability to timely reinvest proceeds from the sale of assets at similar yields; government regulations affecting tenants' Medicare and Medicaid reimbursement rates and operational requirements; unanticipated difficulties and/or expenditures relating to future acquisitions and developments; changes in rules or practices governing the Company's financial reporting; and other legal and operational matters.
The Company may from time to time decide to sell properties and may be required under purchase options to sell certain properties. The Company may not be able to reinvest the proceeds from sales at rates of return equal to the return received on the properties sold. Uncertain market conditions could result in the Company selling properties at unfavorable prices or at losses in the future.
The Company’s revenues depend on the ability of its tenants under its leases to generate sufficient income from their operations to make rental payments to the Company.
The Company’s revenues are subject to the financial strength of its tenants and associated health systems. The Company has no operational control over the business of these tenants and associated health systems who face a wide range of economic, competitive, government reimbursement and regulatory pressures and constraints, including the loss of licensure or certification. Any slowdown in the economy, decline in the availability of financing from the
capital markets, and changes in healthcare regulations may adversely affect the businesses of the Company’s tenants to varying degrees. Such conditions may further impact such tenants’ abilities to meet their obligations to the Company and, in certain cases, could lead to restructurings, disruptions, or bankruptcies of such tenants. The Company leases to government tenants from time to time that may be subject to annual budget appropriations. If a government tenant fails to receive its annual budget appropriation, it might not be able to make its lease payments to the Company. In addition, defaults under leases with federal government tenants are governed by federal statute and not by state eviction or rent deficiency laws. These conditions could adversely affect the Company’s revenues and could increase allowances for losses and result in impairment charges, which could decrease net income attributable to common stockholders and equity, and reduce cash flows from operations.
Pandemics, such as COVID-19 and other pandemics that may occur in the future, and measures intended to prevent their spread or mitigate their severity could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition.
The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. During 2020, all of the states and cities in which the Company owns properties, manages properties, and/or has development or redevelopment projects instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of businesses that may continue to operate, and/or restrictions on the types of construction projects that may continue. As a result, a number of the Company's tenants temporarily closed their offices or clinical space or operated on a reduced basis in response to government requirements or recommendations.
The COVID-19 pandemic also caused, and may continue to cause, severe economic, market and other disruptions worldwide. There can be no assurance that the Company's access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings. In addition, the deterioration of economic conditions, including supply chain constraints, as a result of the pandemic may ultimately decrease occupancy levels and average rent per square foot across the Company's portfolio as tenants reduce or defer their spending.
The extent of the COVID-19 pandemic’s effect, or the effect of new virus variants or of another pandemic in the future, on the Company's operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the availability and effectiveness of vaccines, and the effect of government requirements or recommendations, all of which are uncertain and difficult to predict.
Owning real estate and indirect interests in real estate is subject to inherent risks.
The Company’s operating performance and the value of its real estate assets are subject to the risk that if its properties do not generate revenues sufficient to meet its operating expenses, including debt service, the Company’s cash flow and ability to pay dividends to stockholders will be adversely affected.
The Company may incur impairment charges on its real estate properties or other assets.
The Company performs an impairment review on its real estate properties every year. In addition, the Company assesses the potential for impairment of identifiable intangible assets and long-lived assets, including real estate properties, whenever events occur or a change in circumstances indicates that the recorded value might not be fully recoverable. The decision to sell a property also requires the Company to assess the potential for impairment. The Company incurred impairment charges of $54.4 million in 2022, associated with completed or planned disposition activity. The Company may determine in future periods that an impairment has occurred in the value of one or more of its real estate properties or other assets. In such an event, the Company may be required to recognize an impairment which could have a material adverse effect on the Company’s consolidated financial condition and results of operations.
The Company has properties subject to purchase options that expose it to reinvestment risk and reduction in expected investment returns.
The Company had approximately $100.4 million, or 0.71%, of real estate property investments that were subject to purchase options held by lessees that were exercisable as of December 31, 2022. Other properties have purchase options that will become exercisable after 2022. Properties with purchase options exercisable in 2022 produced aggregate net operating income of approximately $9.6 million in 2022. The exercise of these purchase options exposes
the Company to reinvestment risk and a reduction in investment return. Certain properties subject to purchase options may be purchased at rates of return above the rates of return the Company expects to achieve with new investments. If the Company is unable to reinvest the sale proceeds at rates of return equal to the return received on the properties that are sold, it may experience a decline in lease revenues and profitability and a corresponding material adverse effect on the Company’s consolidated financial condition and results of operations.
For more specific information concerning the Company’s purchase options, see “Purchase Options” in the “Trends and Matters Impacting Operating Results” as a part of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report.
If the Company is unable to promptly re-let its properties, if the rates upon such re-letting are significantly lower than the previous rates or if the Company is required to undertake significant expenditures or make significant leasing concessions to attract new tenants, then the Company’s business, consolidated financial condition and results of operations would be adversely affected.
A portion of the market priceCompany’s leases will expire over the course of our common stockany year. For more specific information concerning the Company’s expiring leases, see "Expiring Leases" in the "Trends and our abilityMatters Impacting Operating Results" as part of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report. The Company may not be able to re-let space on terms that are favorable to the Company or at all. Further, the Company may be required to make distributionssignificant capital expenditures to our stockholders.renovate or reconfigure space or make significant leasing concessions to attract new tenants.
Our abilityCertain of the Company’s properties are special purpose healthcare facilities and may not be easily adaptable to make future acquisitionsother uses.
Some of the Company’s properties are specialized medical facilities. If the Company or the Company’s tenants terminate the leases for these properties or the Company’s tenants lose their regulatory authority to operate such properties, the Company may not be able to locate suitable replacement tenants to lease the properties for their specialized uses. Alternatively, the Company may be impeded, or the cost of these acquisitions may be increased, duerequired to a variety of factors, including competition for the acquisition of MOBs and other facilities that serve the healthcare industry.
At any given time, we may be pursuing property acquisitions or have properties subjectspend substantial amounts to letters of intent, but we cannot assure you that we will acquire any such properties because the letters of intent are non-binding and potential transaction opportunities are subject to a variety of factors, including: (i) the willingness of the current property owner to proceed with a potential transaction with us; (ii) our completion of due diligence that is satisfactory to us and our receipt of internal approvals; (iii) the negotiation and execution of mutually acceptable binding purchase agreements; and (iv) the satisfaction of closing conditions, including our receipt of third-party consents and approvals. We also compete with many other entities engaged in real estate investment activities for the acquisition of MOBs and other facilities that serve the healthcare industry, including national, regional and local operators, acquirers and developers of healthcare properties. The competition for the acquisition of healthcare properties may significantly increase the prices we must pay for MOBs and other facilities that serve the healthcare industry or other real estate related assets we seek to acquire. This competition may also effectively limit the number of suitable investment opportunities offered to us or the number of properties that we are able to acquire, and may increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms. The potential sellers of our acquisition targets may find our competitors to be more attractive purchasers because they may have greater resources, may be willing to pay more to acquireadapt the properties to other uses. Any loss of revenues and/or additional capital expenditures occurring as a result may have a more compatible operating philosophy. In particular, larger healthcare REITs may enjoy significant competitive advantages over us that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Moreover, our competitors generally may be able to accept more risk with respect to their acquisitions than we can prudently manage or are willing to accept. In addition,material adverse effect on the number of our competitors and the amount of funds competing for suitable investment properties may increase, which could result in increased demand for these properties and, therefore, increased prices to acquire them. Because of an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices for the purchase of single properties in comparison with the purchase of multi-property portfolios. If we pay higher prices for MOBs and other facilities that serve the healthcare industry, or otherwise incur significant costs and divert management attention in connection with the evaluation and negotiation of potential acquisitions, including potential transactions that we are subsequently unable or elect not to complete, our business,Company’s consolidated financial condition and results of operations,operations.
The Company has, and in the market pricefuture may have more, exposure to fixed rent escalators, which could lag behind inflation and the growth in operating expenses such as real estate taxes, utilities, insurance, and maintenance expense.
The Company receives a significant portion of our common stockits revenues by leasing assets subject to fixed rent escalations. Approximately 94% of leases have increases that are based upon fixed percentages and our ability to make distributions to our stockholders mayapproximately 6% of leases have increases based on the Consumer Price Index. To the extent fixed percentage increases lag behind inflation and operating expense growth, the Company's performance, growth, and profitability would be adversely affected.negatively impacted. As of December 31, 2022, the Company had weighted average annual fixed rent escalators of 2.77%.
WeThe Company’s real estate investments are illiquid and the Company may not be able to maintain or expand our relationships with hospitals, healthcare system and developers, which may impede oursell properties strategically targeted for disposition.
Because real estate investments are relatively illiquid, the Company’s ability to identify and complete acquisitions directly from hospitals, healthcare systems and developers, and may otherwise adversely affect our growth, business, financial condition and results of operations, the market price of our common stock and our abilityadjust its portfolio promptly in response to make distributionseconomic or other conditions is limited. Certain significant expenditures generally do not change in response to our stockholders.
The success of our business depends to a large extent on our past, current and future relationships with hospitals, healthcare systems and developers,economic or other conditions, including our ability to acquire properties directly from hospitals, healthcare systems and developers. We invest a significant amount of time to develop and maintain these relationships, and these relationships have helped us secure acquisition opportunities. Facilities that are acquired directly from hospitals, healthcare systems and developers are typically more attractive to us as a purchaser because of the absence of a formal competitive marketing process, which could lead to higher prices. If any of our relationships with hospitals, healthcare systems and developers deteriorates, or if a conflict of interest or a non-compete arrangement prevents us from expanding these relationships, our professional reputation within the industry could be damaged and we may not be able to secure attractive acquisition opportunities directly from hospitals, healthcare systems and developers in the future, which could adversely affect our ability to locate and acquire facilities at attractive prices.
Our results of operations, our ability to pay distributions to our stockholders and our ability to dispose of our investments are subject to general economic conditions affecting the commercial real estate and credit markets.
Our business is sensitive to national, regional and local economic conditions, as well as the commercial real estate and credit markets. For example, a financial disruption or credit crisis could negatively impact the value of commercial real estate assets, contributing to a general slowdown in our industry. A slow economic recovery could cause a reduction in the overall volume of transactions, number of sales and leasing activities of the type that we previously experienced. We are unable to predict future changes in national, regional or local economic, demographic or real estate market conditions.
Adverse economic conditions in the commercial real estate and credit markets may result in:
defaults by tenants at our properties due to bankruptcy, lack of liquidity or operational failures;
increases in vacancy rates due to tenant defaults, the expiration or termination of tenant leases and reduced demand for MOBs and other facilities that serve the healthcare industry;
increases in tenant inducements, tenant improvement expenditures, rent concessions or reduced rental rates, especially to maintain or increase occupancies at our properties;
reduced values of our properties, thereby limiting our ability to dispose of our assets at attractive prices or obtain debt financing secured by our properties on satisfactory terms, as well as reducing the availability of unsecured loans;
the value and liquidity of our short-term investments and cash deposits being reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investment and other factors;
one or more lenders under our credit facilities refusing to fund their financing commitments to us and, in such event, we are unable to replace the financing commitments of any such lender or lenders on favorable terms, or at all;
a recession or rise in interest rates, which could make it more difficult for us to lease our properties or dispose of our properties or make alternative interest-bearing and other investments more attractive, thereby lowering the relative value of our existing real estate investments;
one or more counterparties to our interest rate swaps default on their obligations to us, thereby increasing the risk that we may not realize the benefits of these instruments;
increases in the supply of competing properties or decreases in the demand for our properties, which may impact our ability to maintain or increase occupancy levels and rents at our properties or to dispose of our investments; and
increased insurance premiums,service (if any), real estate taxes, or energy costs or other expenses, whichand operating and maintenance costs. This combination of variable revenue and relatively fixed expenditures may reduce funds available for distribution to our stockholders or, to the extent such increases are passed through to our tenants, may lead to tenant defaults, tenant turnover, or make it difficult for us to increase rents to tenants on lease turnover which may limit our ability to increase our returns.
Our business, financial condition and results of operations, the market price of our common stock and our ability to pay distributions to our stockholders may be adversely affected to the extent an economic slowdown or downturn is prolonged or becomes more severe.
Our growth depends on external sources of capital that are outside of our control, which may affect our ability to seize strategic opportunities, satisfy debt obligations and make distributions to our stockholders.
In order to qualify as a REIT, we must distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financings, from operating cash flow. Consequently, we may need to rely on third-party sources to fund our capital needs, meet our debt service obligations, make distributions to our stockholders or make future investments necessary to implement our business strategy. We may not be able to obtain financing on favorable terms,result in the time period we desire, or at all. Our access to third-party sources of capital depends, in part, on a number of factors, including: general market conditions; the market’s perception of our growth potential; our current debt levels; our current and expected future earnings; our cash flow and cash distributions; and the market price per share of our common stock. If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, satisfy our principal and interest obligations to our lenders or make the cash distributions to our stockholders necessary to maintain our qualification as a REIT.
Our success depends to a significant degree upon the continued contributions of certain key personnel, each of whom would be difficult to replace. If we were to lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating results could suffer.
Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our Board of Directors, our executive officers and our other employees, in the identification and acquisition of investments, the determination and finalization of our financing arrangements, the asset management of our investments, and the operation of our day-to-day activities. Our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in this Annual Report or other periodic filings with the SEC. We rely primarily on the management ability of our executive officers and the governance by the members of our Board of Directors, each of whom would be difficult to replace. We do not have any key-person life insurance on our executive officers. Although we have entered into employment agreements with each of our executive officers, these employment agreements contain various termination and resignation rights. If we were to lose the benefit of the experience, efforts and abilities of these executives, without satisfactory replacements, our operating results could suffer. In addition, if any member of our Board of Directors were to resign, we would lose the benefit of such director’s governance, experience and familiarity with us and the sector within which we operate. As a result of the foregoing, we may be unable to achieve our investment objectives or to pay distributions to our stockholders.
We rely on information technology in our operations; any material failure, inadequacy, interruption or security failure of that technology could harm our business, results of operations and financial condition.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, and tenant and lease data. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penaltiesreduced earnings and could have an adverse effect on our business,the Company’s financial condition. In addition, the Company may not be able to sell properties targeted for disposition, including properties held for sale, due to adverse market conditions. This may negatively affect, among other things, the Company’s ability to sell properties on favorable terms, execute its operating strategy, repay debt, or pay dividends.
The Company is subject to risks associated with the development and redevelopment of properties.
The Company expects development and redevelopment of properties will continue to be a key component of its growth plans. The Company is subject to certain risks associated with the development and redevelopment of properties including the following:
•The construction of properties generally requires various government and other approvals that may not be received when expected, or at all, which could delay or preclude commencement of construction;
•Opportunities that the Company pursued but later abandoned could result in the expensing of pursuit costs, which could impact the Company’s consolidated results of operations and financial condition.
operations;
•Construction costs could exceed original estimates, which could impact the building’s profitability to the Company;
•Operating expenses could be higher than forecasted;
•Time required to initiate and complete the construction of Contentsa property and to lease up a completed property may be greater than originally anticipated, thereby adversely affecting the Company’s cash flow and liquidity;
•Occupancy rates and rents of a completed development property may not be sufficient to make the property profitable to the Company; and
•Favorable capital sources to fund the Company’s development and redevelopment activities may not be available when needed.
The Company may make material acquisitions and undertake developments and redevelopments that may involve the expenditure of significant funds and may not perform in accordance with management’s expectations.
The Company regularly pursues potential transactions to acquire, develop or redevelop real estate assets. Future acquisitions could require the Company to issue equity securities, incur debt or other contingent liabilities or amortize expenses related to other intangible assets, any of which could adversely impact the Company’s consolidated financial condition or results of operations. In addition, equity or debt financing required for such acquisitions may not be available at favorable times or rates.
The Company’s acquired, developed, redeveloped and existing real estate properties may not perform in accordance with management’s expectations because of many factors including the following:
•The Company’s purchase price for acquired facilities may be based upon a series of market or building-specific judgments which may be incorrect;
•The costs of any maintenance or improvements for properties might exceed estimated costs;
•The Company may incur unexpected costs in the acquisition, construction or maintenance of real estate assets that could impact its expected returns on such assets; and
•Leasing may not occur at all, within expected time frames or at expected rental rates.
Further, the Company can give no assurance that acquisition, development and redevelopment opportunities that meet management’s investment criteria will be available when needed or anticipated.
The Company is exposed to risks associated with geographic concentration.
As of December 31, 2022, the Company had investment concentrations of greater than 5% of its total investments in the Dallas, Texas (9.2%), Houston, Texas (5.6%), and Seattle, Washington (5.0%) markets. These concentrations increase the exposure to adverse conditions that might affect these markets, including natural disasters, local economic conditions, local real estate market conditions, increased competition, state and local regulation (including property taxes) and other localized events or conditions.
Many of the Company’s leases are dependent on the viability of associated health systems. Revenue concentrations relating to these leases expose the Company to risks related to the financial condition of the associated health systems.
Most of the Company’s properties on or adjacent to hospital campuses are largely dependent on the viability of the health system’s campus where they are located, whether or not the hospital or health system is a tenant in such properties. The viability of these health systems depends on factors such as the quality and mix of healthcare services provided, competition, demographic trends in the surrounding community, market position and growth potential. If one of these hospitals is unable to meet its financial obligations, is unable to compete successfully, or is forced to close or relocate, the Company’s properties on or near such hospital campus could be adversely impacted.
Many of the Company’s properties are held under ground leases. These ground leases contain provisions that may limit the Company’s ability to lease, sell, or finance these properties.
As of December 31, 2022, the Company had 242 properties that were held under ground leases, representing an aggregate gross investment of approximately $5.6 billion. The weighted average remaining term of the Company's ground leases is approximately 64.4 years, including renewal options. The Company’s ground lease agreements with hospitals and health systems typically contain restrictions that limit building occupancy to physicians on the medical staff of an affiliated hospital and prohibit tenants from providing services that compete with the services provided by the affiliated hospital. Ground leases may also contain consent requirements or other restrictions on sale or
assignment of the Company’s leasehold interest, including rights of first offer and first refusal in favor of the lessor. These ground lease provisions may limit the Company’s ability to lease, sell, or obtain mortgage financing secured by such properties which, in turn, could adversely affect the income from operations or the proceeds received from a sale. As a ground lessee, the Company is also exposed to the risk of reversion of the property upon expiration of the ground lease term, or an earlier breach by the Company of the ground lease, which may have a material adverse effect on the Company’s consolidated financial condition and results of operations.
Risks RelatedThe Company may experience uninsured or underinsured losses.
The Company carries comprehensive liability insurance and property insurance covering its owned and managed properties. A portion of the property insurance is provided by a wholly-owned captive insurance company. In addition, tenants under single-tenant leases are required to carry property insurance covering the Company’s interest in the buildings. Some types of losses may be uninsurable or too expensive to insure against. Insurance companies, including the captive insurance company, limit or exclude coverage against certain types of losses, such as losses due to named windstorms, terrorist acts, earthquakes, toxic mold, and losses without direct physical loss, such as business interruptions occurring from pandemics. Accordingly, the Company may not have sufficient insurance coverage against certain types of losses and may experience decreases in the insurance coverage available. Should an uninsured loss or a loss in excess of insured limits occur, the Company could lose all or a portion of the capital it has invested in a property, as well as the anticipated future revenue from the property. In such an event, the Company might remain obligated for any mortgage debt or other financial obligation related to the property. Further, if any of the Company's insurance carriers were to become insolvent, the Company would be forced to replace the existing coverage with another suitable carrier, and any outstanding claims would be at risk for collection. In such an event, the Company cannot be certain that the Company would be able to replace the coverage at similar or otherwise favorable terms.
The Company has obtained title insurance policies for each of its properties, typically in an amount equal to its original price. However, these policies may be for amounts less than the current or future values of our Organizational Structureproperties. In such an event, if there is a title defect relating to any of the Company's properties, it could lose some of the capital invested in and anticipated profits from such property. The Company cannot give assurance that material losses in excess of insurance proceeds will not occur in the future.
WeDamage from catastrophic weather and other natural events, whether caused by climate change or otherwise, could result in losses to the Company.
Many of our properties are located in areas susceptible to revenue loss, cost increase, or damage caused by severe weather conditions or natural disasters such as wildfires, hurricanes, earthquakes, tornadoes and floods. The Company could experience losses to the extent that such damages exceed insurance coverage, cause an increase in insurance premiums, and/or a decrease in demand for properties located in such areas. In the event that climate change causes such catastrophic weather or other natural events to increase broadly or in localized areas, such costs and damages could increase above historic expectations. In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve energy efficiency of our existing properties and could require the Company to spend more on development and redevelopment properties without a corresponding increase in revenue.
The Company faces risks associated with security breaches through cyber attacks, cyber intrusions, or otherwise, as well as other significant disruptions of its information technology networks and related systems.
The Company faces risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, persons inside the Company, or persons with access to systems inside the Company, and other significant disruptions of the Company's information technology ("IT") networks and related systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. The Company's IT networks and related systems are essential to the operation of its business and its ability to perform day-to-day operations (including managing building systems) and, in some cases, may be critical to the operations of certain of our tenants. Although the Company makes efforts to maintain the security and integrity of these types of IT networks and related systems, it has experienced breaches. While breaches to date have not had a material
impact, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that these security measures will be effective or that future attempted security breaches or disruptions would not be successful or damaging. Even the most well protected information, networks, systems, and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventive measures, and it is therefore impossible to entirely mitigate the risk.
A security breach or other significant disruption involving the Company's IT network and related systems could:
•disrupt the proper functioning of the Company's networks and systems and therefore the Company's operations and/or those of certain tenants;
•result in misstated financial reports, violations of loan covenants, missed reporting deadlines, and/or missed permitting deadlines;
•result in the Company's inability to properly monitor its compliance with the rules and regulations regarding the Company's qualification as a REIT;
•result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, or otherwise valuable information of the Company or others, which others could use to compete against the Company or which could expose it to damage claims by third-parties for disruption, destructive, or otherwise harmful purposes or outcomes;
•result in the Company's inability to maintain the building systems relied upon by the its tenants for the efficient use of their leased space;
•require significant management attention and resources to remedy any damages that result;
•subject the Company to claims for breach of contract, damages, credits, penalties, or termination of leases or other agreements; or
•damage the Company's reputation among its tenants and investors generally.
Although the Company carries cyber risk insurance, losses could exceed insurance coverage available and any or all of the foregoing could have a material adverse effect on the Company's consolidated financial condition and results of operations.
The Company may structure acquisitions of property in exchange for limited partnership units of our operating partnershipthe OP on terms that could limit ourits liquidity or our flexibility.
WeThe Company may continue to acquire properties by issuing limited partnership units of our operating partnership, HTALP,the OP in exchange for a property owner contributing property to us.the Company. If we continuethe Company continues to enter into such transactions in order to induce the contributors of such properties to accept units of our operating partnershipthe OP rather than cash in exchange for their properties, it may be necessary for usthe Company to provide additional incentives. For instance, our operating partnership’sthe OP's limited partnership agreement provides that any holder of units may exchange limited partnership units on a one-for-one basis for shares of common stock or, at ourthe Company's option, cash equal to the value of an equivalent number of shares of the Company's common stock. WeThe Company may, however, enter into additional contractual arrangements with contributors of property under which weit would agree to repurchase a contributor’s units for shares of ourthe Company's common stock or cash, at the option of the contributor, at set times. If the contributor required usthe Company to repurchase units for cash pursuant to such a provision, it would limit ourthe Company's liquidity and, thus, ourits ability to use cash to make other investments, satisfy other obligations or make distributions to stockholders. Moreover, if wethe Company were required to repurchase units for cash at a time when weit did not have sufficient cash to fund the repurchase, wethe Company might be required to sell one or more of ourits properties to raise funds to satisfy this obligation. Furthermore, wethe Company might agree that if distributions the contributor received as a limited partner in our operating partnershipthe OP did not provide the contributor with an established return level, then upon redemption of the contributor’s units wethe Company would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to our operating partnership, wethe OP, the Company might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares. Such an agreement would prevent us
the Company from selling those properties, even if market conditions would allow such a sale to be favorable to us.the Company.
Our BoardRisks relating to our capital structure and financings
The Company has incurred significant debt obligations and may incur additional debt and increase leverage in the future.
As of DirectorsDecember 31, 2022, the Company had approximately $5.7 billion of outstanding indebtedness excluding discounts, premiums and debt issuance costs. Covenants under the Fourth Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 20, 2022, among the Company, the OP, and Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders that are party thereto, as amended ("Unsecured Credit Facility"), and the indentures governing the Company's senior notes permit the Company to incur substantial, additional debt, and the Company may change our investment objectivesborrow additional funds, which may include secured borrowings. A high level of indebtedness would require the Company to dedicate a substantial portion of its cash flows from operations to service debt, thereby reducing the funds available to implement the Company's business strategy and major strategiesto make distributions to stockholders. A high level of indebtedness could also:
•limit the Company’s ability to adjust rapidly to changing market conditions in the event of a downturn in general economic conditions or in the real estate and/or healthcare industries;
•limit the Company's ability to adjust rapidly to changing market conditions in the event of a downturn in general economic conditions or in the real estate and/or healthcare industries;
•impair the Company’s ability to obtain additional debt financing or require potentially dilutive equity to fund obligations and take other actions without seeking stockholder approval.carry out its business strategy; and
Our Board of Directors determines our investment objectives and major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our Board of Directors may amend or revise these and other strategies without•result in a votedowngrade of the stockholders. Under our charterrating of the Company’s debt securities by one or more rating agencies, which would increase the costs of borrowing under the Unsecured Credit Facility and Maryland law, our stockholders willthe cost of issuance of new debt securities, among other things.
In addition, from time to time, the Company secures mortgage financing or assumes mortgages to partially fund its investments. If the Company is unable to meet its mortgage payments, then the encumbered properties could be foreclosed upon or transferred to the mortgagee with a consequent loss of income and asset value. A foreclosure on one or more of the Company's properties could have a right to vote onlymaterial adverse effect on the following matters:Company’s consolidated financial condition and results of operations.
the electionThe Company generally does not intend to reserve funds to retire existing debt upon maturity. The Company may not be able to repay, refinance, or removal of directors;
our dissolution;
certain mergers, consolidations, conversions, statutory share exchanges and salesextend any or other dispositions of all or substantially all of our assets;debt at maturity or upon any acceleration. If any refinancing is done at higher interest rates, the increased interest expense could adversely affect the Company's financial condition and results of operations. Any such refinancing could also impose tighter financial ratios and other covenants that restrict the Company's ability to take actions that could otherwise be in its best interest, such as funding new development activity, making opportunistic acquisitions, or paying dividends.
amendments
Covenants in the Company’s debt instruments limit its operational flexibility, and a breach of our charter, exceptthese covenants could materially affect the Company’s consolidated financial condition and results of operations.
The terms of the Unsecured Credit Facility, the indentures governing the Company’s outstanding senior notes and other debt instruments that our Boardthe Company may enter into in the future are subject to customary financial and operational covenants. These provisions include, among other things: a limitation on the incurrence of Directors may amend our charter without stockholder approvaladditional indebtedness; limitations on mergers, investments, acquisitions, redemptions of capital stock, and transactions with affiliates; and maintenance of specified financial ratios. The Company’s continued ability to change our name orincur debt and operate its business is subject to compliance with these covenants, which limit operational flexibility. Breaches of these covenants could result in defaults under applicable debt instruments, even if payment obligations are satisfied. Financial and other covenants that limit the name or other designation, or the par valueCompany’s operational flexibility, as well as defaults resulting from a breach of any classof these covenants in its debt instruments, could have a material adverse effect on the Company’s consolidated financial condition and results of operations.
If lenders under the Unsecured Credit Facility fail to meet their funding commitments, the Company’s operations and consolidated financial position would be negatively impacted.
Access to external capital on favorable terms is critical to the Company’s success in growing and maintaining its portfolio. If financial institutions within the Unsecured Credit Facility were unwilling or seriesunable to meet their respective funding commitments to the Company, any such failure would have a negative impact on the Company’s operations, consolidated financial condition and ability to meet its obligations, including the payment of our stockdividends to stockholders.
The unavailability of equity and debt capital, volatility in the aggregate par valuecredit markets, increases in interest rates, or changes in the Company’s debt ratings could have an adverse effect on the Company’s ability to meet its debt payments, make dividend payments to stockholders or engage in acquisition and development activity.
A REIT is required by the Internal Revenue Code of our stock, increase or decrease the aggregate number1986, as amended (the “Internal Revenue Code”), to make dividend distributions, thereby retaining less of our shares of stock or the number of our shares of any class or series that we have the authority to issue or effect certain reverse stock splits.
its capital for growth. As a result, a REIT typically requires new capital to invest in real estate assets. However, there may be times when the Company will have limited access to capital from the equity and/or debt markets. Changes in the Company’s debt ratings could have a material adverse effect on its interest costs and financing sources. The Company’s debt rating can be materially influenced by a number of factors including, but not limited to, acquisitions, investment decisions, and capital management activities. In recent years, the capital and credit markets have experienced volatility and at times have limited the availability of funds. The Company’s ability to access the capital and credit markets may be limited by these or other factors, which could have an impact on its ability to refinance maturing debt, fund dividend payments and operations, acquire healthcare properties and complete development and redevelopment projects. If the Company is unable to refinance or extend principal payments due at maturity of its various debt instruments, its cash flow may not be sufficient to repay maturing debt or make dividend payments to stockholders. If the Company defaults in paying any of its debts or satisfying its debt covenants, it could experience cross-defaults among debt instruments, the debts could be accelerated and the Company could be forced to liquidate assets for less than the values it would otherwise receive.
Further, the Company obtains credit ratings from various credit-rating agencies based on their evaluation of the Company's credit. These agencies' ratings are based on a number of factors, some of which are not within the Company's control. In addition to factors specific to the Company's financial strength and performance, the rating agencies also consider conditions affecting REITs generally. The Company's credit ratings could be downgraded. If the Company's credit ratings are downgraded or other negative action is taken, the Company could be required, among other things, to pay additional interest and fees on borrowings under the Unsecured Credit Facility.
Increases in interest rates could have a material adverse effect on the Company's cost of capital.
During 2022, the Federal Reserve began, and is expected to continue, to raise interest rates in an effort to curb inflation. Increases in interest rates will increase interest cost on new and existing variable rate debt. Such increases in the cost of capital could adversely impact our stockholdersability to finance operations, acquire and develop properties, and refinance existing debt. Additionally, increased interest rates may also result in less liquid property markets, limiting our ability to sell existing assets.
The Company's swap agreements may not effectively reduce its exposure to changes in interest rates.
The Company enters into swap agreements from time to time to manage some of its exposure to interest rate volatility. These swap agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements. In addition, these arrangements may not be effective in reducing the Company’s exposure to changes in interest rates. When the Company uses forward-starting interest rate swaps, there is a risk that it will not complete the long-term borrowing against which the swap is intended to hedge. If such events occur, the Company’s consolidated financial condition and results of operations may be adversely affected. See Note 11 to the Consolidated Financial Statements for additional information on the Company's interest rate swaps.
The Company has entered into joint venture agreements that limit its flexibility with respect to jointly owned properties and expects to enter into additional such agreements in the future.
As of December 31, 2022, the Company had investments of $327.2 million in unconsolidated joint ventures with unrelated third parties comprised of 33 properties and two parking garages. The Company may acquire, develop, or
redevelop additional properties in joint ventures with unrelated third parties. In such investments, the Company is subject to risks that may not be present in its other forms of ownership, including:
•joint venture partners could have financing and investment goals or strategies that are different than those of the Company, including terms and strategies for such investment and what levels of debt place on the venture;
•the parties to a rightjoint venture could reach an impasse on certain decisions, which could result in unexpected costs, including costs associated with litigation or arbitration;
•a joint venture partner's actions might have the result of subjecting the property or the Company to approve most actions takenliabilities in excess of those contemplated;
•joint venture partners could have investments that are competitive with the Company's properties in certain markets;
•interests in joint ventures are often illiquid and the Company may have difficulty exiting such an investment, or may have to exit at less than fair market value;
•joint venture partners may be structured differently than the Company for tax purposes and there could be conflicts relating to the Company's REIT status; and
•joint venture partners could become insolvent, fail to fund capital contributions, or otherwise fail to fulfill their obligations as a partner, which could require the Company to invest more capital into such ventures than anticipated.
The U.S. federal income tax treatment of the cash that the Company might receive from cash settlement of a forward equity agreement is unclear and could jeopardize the Company's ability to meet the REIT qualification requirements.
In the event that we elect to settle any forward equity agreement for cash and the settlement price is below the applicable forward equity price, we would be entitled to receive a cash payment from the relevant forward purchaser. Under Section 1032 of the Internal Revenue Code, generally, no gains and losses are recognized by a corporation in dealing in its own shares, including pursuant to a "securities futures contract" (as defined in the Internal Revenue Code, by reference to the Exchange Act). Although we believe that any amount received by us in exchange for our Boardstock would qualify for the exemption under Section 1032 of Directors.the Internal Revenue Code, because it is not entirely clear whether a forward equity agreement qualifies as a "securities futures contract," the U.S. federal income tax treatment of any cash settlement payment we receive is uncertain. In the event that we recognize a significant gain from the cash settlement of a forward equity agreement, we might be unable to satisfy the gross income requirements applicable to REITs under the Internal Revenue Code. In that case, we may be able to rely upon the relief provisions under the Internal Revenue Code in order to avoid the loss of our REIT status. Even if the relief provisions apply, we will be subject to a 100% tax on the greater of (i) the excess of 75% of our gross income (excluding gross income from prohibited transactions) over the amount of such income attributable to sources that qualify under the 75% test or (ii) the excess of 95% of our gross income (excluding gross income from prohibited transactions) over the amount of such gross income attributable to sources that qualify under the 95% test, multiplied in either case by a fraction intended to reflect our profitability. In the event that these relief provisions were not available, we could lose our REIT status under the Internal Revenue Code.
In case of our bankruptcy or insolvency, any forward equity agreements will automatically terminate, and the Company would not receive the expected proceeds from any forward sale of shares of its common stock.
If we file for or consent to a proceeding seeking a judgment in bankruptcy or insolvency or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or we or a regulatory authority with jurisdiction over us presents a petition for our winding-up or liquidation, and we consent to such a petition, any forward equity agreements that are then in effect will automatically terminate. If any such forward equity agreement so terminates under these circumstances, we would not be obligated to deliver to the relevant forward purchaser any shares of common stock not previously delivered, and the relevant forward purchaser would be discharged from its obligation to pay the applicable forward equity price per share in respect of any shares of common stock not previously settled under the applicable forward equity agreement. Therefore, to the extent that there are any shares of common stock with respect to which any forward equity agreement has not been settled at the time of the commencement of any such bankruptcy or insolvency proceedings, we would not receive the relevant forward equity price per share in respect of those shares of common stock.
Risks relating to government regulations
The Company's property taxes could increase due to reassessment or property tax rate changes.
Real property taxes on the Company's properties may increase as its properties are reassessed by taxing authorities or as property tax rates change. For example, a current California law commonly referred to as Proposition13 generally limits annual real estate tax increases on California properties to 2% of assessed value. Accordingly, the assessed value and resulting property tax the Company pays is less than it would be if the properties were assessed at current values. The Company owns 39 properties in California, representing 11.1% of its total revenue. From time to time, proposals have been made to reduce the beneficial impact of Proposition13, particularly with respect to commercial property, which would include medical office buildings. Most recently, an initiative qualified for California’s November 2020 statewide ballot that would generally limit Proposition 13’s protections to residential real estate. If this initiative had passed, it would have ended the beneficial effect of Proposition13 for the Company's properties, and property tax expense could have increase substantially, adversely affecting the Company's cash flow from operations and net income. While this initiative did not pass, the Company cannot predict whether other changes to Proposition13 may be proposed or adopted in the future.
Trends in the healthcare service industry may negatively affect the demand for the Company’s properties, lease revenues and the values of its investments.
The healthcare service industry may be affected by the following:
•disruption in patient volume and revenue from pandemics, such as COVID-19;
•trends in the method of delivery of healthcare services, such as telehealth;
•transition to value-based care and reimbursement of providers;
•competition among healthcare providers;
•consolidation among healthcare providers, health insurers, hospitals and health systems;
•a rise in government-funded health insurance coverage;
•pressure on providers' operating profit margins from lower reimbursement rates, lower admissions growth, and higher expense growth;
•availability of capital;
•credit downgrades;
•liability insurance expense;
•rising pharmaceutical drug expense;
•regulatory and government reimbursement uncertainty related to the Medicare and Medicaid programs;
•a trend toward government regulation of pharmaceutical pricing;
•government regulation of hospitals' and health insurers' pricing transparency;
•federal court decisions on cases challenging the legality of the Affordable Care Act, in whole or in part;
•site-neutral rate-setting for Medicare services across different care settings;
•heightened health information technology security standards and the meaningful use of electronic health records by healthcare providers; and
•potential tax law changes affecting providers.
These trends, among others, can adversely affect the economic performance of some or all of the tenants and, in turn, negatively affect the lease revenues and the value of the Company’s property investments.
The costs of complying with governmental laws and regulations may adversely affect the Company's results of operations.
All real property and the operations conducted on real property are subject to federal, state, and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on tenants, owners, or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may hinder the Company's ability to sell, rent, or pledge such property as collateral for future borrowings.
Compliance with new laws or regulations or stricter interpretation of existing laws may require the Company to incur significant expenditures. For example, proposed legislation to address climate change could increase utility and other costs of operating the Company's properties. Future laws or regulations may impose significant environmental liability. Additionally, tenant or other operations in the vicinity of the Company's properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect the Company's properties. There are various local, state, and federal fire, health, life-safety, and similar regulations with which the Company may be required to comply and that may subject us to liability in the form of fines or damages for noncompliance. Any expenditures, fines, or damages that the Company must pay would adversely affect its results of operations.
Discovery of previously undetected environmentally hazardous conditions may adversely affect the Company's financial condition and results of operations. Under various federal, state, and local environmental laws and regulations, a current or previous property owner or operator may be liable for the cost to remove or remediate hazardous or toxic substances on such property. These costs could be significant. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require significant expenditures or prevent the Company from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could adversely affect the Company's financial condition and results of operations.
Qualifying as a REIT involves highly technical and complex provisions of Maryland lawthe Internal Revenue Code.
Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could delay, deferjeopardize the Company’s REIT qualification. The Company’s continued qualification as a REIT will depend on the Company’s satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. In addition, the Company’s ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which the Company has no control or preventonly limited influence, including in cases where the Company owns an equity interest in an entity that is classified as a changepartnership for U.S. federal income tax purposes.
If the Company fails to remain qualified as a REIT, the Company will be subject to significant adverse consequences, including adversely affecting the value of control transaction.its common stock.
CertainThe Company intends to operate in a manner that will allow it to continue to qualify as a REIT for federal income tax purposes. Although the Company believes that it qualifies as a REIT, it cannot provide any assurance that it will continue to qualify as a REIT for federal income tax purposes. The Company’s continued qualification as a REIT will depend on the satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. The Company’s ability to satisfy the asset tests depends upon the characterization and fair market values of its assets. The Company’s compliance with the REIT income and quarterly asset requirements also depends upon the Company’s ability to successfully manage the composition of the Company’s income and assets on an ongoing basis. Accordingly, there can be no assurance that the Internal Revenue Service (“IRS”) will not contend that the Company has operated in a manner that violates any of the REIT requirements.
If the Company were to fail to qualify as a REIT in any taxable year, the Company would be subject to federal income tax on its taxable income at regular corporate rates and possibly increased state and local taxes (and the Company might need to borrow money or sell assets in order to pay any such tax). Further, dividends paid to the Company’s stockholders would not be deductible by the Company in computing its taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to the Company’s stockholders, which in turn could have an adverse impact on the value of, and trading prices for, the Company’s
common stock. In addition, in such event the Company would no longer be required to pay dividends to maintain REIT status, which could adversely affect the value of the Company’s common stock. Unless the Company were entitled to relief under certain provisions of the Internal Revenue Code, the Company also would continue to be disqualified from taxation as a REIT for the four taxable years following the year in which the Company failed to qualify as a REIT.
Even if the Company remains qualified for taxation as a REIT, the Company is subject to certain federal, state and local taxes on its income and assets, including taxes on any undistributed taxable income, and state or local income, franchise, property and transfer taxes. These tax liabilities would reduce the Company’s cash flow and could adversely affect the value of the Company’s common stock. For more specific information on state income taxes paid, see Note 16 to the Consolidated Financial Statements.
The Company’s articles of incorporation, as well as provisions of the Maryland General Corporation Law (“MGCL”("MGCL"), contain limits and restrictions on transferability of the Company’s common stock which may have adverse effects on the value of the Company’s common stock.
In order to qualify as a REIT, no more than 50% of the value of the Company’s outstanding shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year. To assist in complying with this REIT requirement, the Company’s articles of incorporation contain provisions restricting share transfers where the transferee would, after such transfer, own more than 9.8% either in number or value of the outstanding stock of the Company. If, despite this prohibition, stock is acquired increasing a transferee’s ownership to over 9.8% in value of the outstanding stock, the stock in excess of this 9.8% in value is deemed to be held in trust for transfer at a price that does not exceed what the purported transferee paid for the stock, and, while held in trust, the stock is not entitled to receive dividends or to vote. In addition, under these circumstances, the Company has the right to redeem such stock.
In addition, certain provisions of the MGCL applicable to usthe Company may have the effect of inhibiting or deterring a third party from making a proposal to acquire usthe Company or of delaying or preventing a change of control under circumstances that otherwise could provide ourCompany stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
•provisions under Subtitle 8 of Title 3 of the MGCL that permit ourthe Board of Directors, without our stockholders’ approval and regardless of what is currently provided in our charterthe Company's Articles of Incorporation or bylaws, to implement certain takeover defenses, including adopting a classified board;defenses;
•“business combination” provisions that, subject to limitations, prohibit certain business combinations, asset transfers and equity security issuances or reclassifications between usthe Company and an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of ourthe Company's outstanding voting stock or an affiliate or associate of oursthe Company who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of ourthe Company's then outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose supermajority voting requirements unless certain minimum price conditions are satisfied; and
•“control share” provisions that provide that holders of “control shares” of HTAthe Company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by ourCompany stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
Pursuant to a resolution adopted by the Board of Directors, the Company is prohibited from classifying the Board under Subtitle 8 unless stockholders entitled to vote generally in the election of directors approve a proposal to repeal such resolution by the affirmative of a majority of the votes cast on the matter. In the case of the business combination provisions of the MGCL, ourthe Board of Directors has adopted a resolution providing that any business
combination between usthe Company and any other person is exempted from this statute, provided that such business combination is first approved by our Board.the Board of Directors. This resolution, however, may be altered or repealed in whole or in part at any time. In the case of the control share provisions of the MGCL, we havethe Company has opted out of these provisions pursuant to a provision in ourits bylaws. WeThe Company may, however, by amendment to ourits bylaws, opt in to the control share provisions of the MGCL. WeThe Company may also choose to adopt a classified board or other takeover defenses in the future. Any such actions could deter a transaction that may otherwise be in the interest of ourCompany stockholders.
Risks Related to Investments in Real Estate and Other Real Estate Related Assets
We are dependentThese restrictions on the financial stability of our tenants.
Lease payment defaults by our tenants would cause us to lose the revenue associated with such leases. Although 61% of our annualized base rent was derived from tenants (or their parent companies) that have a credit rating, a tenants’ credit rating (or its’ parents credit rating) is no guarantee of a tenant’s ability to perform its lease obligations and a parent company may choose not to satisfy the obligations of a subsidiary that fails to perform its obligations. If the property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as a landlord and we may incur substantial costs in protecting our investment and re-leasing our property, and we may not be able to re-lease the property for the rent previously received, if at all. Lease terminations and expirations could also reduce the value of our properties.
We face potential adverse consequences of bankruptcy or insolvency by our tenants.
We are exposed to the risk that our tenants could become bankrupt or insolvent. This risk would be magnified to the extent that a tenant leased space from us in multiple facilities. The bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization. For example, a debtor-tenant may reject its lease with us in a bankruptcy proceeding. In such a case, our claim against the debtor-tenant for unpaid and future rents would be limited by the statutory captransfer of the U.S. Bankruptcy Code. This statutory cap might be substantially less than the remaining rent actually owed to us under the lease, and it is quite likely that any claim we might have against the tenant for unpaid rent would not be paid in full. In addition, a debtor-tenant may assert in a bankruptcy proceeding that its lease should be re-characterized as a financing agreement. If such a claim is successful, our rights and remedies as a lender, compared to our rights and remedies as a landlord, would generally be more limited.
Our tenant base may not remain stable or could become more concentrated which could harm our operating results and financial condition.
Our tenant base may not remain stable or could become more concentrated among particular physicians and physician groups with varying practices and other medical service providers in the future. Subject to the terms of the applicable leases, our tenants could decide to leave our properties for numerous reasons, including, but not limited to, financial stress or changes in the tenant’s ownership or management. Our tenants service the healthcare industry and our tenant mix could become even more concentrated if a preponderance of our tenants practice in a particular medical field or are reliant upon a particular healthcare system. If any of our tenants become financially unstable, our operating results and prospects could suffer, particularly if our tenants become more concentrated.
Our MOBs, developments, redevelopments, and other facilities that serve the healthcare industry and our tenants may be subject to competition.
Our MOBs, developments, redevelopments, and other facilities that serve the healthcare industry often face competition from nearby hospitals, developers, and other MOBs that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, while others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of financial support are not available to buildings we own or develop.
Similarly, our tenants face competition from other medical practices in nearby hospitals and other medical facilities. Further, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. Competition and loss of referrals could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues. Any reduction in rental revenues resulting from the inability of our MOBs and other facilities that serve the healthcare industry and our tenants to compete successfully may have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
The hospitals on whose campuses our MOBs are located and their affiliated healthcare systems could fail to remain competitive or financially viable, which could adversely impact their ability to attract physicians and physician groups to our MOBs and our other facilities that serve the healthcare industry.
Our MOB operations and other facilities that serve the healthcare industry depend on the viability of the hospitals on whose campuses our MOBs are located and their affiliated healthcare systems in order to attract physicians and other healthcare-related users. The viability of these hospitals, in turn, depends on factors such as the quality and mix of healthcare services provided, competition, demographic trends in the surrounding community, market position and growth potential, as well as the ability of the affiliated healthcare systems to provide economies of scale and access to capital. If a hospital whose campus is located on or near one of our MOBs is unable to meet its financial obligations, and if an affiliated healthcare system is unable to support that hospital, the hospital may not be able to compete successfully or could be forced to close or relocate, which could adversely impact its ability to attract physicians and other healthcare-related users. Because we rely on our proximity to and affiliations with these hospitals to create tenant demand for space in our MOBs, their inability to remain competitive or financially viable, or to attract physicians and physician groups, could adversely affect our MOB operations and have an adverse effect on us.
The unique nature of certain of our properties, including our senior healthcare properties, may make it difficult to lease or transfer our property or find replacement tenants, which could require us to spend considerable capital to adapt the property to an alternative use or otherwise negatively affect our performance.
Some of the properties we own or may seek to acquire are specialized medical facilities or otherwise designed or built for a particular tenant of a specific type of use known as a single use facility. For example, senior healthcare facilities present unique challenges with respect to leasing and transfer. Skilled nursing, assisted living and independent living facilities are typically highly customized and may not be easily modified to accommodate non-healthcare-related uses. The improvements generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly and oftentimes operator-specific. As a result, these property types may not be suitable for lease to traditional office tenants or other healthcare tenants with unique needs without significant expenditures or renovations. A new or replacement tenant may require different features in a property, depending on that tenant’s particular operations.
If we or our tenants terminate or do not renew the leases for our properties or our tenants lose their regulatory authority to operate such properties or default on their lease obligations to us for any reason, we may not be able to locate, or may incur additional costs to locate, suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to modify a property for a new tenant, or for multiple tenants with varying infrastructure requirements, before we are able to re-lease the space or we could otherwise incur re-leasing costs. Furthermore, because transfers of healthcare facilities may be subject to regulatory approvals not required for transfers of other types of property, there may be significant delays in transferring operations of senior healthcare facilities to successor operators. Any loss of revenues or additional capital expenditures required as a result may have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce stockholder returns.
There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure our stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, we could suffer reduced earnings that would result in less cash to be distributed to our stockholders. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase andCompany’s shares could have an adverse effecteffects on the net income from the property and, thus, the cash available for distribution to our stockholders.
We may fail to successfully operate acquired properties.
Our ability to successfully operate any properties is subject to the following risks:
we may acquire properties that are not initially accretive to our results upon acquisition and we may not successfully manage and lease those properties to meet our expectations;
we may spend more than budgeted to make necessary improvements or renovations to acquired properties;
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations and, as a result, our results of operations and financial condition could be adversely affected;
market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
we may acquire properties subject to liabilities, including contingent liabilities, and without any recourse, or with only limited recourse, with respect to unknown liabilities for the clean-up of undisclosed environmental contamination, claims by tenants or other persons dealing with former owners of the properties, liabilities, claims, and litigation, including indemnification obligations, whether or not incurred in the ordinary course of business, relating to periods prior to or following our acquisitions, claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties, and liabilities for taxes relating to periods prior to our acquisitions.
If we are unable to successfully operate acquired properties, our financial condition, results of operations, the market price of our common stock, cash flow and ability to satisfy our principal and interest obligations and to make distributions to our stockholders could be adversely affected.
We may not be able to control our operating costs or our expenses may remain constant or increase, even if our revenue does not increase, which could cause our results of operations to be adversely affected.
Factors that may adversely affect our ability to control operating costs include the need to pay for insurance and other operating costs, including real estate taxes, which could increase over time, the need periodically to repair, renovate and re-let space, the cost of compliance with governmental regulation, including zoning and tax laws, the potential for liability under applicable laws, interest rate levels and the availability of financing. If our operating costs increase as a result of any of the foregoing factors, our results of operations may be adversely affected. The expenses of owning and operating MOBs and other facilities that serve the healthcare industry are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property. As a result, if our revenue declines, we may not be able to reduce our expenses accordingly. Certain costs associated with real estate investments may not be reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease. If one or more of our properties is mortgaged and we are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take possession of the properties, resulting in a further reduction in our net income.
Increases in property taxes could adversely affect our cash flow.
Our properties are subject to real and personal property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. Some of our leases generally provide that the property taxes or increases therein are charged to the tenants as an expense related to the real properties that they occupy, while other leases provide that we are generally responsible for such taxes. We are also generally responsible for real property taxes related to any vacant space. In any case, as the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if the tenant is obligated to do so under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale.
Our ownership of certain MOB properties and other facilities are subject to ground leases or other similar agreements which limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties.
As of December 31, 2017, we held interests in MOB properties and other facilities that serve the healthcare industry through leasehold interests in the land on which the buildings are located and we may acquire additional properties in the future that are subject to ground leases or other similar agreements. As of December 31, 2017, these properties represented 38% of our total GLA. Many of our ground leases and other similar agreements limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties without the ground landlord’s consent, which may impair their value.
Our real estate development, redevelopment and construction platform is subject to risks that could adversely impact our results of operations.
A component of our current growth strategy is, when appropriate, to pursue accretive development and redevelopment projects. However, there are inherent risks associated with these development and redevelopment projects, including, but not limited to the following:
The development costs of a project may exceed budgeted amounts, causing the project to be not profitable or incur a loss;
We may encounter delays as a result of a variety of factors that are beyond our control, including natural disasters, material shortages, and regulatory requirements;
Time required to complete the construction of a project or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flows and liquidity;
Lease rates and rents at newly developed or redeveloped properties may fluctuate based on factors beyond our control, including market and economic conditions as well as aforementioned budget overages;
We may be unable to obtain favorable financing terms to fund our development projects;
Financing arrangements may require certain milestones, covenants, and other contractual terms that may be violated if the performance of our development and redevelopment projects differs from our projected income; and
Demand from prospective tenants may be reduced due to competition from other developers.
Uncertain market conditions relating to the future disposition of properties or other real estate related assets could cause us to sell our properties or real estate assets on unfavorable terms or at a loss in the future.
We intend to hold our various real estate investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives. Our Chief Executive Officer and our Board of Directors may exercise their discretion as to whether and when to sell a property and we will have no obligation to sell properties at any particular time. Our Board of Directors may also choose to effect a liquidity event in which we liquidate our investments in other real estate related assets. We generally intend to hold properties for an extended period of time and our mortgage investments until maturity, and we cannot predict with certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our properties, we may not be able to sell our properties at a profit in the future or at all, and we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Additionally, if we liquidate our mortgage investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss. For instance, if we are required to liquidate mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values. Any inability to sell a property or liquidation of a mortgage investment prior to maturity could adversely impact our business, financial condition and results of operation, the market price of our common stock and ability to pay distributions to our stockholders.
The mortgage or other real estate-related loans in which we have in the past, and may in the future, invest may be impacted by unfavorable real estate market conditions and delays in liquidation, which could decrease their value.
If we make additional investments in real estate notes receivable, we will be at risk of loss on those investments, including losses as a result of borrower defaults on mortgage loans. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and lease expirations, interest rate levels and the other economic and liability risks associated with real estate as described elsewhere under this heading. Furthermore, if there are borrower defaults under our mortgage loan investments, we may not be able to foreclose on or obtain a suitable remedy with respect to such investments. Specifically, we may not be able to repossess and sell the properties under our mortgage loans quickly, which could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. In the event of a borrower default, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan. Additionally, if we acquire property by foreclosure following a borrower default under our mortgage loan investments, we will have the economic and liability risks as the owner described above. Thus, we do not know whether the values of the property securing any of our investments in real estate related assets will remain at the levels existing on the dates we initially make the related investment. If the values of the underlying properties decline, our risk will increase and the value of our interests may decrease.
Lease rates under our long-term leases may be lower than fair market lease rates over time.
We have entered into and may in the future enter into long-term leases with tenants at certain of our properties. Certain of our long-term leases provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases is less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions could be lower than if we did not enter into long-term leases.
Rents associated with new leases for properties in our portfolio may be less than expiring rents (lease roll-down) on existing leases, which may adversely affect our financial condition, results of operations and cash flow.
Our operating results depend upon our ability to maintain and increase rental rates at our properties while also maintaining or increasing occupancy. The rental rates for expiring leases may be higher than starting rental rates for new leases and we may also be required to offer greater rental concessions than we have historically. The rental rate spread between expiring leases and new leases may vary both from property to property and among different leased spaces within a single property. If we are unable to obtain sufficient rental rates across our portfolio, our business, financial condition and results of operation, the market price of our common stock and ability to pay distributions to our stockholders could be adversely affected.
Costs associated with complying with the Americans with Disabilities Act of 1990 may result in unanticipated expenses.
Under the ADA, all places of public accommodation are required to meet certain U.S. federal requirements related to access and use by disabled persons. A number of additional U.S. federal, state and local laws may also require modifications to our properties, or restrict certain further renovations of the properties, with respect to access thereto by disabled persons. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants and/or an order to correct any non-complying feature, which could result in substantial capital expenditures. We have not conducted an audit or investigation of all of our properties to determine our compliance and we cannot predict the ultimate cost of compliance with the ADA or other legislation. If one or more of our properties is not in compliance with the ADA or other related legislation, then we would be required to incur additional costs to bring the facility into compliance. If we incur substantial costs to comply with the ADA or other related legislation, our business, financial condition and results of operations, the market price of our common stock and ability to make distributions to our stockholders may be adversely affected.
Risks Related to the Healthcare Industry
New laws or regulations affecting the heavily regulated healthcare industry, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us.
The healthcare industry is heavily regulated by federal, state and local governmental agencies. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to make distributions to our stockholders.
Many of our medical properties and our tenants may require a license or multiple licenses or a CON to operate. Failure to obtain a license or a CON or loss of a required license or a CON would prevent a facility from operating in the manner intended by the tenant. These events could adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of facilities that serve the healthcare industry, by requiring a CON or other similar approval. State CON laws are not uniform throughout the U.S. and are subject to change. We cannot predict the impact of state CON laws on our facilities or the operations of our tenants.
In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility and require new CON authorization to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition and results of operations, the market price of ourCompany’s common stock and our ability to make distributions to our stockholders.stock.
Comprehensive healthcare reform legislation could adversely affect our business, financial condition and results of operations, the market price of our common stock and our ability to pay distributions to stockholders.
In March 2010, President Obama signed the Affordable Care Act. The Affordable Care Act, along with other healthcare reform efforts has resulted in comprehensive healthcare reform in the U.S. through a phased approach, which began in 2010 and will conclude in 2018. It remains difficult to predict the impact of these laws on us due to their complexity, lack of implementing regulations or interpretive guidance, and the gradual implementation of the laws over a multi-year period. During the 2016 Presidential and Congressional campaigns, Republicans promised they would seek the repeal of the Affordable Care Act. On January 20, 2017, newly-sworn-in President Trump issued an executive order aimed at seeking the prompt repeal of the Affordable Care Act, and directed the heads of all executive departments and agencies to minimize the economic and regulatory burdens of the Affordable Care Act to the maximum extent permitted by law. In addition, there have been and continue to be numerous Congressional attempts to amend and repeal the law. We cannot predict whether any of these attempts to amend or repeal the law will be successful. The future of the Affordable Care Act is uncertain and any changes to existing laws and regulations, including the Affordable Care Act’s repeal, modification or replacement, could have a long-term financial impact on the delivery of and payment for healthcare. Both our tenants and us may be adversely affected by the law or its repeal, modification or replacement.
Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.
Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers, health maintenance organizations, preferred provider arrangements and self-insured employers, among others. Changes in the reimbursement rate or methods of payment from third-party payors, including Medicare and Medicaid, could impact the revenue of our tenants.
The healthcare industry also faces various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. A focus on controlling costs could have an adverse effect on the financial condition of some or all of our tenants. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Government budget deficits could lead to a reduction in Medicaid and Medicare reimbursement, which could adversely affect the financial condition of our tenants.
Adverse U.S. economic conditions have negatively affected state budgets, which may put pressure on states to decrease reimbursement ratesComplying with the goal of decreasing state expenditures under state Medicaid programs. The needREIT requirements may cause the Company to control Medicaid expenditures may be exacerbated by the potential for increased enrollment in state Medicaid programs due to unemployment, declines in family incomes and eligibility expansions required by the recently enacted healthcare reform law. These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement rates under both the federal Medicare program and state Medicaid programs. Potential reductions in reimbursements under these programs could negatively impact the ability of our tenants and their ability to meet their obligations to us, which could, in turn, have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.forego otherwise attractive opportunities.
Some tenants at our MOBs and our other facilities that serve the healthcare industry are subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant’s ability to make rent payments to us.
As described in the Item 1 - Business, there are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from, or are in a position to make referrals in connection with, government-sponsored healthcare programs, including the Medicare and Medicaid programs. In the ordinary course of their business, our tenants may be subject to inquiries, investigations and audits by federal and state agencies as well as whistleblower suits under the False Claims Act from private individuals. An investigation by a federal or state governmental agency for violation of fraud and abuse laws, a whistleblower suit, or the imposition of criminal/civil penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments. In turn, this may have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Risks Related to Debt Financing
We have and intend to incur indebtedness, which may increase our business risks, could hinder our ability to make distributions and could decrease the value of our Company.
As of December 31, 2017, we had fixed and variable rate debt of $2.8 billion outstanding. We intend to continue to finance a portion of the purchase price of our investments in real estate and other real estate related assets by borrowing funds. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90% of our annual ordinary taxable income to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes. We have historically maintained a low leveraged balance sheet and intend to continue to maintain this structure over the long run. However, our total leverage may fluctuate on a short term basis as we execute our business strategy.
High debt levels will cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of the Company. For tax purposes, a foreclosure of any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. We may give full or partial guarantees to lenders of mortgage debt to our affiliated entities that own our properties. When we give a guaranty on behalf of an affiliated entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by our affiliated entity. If any mortgage contains cross-collateralization or cross-default provisions, a default by us on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default by us, our ability to pay cash distributions to our stockholders could be adversely affected.
Covenants in the instruments governing our existing indebtedness limit our operational flexibility and a covenant breach could adversely affect our operations.
The terms of the instruments governing our existing indebtedness require us to comply with a number of customary financial and other covenants. These provisions include, among other things: a limitation on the incurrence of additional indebtedness; limitations on mergers; investments; acquisitions; redemptions of capital stock; transactions with affiliates; and maintenance of specified financial ratios. Our continued ability to incur debt and operate our business is subject to compliance with these covenants, which limit our operational flexibility. Breaches of these covenants could result in defaults by us under applicable debt instruments, even if payment obligations are satisfied. Financial and other covenants that limit our operational flexibility, as well as defaults resulting from our breach of any of these covenants in our debt instruments, could have an adverse effect on our financial condition and results of operations.
Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on favorable terms, if at all, and negatively impact the market price of our securities, including our common stock.
Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us. Our credit ratings can affect the amount and type of capital we can access, as well as the terms of any financings we may obtain. There can be no assurance that we will be able to maintain our current credit ratings, and, in the event that our current credit ratings deteriorate, we would likely incur higher borrowing costs and it may be more difficult or expensive for us to obtain additional financing or refinance existing obligations and commitments. Also, a downgrade in our credit ratings would trigger additional costs or other potentially negative consequences for us under our current and future credit facilities and debt instruments.
Risks Related to Joint Ventures
The terms of joint venture agreements or other joint ownership arrangements into which we have entered and may enter could impair our cash flow, our operating flexibility and our results of operations.
In connection with the purchase of real estate, we have entered and may continue to enter into joint ventures with third parties. We may also purchase or develop properties in co-ownership arrangements with the sellers of the properties, developers or other persons. Our joint venture partners may also have rights to take actions over which we have no control and may take actions contrary to our interests. Joint ownership of an investment in real estate may involve risks not associated with direct ownership of real estate, including the following:
a venture partner may at any time have economic or other business interests or goals which are or become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in a joint venture or the timing of the termination and liquidation of the venture;
a venture partner might become bankrupt and such proceedings could have an adverse impact on the operation of the partnership or joint venture;
a venture partner’s actions might have the result of subjecting the property to liabilities in excess of those contemplated; and
a venture partner may be in a position to take action contrary to our instructions or requests, or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT.
Under certain joint venture arrangements, neither venture partner may have the power to control the venture and, thus, an impasse could occur, which might adversely affect the joint venture and decrease potential returns to our stockholders. If we have a right of first refusal or buy/sell right to buy-out a venture partner, we may be unable to finance such a buy-out or we may be forced to exercise those rights at a time when it would not otherwise be in our best interest to do so. If our interest is subject to a buy/sell right in favor of us, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to purchase an interest of a venture partner subject to the buy/sell right, in which case we may be forced to sell our interest when we would otherwise prefer to retain our interest. In addition, we may not be able to sell our interest in a joint venture on a timely basis or on acceptable terms if we desire to exit the venture for any reason, particularly if our interest is subject to a right of first refusal in favor of our venture partner.
Federal Income Tax Risks
Failure toTo qualify as a REIT for U.S. federal income tax purposes, would subject us to federal income tax on our taxable income at regular corporate rates, which would substantially reduce our ability to make distributions to our stockholders.
We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2007 and we believe that our current and intended manner of operation will enable us to continue to meet the requirements to be taxed as a REIT. To qualify as a REIT, weCompany must meet various requirements set forth in the Codecontinually satisfy tests concerning, among other things, the ownershipsources of our outstanding common stock,its income, the nature of ourits assets, the sources of our incomeamounts it distributes to its stockholders and the amountownership of our distributionsits stock. The Company may be unable to our stockholders. The REIT qualification requirements are extremely complex and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certainpursue investments that we will be successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT. It is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our REIT election, which it may do without stockholder approval.
If we were to fail to qualify as a REIT for any taxable year, we would not be able to deduct distributions to stockholders in computing our taxable income and we would be subject to U.S. federal income tax on our taxable income at corporate rates. We could also be subjectotherwise advantageous to the federal alternative minimum tax and increased state and local taxes. Losing our qualification as a REIT would reduce our net earnings available for investmentCompany in order to satisfy the source-of-income or distribution to stockholders due to the additional tax liability and we would no longer be required to make distributions. To the extent that distributions had been made in anticipation of ourrequirements for qualifying as a REIT, we might be required to borrow funds or liquidate some investments in order to pay the applicable corporate income tax. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our qualification as a REIT.
As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and would substantially reduce our ability to make distributions to our stockholders.
To continue to qualify as a REIT and to avoid the payment of U.S. federal income and excise taxes, we may be forced to borrow funds, use proceeds from the issuance of securities or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations or cause us to forgo otherwise attractive opportunities.
To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and by excluding net capital gains. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of: (a) 85% of our ordinary income; (b) 95% of our capital gain net income; and (c) 100% of our undistributed income from prior years. These requirements could cause us to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments. These requirements could additionally cause us to distribute amounts that otherwise would be spent on acquisitions of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities or sell assets in order to distribute enough of our taxable income to maintain our qualification as a REIT and to avoid the payment of federal income and excise taxes. Thus, compliance with the REIT requirements may hinder ourthe Company’s ability to operate solely onmake certain attractive investments.
The prohibited transactions tax may limit the basisCompany's ability to sell properties.
A REIT's net gain from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of maximizing profits.property held primarily for sale to customers in the ordinary course of business. The Company may be subject to the prohibited transaction tax equal to 100% of net gain upon a disposition of real property. Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, there can be no assurance that the Company can comply in all cases with the safe harbor or that it will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, the Company may choose not to engage in certain sales of its properties or may conduct such sales through a taxable REIT subsidiary, which would be subject to federal and state income taxation.
To preserve ourNew legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for the Company to qualify as a REIT.
The present federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the federal income tax treatment of an investment in the Company. The federal income tax rules that affect REITs are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. Revisions in federal tax laws and interpretations thereof could cause the Company to change its investments and commitments and affect the tax considerations of an investment in the Company. There can be no assurance that new legislation, regulations, administrative interpretations or court decisions will not change the tax laws significantly with respect to the Company’s qualification as a REIT our charter contains ownership limitsor with respect to our capital stock that may delay, defer or prevent a changethe federal income tax consequences of control of HTA or other transaction that may be benefit our stockholders.qualification.
To assist us in preserving our qualification as a REIT, our charter contains a limitation on ownership that prohibits any individual, entity or group, unless exempted by our Board of Directors, from directly acquiring beneficial ownership of more than 9.8% of the value of HTA’s then outstanding capital stock (which includes common stockNew and any preferred stock HTA may issue) or more than 9.8% of the value or number of shares, whichever is more restrictive, of HTA’s then outstanding common stock.
Any attemptedincreased transfer of HTA’s stock which, if effective, would result in HTA’s stock being beneficially owned by fewer than 100 persons will be null and void. Any attempted transfer of HTA’s stock which, if effective, would result in violation of the ownership limits discussed above or in HTA being “closely held” under Section 856(h) of the Code or otherwise failing to qualify as a REIT, will cause the number of shares causing the violation (rounded up to the nearest whole share) to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries and the proposed transferee will not acquire any rights in the shares.
Recent tax legislative or regulatory action could adversely affect stockholders unitholders, or the Company, which may have an adverse impact to the value of the Company and could also impede our ability to source new capital.
On December 20, 2017, the House of Representatives and the Senate passed the TCJA which makes major changes to the Code, including a number of provisions of the Code that affect the taxation of REITs and their stockholders. Changes to the TCJA, with or without retroactive application, could materially and adversely affect our stockholders, OP Unit holders and/or us. The individual and collective impact of these provisions and other provisions of the TCJA on REITs and their stockholders is uncertain, and may not become evident for some period of time.
If tax rates were to change in a manner comparably favorable for regular corporate taxable income and dividends to that of REITs, investors could perceive investments in REITs to be relatively less attractive than investment in dividend paying non-REIT corporations, which could adversely affect the value of our common stock. Stockholders and potential investors should consult their tax advisors regarding their respective tax considerations and rates.
Risks Related to Our Common Stock
The price of our common stock has and may continue to fluctuate, which may make it difficult for you to sell our common stock when you want to do so, or at prices you find attractive.
The price of our common stock on the NYSE constantly changes and has been subject to price fluctuations. We expect that the market price of our common stock will continue to fluctuate. Our stock price can fluctuate as a result of a variety of factors, many of which are beyond our control. These factors may include:
actual or anticipated variations in our quarterly operating results;
changes in our earnings estimates or publication of research reports about us or the real estate industry, although no assurance can be given that any research reports about us will be published;
future sales of substantial amounts of common stock by our existing or future stockholders;
increases in market interest rates, which may lead purchasers of our stock to demand a higher yield;
changes in market valuations of similar companies;
adverse market reaction to any increased indebtedness we incur in the future;
additions or departures of key personnel;
actions by institutional stockholders;
speculation in the press or investment community; and
general market and economic conditions.
In addition, the stock market in general may experience extreme volatility that may be unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the market price of our common stock.
Future offerings of debt securities, which would be senior to our common stock, or equity securities, which would dilute our existing stockholders and may be senior to our common stock, may adversely affect the market price of our common stock.
In the future, we may issue debt or equity securities, including medium term notes, senior or subordinated notes and classes of preferred or common stock. Debt securities or shares of preferred stock will generally be entitled to receive distributions, both current and in connection with any liquidation or sale, prior to the holders of our common stock. Our Board of Directors may issue such securities without stockholder approval and under Maryland law may amend our charter to increase the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series without stockholder approval. We are not required to offer any such additional debt or equity securities to existing holders of our common stock on a preemptive basis. Therefore, offerings by us of our common stock or other equity securities may dilute the percentage ownership interest of our existing stockholders. To the extent we issue additional equity interests, our stockholders’ percentage ownership interest in us will be diluted. Depending upon the terms and pricing of any additional offerings and the value of our properties and other real estate related assets, our stockholders may also experience dilution in both the book value and fair market value of their shares. As a result, future offerings of our debt or equity securities, or the perception that such offerings may occur, may reduce the market price of our common stock and/or the distributions that we pay with respect to our common stock.
The availability and timing of cash distributions to our stockholders is uncertain, which could adversely affect the market price of our common stock and may include a return of capital.
Our organizational documents do not establish a limit on the amount of net proceeds we may use to fund distributions. All distributions, however, will be at the sole discretion of our Board of Directors and will depend upon our actual and projected financial condition, results of operations, cash flows, liquidity and FFO, maintenance of our REIT qualification and such other matters as our Board of Directors may deem relevant from time to time. We cannot assure our stockholders that sufficient cash will be available to make distributions or that the amount of distributions will increase over time. Our failure to meet the market’s expectations with regard to future cash distributions likely would adversely affect the market price of our common stock.
Increases in market interest rates and related risks may cause the value of our investments in real estate related assets to be reduced and could result in a decrease in the value of our common stock.
One of the factors that may influence the price of our common stock will be the dividend distribution rate on our common stock (as a percentage of the price of our common stock) relative to market interest rates. If market interest rates rise, prospective purchasers of common stock may expect a higher distribution rate. Higher interest rates would not, however, result in more funds being available for distribution. In fact, if market interest rates rise, the market value of our fixed income securities would likely decline, our borrowing costs would likely increase and our funds available for distribution would likely decrease. During periods of rising interest rates, the average life of certain types of securities may be extended because of slower than expected principal payments. This may lock in a below-market interest rate, increase the security’s duration and reduce the value of the security. During periodsCompany’s properties.
In recent years, several cities in which the Company owns assets have increased transfer tax rates. These include Boston, Los Angeles, San Francisco, Seattle, and Washington, D.C. In 2022, Los Angeles increased its transfer tax rate from 0.45% to 5.5% on sales of declining interestreal properties greater than $10 million in value, effective April 1, 2023. In 2020, San Francisco increased it transfer tax rate to 6% for sales in excess of $25 million in value. Also in 2020, the State of Washington increased its transfer tax rate from 1.28% to 3% on sales in excess of $3 million in value; the combined state and local transfer tax rate in Seattle/King County, Washington is 3.5% on sales above $3 million. As state and municipal governments seek new ways to raise revenue, other jurisdictions may implement new real estate transfer taxes or increase existing transfer tax rates. Increases in such tax rates an issuer may be able to exercise an option to prepay principal earlier than scheduled, which may force us to reinvest in lower yielding securities. Preferredcan impose significant additional transaction costs on sales of commercial real estate and debt securities frequently have call features that allow the issuer to repurchase the security prior to its stated maturity. An issuer may redeem an obligation if the issuer can refinance the debt at a lower cost due to declining interest rates or an improvement in the credit standing of the issuer. These risks may reduce the value of our investments in real estate related assets. Therefore, we may not be able,the Company’s properties at sale by the amount of the new or we may not choose, to provide a higher distribution rate. As a result, prospective purchasers may decide to purchase other securities rather than our common stock, which would reduce the demand for, and result in a decline in the market price of, our common stock.increased tax.
Item 1B. Unresolved Staff Comments
Not applicable.
None.
Item 2. Properties
We have invested $7.0 billionIn addition to the properties described in MOBs, projects under developmentItem 1. “Business,” in Note 3 to the Consolidated Financial Statements, and other healthcare real estate assets that servein Schedule III of Item 15 of this Annual Report on Form 10-K, the healthcare industry through December 31, 2017. As of December 31, 2017, our portfolio consisted of approximately 24.1 million square feet of GLA, withCompany leases office space from unrelated third parties from time to time. The Company owns its corporate headquarters located at 3310 West End Avenue in Nashville, Tennessee and a leased rate of 91.8% (includes leases which have been executed, but which have not yet commenced). Approximately 70% of our portfolio was located on the campuses of, or adjacent to, nationally and regionally recognized healthcare systems. Our portfolio is diversified geographically across 33 states, with no state having more than 19% of the total GLA as of December 31, 2017. All but three of our properties are 100% owned.corporate office in Charleston, South Carolina.
As of December 31, 2017, we owned fee simple interests in properties representing 62% of our total GLA. We hold long-term leasehold interests in the remaining properties in our portfolio, representing 38% of our total GLA. As of December 31, 2017, these leasehold interests had an average remaining term of 52.6 years not including any available extension options. Including all extension options available to us, our average remaining term would be 71.3 years.
The following information generally applies to our properties:
we believe all of our properties are adequately covered by insurance and are suitable for their intended purposes;
our properties are located in markets where we are subject to competition in attracting new tenants and retaining current tenants; and
depreciation is provided on a straight-line basis over the estimated useful lives of the buildings, up to 39 years, and over the shorter of the lease term or useful lives of the tenant improvements.
Tenant Lease Expirations
The following table presents the sensitivity of our annualized base rent due to tenant lease expirations for existing leases for the next 10 years:
|
| | | | | | | | | | | | | | | | |
Expiration (1) | | Number of Expiring Leases | | Total GLA of Expiring Leases (2) | | Percent of GLA of Expiring Leases | | Annualized Base Rent of Expiring Leases (2)(3) | | Percent of Total Annualized Base Rent |
Month-to-month | | 158 |
| | 323 |
| | 1.5 | % | | $ | 7,210 |
| | 1.4 | % |
2018 | | 531 |
| | 2,021 |
| | 9.1 |
| | 46,044 |
| | 8.8 |
|
2019 | | 531 |
| | 2,377 |
| | 10.7 |
| | 61,966 |
| | 11.8 |
|
2020 | | 440 |
| | 1,978 |
| | 8.9 |
| | 47,344 |
| | 9.0 |
|
2021 | | 502 |
| | 2,577 |
| | 11.7 |
| | 56,825 |
| | 10.8 |
|
2022 | | 388 |
| | 2,226 |
| | 10.1 |
| | 52,832 |
| | 10.0 |
|
2023 | | 194 |
| | 1,506 |
| | 6.8 |
| | 30,684 |
| | 5.8 |
|
2024 | | 168 |
| | 1,792 |
| | 8.1 |
| | 40,572 |
| | 7.7 |
|
2025 | | 144 |
| | 1,001 |
| | 4.5 |
| | 21,544 |
| | 4.1 |
|
2026 | | 133 |
| | 1,082 |
| | 4.9 |
| | 21,825 |
| | 4.1 |
|
2027 | | 147 |
| | 2,042 |
| | 9.2 |
| | 56,350 |
| | 10.7 |
|
Thereafter | | 197 |
| | 3,214 |
| | 14.5 |
| | 83,082 |
| | 15.8 |
|
Total | | 3,533 |
| | 22,139 |
| | 100 | % | | $ | 526,278 |
| | 100 | % |
| | | | | | | | | | |
(1) Leases scheduled to expire on December 31 of a given year are included within that year in the table. |
(2) Amounts presented in thousands. |
(3) Annualized base rent is calculated by multiplying contractual base rent as of the end of the year by 12 (excluding the impact of abatements, concessions, and straight-line rent). |
Geographic Diversification/Concentration Table
The following table lists the states in which our properties are located and provides certain information regarding our portfolio’s geographic diversification/concentration as of December 31, 2017:
|
| | | | | | | | | | | | | |
State | | GLA (1) | | Percent of GLA | | Annualized Base Rent (1)(2) | | Percent of Annualized Base Rent |
Texas | | 4,515 |
| | 18.7 | % | | $ | 99,671 |
| | 18.9 | % |
Florida | | 2,748 |
| | 11.4 |
| | 62,203 |
| | 11.8 |
|
Indiana | | 1,811 |
| | 7.5 |
| | 31,882 |
| | 6.1 |
|
Massachusetts | | 1,013 |
| | 4.2 |
| | 31,550 |
| | 6.0 |
|
Arizona | | 1,530 |
| | 6.3 |
| | 28,442 |
| | 5.4 |
|
Georgia | | 1,160 |
| | 4.8 |
| | 25,931 |
| | 4.9 |
|
South Carolina | | 1,285 |
| | 5.3 |
| | 24,283 |
| | 4.6 |
|
Pennsylvania | | 1,305 |
| | 5.4 |
| | 23,777 |
| | 4.5 |
|
North Carolina | | 942 |
| | 3.9 |
| | 22,543 |
| | 4.3 |
|
New York | | 1,108 |
| | 4.6 |
| | 22,210 |
| | 4.2 |
|
Connecticut | | 969 |
| | 4.0 |
| | 20,935 |
| | 4.0 |
|
Colorado | | 538 |
| | 2.2 |
| | 17,193 |
| | 3.3 |
|
California | | 703 |
| | 2.9 |
| | 17,041 |
| | 3.2 |
|
Ohio | | 761 |
| | 3.2 |
| | 14,267 |
| | 2.7 |
|
Tennessee | | 621 |
| | 2.6 |
| | 12,581 |
| | 2.4 |
|
Illinois | | 382 |
| | 1.6 |
| | 11,237 |
| | 2.1 |
|
Missouri | | 355 |
| | 1.5 |
| | 9,313 |
| | 1.8 |
|
Wisconsin | | 368 |
| | 1.5 |
| | 7,491 |
| | 1.4 |
|
Alabama | | 319 |
| | 1.3 |
| | 6,373 |
| | 1.2 |
|
Michigan | | 203 |
| | 0.8 |
| | 5,457 |
| | 1.0 |
|
Oklahoma | | 186 |
| | 0.8 |
| | 4,893 |
| | 0.9 |
|
Maryland | | 181 |
| | 0.8 |
| | 4,591 |
| | 0.9 |
|
Hawaii | | 143 |
| | 0.6 |
| | 3,676 |
| | 0.7 |
|
New Mexico | | 162 |
| | 0.7 |
| | 3,544 |
| | 0.7 |
|
Virginia | | 164 |
| | 0.7 |
| | 3,115 |
| | 0.6 |
|
New Hampshire | | 72 |
| | 0.3 |
| | 2,119 |
| | 0.4 |
|
Mississippi | | 80 |
| | 0.3 |
| | 1,887 |
| | 0.4 |
|
Utah | | 112 |
| | 0.5 |
| | 1,877 |
| | 0.4 |
|
Kansas | | 67 |
| | 0.3 |
| | 1,543 |
| | 0.3 |
|
Minnesota | | 158 |
| | 0.7 |
| | 1,472 |
| | 0.3 |
|
New Jersey | | 57 |
| | 0.2 |
| | 1,421 |
| | 0.3 |
|
Nevada | | 73 |
| | 0.3 |
| | 1,218 |
| | 0.2 |
|
Oregon | | 23 |
| | 0.1 |
| | 542 |
| | 0.1 |
|
Total | | 24,114 |
| | 100 | % | | $ | 526,278 |
| | 100 | % |
| | | | | | | | |
(1) Amounts presented in thousands. | | |
(2) Annualized base rent is calculated by multiplying contractual base rent as of the end of the year by 12 (excluding the impact of abatements, concessions, and straight-line rent). |
Item 3. Legal Proceedings
We are subject to claims andThe Company is not aware of any pending or threatened litigation arising inthat, if resolved against the ordinary course of business. We do not believe any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate,Company, would have a material adverse effect on our accompanyingthe Company's consolidated financial statements.position, results of operations, or cash flows.
Item 4. Mine Safety Disclosures
Not applicableapplicable.
PART II
Item 5. Market for Registrant’sRegistrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
MarketShares of the Company’s common stock are traded under the symbol “HR.” At December 31, 2022, there were 2,457 stockholders of record.
Future dividends will be declared and paid at the discretion of the Board of Directors. The Company’s ability to pay dividends is dependent upon its ability to generate funds from operations and cash flows, and to make accretive new investments.
Equity Compensation Plan Information
The following table sets forthprovides information as of December 31, 2022 about the high and low sales prices of HTA’sCompany’s common stock that may be issued as reported onrestricted stock and upon the NYSEexercise of options, warrants and rights under all of the dividends declaredCompany’s existing compensation plans, including the Amended and Restated 2006 Incentive Plan.
| | | | | | | | | | | |
PLAN CATEGORY | NUMBER OF SECURITIES TO BE ISSUED upon exercise of outstanding options, warrants, and rights 1 | WEIGHTED AVERAGE EXERCISE PRICE of outstanding options, warrants, and rights 1 | NUMBER OF SECURITIES REMAINING AVAILABLE for future issuance under equity compensation plans (excluding securities reflected in the first column) |
Equity compensation plans approved by security holders | 340,976 | | — | | 9,214,187 | |
Equity compensation plans not approved by security holders | — | | — | | — | |
Total | 340,976 | | — | | 9,214,187 | |
1The outstanding options relate only to Legacy HR's 2000 Employee Stock Purchase Plan (the "Legacy HR Employee Stock Purchase Plan"), which was terminated in November 2022. No new options will be issued under the Legacy HR Employee Stock Purchase Plan and existing options will expire in March 2024. The Company is unable to ascertain with specificity the number of securities to be issued upon exercise of outstanding rights under the Legacy HR Employee Stock Purchase Plan or the weighted average exercise price of outstanding rights under that plan. The Legacy HR Employee Stock Purchase Plan provides that shares of common stock may be purchased at a per share by HTA. There is no established market for trading HTALP’s OP Units.
|
| | | | | | | | | | | | |
2017 | | High | | Low | | Dividends Declared Per Share |
First Quarter | | $ | 32.37 |
| | $ | 28.61 |
| | $ | 0.300 |
|
Second Quarter | | 33.00 |
| | 29.23 |
| | 0.300 |
|
Third Quarter | | 31.87 |
| | 29.11 |
| | 0.305 |
|
Fourth Quarter | | 31.69 |
| | 29.21 |
| | 0.305 |
|
Total | | | | | | $ | 1.210 |
|
|
| | | | | | | | | | | | |
2016 | | High | | Low | | Dividends Declared Per Share |
First Quarter | | $ | 29.42 |
| | $ | 25.90 |
| | $ | 0.295 |
|
Second Quarter | | 32.57 |
| | 27.99 |
| | 0.295 |
|
Third Quarter | | 34.64 |
| | 31.38 |
| | 0.300 |
|
Fourth Quarter | | 32.60 |
| | 26.34 |
| | 0.300 |
|
Total | | | | | | $ | 1.190 |
|
Dividends
In accordance with the terms of HTALP’s partnership agreement, the dividend HTA pays to its stockholders isprice equal to 85% of the amountfair market value of distributions it receives from HTALP. Therefore, the distribution amounts presented above reflectcommon stock at the amountbeginning of distributions paid by HTALPthe offering period or a purchase date applicable to HTA.such offering period, whichever is lower.
Issuer Purchases of Equity Securities
During the year ended December 31, 2022, the Company withheld and canceled shares of Company common stock to satisfy employee tax withholding obligations payable upon the vesting of non-vested shares, as follows:
| | | | | | | | | | | | | | |
PERIOD | TOTAL NUMBER OF SHARES PURCHASED | AVERAGE PRICE PAID per share | TOTAL NUMBER OF SHARES purchased as part of publicly announced plans or programs | MAXIMUM NUMBER OF SHARES that may yet be purchased under the plans or programs |
January 1 - January 31 | — | | $ | — | | — | | — | |
February 1 - February 28 | 6,727 | | 30.67 | | — | | — | |
March 1 - March 31 | — | | — | | — | | — | |
April 1 - April 30 | — | | — | | — | | — | |
May 1 - May 31 | — | | — | | — | | — | |
June 1 - June 30 | — | | — | | — | | — | |
July 1 - July 31 | — | | — | | — | | — | |
August 1 - August 31 | — | | — | | — | | — | |
September 1 - September 30 | 2,018 | | 24.14 | | — | | — | |
October 1 - October 31 | — | | — | | — | | — | |
November 1 - November 30 | — | | — | | — | | — | |
December 1 - December 31 | 129,147 | | 19.37 | | — | | — | |
Total | 137,892 | | | | |
Authorization to Repurchase Common Stock
On February 15, 2018, HTA’sAugust 2, 2022, the Company’s Board of Directors announced a quarterly dividendauthorized the repurchase of $0.305 per share/unitup to be paid on April 10, 2018$500 million of outstanding shares of the Company’s common stock either in the open market or through privately negotiated transactions, subject to stockholdersmarket conditions, regulatory constraints, and other customary conditions. The Company is not obligated under this authorization to repurchase any specific number of recordshares. This authorization supersedes all previous stock repurchase authorizations. As of the date of this report, the Company has not repurchased any shares of its common stock and OP unitholders on April 3, 2018.
Stockholders
As of February 14, 2018, HTA had 2,266 stockholders of record.
under this authorization.
Stock Performance Graph
The following graph below comparesprovides a comparison of the Company's cumulative total shareholder return with the Russell 3000 Index and cumulative total returns of HTA, MSCI US REIT (RMS)FTSE NAREIT All Equity REITs Index S&P 500 Index and SNL U.S. REIT Healthcare Indexfor the period from the date of our listing on the NYSE on June 6, 2012December 31, 2017 through December 31, 2017. All2022. The comparison assumes $100 was invested on December 31, 2017 in the Company's common stock and in each of the indexes and assumes reinvestment of dividends, as applicable. The Company's data for periods prior to 2015 have been adjusted retroactively to reflect the reverse stock split effective December 15, 2014. The total returns assume dividends are reinvested.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the three months ended December 31, 2017, we made no repurchase of shares of HTA’s common stock or HTALP’s OP Units.
Securities Authorized for Issuance under Equity Compensation Plans
The Amended and Restated 2006 Incentive Plan (the “Plan”) authorizes the granting of awards in anyclosing of the following forms: options;Merger is the stock appreciation rights; restricted stock; restricted or deferred stock units; performance awards; dividend equivalents; other stock-based awards, including units in operating partnership; and cash-based awards. Subject to adjustment as provided in the Plan, the aggregate number of shares of our common stock reserved and available for issuance pursuant to awards granted under the Plan is 5,000,000.Legacy HR.
Recent Sales of Unregistered Securities, Use of Proceeds from Registered Securities PaidNone.
Item 6. Selected Financial Data[Reserved]
The following should be read with Item 1A - Risk Factors, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, our accompanying consolidated financial statements and the notes thereto, as acquisitions, changes in accounting policies and other items impact the comparability of our financial data. Our historical results are not necessarily indicative of results for any future period.
Healthcare Trust of America, Inc.
|
| | | | | | | | | | | | | | | | | | | |
| December 31, |
(In thousands) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Balance Sheet Data: | | | | | | | | | |
Real estate investments, net | $ | 5,947,874 |
| | $ | 3,503,020 |
| | $ | 2,959,468 |
| | $ | 2,822,844 |
| | $ | 2,526,991 |
|
Total assets (1) | 6,449,582 |
| | 3,747,844 |
| | 3,172,300 |
| | 3,031,384 |
| | 2,744,666 |
|
Debt (1) | 2,781,031 |
| | 1,768,905 |
| | 1,590,696 |
| | 1,402,195 |
| | 1,206,573 |
|
Noncontrolling interests | 84,666 |
| | 93,143 |
| | 27,534 |
| | 29,282 |
| | 12,543 |
|
Total equity | 3,363,448 |
| | 1,780,417 |
| | 1,406,958 |
| | 1,476,421 |
| | 1,399,749 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands, except per share data) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Statement of Operations Data: | | | | | | | | | |
Total revenues (2) | $ | 613,990 |
| | $ | 460,928 |
| | $ | 403,822 |
| | $ | 371,505 |
| | $ | 321,601 |
|
Rental expenses (2) | 192,147 |
| | 143,751 |
| | 123,390 |
| | 113,508 |
| | 97,316 |
|
Net income attributable to common stockholders | 63,916 |
| | 45,912 |
| | 32,931 |
| | 45,371 |
| | 24,261 |
|
Net income attributable to common stockholders per share - basic (3) | 0.35 |
| | 0.34 |
| | 0.26 |
| | 0.38 |
| | 0.21 |
|
Net income attributable to common stockholders per share - diluted (3) | 0.34 |
| | 0.33 |
| | 0.26 |
| | 0.37 |
| | 0.21 |
|
Statement of Cash Flows Data: | | | | | | | | | |
Cash flows provided by operating activities | $ | 307,543 |
| | $ | 203,695 |
| | $ | 191,095 |
| | $ | 168,499 |
| | $ | 147,824 |
|
Cash flows used in investing activities (4) | (2,455,096 | ) | | (608,393 | ) | | (274,171 | ) | | (257,017 | ) | | (374,209 | ) |
Cash flows provided by financing activities | 2,241,068 |
| | 400,781 |
| | 80,826 |
| | 83,535 |
| | 229,001 |
|
Other Data: | | | | | | | | | |
Dividends declared to stockholders | $ | 227,024 |
| | $ | 164,221 |
| | $ | 147,539 |
| | $ | 139,355 |
| | $ | 132,680 |
|
Dividends declared per share (3) | 1.21 |
| | 1.19 |
| | 1.17 |
| | 1.16 |
| | 1.15 |
|
Dividends paid in cash to stockholders | 207,087 |
| | 159,174 |
| | 146,372 |
| | 137,158 |
| | 129,360 |
|
FFO attributable to common stockholders (5) | 284,226 |
| | 215,570 |
| | 188,206 |
| | 157,746 |
| | 145,908 |
|
Normalized FFO attributable to common stockholders (5) | 301,957 |
| | 225,221 |
| | 195,920 |
| | 176,639 |
| | 147,834 |
|
NOI (6) | 421,843 |
| | 317,177 |
| | 280,432 |
| | 257,997 |
| | 224,285 |
|
| | | | | | | | | |
(1) The amounts for 2013-2014 differ from amounts previously reported in our Annual Report for the years ended December 31, 2013 and 2014, as a result of the retrospective presentation of the early adoption of ASU 2015-03 and 2015-15 as of December 31, 2015. |
(2) The amount for 2013 differs from the amount previously reported in our Annual Report for the year ended December 31, 2013, as a result of discontinued operations of one property classified as held for sale in 2013. During 2014, this property was reclassified out of held for sale and the results of operations were included within the results of operating properties for all periods presented. |
(3) The amount for 2013 has been adjusted retroactively to reflect the reverse stock split effective on December 31, 2014. |
(4) The amounts for 2013-2016 differ from amounts previously reported in our Annual Report for the years ended December 31, 2013, 2014, 2015, and 2016, as a result of the retrospective presentation of the early adoption of ASU 2016-18 as of January 1, 2017. |
(5) For additional information on FFO and Normalized FFO, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common stockholders and an explanation of why we present these non-GAAP financial measures. |
(6) For additional information on NOI, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common stockholders and an explanation of why we present this non-GAAP financial measure. |
Healthcare Trust of America Holdings, LP
|
| | | | | | | | | | | | | | | | | | | |
| December 31, |
(In thousands) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Balance Sheet Data: | | | | | | | | | |
Real estate investments, net | $ | 5,947,874 |
| | $ | 3,503,020 |
| | $ | 2,959,468 |
| | $ | 2,822,844 |
| | $ | 2,526,991 |
|
Total assets (1) | 6,449,582 |
| | 3,747,844 |
| | 3,172,300 |
| | 3,031,384 |
| | 2,744,666 |
|
Debt (1) | 2,781,031 |
| | 1,768,905 |
| | 1,590,696 |
| | 1,402,195 |
| | 1,206,573 |
|
Total partners’ capital | 3,363,448 |
| | 1,780,417 |
| | 1,406,958 |
| | 1,476,421 |
| | 1,401,294 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands, except per unit data) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Statement of Operations Data: | | | | | | | | | |
Total revenues (2) | $ | 613,990 |
| | $ | 460,928 |
| | $ | 403,822 |
| | $ | 371,505 |
| | $ | 321,601 |
|
Rental expenses (2) | 192,147 |
| | 143,751 |
| | 123,390 |
| | 113,508 |
| | 97,316 |
|
Net income attributable to common unitholders | 65,454 |
| | 47,227 |
| | 33,445 |
| | 45,861 |
| | 24,633 |
|
Net income attributable to common unitholders per unit - basic (3) | 0.35 |
| | 0.34 |
| | 0.26 |
| | 0.38 |
| | 0.21 |
|
Net income attributable to common unitholders per unit - diluted (3) | 0.35 |
| | 0.34 |
| | 0.26 |
| | 0.38 |
| | 0.21 |
|
Statement of Cash Flows Data: | | | | | | | | | |
Cash flows provided by operating activities | $ | 307,543 |
| | $ | 203,695 |
| | $ | 191,095 |
| | $ | 168,499 |
| | $ | 147,824 |
|
Cash flows used in investing activities (4) | (2,455,096 | ) | | (608,393 | ) | | (274,171 | ) | | (257,017 | ) | | (374,209 | ) |
Cash flows provided by financing activities | 2,241,068 |
| | 400,781 |
| | 80,826 |
| | 83,535 |
| | 229,001 |
|
Other Data: | | | | | | | | | |
Distributions declared to general partner | $ | 227,024 |
| | $ | 164,221 |
| | $ | 147,539 |
| | $ | 139,355 |
| | $ | 132,680 |
|
Distributions declared per unit (3) | 1.21 |
| | 1.19 |
| | 1.17 |
| | 1.16 |
| | 1.15 |
|
Distributions paid in cash to general partner | 207,087 |
| | 159,174 |
| | 146,372 |
| | 137,158 |
| | 129,360 |
|
FFO attributable to common unitholders (5) | 285,764 |
| | 216,885 |
| | 188,720 |
| | 158,236 |
| | 146,280 |
|
Normalized FFO attributable to common unitholders (5) | 301,957 |
| | 225,221 |
| | 195,920 |
| | 176,639 |
| | 147,835 |
|
NOI (6) | 421,843 |
| | 317,177 |
| | 280,432 |
| | 257,997 |
| | 224,285 |
|
| | | | | | | | | |
(1) The amounts for 2013-2014 differ from amounts previously reported in our Annual Report for the years ended December 31, 2013 and 2014, as a result of the retrospective presentation of the early adoption of ASU 2015-03 and 2015-15 as of December 31, 2015. |
(2) The amount for 2013 differs from the amount previously reported in our Annual Report for the year ended December 31, 2013, as a result of discontinued operations of one property classified as held for sale in 2013. During 2014, this property was reclassified out of held for sale and the results of operations were included within the results of operating properties for all periods presented. |
(3) The amount for 2013 has been adjusted retroactively to reflect the reverse stock split effective on December 31, 2014. |
(4) The amounts for 2013-2016 differ from amounts previously reported in our Annual Report for the years ended December 31, 2013, 2014, 2015, and 2016, as a result of the retrospective presentation of the early adoption of ASU 2016-18 as of January 1, 2017. |
(5) For additional information on FFO and Normalized FFO, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common unitholders and an explanation of why we present these non-GAAP financial measures. |
(6) For additional information on NOI, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common unitholders and an explanation of why we present this non-GAAP financial measure. |
Item 7. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations
The
Disclosure Regarding Forward-Looking Statements
This report and other materials the Company has filed or may file with the SEC, as well as information included in oral statements or other written statements made, or to be made, by senior management of the Company, contain, or will contain, disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could” and other comparable terms. These forward-looking statements are based on the words “we,” “us”current plans and expectations of management and are subject to a number of risks and uncertainties that could materially affect the Company’s current plans and expectations and future financial condition and results.
Such risks and uncertainties as more fully discussed in Item 1A “Risk Factors” of this report and in other reports filed by the Company with the SEC from time to time include, among other things, the following:
Merger and Integration Risks
•The Company incurred substantial expenses related to the Merger;
•The Company may be unable to integrate the businesses of Legacy HR and Legacy HTA successfully and realize the anticipated synergies and related benefits of the Merger or “our” refersdo so within the anticipated timeframe;
•The Company may be unable to HTAretain key employees;
•The trading price of shares of common stock of the Company may be affected by factors different from those that affected the price of shares of Legacy HR's common stock or Legacy HTA’s common stock before the Merger; and HTALP, collectively.
•The following discussion shouldCompany cannot assure you that it will be readable to continue paying dividends at or above the rates paid by Legacy HR and Legacy HTA.
Risk relating to our business and operations
•The Company's expected results may not be achieved;
•The Company’s revenues depend on the ability of its tenants under its leases to generate sufficient income from their operations to make rental payments to the Company;
•Pandemics, such as COVID-19 and other pandemics that may occur in conjunction with our consolidated financial statementsthe future, and notes appearing elsewhere in this Annual Report. Such consolidated financial statements and informationmeasures intended to prevent their spread or mitigate their severity could have been prepared to reflect HTA and HTALP’s financial position as of December 31, 2017 and 2016, together witha material adverse effect on the Company's business, results of operations, and cash flows forand financial condition;
•Owning real estate and indirect interests in real estate is subject to inherent risks;
•The Company may incur impairment charges on its real estate properties or other assets;
•The Company has properties subject to purchase options that expose it to reinvestment risk and reduction in expected investment returns;
•If the years ended December 31, 2017, 2016 and 2015.
The information set forth belowCompany is intendedunable to provide readers with an understanding of our financial condition, changes inpromptly re-let its properties, if the rates upon such re-letting are significantly lower than the previous rates or if the Company is required to undertake significant expenditures or make significant leasing concessions to attract new tenants, then the Company’s business, consolidated financial condition and results of operations.operations would be adversely affected;
Forward-Looking Statements;
Executive Summary;
Company Highlights;
Critical Accounting Policies;
Recently Issued or Adopted Accounting Pronouncements;
Factors Which May Influence Results of Operations;
Results of Operations;
Non-GAAP Financial Measures;
Liquidity and Capital Resources;
Commitments and Contingencies;
Debt Service Requirements;
Contractual Obligations;
Off-Balance Sheet Arrangements; and
Inflation.
Forward-Looking Statements
•Certain statements contained in this Annual Report constitute forward-looking statements within the meaning of the safe harbor from civil liability providedCompany’s properties are special purpose healthcare facilities and may not be easily adaptable to other uses;
•The Company has, and in the future may have more, exposure to fixed rent escalators, which could lag behind inflation and the growth in operating expenses such as real estate taxes, utilities, insurance, and maintenance expense;
•The Company’s real estate investments are illiquid and the Company may not be able to sell properties strategically targeted for such statements bydisposition;
•The Company is subject to risks associated with the Private Securities Litigation Reform Actdevelopment and redevelopment of 1995 (set forthproperties;
•The Company may make material acquisitions and undertake developments and redevelopments that may involve the expenditure of significant funds and may not perform in Section 27Aaccordance with management’s expectations;
•The Company is exposed to risks associated with geographic concentration;
•Many of the Securities Act and Section 21ECompany’s leases are dependent on the viability of associated health systems. Revenue concentrations relating to these leases expose the Company to risks related to the financial condition of the Securities Exchange Actassociated health systems;
•Many of 1934, as amended (“Exchange Act”)). Such statements include,the Company’s properties are held under ground leases. These ground leases contain provisions that may limit the Company’s ability to lease, sell, or finance these properties;
•The Company may experience uninsured or underinsured losses;
•Damage from catastrophic weather and other natural events, whether caused by climate change or otherwise, could result in particular, statements about our plans, strategies, prospectslosses to the Company; and estimates regarding future MOB market performance. Additionally, such statements are subject to certain
•The Company faces risks and uncertainties,associated with security breaches through cyber attacks, cyber intrusions, or otherwise, as well as knownother significant disruptions of its information technology networks and unknown risks, whichrelated systems.
Risks relating to our capital structure and financings
•The Company has incurred significant debt obligations and may incur additional debt and increase leverage in the future;
•Covenants in the Company’s debt instruments limit its operational flexibility, and a breach of these covenants could cause actualmaterially affect the Company’s consolidated financial condition and results of operations;
•If lenders under the Unsecured Credit Facility fail to differ materiallymeet their funding commitments, the Company’s operations and consolidated financial position would be negatively impacted;
•The unavailability of equity and debt capital, volatility in the credit markets, increases in interest rates, or changes in the Company’s debt ratings could have an adverse wayseffect on the Company’s ability to meet its debt payments, make dividend payments to stockholders or engage in acquisition and development activity;
•Increases in interest rates could have a material adverse effect on the Company's cost of capital;
•The Company's swap agreements may not effectively reduce its exposure to changes in interest rates;
•The Company has entered into joint venture agreements that limit its flexibility with respect to jointly owned properties and expects to enter into additional such agreements in the future;
•The U.S. federal income tax treatment of the cash that the Company might receive from those projected or anticipated. Therefore, such statements are not intendedcash settlement of a forward equity agreement is unclear and could jeopardize the Company's ability to be a guaranteemeet the REIT qualification requirements; and
•In case of our performancebankruptcy or insolvency, any forward equity agreements will automatically terminate, and the Company would not receive the expected proceeds from any forward sale of shares of its common stock.
Risks relating to government regulations
•The Company's property taxes could increase due to reassessment or property tax rate changes;
•Trends in future periods. Forward-looking statements are generally identifiable by the usehealthcare service industry may negatively affect the demand for the Company’s properties, lease revenues and the values of such termsits investments;
•The costs of complying with governmental laws and regulations may adversely affect the Company's results of operations;
•Qualifying as “expect,” “project,” “may,” “should,” “could,” “would,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “opinion,” “predict,” “potential,” “pro forma” or the negative of such termsa REIT involves highly technical and other comparable terminology. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only ascomplex provisions of the date this Annual Report is filedInternal Revenue Code;
•If the Company fails to remain qualified as a REIT, the Company will be subject to significant adverse consequences, including adversely affecting the value of its common stock;
•The Company’s articles of incorporation, as well as provisions of the Maryland General Corporation Law ("MGCL"), contain limits and restrictions on transferability of the Company’s common stock which may have adverse effects on the value of the Company’s common stock;
•Complying with the SEC. We cannot guaranteeREIT requirements may cause the accuracyCompany to forego otherwise attractive opportunities;
•The prohibited transactions tax may limit the Company's ability to sell properties;
•New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for the Company to qualify as a REIT; and
•New and increased transfer tax rates may reduce the value of any such forward-looking statements contained in this Annual Report, and we do not intendthe Company’s properties.
The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Anyotherwise. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements reflect our current views about future events, are subjectwhen evaluating the information presented in the Company’s filings and reports, including, without limitation, estimates and projections regarding the performance of development projects the Company is pursuing.
Overview
The Company owns and operates properties that facilitate the delivery of healthcare services in primarily outpatient settings. To execute its strategy, the Company engages in a broad spectrum of integrated services including leasing, management, acquisition, financing, development and redevelopment of such properties. The Company seeks to unknown risks, uncertainties,generate stable, growing income and lower the long-term risk profile of its portfolio of properties by focusing on facilities primarily located on or near the campuses of acute care hospitals associated with leading health systems. The Company seeks to reduce financial and operational risk by owning properties in high-growth markets with a broad tenant mix that includes over 30 physician specialties, as well as surgery, imaging, cancer, and diagnostic centers.
As described in the Explanatory Note above and elsewhere in this report, on July 20, 2022, Legacy HR and Legacy HTA completed a merger between the companies in which Legacy HR merged with and into a wholly-owned subsidiary of Legacy HTA, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA. Immediately following the Merger, Legacy HTA changed its name to “Healthcare Realty Trust Incorporated.” For accounting purposes, the Merger was treated as a “reverse acquisition” in which Legacy HR was considered the acquirer. Accordingly, the information discussed in this section reflects, for periods prior to the closing of the Merger, the financial condition and results of operations of Legacy HR, and for periods from the closing of the Merger, that of the consolidated company.
This section is organized in the following sections:
•Liquidity and Capital Resources
•Trends and Matters Impacting Operating Results
•Results of Operations
•Non-GAAP Financial Measures and Key Performance Indicators
•Application of Critical Accounting Policies to Accounting Estimates
Liquidity and Capital Resources
The Company monitors its liquidity and capital resources and considers several indicators in its assessment of capital markets for financing acquisitions and other operating activities. The Company considers, among other factors, its leverage ratios and lending covenants, dividend payout percentages, interest rates, underlying treasury rate, debt market spreads and cost of equity capital to compare its operations to its peers and to help identify areas in which the Company may need to focus its attention.
Sources and Uses of Cash
The Company's revenues are derived from its real estate property portfolio based on a numbercontractual arrangements with its tenants. These sources of assumptions involving judgmentsrevenue represent the Company's primary source of liquidity to fund its dividends and its operating expenses, including interest incurred on debt, principal payments on debt, general and administrative costs, capital expenditures and other expenses incurred in connection with respect to, among other things, future economic, competitivemanaging its existing portfolio and market conditions, all of which are difficult or impossible to predict accurately.investing in additional properties. To the extent that our assumptions differadditional investments are not funded by these sources, the Company will fund its investment activity generally through equity or debt issuances either in the public or private markets, property dispositions or through proceeds from actual results, our abilitythe Unsecured Credit Facility.
The Company expects to continue to meet such forward-looking statements,its liquidity needs, including our ability to generate positivecapital for additional investments, tenant improvement allowances, operating and finance lease payments, paying dividends, and funding debt service, through
cash on hand, cash flows from operations and the cash flow from operations, provide dividendssources addressed above. See Note 4 to stockholdersthe Consolidated Financial Statements for additional discussion of operating and maintainfinancing lease payment obligations. See "Trends and Matters Impacting Operating Results" for additional information regarding the valueCompany's sources and uses of our real estate properties, may be significantly hindered. Factors that might impair our ability to meet such forward-looking statements include, without limitation, those discussed in Part I, Item 1A - Risk Factors are included herein and other filings with the SEC.cash.
Forward-looking statements express expectations of future events. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties that could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, our stockholders are urged not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date made. In addition, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to projections over time, except as required by law.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Executive Summary
HTA is the largest publicly-traded REIT focused on MOBs in the U.S. as measuredDividends paid by the GLA of its MOBs. HTA conducts substantially all of its operations through HTALP. We invest in MOBs that we believe will serve the future of healthcare delivery and MOBs that are primarily located on health system campuses, near university medical centers, or in core community outpatient locations. We also focus on our key markets that have certain demographic and macro-economic trends and where we can utilize our institutional full-service property management, leasing and development services platform to generate strong tenant and health system relationships and operating cost efficiencies. Our primary objective is to maximize stockholder value with disciplined growth through strategic investments that provide an attractive risk-adjusted returnCompany for our stockholders by consistently increasing our cash flow. In pursuing this objective, we: (i) seek internal growth through proactive asset management, leasing, building services and property management oversight; (ii) target accretive acquisitions and developments of MOBs in markets with attractive demographics that complement our existing portfolio; and (iii) actively manage our balance sheet to maintain flexibility with conservative leverage. Additionally, from time to time we consider, on an opportunistic basis, significant portfolio acquisitions that we believe fit our core business and could enhance our existing portfolio.
Since 2006, we have invested $7.0 billion to create a portfolio of MOBs, development projects and other healthcare assets consisting of approximately 24.1 million square feet of GLA throughout the U.S. Approximately 70% of our portfolio was located on the campuses of, or adjacent to, nationally and regionally recognized healthcare systems. Our portfolio is diversified geographically across 33 states, with no state having more than 19% of our total GLA as of December 31, 2017. We are concentrated in 20 to 25 key markets that are experiencing higher economic and demographic trends than other markets, on average, that we expect will drive demand for MOBs. As of December 31, 2017, we had approximately 1 million square feet of GLA in each of our top ten markets and approximately 93% of our portfolio, based on GLA, is located in the top 75 MSAs, with Dallas, Houston, Boston, Tampa and Atlanta being our largest markets by investment.
Company Highlights
Portfolio Operating Performance
For the year ended December 31, 2017,2022 were funded from cash flows from operations and the Unsecured Credit Facility, as cash flows from operations were not adequate to fully fund dividends, primarily as a result of merger-related costs paid during 2022. The Company expects that cash flows from property operations will generate sufficient cash flows such that dividends for the full year 2023 can be funded by cash flows from operations or other sources of liquidity described above.
The Company also had unencumbered real estate assets with a gross book value of approximately $13.8 billion at December 31, 2022, of which a portion could serve as collateral for secured mortgage financing. The Company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements. The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.
The Company has exposure to variable interest rates and its common stock price is impacted by the volatility in the stock markets. However, the Company’s leases, which provide its main source of income and cash flow, have terms of approximately one to 20 years and have lease rates that generally increase on an annual basis at fixed rates or based on consumer price indices.
Operating Activities
Cash flows provided by operating activities for the two years ended December 31, 2022 and 2021 were $272.7 million and $232.6 million, respectively. Several items impact cash flows from operating activities including, but not limited to, cash generated from property operations, merger-related costs, interest payments and the timing related to the payment of invoices and other expenses and receipt of tenant rent.
The Company may, from time to time, sell properties and redeploy cash from property sales into new investments. To the extent revenues related to the properties being sold exceed income from these new investments, the Company's consolidated results of operations and cash flows could be adversely affected.
See "Trends and Matters Impacting Operating Results" for additional information regarding the Company's operating activities.
Investing Activities
A summary of the significant transactions impacting investing activities for the twelve months ended December 31, 2022 is listed below. See Note 5 to the Consolidated Financial Statements for more detail on these activities.
The following table details the acquisitions for the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | |
Dollars in thousands | ASSOCIATED HEALTH SYSTEM/TENANCY 1 | DATE ACQUIRED | PURCHASE PRICE | SQUARE FOOTAGE | MILES TO CAMPUS |
Dallas, TX 2 | Texas Health Resources | 2/11/2022 | $ | 8,175 | | 18,000 | 0.19 |
San Francisco, CA 3 | Kaiser/Sutter Health | 3/7/2022 | 114,000 | | 166,396 | 0.90 to 3.30 |
Atlanta, GA | Wellstar Health | 4/7/2022 | 6,912 | | 21,535 | 0.00 |
Denver, CO | Centura Health | 4/13/2022 | 6,320 | | 12,207 | 2.40 |
Colorado Springs, CO 4 | Centura Health | 4/13/2022 | 13,680 | | 25,800 | 0.80 to 1.70 |
Seattle, WA | UW Medicine | 4/28/2022 | 8,350 | | 13,256 | 0.05 |
Houston, TX | CommonSpirit | 4/28/2022 | 36,250 | | 76,781 | 1.70 |
Los Angeles, CA | Cedars-Sinai Health Systems | 4/29/2022 | 35,000 | | 34,282 | 0.11 |
Oklahoma, OK | Mercy Health | 4/29/2022 | 11,100 | | 34,944 | 0.18 |
Raleigh, NC 3 | WakeMed/None | 5/31/2022 | 27,500 | | 85,113 | 0.25 to 12.30 |
Tampa. FL 4 | BayCare Health | 6/9/2022 | 18,650 | | 55,788 | 0.23 |
Seattle, WA | Evergreen Health | 8/1/2022 | 4,850 | | 10,593 | 0.24 |
Raleigh, NC | WakeMed Health | 8/9/2022 | 3,783 | | 11,345 | 0.24 |
Jacksonville, FL | Ascension Health | 8/9/2022 | 18,195 | | 34,133 | 0.03 |
Atlanta, GA | Wellstar Health | 8/10/2022 | 11,800 | | 43,496 | 0.11 |
Denver, CO | Centura Health | 8/11/2022 | 14,800 | | 34,785 | 2.10 |
Raleigh, NC | Duke Health | 8/18/2022 | 11,375 | | 31,318 | 0.19 |
Nashville, TN | Ascension Health | 9/15/2022 | 21,000 | | 61,932 | 0.80 |
Austin, TX | HCA Healthcare | 9/29/2022 | 5,450 | | 15,000 | 0.03 |
Jacksonville, FL 2 | Ascension Health | 10/12/2022 | 3,600 | | 6,200 | 0.10 |
Houston, TX | Memorial Hermann Health | 11/21/2022 | 5,500 | | 28,369 | 0.00 |
Austin, TX 5 | Ascension Health | 12/28/2022 | 888 | | 2,219 | 0.01 |
Denver, CO | None | 12/28/2022 | 16,400 | | 39,692 | 3.01 |
| | | | | |
Total investments in real estate | | $ | 403,578 | | 863,184 | | |
1Includes buildings located on-campus, adjacent and off-campus that are anchored by healthcare systems or located within two miles of a hospital campus.
2Represents a single-tenant property.
3Includes three properties.
4Includes two properties.
5The Company acquired additional ownership in an existing building bringing the Company's ownership to 71.4%.
2022 Joint Venture Acquisitions
The following table details the joint venture acquisitions for the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | ASSOCIATED HEALTH SYSTEM/TENANCY 1 | DATE ACQUIRED | PURCHASE PRICE | SQUARE FOOTAGE | MILES TO CAMPUS | COMPANY OWNERSHIP % |
San Francisco, CA 2 | MarinHealth/Kaiser | 3/7/2022 | $ | 67,175 | | 110,865 | 0.00 to 3.30 | 50 | % |
Los Angeles, CA 3 | Valley Presbyterian Health | 3/7/2022 | 33,800 | | 103,259 | 1.30 | | 50 | % |
| | | | | | |
Total Joint Venture acquisitions | | $ | 100,975 | | 214,124 | | |
1Includes buildings located on-campus, adjacent and off-campus that are anchored by healthcare systems or located within two miles of a hospital campus.
2Includes three properties.
3Includes two properties.
Capital Funding
In 2022, the Company funded $189.7 million toward the following expenditures:
•$60.8 million toward development and redevelopment of properties;
•$46.4 million toward first generation tenant improvements and planned capital expenditures for acquisitions;
•$33.6 million toward second generation tenant improvements; and
•$48.9 million toward capital expenditures.
See "Trends and Matters Impacting Operating Results" below for more detail.
The following table details the dispositions for the year ended December 31, 2022:
| | | | | | | | | | | |
Dollars in thousands | DATE DISPOSED | SALES PRICE | SQUARE FOOTAGE |
Loveland, CO 1, 6 | 2/24/2022 | $ | 84,950 | | 150,291 |
San Antonio, TX 1 | 4/15/2022 | 25,500 | | 201,523 | |
GA, FL, PA 2 | 7/29/2022 | 133,100 | | 316,739 | |
GA, FL, TX 4 | 8/4/2022 | 160,917 | | 343,545 | |
Los Angeles, CA 2, 7 | 8/5/2022 | 134,845 | | 283,780 | |
Dallas, TX 4, 8 | 8/30/2022 | 114,290 | | 189,385 | |
Indianapolis, IN 3 | 8/31/2022 | 238,845 | | 506,406 | |
Dallas, TX 1 | 10/4/2022 | 104,025 | | 291,328 | |
Houston, TX | 10/21/2022 | 32,000 | | 134,910 | |
College Station, TX | 11/10/2022 | 49,177 | | 122,942 | |
El Paso, TX | 12/22/2022 | 55,326 | | 110,465 | |
Atlanta, GA 5 | 12/22/2022 | 91,243 | | 348,416 | |
St. Louis, MO | 12/28/2022 | 18,000 | | 69,394 | |
| | | |
Total dispositions | $ | 1,242,218 | | 3,069,124 | |
1Includes two properties.
2Includes four properties.
3Includes five properties.
4Includes six properties.
5Includes nine properties.
6The Company deferred the tax gain through a 1031 exchange and reinvested the proceeds.
7Values and square feet are represented at 100%. The Company retained a 20% ownership interest in the joint venture that purchased these properties.
8Values and square feet are represented at 100%. The Company retained a 40% ownership interest in the joint venture that purchased these properties.
Subsequent Dispositions
On January 12, 2023, the Company disposed of two medical office buildings, one in Tampa, Florida and one in Miami, Florida, with a combined total of 224,037 square feet for an aggregate purchase price of $93.3 million.
On January 30, 2023, the Company disposed of a 36,691 square foot medical office building in Dallas, Texas for a purchase price of $19.2 million. The Company retained a 40% ownership interest in the joint venture that purchased this property.
On February 10, 2023, the Company disposed of a 6,500 square foot medical office building in St. Louis, Missouri for a purchase price of $0.4 million.
Financing Activities
Common Stock Issuances
The Company has in place an at-the-market ("ATM") equity offering program to sell shares of the Company’s common stock from time to time in at-the-market sales transactions. The Company has equity distribution agreements with various sales agents with respect to the ATM offering program with an aggregate sales amount of up to $750.0 million. As of December 31, 2022, $750.0 million remained available for issuance under the current ATM offering program. Legacy HR's ATM agreements are no longer in effect following the Merger on July 20, 2022. All of the activity in the following table was conducted pre-merger under the Legacy HR at-the-market program:
| | | | | | | | | | | | | | | | | |
| WEIGHTED AVERAGE SALE PRICE per share | SHARES PRICED | SHARES SETTLED | SHARES REMAINING TO BE SETTLED | NET PROCEEDS in millions |
2022 | $ | 31.73 | | — | | 727,400 | | — | | $ | 22.3 | |
| | | | | |
Debt Activity
Below is a summary of the significant debt financing activity for the twelve months ended December 31, 2022. See Note 10 to the Consolidated Financial Statements for additional information on financing activities.
Mortgage Payoffs
The following table details the mortgage note repayment activity for the twelve months ended December 31, 2022:
| | | | | | | | | | | | | | |
(dollars in millions) | TRANSACTION DATE | PRINCIPAL REPAYMENT | ENCUMBERED SQUARE FEET | CONTRACTUAL INTEREST RATE |
| | | | |
| | | | |
| | | | |
Repayments in full: | | | | |
Los Angeles, CA | 2/18/2022 | $ | (11.0) | | 56,762 | | 4.70 | % |
Loveland, CO | 2/24/2022 | (5.8) | | 80,153 | | 6.17 | % |
| | $ | (16.8) | | 136,915 | | 5.21 | % |
| | | | |
Exchange Offer
In connection with the Merger, the OP offered to exchange all validly tendered and accepted notes of each series previously issued by Legacy HR (the “Old HR Notes”) for (i) up to $250,000,000 of 3.875% Senior Notes due 2025 (the “2025 Notes”), (ii) up to $300,000,000 of 3.625% Senior Notes due 2028 (the “2028 Notes”), (iii) up to $300,000,000 of 2.400% Senior Notes due 2030 (the “2030 Notes”) and (iv) up to $300,000,000 of 2.050% Senior Notes due 2031 to be issued by the OP (the “2031 Notes” and, collectively, the “New HR Notes”) and solicited consents from holders of the Old HR Notes to amend the indenture governing the Old HR Notes to eliminate substantially all of the restrictive covenants in such indenture (the “Exchange Offers”). The New HR Notes were issued pursuant to an indenture dated July 22, 2022, among the OP, Legacy HTA and U.S. Bank Trust Company, National Association, as trustee, as supplemented by the first supplemental indenture, dated as of July 22, 2022, the second supplemental indenture, dated as of July 22, 2022, the third supplemental indenture, dated as of July 22, 2022 and the fourth supplemental indenture, dated as of July 22, 2022. Legacy HTA guaranteed the New HR Notes pursuant to (i) a guarantee of the 2025 Notes, (ii) a guarantee of the 2028 Notes, (iii) a guarantee of the 2030 Notes, and (iv) a guarantee of the 2031 Notes, each dated July 22, 2022. Legacy HTA and the OP filed a registration statement on Form S-4 (File No. 333-265593) relating to the issuance of the New HR Notes with the Securities and Exchange Commission (the “SEC”) on June 14, 2022, which was declared effective by the SEC on June 28, 2022. The following sets forth the results of the Exchange Offers:
| | | | | | | | | | | |
Series of Old HR Notes | Tenders and Consents Received as of the Expiration Date | Percentage of Total Outstanding Principal Amount of Such Series of Old HR Notes |
3.875 | % | Senior Notes due 2025 | $235,016,000 | 94.01 | % |
3.625 | % | Senior Notes due 2028 | $290,246,000 | 96.75 | % |
2.400 | % | Senior Notes due 2030 | $297,507,000 | 99.17 | % |
2.050 | % | Senior Notes due 2031 | $298,858,000 | 99.62 | % |
Senior Notes Assumed with the Merger
In connection with the Merger, the Company assumed senior notes ("Legacy Senior Notes") that were originated on various dates prior to the date of the Merger by the OP (formerly, Healthcare Trust of America Holdings, LP). These notes are all fully and unconditionally guaranteed by the Company and have semi-annual payment requirements. In addition, the Legacy Senior Notes carry customary restrictive financial covenants, including limitations on our ability to incur additional indebtedness and requirements to maintain a pool of unencumbered assets. In addition, the corresponding indentures provide for the ability to redeem the Legacy Senior Notes, subject to certain "make whole" call provisions. The Legacy Senior Notes assumed by the Company consist of the following:
| | | | | | | | | | | | | | |
| COUPON | | PRINCIPAL OUTSTANDING AS OF |
Dollars in thousands | FACE VALUE | 12/31/2022 | 12/31/2021 |
Senior Notes due 2026 | 3.50% | $ | 600,000 | | $ | 600,000 | | $ | — | |
Senior Notes due 2027 | 3.75% | 500,000 | | 500,000 | | — | |
Senior Notes due 2030 | 3.10% | 650,000 | | 650,000 | | — | |
Senior Notes due 2031 | 2.00% | 800,000 | | 800,000 | | — | |
| | $ | 2,550,000 | | $ | 2,550,000 | | $ | — | |
Credit Facilities
In connection with the effectiveness of the Merger, Legacy HR (in a limited capacity), Legacy HTA and the OP entered into the Fourth Amended and Restated Credit and Term Loan Agreement (the “Unsecured Credit Facility”) with Wells Fargo Bank, National Association, as Administrative Agent; Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., and Citibank, N.A., as Joint Book Runners; Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., U.S. Bank National Association, Citibank, N.A., The Bank of Nova Scotia, Capital One, National Association, U.S. Bank National Association, and PNC Capital Markets LLC, as Joint Lead Arrangers; and the other lenders named therein. The Unsecured Credit Facility restructured the parties’ existing bank facilities and added additional borrowing capacities for the Company following the Merger. The OP is the borrower under the Unsecured Credit Facility (in such capacity, the “Borrower”).
•Legacy HR’s existing $700.0 million revolving credit facility under the Amended and Restated Credit Agreement, dated as of May 31, 2019 (as amended, restated, replaced, supplemented, or otherwise modified from time to time prior to July 20, 2022, the “Existing HR Revolving Credit Agreement”), by and among Legacy HR, the lenders party thereto from time to time and their assignees, as lenders, and Wells Fargo Bank, National Association, as the administrative agent (the “WF Administrative Agent”), was terminated, all outstanding obligations in respect thereof were deemed paid in full and all commitments thereunder were permanently reduced to zero and terminated.
•Legacy HR’s existing $200.0 million term loan facility and existing $150.0 million term loan facility under the Amended and Restated Term Loan Agreement, dated as of May 31, 2019 (as amended, restated, replaced, supplemented, or otherwise modified from time to time prior to July 20, 2022, the “Existing HR Term Loan Agreement”), by and among Legacy HR, the lenders party thereto from time to time and their assignees, as lenders, and the WF Administrative Agent, in each, case, were deemed continued and assumed by the Borrower under the Unsecured Credit Facility, and the Existing HR Term Loan Agreement was terminated.
◦The existing $200.0 million term loan facility was amended to: (a) conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility; (b) include two one-year extension options, resulting in a latest final maturity in May 2026; and (c) reprice to align with the pricing for the Borrower’s other term loan facilities under the Unsecured Credit Facility; and
◦The existing $150.0 million term loan facility was amended to conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility, and the existing maturity in June 2026 remains unchanged under the Unsecured Credit Facility.
•Legacy HTA’s and the OP’s existing $1.0 billion revolving credit facility was upsized to $1.5 billion (the “Revolver”) pursuant to the Unsecured Credit Facility. The Revolver currently matures in October 2025, and the Unsecured Credit Facility adds an additional one-year extension option for the Revolver, for a total of two one-year extension options.
•Legacy HTA’s and the OP’s existing $300.0 million term loan facility was deemed continued pursuant to the Unsecured Credit Facility and was amended to conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility. The existing maturity in October 2025 remains unchanged under the Unsecured Credit Facility.
•Legacy HTA’s and the OP’s existing $200.0 million term loan facility was deemed continued pursuant to the Unsecured Credit Facility and was amended to (a) conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility; (b) extend the maturity from January 2024 to July 20, 2027; and (c) reprice to align with the pricing for the Borrower’s other term loan facilities under the Unsecured Credit Facility.
•The Unsecured Credit Facility provides for a new $350.0 million delayed-draw term loan facility that is available to be drawn for 12 months after July 20, 2022 and has an initial maturity date of July 20, 2023, with two one-year extension options. As of December 31, 2022, the $350.0 million Unsecured Credit Facility was drawn in full. The terms of any delayed draw term loans funded thereunder conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility, and the pricing for such delayed draw term loans aligns with the pricing for the Borrower’s other term loan facilities under the Unsecured Credit Facility.
•The Unsecured Credit Facility provides for a new $300.0 million term loan facility that was funded on July 20, 2022 and has a maturity date of January 20, 2028, with no extension options. The terms of such term loan facility conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility, and the pricing for such term loan facility aligns with the pricing for the Borrower’s other term loan facilities under the Unsecured Credit Facility.
$1.125 Billion Asset Sale Term Loan
The Company completed its draw of the $1.125 billion asset sale term loan on July 19, 2022. The principal balance as of September 30, 2022 was $423.0 million and was fully repaid on December 30, 2022.
Interest Rate Swaps
The Company has outstanding interest rate derivatives totaling $1.2 billion to hedge one-month SOFR. The following details the amount and rate of each swap (dollars in thousands):
| | | | | | | | |
EXPIRATION DATE | AMOUNT | WEIGHTED AVERAGE RATE |
January 31, 2023 | $ | 300,000 | | 1.42 | % |
January 15, 2024 | 200,000 | | 1.21 | % |
May 1, 2026 | 100,000 | | 2.15 | % |
December 1, 2026 | 150,000 | | 3.84 | % |
June 1, 2027 | 150,000 | | 4.13 | % |
December 1, 2027 | 250,000 | | 3.79 | % |
| $ | 1,150,000 | | 2.63 | % |
On February 16, 2023, the Company entered into a swap transaction with a notional amount of $50.0 million and a fixed rate of 4.16%. The swap agreement has an effective date of March 1, 2023 and a termination date of June 1, 2026.
The following table details the Company's debt balances as of December 31, 2022:
| | | | | | | | | | | | | | | | | |
| PRINCIPAL BALANCE | CARRYING BALANCE 1 | WEIGHTED YEARS TO MATURITY 2 | CONTRACTUAL RATE | EFFECTIVE RATE |
Senior Notes due 2025 | $ | 250,000 | | $ | 249,115 | | 2.3 | | 3.88 | % | 4.12 | % |
Senior Notes due 2026 3 | 600,000 | | 571,587 | | 3.6 | | 3.50 | % | 4.94 | % |
Senior Notes due 2027 3 | 500,000 | | 479,553 | | 4.5 | | 3.75 | % | 4.76 | % |
Senior Notes due 2028 | 300,000 | | 296,852 | | 5.0 | | 3.63 | % | 3.85 | % |
Senior Notes due 2030 3 | 650,000 | | 565,402 | | 7.1 | | 3.10 | % | 5.30 | % |
Senior Notes due 2030 | 299,500 | | 296,385 | | 7.2 | | 2.40 | % | 2.72 | % |
Senior Notes due 2031 | 300,000 | | 295,547 | | 8.2 | | 2.05 | % | 2.25 | % |
Senior Notes due 2031 3 | 800,000 | | 632,693 | | 8.2 | | 2.00 | % | 5.13 | % |
Total Senior Notes Outstanding | 3,699,500 | | 3,387,134 | | 5.9 | | 2.97 | % | 4.43 | % |
$1.5 billion unsecured credit facility 4 5 | 385,000 | | 385,000 | | 4.8 | | SOFR + 0.95% | 5.27 | % |
$350 million unsecured term loan 5 | 350,000 | | 349,114 | | 2.6 | | SOFR + 1.05% | 5.17 | % |
$200 million unsecured term loan | 200,000 | | 199,670 | | 3.4 | | SOFR + 1.05% | 5.17 | % |
$150 million unsecured term loan | 150,000 | | 149,495 | | 3.4 | | SOFR + 1.05% | 5.17 | % |
$300 million unsecured term loan 3 | 300,000 | | 299,936 | | 3.8 | | SOFR + 1.05% | 5.17 | % |
$200 million unsecured term loan 3 | 200,000 | | 199,362 | | 4.5 | | SOFR + 1.05% | 5.17 | % |
$300 million unsecured term loan 5 | 300,000 | | 297,869 | | 5.0 | | SOFR + 1.05% | 5.17 | % |
Mortgage notes payable | 84,122 | | 84,247 | | 2.0 | | 4.07 | % | 3.97 | % |
Total Outstanding Notes and Bonds Payable | $ | 5,668,622 | | $ | 5,351,827 | | 5.0 | | 3.72 | % | 4.69 | % |
1Balances are reflected net of discounts and debt issuance costs and include premiums.
2Includes extension options.
3Debt instruments assumed as part of the Merger with Legacy HTA on July 20, 2022. Amounts shown represent fair value adjustments.
4As of December 31, 2022, the Company had $385.0 million borrowed under the Unsecured Credit Facility with a remaining borrowing capacity of $1.1 billion.
5On July 20, 2022, the Company entered into the Unsecured Credit Facility which included a $1.5 billion revolving credit facility, replacing Legacy HR's $700.0 million credit facility.
Debt Covenant Information
The Company’s various debt agreements contain certain representations, warranties, and financial and other covenants customary in such debt agreements. Among other things, these provisions require the Company to maintain certain financial ratios and impose certain limits on the Company’s ability to incur indebtedness and create liens or encumbrances. As of December 31, 2022, the Company was in compliance with the financial covenant provisions under all of its various debt instruments.
As of December 31, 2022, 99.7% of the Company’s principal balances were due after 2023, including extension options. Also, as of December 31, 2022, the Company's incurrence of total debt as defined in the senior notes due 2030 and 2031 [debt divided by (total assets less intangibles and accounts receivable)] was approximately 38.4% (cannot be greater than 60%) and debt service coverage [interest expense divided by (net income plus interest expense, taxes, depreciation and amortization, gains and impairments)] was approximately 3.1 times (cannot be less than 1.5x).
The Company plans to manage its capital structure to maintain compliance with its debt covenants consistent with its current profile. Downgrades in ratings by the rating agencies could have a material adverse impact on the Company’s cost and availability of capital, which could in turn have a material adverse impact on consolidated results of operations, liquidity and/or financial condition.
Trends and Matters Impacting Operating Results
Management monitors factors and trends important to the Company and the REIT industry in order to gauge their potential impact on the operations of the Company. Discussed below are some of the factors and trends that management believes may impact future operations of the Company.
Acquisitions and Dispositions
In 2022, the Company invested in 33 medical office buildings through acquisitions and investments in joint ventures. The total purchase price of the acquisitions was $504.6 million and the weighted average capitalization rate for these investments was 5.3%. The following bullets provide further detail of the 2022 acquisition activity.
•The Company (exclusive of joint ventures) acquired 28 medical office buildings for purchase prices totaling $403.6 million, resulting in cash consideration paid of $399.2 million.
•Through joint ventures, the Company acquired interests in five medical office buildings for purchase prices totaling $101.0 million, resulting in cash consideration paid of $99.2 million. The Company funded 50% of the consideration for these acquisitions.
The Company disposed of 44 properties in 2022 for sales prices totaling $1.2 billion, including 10 properties contributed into joint ventures in which the Company maintained a non-controlling interest. These transactions yielded net cash proceeds of $1.1 billion, net of $45.7 million of closing costs and related adjustments and $48.9 million of retained joint venture interests. The weighted average capitalization rate for these properties was 4.8%. The Company calculates the capitalization rate for dispositions as the in-place cash net operating income divided by the sales price. The net proceeds of these sales was used to repay the $1.125 billion asset sale term loan.
See the Company's discussion of the 2022 acquisition and disposition activity in Note 5 to the Consolidated Financial Statements.
Development and Redevelopment Activity
The table below details the Company’s development and redevelopment activity as of December 31, 2022. The information included in the table below represents management’s estimates and expectations at December 31, 2022, which are subject to change. The Company’s disclosures regarding certain projections or estimates of completion dates may not reflect actual results.
| | | | | | | | | | | | | | | | | | | | | |
| | | | ESTIMATED REMAINING FUNDINGS | ESTIMATED TOTAL INVESTMENT | APPROXIMATE SQUARE FEET |
Dollars in thousands | NUMBER OF PROPERTIES | | TOTAL FUNDED DURING THE YEAR | TOTAL AMOUNT FUNDED |
| | | | | | |
Development Activity | | | | | | |
Nashville, TN | 1 | | | $ | 23,513 | | $ | 25,359 | | $ | 18,641 | | $ | 44,000 | | 106,194 | |
Orlando, FL 1 | 2 | | | 9,477 | | 16,633 | | $ | 48,367 | | 65,000 | | 156,566 | |
Raleigh, NC | 1 | | | 4,807 | | 13,625 | | $ | 35,675 | | 49,300 | | 120,694 | |
Orlando, FL | 1 | | | 1,470 | | 1,470 | | $ | 24,430 | | 25,900 | | 45,000 | |
Total | | | $ | 39,267 | | $ | 57,087 | | $ | 127,113 | | $ | 184,200 | | 428,454 | |
| | | | | | | |
Redevelopment Activity | | | | | | |
Tacoma, WA | 1 | | | $ | 7,930 | | $ | 12,253 | | $ | 247 | | $ | 12,500 | | 56,000 | |
Dallas, TX | 1 | | | 4,672 | | 12,132 | | 5,368 | | 17,500 | | 217,114 | |
Washington, DC | 3 | | | 1,113 | | 2,857 | | 18,343 | | 21,200 | | 259,290 | |
Total | | | $ | 13,715 | | $ | 27,242 | | $ | 23,958 | | $ | 51,200 | | 532,404 | |
1This project is funded through a construction note receivable.
The Company funded an additional $7.8 million related to ongoing tenant improvements at previously completed projects.
The Company is in the planning stages with several health systems and developers regarding new development and redevelopment opportunities and expects one or more to begin in 2023. Total costs to develop or redevelop a typical medical office building can vary depending on the scope of the project, market rental terms, parking configuration, building amenities, asset type and geographic location.
The Company’s disclosures regarding projections or estimates of completion dates and leasing may not be indicative of actual results.
Security Deposits and Letters of Credit
As of December 31, 2022, the Company held approximately $32.1 million in letters of credit and security deposits for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease. Generally, the Company may, at its discretion and upon notification to the tenant, draw upon these instruments if there are any defaults under the leases.
Expiring Leases
The Company expects that approximately 15% of the leases in its portfolio will expire each year. In-place leases have a weighted average lease term of 8.9 years and a weighted average remaining lease term of 4.5 years. Demand for well-located real estate with complementary practice types and services remains consistent, and the Company's 2022 quarterly tenant retention statistics ranged from 72% to 86%. In 2023, the Company has 1,446 leases totaling 4.3 million square feet in its multi-tenant portfolio that are scheduled to expire. Of those leases, 73% are in on-campus buildings, which, in our experience, tend to have high tenant retention rates between 75% to 90%.
The Company continues to emphasize its contractual rent increases for in-place leases. As of December 31, 2022 and 2021, the Company's contractual rental rate growth averaged 2.68% and 2.87% for in-place leases. In addition, the Company continued to see strong quarterly weighted average rental rate growth for renewing leases ("cash leasing spread") and expects the majority of its renewal rates to increase between 3.0% and 4.0%. In 2022, for all properties, including both Legacy HR and Legacy HTA, cash leasing spreads averaged 3.3%.
In a further effort to maximize revenue growth and reduce its exposure to key expenses such as taxes and utilities, the Company carefully manages its balance of lease types. Gross leases, wherein the Company has full exposure to all operating expenses, comprise 8% of its lease portfolio. Modified gross or base year leases, in which the Company and tenant both pay a share of operating expenses, comprise 27% of the Company's leased portfolio. Net leases, in which tenants pay substantially all operating expenses, total 58% of the leased portfolio. Absolute net leases, in which tenants pay substantially all the building's operating and capital expenses, comprise 7%.
Capital Expenditures
Capital expenditures are long-term investments made to maintain and improve the physical and aesthetic attributes of the Company's owned properties. Examples of such improvements include, but are not limited to, material changes to, or the full replacement of, major building systems (exterior facade, building structure, roofs, elevators, mechanical systems, electrical systems, energy management systems, upgrades to existing systems for improved efficiency) and common area improvements (furniture, signage and artwork, bathroom fixtures and finishes, exterior landscaping, parking lots or garages). These additions are capitalized into the gross investment of a property and then depreciated over their estimated useful lives, typically ranging from 7 to 20 years. Capital expenditures specifically do not include recurring maintenance expenses, whether direct or indirect, related to the upkeep and maintenance of major building systems or common area improvements. Capital expenditures also do not include improvements related to a specific tenant suite, unless the improvement is part of a major building system or common area improvement.
The Company invested $48.9 million, or $1.21 per square foot, in capital expenditures in 2022 and $19.6 million, or $1.15 per square foot, in capital expenditures in 2021. As a percentage of cash net operating income, 2022 and 2021 capital expenditures were 8.5% and 6.1%, respectively. For a reconciliation of cash net operating income, see "Same Store Cash NOI" in the "Non-GAAP Financial Measures and Key Performance Indicators" section as part of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report.
Tenant Improvements
The Company may invest in tenant improvements for the purpose of refurbishing or renovating tenant space. The Company categorizes these expenditures into first and second generation tenant improvements. As of December 31, 2022, the Company had commitments of approximately $195.1 million that are expected to be spent on tenant improvements throughout the portfolio, excluding development properties currently under construction.
First Generation Tenant Improvements & Planned Capital Expenditures for Acquisitions
First generation tenant improvements and planned capital expenditures for acquisition spending totaled $46.4 million and $19.3 million for the years ended December 31, 2022 and 2021, respectively. First generation tenant improvements include build out costs related to suite space in shell condition. Planned capital expenditures for acquisitions include expected near-term fundings that were contemplated as part of the acquisition.
Second Generation Tenant Improvements
Second generation tenant improvements spending totaled $33.6 million in 2022, or 5.8% of total cash net operating income. In 2021, this spending totaled $26.4 million, or 8.3% of total cash net operating income.
If the cost of a tenant improvement project exceeds a tenant improvement allowance, the Company generally offers the tenant the option to finance the excess over the lease term with interest or to reimburse the overage to the Company in a lump sum. In either case, such overages are amortized by the Company as rental income over the term of the lease. Interest earned on tenant overages is included in other operating income in the Company's Consolidated Statements of Income. The first and second generation tenant overage amount amortized to rent, including interest, totaled approximately $7.5 million in 2022, $5.9 million in 2021, and $6.6 million in 2020.
Second generation, multi-tenant tenant improvement commitments in 2022 for renewals averaged $1.76 per square foot per lease year, ranging quarterly from $1.46 to $1.90. In 2021, these commitments averaged $1.53 per square foot per lease year, ranging quarterly from $1.27 to $1.87. In 2020, these commitments averaged $1.58 per square foot per lease year, ranging quarterly from $1.48 to $1.78.
Second generation, multi-tenant tenant improvement commitments in 2022 for new leases averaged $5.74 per square foot per lease year, ranging quarterly from $4.84 to $7.07. In 2021, these commitments averaged $5.39 per square foot per lease year, ranging quarterly from $4.74 to $5.96. In 2020, these commitments averaged $5.52 per square foot per lease year, ranging quarterly from $4.07 to $6.40.
Leasing Commissions
In certain markets, the Company may pay leasing commissions to real estate brokers who represent either the Company or prospective tenants, with commissions generally equating to 4% to 6% of the gross lease value for new leases and 2% to 4% of the gross lease value for renewal leases. In addition, the Company pays its leasing employees incentive compensation when leases are executed that meet certain leasing thresholds. External leasing commissions are amortized to property operating expense, and internal leasing costs are amortized to general and administrative expense in the Company's Consolidated Statements of Income. In 2022, the Company paid leasing commissions of approximately $22.9 million, or $0.57 per square foot. In 2021, the Company paid leasing commissions of approximately $11.7 million, or $0.69 per square foot. As a percentage of total cash net operating income, leasing commissions paid for 2022 and 2021 were 0.9% and 2.8%, respectively. The amount of leasing commissions amortized over the term of the applicable leases totaled $27.2 million, $8.5 million and $7.4 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Rent Abatements
Rent abatements, which generally take the form of deferred rent, are sometimes used to help induce a potential tenant to lease space in the Company's properties. Such abatements, when made, are amortized by the Company on a straight-line basis against rental income over the lease term. Rent abatements for 2022 totaled approximately $14.8 million, or $0.37 per square foot. Rent abatements for 2021 totaled approximately $4.6 million, or $0.27 per square foot. Rent abatements for 2020 totaled approximately $2.8 million, or $0.18 per square foot.
Single-Tenant Leases
As of December 31, 2022, the Company had a total of 141 single-tenant leases, with a weighted average lease term of 12.1 years and a weighted average remaining lease term of 5.6 years.
Thirteen single-tenant leases expire in 2023. Three of these have been renewed. The Company is in negotiations with five of the tenants and expects the leases to renew. One building was sold on February 10, 2023. The remaining four leases are expected to be sold or not renew during 2023.
Operating Leases
As of December 31, 2022, the Company was obligated to make rental payments under operating lease agreements consisting primarily of ground leases related to 167 real estate investments, excluding those ground leases the Company has prepaid. At December 31, 2022, the Company had 242 properties totaling 17.8 million square feet that were held under ground leases with a remaining weighted average term of 64.4 years, including renewal options. These ground leases typically have initial terms of 50 to 75 years with one or more renewal options extending the terms to 75 to 100 years, with expiration dates through 2119.
Purchase Options
The Company had approximately $100.4 million in real estate properties as of December 31, 2022 that were subject to exercisable purchase options. The Company has approximately $1.1 billion in real estate properties that are subject to purchase options that will become exercisable after 2022. Additional information about the amount and basis for determination of the purchase price is detailed in the table below (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| NUMBER OF PROPERTIES | GROSS REAL ESTATE INVESTMENT AS OF DECEMBER 31, 2022 |
YEAR EXERCISABLE | MOB | INPATIENT | FAIR MARKET VALUE METHOD 1 | NON FAIR MARKET VALUE METHOD 2 | TOTAL |
Current 3 | 3 | | 2 | | $ | 100,366 | | $ | — | | $ | 100,366 | |
2023 | 2 | | — | | 36,171 | | — | | 36,171 | |
2024 | — | | — | | — | | — | | — | |
2025 | 6 | | 1 | | 88,412 | | 44,459 | | 132,871 | |
2026 | 5 | | 1 | | 179,929 | | — | | 179,929 | |
2027 | 4 | | — | | 110,125 | | — | | 110,125 | |
2028 | 2 | | 2 | | 109,399 | | — | | 109,399 | |
2029 | 2 | | 1 | | 81,794 | | — | | 81,794 | |
2030 | — | | — | | — | | — | | — | |
2031 | 3 | | 1 | | 108,769 | | — | | 108,769 | |
2032 | 2 | | — | | 24,628 | | — | | 24,628 | |
2033 and thereafter 4 | 10 | | — | | 334,634 | | — | | 334,634 | |
Total | 39 | | 8 | | $ | 1,174,227 | | $ | 44,459 | | $ | 1,218,686 | |
1The purchase option price includes a fair market value component that is determined by an appraisal process.
2Includes properties with stated purchase prices or prices based on fixed capitalization rates.
3These purchase options have been exercisable for an average of 15.6 years.
4 Includes two medical office buildings that are recorded in the line item Investment in financing receivable, net on the Company's Consolidated Balance Sheet.
Debt Management
The Company maintains a conservative and flexible capital structure that allows it to fund new investments and operate its existing portfolio. The Company has approximately $84.1 million of mortgage notes payable, most of which were assumed when the Company acquired properties. In 2023, the Company has approximately $34.3 million of mortgage notes payable that will mature or are able to be repaid without penalty. The Company will repay mortgages with cash on hand or borrowings under the Unsecured Credit Facility.
Impact of Inflation
The Company is subject to the risk of inflation as most of its revenues are derived from long-term leases. Most of the Company's leases provide for fixed increases in base rents or increases based on the Consumer Price Index, and require the tenant to pay all or some portion of increases in operating expenses. The Company believes that these provisions mitigate the impact of inflation. However, there can be no assurance that the Company's ability to increase rents or recover operating expenses will keep pace with inflation. The Company's leases have a weighted average lease term remaining of approximately 4.5 years. The Company has 93.6% of leases that provide for fixed base rent increases and 6.4% that provide for Consumer Price Index-based rent increases as of December 31, 2022.
New Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for information on new accounting standards including both standards that the Company adopted during the year and those that have not yet been adopted. The Company continues to evaluate the impact of the new standards that have not yet been adopted.
Other Items Impacting Operations
General and administrative expenses will fluctuate quarter-to-quarter. In the first quarter of each year, general and administrative expense includes increases for certain expenses such as payroll taxes and healthcare savings account fundings. The Company expects these customary expenses to increase by approximately $0.8 million in the first quarter of 2023. Approximately $0.5 million is not expected to recur in subsequent quarters in 2023.
Results of Operations
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
The Company’s consolidated results of operations for 2022 compared to 2021 were significantly impacted by the Merger, acquisitions, dispositions, gain on sales and impairment charges recorded on real estate properties, and capital markets transactions.
Revenues
Rental income increased $387.1 million, or 74.4%, to approximately $907.5 million compared to $520.3 million in the prior year and is comprised of the following:
•Acquisitions in 2021 and 2022 contributed $49.2 million.
•Leasing activity contributed $16.3 million.
•Dispositions in 2021 and 2022 resulted in a decrease of $23.6 million.
•Impact from the Merger contributed $345.2 million.
Interest income increased $7.3 million, or 173.9%, from the prior year period and is comprised of the following activity:
•Two financing receivables acquired during 2021 contributed $3.9 million.
•Interest from notes receivables assumed in the Merger totaling $3.4 million.
Other operating income increased $3.4 million, or 33.2%, from the prior year primarily as a result of income from transient parking and management fees assumed with the Merger.
Expenses
Property operating expenses increased $131.8 million, or $153.162.1%, from the prior year primarily as a result of the following activity:
•Acquisitions in 2021 and 2022 resulted in an increase of $19.6 million.
•Increases in portfolio operating expenses as follows:
◦Utilities expense of $4.0 million;
◦Compensation of $2.3 million;
◦Leasing commission amortization of $1.9 million;
◦Janitorial expense of $1.2 million;
◦Maintenance and repair expense of $0.8 million;
◦Property tax of $0.6 million;
◦Security of $0.5 million;
◦Administrative and other legal expense of $0.5 million; and
◦Insurance expense of $0.4 million.
•Dispositions in 2021 and 2022 resulted in a decrease of $11.9 million.
•Impact from the Merger resulted in an increase of $111.9 million.
General and administrative expenses increased approximately $18.6 million, or 54.4%, from the prior year primarily as a result of the following activity:
•Compensation expense increased $6.3 million, including $3.5 million of non-cash expense.
•Net increases, including professional fees, audit services, travel and other administrative costs of $4.9 million.
•Impact from the Merger resulted in an increase of $7.4 million.
Merger-related costs totaled $103.4 million consisting primarily of legal, consulting, and banking services incurred in connection with the Merger.
Depreciation and amortization expense increased $250.4 million, or 123.5%, from the prior year primarily as a result of the following activity:
•Acquisitions in 2021 and 2022 resulted in increases of $25.9 million.
•Various building and tenant improvement expenditures caused increases of $10.1 million.
•Dispositions in 2021 and 2022 resulted in decreases of $7.8 million.
•Assets that became fully depreciated resulted in decreases of $10.4 million.
•Impact from the Merger, including purchase accounting fair value adjustments, resulted in an increase of $232.6 million.
Other Income (Expense)
Other income (expense), increased $79.6 million, or 527.6%, from the prior year mainly due to $614.0the following activity:
Gain on Sales of Real Estate Properties
Gain on sales of real estate properties totaling approximately $270.3 million and $55.9 million are associated with the sales of 10 and 12 real estate properties during 2022 and 2021, respectively.
Interest Expense
Interest expense increased $93.6 million for the year ended December 31, 2022 compared to the prior year. The components of interest expense are as follows:
| | | | | | | | | | | | | | |
| | | CHANGE |
Dollars in thousands | 2022 | 2021 | $ | % |
Contractual interest | $ | 118,085 | | $ | 48,740 | | $ | 69,345 | | 142.3 | % |
Net discount/premium accretion | 18,227 | | 105 | | 18,122 | | 17,259.0 | % |
Debt issuance costs amortization | 4,256 | | 2,873 | | 1,383 | | 48.1 | % |
Amortization of interest rate swap settlement | 168 | | 168 | | — | | — | % |
Amortization of treasury hedge settlement | 427 | | 427 | | — | | — | % |
Fair value derivative | 4,057 | | — | | 4,057 | | N/A |
Interest cost capitalization | (1,409) | | (221) | | (1,188) | | 537.6 | % |
Interest on lease liabilities | 2,880 | | 1,032 | | 1,848 | | 179.1 | % |
Total interest expense | $ | 146,691 | | $ | 53,124 | | $ | 93,567 | | 176.1 | % |
Contractual interest increased $69.3 million, or 142.3%, primarily as a result of the following activity:
•Senior notes and unsecured term loans assumed in the Merger accounted for an increase of approximately $51.9 million.
•New unsecured term loans executed with the Unsecured Credit Facility accounted for an increase of approximately $9.9 million.
•The Unsecured Credit Facility accounted for an increase of approximately $15.4 million due to an increased weighted average balance outstanding and an increase in the weighted average interest rate.
•Active interest rate derivatives accounted for a decrease of $6.7 million.
•Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $1.2 million.
Loss on extinguishment of debt
The Company recognized a loss on early extinguishment of debt in 2022 of approximately $2.4 million, primarily related to the amendment of the Unsecured Credit Facility and the early extinguishment of two mortgage notes payable.
Impairment of Real Estate Assets
Impairment of real estate assets in 2022 totaling approximately $54.4 million is associated with completed or planned disposition activity.
Impairment of real estate assets in 2021 totaling approximately $17.1 million in 2021 is associated with the sales of five real estate properties and one redevelopment property.
Equity income (loss) from unconsolidated joint ventures
The Company recognizes its proportionate share of losses from its unconsolidated joint ventures. The losses are primarily attributable to non-cash depreciation expense. See Note 5 for more details regarding the Company's unconsolidated joint ventures.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The Company's discussion regarding the comparison of the year ended December 31, 2021 compared to the year ended December 31, 2016.
For2020 was previously disclosed beginning on page 38 of Legacy HR's Annual Report on Form 10-K for the year ended December 31, 2017,2021 filed with the SEC on February 16, 2022, and is incorporated herein by reference.
Non-GAAP Financial Measures and Key Performance Indicators
Management considers certain non-GAAP financial measures and key performance indicators to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors, as well as reconciliations of these measures to the most directly comparable GAAP financial measures.
The non-GAAP financial measures and key performance indicators presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income, as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's historical consolidated operating results, these measures should be examined in conjunction with net income and cash flows from operations as presented in the Consolidated Financial Statements and other financial data included elsewhere in this Annual Report on Form 10-K.
Funds from Operations ("FFO"), Normalized FFO and Funds Available for Distribution ("FAD")
FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to “net income (computed in accordance with GAAP), excluding gains (or losses)
from sales of property, plus depreciation and amortization, impairment, and after adjustments for unconsolidated partnerships and joint ventures.”
In addition to FFO, the Company presents Normalized FFO and FAD. Normalized FFO is presented by adding to FFO acquisition-related costs, acceleration of debt issuance costs, debt extinguishment costs and other Company-defined normalizing items to evaluate operating performance. FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, deferred financing fees amortization, share-based compensation expense and provision for bad debts, net; and subtracting straight-line rent income, net of expense, and maintenance capital expenditures, including second generation tenant improvements, capital expenditures and leasing commissions paid. The Company's definition of these terms may not be comparable to that of other real estate companies as they may have different methodologies for computing these amounts. FFO, Normalized FFO, and FAD should not be considered as an alternative to net income as an indicator of the Company's financial performance or to cash flow from operating activities as an indicator of the Company's liquidity. FFO, Normalized FFO, and FAD should be reviewed in connection with GAAP financial measures.
Management believes FFO, Normalized FFO, FFO per share, Normalized FFO per share and FAD ("Non-GAAP Measures") provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, primarily gains on sales of real estate, impairments and depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization, impairments and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, Non-GAAP Measures can facilitate comparisons of operating performance between periods. The Company reports Non-GAAP Measures because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs. For these reasons, management deems it appropriate to disclose and discuss these Non-GAAP Measures. However, none of these measures represent cash generated from operating activities determined in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs. Further, these measures should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow from operating activities as a measure of liquidity.
The table below reconciles net income attributable to common stockholders to FFO, Normalized FFO and FAD attributable to common stockholders for the years ended December 31, 2022, 2021, and 2020.
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
Amounts in thousands, except per share data | 2022 | | 2021 | | 2020 | |
Net income attributable to common stockholders | $ | 40,897 | | $ | 66,659 | | $ | 72,195 | |
Gain on sales of real estate assets | (270,271) | | (55,940) | | (70,361) | |
Impairments | 54,427 | | 17,101 | | — | |
Real estate depreciation and amortization | 459,211 | | 208,155 | | 194,574 | |
Non-controlling income from operating partnership units | (5) | | — | | — | |
Proportionate share of unconsolidated joint ventures | 12,722 | | 5,541 | | 564 | |
FFO attributable to common stockholders | 296,981 | | 241,516 | | 196,972 | |
Acquisition and pursuit costs 1 | 3,229 | | 3,930 | | 2,561 | |
Merger-related costs | 103,380 | | — | | — | |
Fair value of debt instruments | 21,248 | | — | | — | |
Lease intangible amortization 3 | 1,028 | | 162 | | 690 | |
| | | |
Non-routine legal costs/forfeited earnest money received 2 | 771 | | (35) | | — | |
Debt financing costs 4 | 3,145 | | 283 | | 21,920 | |
Unconsolidated JV normalizing items 5 | 330 | | 225 | | 16 | |
Normalized FFO attributable to common stockholders | 430,112 | | 246,081 | | 222,159 | |
Non-real estate depreciation and amortization | 2,217 | | 2,397 | | 3,154 | |
Non-cash interest expense amortization 6 | 5,129 | | 3,182 | | 3,691 | |
Provision for bad debt, net | 516 | | 73 | | 207 | |
Straight-line rent income, net | (20,124) | | (4,303) | | (2,245) | |
Share-based compensation | 14,294 | | 10,729 | | 9,922 | |
Proportionate share of unconsolidated joint ventures | (1,206) | | (1,357) | | 27 | |
Normalized FFO adjusted for non-cash items | 430,938 | | 256,802 | | 236,915 | |
2nd Generation tenant improvements | (33,620) | | (26,363) | | (26,209) | |
Leasing commissions paid | (22,929) | | (11,742) | | (10,369) | |
Capital expenditures | (48,913) | | (19,582) | | (21,758) | |
Maintenance capital expenditures | (105,462) | | (57,687) | | (58,336) | |
FAD attributable to common stockholders | $ | 325,476 | | $ | 199,115 | | $ | 178,579 | |
FFO per common share - diluted | $ | 1.17 | | $ | 1.68 | | $ | 1.46 | |
Normalized FFO per common share - diluted | $ | 1.69 | | $ | 1.71 | | $ | 1.65 | |
Weighted average common shares outstanding - diluted 7 | 254,622 | | 143,618 | | 134,835 | |
1Acquisition and pursuit costs include third party and travel costs related to the pursuit of acquisitions and developments.
2Non-routine legal costs include expenses related to disputes with a contractor and a tenant relating to a violation of use restrictions. Forfeited earnest money received related to a disposition that did not close.
3Includes above or below market lease intangibles that are identified upon building acquisitions.
4Amount for 2020 includes the loss on extinguishment of debt on the extinguishment of the Senior Notes due 2023 of $21.5 million and double interest incurred on the timing of issuance of the Senior Notes due 2031 and the redemption of the Senior Notes due 2023 of $0.4 million.
5Includes the Company's proportionate share of acquisition and pursuit costs related to unconsolidated joint ventures.
6Includes the amortization of deferred financing costs, discounts and premiums, and non-cash financing receivable amortization.
7The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 748,385, 907,393, and 828,506 for the years ended December 31, 2022, 2021, and 2020, respectively.
Same Store Cash NOI
Cash NOI and same store cash NOI are key performance indicators. Management considers same store cash NOI a supplemental measure because it allows investors, analysts and Company management to measure unlevered property-level operating results. Cash NOI excludes general and administrative expenses, interest expense, depreciation and amortization, gains and losses from property sales, property management fees and other revenues and expenses not specifically related to the property portfolio. Cash NOI also excludes non-cash items such as straight-line rent, above and below market lease intangibles, leasing commission amortization, lease inducements,
and tenant improvement amortization. The Company also excludes cash lease termination fees. Same store NOI is historical and not necessarily indicative of future results.
Same Store Cash NOI compares Cash NOI for stabilized properties. Stabilized properties are properties that have been included in operations for the duration of the year-over-year comparison period presented. Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale, properties undergoing redevelopment, and newly redeveloped or developed properties. Legacy HTA properties that met the same store criteria are included in both periods shown, on a proforma basis, as if they were owned by the Company for the full analysis period.
The Company utilizes the redevelopment classification for properties where management has approved a change in strategic direction for such properties through the application of additional resources including an amount of capital expenditures significantly above routine maintenance and capital improvement expenditures. These properties are described in additional detail in Note 6 to the Condensed Consolidated Financial Statements included elsewhere in this report.
The Company's same store calculation included 593 properties with a gross investment of $11.9 billion. Cash NOI for the years ended December 31, 2022 and 2021 was $0.34 per diluted share,$722.6 million and $705.0 million, respectively, resulting in year-over-year growth of 2.5%.
The following tables reconcile same store cash NOI to the respective line items in the Consolidated Statements of Income and the same store property count to the total owned real estate portfolio:
Reconciliation of Same Store Cash NOI
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, | |
Dollars in thousands | 2022 | 2021 | PERCENTAGE GROWTH |
Net income attributable to common stockholders | $ | 40,897 | | $ | 66,659 | | |
| | | |
| | | |
Other income (expense) | (64,519) | | 15,089 | | |
General and administrative expense | 52,734 | | 34,152 | | |
Depreciation and amortization expense | 453,082 | | 202,714 | | |
Other expenses 1 | 120,576 | | 14,164 | | |
Straight-line rent revenue | (23,498) | | (5,801) | | |
Joint venture properties | 15,222 | | 8,299 | | |
Other revenue 2 | (16,577) | | (8,117) | | |
Cash NOI | 577,917 | | 327,159 | | 76.6 | % |
Pre-merger Legacy HTA NOI | 281,780 | | 497,354 | | |
Proforma Cash NOI | 859,697 | | 824,513 | | 4.3 | % |
Cash NOI not included in same store | (127,391) | | (101,823) | | 25.1 | % |
Same store and redevelopment cash NOI
| 732,306 | | 722,690 | | 1.3 | % |
Redevelopment NOI | (9,743) | | (17,737) | | (45.1) | % |
Same store cash NOI | $ | 722,563 | | $ | 704,953 | | 2.5 | % |
1Includes acquisition and pursuit costs, bad debt, above and below market ground lease intangible amortization, leasing commission amortization, non-cash adjustments for financing receivables and ground lease straight-line rent.
2Includes management fee income, interest, above and below market lease intangible amortization, lease inducement amortization, lease terminations and tenant improvement overage amortization.
Reconciliation of Same Store Property Count
| | | | | | | | | | | | | | |
| AS OF DECEMBER 31, 2022 |
Dollars and square feet in thousands | PROPERTY COUNT | GROSS INVESTMENT 1 | SQUARE FEET | OCCUPANCY |
Same store properties | 593 | | $ | 11,933,696 | | 35,227 | | 89.3 | % |
Acquisitions | 74 | | 1,259,600 | | 3,399 | | 87.1 | % |
Development completions | 6 | | 172,845 | | 410 | | 86.8 | % |
Redevelopment | 15 | | 307,229 | | 1,314 | | 59.4 | % |
Total owned real estate properties | 688 | | $ | 13,673,370 | | 40,350 | | 87.8 | % |
1Gross investment excludes land held for development, construction in progress, corporate property, and investment in financing receivables. Gross investment also includes a $8.7 million imputed lease included in the financing lease right-of-use assets.
Application of Critical Accounting Policies to Accounting Estimates
The Company’s Consolidated Financial Statements are prepared in accordance with GAAP and the rules and regulations of the SEC. In preparing the Consolidated Financial Statements, management is required to exercise judgment and make assumptions that impact the carrying amount of assets and liabilities and the reported amounts of revenues and expenses reflected in the Consolidated Financial Statements.
Management routinely evaluates the estimates and assumptions used in the preparation of its Consolidated Financial Statements. These regular evaluations consider historical experience and other reasonable factors and use the seasoned judgment of management personnel. Management has reviewed the Company’s critical accounting policies with the Audit Committee of the Board of Directors.
Management believes the following paragraphs in this section describe the application of critical accounting policies and estimates by management to arrive at the critical accounting estimates reflected in the Consolidated Financial Statements. The Company’s accounting policies are more fully discussed in Note 1 to the Consolidated Financial Statements.
Principles of Consolidation
The Company’s Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, joint ventures, and partnerships where the Company controls the operating activities. All material intercompany accounts and transactions have been eliminated.
Merger-Related Accounting Acquirer Determination
The Merger was considered a reverse acquisition where Legacy HR was considered the accounting acquirer even though Legacy HTA was the legal issuer of equity interests in connection with the Merger. Legacy HR was identified as the accounting acquirer after consideration of various indicators outlined in Accounting Standards Codification, Topic 805 as they apply to the specific facts and circumstances of the Merger. The strongest factors supporting the treatment of Legacy HR as the accounting acquirer included that the executive team of the consolidated Company will be comprised of then-current Legacy HR senior management (with none of the then-current Legacy HTA executives expected to retain their current positions after the Merger) and the thirteen member board of directors of the consolidated company would be comprised of all nine members of the Legacy HR Board serving immediately prior to the effective time of the Merger and four members selected by Legacy HTA.
Capitalization of Costs
GAAP generally allows for the capitalization of various types of costs. The rules and regulations on capitalizing costs and the subsequent depreciation or $63.9amortization of those costs versus expensing them in the period incurred vary depending on the type of costs and the reason for capitalizing the costs.
Direct costs of a development project generally include construction costs, professional services such as architectural and legal costs, travel expenses, and land acquisition costs as well as other types of fees and expenses. These costs are capitalized as part of the basis of an asset to which such costs relate. Indirect costs include capitalized interest and overhead costs. Indirect costs are capitalized during construction and on the unoccupied space in a property for up to one year after the property is ready for its intended use. Capitalized interest is calculated using the weighted average interest rate of the Company's unsecured debt or the interest rate on project specific debt, if applicable. The
Company’s overhead costs are based on overhead load factors that are charged to a project based on direct time incurred. The Company computes the overhead load factors annually for its acquisition and development departments, which have employees who are involved in the projects. The overhead load factors are computed to absorb that portion of indirect employee costs (payroll and benefits, training, and similar costs) that are attributable to the productive time the employee incurs working directly on projects. The employees in the Company’s development departments who work on these projects maintain and report their hours, by project. Employee costs that are administrative, such as vacation time, sick time, or general and administrative time, are expensed in the period incurred.
Acquisition-related costs include finder’s fees, advisory, legal, accounting, valuation, other professional or consulting fees, and certain general and administrative costs. Acquisition-related costs are expensed in the period incurred for acquisitions accounted for as a business combination under Accounting Standards Codification Topic 805, Business Combinations. These costs associated with asset acquisitions are capitalized in accordance with GAAP.
Management’s judgment is also exercised in determining whether costs that have been previously capitalized to a project should be reserved for or written off if or when the project is abandoned or circumstances otherwise change that would call the project’s viability into question. The Company follows a standard and consistently applied policy of classifying pursuit activity as well as reserving for these types of costs based on their classification.
The Company classifies its pursuit projects into two categories relating to development. The first category includes pursuits of developments that have a remote chance of producing new business. Costs for these projects are expensed in the period incurred. The second category includes those pursuits of developments that are either probable or highly probable to result in a project or contract. Since the Company believes it is probable that these pursuits will result in a project or contract, it capitalizes these costs in full and records no reserve.
Each quarter, all capitalized pursuit costs are again reviewed for viability or a change in classification, and a management decision is made as to whether any additional reserve is deemed necessary. If necessary and considered appropriate, management would record an additional reserve at that time. Capitalized pursuit costs, net of the reserve, are carried in other assets in the Company’s Consolidated Balance Sheets, and any reserve recorded is charged to acquisition and pursuit costs on the Consolidated Statements of Income. All pursuit costs will ultimately be written off to expense or capitalized as part of the constructed real estate asset.
As of December 31, 2022 and 2021, the Company's Consolidated Balance Sheets include capitalized pursuit costs relating to potential developments totaling $4.3 million comparedand $5.1 million respectively. The Company expensed costs related to $0.33 per diluted share, or $45.9the pursuit of acquisitions totaling $1.0 million, $2.6 million and $1.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. In addition, the Company expensed costs related to the pursuit of developments totaling $2.2 million, $1.4 million and $1.6 million for the years ended December 31, 2022, 2021 and 2020, respectively. Furthermore, the Company expensed costs related to the Merger totaling $103.4 million for the year ended December 31, 2016.2022.
For
Valuation of Long-Lived Assets Held and Used, Unconsolidated Joint Ventures, Intangible Assets and Goodwill
Long-Lived Assets Held and Used
The Company assesses the year endedpotential for impairment of identifiable intangible assets and long-lived assets, primarily real estate properties, whenever events occur or a change in circumstances indicates that the carrying value might not be recoverable. Important factors that could cause management to review for impairment include significant underperformance of an asset relative to historical or expected operating results; significant changes in the Company's use of assets or the strategy for its overall business; plans to sell an asset before its depreciable life has ended; the expiration of a significant portion of leases in a property; or significant negative economic trends or negative industry trends for the Company or its operators. In addition, the Company reviews for possible impairment of those assets subject to purchase options and those impacted by casualties, such as tornadoes and hurricanes.
In addition, at least annually, the Company assesses whether there were indicators, including property operating performance, changes in anticipated holding period and general market conditions, that the value of the Company’s investments, including unconsolidated joint ventures, may have been impaired. The investment’s value would have
been impaired only if management’s estimate of the fair value of the Company’s investment was less than its carrying value. To the extent impairment had occurred, a loss would have been recognized for the excess of its carrying amount over its fair value.
The Company may, from time to time, be approached by a third party with interest in purchasing one or more of the Company's operating real estate properties that was otherwise not for sale. Alternatively, the Company may explore disposing of an operating real estate property but without specific intent to sell the property and without the property meeting the criteria to be classified as held for sale (see discussion below). In such cases, the Company and a potential buyer typically negotiate a letter of intent followed by a purchase and sale agreement that includes a due diligence time line for completion of customary due diligence procedures. Anytime throughout this period the transaction could be terminated by the parties. The Company views the execution of a purchase and sale agreement as a circumstance that warrants an impairment assessment and must include its best estimates of the impact of a potential sale in the recoverability test discussed in more detail below.
A property value is considered impaired only if management's estimate of current and projected (undiscounted and unleveraged) operating cash flows of the property is less than the net carrying value of the property. These estimates of future cash flows include only those that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the property based on its estimated remaining useful life. These estimates, including the useful life determination which can be affected by any potential sale of the property, are based on management's assumptions about its use of the property. Therefore, significant judgment is involved in estimating the current and projected cash flows.
When the Company executes a purchase and sale agreement for a held and used property, the Company performs the cash flow estimation described above. This assessment gives consideration to all available information, including an assessment of the likelihood the potential transaction will be consummated under the terms and conditions set forth in the purchase and sale agreement. Management will re-evaluate the recoverability of the property if and when significant changes occur as the transaction proceeds toward closing. Normally sale transactions will close within 15 to 30 days after the due diligence period expires. Upon expiration of the due diligence period, management will again re-evaluate the recoverability of the property, updating its assessment based on the status of the potential sale.
Whenever management determines that the carrying value of an asset that has been tested may not be recoverable, then an impairment charge would be recognized to the extent the current carrying value exceeds the current fair value of the asset. Significant judgment is also involved in making a determination of the estimated fair value of the asset.
The Company also performs an annual goodwill impairment review. The Company's reviews are performed as of December 31 2017, HTA’s FFO,of each year. The Company's 2022 goodwill asset was $223.2 million after giving effect to the Merger. The 2021 review indicated that no impairment had occurred with respect to the Company's $3.5 million goodwill asset.
Long-Lived Assets to be Disposed of by Planned Sale
From time to time management affirmatively decides to sell certain real estate properties under a plan of sale. The Company reclassifies the property or disposal group as defined by NAREIT,held for sale when all the following criteria for a qualifying plan of sale are met:
•Management, having the authority to approve the action, commits to a plan to sell the property or disposal group;
•The property or disposal group is available for immediate sale (i.e., a seller currently has the intent and ability to transfer the property or disposal group to a buyer) in its present condition, subject only to conditions that are usual and customary for sales of such properties or disposal groups;
•An active program to locate a buyer and other actions required to complete the plan to sell have been initiated;
•The sale of the property or disposal group is probable (i.e., likely to occur) and the transfer is expected to qualify for recognition as a completed sale within one year, with certain exceptions;
•The property or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
•Actions necessary to complete the plan indicate that it is unlikely significant changes to the plan will be made or that the plan will be withdrawn.
A property or disposal group classified as held for sale is initially measured at the lower of its carrying amount or fair value less estimated costs to sell. An impairment charge is recognized for any initial adjustment of the property's or disposal group's carrying amount to its fair value less estimated costs to sell in the period the held for sale criteria are met. The fair value less estimated costs to sell the property (disposal group) should be assessed each reporting period it remains classified as held for sale. Depreciation ceases as long as a property is classified as held for sale.
If circumstances arise that were previously considered unlikely and a subsequent decision not to sell a property classified as held for sale were to occur, the property is reclassified as held and used. The property is measured at the time of reclassification at the lower of its (a) carrying amount before it was $284.2 million,classified as held for sale, adjusted for any depreciation expense or $1.53 per diluted share, comparedimpairment losses that would have been recognized had the property been continuously classified as held and used or (b) fair value at the date of the subsequent decision not to $1.54 per diluted share, or $215.6sell. The effect of any required adjustment is reflected in income from continuing operations at the date of the decision not to sell.
The Company recorded impairment charges totaling $54.4 million for the year ended December 31, 2016.2022 related to real estate properties and other long-lived assets. The impairment charges related to 12 properties sold and three additional properties associated with completed or planned disposition activity in 2022. The Company recorded impairment charges of $17.1 million in 2021.
For the year ended December 31, 2017, HTALP’s FFO was $285.8 million, or $1.54 per diluted OP Unit, compared to $1.55 per diluted OP unit, or $216.9 million for the year ended December 31, 2016.Valuation of Asset Acquisitions
For the year ended December 31, 2017, HTA’s and HTALP’s Normalized FFO was $1.63 per diluted share and OP Unit, or $302.0 million, an increase of $0.02 per diluted share and OP Unit, or 1.2%, comparedAs described in more detail in Note 1 to the year ended December 31, 2016.
For additional information on FFOConsolidated Financial Statements, when the Company acquires real estate properties with in-place leases, the cost of the acquisition must be allocated between the acquired tangible real estate assets “as if vacant” and Normalized FFO, see “FFOany acquired intangible assets. Such intangible assets could include above- (or below-) market in-place leases and Normalized FFO” below,at-market in-place leases, which includes a reconciliation to net income attributable to common stockholders/unitholderscould include the opportunity costs associated with absorption period rentals, direct costs associated with obtaining new leases such as tenant improvements, leasing commissions and an explanation of why we present this non-GAAP financial measure.
For the year ended December 31, 2017, our NOI increased 33.0%, or $104.7 million, to $421.8 million, comparedcustomer relationship assets. With regard to the year ended December 31, 2016.
Forelements of estimating the year ended December 31, 2017, our Same-Property Cash NOI increased 2.9%, or $8.0 million, to $284.8 million, compared“as if vacant” values of the property and the intangible assets, including the absorption period, occupancy increases during the absorption period, tenant improvement amounts, and leasing commission percentages, the Company uses the same absorption period and occupancy assumptions for similar property types. Any remaining excess purchase price is then allocated to the year ended December 31, 2016.tangible and intangible assets based on their relative fair values. The identifiable tangible and intangible assets are then subject to depreciation and amortization.
For additional information on NOIReal Estate Assets and Same-Property Cash NOI, see “NOI, Cash NOI and Same-Property Cash NOI” below, which includes a reconciliation from net income and an explanationAmortization of why we present these non-GAAP financial measures.
Key Market Focused Strategy and Investments
We believe we have been one of the most active investors in the medical office sector over the last decade. This has enabled us to create a high quality portfolio focused on MOBs serving the future of healthcare with scale and significance in 20 to 25 key markets.
Our investments strategy includes alignment with key healthcare systems, hospitals, and leading academic medical universities. The Company is the largest owner of on-campus or adjacent MOBs in the country, with approximately 16.9 million square feet of GLA, or 70%, of our portfolio located in these locations. The remaining 30% are located in core community outpatient locations where healthcare is increasingly being delivered.
Over the last several years, our investments have been focused in our 20 to 25 key markets which we believe will outperform the broader U.S. from an economic and demographic perspective. As of December 31, 2017, approximately 93% of our portfolio’s GLA is located in top 75 MSAs. Our key markets represent top MSAs with strong growth metrics in jobs, household income and population, as well as low unemployment and mature healthcare infrastructures. Many of our key markets are also supported by strong university systems.
Our key market focus has enabled us to establish scale and effectively utilize our internal property management and leasing platform to deliver consistent same store growth and additional yield on investments, and also cost effective service to tenants. As of December 31, 2017, we had approximately 1 million square feet of GLA in each of our top ten markets and approximately 500,000 square feet in each of our top 16 markets. We expect to establish this scale across 20 to 25 key markets as our portfolio expands.
During the year ended December 31, 2017, we completed investments totaling $2.7 billion, including the Duke Acquisition of $2.25 billion, net of development credits we received at closing, projects under development, which were located substantially in certain of our 20 to 25 key markets. Our 2017 investments represents an increase in total GLA of approximately 36% compared to 2016.
During the year ended December 31, 2017, we completed dispositions of four MOBs located in Wisconsin, California and Texas for an aggregate sales price of $85.2 million, generating gains of $37.8 million.
Internal Growth through Proactive In-House Property Management and Leasing
We believe we have the largest full-service operating platform in the medical office space that consists of our in-house property management and leasing which allows us to better manage and service our existing portfolio. In each of these markets, we have established a strong in-house property management and leasing platform that has allowed us to develop valuable relationships with health systems, physician practices, universities, and regional development firms that have led to investment and leasing opportunities. Our full-service operational platforms have also enabled us to focus on generating cost efficiencies as we gain scale across individual markets and regions.Related Intangible Assets
As of December 31, 2017, our in-house2022, the Company had gross investments of approximately $12.7 billion in depreciable real estate assets and related intangible assets. When real estate assets and related intangible assets are acquired or placed in service, they must be depreciated or amortized. Management’s judgment involves determining which depreciation method to use, estimating the economic life of the building and improvement components of real estate assets, and estimating the value of intangible assets acquired when real estate assets are purchased that have in-place leases.
With respect to the building components, there are several depreciation methods available under GAAP. Some methods record relatively more depreciation expense on an asset in the early years of the asset’s economic life, and relatively less depreciation expense on the asset in the later years of its economic life. The straight-line method of depreciating real estate assets is the method the Company follows because, in the opinion of management, it is the method that most accurately and consistently allocates the cost of the asset over its estimated life. The Company assigns a useful life to its owned properties based on many factors, including the age and condition of the property managementwhen acquired.
Revenue Recognition
The Company's primary source of revenue is rental income derived from non-cancelable leases. When a lease is executed, the terms and leasing platform operated approximately 22.4 million square feetconditions of GLA, or 93%, of our total portfolio, a significant increase from 8.8 million square feet, or 70%, of GLA managed in-house in 2012.
the lease are assessed to determine the appropriate accounting classification. As of December 31, 2017, our leased rate (includes leases which have been executed, but which have not yet commenced) was 91.8% by GLA and our occupancy rate was 91.0% by GLA.
We entered into new and renewal leases on approximately 2.7 million square feet of GLA, or 11.2% of our portfolio, for the year ended December 31, 2017.
During the year ended December 31, 2017, tenant retention for the Same-Property portfolio was 78%, which included approximately 1.5 million square feet of GLA of expiring leases, which we believe is indicative of our commitment to maintaining buildings in desirable locations and fostering strong tenant relationships. Tenant retention is defined as the sum2022, all of the total leased GLA of tenants that renewed a lease duringCompany's leases, where the period overCompany is the total GLA oflessor, are classified as operating leases. Operating leases that renewed or expired during the period.
Financial Strategy and Balance Sheet Flexibility
As of December 31, 2017, we had total leverage, measured by net debt (total debt less cash and cash equivalents) to total capitalization, of 29.9%. Total liquidity was $1.2 billion, including cash and cash equivalents of $100.4 million, a $75.0 million forward commitment and $991.2 million available on our unsecured revolving credit facility (includes the impact of $8.8 million of outstanding letters of credit) as of December 31, 2017.
During the year ended December 31, 2017, we issued and sold $1.8 billion of equity at an average price of $28.76 per share and entered a forward sale arrangement pursuant to a forward equity agreement, with anticipated net proceeds of approximately $75.0 million to be settled in April 2018, subject to adjustments as provided in the forward equity agreement. Our equity issued during the year consisted of $1.6 billion from the sale of common stock in an underwritten public offering at an average price of $28.50 per share, $125.7 million from the sale of common stock under our previous ATM at an average price of $31.45 per share, approximately $124.3 million from the sale of common stock under the new ATM at an average price of $29.60 per share and $1.1 million from the issuance of OP Units in connection with two acquisition transactions.
In June 2017, we issued in a public offering (i) $400.0 million of 5-year unsecured senior notes, with a coupon of 2.95% per annum and (ii) $500.0 million of 10-year unsecured senior notes, with a coupon of 3.75% per annum.
In addition, as part of the Duke Acquisition, we were required by the seller to execute, as the borrower, a $286.0 million Promissory Note. The Promissory Note has an interest rate of 4.0% per annum, maturing in 2020.
On July 27, 2017, we entered into an amended and restated $1.3 billion Unsecured Credit Agreement which increased the amount available under the unsecured revolving credit facility to $1.0 billion and extended the maturities of the unsecured revolving credit facility to June 30, 2022 and for the $300.0 million unsecured term loan until February 1, 2023. The interest rateare recognized on the unsecured revolving credit facility is adjusted LIBOR plus a margin ranging from 0.83% to 1.55% per annum based on HTA’s credit rating.
On February 15, 2018, our Board of Directors announced a quarterly dividend of $0.305 per share/unit of common stock.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires our management to use judgment in the application of accounting principles, including making estimates. We base our estimates on experience and various other assumptions we believe are reasonable under the circumstances. These estimates affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. However, if our judgment or interpretation of the facts and circumstances relating to the various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in different presentation of our financial statements. We periodically reevaluate our estimates and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates about matters that are inherently uncertain. Below is a discussion of accounting policies that we consider critical as they may require more complex judgment in their application or require estimates about matters that are inherently uncertain. For further information on significant accounting policies that impact us, see Note 2 - Summary of Significant Accounting Policies to the accompanying consolidated financial statements.
Basis of Presentation
Our accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries and joint venture entities in which we own a majority interest with the ability control operations. We consolidate variable interest entities (“VIEs”) when we are the primary beneficiary. All inter-company balances and transactions have been eliminated in the accompanying consolidated financial statements.
We make judgments with respect to our level of influence or control and whether we are (or are not) the primary beneficiary of a VIE. Consideration of various factors includes, but is not limited to, our ability to direct the activities that most significantly impact the entity’s economic performance, our form or ownership interest, our representation on the entity’s governing body, the size and seniority of our investment, our ability and rights of other investors to participate in policy making decisions, replace the manager and/or liquidate the entity, if applicable. Our ability to correctly assess our influence or control over an entity when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. If we perform a primary beneficiary analysis at a date other than at inception of the VIE, our assumptions may be different and may result in the identification of a different primary beneficiary.
Revenue Recognition
Rental revenue is our primary source of revenue. At the inception of a new lease we assess the terms and conditions to determine proper classification. If the estimates utilized by us in our assessment were different, then our lease classification for accounting purposes may have been different, which could impact the timing and amount of revenue recognized. We recognize rental revenue from operating leases on a straight-line basis over the term of the related lease, (includingincluding periods where a tenant is provided a rent holidays). Tenant reimbursement revenue,concession. Operating expense recoveries, which is comprised of additional amounts recoverable from tenantsincludes reimbursements for common area maintenancebuilding specific operating expenses, and certain other recoverable expenses, isare recognized as revenue in the period in which the related expenses are incurred. Effective January 1, 2018, withThe Company generally expects that collectability is probable at lease commencement. If the adoptionassessment of collectability changes after the lease commencement date and Rental income is not considered probable, Rental income is recognized on a cash basis and all previously recognized uncollectible Rental income is reversed in the period in which it is determined not to be probable of collection. In addition to the lease-specific collectability assessment performed under Topic 842, the Company may also apply a general reserve ("provision for bad debt"), as a reduction to Rental income, for its portfolio of operating lease receivables.
The Company also recognizes certain revenue based on the guidance in Topic 606 the revenue recognition process will beand is based on athe five-step model to account for revenue arising from contracts with customerscustomers. The Company's primary source of revenue associated with Topic 606 relates to parking revenue and supersedes mostmanagement fee income.
Derivative Instruments
Hedge accounting generally provides for the matching of the existingtiming of gain or loss recognition on the derivative instrument with the recognition of the changes in the fair-value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transaction in a cash flow hedge. The accounting for a derivative requires that the Company make judgments in determining the nature of the derivatives and their effectiveness, including ones regarding the likelihood that a forecasted transaction will take place. These judgments could materially affect our consolidated financial statements.
The Company may enter into a derivative instrument to manage interest rate risk from time to time. When a derivative instrument is initiated, the Company will assess its intended use of the derivative instrument and may elect a hedging relationship and apply hedge accounting. As required by the accounting literature, the Company will formally document the hedging relationship for all derivative instruments prior to or contemporaneous with entering into the derivative instrument.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk in the form of changing interest rates on its debt. Management uses regular monitoring of market conditions and analysis techniques to manage this risk.
As of December 31, 2022, $3.5 billion of the Company’s $5.4 billion of outstanding debt bore interest at fixed rates.
The following table provides information regarding the sensitivity of certain of the Company’s financial instruments, as described above, to market conditions and changes resulting from changes in interest rates. For purposes of this analysis, sensitivity is demonstrated based on hypothetical 10% changes in the underlying market interest rates.
| | | | | | | | | | | | | | |
| | | IMPACT ON EARNINGS AND CASH FLOW |
Dollars in thousands | OUTSTANDING PRINCIPAL BALANCE as of Dec. 31, 2022 | CALCULATED ANNUAL INTEREST | ASSUMING 10% INCREASE in market interest rates | ASSUMING 10% DECREASE in market interest rates |
Variable Rate Debt | | | | |
Unsecured Credit Facility | $ | 385,000 | | $ | 20,290 | | $ | (2,029) | | $ | 2,029 | |
Unsecured Term Loan due 2025 | 350,000 | | 18,095 | | (1,810) | | 1,810 | |
Unsecured Term Loan due 2026 | 200,000 | | 10,340 | | (1,034) | | 1,034 | |
Unsecured Term Loan due 2026 | 300,000 | | 15,510 | | (1,551) | | 1,551 | |
Unsecured Term Loan due 2026 | 150,000 | | 7,755 | | (776) | | 776 | |
Unsecured Term Loan due 2027 | 200,000 | | 10,340 | | (1,034) | | 1,034 | |
Unsecured Term Loan due 2028 | 300,000 | | 15,510 | | (1,551) | | 1,551 | |
| $ | 1,885,000 | | $ | 97,840 | | $ | (9,785) | | $ | 9,785 | |
The Company has outstanding interest rate swaps to help mitigate its risk related to variable rate debt. As of December 31, 2022, the Company had $1.2 billion of interest rate swaps at a weighted average rate of 2.63%. See Note 11 to the Consolidated Financial Statements for more information regarding the Company's interest rate swaps.
| | | | | | | | | | | | | | | | | |
| | FAIR VALUE |
Dollars in thousands | CARRYING VALUE as of Dec. 31, 2022 2 | DEC. 31, 2022 | ASSUMING 10% INCREASE in market interest rates | ASSUMING 10% DECREASE in market interest rates | DEC. 31, 2021 1 |
Fixed Rate Debt | | | | | |
Senior Notes due 2025 | $ | 249,115 | | $ | 241,413 | | $ | 240,866 | | $ | 241,916 | | $ | 253,110 | |
Senior Notes due 2026 | 571,587 | | 570,139 | | 568,234 | | 571,940 | | — | |
Senior Notes due 2027 | 479,553 | | 473,450 | | 471,535 | | 475,298 | | — | |
Senior Notes due 2028 | 296,852 | | 271,058 | | 272,142 | | 269,914 | | 311,594 | |
Senior Notes due 2030 | 565,402 | | 560,723 | | 549,682 | | 556,431 | | — | |
Senior Notes due 2030 | 296,385 | | 236,219 | | 234,692 | | 237,675 | | 288,886 | |
Senior Notes due 2031 | 295,547 | | 219,321 | | 226,475 | | 220,856 | | 275,696 | |
Senior Notes due 2031 | 632,693 | | 611,392 | | 606,887 | | 615,727 | | — | |
Mortgage Notes Payable | 84,247 | | 80,913 | | 80,734 | | 81,041 | | 104,634 | |
Total Fixed Rate Debt | $ | 3,471,381 | | $ | 3,264,628 | | $ | 3,251,247 | | $ | 3,270,798 | | $ | 1,233,920 | |
1Fair values as of December 31, 2021 represent fair values of obligations that were outstanding as of that date, and do not reflect the effect of any subsequent changes in principal balances and/or additions or extinguishments of instruments.
2Balances are presented net of discounts and debt issuance costs and including premiums. The fair value presented is based on Level 2 inputs defined as model-derived valuations in which significant inputs and significant value drivers are observable in active markets.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Healthcare Realty Trust Incorporated
Nashville, Tennessee
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Healthcare Realty Trust Incorporated (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Asset Impairment - Identification of Triggering Events for Real Estate Properties
The Company recorded total real estate investments, net, of approximately $12.4 billion as of December 31, 2022. As described in Notes 1 and 7 to the Company's consolidated financial statements, the Company assesses the potential for impairment of long-lived assets, including real estate properties, whenever events occur, or a change in circumstances indicates, that the carrying value might not be fully recoverable ("triggering events"). If management determines that a triggering event exists, the estimated current and projected operating cash flows of the property are compared to the property’s net carrying value which may result in an impairment charge.
We identified management’s assessment of qualitative indicators of potential impairment for real estate properties as a critical audit matter. Qualitative indicators of potential impairment may include significant changes in the Company’s use of properties or the strategy for its overall business, plans to sell a property before its depreciable life has ended, or negative economic or industry trends for the Company or its tenants. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
•Testing the design and operating effectiveness of controls over management’s identification of changes in circumstances that could indicate the carrying amounts of real estate properties may not be fully recoverable.
•Assessing the reasonableness of management’s key assumptions with respect to qualitative factors, including potential sales of properties based on offers received and changes in the use of the Company’s properties, used to determine whether triggering events had occurred.
•Reviewing internal documentation to assess whether additional triggering factors were present.
Determination of the Accounting Acquirer
As discussed in Note 2 to the consolidated financial statements, effective July 20, 2022, Healthcare Realty Trust Incorporated (“Legacy HR”) merged with Healthcare Trust of America, Inc. (“Legacy HTA”), with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA. The merger was accounted for as a reverse acquisition with Legacy HR being identified as the accounting acquirer.
We have identified the evaluation of the Company’s determination of the accounting acquirer to be a critical audit matter. A high degree of auditor judgment was required to evaluate the relative importance of the indicative factors, individually and in aggregate, including but not limited to: (i) the composition of the board of directors of the post-merger company, (ii) the composition of senior management of the post-merger company, and (iii) the premium transferred to the Legacy HTA stockholders. A different conclusion would result in a material difference in the accounting for the Merger.
The primary procedures we performed to address this critical audit matter included:
•Evaluating management’s conclusions with respect to the accounting acquirer, including consideration of post-merger voting rights, the composition of the board of directors and senior management of the post-merger company, terms of the premium transferred, the relative size of the entities, minority voting interests, and the entity initiating the combination, as evidenced in the amended and restated bylaws of the Company, investor presentations, the Merger Agreement, and certain filings with the Securities and Exchange Commission.
•Utilizing professionals with specialized knowledge and experience in consolidation assessments to assist in identifying and evaluating the various factors relevant to the determination of the accounting acquirer as well as management’s conclusions with respect to the determination of the accounting acquirer.
Acquisition of Real Estate Properties in Connection with Business Combination
As discussed in Note 2 to the consolidated financial statements, Legacy HR merged into Legacy HTA, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA. The transaction was accounted for as business combination. In connection with the business combination, the Company acquired real estate investments with a preliminary estimated fair value of $8.8 billion.
We identified the volume of the fair value measurements for the acquired real estate investments, constituting land, buildings, and related intangible assets, recorded in connection with the merger as a critical audit matter. The number of real estate properties acquired in the merger increased the sensitivity of management’s estimates with respect to the fair values of land, buildings and related intangible assets acquired. As a result, increased auditor effort, including the use of specialists, was required to test management’s fair value estimates.
The primary procedures we performed to address this critical audit matter included:
•Involving professionals outside of the engagement team to assist in determining the appropriate risk and controls-based approach to testing the fair value measurements recorded in connection with the merger.
•Testing the details of a sample of the real estate properties acquired in connection with the merger including evaluating the accuracy of certain inputs into the fair value measurements including rental payments per executed lease agreements.
•Utilizing professionals with specialized skills and experience in valuation to assist in testing certain of the valuation specific assumptions used in the valuation of land, building, and related intangible assets for a selection of real estate properties.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2005.
Nashville, Tennessee
March 1, 2023
Healthcare Realty Trust Incorporated
Consolidated Balance Sheets
Amounts in thousands, except per share data
| | | | | | | | |
ASSETS | | |
| DECEMBER 31, |
| 2022 | 2021 |
Real estate properties | | |
Land | $ | 1,439,798 | | $ | 387,918 | |
Buildings and improvements | 11,332,037 | | 4,337,641 | |
Lease intangibles | 959,998 | | 120,478 | |
Personal property | 11,907 | | 11,761 | |
Investment in financing receivables, net | 120,236 | | 186,745 | |
Financing lease right-of-use assets | 83,824 | | 31,576 | |
Construction in progress | 35,560 | | 3,974 | |
Land held for development | 74,265 | | 24,849 | |
Total real estate investments | 14,057,625 | | 5,104,942 | |
Less accumulated depreciation | (1,645,271) | | (1,338,743) | |
Total real estate investments, net | 12,412,354 | | 3,766,199 | |
Cash and cash equivalents | 60,961 | | 13,175 | |
| | |
| | |
Assets held for sale, net | 18,893 | | 57 | |
Operating lease right-of-use assets | 336,983 | | 128,386 | |
| | |
Investments in unconsolidated joint ventures | 327,248 | | 161,942 | |
Goodwill | 223,202 | | 3,487 | |
Other assets, net | 469,990 | | 185,673 | |
Total assets | $ | 13,849,631 | | $ | 4,258,919 | |
| | |
LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY |
| DECEMBER 31, |
| 2022 | 2021 |
Liabilities | | |
Notes and bonds payable | $ | 5,351,827 | | $ | 1,801,325 | |
Accounts payable and accrued liabilities | 244,033 | | 86,108 | |
Liabilities of properties held for sale | 437 | | 294 | |
Operating lease liabilities | 279,895 | | 96,138 | |
Financing lease liabilities | 72,939 | | 22,551 | |
Other liabilities | 218,668 | | 67,387 | |
Total liabilities | 6,167,799 | | 2,073,803 | |
Commitments and contingencies (See Footnote 15) | | |
Redeemable non-controlling interests | 2,014 | | — | |
Stockholders' equity | | |
Preferred stock, $0.01 par value; 200,000 shares authorized; none issued and outstanding | — | | — | |
Common stock, $0.01 par value; 1,000,000 shares authorized; 380,590 and 150,457 shares issued and outstanding at December 31, 2022 and 2021, respectively. | 3,806 | | 1,505 | |
Additional paid-in capital | 9,587,637 | | 3,972,917 | |
Accumulated other comprehensive income (loss) | 2,140 | | (9,981) | |
Cumulative net income attributable to common stockholders | 1,307,055 | | 1,266,158 | |
Cumulative dividends | (3,329,562) | | (3,045,483) | |
Total stockholders’ equity | 7,571,076 | | 2,185,116 | |
Non-controlling interest | 108,742 | | — | |
Total equity | 7,679,818 | | 2,185,116 | |
Total liabilities, redeemable non-controlling interests, and stockholders' equity | $ | 13,849,631 | | $ | 4,258,919 | |
See accompanying notes.
Healthcare Realty Trust Incorporated
Consolidated Statements of Income
Amounts in thousands, except per share data
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
| 2022 | 2021 | 2020 |
Revenues | | | |
Rental income | $ | 907,451 | | $ | 520,334 | | $ | 492,262 | |
Interest income | 11,480 | | 4,192 | | — | |
Other operating | 13,706 | | 10,291 | | 7,367 | |
| 932,637 | | 534,817 | | 499,629 | |
Expenses | | | |
Property operating | 344,038 | | 212,273 | | 196,514 | |
General and administrative | 52,734 | | 34,152 | | 30,704 | |
Acquisition and pursuit costs | 3,229 | | 3,930 | | 2,561 | |
Merger-related costs | 103,380 | | — | | — | |
Depreciation and amortization | 453,082 | | 202,714 | | 190,435 | |
| | | |
| 956,463 | | 453,069 | | 420,214 | |
Other income (expense) | | | |
Gain on sales of real estate properties | 270,271 | | 55,940 | | 70,361 | |
Interest expense | (146,691) | | (53,124) | | (56,174) | |
Loss on extinguishment of debt | (2,401) | | — | | (21,503) | |
| | | |
Impairment of real estate properties | (54,427) | | (17,101) | | — | |
| | | |
Equity loss from unconsolidated joint ventures | (687) | | (795) | | (463) | |
Interest and other (expense) income, net | (1,546) | | (9) | | 559 | |
| 64,519 | | (15,089) | | (7,220) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Net income | 40,693 | | 66,659 | | 72,195 | |
Net loss attributable to non-controlling interests | 204 | | — | | — | |
Net income attributable to common stockholders | $ | 40,897 | | $ | 66,659 | | $ | 72,195 | |
| | | |
| | | |
| | | |
| | | |
Basic earnings per common share | $ | 0.15 | | $ | 0.45 | | $ | 0.52 | |
| | | |
| | | |
| | | |
Diluted earnings per common share | $ | 0.15 | | $ | 0.45 | | $ | 0.52 | |
| | | |
Weighted average common shares outstanding - basic | 252,356 | | 142,637 | | 133,930 | |
Weighted average common shares outstanding - diluted | 253,873 | | 142,710 | | 134,007 | |
See accompanying notes.
Healthcare Realty Trust Incorporated
Consolidated Statements of Comprehensive Income
Amounts in thousands
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
| 2022 | 2021 | 2020 |
Net income | $ | 40,693 | | $ | 66,659 | | $ | 72,195 | |
Other comprehensive income (loss) | | | |
| | | |
| | | |
| | | |
Interest rate swaps | | | |
Reclassification adjustment for losses included in net income (interest expense) | 1,527 | | 4,472 | | 3,472 | |
Gains (losses) arising during the period on interest rate swaps | 10,630 | | 3,379 | | (10,862) | |
Losses on settlement of treasury rate locks arising during the period | — | | — | | (4,267) | |
| 12,157 | | 7,851 | | (11,657) | |
Comprehensive income | 52,850 | | 74,510 | | 60,538 | |
Less: Comprehensive loss attributable to non-controlling interests | 168 | | — | | — | |
Comprehensive income attributable to common stockholders | $ | 53,018 | | $ | 74,510 | | $ | 60,538 | |
See accompanying notes.
Healthcare Realty Trust Incorporated
Consolidated Statements of Equity
Amounts in thousands, except per share data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Cumulative Net Income | Cumulative Dividends | Total Stockholders’ Equity | Non- controlling Interests | Total Equity |
Balance at December 31, 2019 | $ | — | | $ | 1,347 | | $ | 3,485,003 | | $ | (6,175) | | $ | 1,127,304 | | $ | (2,707,470) | | $ | 1,900,009 | | $ | — | | $ | 1,900,009 | |
Issuance of stock, net of costs | — | | 47 | | 142,123 | | — | | — | | — | | 142,170 | | — | | 142,170 | |
Common stock redemption | — | | (1) | | (1,705) | | — | | — | | — | | (1,706) | | — | | (1,706) | |
Share-based compensation | — | | 2 | | 9,920 | | — | | — | | — | | 9,922 | | — | | 9,922 | |
Net income | — | | — | | — | | — | | 72,195 | | — | | 72,195 | | — | | 72,195 | |
| | | | | | | | | |
Loss on interest rate swaps and treasury locks | — | | — | | — | | (11,657) | | — | | — | | (11,657) | | — | | (11,657) | |
Dividends to common stockholders ($1.20 per share) | — | | — | | — | | — | | — | | (162,557) | | (162,557) | | — | | (162,557) | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2020 | — | | 1,395 | | 3,635,341 | | (17,832) | | 1,199,499 | | (2,870,027) | | 1,948,376 | | — | | 1,948,376 | |
Issuance of stock, net of costs | — | | 109 | | 330,933 | | — | | — | | — | | 331,042 | | — | | 331,042 | |
Common stock redemption | — | | (1) | | (4,084) | | — | | — | | — | | (4,085) | | — | | (4,085) | |
Share-based compensation | — | | 2 | | 10,727 | | — | | — | | — | | 10,729 | | — | | 10,729 | |
Net income | — | | — | | — | | — | | 66,659 | | — | | 66,659 | | — | | 66,659 | |
| | | | | | | | | |
Gain on interest rate swaps and treasury locks | — | | — | | — | | 7,851 | | — | | — | | 7,851 | | — | | 7,851 | |
Dividends to common stockholders ($1.21 per share) | — | | — | | — | | — | | — | | (175,456) | | (175,456) | | — | | (175,456) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Balance at December 31, 2021 | — | | 1,505 | | 3,972,917 | | (9,981) | | 1,266,158 | | (3,045,483) | | 2,185,116 | | — | | 2,185,116 | |
Issuance of stock, net of costs | — | | 6 | | 22,901 | | — | | — | | — | | 22,907 | | — | | 22,907 | |
Merger consideration transferred | — | | 2,289 | | 5,574,174 | | — | | — | | — | | 5,576,463 | | 110,702 | | 5,687,165 | |
| | | | | | | | | |
Common stock redemption | — | | (1) | | (2,791) | | — | | — | | — | | (2,792) | | — | | (2,792) | |
Share-based compensation | — | | 7 | | 20,339 | | — | | — | | — | | 20,346 | | — | | 20,346 | |
Redemption of non-controlling interest | — | | — | | 97 | | — | | — | | — | | 97 | | (97) | | — | |
Net income | — | | — | | — | | — | | 40,897 | | — | | 40,897 | | (204) | | 40,693 | |
Reclassification adjustments for losses included in net income (interest expense) | — | | — | | — | | 1,531 | | — | | — | | 1,531 | | (4) | | 1,527 | |
Gains arising during the period on interest rate swaps | — | | — | | — | | 10,590 | | — | | — | | 10,590 | | 40 | | 10,630 | |
Dividends to common stockholders ($1.24 per share) | — | | — | | — | | — | | — | | (284,079) | | (284,079) | | (1,695) | | (285,774) | |
Balance at December 31, 2022 | $ | — | | $ | 3,806 | | $ | 9,587,637 | | $ | 2,140 | | $ | 1,307,055 | | $ | (3,329,562) | | $ | 7,571,076 | | $ | 108,742 | | $ | 7,679,818 | |
See accompanying notes.
Healthcare Realty Trust Incorporated
Consolidated Statements of Cash Flows
Amounts in thousands
| | | | | | | | | | | |
|
| YEAR ENDED DECEMBER 31, |
OPERATING ACTIVITIES | 2022 | 2021 | 2020 |
Net income | $ | 40,693 | | $ | 66,659 | | $ | 72,195 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 453,082 | | 202,714 | | 190,435 | |
Other amortization | 24,695 | | 3,793 | | 4,381 | |
Share-based compensation | 20,346 | | 10,729 | | 9,922 | |
Amortization of straight-line rent receivable (lessor) | (23,498) | | (5,801) | | (3,735) | |
Amortization of straight-line rent on operating leases (lessee) | 3,374 | | 1,498 | | 1,490 | |
Gain on sales of real estate properties | (270,271) | | (55,940) | | (70,361) | |
Loss on extinguishment of debt | 2,401 | | — | | 21,503 | |
Impairment of real estate properties | 54,427 | | 17,101 | | — | |
| | | |
| | | |
Equity loss from unconsolidated joint ventures | 687 | | 795 | | 463 | |
Distributions from unconsolidated joint ventures | 1,881 | | — | | 193 | |
Proceeds from disposition of sales-type lease properties | — | | — | | 244,454 | |
Non-cash interest from financing and real estate notes receivable | (2,257) | | (391) | | — | |
Changes in operating assets and liabilities: | | | |
Other assets, including right-of-use-assets | (26,098) | | (11,436) | | (727) | |
Accounts payable and accrued liabilities | 24,191 | | (839) | | 4,555 | |
Other liabilities | (30,906) | | 3,747 | | (4,679) | |
Net cash provided by operating activities | 272,747 | | 232,629 | | 470,089 | |
| | | |
INVESTING ACTIVITIES | | | |
Acquisitions of real estate | (402,529) | | (365,943) | | (397,349) | |
Development of real estate | (37,862) | | (4,029) | | (3,089) | |
Additional long-lived assets | (163,544) | | (100,689) | | (93,963) | |
Funding of mortgages and notes receivable | (23,325) | | — | | — | |
Investments in unconsolidated joint ventures | (99,967) | | (89,600) | | (65,663) | |
Investment in financing receivable | (1,002) | | (186,433) | | — | |
Proceeds from sales of real estate properties and additional long-lived assets | 1,201,068 | | 184,221 | | 4,898 | |
Proceeds from notes receivable repayments | 1,688 | | — | | — | |
Cash assumed in Merger, including restricted cash for special dividend payment | 1,159,837 | | — | | |
Net cash provided by (used in) investing activities | 1,634,364 | | (562,473) | | (555,166) | |
| | | |
FINANCING ACTIVITIES | | | |
Net borrowings/(repayments) on unsecured credit facility | 40,000 | | 210,000 | | (293,000) | |
Borrowings on term loans | 666,500 | | — | | 150,000 | |
Repayment on term loan | (1,141,500) | | — | | — | |
Borrowings of notes and bonds payable | — | | — | | 596,562 | |
Repayments of notes and bonds payable | (20,042) | | (24,557) | | (47,845) | |
Redemption of notes and bonds payable | (2,184) | | — | | (270,386) | |
Dividends paid | (283,713) | | (175,456) | | (162,557) | |
Special dividend paid in relation to the Merger | (1,123,648) | | — | | — | |
Net proceeds from issuance of common stock | 22,902 | | 331,119 | | 142,000 | |
Common stock redemptions | (3,192) | | (3,803) | | (1,436) | |
Distributions to non-controlling interest of limited partners | (1,695) | | — | | — | |
Settlement of treasury rate locks | — | | — | | (4,267) | |
Debt issuance and assumption costs | (12,753) | | (405) | | (5,931) | |
Payments made on finance leases | — | | (9,182) | | (3,417) | |
Net cash (used in) provided by financing activities | (1,859,325) | | 327,716 | | 99,723 | |
| | | |
Increase (decrease) in cash and cash equivalents | 47,786 | | (2,128) | | 14,646 | |
Cash and cash equivalents cash at beginning of period | 13,175 | | 15,303 | | 657 | |
Cash and cash equivalents at end of period | $ | 60,961 | | $ | 13,175 | | $ | 15,303 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
See accompanying notes.
Healthcare Realty Trust Incorporated
Consolidated Statements of Cash Flows, cont.
Amounts in thousands
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
Supplemental Cash Flow Information | 2022 | 2021 | 2020 |
Interest paid | $ | 112,692 | | $ | 49,443 | | $ | 52,787 | |
Mortgage notes payable assumed upon acquisition (adjusted to fair value) | $ | — | | $ | 11,790 | | $ | 36,536 | |
Invoices accrued for construction, tenant improvements and other capitalized costs | $ | 48,292 | | $ | 17,655 | | $ | 14,935 | |
Capitalized interest | $ | 1,410 | | $ | 221 | | $ | 1,142 | |
Real estate notes receivable assumed in Merger (adjusted to fair value) | $ | 74,819 | | $ | — | | $ | — | |
Unsecured credit facility and term loans assumed in Merger (adjusted to fair value) | $ | 1,758,650 | | $ | — | | $ | — | |
Senior notes assumed in Merger (adjusted to fair value) | $ | 2,232,650 | | $ | — | | $ | — | |
Consideration transferred in relation to the Merger | $ | 5,576,463 | | $ | — | | $ | — | |
See accompanying notes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business Overview
Healthcare Realty Trust Incorporated (the “Company”) is a real estate investment trust ("REIT") that owns, leases, manages, acquires, finances, develops and redevelops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States of America. See Note 2 below for a discussion of the Merger between Legacy HR and Legacy HTA. The Company had gross investments of approximately $14.1 billion in 688 real estate properties, construction in progress, redevelopments, financing receivables, financing lease right-of-use assets, land held for development, and corporate property as of December 31, 2022. The Company’s 688 real estate properties are located in 35 states and total approximately 40.3 million square feet. In addition, the Company had a weighted average ownership interest of approximately 48% in 33 real estate properties held in joint ventures. See Note 5 below for more details regarding the Company's joint ventures. Square footage and property count disclosures in these Notes to the Company's Consolidated Financial Statements are unaudited.
Principles of Consolidation
The Company’s Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, and joint ventures and partnerships where the Company controls the operating activities. GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). Accounting Standards Codification Topic 810 broadly defines a VIE as an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is the VIE’s primary beneficiary, with any minority interests reflected as non-controlling interests or redeemable non-controlling interests in the accompanying Consolidated Financial Statements.
The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk, the disposition of all or a portion of an interest held by the primary beneficiary, or changes in facts and circumstances that impact the power to direct activities of the VIE that most significantly impacts economic performance. The Company performs this analysis on an ongoing basis.
For property holding entities not determined to be VIEs, the Company consolidates such entities in which it owns 100% of the equity or has a controlling financial interest evidenced by ownership of a majority voting interest. All intercompany balances and transactions are eliminated in consolidation. For entities in which the Company owns less than 100% of the equity interest, the Company consolidates the entity if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements.
Healthcare Realty Holdings, L.P. (formally known as Healthcare Trust of America Holdings, LP) (the "OP") is 98.9% owned by the Company. Holders of operating partnership units (“OP Units”) are considered to be non-controlling interest holders in the OP and their ownership interests are reflected as equity on the accompanying Consolidated Balance Sheets. Further, a portion of the earnings and losses of the OP are allocated to non-controlling interest holders based on their respective ownership percentages. Upon conversion of OP Units to common stock, any difference between the fair value of the common stock issued and the carrying value of the OP Units converted to common stock is recorded as a component of equity. As of December 31, 2022 there were approximately 4.0 million, or 1.1%, of OP Units issued and outstanding held by non-controlling interest holders. Additionally, the Company is the primary beneficiary of this VIE. Accordingly, the Company consolidates the interests in the OP.
As of December 31, 2022, the Company had three consolidated VIEs in addition to the OP where it is the primary beneficiary of the VIE based on the combination of operational control and the rights to receive residual returns or the obligation to absorb losses arising from the joint ventures. Accordingly, such joint ventures have been
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
consolidated, and the table below summarizes the balance sheets of consolidated VIEs, excluding the OP, in the aggregate:
| | | | | |
(dollars in thousands) | DECEMBER 31, 2022 |
Assets: | |
Net real estate investments | $ | 46,322 | |
Cash and cash equivalents | 3,645 | |
Receivables and other assets | 2,385 | |
Total assets | $ | 52,352 | |
Liabilities: | |
Accrued expenses and other liabilities | $ | 12,214 | |
Total equity | 40,138 | |
Total liabilities and equity | $ | 52,352 | |
As of December 31, 2022, the Company had three unconsolidated VIEs consisting of two notes receivables and one joint venture. The Company does not have the power or economics to direct the activities of the VIEs on a stand-alone basis, therefore it was determined that the Company was not the primary beneficiary. Therefore, the Company accounts for the two notes receivables as amortized cost and a joint venture arrangement under the equity method. See below for additional information regarding the Company's unconsolidated VIEs:
| | | | | | | | | | | | | | |
ORIGINATION DATE | LOCATION | SOURCE | CARRYING AMOUNT | MAXIMUM EXPOSURE TO LOSS |
2021 | Houston, TX 1 | Note receivable | $ | 29,753 | | $ | 31,150 | |
2021 | Charlotte, NC 1 | Note receivable | 5,984 | | 6,000 | |
2022 | Texas 2 | Equity method | 23,219 | | 23,219 | |
1Assumed mortgage note receivable in connection with the Merger.
2Includes investments in six properties.
As of December 31, 2022, the Company's unconsolidated joint venture arrangements were accounted for using the equity method of accounting as the Company exercised significant influence over but did not control these entities. See Note 5 for more details regarding the Company's unconsolidated joint ventures.
Use of Estimates in the Consolidated Financial Statements
Preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates and assumptions. Management makes significant estimates regarding revenue recognition, guidance.purchase price allocations to record investments in real estate, impairments, collectability of tenant receivables, and fair value measurements, as applicable.
Reclassifications
Certain reclassifications have been made on the Company's prior year Consolidated Balance Sheet to conform to current year presentation. Previously, the Company's Lease intangibles were included in Building, improvements and lease intangibles and Goodwill was included with Other assets, net. These amounts are now classified as separate line items on the Company's Consolidated Balance Sheets.
Segment Reporting
The Company owns, leases, acquires, manages, finances, develops and redevelops outpatient and other healthcare-related properties. The Company is managed as one reporting unit, rather than multiple reporting units, for internal reporting purposes and for internal decision-making. Therefore, the Company discloses its operating results in a single reportable segment.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Real Estate Properties
Real estate properties are recorded at cost or at fair value if acquired in a transaction that is a business combination under Accounting Standards Codification Topic 606805, Business Combinations. Cost or fair value at the time of acquisition is allocated among land, buildings, tenant improvements, lease and other intangibles, and personal property as applicable.
During 2022 and 2021, the Company eliminated against accumulated depreciation approximately $19.6 million and $16.3 million, respectively, of fully amortized real estate intangibles that were initially recorded as a component of certain real estate acquisitions. Also during 2022 and 2021, approximately $4.1 million and $9.9 million, respectively, of fully depreciated tenant and capital improvements that were no longer in service were eliminated against accumulated depreciation. In addition, during 2021, the Company eliminated against accumulated depreciation approximately $7.1 million of a fully depreciated building that is being demolished and redeveloped.
Depreciation expense of real estate properties for the three years ended December 31, 2022, 2021 and 2020 was $320.8 million, $170.0 million and $162.4 million, respectively. Depreciation and amortization of real estate assets in place as of December 31, 2022, is provided for on a straight-line basis over the asset’s estimated useful life:
| | | | | |
Land improvements | 2.0 to 39.0 years |
Buildings and improvements | 3.0 to 49.0 years |
Lease intangibles (including ground lease intangibles) | 1.2 to 99.0 years |
Personal property | 3.0 to 20.0 years |
The Company capitalizes direct costs, including costs such as construction costs and professional services, and indirect costs, including capitalized interest and overhead costs, associated with the development and construction of real estate assets while substantive activities are ongoing to prepare the assets for their intended use. Capitalized interest cost is calculated using the weighted average interest rate of the Company's unsecured debt or the interest rate on project specific debt, if applicable. The Company continues to capitalize interest on the unoccupied portion of the properties in stabilization for up to one year after the buildings have been placed into service, at which time the capitalization of interest must cease.
Land Held for Development
Land held for development includes parcels of land owned by the Company, upon which the Company intends to develop and own outpatient healthcare facilities. The Company's land held for development included twenty parcels as of December 31, 2022 and seven parcels as of December 31, 2021. The Company’s investments in land held for development totaled approximately $74.3 million as of December 31, 2022 and $24.8 million as of December 31, 2021. The current land that is held for development is located adjacent to certain of the Company's existing medical office buildings in California, Colorado, Connecticut, Florida, Georgia, Massachusetts, New York, North Carolina, Tennessee, Texas and Washington.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Asset Impairment
The Company assesses the potential for impairment of identifiable, definite-lived, intangible assets and long-lived assets, including real estate properties, whenever events occur or a change in circumstances indicates that the carrying value might not be fully recoverable. Indicators of impairment may include significant underperformance of an asset relative to historical or expected operating results; significant changes in the Company’s use of assets or the strategy for its overall business; plans to sell an asset before its depreciable life has ended; the expiration of a significant portion of leases in a property; or significant negative economic trends or negative industry trends for the Company or its tenants. In addition, the Company reviews for possible impairment, those assets subject to purchase options and those impacted by casualty losses, such as tornadoes and hurricanes. A property value is considered impaired only if management's estimate of current and projected (undiscounted and unleveraged) operating cash flows of the property is less than the net carrying value of the property. These estimates of future cash flows include only those that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the property based on its estimated remaining useful life. These estimates, including the useful life determination which can be affected by any potential sale of the property, are based on management's assumptions about its use of the property. Therefore, significant judgment is involved in estimating the current and projected cash flows. If management determines that the carrying value of the Company’s assets may not be fully recoverable based on the existence of any of the factors above, or others, management would measure and record an impairment charge based on the estimated fair value of the property or the estimated fair value less costs to sell the property.
Acquisitions of Real Estate Properties with In-Place Leases
The Company's acquisitions of real estate properties typically do not meet the definition of a business and are accounted for as asset acquisitions. Acquisitions of real estate properties with in-place leases are accounted for at relative fair value. When a building with in-place leases is acquired, the cost of the acquisition must be allocated between the tangible real estate assets "as-if-vacant" and the intangible real estate assets related to in-place leases based on their estimated fair values. Land fair value is estimated by using an assessment of comparable transactions and other relevant data.
The Company considers whether any of the in-place lease rental rates are above- or below-market. An asset (if the actual rental rate is above-market) or a liability (if the actual rental rate is below-market) is calculated and recorded in an amount equal to the present value of the future cash flows that represent the difference between the actual lease rate and the estimated market rate. If an in-place lease is identified as a below-market rental rate, the Company would also evaluate any renewal options associated with that lease to determine if the intangible should include those periods. The values related to above- or below-market in-place lease intangibles are amortized over the remaining term of the leases upon acquisition to rental income where the Company is the lessor and to property operating expense where the Company is the lessee.
The Company also estimates an absorption period, which can vary by property, assuming the building is vacant and must be leased up to the actual level of occupancy when acquired. During that absorption period, the owner would incur direct costs, such as tenant improvements, and would suffer lost rental income. Likewise, the owner would have acquired a measurable asset in that, assuming the building was vacant, certain fixed costs would be avoided because the actual in-place lessees would reimburse a certain portion of fixed costs through expense reimbursements during the absorption period.
All of these intangible assets (above- or below-market lease, tenant improvement costs avoided, leasing costs avoided, rental income lost, and expenses recovered through in-place lessee reimbursements) are estimated and recorded in amounts equal to the present value of estimated future cash flows. The actual purchase price is allocated based on the various relative asset fair values described above.
The building and tenant improvement components of the purchase price are depreciated over the estimated useful life of the building or the weighted average remaining term of the in-place leases. The at-market, in-place lease intangibles are amortized to depreciation and amortization expense over the weighted average remaining term of the leases, and customer relationship assets are amortized to depreciation amortization expense over terms applicable to each acquisition. Any goodwill recorded through a business combination would be reviewed for impairment at least annually and is not amortized.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
See Note 9 for more details on the Company’s intangible assets.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. In calculating fair value, a company must maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements.
A hierarchy of valuation techniques is defined to determine whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:
•Level 1 – quoted prices for identical instruments in active markets;
•Level 2 – quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
•Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Executed purchase and sale agreements, that are binding agreements, are categorized as level one inputs. Brokerage estimates, letters of intent, or unexecuted purchase and sale agreements are considered to be level three as they are nonbinding in nature.
Fair Value of Derivative Financial Instruments
Derivative financial instruments are recorded at fair value on the Company's Consolidated Balance Sheets as other assets or other liabilities. The valuation of derivative instruments requires the Company to make estimates and judgments that affect the fair value of the instruments. Fair values of derivatives are estimated by pricing models that consider the forward yield curves and discount rates. The fair value of the Company's forward starting interest rate swap contracts are estimated by pricing models that consider foreign trade rates and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates that may change in the future. For derivatives designated in qualifying cash flow hedging relationships, the change in fair value of the effective portion of the derivatives is recognized in accumulated other comprehensive income (loss). Gains and losses are reclassified from accumulated other comprehensive income (loss) into earnings once the underlying hedged transaction is recognized in earnings. As of December 31, 2022 and 2021, the Company had $2.1 million recorded in accumulated other comprehensive income and $10.0 million recorded in accumulated other comprehensive loss, respectively, related to forward starting interest rate swaps entered into and settled during 2015 and 2020 and a hedge of the Company's variable rate debt. See Note 11 for additional information.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents includes short-term investments with original maturities of three months or less when purchased. Restricted cash includes cash held in escrow in connection with proceeds from the sales of certain real estate properties. The Company did not have any restricted cash for the years ended December 31, 2022 or 2021.
Cash and cash equivalents are held in bank accounts and overnight investments. The Company maintains its bank deposits with large financial institutions in amounts that often exceed federally-insured limits. The Company has not experienced any losses in such accounts.
Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite lives are not amortized, but are tested at least annually for impairment. Intangible assets with finite lives are amortized over their respective lives to their estimated residual values and are reviewed for impairment only when impairment indicators are present.
Identifiable intangible assets of the Company are comprised of enterprise goodwill, in-place lease intangible assets, customer relationship intangible assets, and debt issuance costs. In-place lease and customer relationship intangible assets are amortized on a straight-line basis over the applicable lives of the assets. Debt issuance costs are amortized
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
over the term of the debt instrument on the effective interest method or the straight-line method when the effective interest method is not applicable. Goodwill is not amortized but is evaluated annually as of December 31 for impairment. The Company's goodwill asset increased to $223.2 million in 2022 as a result of the Merger. The 2022 impairment evaluation indicated that no impairment had occurred with respect to the Company's goodwill asset. See Note 9 for more detail on the Company’s intangible assets.
Contingent Liabilities
From time to time, the Company may be subject to loss contingencies arising from legal proceedings and similar matters. Additionally, while the Company maintains comprehensive liability and property insurance with respect to each of its properties, the Company may be exposed to unforeseen losses related to uninsured or underinsured damages.
The Company continually monitors any matters that may present a contingent liability, and, on a quarterly basis, management reviews the Company’s reserves and accruals in relation to each of them, adjusting provisions as necessary in view of changes in available information. Liabilities for contingencies are first recorded when a loss is determined to be both probable and can be reasonably estimated. Changes in estimates regarding the exposure to a contingent loss are reflected as adjustments to the related liability in the periods when they occur.
Because of uncertainties inherent in the estimation of contingent liabilities, it is possible that the Company’s provision for contingent losses could change materially in the near term. To the extent that any significant losses, in addition to amounts recognized, are at least reasonably possible, such amounts will be disclosed in the notes to the Consolidated Financial Statements.
Share-Based Compensation
The Company has various employee and director share-based awards outstanding. These awards include non-vested common stock and options to purchase common stock granted to employees pursuant to the Company's Amended and Restated 2006 Incentive Plan, dated April 29, 2021 ("Incentive Plan"), which replaced the Company's 2015 Stock Incentive Plan (the "Legacy HR Stock Incentive Plan") following the Merger. References to the Incentive Plan include issuances under the Incentive Plan and the Legacy HR Stock Incentive Plan. Legacy HR's 2000 Employee Stock Purchase Plan (the "Legacy HR Employee Stock Purchase Plan") was terminated during 2022 and all outstanding options will expire by 2024. No new options will be issued under this plan. The Company recognizes share-based payments to employees and directors in the Consolidated Statements of Income on a straight-line basis over the requisite service period based on the fair value of the award on the measurement date. The Company recognizes the impact of forfeitures as they occur. See Note 13 for details on the Company’s share-based awards.
Accumulated Other Comprehensive Income (Loss)
Certain items must be included in comprehensive income, including items such as foreign currency translation adjustments, minimum pension liability adjustments, changes in the fair value of derivative instruments and unrealized gains or losses on available-for-sale securities. As of December 31, 2022, the Company’s accumulated other comprehensive income (loss) consists of the loss for changes in the fair value of active derivatives designated as cash flow hedges and the loss on the unamortized settlement of forward starting swaps and treasury hedges. See Note 11 for more details on the Company's derivative financial instruments.
Revenue from Contracts with Customers (Topic 606)
The Company recognizes certain revenue under the core principle of Topic 606. This requires an entity to recognize revenue to depict the transfer of 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. For more detailed information onLease revenue is not within the scope of Topic 606. To achieve the core principle, the Company applies the five step model specified in the guidance.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Revenue that is accounted for under Topic 606 see “Recently Issued or Adopted Accounting Pronouncements”is segregated on the Company’s Consolidated Statements of Income in Note 2 - Summary of Significant Accounting Policies to the accompanying consolidated financial statements.
Allowance for Uncollectible Accounts
Tenant receivables, including straight-line rent receivables, are carried netOther operating line item. This line item includes parking income, management fee income and other miscellaneous income. Below is a detail of the allowancesamounts by category:
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
Dollars in thousands | 2022 | 2021 | 2020 |
Type of Revenue | | | |
Parking income | $ | 8,513 | | $ | 7,859 | | $ | 6,720 | |
| | | |
Management fee income | 4,668 | | 2,049 | | 343 | |
Miscellaneous | 525 | | 383 | | 304 | |
| $ | 13,706 | | $ | 10,291 | | $ | 7,367 | |
The Company’s three major types of revenue that are accounted for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their leases. Our determination of the adequacy of these allowances requires judgment and is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees, current economic conditions and other relevant factors. Our estimates may differ from actual results, which could significantly impact our consolidated financial statements.
Investments in Real Estate
With the adoption of ASU 2017-01 in January 2017 we expect the majority of our future investments in real estate investments will beTopic 606 that are listed above are all accounted for as asset acquisitionsthe performance obligation is satisfied. The performance obligations that are identified for each of these items are satisfied over time and to record the purchase price to tangible and intangible assets and liabilitiesCompany recognizes revenue monthly based on their relative fair values. Tangible assets primarily consistthis principle. In most cases, the revenue is due and payable on a monthly basis. The Company had a receivable balance of land$1.5 million and buildings$1.4 million for the years ended December 31, 2022 and improvements. Additionally, the purchase price2021, respectively.
Management fee income includes acquisition related expenses, above or below market leases, above or below market leasehold interests, in place leases, tenant relationships, above or below market debt assumed, interest rate swaps assumedproperty management services provided to third parties and any contingent consideration recorded when the contingency is resolved. The determinationcertain of the fair value requires us to make certain estimatesproperties in the Company's unconsolidated joint ventures and assumptions.
The fair value of the landis generally calculated, accrued and buildings and improvements is based upon our determination of the value of the property as if it were to be replaced or as if it were vacant using discounted cash flow models similar to those used by market participants. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.
The value of in place leases isbilled monthly based on our evaluationa percentage of cash collections of tenant receivables for the specific characteristics of each tenant’s lease. The factors considered include estimated lease-up periods, market rent and other market conditions.
We analyze the acquired leases to determine whether the rental rates are abovemonth or below market. The value associated with above or below market leases is based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractualstated amount per square foot. Management fee income also includes amounts to be received pursuantpaid to the lease overCompany for its remaining term and (ii) our estimateasset management services for certain of its unconsolidated joint ventures. Internal management fee income, where the amounts that would be received using fair market rates over the remaining term of the lease.
We analyze the acquired leasehold interests to determine whether the rental rates are above or below market. The value associated with above or below market leasehold interestsCompany manages its owned properties, is based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term and (ii) our estimate of the amounts that would be paid using fair market rates over the remaining term of the lease.
We record debt or interest rate swaps assumed at fair value. The amount of above or below market debt is determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage. The value of interest rate swaps is based upon a discounted cash flow analysis on the expected cash flows, taking into account interest rate curves and the period to maturity.
We are required to make certain estimateseliminated in order to determine the fair value of the tangible and intangible assets and liabilities acquired in a business investment. Our assumptions directly impact our results of operations, as amounts allocated to certain assets and liabilities have different depreciation and amortization lives. In addition, the amortization and depreciation of these assets and liabilities are recorded in different line items in our accompanying consolidated statements of operations.consolidation.
Recoverability of Real Estate Investments
Real estate investments are evaluated for potential impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Impairment losses are recorded when indicators of impairment are present and the carrying amount of the asset is greater than the sum of future undiscounted cash flows expected to be generated by that asset over the remaining expected holding period. We would recognize an impairment loss when the carrying amount is not recoverable to the extent the carrying amount exceeds the fair value of the property. The fair value is generally based on discounted cash flow analyses. In performing the analysis we consider executed sales agreements or management’s best estimate of market comparables, future occupancy levels, rental rates, capitalization rates, lease-up periods and capital requirements.
Recently Issued or Adopted Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies to our accompanying consolidated financial statements for a discussion of recently issued or adopted accounting pronouncements.
Factors Which May Influence Results of Operations
We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally and the risk factors previously listed in Part I, Item 1A - Risk Factors, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the investment, management and operation of our properties.
Rental Income
Rental income related to non-cancelable operating leases is recognized as earned over the life of the lease agreements on a straight-line basis. The amountCompany's lease agreements generally include provisions for stated annual increases or increases based on a Consumer Price Index ("CPI"). Rental income from properties under multi-tenant office lease arrangements and rental income from properties with single-tenant lease arrangements are included in rental income on the Company's Consolidated Statements of Income. For lessors, the new standard requires a lessor to classify leases as either sales-type, direct-financing or operating. A lease will be treated as a sale if it is considered to transfer control of the underlying asset to the lessee. A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control. Otherwise, the lease is treated as an operating lease.
Nonlease components, such as common area maintenance, are generally accounted for under Topic 606 and separated from the lease payments. However, the Company elected the lessor practical expedient allowing the Company to not separate these components when certain conditions are met. The combined component is accounted for under Accounting Standards Codification, Topic 842.
The components of rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that will become available from unscheduled lease terminations at the then applicable rental rates. Negative trends in one or more of these factors could adversely affect our rental income in future periods.are as follows:
Investment Activity | | | | | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, | |
Dollars in thousands | 2022 | 2021 | 2020 | |
Property operating income | $ | 883,953 | | $ | 514,533 | | $ | 488,527 | | |
Straight-line rent | 23,498 | | 5,801 | | 3,735 | | |
Rental income | $ | 907,451 | | $ | 520,334 | | $ | 492,262 | | |
During the years ended December 31, 2017, 2016 and 2015, we had investments with an aggregate purchase price of $2.7 billion, $700.8 million and $280.9 million, respectively. During the years ended December 31, 2017, 2016 and 2015, we had dispositions with an aggregate sales price of $85.2 million, $39.5 million and $35.7 million, respectively. The amount of any future acquisitions or dispositions could have a significant impact on our results of operations in future periods.
Results of Operations
Comparison of the Years Ended December 31, 2017, 2016 and 2015
As of December 31, 2017, 2016 and 2015, we owned and operated approximately 24.1 million, 17.7 million and 15.5 million square feet of GLA, respectively, with a leased rate of 91.8%, 91.9% and 92.0%, respectively (includes leases which have been executed, but which have not yet commenced), and an occupancy rate of 91.0%, 91.2% and 91.4%, respectively. All explanations are applicable to both HTA and HTALP unless otherwise noted.
Comparison of the years ended December 31, 2017 and 2016, respectively, is set forth below:
|
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | Change | | % Change |
Revenues: | | | | | | | |
Rental income | $ | 612,556 |
| | $ | 460,563 |
| | $ | 151,993 |
| | 33.0 | % |
Interest and other operating income | 1,434 |
| | 365 |
| | 1,069 |
| | NM |
|
Total revenues | 613,990 |
| | 460,928 |
| | 153,062 |
| | 33.2 |
|
Expenses: | | | | | | | |
Rental | 192,147 |
| | 143,751 |
| | 48,396 |
| | 33.7 |
|
General and administrative | 33,403 |
| | 28,773 |
| | 4,630 |
| | 16.1 |
|
Transaction | 5,885 |
| | 6,538 |
| | (653 | ) | | (10.0 | ) |
Depreciation and amortization | 244,986 |
| | 176,866 |
| | 68,120 |
| | 38.5 |
|
Impairment | 13,922 |
| | 3,080 |
| | 10,842 |
| | NM |
|
Total expenses | 490,343 |
| | 359,008 |
| | 131,335 |
| | 36.6 |
|
Income before other income (expense) | 123,647 |
| | 101,920 |
| | 21,727 |
| | 21.3 |
|
Interest expense: | | | | | | | |
Interest related to derivative financial instruments | (1,031 | ) | | (2,377 | ) | | 1,346 |
| | 56.6 |
|
Gain on change in fair value of derivative financial instruments, net | 884 |
| | 1,344 |
| | (460 | ) | | (34.2 | ) |
Total interest related to derivative financial instruments, including net change in fair value of derivative financial instruments | (147 | ) | | (1,033 | ) | | 886 |
| | 85.8 |
|
Interest related to debt | (85,344 | ) | | (59,769 | ) | | (25,575 | ) | | (42.8 | ) |
Gain on sale of real estate, net | 37,802 |
| | 8,966 |
| | 28,836 |
| | NM |
|
Loss on extinguishment of debt, net | (11,192 | ) | | (3,025 | ) | | (8,167 | ) | | NM |
|
Income from unconsolidated joint venture | 782 |
| | — |
| | 782 |
| | NM |
|
Other income | 29 |
| | 286 |
| | (257 | ) | | (89.9 | ) |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 18,232 |
| | 38.5 | % |
| | | | | | | |
NOI | $ | 421,843 |
| | $ | 317,177 |
| | $ | 104,666 |
| | 33.0 | % |
Same-Property Cash NOI | $ | 284,839 |
| | $ | 276,865 |
| | $ | 7,974 |
| | 2.9 | % |
Comparison of the years ended December 31, 2016 and 2015, respectively, is set forth below:
|
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | Change | | % Change |
Revenues: | | | | | | | |
Rental income | $ | 460,563 |
| | $ | 403,553 |
| | $ | 57,010 |
| | 14.1 | % |
Interest and other operating income | 365 |
| | 269 |
| | 96 |
| | 35.7 |
|
Total revenues | 460,928 |
| | 403,822 |
| | 57,106 |
| | 14.1 |
|
Expenses: | | | | | | | |
Rental | 143,751 |
| | 123,390 |
| | 20,361 |
| | 16.5 |
|
General and administrative | 28,773 |
| | 25,578 |
| | 3,195 |
| | 12.5 |
|
Transaction | 6,538 |
| | 4,555 |
| | 1,983 |
| | 43.5 |
|
Depreciation and amortization | 176,866 |
| | 154,134 |
| | 22,732 |
| | 14.7 |
|
Impairment | 3,080 |
| | 2,581 |
| | 499 |
| | 19.3 |
|
Total expenses | 359,008 |
| | 310,238 |
| | 48,770 |
| | 15.7 |
|
Income before other income (expense) | 101,920 |
| | 93,584 |
| | 8,336 |
| | 8.9 |
|
Interest expense: | | | | | | | |
Interest related to derivative financial instruments | (2,377 | ) | | (3,140 | ) | | 763 |
| | 24.3 |
|
Gain (loss) on change in fair value of derivative financial instruments, net | 1,344 |
| | (769 | ) | | 2,113 |
| | NM |
|
Total interest related to derivative financial instruments, including net change in fair value of derivative financial instruments | (1,033 | ) | | (3,909 | ) | | 2,876 |
| | 73.6 |
|
Interest related to debt | (59,769 | ) | | (54,967 | ) | | (4,802 | ) | | (8.7 | ) |
Gain on sale of real estate, net | 8,966 |
| | 152 |
| | 8,814 |
| | NM |
|
(Loss) gain on extinguishment of debt, net | (3,025 | ) | | 123 |
| | (3,148 | ) | | NM |
|
Other income (expense) | 286 |
| | (1,426 | ) | | 1,712 |
| | NM |
|
Net income | $ | 47,345 |
| | $ | 33,557 |
| | $ | 13,788 |
| | 41.1 | % |
| | | | | | | |
NOI | $ | 317,177 |
| | $ | 280,432 |
| | $ | 36,745 |
| | 13.1 | % |
Same-Property Cash NOI | $ | 258,307 |
| | $ | 250,973 |
| | $ | 7,334 |
| | 2.9 | % |
RentalFederal Income
Rental income consisted of the following for the years ended December 31, 2017 and 2016, respectively (in thousands): |
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | Change | | % Change |
Contractual rental income | $ | 589,913 |
| | $ | 445,469 |
| | $ | 144,444 |
| | 32.4 | % |
Straight-line rent and amortization of above and (below) market leases | 13,695 |
| | 8,118 |
| | 5,577 |
| | 68.7 |
|
Other rental revenue | 8,948 |
| | 6,976 |
| | 1,972 |
| | 28.3 |
|
Total rental income | $ | 612,556 |
| | $ | 460,563 |
| | $ | 151,993 |
| | 33.0 | % |
Rental income consisted of the following for the years ended December 31, 2016 and 2015, respectively (in thousands): |
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 | | Change | | % Change |
Contractual rental income | $ | 445,469 |
| | $ | 390,288 |
| | $ | 55,181 |
| | 14.1 | % |
Straight-line rent and amortization of above and (below) market leases | 8,118 |
| | 8,120 |
| | (2 | ) | | — |
|
Other rental revenue | 6,976 |
| | 5,145 |
| | 1,831 |
| | 35.6 |
|
Total rental income | $ | 460,563 |
| | $ | 403,553 |
| | $ | 57,010 |
| | 14.1 | % |
Contractual rental income, which includes expense reimbursements, increased $144.4 million for the year ended December 31, 2017, compared to the December 31, 2016. This increase was primarily due to $138.9 million of additional contractual rental income from our 2016 and 2017 acquisitions (including properties owned during both periods) for the year ended December 31, 2017, and contractual rent increases, partially offset by a decrease in contractual rent as a result of buildings we sold during 2016 and 2017. Contractual rental income, which includes expense reimbursements, increased $55.2 million for the year ended December 31, 2016, compared to the year ended December 31, 2015. This increase was primarily due to $55.3 million of additional contractual rental income from our 2015 and 2016 acquisitions (including properties owned in both periods) and contractual rent increases, partially offset by a decrease in contractual rent as a result of the buildings we sold during 2015 and 2016.
Average starting and expiring base rents for new and renewal leases consisted of the following for the years ended December 31, 2017, 2016 and 2015, respectively (in square feet and per square foot of GLA):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
New and renewal leases: | | | | | |
Average starting base rents | $ | 22.58 |
| | $ | 22.57 |
| | $ | 23.07 |
|
Average expiring base rents | 22.43 |
| | 22.38 |
| | 23.07 |
|
| | | | | |
Square feet of GLA | 2,712,000 |
| | 1,603,000 |
| | 1,000,000 |
|
Lease rates can vary across markets, and lease rates that are considered above or below current market rent may change over time. Leases that expired in 2017 had rents that we believed were at market rates. In general, leasing concessions vary depending on lease type and term.
Tenant improvements, leasing commissions and tenant concessions for new and renewal leases consisted of the following for the years ended December 31, 2017, 2016 and 2015, respectively (in per square foot of GLA):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
New leases: | | | | | |
Tenant improvements | $ | 17.98 |
| | $ | 23.50 |
| | $ | 25.66 |
|
Leasing commissions | 1.99 |
| | 3.63 |
| | 4.04 |
|
Tenant concessions | 2.42 |
| | 3.36 |
| | 5.73 |
|
Renewal leases: | | | | | |
Tenant improvements | $ | 8.15 |
| | $ | 7.34 |
| | $ | 7.35 |
|
Leasing commissions | 1.50 |
| | 1.57 |
| | 1.27 |
|
Tenant concessions | 1.78 |
| | 1.58 |
| | 1.74 |
|
TaxesThe average term for new and renewal leases executed consisted of the following for the years ended December 31, 2017, 2016 and 2015, respectively (in years):
|
| | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
New leases | 6.5 | | 6.2 | | 7.4 |
Renewal leases | 4.8 | | 4.7 | | 5.7 |
Rental Expenses
For the years ended December 31, 2017, 2016 and 2015, rental expenses attributable to our properties were $192.1 million, $143.8 million and $123.4 million, respectively. The increase in rental expenses for the year ended December 31, 2017 compared to 2016, was primarily due to $51.4 million of additional rental expenses associated with our 2016 and 2017 acquisitions for the year ended December 31, 2017, partially offset by improved operating efficiencies and a decrease in rental expenses as a result of the buildings we sold during 2016 and 2017. The increase in rental expenses for the year ended December 31, 2016, compared to 2015, was primarily due to $24.6 million of additional rental expenses with our 2015 and 2016 acquisitions for the year ended December 31, 2016, partially offset by improved operating efficiencies and a decrease in rental expenses as a result of the buildings we sold during 2015 and 2016.
General and Administrative Expenses
For the years ended December 31, 2017, 2016 and 2015, general and administrative expenses were $33.4 million, $28.8 million and $25.6 million, respectively. These increases in general and administrative expenses were primarily due to an increase in non-cash compensation expense and an overall increase in head count due to the continued growth of the company. General and administrative expenses include such costs as salaries, corporate overhead and professional fees, among other items.
Transaction Expenses
For the years ended December 31, 2017, 2016 and 2015, transaction expenses were $5.9 million, $6.5 million and $4.6 million, respectively. The overall increases in transaction expenses are primarily due to the increased acquisition activity. Additionally, in 2017, transaction costs reflect the prospective presentation of the early adoption of ASU 2017-01 as of January 1, 2017, including $4.6 million of non-incremental costs related to the Duke Acquisition. As a result of the adoption, a significant portion of these expenses are now capitalized as part of our investment allocations.
Depreciation and Amortization Expense
For the years ended December 31, 2017, 2016 and 2015, depreciation and amortization expense was $245.0 million, $176.9 million and $154.1 million, respectively. These increases in depreciation and amortization expense year to year were primarily due to the increase in the size of our portfolio.
Impairment
During the year ended December 31, 2017, we recorded impairment charges of $13.9 million related to two MOBs and a portfolio of MOBs located in Massachusetts, South Carolina and Texas. During the year ended December 31, 2016, we recorded impairment charges of $3.1 million that related to two MOBs in our portfolio. During the year ended December 31, 2015 we recorded impairment charges of $2.6 million that related to two MOBs in our portfolio.
Interest Expense and Net Change in Fair Value of Derivative Financial Instruments
Interest expense, excluding the impact of the net change in fair value of derivative financial instruments, increased by $24.2 million during the year ended December 31, 2017, compared to 2016. The increase was primarily the result of higher average debt outstanding during the year ended December 31, 2017, as a result of partially funding our investments over the last 12 months with debt and a change in the composition of debt, driven by an increase in long-term senior unsecured notes, including the $350.0 million 10-year senior unsecured notes issued in July 2016 at a coupon rate of 3.50% per annum, the $400.0 million and $500.0 million 5-year and 10-year senior unsecured notes issued in June 2017 at a coupon rate of 2.95% per annum and 3.75% per annum, respectively.
During the year ended December 31, 2017, the fair market value of our derivatives increased $0.9 million compared to a net increase of $1.3 million during the year ended December 31, 2016. During the year ended December 31, 2016, the fair market value of our derivatives increased $1.3 million, compared to a net decrease of $0.8 million during the year ended December 31, 2015.
To achieve our objectives, we borrow at both fixed and variable rates. From time to time, we also enter into derivative financial instruments, such as interest rate swaps, in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements.
Gain on Sales of Real Estate
For the year ended December 31, 2017, we realized gains of $37.8 million from the disposition of four MOBs located in Wisconsin, California and Texas. For the year ended December 31, 2016, we realized net gains of $9.0 million from the disposition of six senior care facilities located in Texas and California. For the year ended December 31, 2015, we realized net gains of $0.2 million from the disposition of six MOBs.
Gain or Loss on Extinguishment of Debt
For the year ended December 31, 2017 and 2016, we realized a net loss on extinguishment of debt of $11.2 million and $3.0 million, respectively. For the year ended December 31, 2015, we realized a net gain on extinguishment of debt of $0.1 million. The increased loss in 2017 was primarily due to fees we incurred in connection with the execution and our termination of the senior unsecured bridge loan facility (the “Bridge Loan Facility”) as part of the Duke Acquisition.
Other Income and Expense
For the year ended December 31, 2017 and 2016, we had other income of $29,000 and $0.3 million, respectively. For the year ended December 31, 2015, we had other expense of $1.4 million. The net decrease for the year ended December 31, 2015, compared to 2016, was primarily due to the acceleration of management fees paid in connection with an acquisition-related management agreement that was entered into upon the date of acquisition.
NOI and Same-Property Cash NOI
NOI increased $104.7 million to $421.8 million for the year ended December 31, 2017, compared to the year ended December 31, 2016. The increase was primarily due to $96.2 million of additional NOI from our 2016 and 2017 acquisitions for the year ended December 31, 2017, partially offset by a decrease in NOI as a result of the buildings we sold during 2016 and 2017 and a reduction in straight-line rent from properties we owned more than a year. NOI increased $36.7 million to $317.2 million for the year ended December 31, 2016, compared to the year ended December 31, 2015. This increases was primarily due to $35.8 million of additional NOI from our 2015 and 2016 acquisitions, partially offset by a decrease in NOI as a result of the buildings we sold during 2015 and 2016, and a reduction in straight-line rent from properties we owned more than a year.
Same-Property Cash NOI increased $8.0 million to $284.8 million for the year ended December 31, 2017, compared to the year ended December 31, 2016. Same-Property Cash NOI increased $7.3 million to $258.3 million for the year ended December 31, 2016, compared to the year ended December 31, 2015. These increases were primarily the result of rent escalations, an increase in average occupancy, and improved operating efficiencies.
Non-GAAP Financial Measures
FFO and Normalized FFO
We compute FFO in accordance with the current standards established by NAREIT. NAREIT defines FFO as net income or loss attributable to common stockholders/unitholders (computed in accordance with GAAP), excluding gains or losses from sales of real estate property and impairment write-downs of depreciable assets, plus depreciation and amortization related to investments in real estate, and after adjustments for unconsolidated partnerships and joint ventures. We present this non-GAAP financial measure because we considerCompany believes it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Historical cost accounting assumes that the value of real estate assets diminishes ratably over time. Since real estate values have historically risen or fallen based on market conditions, many industry investors have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Because FFO excludes depreciation and amortization unique to real estate, among other items, it provides a perspective not immediately apparent from net income or loss attributable to common stockholders/unitholders.
We also compute Normalized FFO, which excludes from FFO: (i) transaction expenses; (ii) gain or loss on change in fair value of derivative financial instruments; (iii) gain or loss on extinguishment of debt; (iv) noncontrolling income or loss from OP Units included in diluted shares (only applicable to the Company); and (v) other normalizing items, which include items that are unusual and infrequent in nature. We present this non-GAAP financial measure because it allows for the comparison of our operating performance to other REITs and between periods on a consistent basis. Our methodology for calculating Normalized FFO may be different from the methods utilized by other REITs and, accordingly, may not be comparable to other REITs. Normalized FFO should not be considered as an alternative to net income or loss attributable to common stockholders/unitholders (computed in accordance with GAAP) as an indicator of our financial performance, nor is it indicative of cash available to fund cash needs. Normalized FFO should be reviewed in connection with other GAAP measurements.
The amounts included in the calculation of FFO and Normalized FFO are generally the same for HTALP and HTA, except for net income or loss attributable to common stockholders/unitholders, noncontrolling income or loss from OP Units included in diluted shares (only applicable to the Company) and the weighted average shares of our common stock or HTALP OP Units outstanding.
The following is the reconciliation of HTA’s FFO and Normalized FFO to net income attributable to common stockholders for the years ended December 31, 2017, 2016 and 2015 (in thousands, except per share data):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income attributable to common stockholders | $ | 63,916 |
| | $ | 45,912 |
| | $ | 32,931 |
|
Depreciation and amortization expense related to investments in real estate | 243,221 |
| | 175,544 |
| | 152,846 |
|
Gain on sale of real estate, net | (37,802 | ) | | (8,966 | ) | | (152 | ) |
Impairment | 13,922 |
| | 3,080 |
| | 2,581 |
|
Proportionate share of joint venture depreciation and amortization | 969 |
| | — |
| | — |
|
FFO attributable to common stockholders | $ | 284,226 |
| | $ | 215,570 |
| | $ | 188,206 |
|
Transaction expenses (1) | 1,242 |
| | 6,538 |
| | 4,555 |
|
(Gain) loss on change in fair value of derivative financial instruments, net | (884 | ) | | (1,344 | ) | | 769 |
|
Loss (gain) on extinguishment of debt, net | 11,192 |
| | 3,025 |
| | (123 | ) |
Noncontrolling income from partnership units included in diluted shares | 1,538 |
| | 1,315 |
| | 514 |
|
Other normalizing items, net (2) (3) (4) | 4,643 |
| | 117 |
| | 1,999 |
|
Normalized FFO attributable to common stockholders | $ | 301,957 |
| | $ | 225,221 |
| | $ | 195,920 |
|
| | | | | |
Net income attributable to common stockholders per diluted share | $ | 0.34 |
| | $ | 0.33 |
| | $ | 0.26 |
|
FFO adjustments per diluted share, net | 1.19 |
| | 1.21 |
| | 1.21 |
|
FFO attributable to common stockholders per diluted share | $ | 1.53 |
| | $ | 1.54 |
| | $ | 1.47 |
|
Normalized FFO adjustments per diluted share, net | 0.10 |
| | 0.07 |
| | 0.06 |
|
Normalized FFO attributable to common stockholders per diluted share | $ | 1.63 |
| | $ | 1.61 |
| | $ | 1.53 |
|
| | | | | |
Weighted average diluted common shares outstanding | 185,278 |
| | 140,259 |
| | 128,004 |
|
| | | | | |
(1) For the year ended December 31, 2017, amounts reflect the prospective presentation of the early adoption of ASU 2017-01 as of January 1, 2017. |
(2) For the year ended December 31, 2017, other normalizing items include $4.6 million of non-incremental costs related to the Duke Acquisition that were included in transaction expenses on HTA’s consolidated statements of operations. |
(3) For the years ended December 31, 2017 and 2016, other normalizing items excludes lease termination fees as they are deemed to be generated in the ordinary course of business. |
(4) For the year ended December 31, 2015, other normalizing items primarily include the acceleration of management fees paid in connection with an acquisition-related management agreement that was entered into at the time of acquisition of our Florida portfolio that was acquired in December 2013. |
The following is the reconciliation of HTALP’s FFO and Normalized FFO to net income attributable to common unitholders for the years ended December 31, 2017, 2016 and 2015 (in thousands, except per unit data):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income attributable to common unitholders | $ | 65,454 |
| | $ | 47,227 |
| | $ | 33,445 |
|
Depreciation and amortization expense related to investments in real estate | 243,221 |
| | 175,544 |
| | 152,846 |
|
Gain on sale of real estate, net | (37,802 | ) | | (8,966 | ) | | (152 | ) |
Impairment | 13,922 |
| | 3,080 |
| | 2,581 |
|
Proportionate share of joint venture depreciation and amortization | 969 |
| | — |
| | — |
|
FFO attributable to common unitholders | $ | 285,764 |
| | $ | 216,885 |
| | $ | 188,720 |
|
Transaction expenses (1) | 1,242 |
| | 6,538 |
| | 4,555 |
|
(Gain) loss on change in fair value of derivative financial instruments, net | (884 | ) | | (1,344 | ) | | 769 |
|
Loss (gain) on extinguishment of debt, net | 11,192 |
| | 3,025 |
| | (123 | ) |
Other normalizing items, net (2) | 4,643 |
| | 117 |
| | 1,999 |
|
Normalized FFO attributable to common unitholders | $ | 301,957 |
| | $ | 225,221 |
| | $ | 195,920 |
|
| | | | | |
Net income attributable to common unitholders per diluted unit | $ | 0.35 |
| | $ | 0.34 |
| | $ | 0.26 |
|
FFO adjustments per diluted unit, net | 1.19 |
| | 1.21 |
| | 1.21 |
|
FFO attributable to common unitholders per diluted unit | $ | 1.54 |
| | $ | 1.55 |
| | $ | 1.47 |
|
Normalized FFO adjustments per diluted unit, net | 0.09 |
| | 0.06 |
| | 0.06 |
|
Normalized FFO attributable to common unitholders per diluted unit | $ | 1.63 |
| | $ | 1.61 |
| | $ | 1.53 |
|
| | | | | |
Weighted average diluted common units outstanding | 185,278 |
| | 140,259 |
| | 128,079 |
|
| | | | | |
(1) For the year ended December 31, 2017, amounts reflect the prospective presentation of the early adoption of ASU 2017-01 as of January 1, 2017. |
(2) For the year ended December 31, 2017, other normalizing items include $4.6 million of non-incremental costs related to the Duke Acquisition that were included in transaction expenses on HTALP’s consolidated statements of operations. |
(3) For the years ended December 31, 2017 and 2016, other normalizing items excludes lease termination fees as they are deemed to be generated in the ordinary course of business. |
(4) For the year ended December 31, 2015, other normalizing items primarily include the acceleration of management fees paid in connection with an acquisition-related management agreement that was entered into at the time of acquisition of our Florida portfolio that was acquired in December 2013. |
NOI, Cash NOI and Same-Property Cash NOI
NOI is a non-GAAP financial measure that is defined as net income or loss (computed in accordance with GAAP) before: (i) general and administrative expenses; (ii) transaction expenses; (iii) depreciation and amortization expense; (iv) impairment; (v) interest expense and net change in fair value of derivative financial instruments; (vi) gain or loss on sales of real estate; (vii) gain or loss on extinguishment of debt; (viii) income or loss from unconsolidated joint venture; and (ix) other income or expense. We believe that NOI provides an accurate measure of the operating performance of our operating assets because NOI excludes certain items that are not associated with the management of our properties. Additionally, we believe that NOI is a widely accepted measure of comparative operating performance of REITs. However, our use of the term NOI may not be comparable to that of other REITs as they may have different methodologies for computing this amount. NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. NOI should be reviewed in connection with other GAAP measurements.
Cash NOI is a non-GAAP financial measure which excludes from NOI: (i) straight-line rent adjustments; and (ii) amortization of below and above market leases/leasehold interests. Contractual base rent, contractual rent increases, contractual rent concessions and changes in occupancy or lease rates upon commencement and expiration of leases are a primary driver of our revenue performance. We believe that Cash NOI, which removes the impact of straight-line rent adjustments, provides another measurement of the operating performance of our operating assets. Additionally, we believe that Cash NOI is a widely accepted measure of comparative operating performance of REITs. However, our use of the term Cash NOI may not be comparable to that of other REITs as they may have different methodologies for computing this amount. Cash NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. Cash NOI should be reviewed in connection with other GAAP measurements.
To facilitate the comparison of Cash NOI between periods, we calculate comparable amounts for a subset of our owned and operational properties referred to as “Same-Property”. Same-Property Cash NOI excludes properties which have not been owned and operated by us during the entire span of all periods presented, excluding properties intended for disposition in the near term, development and land parcels, our share of unconsolidated joint ventures, notes receivable interest income and certain non-routine items. Same-Property Cash NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. Same-Property Cash NOI should be reviewed in connection with other GAAP measurements.
The following is the reconciliation of HTA’s and HTALP’s NOI, and Cash NOI to net income for the years ended December 31, 2017, 2016 and 2015 (in thousands):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 33,557 |
|
General and administrative expenses | 33,403 |
| | 28,773 |
| | 25,578 |
|
Transaction expenses (1) | 5,885 |
| | 6,538 |
| | 4,555 |
|
Depreciation and amortization expense | 244,986 |
| | 176,866 |
| | 154,134 |
|
Impairment | 13,922 |
| | 3,080 |
| | 2,581 |
|
Interest expense and net change in fair value of derivative financial instruments | 85,491 |
| | 60,802 |
| | 58,876 |
|
Gain on sale of real estate, net | (37,802 | ) | | (8,966 | ) | | (152 | ) |
Loss (gain) on extinguishment of debt, net | 11,192 |
| | 3,025 |
| | (123 | ) |
Income from unconsolidated joint venture | (782 | ) | | — |
| | — |
|
Other (income) expense | (29 | ) | | (286 | ) | | 1,426 |
|
NOI | $ | 421,843 |
| | $ | 317,177 |
| | $ | 280,432 |
|
Straight-line rent adjustments, net | (8,637 | ) | | (4,159 | ) | | (6,917 | ) |
Amortization of (below) and above market leases/leasehold interests, net and lease termination fees | 354 |
| | 682 |
| | 2,317 |
|
Cash NOI | $ | 413,560 |
| | $ | 313,700 |
| | $ | 275,832 |
|
| | | | | |
(1) For the year ended December 31, 2017, transaction costs reflect the prospective presentation of the early adoption of ASU 2017-01 as of January 1, 2017. Additionally, for the year ended December 31, 2017, transaction costs included $4.6 million of non-incremental costs related to the Duke Acquisition. |
The following is the reconciliation of HTA’s and HTALP’s Same-Property Cash NOI to Cash NOI for the years ended December 31, 2017 and 2016 (in thousands):
|
| | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 |
Cash NOI | $ | 413,560 |
| | $ | 313,700 |
|
Notes receivable interest income | (1,193 | ) | | (183 | ) |
Non Same-Property Cash NOI | (127,528 | ) | | (36,652 | ) |
Same-Property Cash NOI (1) | $ | 284,839 |
| | $ | 276,865 |
|
| | | |
(1) Same-Property includes 295 buildings for the years ended December 31, 2017 and 2016. |
The following is the reconciliation of HTA’s and HTALP’s Same-Property Cash NOI to Cash NOI for the years ended December 31, 2016 and 2015 (in thousands):
|
| | | | | | | |
| Year Ended December 31, |
| 2016 | | 2015 |
Cash NOI | $ | 313,700 |
| | $ | 275,832 |
|
Notes receivable interest income | (183 | ) | | — |
|
Non Same-Property Cash NOI | (55,210 | ) | | (24,859 | ) |
Same-Property Cash NOI (1) | $ | 258,307 |
| | $ | 250,973 |
|
| | | |
(1) Same-Property includes 275 buildings for the years ended December 31, 2016 and 2015. |
Liquidity and Capital Resources
Our primary sources of cash include: (i) cash flow from operations; (ii) borrowings under our unsecured revolving credit facility; (iii) net proceeds from the issuances of debt and equity securities; and (iv) proceeds from our dispositions. During the next 12 months our primary uses of cash are expected to include: (a) the funding of acquisitions of MOBs, development properties and other facilities that serve the healthcare industry; (b) capital expenditures; (c) the payment of operating expenses; (d) debt service payments, including principal payments; and (e) the payment of dividends to our stockholders. We anticipate cash flow from operations, restricted cash and reserve accounts and our unsecured revolving credit facility, if needed, will be sufficient to fund our operating expenses, capital expenditures and dividends to stockholders. Investments and maturing indebtedness may require funds from the issuance of debt and/or equity securities or proceeds from sales of real estate.
As of December 31, 2017, we had liquidity of $1.2 billion, including $991.2 million available under our unsecured revolving credit facility (which includes the impact of $8.8 million of outstanding letters of credit), $100.4 million of cash and cash equivalents and a $75.0 million forward commitment.
In addition, we had unencumbered assets with a gross book value of $6.2 billion. The unencumbered properties may be used as collateral to secure additional financings in future periods or refinance our current debt as it becomes due. Our ability to raise funds from future debt and equity issuances is dependent on our investment grade credit ratings, general economic and market conditions and our operating performance.
When we acquire a property, we prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs. As of December 31, 2017, we estimate that our expenditures for capital improvements for 2018 will range from $35.0 million to $45.0 million depending on leasing activity. As of December 31, 2017, we had $3.1 million of restricted cash and reserve accounts for such capital expenditures. We cannot provide assurance, however, that we will not exceed these estimated expenditure levels.
If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewal leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of our leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs.
Cash Flows
The following is a summary of our cash flows for the years ended December 31, 2017, 2016 and 2015 (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Current Year Change | | Prior Year Change |
| 2017 | | 2016 | | 2015 | | |
Cash, cash equivalents and restricted cash - beginning of year (1) | $ | 25,045 |
| | $ | 28,962 |
| | $ | 31,212 |
| | $ | (3,917 | ) | | $ | (2,250 | ) |
Net cash provided by operating activities | 307,543 |
| | 203,695 |
| | 191,095 |
| | 103,848 |
| | 12,600 |
|
Net cash used in investing activities (1) | (2,455,096 | ) | | (608,393 | ) | | (274,171 | ) | | (1,846,703 | ) | | (334,222 | ) |
Net cash provided by financing activities | 2,241,068 |
| | 400,781 |
| | 80,826 |
| | 1,840,287 |
| | 319,955 |
|
Cash, cash equivalents and restricted cash - end of year (1) | $ | 118,560 |
| | $ | 25,045 |
| | $ | 28,962 |
| | $ | 93,515 |
| | $ | (3,917 | ) |
| | | | | | | | | |
(1) The amounts for 2015 and 2016 differ from amounts previously reported in our Annual Reports for the years ended December 31, 2015 and 2016, as a result of the retrospective presentation of the early adoption of ASU 2016-18 as of January 1, 2017. Additionally the presentation of beginning of year and end of year cash now includes restricted cash as a result of the adoption of ASU 2016-18. |
Net cash provided by operating activities increased in 2017 primarily due to the impact of our 2016 and 2017 acquisitions, contractual rent increases and improved operating efficiencies, partially offset by our 2016 and 2017 dispositions. Net cash provided by operating activities increased in 2016 primarily due to the impact of our 2015 and 2016 acquisitions, contractual rent increases and improved operating efficiencies, partially offset by our 2015 and 2016 dispositions. We anticipate cash flows from operating activities to increase as a result of the above items and continued leasing activity in our existing portfolio.
For the year ended December 31, 2017, net cash used in investing activities primarily related to the investment in real estate of $2.4 billion, investment in an unconsolidated joint venture of $68.8 million, and capital expenditures of $64.8 million, partially offset by proceeds from the sale of real estate of $80.6 million. For the year ended December 31, 2016, net cash used in investing activities primarily related to the investment in real estate of $592.0 million and capital expenditures of $43.0 million, partially offset by proceeds from the sale of real estate of $26.6 million. For the year ended December 31, 2015, net cash used in investing activities primarily related to investments in real estate of $279.3 million and capital expenditures of $29.3 million, partially offset by proceeds from the sales of real estate of $34.6 million. We anticipate cash flows used in investing activities to increase as we continue to acquire more properties.
For the year ended December 31, 2017, net cash provided by financing activities primarily related to the net proceeds of shares of common stock issued of $1.7 billion and net proceeds on the issuance of senior notes of $900.0 million, partially offset by dividends paid to holders of our common stock of $207.1 million, net payments on our unsecured revolving credit facility of $88.0 million, and payments on our secured mortgage loans of $77.0 million. For the year ended December 31, 2016, net cash provided by financing activities primarily related to the net proceeds of shares of common stock issued of $418.9 million and proceeds from unsecured senior notes of $347.7 million, partially offset by dividends paid to holders of our common stock of $159.2 million, net payments on our unsecured revolving credit facility of $130.0 million, and payments on our secured mortgage loans of $110.9 million. For the year ended December 31, 2015, net cash provided by financing activities primarily related to related to net borrowings of $282.0 million on our Unsecured Credit Agreement and net proceeds of shares of common stock issued of $44.3 million, partially offset by dividends paid to holders of our common stock of $146.4 million and payments on our mortgage loans of $94.9 million.
Dividends
The amount of dividends we pay to our stockholders is determined by our Board of Directors, in their sole discretion, and is dependent on a number of factors, including funds available, our financial condition, capital expenditure requirements and annual dividend distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended. We have paid monthly or quarterly dividends since February 2007, and if our investments produce sufficient cash flow, we expect to continue to pay dividends to our stockholders. Because our cash available for dividend distributions in any year may be less than 90% of our taxable income for the year, we may obtain the necessary funds through borrowings, issuing new securities or selling assets to pay out enough of our taxable income to satisfy our dividend distribution requirement. Our organizational documents do not establish a limit on dividends that may constitute a return of capital for federal income tax purposes. The dividend we pay to our stockholders is equal to the distributions received from HTALP in accordance with the terms of HTALP’s partnership agreement. It is our intention to continue to pay dividends. However, our Board of Directors may reduce our dividend rate and we cannot guarantee the timing and amount of dividends that it may pay in the future, if any.
For the year ended December 31, 2017, we paid cash dividends of $207.1 million on our own common stock. In January 2018, we paid cash dividends on our own common stock of $62.5 million for the quarter ended December 31, 2017. On February 15, 2018, our Board of Directors announced a quarterly dividend of $0.305 per share/unit of common stock to be paid on April 10, 2018 to stockholders of record of our common stock and OP unitholders on April 3, 2018.
Financing
We have historically maintained a low leveraged balance sheet and intend to continue to maintain this structure in the long term. However, our total leverage may fluctuate on a short-term basis as we execute our business strategy. As of December 31, 2017, our leverage ratio, measured by net debt (total debt less cash and cash equivalents) to total capitalization, was 29.9%.
As of December 31, 2017, we had debt outstanding of $2.8 billion and the weighted average interest rate therein was 3.50% per annum, inclusive of the impact of our interest rate swaps. The following is a summary of our unsecured and secured debt. See Note 7 - Debt to our accompanying consolidated financial statements for a further discussion of our debt.
Unsecured Revolving Credit Facility
On July 27, 2017, HTALP entered into an amended and restated $1.3 billion Unsecured Credit Agreement which increased the amount available under the unsecured revolving credit facility to $1.0 billion. As of December 31, 2017, $991.2 million was available on our $1.0 billion unsecured revolving credit facility. Our unsecured revolving credit facility matures in June 2022.
Unsecured Term Loans
As of December 31, 2017, we had $500.0 million of unsecured term loans outstanding, comprised of $300.0 million under our Unsecured Credit Agreement maturing in 2023, and $200.0 million also maturing in 2023.
Unsecured Senior Notes
As of December 31, 2017, we had $1.85 billion of unsecured senior notes outstanding, comprised of $300.0 million maturing in 2021, $400.0 million maturing in 2022, $300.0 million maturing in 2023, $350.0 million maturing in 2026, and $500.0 million maturing in 2027.
Mortgage Loans
In June 2017, as a part of the Duke Acquisition pursuant to a requirement of the seller, we entered as the borrower a $286.0 million Promissory Note which matures in January 2020. In addition, during the year ended December 31, 2017, we made payments on our mortgage loans of $77.0 million loans and have $102.5 million of principal payments due in 2018.
Commitments and Contingencies
See Note 9 - Commitments and Contingencies to our accompanying consolidated financial statements for a further discussion of our commitments and contingencies.
Debt Service Requirements
We are required by the terms of our applicable loan agreements to meet certain financial covenants, such as minimum net worth and liquidity, and reporting requirements, among others. As of December 31, 2017, we believe that we were in compliance with all such covenants and we are not aware of any covenants that it is reasonably likely that we would not be able to meet in accordance with our loan agreements.
Contractual Obligations
The table below presents our obligations and commitments to make future payments under our debt obligations and lease agreements as of December 31, 2017 (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Payment Due by Period |
| Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years | | Total |
Debt | $ | 102,513 |
| | $ | 254,354 |
| | $ | 768,835 |
| | $ | 1,676,740 |
| | $ | 2,802,442 |
|
Interest (1) | 99,026 |
| | 183,447 |
| | 162,737 |
| | 106,978 |
| | 552,188 |
|
Ground lease and other operating lease obligations | 10,908 |
| | 22,212 |
| | 22,898 |
| | 916,180 |
| | 972,198 |
|
Total | $ | 212,447 |
| | $ | 460,013 |
| | $ | 954,470 |
| | $ | 2,699,898 |
| | $ | 4,326,828 |
|
| | | | | | | | | |
(1) Interest on variable rate debt is calculated using the forward rates in effect at December 31, 2017 and excludes the impact of our interest rate swaps. |
Off-Balance Sheet Arrangements
As of and during the year ended December 31, 2017, we had no material off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Inflation
We are exposed to inflation risk as income from future long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that protect us from the impact of normal inflation. These provisions include rent escalations, reimbursement billings for operating expense pass-through charges and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of our leases, among other factors, the leases may not reset frequently enough to cover inflation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we believe the primary market risk to which we have exposure is interest rate risk.
We are exposed to the effects of interest rate changes on our variable rate debt. Interest rate changes on our fixed rate debt will generally not affect our future earnings or cash flows unless such instruments mature or are otherwise terminated. Our interest rate risk is monitored using a variety of techniques. In order to mitigate our interest rate risk, we enter into derivative financial instruments such as interest rate swaps and caps. To the extent we enter into such derivative financial instruments, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. It is our policy to enter into these transactions with what we believe are high quality counterparties, including those with whom we have a lending relationship. We believe the likelihood of realized losses from counterparty non-performance is remote. We manage the market risk associated with interest rate swaps or caps by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. We do not enter into derivative or interest rate transactions for speculative purposes.
The table below presents, as of December 31, 2017, the principal amounts of our fixed and variable debt and the weighted average interest rates, excluding the impact of interest rate swaps, by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes (in thousands, except interest rates):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expected Maturity Date |
| 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
Fixed rate debt | $ | 101,463 |
| | $ | 106,557 |
| | $ | 119,555 |
| | $ | 305,263 |
| | $ | 462,530 |
| | $ | 1,169,156 |
| | $ | 2,264,524 |
|
Weighted average interest rate on fixed rate debt (per annum) | 4.08 | % | | 4.21 | % | | 4.42 | % | | 3.41 | % | | 3.29 | % | | 3.67 | % | | 3.63 | % |
Variable rate debt | $ | 1,050 |
| | $ | 1,119 |
| | $ | 27,123 |
| | $ | 509 |
| | $ | 533 |
| | $ | 507,584 |
| | $ | 537,918 |
|
Weighted average interest rate on variable rate debt based on forward rates in effect as of December 31, 2017 (per annum) | 3.47 | % | | 3.91 | % | | 3.67 | % | | 4.77 | % | | 4.79 | % | | 3.69 | % | | 2.93 | % |
As of December 31, 2017, we had $2.8 billion of fixed and variable rate debt with interest rates ranging from 2.61% to 6.39% per annum and a weighted average interest rate of 3.49% per annum, excluding the impact of interest rate swaps. We had $2.3 billion (excluding net premium/discount and deferred financing costs) of fixed rate debt with a weighted average interest rate of 3.63% per annum and $537.9 million (excluding net premium/discount and deferred financing costs) of variable rate debt with a weighted average interest rate of 2.93% per annum as of December 31, 2017, excluding the impact of interest rate swaps.
As of December 31, 2017, the fair value of our fixed rate debt was $2.3 billion and the fair value of our variable rate debt was $539.2 million based upon prevailing market rates as of December 31, 2017.
As of December 31, 2017, we had interest rate swaps outstanding that effectively fix $189.4 million of our variable rate debt. Including the impact of these interest rate swaps, the effective rate on our variable rate and total debt is 2.98% and 3.50% per annum, respectively.
In addition to changes in interest rates, the value of our future properties is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.
Item 8. Financial Statements and Supplementary Data
See the disclosure listed at Item 15 - Exhibits, Financial Statement Schedules subsections (a)(1) and (a)(2).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Healthcare Trust of America, Inc.
(a) Evaluation of disclosure controls and procedures. HTA’s management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including HTA’s Chief Executive Officer (as the principal executive officer) and Chief Financial Officer (as the principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosures.
As of December 31, 2017, an evaluation was conducted by HTA under the supervision and with the participation of its management, including HTA’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, HTA’s Chief Executive Officer and Chief Financial Officer each concluded that HTA’s disclosure controls and procedures were effective as of December 31, 2017.
(b) Management’s report on internal control over financial reporting. HTA’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of HTA’s management, including its Chief Executive Officer and Chief Financial Officer, HTA conducted an evaluation of the effectiveness of its internal control over financial reporting based on the criteria in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, HTA’s Chief Executive Officer and Chief Financial Officer concluded that HTA’s internal control over financial reporting was effective as of December 31, 2017.
Our independent registered public accounting firm, Deloitte & Touche LLP, independently assessed the effectiveness of HTA’s internal control over financial reporting. Deloitte & Touche LLP has issued a report, which is included at the end of Item 9A of this Annual Report.
(c) Changes in internal control over financial reporting. We acquired the Duke assets during the year ended December 31, 2017 and have integrated the assets and development platform on to our existing internal controls over financial reporting. Except for any changes in internal controls related to the integration of the Duke assets, there were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2017 that have materially affected, or are reasonably believed to be likely to materially affect, our internal control over financial reporting.
February 20, 2018
Healthcare Trust of America Holdings, LP
(a) Evaluation of disclosure controls and procedures. HTALP’s management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including HTA’s Chief Executive Officer (as the principal executive officer) and Chief Financial Officer (as the principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosures.
As of December 31, 2017, an evaluation was conducted by HTALP under the supervision and with the participation of its management, including HTA’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, HTA’s Chief Executive Officer and Chief Financial Officer, on behalf of HTA in its capacity as general partner of HTALP, each concluded that HTALP’s disclosure controls and procedures were effective as of December 31, 2017.
(b) Management’s report on internal control over financial reporting. HTALP’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of its management, including HTA’s Chief Executive Officer and Chief Financial Officer, HTALP conducted an evaluation of the effectiveness of its internal control over financial reporting based on the criteria in the 2013 Internal Control-Integrated Framework issued by COSO. Based on this evaluation, HTALP’s management, including HTA’s Chief Executive Officer and Chief Financial Officer, concluded that HTALP’s internal control over financial reporting was effective as of December 31, 2017.
This Annual Report does not include an attestation report of HTALP’s independent registered public accounting firm, Deloitte & Touche LLP, pursuant to rules of the SEC applicable to “non-accelerated filers.”
(c) Changes in internal control over financial reporting. We acquired the Duke assets during the year ended December 31, 2017 and have integrated the assets and development platform on to our existing internal controls over financial reporting. Except for any changes in internal controls related to the integration of the Duke assets, there were no changes in HTALP’s internal control over financial reporting that occurred during the year ended December 31, 2017 that have materially affected, or are reasonably believed to be likely to materially affect, HTALP’s internal control over financial reporting.
February 20, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Healthcare Trust of America, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Healthcare Trust of America, Inc. and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2017, of the Company and our report dated February 20, 2018, expressed an unqualified opinion on those consolidated financial statements and financial statement schedules.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 20, 2018
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 is incorporated by reference to the material under the headings “Proposal 1: Election of Directors,” “Corporate Governance,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in HTA’s definitive Proxy Statement for the 2018 Annual Meeting of Stockholders, which it will file with the SEC no later than April 30, 2018.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated by reference to the material under the headings “Compensation of Directors,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Compensation of Executive Officers” in HTA’s definitive Proxy Statement for the 2018 Annual Meeting of Stockholders, which it will file with the SEC no later than April 30, 2018.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated by reference to the material under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plans” in HTA’s definitive Proxy Statement for the 2018 Annual Meeting of Stockholders, which it will file with the SEC no later than April 30, 2018.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated by reference to the material under the heading “Certain Relationships and Related Party Transactions” in HTA’s definitive Proxy Statement for the 2018 Annual Meeting of Stockholders, which it will file with the SEC no later than April 30, 2018.
Item 14. Principal Accounting Fees and Services
The information required by this Item 14 is incorporated by reference to the material under the heading “Relationship with Independent Registered Public Accounting Firm: Audit and Non-Audit Fees” in HTA’s definitive Proxy Statement for the 2018 Annual Meeting of Stockholders, which it will file with the SEC no later than April 30, 2018.
PART IV
Item 15. Exhibits, Financial Statement Schedules
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | |
| Page |
(a)(1) Financial Statements:
| |
| | |
Reports of Independent Registered Public Accounting Firm | |
| | |
| | |
Financial Statements of Healthcare Trust of America, Inc. | |
| | |
| | |
| | |
| | |
| | |
Financial Statements of Healthcare Trust of America Holdings, LP | |
| | |
| | |
| | |
| | |
| | |
Notes for Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP | |
| | |
(a)(2) Financial Statement Schedules:
|
| | |
Financial Statement Schedules of Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP | |
| | |
| | |
| | |
All other schedules have been omitted because they are inapplicable.
(a)(3) Exhibits:
The exhibits listed on the Exhibit Index (following the signature section of this Annual Report) are incorporated by reference into this Annual Report.
(b) Exhibits:
See Item 15(a)(1) above.
(c) Financial Statement Schedules:
See Item 15(a)(2) above.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Healthcare Trust of America, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Healthcare Trust of America, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, equity, comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and the consolidated financial statement schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2018, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 20, 2018
We have served as the Company’s auditor since 2006.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Healthcare Trust of America Holdings, LP
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Healthcare Trust of America Holdings, LP and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, changes in partners’ capital, comprehensive income (loss) and cash flows, for each of the three years in the period ended December 31, 2017, and the related notes and the financial statement schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 20, 2018
We have served as the Company’s auditor since 2013.
HEALTHCARE TRUST OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
ASSETS | | | | |
Real estate investments: | | | | |
Land | | $ | 485,319 |
| | $ | 386,526 |
|
Building and improvements | | 5,830,824 |
| | 3,466,516 |
|
Lease intangibles | | 639,199 |
| | 467,571 |
|
Construction in progress | | 14,223 |
| | — |
|
| | 6,969,565 |
| | 4,320,613 |
|
Accumulated depreciation and amortization | | (1,021,691 | ) | | (817,593 | ) |
Real estate investments, net | | 5,947,874 |
| | 3,503,020 |
|
Investment in unconsolidated joint venture | | 68,577 |
| | — |
|
Cash and cash equivalents | | 100,356 |
| | 11,231 |
|
Restricted cash | | 18,204 |
| | 13,814 |
|
Receivables and other assets, net | | 207,857 |
| | 173,461 |
|
Other intangibles, net | | 106,714 |
| | 46,318 |
|
Total assets | | $ | 6,449,582 |
| | $ | 3,747,844 |
|
LIABILITIES AND EQUITY | | | | |
Liabilities: | | | | |
Debt | | $ | 2,781,031 |
| | $ | 1,768,905 |
|
Accounts payable and accrued liabilities | | 167,852 |
| | 105,034 |
|
Derivative financial instruments - interest rate swaps | | 1,089 |
| | 1,920 |
|
Security deposits, prepaid rent and other liabilities | | 61,222 |
| | 49,859 |
|
Intangible liabilities, net | | 68,203 |
| | 37,056 |
|
Total liabilities | | 3,079,397 |
| | 1,962,774 |
|
Commitments and contingencies | |
| |
|
Redeemable noncontrolling interests | | 6,737 |
| | 4,653 |
|
Equity: | | | | |
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding | | — |
| | — |
|
Class A common stock, $0.01 par value; 1,000,000,000 shares authorized; 204,892,118 and 141,719,134 shares issued and outstanding as of December 31, 2017 and 2016, respectively | | 2,049 |
| | 1,417 |
|
Additional paid-in capital | | 4,508,528 |
| | 2,754,818 |
|
Accumulated other comprehensive loss | | 274 |
| | — |
|
Cumulative dividends in excess of earnings | | (1,232,069 | ) | | (1,068,961 | ) |
Total stockholders’ equity | | 3,278,782 |
| | 1,687,274 |
|
Noncontrolling interests | | 84,666 |
| | 93,143 |
|
Total equity | | 3,363,448 |
| | 1,780,417 |
|
Total liabilities and equity | | $ | 6,449,582 |
| | $ | 3,747,844 |
|
| | | | |
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenues: | | | | | |
Rental income | $ | 612,556 |
| | $ | 460,563 |
| | $ | 403,553 |
|
Interest and other operating income | 1,434 |
| | 365 |
| | 269 |
|
Total revenues | 613,990 |
| | 460,928 |
| | 403,822 |
|
Expenses: | | | | | |
Rental | 192,147 |
| | 143,751 |
| | 123,390 |
|
General and administrative | 33,403 |
| | 28,773 |
| | 25,578 |
|
Transaction | 5,885 |
| | 6,538 |
| | 4,555 |
|
Depreciation and amortization | 244,986 |
| | 176,866 |
| | 154,134 |
|
Impairment | 13,922 |
| | 3,080 |
| | 2,581 |
|
Total expenses | 490,343 |
| | 359,008 |
| | 310,238 |
|
Income before other income (expense) | 123,647 |
| | 101,920 |
| | 93,584 |
|
Interest expense: | | | | | |
Interest related to derivative financial instruments | (1,031 | ) | | (2,377 | ) | | (3,140 | ) |
Gain (loss) on change in fair value of derivative financial instruments, net | 884 |
| | 1,344 |
| | (769 | ) |
Total interest related to derivative financial instruments, including net change in fair value of derivative financial instruments | (147 | ) | | (1,033 | ) | | (3,909 | ) |
Interest related to debt | (85,344 | ) | | (59,769 | ) | | (54,967 | ) |
Gain on sale of real estate, net | 37,802 |
| | 8,966 |
| | 152 |
|
(Loss) gain on extinguishment of debt, net | (11,192 | ) | | (3,025 | ) | | 123 |
|
Income from unconsolidated joint venture | 782 |
| | — |
| | — |
|
Other income (expense) | 29 |
| | 286 |
| | (1,426 | ) |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 33,557 |
|
Net income attributable to noncontrolling interests (1) | (1,661 | ) | | (1,433 | ) | | (626 | ) |
Net income attributable to common stockholders | $ | 63,916 |
| | $ | 45,912 |
| | $ | 32,931 |
|
Earnings per common share - basic: | | | | | |
Net income attributable to common stockholders | $ | 0.35 |
| | $ | 0.34 |
| | $ | 0.26 |
|
Earnings per common share - diluted: | | | | | |
Net income attributable to common stockholders | $ | 0.34 |
| | $ | 0.33 |
| | $ | 0.26 |
|
Weighted average common shares outstanding: | | | | | |
Basic | 181,064 |
| | 136,620 |
| | 126,074 |
|
Diluted | 185,278 |
| | 140,259 |
| | 128,004 |
|
| | | | | |
(1) Includes amounts attributable to redeemable noncontrolling interests. |
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| | | | | |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 33,557 |
|
| | | | | |
Other comprehensive gain (loss) | | | | | |
Change in unrealized gains on cash flow hedges | 280 |
| | — |
| | — |
|
Total other comprehensive gain | 280 |
| | — |
| | — |
|
| | | | | |
Total comprehensive income | 65,857 |
| | 47,345 |
| | 33,557 |
|
Comprehensive income attributable to noncontrolling interests | (1,544 | ) | | (1,315 | ) | | (514 | ) |
Total comprehensive income attributable to common stockholders | $ | 64,313 |
| | $ | 46,030 |
| | $ | 33,043 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Cumulative Dividends in Excess of Earnings | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount |
Balance as of December 31, 2014 | 125,087 |
| | $ | 1,251 |
| | $ | 2,281,932 |
| | $ | — |
| | $ | (836,044 | ) | | $ | 1,447,139 |
| | $ | 29,282 |
| | $ | 1,476,421 |
|
Issuance of common stock, net | 1,800 |
| | 18 |
| | 43,631 |
| | — |
| | — |
| | 43,649 |
| | — |
| | 43,649 |
|
Share-based award transactions, net | 202 |
| | 2 |
| | 5,722 |
| | — |
| | — |
| | 5,724 |
| | — |
| | 5,724 |
|
Repurchase and cancellation of common stock | (62 | ) | | (1 | ) | | (1,666 | ) | | — |
| | — |
| | (1,667 | ) | | — |
| | (1,667 | ) |
Redemption of noncontrolling interest and other | — |
| | — |
| | (813 | ) | | — |
| | — |
| | (813 | ) | | — |
| | (813 | ) |
Dividends ($1.170 per common share) | — |
| | — |
| | — |
| | — |
| | (147,539 | ) | | (147,539 | ) | | (2,262 | ) | | (149,801 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 32,931 |
| | 32,931 |
| | 514 |
| | 33,445 |
|
Balance as of December 31, 2015 | 127,027 |
| | 1,270 |
| | 2,328,806 |
| | — |
| | (950,652 | ) | | 1,379,424 |
| | 27,534 |
| | 1,406,958 |
|
Issuance of common stock, net | 14,138 |
| | 141 |
| | 417,022 |
| | — |
| | — |
| | 417,163 |
| | — |
| | 417,163 |
|
Issuance of operating partnership units in connection with an acquisition | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 74,460 |
| | 74,460 |
|
Share-based award transactions, net | 391 |
| | 4 |
| | 7,067 |
| | — |
| | — |
| | 7,071 |
| | — |
| | 7,071 |
|
Repurchase and cancellation of common stock | (94 | ) | | (1 | ) | | (2,641 | ) | | — |
| | — |
| | (2,642 | ) | | — |
| | (2,642 | ) |
Redemption of noncontrolling interest and other | 257 |
| | 3 |
| | 4,564 |
| | — |
| | — |
| | 4,567 |
| | (5,709 | ) | | (1,142 | ) |
Dividends declared ($1.190 per common share) | — |
| | — |
| | — |
| | — |
| | (164,221 | ) | | (164,221 | ) | | (4,457 | ) | | (168,678 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 45,912 |
| | 45,912 |
| | 1,315 |
| | 47,227 |
|
Balance as of December 31, 2016 | 141,719 |
| | 1,417 |
| | 2,754,818 |
| | — |
| | (1,068,961 | ) | | 1,687,274 |
| | 93,143 |
| | 1,780,417 |
|
Issuance of common stock, net | 62,823 |
| | 628 |
| | 1,746,328 |
| | — |
| | — |
| | 1,746,956 |
| | — |
| | 1,746,956 |
|
Issuance of operating partnership units in connection with an acquisition | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,125 |
| | 1,125 |
|
Share-based award transactions, net | 230 |
| | 3 |
| | 6,867 |
| | — |
| | — |
| | 6,870 |
| | — |
| | 6,870 |
|
Repurchase and cancellation of common stock | (116 | ) | | (1 | ) | | (3,412 | ) | | — |
| | — |
| | (3,413 | ) | | — |
| | (3,413 | ) |
Redemption of noncontrolling interest and other | 236 |
| | 2 |
| | 3,927 |
| | — |
| | — |
| | 3,929 |
| | (5,943 | ) | | (2,014 | ) |
Dividends declared ($1.210 per common share) | — |
| | — |
| | — |
| | — |
| | (227,024 | ) | | (227,024 | ) | | (5,203 | ) | | (232,227 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 63,916 |
| | 63,916 |
| | 1,538 |
| | 65,454 |
|
Other comprehensive gain | — |
| | — |
| | — |
| | 274 |
| | — |
| | 274 |
| | 6 |
| | 280 |
|
Balance as of December 31, 2017 | 204,892 |
| | $ | 2,049 |
| | $ | 4,508,528 |
| | $ | 274 |
| | $ | (1,232,069 | ) | | $ | 3,278,782 |
| | $ | 84,666 |
| | $ | 3,363,448 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Cash flows from operating activities: | | | | | |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 33,557 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and other | 239,044 |
| | 175,285 |
| | 151,614 |
|
Share-based compensation expense | 6,870 |
| | 7,071 |
| | 5,724 |
|
Bad debt expense | 438 |
| | 846 |
| | 828 |
|
Impairment | 13,922 |
| | 3,080 |
| | 2,581 |
|
Income from unconsolidated joint venture | (782 | ) | | — |
| | — |
|
Distributions from unconsolidated joint venture | 750 |
| | — |
| | — |
|
Gain on sale of real estate, net | (37,802 | ) | | (8,966 | ) | | (152 | ) |
Loss (gain) on extinguishment of debt, net | 11,192 |
| | 3,025 |
| | (123 | ) |
Change in fair value of derivative financial instruments | (884 | ) | | (1,344 | ) | | 769 |
|
Changes in operating assets and liabilities: | | | | | |
Receivables and other assets, net | (33,733 | ) | | (22,080 | ) | | (7,508 | ) |
Accounts payable and accrued liabilities | 37,406 |
| | 2,171 |
| | (6,284 | ) |
Prepaid rent and other liabilities | 5,545 |
| | (2,738 | ) | | 10,089 |
|
Net cash provided by operating activities | 307,543 |
| | 203,695 |
| | 191,095 |
|
Cash flows from investing activities: | | | | | |
Investments in real estate | (2,383,581 | ) | | (591,954 | ) | | (279,334 | ) |
Investment in unconsolidated joint venture | (68,839 | ) | | — |
| | — |
|
Development of real estate | (25,191 | ) | | — |
| | — |
|
Proceeds from the sale of real estate | 80,640 |
| | 26,555 |
| | 34,629 |
|
Capital expenditures | (64,833 | ) | | (42,994 | ) | | (29,270 | ) |
Collection of real estate notes receivable | 9,964 |
| | — |
| | — |
|
Advances on real estate notes receivable | (3,256 | ) | | — |
| | — |
|
Other assets | — |
| | — |
| | (196 | ) |
Net cash used in investing activities | (2,455,096 | ) | | (608,393 | ) | | (274,171 | ) |
Cash flows from financing activities: | | | | | |
Borrowings on unsecured revolving credit facility | 570,000 |
| | 574,000 |
| | 454,000 |
|
Payments on unsecured revolving credit facility | (658,000 | ) | | (704,000 | ) | | (272,000 | ) |
Proceeds from unsecured senior notes | 900,000 |
| | 347,725 |
| | — |
|
Borrowings on unsecured term loans | — |
| | 200,000 |
| | 100,000 |
|
Payments on unsecured term loans | — |
| | (155,000 | ) | | — |
|
Payments on secured mortgage loans | (77,024 | ) | | (110,935 | ) | | (94,856 | ) |
Deferred financing costs | (16,904 | ) | | (3,191 | ) | | (204 | ) |
Debt extinguishment costs | (10,571 | ) | | — |
| | — |
|
Security deposits | 2,419 |
| | 924 |
| | (243 | ) |
Proceeds from issuance of common stock | 1,746,956 |
| | 418,891 |
| | 44,324 |
|
Issuance of operating partnership units | — |
| | 2,706 |
| | — |
|
Repurchase and cancellation of common stock | (3,413 | ) | | (2,642 | ) | | (1,667 | ) |
Dividends paid | (207,087 | ) | | (159,174 | ) | | (146,372 | ) |
Distributions paid to noncontrolling interest of limited partners | (5,308 | ) | | (3,951 | ) | | (2,156 | ) |
Redemption of redeemable noncontrolling interest | — |
| | (4,572 | ) | | — |
|
Net cash provided by financing activities | 2,241,068 |
| | 400,781 |
| | 80,826 |
|
Net change in cash, cash equivalents and restricted cash | 93,515 |
| | (3,917 | ) | | (2,250 | ) |
Cash, cash equivalents and restricted cash - beginning of year | 25,045 |
| | 28,962 |
| | 31,212 |
|
Cash, cash equivalents and restricted cash - end of year | $ | 118,560 |
| | $ | 25,045 |
| | $ | 28,962 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
ASSETS | | | | |
Real estate investments: | | | | |
Land | | $ | 485,319 |
| | $ | 386,526 |
|
Building and improvements | | 5,830,824 |
| | 3,466,516 |
|
Lease intangibles | | 639,199 |
| | 467,571 |
|
Construction in progress | | 14,223 |
| | — |
|
| | 6,969,565 |
| | 4,320,613 |
|
Accumulated depreciation and amortization | | (1,021,691 | ) | | (817,593 | ) |
Real estate investments, net | | 5,947,874 |
| | 3,503,020 |
|
Investment in unconsolidated joint venture | | 68,577 |
| | — |
|
Cash and cash equivalents | | 100,356 |
| | 11,231 |
|
Restricted cash | | 18,204 |
| | 13,814 |
|
Receivables and other assets, net | | 207,857 |
| | 173,461 |
|
Other intangibles, net | | 106,714 |
| | 46,318 |
|
Total assets | | $ | 6,449,582 |
| | $ | 3,747,844 |
|
LIABILITIES AND PARTNERS’ CAPITAL | | | | |
Liabilities: | | | | |
Debt | | $ | 2,781,031 |
| | $ | 1,768,905 |
|
Accounts payable and accrued liabilities | | 167,852 |
| | 105,034 |
|
Derivative financial instruments - interest rate swaps | | 1,089 |
| | 1,920 |
|
Security deposits, prepaid rent and other liabilities | | 61,222 |
| | 49,859 |
|
Intangible liabilities, net | | 68,203 |
| | 37,056 |
|
Total liabilities | | 3,079,397 |
| | 1,962,774 |
|
Commitments and contingencies | |
|
| |
|
|
Redeemable noncontrolling interests | | 6,737 |
| | 4,653 |
|
Partners’ Capital: | | | | |
Limited partners’ capital, 4,124,148 and 4,323,095 units issued and outstanding as of December 31, 2017 and 2016, respectively | | 84,396 |
| | 92,873 |
|
General partners’ capital, 204,892,118 and 141,719,134 units issued and outstanding as of December 31, 2017 and 2016, respectively | | 3,279,052 |
| | 1,687,544 |
|
Total partners’ capital | | 3,363,448 |
| | 1,780,417 |
|
Total liabilities and partners’ capital | | $ | 6,449,582 |
| | $ | 3,747,844 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Revenues: | | | | | |
Rental income | $ | 612,556 |
| | $ | 460,563 |
| | $ | 403,553 |
|
Interest and other operating income | 1,434 |
| | 365 |
| | 269 |
|
Total revenues | 613,990 |
| | 460,928 |
| | 403,822 |
|
Expenses: | | | | | |
Rental | 192,147 |
| | 143,751 |
| | 123,390 |
|
General and administrative | 33,403 |
| | 28,773 |
| | 25,578 |
|
Transaction | 5,885 |
| | 6,538 |
| | 4,555 |
|
Depreciation and amortization | 244,986 |
| | 176,866 |
| | 154,134 |
|
Impairment | 13,922 |
| | 3,080 |
| | 2,581 |
|
Total expenses | 490,343 |
| | 359,008 |
| | 310,238 |
|
Income before other income (expense) | 123,647 |
| | 101,920 |
| | 93,584 |
|
Interest expense: | | | | | |
Interest related to derivative financial instruments | (1,031 | ) | | (2,377 | ) | | (3,140 | ) |
Gain (loss) on change in fair value of derivative financial instruments, net | 884 |
| | 1,344 |
| | (769 | ) |
Total interest related to derivative financial instruments, including net change in fair value of derivative financial instruments | (147 | ) | | (1,033 | ) | | (3,909 | ) |
Interest related to debt | (85,344 | ) | | (59,769 | ) | | (54,967 | ) |
Gain on sale of real estate, net | 37,802 |
| | 8,966 |
| | 152 |
|
(Loss) gain on extinguishment of debt, net | (11,192 | ) | | (3,025 | ) | | 123 |
|
Income from unconsolidated joint venture | 782 |
| | — |
| | — |
|
Other income (expense) | 29 |
| | 286 |
| | (1,426 | ) |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 33,557 |
|
Net income attributable to noncontrolling interests | (123 | ) | | (118 | ) | | (112 | ) |
Net income attributable to common unitholders | $ | 65,454 |
| | $ | 47,227 |
| | $ | 33,445 |
|
Earnings per common unit - basic: | | | | | |
Net income attributable to common unitholders | $ | 0.35 |
| | $ | 0.34 |
| | $ | 0.26 |
|
Earnings per common unit - diluted: | | | | | |
Net income attributable to common unitholders | $ | 0.35 |
| | $ | 0.34 |
| | $ | 0.26 |
|
Weighted average common units outstanding: | | | | | |
Basic | 185,261 |
| | 140,259 |
| | 128,079 |
|
Diluted | 185,278 |
| | 140,259 |
| | 128,079 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
| | | | | |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 33,557 |
|
| | | | | |
Other comprehensive gain (loss) | | | | | |
Change in unrealized gains on cash flow hedges | 280 |
| | — |
| | — |
|
Total other comprehensive gain | 280 |
| | — |
| | — |
|
| | | | | |
Total comprehensive income | 65,857 |
| | 47,345 |
| | 33,557 |
|
Comprehensive income attributable to noncontrolling interests | (123 | ) | | (118 | ) | | (112 | ) |
Total comprehensive income attributable to common unitholders | $ | 65,734 |
| | $ | 47,227 |
| | $ | 33,445 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
(In thousands)
|
| | | | | | | | | | | | | | | | | |
| General Partners’ Capital | | Limited Partners’ Capital | | Total Partners’ Capital |
| Units | | Amount | | Units | | Amount | |
Balance as of December 31, 2014 | 125,087 |
| | $ | 1,447,409 |
| | 2,155 |
| | $ | 29,012 |
| | $ | 1,476,421 |
|
Issuance of general partner units, net | 1,800 |
| | 43,649 |
| | — |
| | — |
| | 43,649 |
|
Share-based award transactions, net | 202 |
| | 5,724 |
| | (225 | ) | | — |
| | 5,724 |
|
Redemption and cancellation of general partner units | (62 | ) | | (1,667 | ) | | — |
| | — |
| | (1,667 | ) |
Redemption of limited partner units and other | — |
| | (813 | ) | | — |
| | — |
| | (813 | ) |
Distributions ($1.170 per common unit) | — |
| | (147,539 | ) | | — |
| | (2,262 | ) | | (149,801 | ) |
Net income | — |
| | 32,931 |
| | — |
| | 514 |
| | 33,445 |
|
Balance as of December 31, 2015 | 127,027 |
| | 1,379,694 |
| | 1,930 |
| | 27,264 |
| | 1,406,958 |
|
Issuance of general partner units, net | 14,138 |
| | 417,163 |
| | — |
| | — |
| | 417,163 |
|
Issuance of limited partner units in connection with an acquisition | — |
| | — |
| | 2,650 |
| | 74,460 |
| | 74,460 |
|
Share-based award transactions, net | 391 |
| | 7,071 |
| | — |
| | — |
| | 7,071 |
|
Redemption and cancellation of general partner units | (94 | ) | | (2,642 | ) | | — |
| | — |
| | (2,642 | ) |
Redemption of limited partner units and other | 257 |
| | 4,567 |
| | (257 | ) | | (5,709 | ) | | (1,142 | ) |
Distributions declared ($1.190 per common unit) | — |
| | (164,221 | ) | | — |
| | (4,457 | ) | | (168,678 | ) |
Net income | — |
| | 45,912 |
| | — |
| | 1,315 |
| | 47,227 |
|
Balance as of December 31, 2016 | 141,719 |
| | 1,687,544 |
| | 4,323 |
| | 92,873 |
| | 1,780,417 |
|
Issuance of general partner units, net | 62,823 |
| | 1,746,956 |
| | — |
| | — |
| | 1,746,956 |
|
Issuance of limited partner units in connection with an acquisition | — |
| | — |
| | 38 |
| | 1,125 |
| | 1,125 |
|
Share-based award transactions, net | 230 |
| | 6,870 |
| | — |
| | — |
| | 6,870 |
|
Redemption and cancellation of general partner units | (116 | ) | | (3,413 | ) | | — |
| | — |
| | (3,413 | ) |
Redemption of limited partner units and other | 236 |
| | 3,929 |
| | (237 | ) | | (5,943 | ) | | (2,014 | ) |
Distributions declared ($1.210 per common unit) | — |
| | (227,024 | ) | | — |
| | (5,203 | ) | | (232,227 | ) |
Net income | — |
| | 63,916 |
| | — |
| | 1,538 |
| | 65,454 |
|
Other comprehensive gain | — |
| | 274 |
| | — |
| | 6 |
| | 280 |
|
Balance as of December 31, 2017 | 204,892 |
| | $ | 3,279,052 |
| | 4,124 |
| | $ | 84,396 |
| | $ | 3,363,448 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Cash flows from operating activities: | | | | | |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 33,557 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation, amortization and other | 239,044 |
| | 175,285 |
| | 151,614 |
|
Share-based compensation expense | 6,870 |
| | 7,071 |
| | 5,724 |
|
Bad debt expense | 438 |
| | 846 |
| | 828 |
|
Impairment | 13,922 |
| | 3,080 |
| | 2,581 |
|
Income from unconsolidated joint venture | (782 | ) | | — |
| | — |
|
Distributions from unconsolidated joint venture | 750 |
| | — |
| | — |
|
Gain on sale of real estate, net | (37,802 | ) | | (8,966 | ) | | (152 | ) |
Loss (gain) on extinguishment of debt, net | 11,192 |
| | 3,025 |
| | (123 | ) |
Change in fair value of derivative financial instruments | (884 | ) | | (1,344 | ) | | 769 |
|
Changes in operating assets and liabilities: | | | | | |
Receivables and other assets, net | (33,733 | ) | | (22,080 | ) | | (7,508 | ) |
Accounts payable and accrued liabilities | 37,406 |
| | 2,171 |
| | (6,284 | ) |
Prepaid rent and other liabilities | 5,545 |
| | (2,738 | ) | | 10,089 |
|
Net cash provided by operating activities | 307,543 |
| | 203,695 |
| | 191,095 |
|
Cash flows from investing activities: | | | | | |
Investments in real estate | (2,383,581 | ) | | (591,954 | ) | | (279,334 | ) |
Investment in unconsolidated joint venture | (68,839 | ) | | — |
| | — |
|
Development of real estate | (25,191 | ) | | — |
| | — |
|
Proceeds from the sale of real estate | 80,640 |
| | 26,555 |
| | 34,629 |
|
Capital expenditures | (64,833 | ) | | (42,994 | ) | | (29,270 | ) |
Collection of real estate notes receivable | 9,964 |
| | — |
| | — |
|
Advances on real estate notes receivable | (3,256 | ) | | — |
| | — |
|
Other assets | — |
| | — |
| | (196 | ) |
Net cash used in investing activities | (2,455,096 | ) | | (608,393 | ) | | (274,171 | ) |
Cash flows from financing activities: | | | | | |
Borrowings on unsecured revolving credit facility | 570,000 |
| | 574,000 |
| | 454,000 |
|
Payments on unsecured revolving credit facility | (658,000 | ) | | (704,000 | ) | | (272,000 | ) |
Proceeds from unsecured senior notes | 900,000 |
| | 347,725 |
| | — |
|
Borrowings on unsecured term loans | — |
| | 200,000 |
| | 100,000 |
|
Payments on unsecured term loans | — |
| | (155,000 | ) | | — |
|
Payments on secured mortgage loans | (77,024 | ) | | (110,935 | ) | | (94,856 | ) |
Deferred financing costs | (16,904 | ) | | (3,191 | ) | | (204 | ) |
Debt extinguishment costs | (10,571 | ) | | — |
| | — |
|
Security deposits | 2,419 |
| | 924 |
| | (243 | ) |
Proceeds from issuance of general partner units | 1,746,956 |
| | 418,891 |
| | 44,324 |
|
Issuance of limited partner units | — |
| | 2,706 |
| | — |
|
Repurchase and cancellation of general partner units | (3,413 | ) | | (2,642 | ) | | (1,667 | ) |
Distributions paid to general partner | (207,087 | ) | | (159,174 | ) | | (146,372 | ) |
Distributions paid to limited partners and redeemable noncontrolling interests | (5,308 | ) | | (3,951 | ) | | (2,156 | ) |
Redemption of redeemable noncontrolling interest | — |
| | (4,572 | ) | | — |
|
Net cash provided by financing activities | 2,241,068 |
| | 400,781 |
| | 80,826 |
|
Net change in cash, cash equivalents and restricted cash | 93,515 |
| | (3,917 | ) | | (2,250 | ) |
Cash, cash equivalents and restricted cash - beginning of year | 25,045 |
| | 28,962 |
| | 31,212 |
|
Cash, cash equivalents and restricted cash - end of year | $ | 118,560 |
| | $ | 25,045 |
| | $ | 28,962 |
|
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unless otherwise indicated or unless the context requires otherwise the use of the words “we,” “us” or “our” refers to Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP, collectively.
1. Organization and Description of Business
HTA, a Maryland corporation, and HTALP, a Delaware limited partnership, were incorporated or formed, as applicable, on April 20, 2006. HTA operates as a REIT and is the general partner of HTALP, which is the operating partnership. As of December 31, 2017, HTA owned a 98.1% partnership interest and other limited partners, including some of our directors, executive officers and their affiliates, owned the remaining partnership interest (including the LTIP Units) in HTALP. As the sole general partner of HTALP, HTA has the full, exclusive and complete responsibility for HTALP’s day-to-day management and control. HTA operates in an umbrella partnership REIT structure in which HTALP and its subsidiaries hold substantially all of the assets. HTA’s only material asset is its ownership of partnership interests of HTALP. As a result, HTA does not conduct business itself, other than acting as the sole general partner of HTALP, issuing public equity from time to time and guaranteeing certain debts of HTALP. HTALP conducts the operations of the business and issues publicly-traded debt, but has no publicly-traded equity.
HTA is the largest publicly-traded REIT focused on MOBs in the U.S. as measured by the GLA of our MOBs. HTA conducts substantially all of its operations through HTALP. We invest in MOBs that we believe will serve the future of healthcare delivery, and MOBs that are primarily located on health system campuses, near university medical centers, or in core community outpatient locations. We also focus on our key markets that have certain demographic and macro-economic trends and where we can utilize our institutional full-service property management, leasing and development services platform to generate strong tenant and health system relationships and operating cost efficiencies. Our primary objective is to maximize stockholder value with disciplined growth through strategic investments that provide an attractive risk-adjusted return for our stockholders by consistently increasing our cash flow. In pursuing this objective, we: (i) seek internal growth through proactive asset management, leasing, building services and property management oversight; (ii) target accretive acquisitions and developments of MOBs in markets with attractive demographics that complement our existing portfolio; and (iii) actively manage our balance sheet to maintain flexibility with conservative leverage. Additionally, from time to time we consider, on an opportunistic basis, significant portfolio acquisitions that we believe fit our core business and could enhance our existing portfolio. HTA has qualified to be taxed as a REIT and intends at all times to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code. The Company must distribute at least 90% per annum of its real estate investment trust taxable income to its stockholders and meet other requirements to continue to qualify as a real estate investment trust. As a REIT, the Company is generally not subject to federal income tax on net income it distributes to its stockholders, but may be subject to certain state and local taxes and fees. See Note 16 for further discussion.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
If HR fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal income taxes on its taxable income and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year during which the qualification is lost unless the IRS grants it relief under certain statutory provisions. Such event could have a material adverse effect on its business, financial condition, results of operations and intendsnet cash available for dividend distributions to continue to be taxed asits stockholders.
HR conducts substantially all of its operations through the OP. As a REIT.
Since 2006, we have invested $7.0 billion to create a portfoliopartnership, the OP generally is not liable for federal income taxes. The income and loss from the operations of MOBs, development projects and other healthcare assets consisting of approximately 24.1 million square feet of GLA throughout the U.S. As of December 31, 2017, 70% of our portfolio was located on the campuses of, or adjacent to, nationally and regionally recognized healthcare systems. Our portfolioOP is diversified geographically across 33 states, with no state having more than 19% of our total GLA as of December 31, 2017. We believe these key locations and affiliations create significant demand from healthcare related tenants for our properties. Further, our portfolio is primarily concentrated within major U.S. metropolitan statistical areas (“MSAs”) that we believe will provide above-average economic growth and socioeconomic benefits over the coming years. As of December 31, 2017, we had approximately 1 million square feet of GLA in each of our top ten markets and approximately 93% of our portfolio, based on GLA, is locatedincluded in the top 75 MSAs, with Dallas, Houston, Boston, Tampa and Atlanta being our largest markets by investment.
Our principal executive office is located at 16435 North Scottsdale Road, Suite 320, Scottsdale, Arizona, 85254.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2. Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding our consolidated financial statements. Such consolidated financial statements and the accompanying notes are the representations of our management,its partners, including HR, who are responsible for reporting their integrityallocable share of the partnership income and objectivity. These accounting policies conform to GAAP in all material respects and haveloss. Accordingly no provision for income tax has been consistently applied in preparing our accompanying consolidated financial statements.
Basis of Presentation
Our accompanying consolidated financial statements include our accounts and those of our subsidiaries and any consolidated VIEs. All inter-company balances and transactions have been eliminatedmade in the accompanying consolidated financial statements.
PrinciplesThe Company classifies interest and penalties related to uncertain tax positions, if any, in the Consolidated Financial Statements as a component of Consolidationgeneral and administrative expenses. No such amounts were recognized during the three years ended December 31, 2022.
Federal tax returns for the years 2019, 2020, 2021 and 2022 are currently subject to examination by taxing authorities.
State Income Taxes
The consolidated financial statements includeCompany must pay certain state income taxes and the provisions for such taxes are generally included in general and administrative expense on the Company’s Consolidated Statements of Income. See Note 16 for further discussion.
Sales and Use Taxes
The Company must pay sales and use taxes to certain state tax authorities based on rents collected from tenants in properties located in those states. The Company is generally reimbursed for these taxes by the tenant. The Company accounts for the payments to the taxing authority and subsequent reimbursement from the tenant on a net basis in rental income in the Company’s Consolidated Statements of our subsidiariesIncome.
Assets Held for Sale
Long-lived assets held for sale are reported at the lower of their carrying amount or their fair value less estimated cost to sell. Further, depreciation of these assets ceases at the time the assets are classified as held for sale. Losses resulting from the sale of such properties are characterized as impairment losses in the Consolidated Statements of Income. See Note 6 for more detail on assets held for sale.
Earnings per Share
The Company uses the two-class method of computing net earnings per common share. Earnings per common share is calculated by considering share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents as participating securities. Undistributed earnings (excess net income over dividend payments) are allocated on a pro rata basis to common shareholders and consolidated joint venture arrangements.restricted shareholders. Undistributed losses (dividends in excess of net income) do not get allocated to restricted stockholders as they do not have the contractual obligation to share in losses. The portionsamount of undistributed losses that applies to the restricted stockholders is allocated to the common stockholders.
Basic earnings per common share is calculated using weighted average shares outstanding less issued and outstanding non-vested shares of common stock. Diluted earnings per common share is calculated using weighted average shares outstanding plus the dilutive effect of the HTALP operating partnershipoutstanding stock options from the Legacy HR Employee Stock Purchase Plan using the treasury stock method and the average stock price during the period. Additionally, net income (loss) allocated to OP units has been included in the numerator and common stock related to redeemable OP units have been included in the denominator for the purpose of computing diluted earnings per share. See Note 14 for the calculations of earnings per share.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Redeemable Non-Controlling Interests
The Company accounts for redeemable equity securities in accordance with Accounting Standards Update 2009-04 Liabilities (Topic 480): Accounting for Redeemable Equity Instruments, which requires that equity securities redeemable at the option of the holder, not owned by us are presented as non-controlling interests insolely within our consolidated balance sheets and statements of operations, consolidated statements of comprehensive income or loss, consolidated statements ofcontrol, be classified outside permanent stockholders’ equity. The Company classifies redeemable equity and consolidated statements of changes in partners’ capital. The portions of other joint venture arrangements not owned by us are presentedsecurities as redeemable non-controlling interests in our consolidated balance sheets. In addition, as described in Note 1 - Organization and Description of Business, certain third parties have been issued OP Units in HTALP. Holders of OP Units are considered to be noncontrolling interest holders in HTALP and their ownership interests are reflected as equity in the consolidated balance sheets. Further, a portionaccompanying Consolidated Balance Sheet. Accordingly, the Company records the carrying amount at the greater of the earningsinitial carrying amount (increased or decreased for the non-controlling interest’s share of net income or loss and losses of HTALP are allocateddistributions) or the redemption value. We measure the redemption value and record an adjustment to noncontrolling interest holders based on their respective ownership percentages. Upon conversion of OP Units to common stock, any difference between the fair value of the common stock issued and the carrying value of the OP Units converted to common stock is recordedequity securities as a component of equity.redeemable non-controlling interest. As of December 31, 2017, 2016 and 2015, there were approximately 4.1 million, 4.3 million and 1.9 million, respectively,2022, the Company had redeemable non-controlling interests of OP Units issued and outstanding.$2.0 million.
VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following: (i) the power to direct the activities that most significantly impact the entity’s economic performance; (ii) the obligation to absorb the expected losses of the entity; and (iii) the right to receive the expected returns of the entity. We consolidate our investmentInvestments in VIEs when we determine that we are the primary beneficiary. A primary beneficiary is one that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. The HTALP operating partnership and our other joint venture arrangements are VIEs because the limited partners in those partnerships, although entitled to vote on certain matters, do not possess kick-out rights or substantive participating rights. Additionally, we determined that we are the primary beneficiary of our VIEs. Accordingly, we consolidate our interests in the HTALP operating partnership and in our other joint venture arrangements. However, because we hold what is deemed a majority voting interest in the HTALP operating partnership and our other joint venture arrangements, it qualifies for the exemption from providing certain disclosure requirements associatedFinancing Receivables, Net
In accordance with investments in VIEs. We will evaluate on an ongoing basis the need to consolidate entities based on the standards set forth in GAAP as described above.
Use of Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These estimates are made and evaluated on an ongoing basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in adverse ways, and those estimates could be different under different assumptions or conditions.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Reclassification
In November 2016, the Financial Accounting Standards Board (the “FASB”Codification ("ASC") issued Accounting Standards Update (“ASU”) 2016-18 Statement of Cash Flows: Restricted Cash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in cash, cash equivalents and restricted cash or restricted cash equivalents. Therefore, restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of year and end of year amounts shown on the statement of cash flows. We adopted ASU 2016-18 as of January 1, 2017, and as a result of the adoption, the guidance requires retrospective adoption842, for all periods presented. The following table represents the previously reported balances and the reclassified balances for the impacted items of the December 31, 2016 and 2015 consolidated statements of cash flows (in thousands): |
| | | | | | | | | | | | | | | |
| Year Ended December 31, 2016 | | Year Ended December 31, 2015 |
| As Previously Reported | | As Reclassified | | As Previously Reported | | As Reclassified |
Cash flows from investing activities: | | | | | | | |
Other assets (1) | $ | 2,078 |
| | $ | — |
| | $ | 4,711 |
| | $ | (196 | ) |
Net cash used in investing activities | (606,315 | ) | | (608,393 | ) | | (269,264 | ) | | (274,171 | ) |
| | | | | | | |
Net change in cash, cash equivalents and restricted cash (2) | $ | (1,839 | ) | | $ | (3,917 | ) | | $ | 2,657 |
| | $ | (2,250 | ) |
Cash, cash equivalents and restricted cash - beginning of year (2) | 13,070 |
| | 28,962 |
| | 10,413 |
| | 31,212 |
|
Cash, cash equivalents and restricted cash - end of year (2) | $ | 11,231 |
| | $ | 25,045 |
| | $ | 13,070 |
| | $ | 28,962 |
|
| | | | | | | |
(1) Prior to adoption of ASU 2016-18 line item description was Restricted cash, escrow deposits and other assets. |
(2) With the adoption of ASU 2016-18 line item description now includes restricted cash. |
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased. Restricted cash is comprised of reserve accounts for property taxes, insurance, capital improvements and tenant improvements as well as collateral accounts for debt and interest rate swaps and deposits for future investments.
With our adoption of ASU 2016-18 the following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying consolidated balance sheets to the combined amounts shown on the accompanying consolidated statements of cash flows (in thousands): |
| | | | | | | | | | | |
| December 31, |
| 2017 | | 2016 | | 2015 |
Cash and cash equivalents | $ | 100,356 |
| | $ | 11,231 |
| | $ | 13,070 |
|
Restricted cash | 18,204 |
| | 13,814 |
| | 15,892 |
|
Total cash, cash equivalents and restricted cash | $ | 118,560 |
| | $ | 25,045 |
| | $ | 28,962 |
|
Revenue Recognition
Minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between rental income recognized and amount contractually due under the lease agreements are recorded as straight-line rent receivables. Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the periodtransactions in which the related expenses are incurred. Tenant reimbursements are recorded onCompany enters into a gross basis, as we are generally the primary obligor with respectcontract to purchasing goodsacquire an asset and services from third-party suppliers, have discretion in selecting the supplier, and have credit risk. We recognize lease termination fees when there is a signed termination letter agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. Rental income is reported net of amortization of inducements. Effective January 1, 2018, with the adoption of Topic 606 and corresponding amendments, the revenue recognition process will be based on a five-step model to account for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. Topic 606 requires an entity to recognize revenue to depict the transfer of 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. As a REIT, our revenue is primarily generated through leasing contracts, which are excluded from Topic 606. The impact of Topic 606 will be concentrated in the recognition of our non-lease revenue streams. For more detailed information on Topic 606 see “Recently Issued or Adopted Accounting Pronouncements” below.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Tenant Receivables and Allowance for Uncollectible Accounts
Tenant receivables and straight-line rent receivables are carried net of the allowances for uncollectible amounts. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their leases. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees and current economic conditions and other relevant factors. As of December 31, 2017 and 2015, we had $2.2 million in allowances for uncollectible accounts. As of December 31, 2016, we had $2.0 million in allowances for uncollectible accounts. During the year ended December 31, 2017, we recorded bad debt expense of $0.4 million. During the years ended December 31, 2016 and 2015, we recorded bad debt expense of $0.8 million
Investments in Real Estate
With the adoption of ASU 2017-01 in January 2017 we expect the majority of our future investments in real estate investments will be accounted for as asset acquisitions and to record the purchase price to tangible and intangible assets and liabilities based on their respective fair values. Tangible assets primarily consist of land and buildings and improvements. Additionally, the purchase price includes acquisition related expenses, above or below market leases above or below market leasehold interests, in place leases, tenant relationships, above or below market debt assumed, interest rate swaps assumed and any contingent consideration recorded when the contingency is resolved. The determination of the fair value requires us to make certain estimates and assumptions.
With the assistance of independent valuation specialists, we record the purchase price of completed investments in real estate associated with tangible and intangible assets and liabilities based on their fair values. The tangible assets (land and building and improvements) are determined based upon the value of the property as if it were to be replaced or as if it were vacant using discounted cash flow models similar to those used by market participants. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable completed acquisition property is inclusive of above or below market leases, above or below market leasehold interests, in place leases, tenant relationships, above or below market debt assumed, interest rate swaps assumed, any contingent consideration and acquisition related expenses.
The value of above or below market leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be received pursuantback to the lease over its remaining term and (ii) our estimate of the amounts that would be received using fair market rates over the remaining term of the lease including any bargain renewal periods. The amounts associated with above market leases are included in other intangibles, net in our accompanying consolidated balance sheets and amortized to rental income over the remaining lease term. The amounts allocated to below market leases are included in intangible liabilities, net in our accompanying consolidated balance sheets and amortized to rental income over the remaining lease term.
The value associated with above or below market leasehold interests is determined based upon the present value (usingseller (i.e., a discount rate which reflects the risks associated with the acquired leases) of the difference between: (i) the contractual amounts to be paid pursuant to the lease over its remaining term; and (ii) our estimate of the amounts that would be paid using fair market rates over the remaining term of the lease including any bargain renewal periods. The amounts recorded for above market leasehold interests are included in intangible liabilities, net in our accompanying consolidated balance sheets and amortized to rental expense over the remaining lease term. The amounts allocated to below market leasehold interests are included in other intangibles, net in our accompanying consolidated balance sheets and amortized to rental expense over the remaining lease term.
The total amount of other intangible assets includes in place leases and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by us in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors. The amounts recorded for in place leases and tenant relationships are included in lease intangibles in our accompanying consolidated balance sheets and will be amortized to amortization expense over the remaining lease term.
The value recorded for above or below market debt is determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage. The amounts recorded for above or below market debt are included in debt in our accompanying consolidated balance sheets and are amortized to interest expense over the remaining term of the assumed debt.
The value recorded for interest rate swaps is based upon a discounted cash flow analysis on the expected cash flows, taking into account interest rate curves and the remaining term. See derivative financial instruments below for further discussion.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The cost of operating properties includes the cost of land and buildings and related improvements. Expenditures that increase the service life of properties are capitalized and the cost of maintenance and repairs is charged to expense as incurred. The cost of buildings is depreciated on a straight-line basis over the estimated useful lives of the buildings up to 39 years and for tenant improvements, the shorter of the lease term or useful life, ranging from one month to 193 months. Furniture, fixtures and equipment is depreciated over five years. Depreciation expense of buildings and improvements for the years ended December 31, 2017, 2016 and 2015, was $172.6 million, $118.7 million and $101.2 million, respectively.
Development
We capitalize interest, direct and indirect project costs associated with the initial construction up to the time the property is substantially complete and ready for its intended use. In addition, we capitalize costs, including real estate taxes, insurance and utilities, that have been allocated to vacant space based on the square footage of the portion of the building not held available for immediate occupancy during the extended lease-up periods after construction of the building shell has been completed if costs are being incurred to ready the vacant space for its intended use. If costs and activities incurred to ready the vacant space cease, then cost capitalization is also discontinued until such activities are resumed. Once necessary work has been completed on a vacant space, project costs are no longer capitalized. We cease capitalization of all project costs on extended lease-up periods when significant activities have ceased, which does not exceed the shorter of a one-year period after the completion of the building shell or when the property attains 90% occupancy.
Real Estate Held for Sale
We consider properties as held for sale once management commits to a plan to sell the property and has determined that the sale is probable and expected to occur within one year. Upon classification as held for sale, we record the property at the lower of its carrying amount or fair value, less costs to sell, and cease depreciation and amortization. The fair value is generally based on discounted cash flow analyses, which involve management’s best estimate of market participants’ holding period, market comparables, future occupancy levels, rental rates, capitalization rates, lease-up periods and capital requirements. We did not classify any assets as held for sale for the years ended December 31, 2017, 2016 and 2015.
Recoverability of Real Estate Investments
Real estate investments are evaluated for potential impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Impairment losses are recorded when indicators of impairment are present and the carrying amountsale-leaseback transaction), control of the asset is greater thannot considered to have transferred when the sumseller-lessee has a purchase option. As a result, the Company does not recognize the underlying real estate asset but instead recognizes a financial asset in accordance with ASC 310 “Receivables”.
The Company had two and four medical office buildings that were accounted for as separate sale-lease back transactions and recorded as investments in financing receivables as of future undiscounted cash flows expected to be generated by that assetDecember 31, 2022 and 2021, respectively.
Income from Financing Receivables, net
The Company recognizes the related interest income from the financing receivable based on an imputed interest rate over the remaining expected holding period. We would recognize an impairment loss when the carrying amount is not recoverable to the extent the carrying amount exceeds the fair valueterms of the property. The fair value is generally based on discountedapplicable lease. As a result, the interest recognized from the financing receivable will not equal the cash flow analyses. In performingpayments from the analysis we consider executed sales agreements or management’s best estimatelease. Acquisition costs incurred in connection with entering into the financing receivable are treated as loan origination fees. These costs are classified with the financing receivable and are included in the balance of market comparables, future occupancy levels, rental rates, capitalization rates, lease-up periods and capital requirements. For the years ended December 31, 2017, 2016 and 2015, we recorded impairment chargesnet investment. Amortization of $13.9 million, $3.1 million and $2.6 million, respectively.these amounts will be recognized as a reduction to Interest income from financing receivable, net over the life of the lease.
Real Estate Notes ReceivableShare-Based Compensation
We evaluateThe Company has various employee and director share-based awards outstanding. These awards include non-vested common stock and options to purchase common stock granted to employees pursuant to the carrying values of real estate notes receivable on an individual basis. Management periodically evaluatesCompany's Amended and Restated 2006 Incentive Plan, dated April 29, 2021 ("Incentive Plan"), which replaced the realizability of future cash flows from real estate notes receivable when events or circumstances, such asCompany's 2015 Stock Incentive Plan (the "Legacy HR Stock Incentive Plan") following the non-receipt of principal and interest payments and/or significant deterioration ofMerger. References to the financial condition ofIncentive Plan include issuances under the borrower, indicate that the carrying amount of the real estate notes receivable may not be recoverable. An impairment loss is recognized in current period earnings and is calculated as the difference between the carrying amounts of the real estate notes receivableIncentive Plan and the discounted cash flows expectedLegacy HR Stock Incentive Plan. Legacy HR's 2000 Employee Stock Purchase Plan (the "Legacy HR Employee Stock Purchase Plan") was terminated during 2022 and all outstanding options will expire by 2024. No new options will be issued under this plan. The Company recognizes share-based payments to be received, or if foreclosure is probable,employees and directors in the Consolidated Statements of Income on a straight-line basis over the requisite service period based on the fair value of the collateral securingaward on the real estate notes receivable. Formeasurement date. The Company recognizes the years ended December 31, 2017, 2016impact of forfeitures as they occur. See Note 13 for details on the Company’s share-based awards.
Accumulated Other Comprehensive Income (Loss)
Certain items must be included in comprehensive income, including items such as foreign currency translation adjustments, minimum pension liability adjustments, changes in the fair value of derivative instruments and 2015, there were no impairment losses.
Unconsolidated Joint Ventures
We account for our investments in unconsolidated joint ventures using the equity method of accounting because we have the ability to exercise significant influence, but not control, over the financial and operational policy decisions of the investments. Using the equity method of accounting, the initial investment is recognized at cost and subsequently adjusted for our share of the net incomeunrealized gains or loss and any distributions from the joint venture.losses on available-for-sale securities. As of December 31, 2017, we2022, the Company’s accumulated other comprehensive income (loss) consists of the loss for changes in the fair value of active derivatives designated as cash flow hedges and the loss on the unamortized settlement of forward starting swaps and treasury hedges. See Note 11 for more details on the Company's derivative financial instruments.
Revenue from Contracts with Customers (Topic 606)
The Company recognizes certain revenue under the core principle of Topic 606. This requires an entity to recognize revenue to depict the transfer of 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. Lease revenue is not within the scope of Topic 606. To achieve the core principle, the Company applies the five step model specified in the guidance.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Revenue that is accounted for under Topic 606 is segregated on the Company’s Consolidated Statements of Income in the Other operating line item. This line item includes parking income, management fee income and other miscellaneous income. Below is a detail of the amounts by category:
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
Dollars in thousands | 2022 | 2021 | 2020 |
Type of Revenue | | | |
Parking income | $ | 8,513 | | $ | 7,859 | | $ | 6,720 | |
| | | |
Management fee income | 4,668 | | 2,049 | | 343 | |
Miscellaneous | 525 | | 383 | | 304 | |
| $ | 13,706 | | $ | 10,291 | | $ | 7,367 | |
The Company’s three major types of revenue that are accounted for under Topic 606 that are listed above are all accounted for as the performance obligation is satisfied. The performance obligations that are identified for each of these items are satisfied over time and the Company recognizes revenue monthly based on this principle. In most cases, the revenue is due and payable on a monthly basis. The Company had a 50% interest in one such investment with a carrying value, maximum exposure to risk,receivable balance of $68.6$1.5 million which is recorded in investment in unconsolidated joint venture in the accompanying consolidated balance sheets. We record our share of net income (loss) in income (loss) from unconsolidated joint venture in the accompanying consolidated statements of operations. For the year ended December 31, 2017, we recognized income of $0.8 million. Our unconsolidated joint venture was acquired in 2017 and as such, there was no income (loss) or distributions$1.4 million for the years ended December 31, 20162022 and 2021, respectively.
Management fee income includes property management services provided to third parties and certain of the properties in the Company's unconsolidated joint ventures and is generally calculated, accrued and billed monthly based on a percentage of cash collections of tenant receivables for the month or 2015.a stated amount per square foot. Management fee income also includes amounts paid to the Company for its asset management services for certain of its unconsolidated joint ventures. Internal management fee income, where the Company manages its owned properties, is eliminated in consolidation.
Rental Income
Rental income related to non-cancelable operating leases is recognized as earned over the life of the lease agreements on a straight-line basis. The Company's lease agreements generally include provisions for stated annual increases or increases based on a Consumer Price Index ("CPI"). Rental income from properties under multi-tenant office lease arrangements and rental income from properties with single-tenant lease arrangements are included in rental income on the Company's Consolidated Statements of Income. For lessors, the new standard requires a lessor to classify leases as either sales-type, direct-financing or operating. A lease will be treated as a sale if it is considered to transfer control of the underlying asset to the lessee. A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control. Otherwise, the lease is treated as an operating lease.
Nonlease components, such as common area maintenance, are generally accounted for under Topic 606 and separated from the lease payments. However, the Company elected the lessor practical expedient allowing the Company to not separate these components when certain conditions are met. The combined component is accounted for under Accounting Standards Codification, Topic 842.
The components of rental income are as follows:
| | | | | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, | |
Dollars in thousands | 2022 | 2021 | 2020 | |
Property operating income | $ | 883,953 | | $ | 514,533 | | $ | 488,527 | | |
Straight-line rent | 23,498 | | 5,801 | | 3,735 | | |
Rental income | $ | 907,451 | | $ | 520,334 | | $ | 492,262 | | |
Federal Income Taxes
The Company believes it has qualified to be taxed as a REIT and intends at all times to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code. The Company must distribute at least 90% per annum of its real estate investment trust taxable income to its stockholders and meet other requirements to continue to qualify as a real estate investment trust. As a REIT, the Company is generally not subject to federal income tax on net income it distributes to its stockholders, but may be subject to certain state and local taxes and fees. See Note 16 for further discussion.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, – (Continued)cont.
If HR fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal income taxes on its taxable income and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year during which the qualification is lost unless the IRS grants it relief under certain statutory provisions. Such event could have a material adverse effect on its business, financial condition, results of operations and net cash available for dividend distributions to its stockholders.
HR conducts substantially all of its operations through the OP. As a partnership, the OP generally is not liable for federal income taxes. The income and loss from the operations of January 1, 2017, we adopted ASU 2016-15, as described below in “Recently Issued or Adopted Accounting Pronouncements”, which clarifies the guidance on the classification of certain cash receipts and paymentsOP is included in the statementtax returns of cash flows to reduce diversityits partners, including HR, who are responsible for reporting their allocable share of the partnership income and loss. Accordingly no provision for income tax has been made in practice. As part of this adoption we have elected the cumulative earnings approach for the treatment and classification of our distributions received from our unconsolidated joint venture. As such, these distributions received from our unconsolidated joint venture will be included as a component to net cash provided by operating activities in our accompanying consolidated statements of cash flows.financial statements.
Derivative Financial Instruments
We are exposedThe Company classifies interest and penalties related to the effect of interest rate changesuncertain tax positions, if any, in the normal course of business. We seek to mitigate these risks by following established risk management policies and procedures which include the occasional use of derivatives. Our primary strategy in entering into derivative contracts is to add stability to interest expense and to manage our exposure to interest rate movements. We utilize derivative instruments, including interest rate swaps, to effectively convert a portion of our variable rate debt to fixed rate debt. We do not enter into derivative instruments for speculative purposes. To qualify for hedge accounting, derivative financial instruments used for risk management purposes must effectively reduce the risk exposure that they are designed to hedge. In addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions, must be, and are expected to remain, probable of occurring in accordance with our related assertions.
Derivatives are recognized as either assets or liabilities in our accompanying consolidated balance sheets and are measured at fair value. Changes in fair value of derivative financial instruments that are not designated in hedging relationships or that do not meet the criteria of hedge accounting are includedConsolidated Financial Statements as a component of interestgeneral and administrative expenses. No such amounts were recognized during the three years ended December 31, 2022.
Federal tax returns for the years 2019, 2020, 2021 and 2022 are currently subject to examination by taxing authorities.
State Income Taxes
The Company must pay certain state income taxes and the provisions for such taxes are generally included in general and administrative expense on the Company’s Consolidated Statements of Income. See Note 16 for further discussion.
Sales and Use Taxes
The Company must pay sales and use taxes to certain state tax authorities based on rents collected from tenants in our accompanying consolidated statementsproperties located in those states. The Company is generally reimbursed for these taxes by the tenant. The Company accounts for the payments to the taxing authority and subsequent reimbursement from the tenant on a net basis in rental income in the Company’s Consolidated Statements of operations. Changes inIncome.
Assets Held for Sale
Long-lived assets held for sale are reported at the lower of their carrying amount or their fair value less estimated cost to sell. Further, depreciation of derivative financial instruments designatedthese assets ceases at the time the assets are classified as held for sale. Losses resulting from the sale of such properties are characterized as impairment losses in qualifying cash flow hedging relationshipsthe Consolidated Statements of Income. See Note 6 for more detail on assets held for sale.
Earnings per Share
The Company uses the two-class method of computing net earnings per common share. Earnings per common share is calculated by considering share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents as participating securities. Undistributed earnings (excess net income over dividend payments) are allocated on a pro rata basis to common shareholders and restricted shareholders. Undistributed losses (dividends in excess of net income) do not get allocated to restricted stockholders as they do not have the contractual obligation to share in losses. The amount of undistributed losses that applies to the restricted stockholders is allocated to the common stockholders.
Basic earnings per common share is calculated using weighted average shares outstanding less issued and outstanding non-vested shares of common stock. Diluted earnings per common share is calculated using weighted average shares outstanding plus the dilutive effect of the outstanding stock options from the Legacy HR Employee Stock Purchase Plan using the treasury stock method and the average stock price during the period. Additionally, net income (loss) allocated to OP units has been included in the numerator and common stock related to the effective portion areredeemable OP units have been included in other comprehensive gain (loss)the denominator for the purpose of computing diluted earnings per share. See Note 14 for the calculations of earnings per share.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Redeemable Non-Controlling Interests
The Company accounts for redeemable equity securities in accordance with Accounting Standards Update 2009-04 Liabilities (Topic 480): Accounting for Redeemable Equity Instruments, which requires that equity securities redeemable at the option of the holder, not solely within our control, be classified outside permanent stockholders’ equity. The Company classifies redeemable equity securities as redeemable non-controlling interests in the accompanying consolidated statementsConsolidated Balance Sheet. Accordingly, the Company records the carrying amount at the greater of comprehensivethe initial carrying amount (increased or decreased for the non-controlling interest’s share of net income (loss), whereas changes in fairor loss and distributions) or the redemption value. We measure the redemption value relatedand record an adjustment to the ineffective portion are includedcarrying value of the equity securities as a component of interest expenseredeemable non-controlling interest. As of December 31, 2022, the Company had redeemable non-controlling interests of $2.0 million.
Investments in our accompanying consolidated statementsFinancing Receivables, Net
In accordance with Accounting Standards Codification ("ASC") 842, for transactions in which the Company enters into a contract to acquire an asset and leases it back to the seller (i.e., a sale-leaseback transaction), control of operations.the asset is not considered to have transferred when the seller-lessee has a purchase option. As a result, the Company does not recognize the underlying real estate asset but instead recognizes a financial asset in accordance with ASC 310 “Receivables”.
The valuationCompany had two and four medical office buildings that were accounted for as separate sale-lease back transactions and recorded as investments in financing receivables as of our derivative financial instruments are determined withDecember 31, 2022 and 2021, respectively.
Income from Financing Receivables, net
The Company recognizes the assistance ofrelated interest income from the financing receivable based on an independent valuation specialist using a proprietary model that utilizes widely accepted valuation techniques, including discounted cash flow analysis onimputed interest rate over the expected cash flows of each derivative and observable inputs. The proprietary model reflects the contractual terms of the derivatives, includingapplicable lease. As a result, the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates and implied volatilities. The fair values of interest rate swaps are determined usingrecognized from the market standard methodology of nettingfinancing receivable will not equal the discounted future fixed cash payments andfrom the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risklease. Acquisition costs incurred in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.
In addition, we formally document all relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategy for undertaking various hedge transactions prior to or contemporaneousconnection with entering into the derivative financial instrument. We also assess, at inception of the hedging relationship and on a quarterly basis, whether the derivative financial instrumentsfinancing receivable are highly effective in offsetting the designated risks associatedtreated as loan origination fees. These costs are classified with the respective hedged items.
Fair Value Measurements
Fair value is a market-based measurementfinancing receivable and is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate the fair value. Financial assets and liabilities are measured using inputs from three levels of the fair value hierarchy, as follows:
Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Level 3 — Unobservable inputs, only used to the extent that observable inputs are not available, reflect our assumptions about the pricing of an asset or liability.
We use fair value measurements to record fair value of certain assets and to estimate fair value of financial instruments not recorded at fair value but required to be disclosed at fair value.
Receivables and Other Assets
Deferred financing costs include amounts paid to lenders and others to obtain financing and are amortized to interest expense on a straight-line basis over the term of the unsecured revolving credit facility which approximates the effective interest method. Deferred leasing costs are amounts incurred in executing a lease, both for external broker and marketing costs, plus a portion of internal leasing related costs. Deferred leasing costs are amortized on a straight-line basis method over the term of the applicable lease. Deferred leasing costs are included in operating activities in our accompanying consolidated statementsthe balance of cash flows.the net investment. Amortization of these amounts will be recognized as a reduction to Interest income from financing receivable, net over the life of the lease.
Share-Based Compensation
We calculateThe Company has various employee and director share-based awards outstanding. These awards include non-vested common stock and options to purchase common stock granted to employees pursuant to the Company's Amended and Restated 2006 Incentive Plan, dated April 29, 2021 ("Incentive Plan"), which replaced the Company's 2015 Stock Incentive Plan (the "Legacy HR Stock Incentive Plan") following the Merger. References to the Incentive Plan include issuances under the Incentive Plan and the Legacy HR Stock Incentive Plan. Legacy HR's 2000 Employee Stock Purchase Plan (the "Legacy HR Employee Stock Purchase Plan") was terminated during 2022 and all outstanding options will expire by 2024. No new options will be issued under this plan. The Company recognizes share-based payments to employees and directors in the Consolidated Statements of Income on a straight-line basis over the requisite service period based on the fair value of share-based awardsthe award on the datemeasurement date. The Company recognizes the impact of grant. Restricted common stock is valued basedforfeitures as they occur. See Note 13 for details on the closing priceCompany’s share-based awards.
Accumulated Other Comprehensive Income (Loss)
Certain items must be included in comprehensive income, including items such as foreign currency translation adjustments, minimum pension liability adjustments, changes in the fair value of our common stockderivative instruments and unrealized gains or losses on available-for-sale securities. As of December 31, 2022, the Company’s accumulated other comprehensive income (loss) consists of the loss for changes in the fair value of active derivatives designated as cash flow hedges and the loss on the NYSE. We amortize the share-based compensation expense over the period that the awards are expected to vest, netunamortized settlement of estimated forfeitures.forward starting swaps and treasury hedges. See Note 10 - Stockholders’ Equity and Partners’ Capital11 for further discussion.more details on the Company's derivative financial instruments.
Noncontrolling InterestsRevenue from Contracts with Customers (Topic 606)
HTA’s net income attributableThe Company recognizes certain revenue under the core principle of Topic 606. This requires an entity to noncontrolling interestsrecognize revenue to depict the transfer of 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. Lease revenue is not within the scope of Topic 606. To achieve the core principle, the Company applies the five step model specified in the accompanying consolidated statementsguidance.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Revenue that is accounted for under Topic 606 is segregated on the Company’s Consolidated Statements of operations relate to both noncontrolling interest reflected within equity and redeemable noncontrolling interests reflected outside of equityIncome in the accompanying consolidated balance sheets. OP Units, including LTIP awards,Other operating line item. This line item includes parking income, management fee income and other miscellaneous income. Below is a detail of the amounts by category:
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
Dollars in thousands | 2022 | 2021 | 2020 |
Type of Revenue | | | |
Parking income | $ | 8,513 | | $ | 7,859 | | $ | 6,720 | |
| | | |
Management fee income | 4,668 | | 2,049 | | 343 | |
Miscellaneous | 525 | | 383 | | 304 | |
| $ | 13,706 | | $ | 10,291 | | $ | 7,367 | |
The Company’s three major types of revenue that are accounted for under Topic 606 that are listed above are all accounted for as partners’ capitalthe performance obligation is satisfied. The performance obligations that are identified for each of these items are satisfied over time and the Company recognizes revenue monthly based on this principle. In most cases, the revenue is due and payable on a monthly basis. The Company had a receivable balance of $1.5 million and $1.4 million for the years ended December 31, 2022 and 2021, respectively.
Management fee income includes property management services provided to third parties and certain of the properties in HTALP’s accompanying consolidated balance sheetsthe Company's unconsolidated joint ventures and as noncontrolling interest reflected within equity in HTA’s accompanying consolidated balance sheets.
Redeemable noncontrolling interests relateis generally calculated, accrued and billed monthly based on a percentage of cash collections of tenant receivables for the month or a stated amount per square foot. Management fee income also includes amounts paid to the interestsCompany for its asset management services for certain of its unconsolidated joint ventures. Internal management fee income, where the Company manages its owned properties, is eliminated in our consolidated entities that are not wholly owned by us. As these redeemable noncontrolling interests provide for redemption features not solely within our control, we classify such interests outside of permanent equity or partners’ capital. Accordingly, we recordconsolidation.
Rental Income
Rental income related to non-cancelable operating leases is recognized as earned over the carrying amount at the greaterlife of the initial carrying amount (increasedlease agreements on a straight-line basis. The Company's lease agreements generally include provisions for stated annual increases or decreasedincreases based on a Consumer Price Index ("CPI"). Rental income from properties under multi-tenant office lease arrangements and rental income from properties with single-tenant lease arrangements are included in rental income on the Company's Consolidated Statements of Income. For lessors, the new standard requires a lessor to classify leases as either sales-type, direct-financing or operating. A lease will be treated as a sale if it is considered to transfer control of the underlying asset to the lessee. A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control. Otherwise, the lease is treated as an operating lease.
Nonlease components, such as common area maintenance, are generally accounted for under Topic 606 and separated from the noncontrolling interest’s sharelease payments. However, the Company elected the lessor practical expedient allowing the Company to not separate these components when certain conditions are met. The combined component is accounted for under Accounting Standards Codification, Topic 842.
The components of netrental income or loss and distributions) or the redemption value.are as follows:
| | | | | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, | |
Dollars in thousands | 2022 | 2021 | 2020 | |
Property operating income | $ | 883,953 | | $ | 514,533 | | $ | 488,527 | | |
Straight-line rent | 23,498 | | 5,801 | | 3,735 | | |
Rental income | $ | 907,451 | | $ | 520,334 | | $ | 492,262 | | |
Federal Income Taxes
HTAThe Company believes that it has qualified to be taxed as a REIT under the provisions of the Code, beginning with the taxable year ending December 31, 2007 and it intends at all times to continue to qualify to be taxed as a REIT. To continue to qualify as a REIT for federalunder Sections 856 through 860 of the Internal Revenue Code. The Company must distribute at least 90% per annum of its real estate investment trust taxable income tax purposes, HTA must meet certain organizational and operational requirements, including a requirement to pay dividend distributions to its stockholders of at least 90% of its annual taxable income.and meet other requirements to continue to qualify as a real estate investment trust. As a REIT, HTAthe Company is generally not subject to federal income tax on net income that it distributes to its stockholders, but it may be subject to certain state orand local taxes on its income and property.fees. See Note 16 for further discussion.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
If HTAHR fails to qualify as a REIT in any taxable year, it will then be subject to U.S. federal income taxes on ourits taxable income and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year during which the qualification is lost unless the IRS grants it relief under certain statutory provisions. Such an event could have a material adverse effect on its business, financial condition, results of operations and net cash available for dividend distributions to its stockholders.
As discussed in Note 1 - Organization and Description of Business, HTAHR conducts substantially all of its operations through HTALP.the OP. As a partnership, HTALPthe OP generally is not liable for federal income taxes. The income and loss from the operations of HTALPthe OP is included in the tax returns of its partners, including HTA,HR, who are responsible for reporting their allocable share of the partnership income and loss. Accordingly no provision for income taxestax has been made onin the accompanying consolidated financial statements.
WeThe Company classifies interest and penalties related to uncertain tax positions, if any, in the Consolidated Financial Statements as a component of general and administrative expenses. No such amounts were recognized during the three years ended December 31, 2022.
Federal tax returns for the years 2019, 2020, 2021 and 2022 are currently subject to examination by taxing authorities.
State Income Taxes
The Company must pay certain state income taxes and the provisions for such taxes are generally included in general and administrative expense on the Company’s Consolidated Statements of Income. See Note 16 for further discussion.
Sales and Use Taxes
The Company must pay sales and use taxes to certain state tax authorities based on rents collected from tenants in properties located in those states. The Company is generally reimbursed for these taxes by the tenant. The Company accounts for the payments to the taxing authority and subsequent reimbursement from the tenant on a net basis in rental income in the Company’s Consolidated Statements of Income.
Assets Held for Sale
Long-lived assets held for sale are reported at the lower of their carrying amount or their fair value less estimated cost to sell. Further, depreciation of these assets ceases at the time the assets are classified as held for sale. Losses resulting from the sale of such properties are characterized as impairment losses in the Consolidated Statements of Income. See Note 6 for more detail on assets held for sale.
Earnings per Share
The Company uses the two-class method of computing net earnings per common share. Earnings per common share is calculated by considering share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents as participating securities. Undistributed earnings (excess net income over dividend payments) are allocated on a pro rata basis to common shareholders and restricted shareholders. Undistributed losses (dividends in excess of net income) do not get allocated to restricted stockholders as they do not have any liabilitythe contractual obligation to share in losses. The amount of undistributed losses that applies to the restricted stockholders is allocated to the common stockholders.
Basic earnings per common share is calculated using weighted average shares outstanding less issued and outstanding non-vested shares of common stock. Diluted earnings per common share is calculated using weighted average shares outstanding plus the dilutive effect of the outstanding stock options from the Legacy HR Employee Stock Purchase Plan using the treasury stock method and the average stock price during the period. Additionally, net income (loss) allocated to OP units has been included in the numerator and common stock related to redeemable OP units have been included in the denominator for uncertain tax positionsthe purpose of computing diluted earnings per share. See Note 14 for the calculations of earnings per share.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Redeemable Non-Controlling Interests
The Company accounts for redeemable equity securities in accordance with Accounting Standards Update 2009-04 Liabilities (Topic 480): Accounting for Redeemable Equity Instruments, which requires that we believe shouldequity securities redeemable at the option of the holder, not solely within our control, be recognizedclassified outside permanent stockholders’ equity. The Company classifies redeemable equity securities as redeemable non-controlling interests in ourthe accompanying consolidated financial statements. The tax basis exceededConsolidated Balance Sheet. Accordingly, the Company records the carrying amount at the greater of the initial carrying amount (increased or decreased for the non-controlling interest’s share of net income or loss and distributions) or the redemption value. We measure the redemption value and record an adjustment to the carrying value of the equity securities as a component of redeemable non-controlling interest. As of December 31, 2022, the Company had redeemable non-controlling interests of $2.0 million.
Investments in Financing Receivables, Net
In accordance with Accounting Standards Codification ("ASC") 842, for transactions in which the Company enters into a contract to acquire an asset and leases it back to the seller (i.e., a sale-leaseback transaction), control of the asset is not considered to have transferred when the seller-lessee has a purchase option. As a result, the Company does not recognize the underlying real estate assets reportedasset but instead recognizes a financial asset in our accompanying consolidated balance sheet by approximately $404.1 millionaccordance with ASC 310 “Receivables”.
The Company had two and four medical office buildings that were accounted for as separate sale-lease back transactions and recorded as investments in financing receivables as of December 31, 2017.2022 and 2021, respectively.
Income from Financing Receivables, net
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Concentration of Credit Risk
We maintain the majority of ourapplicable lease. As a result, the interest recognized from the financing receivable will not equal the cash payments from the lease. Acquisition costs incurred in connection with entering into the financing receivable are treated as loan origination fees. These costs are classified with the financing receivable and cash equivalents at major financial institutionsare included in the U.S. and deposits with these financial institutions may exceedbalance of the amount of insurance provided on such deposits; however, we regularly monitor the financial stabilitynet investment. Amortization of these financial institutionsamounts will be recognized as a reduction to Interest income from financing receivable, net over the life of the lease.
Real Estate Notes Receivable
Real estate notes receivable consists of mezzanine and believe weother real estate loans, which are not currently exposedgenerally collateralized by a pledge of the borrower’s ownership interest in the respective real estate owner, a mortgage or deed of trust, and/or corporate guarantees. Real estate notes receivable are intended to any significant default risk with respect to these deposits.be held-to-maturity and are recorded at amortized cost, net of unamortized loan origination costs and fees and allowance for credit losses. As of December 31, 2017,2022, real estate notes receivable, net, which are included in Other assets on the Company's Consolidated Balance Sheets totaled $99.6 million.
| | | | | | | | | | | | | | | | | |
(dollars in thousands) | ORIGINATION | MATURITY | STATED INTEREST RATE | MAXIMUM LOAN COMMITMENT | OUTSTANDING as of DECEMBER 31, 2022 |
Mezzanine loans | | | | | |
Texas | 6/24/2021 | 6/24/2024 | 8 | % | $ | 54,119 | | $ | 54,119 | |
North Carolina | 12/22/2021 | 12/22/2024 | 8 | % | 6,000 | | 6,000 | |
| | | | 60,119 | | 60,119 | |
Mortgage loan | | | | | |
Texas | 6/30/2021 | 12/31/2023 | 7 | % | $ | 31,150 | | $ | 31,150 | |
Florida | 5/17/2022 | 2/27/2026 | 6 | % | 65,000 | | 13,062 | |
| | | | $ | 96,150 | | $ | 44,212 | |
Accrued interest | | | | | 758 | |
Fair-value discount and fees | | | | | (5,446) | |
| | | | | $ | 99,643 | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Pursuant to Topic 326 - Financial Instruments - Credit Losses, we had cash balancesadopted a policy to evaluate current expected credit losses at the inception of $56.2 million in excessloans qualifying for treatment under Topic 326. We utilize a probability of Federal Deposit Insurance Corporation insured limits.
Segment Disclosure
Wedefault method approach for estimating current expected credit losses and have determined that the current risk of credit loss is remote. Accordingly, we have one reportable segment, with activities related to investing in healthcare real estate assets. Our investments in healthcare real estate assets are geographically diversified and our chief operating decision maker evaluates operating performance on an individual asset level. As eachrecorded no reserve for credit loss as of our assets has similar economic characteristics, long-term financial performance, tenants, and products and services, our assets have been aggregated into one reportable segment.December 31, 2022.
Recently Issued or AdoptedNew Accounting Pronouncements
Accounting Standards Update No. 2020-04 and 2022-06
On March 12, 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR and Term SOFR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation.
In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 which was issued to defer the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform to December 31, 2024. ASU 2022-06 is effective immediately for all companies. ASU 2022-06 will have no impact on the Company’s consolidated financial statements for the year ended December 31, 2022, as the Company no longer has any LIBOR-based debt.
Note 2. Merger with HTA
On July 20, 2022 (the “Closing Date”), pursuant to the Agreement and Plan of Merger dated as of February 28, 2022 (the “Merger Agreement”), by and among Healthcare Realty Trust Incorporated, a Maryland corporation (now known as HRTI, LLC, a Maryland limited liability company) (“Legacy HR”), Healthcare Trust of America, Inc., a Maryland corporation (now known as Healthcare Realty Trust Incorporated) (“Legacy HTA”), the OP, and HR Acquisition 2, LLC, a Maryland limited liability company (“Merger Sub”), Merger Sub merged with and into Legacy HR, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA (the “Merger”).
On the Closing Date, each outstanding share of Legacy HR common stock, $0.01 par value per share (the “Legacy HR Common Stock”), was cancelled and converted into the right to receive one share of Legacy HTA class A common stock at a fixed ratio of 1.00 to 1.00. Per the terms of the Merger Agreement, Legacy HTA declared a special dividend of $4.82 (the “Special Dividend”) for each outstanding share of Legacy HTA class A common stock, $0.01 par value per share ( the “Legacy HTA Common Stock”), and the OP declared a corresponding distribution to the holders of its partnership units, payable to Legacy HTA stockholders and OP unitholders of record on July 19, 2022.
Immediately following table providesthe Merger, Legacy HR converted to a brief descriptionMaryland limited liability company and changed its name to HRTI, LLC and Legacy HTA changed its name to “Healthcare Realty Trust Incorporated”. In addition, the equity interests of recently adoptedLegacy HR were contributed by Legacy HTA by means of a contribution and assignment agreement to the OP such that Legacy HR became a wholly-owned subsidiary of the OP. The Company operates under the name “Healthcare Realty Trust Incorporated” and its shares of class A common stock, $0.01 par value per share, trade on the New York Stock Exchange (the “NYSE”) under the ticker symbol “HR”.
For accounting pronouncements:purposes, the Merger was treated as a “reverse acquisition” in which Legacy HTA was considered the legal acquirer and Legacy HR was considered the accounting acquirer based on various factors, including, but not limited to: (i) the composition of the board of directors of the consolidated Company, (ii) the composition of senior management of the consolidated Company, and (iii) the premium transferred to the Legacy HTA stockholders. As a result, the historical financial statements of the accounting acquirer, Legacy HR, became the historical financial statements of the Company.
The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, the assets acquired, the liabilities assumed and non-controlling interests, if any, to be recognized at their acquisition date fair value.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
The implied consideration transferred on the Closing Date is as follows:
|
| | | | | | |
Accounting PronouncementDollars in thousands, except for per share data | | Description | | Effective Date | | Effect on financial statements |
ASU 2017-01
Business Combinations:
Clarifying the DefinitionShares of a Business
(Issued January 2017)
| | ASU 2017-01 clarifies the definition of a business by adding guidance to assist entities evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including, but not limited to, acquisitions, disposals, goodwill and consolidation. | | ASU 2017-01 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. | | We adopted ASU 2017-01Legacy HTA Common Stock outstanding as of January 1, 2017 on a prospective basis. We expect that the majorityJuly 20, 2022 as adjusted(a) | 228,520,990 | |
Exchange ratio | 1.00 | |
Implied shares of our future investments in real estate will be accounted for as asset acquisitions under ASU 2017-01. The adoption of ASU 2017-01 will impact how we account for acquisition-related expenses and contingent consideration, which may result in lower acquisition-related expenses and eliminate fair value adjustments related to future contingent consideration arrangements.Legacy HR Common Stock issued | 228,520,990 | |
ASU 2016-15
StatementAdjusted closing price of Cash Flows: ClassificationLegacy HR Common Stock on July 20, 2022(b)
| $ | 24.37 | |
Value of Certain Cash Receipts and Cash Payments
(Issued August 2016)implied Legacy HR Common Stock issued | $ | ASU 2016-15 clarifies the guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions; and (viii) separately identifiable cash flows and application of the predominance principle.5,569,057 | | ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted.
| | We adopted ASU 2016-15 as of January 1, 2017 and applied the standard retrospectively for all periods presented. Based on our final assessment we have determined that the presentation of debt prepayments or debt extinguishment costs and distributions from equity method investments are directly applicable to us. Debt prepayments or debt extinguishment costs are currently classified as a component to net cash used by financing activities in our accompanying statements of cash flows and will continue to be recorded as such. As part of the adoption, we have elected the cumulative earnings approach for the treatment and classification of distributions received from unconsolidated joint venture. These distributions will be reported as a component to net cash provided by operating activities in our accompanying consolidated statements of cash flows. There will be no reclassifications or material impacts on our consolidated financial statements as a result of this adoption. |
ASU 2016-18
StatementFair value of Cash Flows: Restricted Cash
(Issued November 2016)Legacy HTA restricted stock awards attributable to pre-Merger services(c)
| 7,406 | ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
|
Consideration transferred | $ | ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. 5,576,463 | | We adopted ASU 2016-18 as of January 1, 2017 and applied the standard retrospectively for all periods presented. Restricted cash and escrow deposits consist primarily of cash escrowed for real estate acquisitions, real estate taxes, property insurance and capital improvements. We will provide a reconciliation of the changes in cash, cash equivalents and restricted cash within our accompanying consolidated balance sheets to the consolidated statement of cash flows. We will also provide a reclassification disclosure for the movement of restricted cash out of cash flows from investing activities. |
(a) Includes 228,520,990 shares of Legacy HTA Common Stock as of July 20, 2022. The number of shares of HTA Common Stock presented above was based on 228,857,717 total shares of Legacy HTA Common Stock outstanding as of the Closing Date, less 192 HTA fractional shares that were paid in cash less 336,535 shares of Legacy HTA restricted stock (net of 215,764 shares of Legacy HTA restricted stock withheld). For accounting purposes, these shares and units were converted to Legacy HR Common Stock, at an exchange ratio of 1.00 per share of HTA Common Stock.
(b) For accounting purposes, the fair value of Legacy HR Common Stock issued to former holders of Legacy HTA Common Stock was based on the per share closing price of Legacy HR Common Stock on July 20, 2022.
(c) Represents the fair value of Legacy HTA restricted shares which fully vested prior to the closing of the Merger or became fully vested as a result of the closing of the Merger and which are attributable to pre-combination services.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, – (Continued)cont.
Preliminary Purchase Price Allocation
The following table provides a brief descriptionsummarizes the preliminary estimated fair values of recently issuedthe assets acquired and liabilities assumed at the Closing Date:
| | | | | | | | | | | |
Dollars in thousands | PRELIMINARY AMOUNTS RECOGNIZED ON THE CLOSING DATE | MEASUREMENT PERIOD ADJUSTMENTS | PRELIMINARY AMOUNTS RECOGNIZED ON THE CLOSING DATE (as adjusted) |
ASSETS | | | |
Real estate investments | | | |
Land | $ | 985,926 | | $ | 6,775 | | $ | 992,701 | |
Buildings and improvements | 6,960,418 | | (83,662) | | 6,876,756 | |
Lease intangible assets(a) | 831,920 | | 1,230 | | 833,150 | |
Financing lease right-of-use assets | 9,874 | | 3,146 | | 13,020 | |
Construction in progress | 10,071 | | (6,744) | | 3,327 | |
Land held for development | 46,538 | | — | | 46,538 | |
Total real estate investments | $ | 8,844,747 | | $ | (79,255) | | $ | 8,765,492 | |
Assets held for sale, net | 707,442 | | (7,946) | | 699,496 | |
Investments in unconsolidated joint ventures | 67,892 | | — | | 67,892 | |
Cash and cash equivalents | 26,034 | | 11,403 | | 37,437 | |
Restricted cash | 1,123,647 | | (1,247) | | 1,122,400 | |
Operating lease right-of-use assets | 198,261 | | 17,786 | | 216,047 | |
Other assets, net (b) (c) | 209,163 | | (3,840) | | 205,323 | |
Total assets acquired | $ | 11,177,186 | | $ | (63,099) | | $ | 11,114,087 | |
| | | |
LIABILITIES | | | |
Notes and bonds payable | $ | 3,991,300 | | $ | — | | $ | 3,991,300 | |
Accounts payable and accrued liabilities | 1,227,570 | | 17,374 | | 1,244,944 | |
Liabilities of assets held for sale | 28,677 | | (3,939) | | 24,738 | |
Operating lease liabilities | 173,948 | | 10,173 | | 184,121 | |
Financing lease liabilities | 10,720 | | (855) | | 9,865 | |
Other liabilities | 203,210 | | (11,541) | | 191,669 | |
Total liabilities assumed | $ | 5,635,425 | | $ | 11,212 | | $ | 5,646,637 | |
Net identifiable assets acquired | $ | 5,541,761 | | $ | (74,311) | | $ | 5,467,450 | |
Non-controlling interest | $ | 110,702 | | $ | — | | $ | 110,702 | |
Goodwill | $ | 145,404 | | $ | 74,311 | | $ | 219,715 | |
(a) The weighted average amortization period for the acquired lease intangible assets is approximately 6 years. |
(b) Includes $15.9 million of contractual accounts receivable, which approximates fair value. |
(c) Includes $78.7 million of gross contractual real estate notes receivable, the fair value of which was $74.8 million, and the Company preliminarily expects to collect substantially all of the real estate notes receivable proceeds as of the Closing Date. |
The measurement period adjustments recorded during the year ended December 31, 2022 primarily resulted from updated valuations related to the Company’s real estate assets and liabilities and additional information obtained by the Company related to the properties acquired in the Merger and their respective tenants, and resulted in an increase to goodwill of $74.3 million. As of December 31, 2022, the Company had not finalized the determination of fair value of certain tangible and intangible assets acquired and liabilities assumed, including, but not limited to real estate assets and liabilities, notes receivables and goodwill. As such, the assessment of fair value of assets acquired and liabilities assumed is preliminary and was based on information that was available at the time the Consolidated Financial Statements were prepared. The finalization of the purchase accounting pronouncements:assessment could result in material changes in the Company’s determination of the fair value of assets acquired and liabilities assumed, which will be recorded as measurement period adjustments in the period in which they are identified, up to one year from the Closing Date.
70
|
| | | | | | |
Accounting Pronouncement | | Description | | Effective Date | | Effect on financial statements |
Topic 606; collectively, ASU 2014-09, 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-05, ASU 2017-10, ASU 2017-13 and ASU 2017-14
Revenue from Contracts with Customers
(Issued May 2014, August 2015, March 2016, April 2016, May 2016, December 2016, February 2017, May 2017, September 2017 and November 2017)
| | In May 2014, the FASB issued Topic 606. The objective of Topic 606 is to establish a comprehensive new five-step model requiring a company to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (i.e., payment) to which the company expects to be entitled in exchange for those goods or services. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to Topic 606. Topic 606 does not apply to revenue from lease contracts until the adoption of the new leases standard in ASU 2016-02, in January 2019.
ASU 2017-05 applies to all nonfinancial assets (including real estate) for which the counterparty is not a customer and requires an entity to derecognize a nonfinancial asset in a partial sale transaction when it ceases to have a controlling financial interest in the asset and has transferred control of the asset. Once an entity transfers control of the nonfinancial asset, the entity is required to measure any nonconrolling interest it receives or retains at fair value. Under the current guidance, a partial sale is recognized and carryover basis is used for the retained interest resulting in only partial gain recognition by the entity, however, the new guidance eliminates the use of carryover basis and generally requires the full gain to be recognized.
In adopting Topic 606, companies may use either a full retrospective or a modified retrospective approach.
| | Topic 606 is effective for fiscal years beginning after December 15, 2017 along with the right of early adoption as of the original effective date.
| | We have identified all of our revenue streams and concluded rental income from leasing arrangements represents a substantial portion of our revenue and is specifically excluded from Topic 606 and will be governed and evaluated with the anticipated adoption of ASU 2016-02 as described below. Upon adoption of ASU 2016-02, Topic 606 may apply to executory costs and other components of revenue due under leases that are deemed to be non-lease components (such as common area maintenance and other reimbursement revenue), even when the revenue for such activities is not separately stipulated in the lease. In that case, the revenue from these items previously recognized on a straight-line basis under the current lease guidance would be recognized under the new revenue guidance as the related services are delivered. As a result, while total revenue recognized over time would not differ under the new guidance, the recognition pattern would be different. Under Topic 606, revenue recognition for real estate sales is largely based on the transfer of control versus continuing involvement under the current guidance. Upon adoption, there will not be a material impact on our consolidated financial statements since we have historically disposed of the majority of our properties with no future controls or contingencies. We will adopt Topic 606 effective January 1, 2018 using the modified retrospective approach. |
ASU 2016-02
Leases
(Issued February 2016)
| | ASU 2016-02 will supersede the existing guidance for lease accounting and states that companies will be required to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 requires qualitative and quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand the nature of the entity’s leasing activities, including significant judgments and changes in judgments. Within ASU 2016-02 lessor accounting remained fairly unchanged. In adopting ASU 2016-02, companies will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.
| | ASU 2016-02 is effective for the fiscal years beginning after December 15, 2018 with early adoption permitted.
| | We are still evaluating the full impact of ASU 2016-02 on our consolidated financial statements, however, we will adopt ASU 2016-02 as of January 1, 2019 and anticipate that we will elect a practical expedient offered in ASU 2016-02 that allows an entity to not reassess the following upon adoption (elected as a group): (i) whether an expired or existing contract contains a lease arrangement; (ii) lease classification related to expired or existing lease arrangements; or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs. As a result of the adoption, all leases for which we are the lessee, including corporate and ground leases will be recorded on our consolidated financial statements as either financing leases or operating leases with a related right of use asset and lease liability. In addition, we expect that certain executory and non-lease components, such as common area maintenance, will need to be accounted for separately from the lease component of the lease. Lease components will continue to be recognized on a straight-line basis over the lease term and certain non-lease components will be accounted for under the new revenue recognition guidance in Topic 606 as mentioned above. |
ASU 2016-13
Financial Instruments Credit Losses: Measurement of Credit Losses on Financial Instruments
(Issued June 2016)
| | ASU 2016-13 is intended to improve financial reporting by requiring more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. ASU 2016-13 requires that financial statement assets measured at an amortized cost be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis.
| | ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted.
| | We do not anticipate early adoption or there to be a material impact, however, we are evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements. |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, – (Continued)cont.
A preliminary estimate of approximately $219.7 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The recognized goodwill is attributable to expected synergies and benefits arising from the Merger, including anticipated general and administrative cost savings and potential economies of scale benefits in both tenant and vendor relationships following the closing of the Merger. None of the goodwill recognized is expected to be deductible for tax purposes.
|
| | | | | | |
Accounting Pronouncement | | Description | | Effective Date | | Effect on financial statements |
ASU 2017-09
Compensation - Stock Compensation (Topic 718): Clarifying the Scope of Modification (Issued May 2017)
| | ASU 2017-09 amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms and conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. | | ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. | | We will adopt ASU 2017-09 as of January 1, 2018. We do not anticipate there to be a material impact on our consolidated financial statements. |
ASU 2017-12
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (Issued August 2017)
| | ASU 2017-12 expands and refines hedge accounting for both financial (e.g., interest rate) and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. | | ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. | | We do not anticipate early adoption, however, we are evaluating the impact of adopting ASU 2017-12 on our consolidated financial statements. |
In conjunction with the Merger, the Company incurred Merger-related costs of $103.4 million during the year ended December 31, 2022, which were included within Merger-related costs in results of operations. The Merger-related costs primarily consist of legal, consulting, banking services, and other Merger-related costs.Unaudited Pro Forma Financial Information 3. Investments in Real Estate
Our investments, including the Duke Acquisition, brings our total investmentsThe Consolidated Statement of Income for the year ended December 31, 2017 to an aggregate purchase price of $2.7 billion. As part of these investments, we incurred $17.32022 includes $351.8 million of costs attributable to these investments, which were capitalized in accordancerevenues and $79.3 million of net loss associated with the adoptionresults of ASU 2017-01 duringoperations of Legacy HTA from the year endedMerger closing date to December 31, 2017. In addition, as part2022.
The following unaudited pro forma information presents a summary of two acquisitions, we issued 37,659 OP Units with a market value at the timeour Consolidated Statements of issuance of $1.1 million.
The allocations for these investments, in which we own a controlling financial interest, are set forth below in the aggregateIncome for the years ended December 31, 2017, 20162022 and 2015, respectively (in thousands):2021, as if the Merger had occurred on January 1, 2021. Adjustments in the pro forma financial information include but are not limited to the following: |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Land | $ | 100,922 |
| | $ | 85,017 |
| | $ | 19,828 |
|
Building and improvements | 2,358,771 |
| | 559,930 |
| | 246,911 |
|
In place leases | 190,020 |
| | 56,807 |
| | 24,646 |
|
Below market leases | (27,849 | ) | | (13,792 | ) | | (8,360 | ) |
Above market leases | 12,180 |
| | 4,626 |
| | 1,336 |
|
Below market leasehold interests | 54,252 |
| | 4,189 |
| | 2,698 |
|
Above market leasehold interests | (8,978 | ) | | (50 | ) | | (7,725 | ) |
Above market debt | — |
| | (83 | ) | | — |
|
Interest rate swaps | — |
| | (779 | ) | | — |
|
Net assets acquired | 2,679,318 |
| | 695,865 |
| | 279,334 |
|
Other, net (1) | 60,913 |
| | 4,899 |
| | 1,526 |
|
Aggregate purchase price | $ | 2,740,231 |
| | $ | 700,764 |
| | $ | 280,860 |
|
| | | | | |
(1) For the year ended December 31, 2017, other, net, consisted primarily of capital expenditures and tenant improvements received as credits at the time of acquisition. |
(i) additional depreciation and amortization expense related to the acquired tangible and intangible assets,(ii) additional interest expense on transaction-related borrowings, including assumed debt in connection with the Merger,
(iii) additional rental income related to the assumed above and below-market leases, and straight-line rent and
(iv) Merger-related costs and other one-time, non-recurring costs.
The acquired intangible assets and liabilities referenced above had weighted average livespro forma financial information excludes adjustments for estimated cost synergies or other effects of the integration of the Merger.
The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.
| | | | | | | | |
| YEAR ENDED December 31, |
Dollars in thousands | 2022 | 2021 |
Total revenues | $ | 1,391,096 | | $ | 1,316,743 | |
Net income | $ | 130,445 | | $ | (78,990) | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
3. Property Investments
The Company invests in healthcare-related properties located throughout the United States. The Company provides management, leasing, development and redevelopment services, and capital for the construction of new facilities as well as for the acquisition of existing properties. The following table summarizes the Company’s consolidated investments at December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | NUMBER OF PROPERTIES | LAND | BUILDINGS AND IMPROVEMENTS | LEASE INTANGIBLES | PERSONAL PROPERTY | TOTAL | ACCUMULATED DEPRECIATION |
Dallas, TX | 45 | | $ | 95,010 | | $ | 1,116,725 | | $ | 77,589 | | $ | 551 | | $ | 1,289,875 | | $ | (202,031) | |
Seattle, WA | 29 | | 64,295 | | 623,166 | | 13,444 | | 726 | | 701,631 | | (164,423) | |
Los Angeles, CA | 23 | | 98,524 | | 460,780 | | 31,790 | | 453 | | 591,547 | | (129,663) | |
Boston, MA | 18 | | 128,904 | | 396,002 | | 63,134 | | — | | 588,040 | | (13,513) | |
Charlotte, NC | 32 | | 35,402 | | 450,076 | | 29,839 | | 105 | | 515,422 | | (95,363) | |
Houston, TX | 34 | | 85,389 | | 633,474 | | 64,045 | | 57 | | 782,965 | | (63,486) | |
Miami, FL | 23 | | 72,364 | | 400,839 | | 46,355 | | 105 | | 519,663 | | (52,920) | |
Atlanta, GA | 28 | | 49,379 | | 437,312 | | 36,170 | | 95 | | 522,956 | | (63,773) | |
Tampa, FL | 20 | | 31,533 | | 377,455 | | 36,838 | | 33 | | 445,859 | | (18,991) | |
Denver, CO | 33 | | 76,698 | | 497,235 | | 45,854 | | 609 | | 620,396 | | (65,123) | |
Raleigh, NC | 27 | | 56,620 | | 363,359 | | 37,446 | | 9 | | 457,434 | | (15,566) | |
Phoenix, AZ | 35 | | 20,262 | | 430,396 | | 37,097 | | 425 | | 488,180 | | (30,281) | |
Chicago, IL | 7 | | 32,374 | | 266,672 | | 20,608 | | 81 | | 319,735 | | (28,243) | |
Indianapolis, IN | 36 | | 52,180 | | 265,070 | | 32,739 | | 13 | | 350,002 | | (19,705) | |
Hartford, CT | 30 | | 43,326 | | 204,049 | | 31,803 | | — | | 279,178 | | (8,015) | |
Nashville, TN | 12 | | 43,348 | | 346,312 | | 10,205 | | 1,424 | | 401,289 | | (92,720) | |
New York, NY | 14 | | 64,402 | | 167,819 | | 26,430 | | — | | 258,651 | | (4,771) | |
Austin, TX | 13 | | 27,064 | | 271,692 | | 18,568 | | 142 | | 317,466 | | (40,363) | |
Orlando, FL | 8 | | 20,708 | | 180,694 | | 21,581 | | 1 | | 222,984 | | (11,654) | |
Memphis, TN | 11 | | 13,901 | | 184,540 | | 4,211 | | 317 | | 202,969 | | (60,624) | |
Other (51 markets) | 210 | | 326,262 | | 3,256,027 | | 273,568 | | 1,223 | | 3,857,080 | | (457,572) | |
| 688 | | 1,437,945 | | 11,329,694 | | 959,314 | | 6,369 | | 13,733,322 | | (1,638,800) | |
| | | | | | | |
Construction in progress | — | | — | | — | | | — | | 35,560 | | — | |
Land held for development | — | | — | | — | | — | | — | | 74,265 | | (1,183) | |
Financing lease right-of-use assets | — | | — | | — | | — | | — | | 83,824 | | — | |
Investment in financing receivables, net | — | | — | | — | | — | | — | | 120,236 | | — | |
Corporate property 1 | — | | 1,853 | | 2,343 | | 684 | | 5,538 | | 10,418 | | (5,288) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total real estate investments | 688 | | $ | 1,439,798 | | $ | 11,332,037 | | $ | 959,998 | | $ | 11,907 | | $ | 14,057,625 | | $ | (1,645,271) | |
1Includes a 15,014 square foot building located in Charleston, South Carolina that is used as one of the Company's corporate offices.
4. Leases
Lessor Accounting Under ASC 842
The Company’s properties generally are leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2052. Some leases provide for fixed rent renewal terms in addition to market rent renewal terms. Some leases provide the lessee, during the term of the lease, with an option or right of first refusal to purchase the leased property. The Company’s portfolio of single-tenant leases generally requires the lessee to pay minimum rent and all taxes (including property tax), insurance, maintenance and other operating costs associated with the leased property. The Company records these expenses on a net basis, with the exception of property taxes. Property taxes are recorded on a gross basis as a lessor cost in which the tenant reimburses the Company. The Company generally expects that collectability is probable at lease commencement. If the assessment of collectability changes after the lease commencement date and Rental income is not considered probable, Rental income is recognized on a
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
cash basis and all previously recognized uncollectible Rental income is reversed in the period in which it is determined not to be probable of collection. In addition to the lease-specific collectability assessment performed under Topic 842, the Company may also apply a general reserve ("provision for bad debt"), as a reduction to Rental income, for its portfolio of operating lease receivables.
The Company's leases typically have escalators that are either based on a stated percentage or an index such as CPI (consumer price index). In addition, most of the Company's leases include nonlease components such as reimbursement of operating expenses as additional rent or include the reimbursement of expected operating expenses as part of the lease payment. The Company adopted an accounting policy to combine lease and nonlease components. Rent escalators based on indices and reimbursements of operating expenses that are not included in the lease rate are considered variable lease payments. Variable payments are recognized in the period earned. Lease income for the Company's operating leases recognized for the year ended December 31, 2022 was $907.5 million.
Future minimum lease payments under the non-cancelable operating leases, excluding any reimbursements, as of December 31, 2022 are as follows:
| | | | | |
In thousands | |
2023 | $ | 928,516 | |
2024 | 814,132 | |
2025 | 701,659 | |
2026 | 603,051 | |
2027 | 500,645 | |
2028 and thereafter | 1,633,847 | |
| $ | 5,181,850 | |
Revenue Concentrations
The Company’s real estate portfolio is leased to a diverse tenant base. The Company did not have any customers that account for 10% or more of the Company's revenues for the years ended December 31, 2017, 20162022, 2021 and 2015, respectively (in years):2020.
|
| | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Acquired intangible assets | 20.2 | | 8.4 | | 24.8 |
Acquired intangible liabilities | 19.7 | | 7.7 | | 51.7 |
Purchase Option Provisions
Certain of the Company’s leases include purchase option provisions. The provisions vary by agreement but generally allow the lessee to purchase the property covered by the agreement at fair market value or an amount equal to the Company’s gross investment. The Company expects that the purchase price from its purchase options will be greater than its net investment in the properties at the time of potential exercise by the lessee. The Company had investments of approximately $100.4 million in five real estate properties as of December 31, 2022 that were subject to purchase options that were exercisable.
Lessee Accounting Under ASC 842 HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
4. ImpairmentDecember 31, 2022, the Company was obligated, as the lessee, under operating and Dispositions
Duringfinance lease agreements consisting primarily of the Company’s ground leases. Contracts evaluated and treated as leases are those that convey the right to control the use of identified assets for a period of time in exchange for consideration. ASC 842 requires the recording of these leases based on the aggregate future cash flows, discounted utilizing the implicit rate in the lease, or, if not readily determinable, based upon the lessee's incremental borrowing rate, to which the Company utilizes market inputs that are both similar to the Company's credit profile and corresponding term of the leases. As of December 31, 2022, the Company had 242 properties totaling 17.8 million square feet that were held under ground leases. Some of the ground leases renewal terms are based on fixed rent renewal terms and others have market rent renewal terms. These ground leases typically have initial terms of 40 to 99 years with expiration dates through 2119. Any rental increases related to the Company’s ground leases are generally either stated or based on the Consumer Price Index. The Company had 75 prepaid ground leases as of December 31, 2022. The amortization of the prepaid rent, included in the operating lease right-of-use asset, represented approximately $1.1 million for the year ended December 31, 2017, we completed dispositions of four MOBs located in Wisconsin, California2022 and Texas for an aggregate sales price of $85.2$0.6 million generating gains of $37.8 million. In addition, during the year ended December 31, 2017, we recorded impairment charges of $13.9 million related to two MOBs and a portfolio of MOBs located in Massachusetts, South Carolina and Texas. During the year ended December 31, 2016, we completed dispositions of six senior care facilities for an aggregate sales price of $39.5 million, generating net gains of $9.0 million. During the same period we recorded impairment charges of $3.1 million related to two MOBs in our portfolio. During the year ended December 31, 2015, we completed dispositions of six MOBs for an aggregate sales price of $35.7 million, generating net gains of $0.2 million. During the same period we recorded impairment charges of $2.6 million.
5. Intangible Assets and Liabilities
Intangible assets and liabilities consisted of the following as of December 31, 2017 and 2016, respectively (in thousands, except weighted average remaining amortization):
|
| | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Balance | | Weighted Average Remaining Amortization in Years | | Balance | | Weighted Average Remaining Amortization in Years |
Assets: | | | | | | | |
In place leases | $ | 474,252 |
| | 9.8 | | $ | 294,597 |
| | 9.7 |
Tenant relationships | 164,947 |
| | 10.2 | | 172,974 |
| | 10.6 |
Above market leases | 40,082 |
| | 6.3 | | 28,401 |
| | 6.3 |
Below market leasehold interests | 92,362 |
| | 63.4 | | 38,136 |
| | 60.4 |
| 771,643 |
| | | | 534,108 |
| | |
Accumulated amortization | (312,655 | ) | | | | (256,305 | ) | | |
Total | $ | 458,988 |
| | 19.5 | | $ | 277,803 |
| | 16.1 |
| | | | | | | |
Liabilities: | | | | | | | |
Below market leases | $ | 61,820 |
| | 14.7 | | $ | 34,370 |
| | 18.6 |
Above market leasehold interests | 20,610 |
| | 50.1 | | 11,632 |
| | 53.0 |
| 82,430 |
| | | | 46,002 |
| | |
Accumulated amortization | (14,227 | ) | | | | (8,946 | ) | | |
Total | $ | 68,203 |
| | 25.0 | | $ | 37,056 |
| | 28.5 |
The following is a summary of the net intangible amortization for the years ended December 31, 2017, 20162021 and 2015, respectively (in thousands): |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Amortization recorded against rental income related to above and (below) market leases | $ | (526 | ) | | $ | 255 |
| | $ | 1,936 |
|
Rental expense related to above and (below) market leasehold interests | 880 |
| | 453 |
| | 414 |
|
Amortization expense related to in place leases and tenant relationships | 64,896 |
| | 52,213 |
| | 47,444 |
|
2020.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, – (Continued)cont.
The Company’s future lease payments (primarily for its 167 non-prepaid ground leases) as of December 31, 2022 were as follows:
| | | | | | | | |
In thousands | OPERATING | FINANCING |
2023 | $ | 15,641 | | $ | 2,140 | |
2024 | $ | 15,227 | | $ | 2,182 | |
2025 | $ | 14,814 | | $ | 2,218 | |
2026 | $ | 14,852 | | $ | 2,255 | |
2027 | $ | 14,921 | | $ | 2,294 | |
2028 and thereafter | $ | 939,165 | | $ | 396,398 | |
Total undiscounted lease payments | $ | 1,014,620 | | $ | 407,487 | |
Discount | $ | (734,725) | | $ | (334,548) | |
Lease liabilities | $ | 279,895 | | $ | 72,939 | |
The following table provides details of the Company's total lease expense for the year ended December 31, 2022:
| | | | | | | | | |
In thousands | | YEAR ENDED Dec. 31, 2022 | YEAR ENDED Dec. 31, 2021 |
Operating lease cost | | | |
Operating lease expense | | $ | 12,699 | | $ | 4,765 | |
Variable lease expense | | 4,529 | | 3,929 | |
| | | |
Finance lease cost | | | |
Amortization of right-of-use assets | | 1,288 | | 388 | |
Interest on lease liabilities | | 2,876 | | 1,032 | |
Total lease expense | | $ | 21,392 | | $ | 10,114 | |
| | | |
Other information | | | |
Operating cash flows outflows related to operating leases | | $ | 12,816 | $ | 7,706 |
Operating cash flows outflows related to financing leases | | $ | 1,838 | $ | 809 |
Financing cash flows outflows related to financing leases | | $ | — | $ | 9,182 |
Right-of-use assets obtained in exchange for new finance lease liabilities | | $ | 53,765 | $ | 3,827 |
Right-of-use assets obtained in exchange for new operating lease liabilities | | $ | 216,047 | $ | 8,298 |
| | | |
Weighted-average remaining lease term (excluding renewal options) - operating leases | | 47.5 | 47.6 |
Weighted-average remaining lease term (excluding renewal options) -finance leases | | 58.9 | 62.1 |
Weighted-average discount rate - operating leases | | 5.8 | % | 5.6 | % |
Weighted-average discount rate - finance leases | | 5.0 | % | 5.3 | % |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
5. Acquisitions, Dispositions and Mortgage Repayments
2022 Acquisitions
The following table details the Company's acquisitions, exclusive of the Merger, for the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | TYPE 1 | DATE ACQUIRED | PURCHASE PRICE | | | CASH CONSIDERATION 2 | REAL ESTATE | OTHER 3 | SQUARE FOOTAGE unaudited |
Dallas, TX 4 | MOB | 2/11/22 | $ | 8,175 | | | | $ | 8,185 | | $ | 8,202 | | $ | (17) | | 18,000 |
San Francisco, CA 5 | MOB | 3/7/22 | 114,000 | | | | 112,986 | | 108,687 | | 4,299 | | 166,396 |
Atlanta, GA | MOB | 4/7/22 | 6,912 | | | | 7,054 | | 7,178 | | (124) | | 21,535 |
Denver, CO | MOB | 4/13/22 | 6,320 | | | | 5,254 | | 5,269 | | (15) | | 12,207 |
Colorado Springs, CO 6 | MOB | 4/13/22 | 13,680 | | | | 13,686 | | 13,701 | | (15) | | 25,800 |
Seattle, WA | MOB | 4/28/22 | 8,350 | | | | 8,334 | | 8,370 | | (36) | | 13,256 |
Houston, TX | MOB | 4/28/22 | 36,250 | | | | 36,299 | | 36,816 | | (517) | | 76,781 |
Los Angeles, CA | MOB | 4/29/22 | 35,000 | | | | 35,242 | | 25,400 | | 9,842 | | 34,282 |
Oklahoma City, OK | MOB | 4/29/22 | 11,100 | | | | 11,259 | | 11,334 | | (75) | | 34,944 |
Raleigh, NC 5 | MOB | 5/31/22 | 27,500 | | | | 26,710 | | 27,127 | | (417) | | 85,113 |
Tampa. FL 6 | MOB | 6/9/22 | 18,650 | | | | 18,619 | | 18,212 | | 407 | | 55,788 |
Seattle, WA | MOB | 8/1/22 | 4,850 | | | | 4,806 | | 4,882 | | (76) | | 10,593 |
Raleigh, NC | MOB | 8/9/22 | 3,783 | | | | 3,878 | | 3,932 | | (54) | | 11,345 |
Jacksonville, FL | MOB | 8/9/22 | 18,195 | | | | 18,508 | | 18,583 | | (75) | | 34,133 |
Atlanta, GA | MOB | 8/10/22 | 11,800 | | | | 11,525 | | 12,038 | | (513) | | 43,496 |
Denver, CO | MOB | 8/11/22 | 14,800 | | | | 13,902 | | 13,918 | | (16) | | 34,785 |
Raleigh, NC | MOB | 8/18/22 | 11,375 | | | | 10,670 | | 10,547 | | 123 | | 31,318 |
Nashville, TN | MOB | 9/15/22 | 21,000 | | | | 20,764 | | 20,572 | | 192 | | 61,932 |
Austin, TX | MOB | 9/29/22 | 5,450 | | | | 5,449 | | 5,572 | | (123) | | 15,000 |
Jacksonville, FL 4 | MOB | 10/12/22 | 3,600 | | | | 3,530 | | 3,609 | | (79) | | 6,200 |
Houston, TX | MOB | 11/21/22 | 5,500 | | | | 5,469 | | 5,513 | | (44) | | 28,369 |
Austin, TX 7 | MOB | 12/28/22 | 888 | | | | 890 | | 889 | | 1 | | 2,219 |
Denver, CO | MOB | 12/28/22 | 16,400 | | | | 16,170 | | 16,467 | | (297) | | 39,692 |
| | | | | | | | | |
| | | $ | 403,578 | | | | $ | 399,189 | | $ | 386,818 | | $ | 12,371 | | 863,184 | |
1MOB = medical office building.
2Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition.
3Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition.
4Represents a single-tenant property.
5Includes three properties.
6Includes two properties.
7The Company acquired additional ownership interests in an existing building bringing the Company's ownership to 71.4%.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
The following table summarizes the estimated relative fair values of the assets acquired and liabilities assumed in the real estate acquisitions for 2022 as of the acquisition date:
| | | | | | | | |
| ESTIMATED FAIR VALUE in millions | ESTIMATED USEFUL LIFE in years |
Building | $ | 250.7 | | 14.0 - 38.0 |
| | |
| | |
Land | 76.1 | | — | |
Land Improvements | 11.2 | | 5.0 - 14.0 |
| | |
Intangibles | | |
At-market lease intangibles | 48.8 | | 1.5 - 13.4 |
Above-market lease intangibles (lessor) | 15.9 | | 1.3 - 15.6 |
Below-market lease intangibles (lessor) | (2.2) | | 1.3 - 19.3 |
| | |
Below-market lease intangibles (lessee) | 1.2 | | 13.1 |
| | |
| | |
| | |
Other assets acquired | 0.4 | | |
Accounts payable, accrued liabilities and other liabilities assumed | (2.9) | | |
Total cash paid | $ | 399.2 | | |
Unconsolidated Joint Ventures
As of December 31,
2017,2022, the
amortizationCompany had a weighted average ownership interest of
intangible assets and liabilities is as follows (in thousands):approximately 48% in 33 real estate properties held in joint ventures. |
| | | | | | | | |
Year | | Assets | | Liabilities |
2018 | | $ | 71,892 |
| | $ | 6,761 |
|
2019 | | 60,202 |
| | 6,508 |
|
2020 | | 47,572 |
| | 5,742 |
|
2021 | | 38,842 |
| | 4,893 |
|
2022 | | 30,884 |
| | 4,432 |
|
Thereafter | | 209,596 |
| | 39,867 |
|
Total | | $ | 458,988 |
| | $ | 68,203 |
|
6. Receivables and Other Assets
Receivables and other assets consisted of the following as of December 31, 2017 and 2016, respectively (in thousands): |
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Tenant receivables, net | $ | 20,269 |
| | $ | 8,722 |
|
Other receivables, net | 9,305 |
| | 9,233 |
|
Deferred financing costs, net | 7,759 |
| | 4,198 |
|
Deferred leasing costs, net | 25,494 |
| | 20,811 |
|
Straight-line rent receivables, net | 85,143 |
| | 74,052 |
|
Prepaid expenses, deposits, equipment and other, net | 58,358 |
| | 55,904 |
|
Derivative financial instruments - interest rate swaps | 1,529 |
| | 541 |
|
Total | $ | 207,857 |
| | $ | 173,461 |
|
2022 AcquisitionsThe following is a summarytable details the joint venture acquisitions for the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | TYPE 1 | DATE ACQUIRED | PURCHASE PRICE | | | CASH CONSIDERATION 2 | REAL ESTATE | OTHER 3 | SQUARE FOOTAGE unaudited |
San Francisco, CA 4 | MOB | 3/7/22 | $ | 67,175 | | | | $ | 66,789 | | $ | 65,179 | | $ | 1,610 | | 110,865 |
Los Angeles, CA 5 | MOB | 3/7/22 | 33,800 | | | | 32,384 | | 32,390 | | (6) | | 103,259 |
| | | | | | | | | |
| | | $ | 100,975 | | | | $ | 99,173 | | $ | 97,569 | | $ | 1,604 | | 214,124 | |
1MOB = medical office building.
2Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the amortization of deferred leasing costsacquisition.
3Includes other assets acquired, liabilities assumed, and financing costsintangibles recognized at acquisition.
4Includes three properties.
5Includes two properties.
The Company's investment in and loss recognized for the years ended December 31, 2017, 20162022 and 2015, respectively (in thousands):2021 related to its joint ventures accounted for under the equity method are shown in the table below:
| | | | | | | | |
| DECEMBER 31, |
Dollars in millions | 2022 | 2021 |
Investments in unconsolidated joint ventures, beginning of period | $ | 161.9 | | $ | 73.1 | |
New investments during the period1 | 167.9 | | 89.6 | |
Equity loss recognized during the period | (0.7) | | (0.8) | |
Owner distributions | (1.9) | | — | |
Investments in unconsolidated joint ventures, end of period | $ | 327.2 | | $ | 161.9 | |
1For the year ended December 31, 2022, this included unconsolidated joint ventures acquired as part of the Merger, as well as investments in two joint ventures representing a 20% and 40% ownership interest in portfolios in Los Angeles, California and Dallas, Texas, respectively. Also, see 2022 Real Estate Asset Dispositions below for additional information.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Amortization expense related to deferred leasing costs | $ | 5,672 |
| | $ | 4,647 |
| | $ | 4,177 |
|
Interest expense related to deferred financing costs | 1,492 |
| | 1,326 |
| | 1,339 |
|
2021 Acquisitions
The following table details the Company's acquisitions for the year ended December 31, 2021: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | TYPE 1 | DATE ACQUIRED | PURCHASE PRICE 2 | MORTGAGES ASSUMED 3 | | CASH CONSIDERATION 4 | REAL ESTATE 2 | OTHER 5 | SQUARE FOOTAGE unaudited |
San Diego, CA 6 | MOB | 1/7/21 | $ | 17,150 | | $ | — | | | $ | 17,182 | | $ | 17,182 | | $ | — | | 22,461 |
Dallas, TX 8 | MOB | 2/1/21 | 22,515 | | — | | | 22,299 | | 22,641 | | (342) | | 121,709 |
Atlanta, GA 8 | MOB | 2/17/21 | 9,800 | | — | | | 10,027 | | 10,073 | | (46) | | 44,567 |
Washington, D.C. | MOB | 3/3/21 | 12,750 | | — | | | 12,709 | | 12,658 | | 51 | | 26,496 |
Houston, TX | MOB | 5/14/21 | 13,500 | | — | | | 12,986 | | 13,379 | | (393) | | 45,393 |
San Diego, CA 6,7 | MOB | 5/28/21 | 102,650 | | — | | | 103,984 | | 104,629 | | (645) | | 160,394 |
Greensboro, NC | MOB | 6/28/21 | 9,390 | | — | | | 9,475 | | 10,047 | | (572) | | 25,168 |
Baltimore, MD | MOB | 6/29/21 | 14,600 | | — | | | 14,357 | | 14,437 | | (80) | | 33,316 |
Denver, CO 9 | MOB | 7/16/21 | 70,426 | | — | | | 69,151 | | 65,100 | | 4,051 | | 259,555 |
Greensboro, NC 6 | MOB | 7/19/21 | 6,400 | | — | | | 6,374 | | 6,514 | | (140) | | 18,119 |
Colorado Springs, CO | MOB | 7/27/21 | 33,400 | | — | | | 32,738 | | 33,241 | | (503) | | 69,526 |
Birmingham, AL | MOB | 8/19/21 | 9,250 | | — | | | 9,355 | | 9,388 | | (33) | | 29,942 |
Raleigh, NC | MOB | 9/20/21 | 5,780 | | — | | | 5,821 | | 5,810 | | 11 | | 18,280 |
Denver, CO | MOB | 9/22/21 | 20,250 | | — | | | 19,630 | | 19,405 | | 225 | | 83,604 |
Raleigh, NC | MOB | 9/30/21 | 10,000 | | — | | | 9,921 | | 9,874 | | 47 | | 29,178 |
Denver, CO | MOB | 11/15/21 | 7,700 | | — | | | 7,383 | | 7,431 | | (48) | | 18,599 |
Denver, CO | MOB | 11/18/21 | 22,400 | | — | | | 22,343 | | 22,422 | | (79) | | 30,185 |
Columbus, OH 10 | MOB | 12/1/21 | 16,275 | | — | | | 15,970 | | 7,365 | | 8,605 | | 71,930 |
Nashville, TN | MOB | 12/2/21 | 11,300 | | — | | | 11,245 | | 11,263 | | (18) | | 34,908 |
Colorado Springs, CO | MOB | 12/20/21 | 10,575 | | — | | | 10,541 | | 11,009 | | (468) | | 44,166 |
Columbus, OH 8 | MOB | 12/28/21 | 9,525 | | — | | | 9,521 | | 9,601 | | (80) | | 28,962 |
Los Angeles, CA | MOB | 12/28/21 | 20,500 | | (11,000) | | | 9,396 | | 20,316 | | 80 | | 56,762 |
Nashville, TN 11 | MOB | 12/29/21 | 19,775 | | — | | | 19,833 | | 19,982 | | (149) | | 85,590 |
Austin, TX | MOB | 12/29/21 | 20,500 | | — | | | 20,696 | | 20,741 | | (45) | | 62,548 |
Atlanta, GA | MOB | 12/30/21 | 4,900 | | — | | | 4,772 | | 4,419 | | 353 | | 11,840 |
Nashville, TN 12 | MOB | 12/30/21 | 54,000 | | — | | | 53,923 | | 54,072 | | (149) | | 74,489 |
Nashville, TN 12 | MOB | 12/30/21 | 20,500 | | — | | | 19,833 | | 19,825 | | 8 | | 32,454 |
| | | | | | | | | |
| | | $ | 575,811 | | $ | (11,000) | | | $ | 561,465 | | $ | 562,824 | | $ | 9,641 | | 1,540,141 | |
1MOB = medical office building.
2Includes investments in financing receivables and an $8.9 million right-of-use asset related to the Columbus, Ohio transaction.
3The mortgages assumed in the acquisitions do not reflect the fair value adjustments totaling $0.8 million in aggregate recorded by the Company upon acquisition (included in Other).
4Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition.
5Includes other assets acquired, liabilities assumed, intangibles, and fair value mortgage adjustments recognized at acquisition.
6Represents a single-tenant property.
7The Company acquired a single-tenant net lease property in San Diego, CA in a sale-leaseback transaction which was accounted for as a financing arrangement as required under ASC 842, Leases.
8Includes two properties.
9Includes three properties.
10This sale-leaseback transaction was a multi-tenant lease property. A portion of the transaction totaling $7.4 million was accounted for as a financing receivable and the remaining $8.9 million was accounted for as an imputed lease arrangement. See Note 1 to the Consolidated Financial Statements accompanying this report for more information.
11Includes purchase of an adjoining 2.7 acre land parcel that will be held for development.
12This sale-leaseback transaction was a multi-tenant lease property which was accounted for as a financing arrangement as required under ASC 842, Leases.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
The following table summarizes the estimated relative fair values of the assets acquired and liabilities assumed in the real estate acquisitions for 2021 as of the acquisition date: | | | | | | | | |
| ESTIMATED FAIR VALUE in millions | ESTIMATED USEFUL LIFE in years |
Building | $ | 275.1 | | 18.0 - 44.0 |
Investment in financing receivables, net | 185.9 | | 0.5 - 34.0 |
Financing lease right of use assets 1 | 8.9 | | 15.0 - 34.0 |
Land | 34.1 | | — | |
Land Improvements | 8.9 | | 6.0 - 16.0 |
| | |
Intangibles | | |
At-market lease intangibles | 58.8 | | 2.6 - 16.6 |
Above-market lease intangibles (lessor) | 3.4 | | 1.9 - 8.1 |
Below-market lease intangibles (lessor) | (1.4) | | 3.1 - 21.8 |
Above-market lease intangibles (lessee) | (0.3) | | 36.7 - 64.5 |
Below-market lease intangibles (lessee) | 4.7 | | 45.4 |
Mortgage notes payable assumed, including fair value adjustments | (11.8) | | |
| | |
| | |
Other assets acquired | 0.8 | | |
Accounts payable, accrued liabilities and other liabilities assumed | (5.6) | | |
Total cash paid | $ | 561.5 | | |
1The Company acquired a building in Columbus, Ohio in a sale lease back transaction totaling $16.3 million, in which $8.9 million was recorded as an imputed lease arrangement and the remaining $7.4 million was recorded as an investment in financing receivables.
Unconsolidated Joint Ventures
The following table details the joint venture acquisitions for the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | TYPE 1 | DATE ACQUIRED | PURCHASE PRICE | | | CASH CONSIDERATION 2 | REAL ESTATE | OTHER 3 | SQUARE FOOTAGE unaudited |
Denver, CO | MOB | 3/30/21 | $ | 14,375 | | | | $ | 14,056 | | $ | 14,550 | | $ | (494) | | 59,359 |
Colorado Springs, CO | MOB | 4/1/21 | 7,200 | | | | 7,288 | | 7,347 | | (59) | | 27,510 |
Los Angeles, CA | MOB | 4/8/21 | 31,335 | | | | 30,179 | | 30,642 | | (463) | | 57,573 |
San Antonio, TX | MOB | 4/30/21 | 13,600 | | | | 13,412 | | 13,656 | | (244) | | 45,000 |
Los Angeles, CA | MOB | 5/10/21 | 24,600 | | | | 24,259 | | 24,147 | | 112 | | 73,078 |
Colorado Springs, CO 4 | MOB | 7/27/21 | 9,133 | | | | 9,137 | | 9,135 | | 2 | | 23,956 |
Denver, CO | MOB | 10/21/21 | 23,000 | | | | 22,638 | | 23,021 | | (383) | | 57,257 |
San Antonio, TX 5 | MOB | 12/10/21 | 42,300 | | | | 41,892 | | 42,190 | | (298) | | 117,597 |
San Antonio, TX | MOB | 12/29/21 | 6,094 | | | | 6,218 | | 6,308 | | (90) | | 22,381 |
San Antonio, TX | MOB | 12/29/21 | 8,850 | | | | 8,915 | | 8,866 | | 49 | | 30,542 |
| | | | | | | | | |
| | | $ | 180,487 | | | | $ | 177,994 | | $ | 179,862 | | $ | (1,868) | | 514,253 | |
1MOB = medical office building.
2Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition.
3Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition.
4Includes purchase of an adjoining 3.0 acre land parcel.
5Includes three properties.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
2022 Real Estate Asset Dispositions
The following table details the Company's dispositions for the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | TYPE 1 | DATE DISPOSED | SALES PRICE | CLOSING ADJUSTMENTS | NET PROCEEDS | NET REAL ESTATE INVESTMENT | OTHER including receivables 2 | GAIN/ (IMPAIRMENT) | SQUARE FOOTAGE unaudited |
Loveland, CO 3, 4 | MOB | 2/24/22 | $ | 84,950 | | $ | (45) | | $ | 84,905 | | $ | 40,095 | | $ | 4 | | $ | 44,806 | | 150,291 | |
San Antonio, TX 3 | MOB | 4/15/22 | 25,500 | | (2,272) | | 23,228 | | 14,381 | | 284 | | 8,563 | | 201,523 | |
GA, FL, PA 5, 11 | MOB | 7/29/22 | 133,100 | | (8,109) | | 124,991 | | 124,991 | | — | | — | | 316,739 | |
GA, FL, TX 7, 11 | MOB | 8/4/22 | 160,917 | | (5,893) | | 155,024 | | 151,819 | | 3,205 | | — | | 343,545 | |
Los Angeles, CA 5, 9, 11 | MOB | 8/5/22 | 134,845 | | (3,102) | | 131,743 | | 131,332 | | 411 | | — | | 283,780 | |
Dallas, TX 7, 10, 11 | MOB | 8/30/22 | 114,290 | | (682) | | 113,608 | | 113,608 | | — | | — | | 189,385 | |
Indianapolis, IN 6, 12 | MOB | 8/31/22 | 238,845 | | (5,846) | | 232,999 | | 84,767 | | 4,324 | | 143,908 | | 506,406 | |
Dallas, TX 3 | MOB | 10/4/22 | 104,025 | | (5,883) | | 98,142 | | 38,872 | | 6,436 | | 52,834 | | 291,328 | |
Houston, TX | MOB | 10/21/22 | 32,000 | | (280) | | 31,720 | | 10,762 | | 744 | | 20,214 | | 134,910 | |
College Station, TX | MOB | 11/10/22 | 49,177 | | (3,755) | | 45,422 | | 44,918 | | 475 | | 28 | | 122,942 | |
El Paso, TX | MOB | 12/22/22 | 55,326 | | (4,002) | | 51,324 | | 56,427 | | (1,897) | | (3,205) | | 110,465 | |
Atlanta, GA 8 | MOB | 12/22/22 | 91,243 | | (4,326) | | 86,917 | | 109,051 | | 235 | | (22,369) | | 348,416 | |
St. Louis, MO | MOB | 12/28/22 | 18,000 | | (1,471) | | 16,529 | | 18,340 | | 4 | | (1,815) | | 69,394 | |
| | | | | | | | | |
| | | $ | 1,242,218 | | $ | (45,666) | | $ | 1,196,552 | | $ | 939,363 | | $ | 14,225 | | $ | 242,964 | | 3,069,124 | |
1MOB = medical office building
2Includes straight-line rent receivables, leasing commissions and lease inducements.
3Includes two properties.
4The Company deferred the tax gain through a 1031 exchange and reinvested the proceeds.
5Includes four properties.
6Includes five properties.
7Includes six properties.
8Includes nine properties.
9Values and square feet are represented at 100%. The Company retained a 20% ownership interest in the joint venture with an unrelated third party that purchased these properties.
10Values and square feet are represented at 100%. The Company retained a 40% ownership interest in the joint venture with an unrelated third party that purchased these properties.
11These properties were acquired as part of the Merger and were included as assets held for sale in the purchase price allocation.
12Two of the five properties included in this portfolio were acquired in the Merger and were included as assets held for sale in the purchase price allocation.
Subsequent Dispositions
On January 13, 2023, the Company disposed of two medical office buildings, one in Tampa, Florida and one in Miami, Florida, with a combined total of 224,037 square feet for an aggregate purchase price of $93.3 million.
On January 30, 2023, the Company disposed of a 36,691 square foot medical office building in Dallas, Texas, for a purchase price of $19.2 million. The Company retained a 40% ownership interest in the joint venture that purchased this property.
On February 10, 2023, the Company disposed of a 6,500 square foot medical office building in St. Louis, Missouri for a purchase price of $0.4 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
2021 Real Estate Asset Dispositions
The following table details the Company's dispositions for the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | TYPE 1 | DATE DISPOSED | SALES PRICE | CLOSING ADJUSTMENTS | NET PROCEEDS | NET REAL ESTATE INVESTMENT | OTHER including receivables 2 | GAIN/ (IMPAIRMENT) | SQUARE FOOTAGE unaudited |
Los Angeles, CA 3 | MOB | 3/11/21 | $ | 26,000 | | $ | (555) | | $ | 25,445 | | $ | 6,046 | | $ | 509 | | $ | 18,890 | | 73,906 | |
Atlanta, GA | MOB | 4/12/21 | 8,050 | | (272) | | 7,778 | | 5,675 | | 151 | | 1,952 | | 19,732 | |
Richmond, VA | MOB | 5/18/21 | 52,000 | | (314) | | 51,686 | | 29,414 | | 3,270 | | 19,002 | | 142,856 | |
Gadsden, AL 4 | MOB | 5/19/21 | 5,500 | | (280) | | 5,220 | | 5,914 | | 175 | | (869) | | 120,192 | |
Dallas, TX 5 | MOB | 7/9/21 | 23,000 | | (1,117) | | 21,883 | | 18,733 | | 1,966 | | 1,184 | | 190,160 | |
Chicago, IL | MOB | 10/28/21 | 13,300 | | (388) | | 12,912 | | 23,213 | | 706 | | (11,007) | | 95,436 | |
Des Moines, IA 6 | MOB | 12/8/21 | 47,000 | | (901) | | 46,099 | | 32,312 | | 1,037 | | 12,750 | | 132,617 | |
Aberdeen, SD | MOB | 12/22/21 | 12,750 | | (299) | | 12,451 | | 10,337 | | — | | 2,114 | | 58,285 | |
Dallas, TX | MOB | 12/23/21 | 800 | | (103) | | 697 | | 712 | | 167 | | (182) | | 13,818 | |
| | | $ | 188,400 | | $ | (4,229) | | $ | 184,171 | | $ | 132,356 | | $ | 7,981 | | $ | 43,834 | | 847,002 | |
1MOB = medical office building
2Includes straight-line rent receivables, leasing commissions and lease inducements.
3Includes two properties sold to a single purchaser in two transactions which closed on March 5 and March 11, 2021.
4Includes three properties.
5Includes four properties and a land parcel sold under a single purchase agreement.
6Includes three properties and two land parcels under a single purchase agreement.
6. Held for Sale
Assets and liabilities of properties sold or classified as held for sale are separately identified on the Company’s Consolidated Balance Sheets. As of December 31, 2017,2022 the amortization of deferred leasing costsCompany had one property classified as held for sale, and financing costs is as follows (in thousands):
|
| | | | |
Year | | Amount |
2018 | | $ | 6,461 |
|
2019 | | 5,751 |
|
2020 | | 5,164 |
|
2021 | | 5,178 |
|
2022 | | 3,480 |
|
Thereafter | | 7,219 |
|
Total | | $ | 33,253 |
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
7. Debt
Debt consisted of the following as of December 31, 2017 and 2016, respectively (in thousands):
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
Unsecured revolving credit facility | $ | — |
| | $ | 88,000 |
|
Unsecured term loans | 500,000 |
| | 500,000 |
|
Unsecured senior notes | 1,850,000 |
| | 950,000 |
|
Fixed rate mortgages loans | 414,524 |
| | 204,562 |
|
Variable rate mortgages loans | 37,918 |
| | 38,904 |
|
| 2,802,442 |
| | 1,781,466 |
|
Deferred financing costs, net | (15,850 | ) | | (9,527 | ) |
Discount, net | (5,561 | ) | | (3,034 | ) |
Total | $ | 2,781,031 |
| | $ | 1,768,905 |
|
Unsecured Credit Agreement
Unsecured Revolving Credit Facility due 2022
On July 27, 2017, HTALP entered into an amended and restated $1.3 billion Unsecured Credit Agreement which increased the amount available under the unsecured revolving credit facility to $1.0 billion and extended the maturities of the unsecured revolving credit facility to June 30, 2022 and for the $300.0 million unsecured term loan referenced below until February 1, 2023. The maximum principal amount of the Unsecured Credit Agreement may be increased by up to $750.0 million, subject to certain conditions, for a total principal amount of $2.05 billion.
Borrowings under the unsecured revolving credit facility accrue interest at a rate equal to adjusted LIBOR, plus a margin ranging from 0.83% to 1.55% per annum based on our credit rating. We also pay a facility fee ranging from 0.13% to 0.30% per annum on the aggregate commitments under the unsecured revolving credit facility. As of December 31, 2017, the margin associated with our borrowings was 1.00% per annum and the facility fee was 0.20% per annum.
Unsecured Term Loan due 2023
On July 27, 2017, we entered into an amended and restated Unsecured Credit Agreement as noted above. As part of this agreement, we obtained a $300.0 million unsecured term loan that was guaranteed by us with a maturity date of February 1, 2023. Borrowings under this unsecured term loan accrue interest equal to adjusted LIBOR, plus a margin ranging from 0.90% to 1.75% per annum based on our credit rating. The margin associated with our borrowings as of December 31, 2017 was 1.10% per annum. Including2021 the impactCompany had no real estate properties classified as held for sale. The table below reflects the assets and liabilities classified as held for sale as of December 31, 2022 and 2021.
| | | | | | | | |
| DECEMBER 31, |
Dollars in thousands | 2022 | 2021 |
Balance Sheet data | | |
Land | $ | 1,700 | | $ | — | |
Buildings and improvements | 15,164 | | — | |
Lease intangibles | 1,986 | | — | |
| 18,850 | | — | |
Accumulated depreciation | — | | — | |
Real estate assets held for sale, net | 18,850 | | — | |
Other assets, net | 43 | | 57 | |
Assets held for sale, net | $ | 18,893 | | $ | 57 | |
| | |
Accounts payable and accrued liabilities | $ | 282 | | $ | 169 | |
Other liabilities | 155 | | 125 | |
Liabilities of properties held for sale | $ | 437 | | $ | 294 | |
7. Impairment Charges
An asset is impaired when undiscounted cash flows expected to be generated by the asset are less than the carrying value of the asset. The Company must assess the potential for impairment of its long-lived assets, including real estate properties, whenever events occur or there is a change in circumstances, such as the sale of a property or the decision to sell a property, that indicate that the recorded value might not be fully recoverable.
The Company recorded impairment charges on 12 properties sold and three additional properties associated with completed or planned disposition activity for the year ended December 31, 2022 totaling $54.4 million. The Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
recorded impairment charges on five properties sold and one property being redeveloped for a total of $17.1 million in 2021. Both level 1 and level 3 fair value techniques were used to derive these impairment charges.
8. Other Assets and Liabilities
Other Assets
Other assets consist primarily of intangible assets, prepaid assets, real estate notes receivable, straight-line rent receivables, accounts receivable, additional long-lived assets and interest rate swaps associated with our unsecured termswaps. Items included in "Other assets, net" on the Company’s Consolidated Balance Sheetsas of December 31, 2022 and 2021 are detailed in the table below:
| | | | | | | | | | | | | | |
Dollars in thousands | | December 31, 2022 | | December 31, 2021 |
Real estate notes receivable, net | | $ | 99,643 | | | $ | — | |
Straight-line rent receivables | | 88,868 | | | 70,784 | |
Prepaid assets | | 81,900 | | | 58,618 | |
Above-market intangible assets, net | | 80,720 | | | 4,966 | |
Accounts receivable, net 1 | | 47,498 | | | 14,072 | |
Additional long-lived assets, net | | 21,446 | | | 20,048 | |
Interest rate swap assets | | 14,512 | | | ��� | |
Other receivables, net | | 7,169 | | | — | |
Investment in securities (2) | | 6,011 | | | — | |
Debt issuance costs, net | | 5,977 | | | 1,813 | |
Project costs | | 4,337 | | | 5,129 | |
Net investment in lease | | 1,828 | | | — | |
Customer relationship intangible assets, net | | 1,120 | | | 1,174 | |
Other | | 8,961 | | | 9,069 | |
| | $ | 469,990 | | | $ | 185,673 | |
1This amount is net of allowance for doubtful accounts of $4.0 million
2This amount represents the value of the Company's preferred stock investment in a data analytics platform.
Accounts Payable and Accrued Liabilities
The following table provides details of the items included in "Accounts payable and accrued liabilities" on the Company's Consolidated Balance Sheets as of December 31, 2022 and 2021: | | | | | | | | | | | | | | |
Dollars in thousands | | December 31, 2022 | | December 31, 2021 |
Accrued property taxes | | $ | 78,185 | | | $ | 35,295 | |
Accounts payable and capital expenditures | | 57,352 | | | 17,036 | |
Accrued interest | | 50,037 | | | 12,060 | |
Other operating accruals | | 58,459 | | | 21,717 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | $ | 244,033 | | | $ | 86,108 | |
Other Liabilities
The following table provides details of the items included in "Other liabilities" on the Company's Consolidated Balance Sheets as of December 31, 2022 and 2021:
| | | | | | | | | | | | | | |
Dollars in thousands | | December 31, 2022 | | December 31, 2021 |
Below-market intangible liabilities, net | | $ | 97,935 | | | $ | 4,931 | |
Deferred revenue | | 87,325 | | | 45,130 | |
Security deposits | | 28,521 | | | 11,116 | |
Interest rate swap liability | | 4,269 | | | 5,917 | |
Other | | 618 | | | 293 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | $ | 218,668 | | | $ | 67,387 | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
9. Intangible Assets and Liabilities
The Company has several types of intangible assets and liabilities included in its Consolidated Balance Sheets, including goodwill, debt issuance costs, above-, below-, and at-market lease intangibles, and customer relationship intangibles. For additional detail on the Company's debt issuance costs, see Note 10 to the Consolidated Financial Statements. The Company’s intangible assets and liabilities, including assets held for sale and excluding certain debt issuance costs, as of December 31, 2022 and 2021 consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| GROSS BALANCE at December 31, | ACCUMULATED AMORTIZATION at December 31, | WEIGHTED AVG. REMAINING LIFE in years | BALANCE SHEET CLASSIFICATION |
Dollars in millions | 2022 | 2021 | 2022 | 2021 |
Goodwill | $ | 223.2 | | $ | 3.5 | | $ | — | | $ | — | | N/A | Goodwill |
Credit facility debt issuance costs | 6.9 | | 5.1 | | 0.9 | | 3.3 | | 2.9 | Other assets, net |
Above-market lease intangibles (lessor) | 91.5 | | 7.0 | | 10.7 | | 2.0 | | 5.3 | Other assets, net |
Customer relationship intangibles (lessor) | 2.1 | | 2.1 | | 1.0 | | 0.9 | | 20.6 | Other assets, net |
Below-market lease intangibles (lessor) | (112.5) | | (10.1) | | (14.6) | | (5.1) | | 5.7 | Other liabilities |
| | | | | | |
At-market lease intangibles | 1,067.4 | | 213.0 | | 188.3 | | 77.5 | | 5.2 | Real estate properties |
| | | | | | |
| | | | | | |
| $ | 1,278.6 | | $ | 220.6 | | $ | 186.3 | | $ | 78.6 | | 5.3 | |
For the years ended December 31, 2022 and 2021, the Company recognized approximately $133.6 million and $33.7 million of intangible amortization, respectively.
The following table represents expected amortization over the next five years of the Company’s intangible assets and liabilities in place as of December 31, 2022:
| | | | | |
Dollars in millions | FUTURE AMORTIZATION OF INTANGIBLES, NET |
2023 | $ | 233.8 | |
2024 | 197.9 | |
2025 | 151.1 | |
2026 | 97.6 | |
2027 | 64.3 | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
10. Notes and Bonds Payable
| | | | | | | | | | | | | | | | | | | | | | | |
| DECEMBER 31, | MATURITY DATES | CONTRACTUAL INTEREST RATES | EFFECTIVE INTEREST RATES | PRINCIPAL PAYMENTS | INTEREST PAYMENTS |
Dollars in thousands | 2022 | 2021 |
$700M Unsecured Credit Facility | $ | — | | $ | 210,000 | | 5/23 | LIBOR + 0.90% | N/A | At maturity | Monthly |
$1.5B Unsecured Credit Facility | 385,000 | | — | | 10/25 | SOFR + 0.95% | 5.27 | % | At maturity | Monthly |
$350M Unsecured Term Loan 1 | 349,114 | | — | | 7/23 | SOFR + 1.05% | 5.17 | % | At maturity | Monthly |
$200M Unsecured Term Loan 1 | 199,670 | | 199,460 | | 5/24 | SOFR + 1.05% | 5.17 | % | At maturity | Monthly |
$150M Unsecured Term Loan 1 | 149,495 | | 149,376 | | 6/26 | SOFR + 1.05% | 5.17 | % | At maturity | Monthly |
$300M Unsecured Term Loan 1 | 299,936 | | — | | 10/25 | SOFR + 1.05% | 5.17 | % | At maturity | Monthly |
$200M Unsecured Term Loan 1 | 199,362 | | — | | 7/27 | SOFR + 1.05% | 5.17 | % | At maturity | Monthly |
$300M Unsecured Term Loan 1 | 297,869 | | — | | 1/28 | SOFR + 1.05% | 5.17 | % | At maturity | Monthly |
Senior Notes due 2025 1 | 249,115 | | 249,040 | | 5/25 | 3.88 | % | 4.12 | % | At maturity | Semi-annual |
Senior Notes due 2026 1 | 571,587 | | — | | 8/26 | 3.50 | % | 4.94 | % | At maturity | Semi-annual |
Senior Notes due 2027 1 | 479,553 | | — | | 7/27 | 3.75 | % | 4.76 | % | At maturity | Semi-annual |
Senior Notes due 2028 1 | 296,852 | | 296,612 | | 1/28 | 3.63 | % | 3.85 | % | At maturity | Semi-annual |
Senior Notes due 2030 1 | 565,402 | | — | | 2/30 | 3.10 | % | 5.30 | % | At maturity | Semi-annual |
Senior Notes due 2030 1 | 296,385 | | 296,813 | | 3/30 | 2.40 | % | 2.72 | % | At maturity | Semi-annual |
Senior Notes due 2031 1 | 295,547 | | 295,374 | | 3/31 | 2.05 | % | 2.25 | % | At maturity | Semi-annual |
Senior Notes due 2031 1 | 632,693 | | — | | 3/31 | 2.00 | % | 5.13 | % | At maturity | Semi-annual |
Mortgage notes payable 2 | 84,247 | | 104,650 | | 8/23-12/26 | 3.31%-4.77% | 3.42%-4.84% | Monthly | Monthly |
| $ | 5,351,827 | | $ | 1,801,325 | | | | | | |
1Balances are shown net of discounts and unamortized issuance costs.
2Balances are shown net of discounts and unamortized issuance costs and include premiums.
The Company’s various debt agreements contain certain representations, warranties, and financial and other covenants customary in such loan agreements. Among other things, these provisions require the interest rate was 2.71% per annum, basedCompany to maintain certain financial ratios and impose certain limits on our current credit rating.the Company’s ability to incur indebtedness and create liens or encumbrances. As of December 31, 2017, HTALP had $300.0 million2022, the Company was in compliance with its financial covenant provisions under this unsecured term loan outstanding.its various debt instruments.
Bridge Loan FacilityExchange Offer
In connection with the Duke Acquisition, in May 2017, we entered intoMerger, the Bridge Loan Facility which providedOP offered to usexchange all validly tendered and accepted notes of each series previously issued by Legacy HR (the “Old HR Notes”) for (i) up to $2.47 billion, less$250,000,000 of 3.875% Senior Notes due 2025 (the “2025 Notes”), (ii) up to $300,000,000 of 3.625% Senior Notes due 2028 (the “2028 Notes”), (iii) up to $300,000,000 of 2.400% Senior Notes due 2030 (the “2030 Notes”) and (iv) up to $300,000,000 of 2.050% Senior Notes due 2031 to be issued by the aggregate amount of net proceedsOP (the “2031 Notes” and, collectively, the “New HR Notes”) and solicited consents from debt or equity capital raises or a senior term loan facility. The Bridge Loan Facility was made available to us on the closingholders of the Duke AcquisitionOld HR Notes to amend the indenture governing the Old HR Notes to eliminate substantially all of the restrictive covenants in such indenture (the “Exchange Offers”). Legacy HTA guaranteed the New HR Notes pursuant to (i) a guarantee of the 2025 Notes, (ii) a guarantee of the 2028 Notes, (iii) a guarantee of the 2030 Notes, and (iv) a guarantee of the 2031 Notes, each dated July 22, 2022. Legacy HTA and the OP filed a registration statement on Form S-4 (File No. 333-265593) relating to the issuance of the New HR Notes with the Securities and Exchange Commission (the “SEC”) on June 14, 2022, which was scheduled to mature 364 days fromdeclared effective by the closing. InSEC on June 2017, we terminated28, 2022. The following sets forth the Bridge Loan Facility and no proceeds were used because we elected to fundresults of the Duke Acquisition through other equity and debt offerings. Exchange Offers:
| | | | | | | | | | | |
Series of Old HR Notes | Tenders and Consents Received as of the Expiration Date | Percentage of Total Outstanding Principal Amount of Such Series of Old HR Notes |
3.875 | % | Senior Notes due 2025 | $235,016,000 | 94.01 | % |
3.625 | % | Senior Notes due 2028 | $290,246,000 | 96.75 | % |
2.400 | % | Senior Notes due 2030 | $297,507,000 | 99.17 | % |
2.050 | % | Senior Notes due 2031 | $298,858,000 | 99.62 | % |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Senior Notes Assumed with the Merger
In connection with the execution and subsequent terminationMerger, the Company assumed senior notes ("Legacy Senior Notes") that were originated on various dates prior to the date of the Bridge LoanMerger by the OP (formerly, Healthcare Trust of America Holdings, LP). These notes are all fully and unconditionally guaranteed by the Company and have semi-annual payment requirements. In addition, the Legacy Senior Notes carry customary restrictive financial covenants, including limitations on our ability to incur additional indebtedness and requirements to maintain a pool of unencumbered assets. In addition, the corresponding indentures provide for the ability to redeem the Legacy Senior Notes, subject to certain "make whole" call provisions. The Legacy Senior Notes assumed by the Company consist of the following:
| | | | | | | | | | | | | | |
| COUPON | | PRINCIPAL OUTSTANDING AS OF |
Dollars in thousands | FACE VALUE | 12/31/2022 | 12/31/2021 |
Senior Notes due 2026 | 3.50% | $ | 600,000 | | $ | 600,000 | | $ | — | |
Senior Notes due 2027 | 3.75% | 500,000 | | 500,000 | | — | |
Senior Notes due 2030 | 3.10% | 650,000 | | 650,000 | | — | |
Senior Notes due 2031 | 2.00% | 800,000 | | 800,000 | | — | |
| | $ | 2,550,000 | | $ | 2,550,000 | | $ | — | |
The following table reconciles the Company’s aggregate Senior notes principal balance with the Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021
| | | | | | | | |
| DECEMBER 31, |
Dollars in thousands | 2022 | 2021 |
Senior notes principal balance | $ | 3,699,500 | | $ | 1,150,000 | |
Unaccreted discount | (304,919) | | (4,730) | |
Debt issuance costs | (7,447) | | (7,431) | |
Senior notes carrying amount | $ | 3,387,134 | | $ | 1,137,839 | |
Credit Facilities
The Unsecured Credit Facility we incurred $10.4restructured the parties’ existing bank facilities and added additional borrowing capacities for the Company following the Merger. The OP is the borrower under the Unsecured Credit Facility (in such capacity, the “Borrower”).
•Legacy HR’s existing $700.0 million revolving credit facility under the Amended and Restated Credit Agreement, dated as of May 31, 2019 (as amended, restated, replaced, supplemented, or otherwise modified from time to time prior to July 20, 2022, the “Existing HR Revolving Credit Agreement”), by and among Legacy HR, the lenders party thereto from time to time and their assignees, as lenders, and Wells Fargo Bank, National Association, as the administrative agent (the “WF Administrative Agent”), was terminated, all outstanding obligations in related fees, which we recordedrespect thereof were deemed paid in income (loss) on extinguishment of debt infull and all commitments thereunder were permanently reduced to zero and terminated.
•Legacy HR’s existing $200.0 million term loan facility and existing $150.0 million term loan facility under the accompanying consolidated statements of operations.
$200.0 Million UnsecuredAmended and Restated Term Loan dueAgreement, dated as of May 31, 2019 (as amended, restated, replaced, supplemented, or otherwise modified from time to time prior to July 20, 2022, the “Existing HR Term Loan Agreement”), by and among Legacy HR, the lenders party thereto from time to time and their assignees, as lenders, and the WF Administrative Agent, in each, case, were deemed continued and assumed by the Borrower under the Credit Facility, and the Existing HR Term Loan Agreement was terminated.
◦The existing $200.0 million term loan facility was amended to: (a) conform to the terms of the Borrower’s other term loan facilities under the Credit Facility; (b) include two one-year extension options, resulting in a latest final maturity in May 2026; and (c) reprice to align with the pricing for the Borrower’s other term loan facilities under the Credit Facility; and
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
◦The existing $150.0 million term loan facility was amended to conform to the terms of the Borrower’s other term loan facilities under the Credit Facility, and the existing maturity in June 2026 remains unchanged under the Credit Facility.
•Legacy HTA’s and the OP’s existing $1.0 billion revolving credit facility was upsized to $1.5 billion (the “Revolver”) pursuant to the Credit Facility. The Revolver currently matures in October 2025, and the Credit Facility adds an additional one-year extension option for the Revolver, for a total of two one-year extension options.
•Legacy HTA’s and the OP’s existing $300.0 million term loan facility was deemed continued pursuant to the Credit Facility and was amended to conform to the terms of the Borrower’s other term loan facilities under the Credit Facility. The existing maturity in October 2025 remains unchanged under the Credit Facility.
•Legacy HTA’s and the OP’s existing $200.0 million term loan facility was deemed continued pursuant to the Credit Facility and was amended to (a) conform to the terms of the Borrower’s other term loan facilities under the Credit Facility; (b) extend the maturity from January 2024 to July 20, 2027; and (c) reprice to align with the pricing for the Borrower’s other term loan facilities under the Credit Facility.
•The Credit Facility provides for a new $350.0 million delayed-draw term loan facility that is available to be drawn for 12 months after July 20, 2022 and has an initial maturity date of July 20, 2023,
with two one-year extension options. As of December 31, 2017, HTALP had a $200.02022, the $350.0 million unsecuredCredit Facility was drawn in full. The terms of any delayed draw term loans funded thereunder conform to the terms of the Borrower’s other term loan outstanding, which matures on September 26, 2023. Borrowingsfacilities under the unsecuredCredit Facility, and the pricing for such delayed draw term loans aligns with the pricing for the Borrower’s other term loan accruefacilities under the Credit Facility.
•The Credit Facility provides for a new $300.0 million term loan facility that was funded on July 20, 2022 and has a maturity date of January 20, 2028, with no extension options. The terms of such term loan facility conform to the terms of the Borrower’s other term loan facilities under the Credit Facility, and the pricing for such term loan facility aligns with the pricing for the Borrower’s other term loan facilities under the Credit Facility.
The following table reconciles the Company’s aggregate term loan principal balance with the Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021.
| | | | | | | | |
| DECEMBER 31, |
Dollars in thousands | 2022 | 2021 |
Term loan principal balances | $ | 1,500,000 | | $ | 350,000 | |
Debt issuance costs | (4,554) | | (1,164) | |
Term Loans carrying amount | $ | 1,495,446 | | $ | 348,836 | |
$1.125 billion Asset Sale Term Loan
The Company completed its draw of the $1.125 billion asset sale term loan on July 19, 2022. The principal balance was fully repaid on December 30, 2022.
Mortgage Notes Payable
The following table reconciles the Company’s aggregate mortgage notes principal balance with the Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021.
| | | | | | | | |
| DECEMBER 31, |
Dollars in thousands | 2022 | 2021 |
Mortgage notes payable principal balance | $ | 84,122 | | $ | 103,664 | |
Unamortized premium | 486 | | 1,720 | |
Unaccreted discount | (38) | | (83) | |
Debt issuance costs | (323) | | (651) | |
Mortgage notes payable carrying amount | $ | 84,247 | | $ | 104,650 | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Mortgage Activity
On February 18, 2022, the Company repaid in full a mortgage note payable bearing interest at a rate equalof 4.70% that encumbered a 56,762 square foot property in California. The aggregate payoff price of $12.6 million consisted of outstanding principal of $11.0 million and a "make-whole" amount of approximately $1.6 million. The unamortized premium of $0.8 million and the unamortized cost on this note of $0.1 million were written off upon payoff.
On February 24, 2022, the Company repaid in full a mortgage note payable bearing interest at a rate of 6.17% that encumbered a 80,153 square foot property in Colorado, in conjunction with the disposition of the property. The aggregate payoff price of $6.4 million consisted of outstanding principal of $5.8 million and a "make-whole" amount of approximately $0.6 million. The unamortized premium of $0.1 million was written off upon payoff.
The following table details the Company’s mortgage notes payable, with related collateral.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| ORIGINAL BALANCE | EFFECTIVE INTEREST RATE 10 | MATURITY DATE | COLLATERAL 11 | PRINCIPAL AND INTEREST PAYMENTS 9 | INVESTMENT IN COLLATERAL at December 31, | BALANCE at December 31, |
Dollars in millions | 2022 | 2022 | 2021 |
Commercial Bank 1 | 15.0 | | 5.25 | % | 4/27 | MOB | Monthly/20-yr amort. | — | | — | | 6.1 | |
Life Insurance Co. 2 | 11.0 | | 3.64 | % | 5/27 | MOB | Monthly/10-yr amort. | — | | — | | 11.6 | |
Life Insurance Co. 3 | 12.3 | | 3.86 | % | 8/23 | MOB | Monthly/7-yr amort. | 25.9 | | 10.0 | | 10.3 | |
Life Insurance Co. 4 | 9.0 | | 4.84 | % | 12/23 | MOB,OFC | Monthly/10-yr amort. | 24.5 | | 6.8 | | 7.1 | |
Life Insurance Co. 5 | 13.3 | | 4.13 | % | 1/24 | MOB | Monthly/10-yr amort. | 22.5 | | 11.7 | | 12.0 | |
Life Insurance Co. 6 | 6.8 | | 3.96 | % | 2/24 | MOB | Monthly/7-yr amort. | 14.7 | | 5.8 | | 6.0 | |
Financial Services 7 | 9.7 | | 4.32 | % | 9/24 | MOB | Monthly/10-yr amort. | 16.6 | | 7.5 | | 7.8 | |
Life Insurance Co. 8 | 16.5 | | 3.43 | % | 12/25 | MOB,OFC | Monthly/7-yr amort. | 39.1 | | 16.2 | | 16.7 | |
Financial Services | 11.5 | | 3.71 | % | 1/26 | MOB | Monthly/10-yr amort. | 40.5 | | 8.3 | | 8.7 | |
Life Insurance Co. | 19.2 | | 4.08 | % | 12/26 | MOB | Monthly/10-yr amort. | 44.5 | | 17.9 | | 18.4 | |
| | | | | | $ | 228.3 | | $ | 84.2 | | $ | 104.7 | |
1The Company repaid this loan at the time of disposal in February 2022.
2The Company repaid this loan in February 2022. The Company's unencumbered gross investment was $20.6 million at December 31, 2022.
3The unaccreted portion of the $0.2 million discount recorded on this note upon acquisition is included in the balance above.
4The unamortized portion of the $0.1 million premium recorded on this note upon acquisition is included in the balance above.
5The unamortized portion of the $0.8 million premium recorded on this note upon acquisition is included in the balance above.
6The unamortized portion of the $0.2 million premium recorded on this note upon acquisition is included in the balance above.
7The unamortized portion of the $0.1 million premium recorded on this note upon acquisition is included in the balance above.
8The unamortized portion of the $0.7 million premium recorded on this note upon acquisition is included in the balance above.
9Payable in monthly installments of principal and interest with the final payment due at maturity (unless otherwise noted).
10The contractual interest rates for the eight outstanding mortgage notes ranged from 3.3% to LIBOR, plus a margin ranging from 1.50% to 2.45% per annum based on our credit rating. The margin associated with our borrowings4.8% as of December 31, 2017 was 1.65% per annum. HTALP had interest rate swaps2022.
11MOB-Medical office building; OFC-Office
Other Long-Term Debt Information
Future maturities of the Company’s notes and bonds payable as of December 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | |
Dollars in thousands | PRINCIPAL MATURITIES | NET ACCRETION/ AMORTIZATION 1 | DEBT ISSUANCE COSTS 2 | NOTES AND BONDS PAYABLE | % |
2023 | $ | 368,880 | | $ | (38,805) | | $ | (3,258) | | $ | 326,817 | | 6.1 | % |
2024 | 225,352 | | (40,922) | | (2,211) | | 182,219 | | 3.4 | % |
2025 | 951,250 | | (43,193) | | (1,851) | | 906,206 | | 16.9 | % |
2026 | 773,640 | | (41,798) | | (1,636) | | 730,206 | | 13.6 | % |
2027 | 700,000 | | (36,192) | | (1,518) | | 662,290 | | 12.4 | % |
2028 and thereafter | 2,649,500 | | (103,561) | | (1,850) | | 2,544,089 | | 47.6 | % |
| $ | 5,668,622 | | $ | (304,471) | | $ | (12,324) | | $ | 5,351,827 | | 100.0 | % |
1Includes discount accretion and premium amortization related to the Company’s Senior Notes and six mortgage notes payable.
2Excludes approximately $6.0 million in place that fixeddebt issuance costs related to the interest rate at 3.07% per annum, based on our current credit rating.
Company's Unsecured Credit Facility included in other assets, net.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, – (Continued)cont.
$300.0 Million Unsecured Senior Notes due 2021
As of December 31, 2017, HTALP had $300.0 million of unsecured senior notes outstanding that are guaranteed by us. These unsecured senior notes are registered under the Securities Act of 1933, as amended (the “Securities Act”), bear interest at 3.38% per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.21% of the principal amount thereof, with an effective yield to maturity of 3.50% per annum. As of December 31, 2017, HTALP had $300.0 million of these unsecured senior notes outstanding that mature on July 15, 2021.
$400.0 Million Unsecured Senior Notes due 2022
In June 2017, in connection with the Duke Acquisition and the $500.0 million unsecured senior notes due 2027 referenced below, HTALP issued $400.0 million of unsecured senior notes that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at 2.95% per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.94% of the principal amount thereof, with an effective yield to maturity of 2.96% per annum. As of December 31, 2017, HTALP had $400.0 million of these unsecured senior notes outstanding that mature on July 1, 2022.
$300.0 Million Unsecured Senior Notes due 2023
As of December 31, 2017, HTALP had $300.0 million of unsecured senior notes outstanding that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at 3.70% per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.19% of the principal amount thereof, with an effective yield to maturity of 3.80% per annum. As of December 31, 2017, HTALP had $300.0 million of these unsecured senior notes outstanding that mature on April 15, 2023.
$350.0 Million Unsecured Senior Notes due 2026
As of December 31, 2017, HTALP had $350.0 million of unsecured senior notes outstanding that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at 3.50% per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.72% of the principal amount thereof, with an effective yield to maturity of 3.53% per annum. As of December 31, 2017, HTALP had $350.0 million of these unsecured senior notes outstanding that mature on August 1, 2026.
$500.0 Million Unsecured Senior Notes due 2027
In June 2017, in connection with the Duke Acquisition and the $400.0 million unsecured senior notes due 2022 referenced above, HTALP issued $500.0 million of unsecured senior notes that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at 3.75% per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.49% of the principal amount thereof, with an effective yield to maturity of 3.81% per annum. As of December 31, 2017, HTALP had $500.0 million of these unsecured senior notes outstanding that mature on July 1, 2027.
Fixed and Variable Rate Mortgages
In June 2017, as part of the Duke Acquisition, we were required, by the seller, to execute, as the borrower, for a part of the purchase price a senior secured first lien loan, subject to customary non-recourse carve-outs, a Promissory Note in the amount of $286.0 million. The Promissory Note bears interest at 4.0% per annum and is payable in three equal payments maturing on January 10, 2020 and is guaranteed by us.
As of December 31, 2017, HTALP and its subsidiaries had fixed and variable rate mortgage loans with interest rates ranging from 2.85% to 6.39% per annum and a weighted average interest rate of 4.27% per annum. Including the impact of the interest rate swap associated with our variable rate mortgages, the weighted average interest rate was 4.39% per annum.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Future Debt Maturities
The following table summarizes the debt maturities and scheduled principal repayments of our indebtedness as of December 31, 2017 (in thousands): |
| | | | |
Year | | Amount |
2018 | | $ | 102,513 |
|
2019 | | 107,676 |
|
2020 | | 146,678 |
|
2021 | | 305,772 |
|
2022 | | 463,063 |
|
Thereafter | | 1,676,740 |
|
Total | | $ | 2,802,442 |
|
Deferred Financing Costs
As of December 31, 2017, the future amortization of our deferred financing costs is as follows (in thousands): |
| | | | |
Year | | Amount |
2018 | | $ | 2,821 |
|
2019 | | 2,827 |
|
2020 | | 2,804 |
|
2021 | | 2,610 |
|
2022 | | 1,987 |
|
Thereafter | | 2,801 |
|
Total | | $ | 15,850 |
|
We are required by the terms of our applicable loan agreements to meet various affirmative and negative covenants that we believe are customary for these types of facilities, such as limitations on the incurrence of debt by us and our subsidiaries that own unencumbered assets, limitations on the nature of HTALP’s business, and limitations on distributions by HTALP and its subsidiaries that own unencumbered assets. Our loan agreements also impose various financial covenants on us, such as a maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a minimum tangible net worth covenant, a maximum ratio of unsecured indebtedness to unencumbered asset value, rent coverage ratios and a minimum ratio of unencumbered NOI to unsecured interest expense. As of December 31, 2017, we believe that we were in compliance with all such financial covenants and reporting requirements. In addition, certain of our loan agreements include events of default provisions that we believe are customary for these types of facilities, including restricting us from making dividend distributions to our stockholders in the event we are in default thereunder, except to the extent necessary for us to maintain our REIT status.
8.11. Derivative Financial Instruments and Hedging Activities
Risk Management Objective of Using Derivative Financial InstrumentsDerivatives
We may use derivative financial instruments,The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, swaps, caps, options, floorsliquidity, and other interest rate derivative contracts, to hedge all or a portioncredit risk, primarily by managing the amount, sources, and duration of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operatingits assets and financial structure as well as to hedge specific anticipated transactions. We do not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. Theliabilities and the use of derivative financial instruments carries certain risks, includinginstruments. Specifically, the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, we only enterCompany enters into derivative financial instruments with counterparties with high credit ratingsto manage exposures that arise from business activities that result in the receipt or payment of future known and with majoruncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial institutions with which weinstruments are used to manage differences in the amount, timing, and our affiliates may also have other financial relationships. We do not anticipate that anyduration of the counterparties will failCompany’s known or expected cash receipts and its known or expected cash payments principally related to meet their obligations. We record counterparty credit risk valuation adjustments on interest rate swap derivative assets in order to properly reflect the credit quality of the counterparty. In addition, our fair value of interest rate swap derivative liabilities is adjusted to reflect the impact of our credit quality.Company’s borrowings.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Cash Flow Hedges of Interest Rate Risk
OurThe Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage ourits exposure to interest rate movements. To accomplish this objective, wethe Company primarily useuses interest rate swaps and treasury locks as part of ourits interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for usthe Company making fixed ratefixed-rate payments over the life of the agreements without exchange of the underlying notional amount. A treasury lock is a synthetic forward sale of a U.S. treasury note, which is settled in cash based upon the difference between an agreed upon treasury rateDuring 2022, 2021 and the prevailing treasury rate at settlement. Such treasury locks are entered into to effectively fix the treasury component of an upcoming debt issuance.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income in the accompanying consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the year ended December 31, 2017,2020, such derivatives were used to hedge the variable cash flows associated with variable rateexisting variable-rate debt. The ineffective portion of the change in fair value of the
For derivatives is recognized directly in earnings. During the year ended December 31, 2017, we recorded approximately $43,000 of hedge ineffectiveness in earnings. We designated our derivative financial instrumentsand that qualify as cash flow hedges in March 2017 as such there was no hedge ineffectiveness in earnings forof interest rate risk, the years ended December 31, 2016.
Duringgain or loss on the year ended December 31, 2017, we entered into and settled two treasury locks designated as cash flow hedges with an aggregate notional amount of $250.0 million to hedge future fixed rate debt issuances, which fixed the 10-year swap rates at an average rate of 2.26% per annum. Upon settlement of these contracts during the year ended December 31, 2017, we paid and reported a loss of $0.7 million which wasderivative is recorded in accumulated other comprehensive loss in our accompanying consolidated statements of comprehensive income (loss) and a gain of $25,000 which was recordedsubsequently reclassified into interest expense in the change in fair value of our derivative financial instruments in our accompanying consolidated statements of operations.
same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income in the accompanying consolidated balance sheets(loss) related to derivatives will be reclassified to interest expense as interest payments are made on our variablethe Company’s variable-rate debt.
During 2020, the Company entered into two treasury rate debt. Duringlocks totaling $75.0 million and $40.0 million, respectively. The treasury rate locks were settled for an aggregate amount of $4.3 million concurrent with the next twelve months, we estimate that an additional $0.2 millionCompany's issuance of its Senior Notes due 2030. The settlement will be reclassified from other comprehensive income inamortized over the accompanying consolidated balance sheets as an increase to interest related to derivative financial instruments in10-year term of the accompanying consolidated statements of operations.notes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
As of December 31, 2017, we2022, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands, except number of instruments):
|
| | | | |
Interest Rate Swaps | | December 31, 2017 |
Number of instruments | | 5 |
|
Notional amount | | $ | 189,426 |
|
risk. The table below presents the fairnotional value and weighted average rates of ourthe Company's derivative financial instruments designated as a hedge as well as our classification in the accompanying consolidated balance sheets as of December 31, 2017 (in thousands). In March 2017, we designated our derivative financial instruments as cash flow hedges. As such, prior to March 2017 we did not have derivatives designated as hedging instruments.2022 and 2021: |
| | | | | | | | | | | | | | | | | | | | |
| | Asset Derivatives | | Liability Derivatives |
| | | | Fair Value at: | | | | Fair Value at: |
| | | | December 31, | | | | December 31, |
Derivatives Designated as Hedging Instruments: | | Balance Sheet Location | | 2017 | | 2016 | | Balance Sheet Location | | 2017 | | 2016 |
Interest rate swaps | | Receivables and other assets | | $ | 1,529 |
| | $ | — |
| | Derivative financial instruments | | $ | 1,089 |
| | $ | — |
|
| | | | | | | | |
| NOTIONAL VALUE AS OF | WEIGHTED AVERAGE RATE |
EXPIRATION DATE | DECEMBER 31, 2022 |
January 31, 2023 | $ | 300,000 | | 1.42 | % |
January 15, 2024 | 200,000 | | 1.21 | % |
May 1, 2026 | 100,000 | | 2.15 | % |
December 1, 2026 | 150,000 | | 3.84 | % |
June 1, 2027 | 150,000 | | 4.13 | % |
December 1, 2027 | 250,000 | | 3.79 | % |
| $ | 1,150,000 | | 2.63 | % |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The tables below present the gain or loss recognized on our derivative financial instruments designated as hedges as well as our classification in the accompanying consolidated statements of operations for the years ended December 31, 2017 and 2016 (in thousands). In March 2017, we designated our derivative financial instruments as cash flow hedges. As such, prior to March 2017 we did not have derivatives designated as hedging instruments.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gain (Loss) Recognized in OCI on Derivative (Effective Portion): | | | | Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion): | | | | Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing): |
| | Year Ended December 31, | | | | Year Ended December 31, | | | | Year Ended December 31, |
Derivatives Cash Flow Hedging Relationships: | | 2017 | | 2016 | | Statement of Operations Location | | 2017 | | 2016 | | Statement of Operations Location | | 2017 | | 2016 |
Interest rate swaps | | $ | (338 | ) | | $ | — |
| | Interest related to derivative financial instruments | | $ | (618 | ) | | $ | — |
| | Interest related to derivative financial instruments | | $ | 43 |
| | $ | — |
|
Non-Designated Hedges
Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks, but do not meet the strict hedge accounting requirements of ASC 815 - Derivatives and Hedging. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly to gain or loss on change in fair value of derivative financial instruments in the accompanying consolidated statements of operations. For the years ended December 31, 2017 and 2016, we recorded a gain on change in fair value of derivative financial instruments of $0.9$50.0 million and $1.3 million, respectively.a fixed rate of 4.16%. The swap agreement has an effective date of March 1, 2023 and a termination date of June 1, 2026.
Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of ourthe Company's derivative financial instruments not designated as hedges as well as ourtheir classification inon the accompanying consolidated balance sheetsConsolidated Balance Sheets as of December 31, 2016 (in thousands). In March 2017, we designated our derivative financial instruments as cash flow hedges. As such, as of March 2017 we did not have derivatives not designated as hedging instruments.2022 and 2021.
| | | | | | | | | | | | | | |
| AS OF DECEMBER 31, 2022 | AS OF DECEMBER 31, 2021 |
Dollars in thousands | BALANCE SHEET LOCATION | FAIR VALUE | BALANCE SHEET LOCATION | FAIR VALUE |
Derivatives designated as hedging instruments | | | | |
Interest rate swaps 2017 | | | Other liabilities | $ | (420) | |
Interest rate swaps 2018 | | | Other liabilities | (976) | |
Interest rate swaps 2019 | Other Assets | $ | 13,603 | | Other liabilities | (4,521) | |
Interest rate swaps 2022 | Other Assets | 909 | | | — | |
Interest rate swaps 2022 | Other Liabilities | (4,269) | | | — | |
Total derivatives designated as hedging instruments | | $ | 10,243 | | | $ | (5,917) | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Asset Derivatives | | Liability Derivatives |
| | | | Fair Value at: | | | | Fair Value at: |
| | | | December 31, | | | | December 31, |
Derivatives NOT Designated as Hedging Instruments: | | Balance Sheet Location | | 2017 | | 2016 | | Balance Sheet Location | | 2017 | | 2016 |
Interest rate swaps | | Receivables and other assets | | $ | — |
| | $ | 541 |
| | Derivative financial instruments | | $ | — |
| | $ | 1,920 |
|
Tabular Disclosure of Offsetting Derivativesthe Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive
Income (Loss)
The table below sets forthpresents the effect of cash flow hedge accounting on Accumulated other comprehensive income (loss) as of December 31, 2022 related to the Company's outstanding interest rate swaps.
| | | | | | | | | | | | | | |
| AMOUNT OF GAIN/(LOSS) RECOGNIZED IN OCI on derivatives | | AMOUNT OF (GAIN)/LOSS RECLASSIFIED FROM OCI INTO INCOME for the year ended December 31, |
Dollars in thousands | 2022 | 2022 | 2021 |
Interest rate swaps 2017 | $ | 302 | | Interest expense | $ | 118 | | $ | 527 | |
Interest rate swaps 2018 | 616 | | Interest expense | 361 | | 1,194 | |
Interest rate swaps 2019 | 12,964 | | Interest expense | 563 | | 2,157 | |
Interest rate swaps 2022 | (3,252) | | Interest expense | (109) | | — | |
Settled treasury hedges | — | | Interest expense | 426 | | 426 | |
Settled interest rate swaps | — | | Interest expense | 168 | | 168 | |
| $ | 10,630 | | Total interest expense | $ | 1,527 | | $ | 4,472 | |
The Company estimates that an additional $10.3 million will be reclassified from accumulated other comprehensive loss as a net decrease to interest expense over the next 12 months.
Tabular Disclosure Offsetting Derivatives
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
The table below presents a gross presentation, the effects of offsetting, and
a net presentation of
ourthe Company's derivatives as of December 31,
2017 and 2016, respectively (in thousands).2022. The net amounts of derivative
assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative
assets or liabilities are presented
inon the
consolidated balance sheets.Company's Consolidated Balance Sheets. |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Offsetting of Derivative Assets |
| | Gross Amounts of Recognized Assets | | Gross Amounts in the Consolidated Balance Sheets | | Net Amounts of Assets Presented in the Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Received | | Net Amount |
December 31, 2017 | | $ | 1,529 |
| | $ | — |
| | $ | 1,529 |
| | $ | — |
| | $ | — |
| | $ | 1,529 |
|
December 31, 2016 | | 541 |
| | — |
| | 541 |
| | — |
| | — |
| | 541 |
|
| | | | | | | | | | | | | | | | | | | | |
Offsetting of Derivative Assets |
| GROSS AMOUNTS of recognized assets | GROSS AMOUNTS OFFSET in the Consolidated Balance Sheets | NET AMOUNTS OF ASSETS presented in the Consolidated Balance Sheets | GROSS AMOUNTS NOT OFFSET in the Consolidated Balance Sheets |
FINANCIAL INSTRUMENTS | CASH COLLATERAL | NET AMOUNT |
Derivatives | $ | 14,512 | | $ | — | | $ | 14,512 | | $ | (4,269) | | $ | — | | $ | 10,243 | |
| | | | | | | | | | | | | | | | | | | | |
Offsetting of Derivative Liabilities |
| GROSS AMOUNTS of recognized liabilities | GROSS AMOUNTS OFFSET in the Consolidated Balance Sheets | NET AMOUNTS OF LIABILITIES presented in the Consolidated Balance Sheets | GROSS AMOUNTS NOT OFFSET in the Consolidated Balance Sheets |
FINANCIAL INSTRUMENTS | CASH COLLATERAL | NET AMOUNT |
Derivatives | $ | (4,269) | | $ | — | | $ | (4,269) | | $ | 4,269 | | $ | — | | $ | — | |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Offsetting of Derivative Liabilities |
| | Gross Amounts of Recognized Liabilities | | Gross Amounts in the Consolidated Balance Sheets | | Net Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Financial Instruments | | Cash Collateral Received | | Net Amount |
December 31, 2017 | | $ | 1,089 |
| | $ | — |
| | $ | 1,089 |
| | $ | — |
| | $ | — |
| | $ | 1,089 |
|
December 31, 2016 | | 1,920 |
| | — |
| | 1,920 |
| | — |
| | — |
| | 1,920 |
|
Credit Risk RelatedCredit-risk-related Contingent Features
We haveThe Company has agreements with each of ourits derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. The Company has agreements with each of its derivative counterparties that contain a provision where if wethe Company either defaults or is capable of being declared in default on any of ourits indebtedness, including a default where repayment ofthen the indebtedness has not been accelerated by the lender, then weCompany could also be declared in default on ourits derivative obligations.
We also have agreements with each of our derivative counterparties that incorporate provisions from our indebtedness with a lender affiliate of the derivative counterparty requiring it to maintain certain minimum financial covenant ratios on our indebtedness. Failure to comply with the covenant provisions would result in us being in default on any derivative instrument obligations covered by these agreements.
As of December 31, 2017,2022, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $1.1$2.1 million. As of December 31, 2017, we have2022, the Company has not posted any collateral related to these agreements and we werewas not in breach of any ofagreement provisions. If the provisions of these agreements. If weCompany had breached any of thethese provisions, of these agreements, weit could have been required to settle ourits obligations under thesethe agreements at antheir aggregate termination value of $1.1 million at$2.1 million.
12. Stockholders’ Equity
Common Stock
The Company had no preferred shares outstanding and had common shares outstanding for the three years ended December 31, 2017.2022, 2021, and 2020 as follows:
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
| 2022 | | 2021 | | 2020 | |
Balance, beginning of year | 150,457,433 | | 139,487,375 | | 134,706,154 | |
Issuance of common stock | 229,618,304 | | 10,899,301 | | 4,637,445 | |
Non-vested share-based awards, net of withheld shares and forfeitures | 514,157 | | 70,757 | | 143,776 | |
Balance, end of year | 380,589,894 | | 150,457,433 | | 139,487,375 | |
9. Commitments and Contingencies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
At-The-Market Equity Offering Program
The Company has in litigationplace an ATM equity offering program to sell shares of the Company’s common stock from time to time with various parties as a routine part of our business, including tenant defaults. However, we are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material effect on our consolidated financial position, results of operations or cash flows.
Environmental Matters
We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability at our properties that we believe would require additional disclosure or the recording of a loss contingency.
Rental Expense
We have ground leases and other operating leases with landlords that generally require fixed annual rental payments and may also include escalation clauses and renewal options. These leases generally have terms up to 99 years, excluding extension options. Future minimum lease obligations under non-cancelable ground leases and other operating leases as of December 31, 2017 are as follows (in thousands): |
| | | | |
Year | | Amount |
2018 | | $ | 10,908 |
|
2019 | | 11,035 |
|
2020 | | 11,177 |
|
2021 | | 11,332 |
|
2022 | | 11,566 |
|
Thereafter | | 916,180 |
|
Total | | $ | 972,198 |
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
During the years ended December 31, 2017, 2016 and 2015, rental expense was $11.5 million, $8.5 million and $6.9 million, respectively.in at-the-market sales transactions. The amount of contingent rent and sublease rent was not significant.
Other
Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In our opinion, these matters are not expected to have a material effect on our consolidated financial position, results of operations or cash flows.
10. Stockholders’ Equity and Partners’ Capital
HTALP’s operating partnership agreement provides that it will distribute cash flow from operations and net sale proceeds to its partners in accordance with their overall ownership interests at such times and in such amounts as the general partner determines. Dividend distributions are made such that a holder of one OP Unit in HTALP will receive distributions from HTALP in an amount equal to the dividend distributions paid to the holder of one share of our common stock. In addition, for each share of common stock issued or redeemed by us, HTALP issues or redeems a corresponding number of OP Units.
During the year ended December 31, 2017, we issued $1.8 billion of equity at an average price of $28.76 per share and entered a forward sale arrangement pursuant to a forward equity agreement, with anticipated net proceeds of $75.0 million to be settled in April 2018, subject to adjustments as provided in the forward equity agreement. Refer to Note 12 - Per Share Data of HTA to these consolidated financial statements for a more detailed discussion related to our forward equity agreement executed in October 2017.
Common Stock Offerings
In September 2017, we entered into newCompany has equity distribution agreements with our various sales agents with respect to ourthe ATM offering program of common stock with an aggregate sales amount of up to $500.0$750.0 million. In October 2017, we issued 4,200,000 shares of our common stock for $124.3 million of gross proceeds at a price of $29.60 per share, and the $75.0 million forward contract which will be issued over the next six months. We contemporaneously terminated our prior ATM equity distribution agreements. Additionally, during the year ended December 31, 2017, and under the previous ATM, we issued and sold 3,998,000 shares of our common stock for $125.7 million of gross proceeds at an average price of $31.45 per share. As of December 31, 2017, $300.72022, $750.0 million remained available for issuance by us under the September 2017 ATM.current ATM offering program. The Company's previous ATM agreements involving Legacy HR are no longer in effect following the Merger on July 20, 2022. The following table details the Company's at-the-market activity, including any forward transactions:
| | | | | | | | | | | | | | | | | |
| WEIGHTED AVERAGE SALE PRICE per share | SHARES PRICED | SHARES SETTLED | SHARES REMAINING TO BE SETTLED | NET PROCEEDS in millions |
2021 | $ | 31.09 | | 9,763,680 | | 10,859,539 | | 727,400 | | $ | 330.3 | |
2022 | $ | 31.73 | | — | | 727,400 | | — | | $ | 22.3 | |
| | | | | |
Dividends Declared
During 2022, the Company declared and paid common stock dividends aggregating $1.24 per share ($0.31 per share per quarter).
On February 24, 2023, the Company declared a quarterly common stock dividend in the amount of $0.31 per share payable on March 21, 2023 to stockholders of record on March 7, 2023.
Authorization to Repurchase Common Stock
On August 2, 2022, the Company’s Board of Directors authorized the repurchase of up to $500.0 million of outstanding shares of the Company’s common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints, and other customary conditions. The Company is not obligated under this authorization to repurchase any specific number of shares. This authorization supersedes all previous stock repurchase authorizations. As of the date of these Consolidated Financial Statements, the Company has not repurchased any shares of its common stock under this authorization.
Accumulated Other Comprehensive Income
During the year ended December 31, 2017, we, in connection2020, the Company entered into two treasury rate locks that were settled for an aggregate amount of $4.3 million concurrent with the Duke Acquisition, completed an underwritten public offeringCompany’s issuance of 54,625,000 sharesits Senior Notes due 2030. This amount will be reclassified out of our common stockaccumulated other comprehensive over the 10-year term of the notes. The Company continues to amortize the 2015 settlement of forward-starting interest rate swaps. This amount will be reclassified out of accumulated other comprehensive income impacting net income over the 10-year term of the associated senior note issuance. See Note 11 for $1.6 billion of gross proceeds at a price of $28.50 per share.more information regarding the Company's derivative instruments.
Common Unit Offerings
DuringThe following table represents the year ended December 31, 2017, we issued 37,659 OP Unitschanges in HTALP for approximately $1.1 million in connection with acquisition transactions.
Common Stock Dividends
See our accompanying consolidated statements of operations for the dividends declaredaccumulated other comprehensive income (loss) during the years ended December 31, 2017, 20162022 and 2015. On February 15, 2018, our Board of Directors announced a quarterly dividend of $0.305 per share/unit2021:
| | | | | | | | |
| INTEREST RATE SWAPS as of December 31, |
Dollars in thousands | 2022 | 2021 |
Beginning balance | $ | (9,981) | | $ | (17,832) | |
Other comprehensive loss before reclassifications | 1,531 | | 4,472 | |
Amounts reclassified from accumulated other comprehensive income | 10,590 | | 3,379 | |
Net current-period other comprehensive income | 12,121 | | 7,851 | |
Ending balance | $ | 2,140 | | $ | (9,981) | |
The following table represents the details regarding the reclassifications from accumulated other comprehensive income (loss) during the year ended December 31, 2022 (dollars in thousands):
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
| | | | | | | | |
DETAILS ABOUT ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMPONENTS | AMOUNT RECLASSIFIED from accumulated other comprehensive income (loss) | AFFECTED LINE ITEM in the statement where net income is presented |
Amounts reclassified from accumulated other comprehensive income (loss) related to settled interest rate swaps | $ | 594 | | Interest Expense |
Amounts reclassified from accumulated other comprehensive income (loss) related to current interest rate swaps | 937 | | Interest Expense |
| $ | 1,531 | | |
13. Stock and Other Incentive Plans
Stock Incentive Plan
The Legacy HR stockholders approved the Legacy HR Incentive Plan, which authorized the Company to issue 3,500,000 shares of common stock to be paid on April 10, 2018 to stockholders of record of our common stockits employees and OP unitholders on April 3, 2018.
directors. The Legacy HR Incentive Plan
The Plan permits the grant of incentive awards to our employees, officers, non-employee directors and consultants was replaced as selected by our Board of Directors. The Plan authorizes us to grant awards in any of the following forms: options; stock appreciation rights;merger date by the Incentive Plan. As of December 31, 2022 and 2021, the Company had issued a total of 3,417,696 and 2,386,822 restricted stock; restricted or deferred stock units; performance awards; dividend equivalents; other stock-based awards, including units in HTALP; and cash-based awards. Subject to adjustment as provided in the Plan, the aggregate number of awards reserved and available for issuanceshares under the Incentive Plan is 5,000,000 shares. As of December 31, 2017, there were 1,693,510and the Legacy HR Incentive Plan, respectively. Unvested awards available for grant under the Plan.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
LTIP Units
AwardsLegacy HR Incentive Plan were assumed according to their existing terms by the Company in connection with the Merger. Non-vested shares issued under the LTIP consist of Series C units in HTALP and wereLegacy HR Incentive Plan are generally subject to fixed vesting periods varying from three to eight years beginning on the achievementdate of certain performanceissue. If a recipient voluntarily terminates his or her relationship with the Company or is terminated for cause before the end of the vesting period, the shares are forfeited, at no cost to the Company. Once the shares have been issued, the recipient has the right to receive dividends and market conditionsthe right to vote the shares through the vesting period. Compensation expense, included in order to vest. Once vested, the Series C units were converted into common units of HTALP, which may be converted into shares of our common stock. The LTIP awards were fully expensed or forfeited in 2015.
Restricted Common Stock
The weighted average fair value of restricted common stock grantedgeneral and administrative expense, recognized during the years ended December 31, 2017, 20162022, 2021 and 20152020 from the amortization of the value of shares over the vesting period issued to employees and directors was $29.75, $29.82$13.9 million, $10.4 million and $26.52,$9.7 million, respectively. The following table represents expected amortization of the Company's non-vested shares issued as of December 31, 2022:
| | | | | |
Dollars in millions | FUTURE AMORTIZATION of non-vested shares |
2023 | $ | 12.0 | |
2024 | 10.0 | |
2025 | 8.3 | |
2026 | 5.5 | |
2027 | 0.4 | |
2028 and thereafter | 0.1 | |
Total | $ | 36.3 | |
Executive Incentive Plan
The Compensation Committee has adopted an executive incentive plan pursuant to the Incentive Plan (the "Executive Incentive Plan") to provide specific award criteria with respect to incentive awards made under the Incentive Plan subject to the discretion of the Compensation Committee. Under the terms of the Executive Incentive Plan, the Company's named executive officers, and certain other members of senior management, may earn incentive awards in the form of cash, non-vested stock, restricted stock units ("RSUs"), and units in the OP ("OP Units"). For 2022, 2021 and 2020, compensation expense, included in general and administrative expense, resulting from the amortization of the Executive Incentive Plan non-vested share and RSU grants to officers was approximately $9.8 million, $6.6 million, and $5.9 million, respectively. Details of equity awards that have been issued under this plan are as follows:
•On January 3, 2022, the Company granted non-vested stock awards to its named executive officers, and certain other members of senior management and employees, with a grant date fair value of restricted$7.9 million, which consisted of an aggregate of 249,689 non-vested shares with a five-year vesting period, which will result in an annual compensation expense of $1.6 million for each of 2023, 2024, 2025 and 2026.
•On January 3, 2022, the Company granted RSUs to its named executive officers, and certain other members of senior management and officers, with a grant date fair value of $9.7 million, which consisted of an aggregate
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
294,932 RSUs with a three-year performance period and a total five-year vesting period, which will result in an annual compensation expense of $1.9 million for each of 2023, 2024, 2025, and 2026.
•On February 22, 2022, the Company granted a performance-based award to its named executive officers, senior vice presidents, and first vice presidents with a grant date fair value of $3.9 million, which consisted of an aggregate of 126,930 non-vested shares with a five-year vesting period, which will result in an annual compensation expense of $0.8 million for 2023, 2024, 2025 and 2026, and $0.1 million for 2027.
•On December 12, 2022, the Company granted non-vested stock awards to its named executive officers in view of efforts with respect to the merger transaction and integration of the two companies, with a grant date fair value of $2.7 million, which consisted of an aggregate of 140,809 non-vested shares with a three-year vesting period, which will result in an compensation expense of $0.9 million for 2023, 2024 and 2025.
•On January 4, 2023, the Company granted non-vested stock awards to its named executive officers, senior vice presidents, and first vice presidents with a grant date fair value of $4.1 million, which consisted of an aggregate of 205,264 shares with a ratable five-year vesting period, which will result in an annual compensation expense of $0.8 million for 2023, 2024, 2025, 2026 and 2027.
•On January 4, 2023, the Company granted 627,547 in OP units to named executive officers with a three-year performance period and ratable vestings of 50% in year four and 50% in year five. The expense will be recognized on the straight-line basis over the five-year vesting period.
•On January 4, 2023, the Company granted RSUs to certain of its non-executive senior officers consisting of an aggregate of 165,174 RSUs with ratable vestings of 50% in year four and 50% in year five. The expense will be recognized on the straight-line basis over the five-year vesting period
Approximately 43% of the RSUs vest based on two market performance conditions. Relative and absolute total shareholder return ("TSR") awards containing these market performance conditions were valued using independent specialists. The Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair values of $30.56 for the absolute TSR component and $41.30 for the relative TSR component for the January 2022 grant using the following assumptions:
| | | | | |
Volatility | 30.0 | % |
Dividend Assumption | Accrued |
Expected term in years | 3 years |
Risk-free rate | 1.02 | % |
Stock price (per share) | $31.68 |
The remaining 57% of the RSUs vest upon certain operating performance conditions. With respect to the operating performance conditions of the January grant, the grant date fair value was $31.68 based on the Company's share price on the date of grant. The combined weighted average grant date fair value of the January 2022 RSUs was $33.04 per share.
Long-Term Incentive Program
In the first quarter of 2022, the Company granted a performance-based award to certain non-executive officers under the Long-term Incentive Program adopted under the Legacy HR Incentive Plan (the "LTIP") totaling approximately $0.6 million, which was granted in the form of 19,204 non-vested shares. In the first quarter of 2021, the Company granted a performance-based award to certain non-executive officers under the LTIP totaling approximately $0.6 million, which was granted in the form of 19,679 non-vested shares. The shares have vesting periods ranging from one to eight years with a weighted average vesting period of approximately five years.
For 2022, 2021 and 2020, compensation expense resulting from the amortization of non-vested share grants to officers was approximately $0.9 million, $1.0 million, and $1.1 million, respectively.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
Salary Deferral Plan
The Company's salary deferral plan allows certain of its officers to elect to defer up to 50% of their base salary in the form of non-vested shares subject to long-term vesting. The number of shares will be increased through a Company match depending on the length of the vesting period selected by the officer. The officer's vesting period choices are: three years for a 30% match; five years for a 50% match; and eight years for a 100% match. During 2022, 2021 and 2020, the Company issued 17,381 shares, 21,396 shares and 17,570 shares, respectively, to its officers through the salary deferral plan. For 2022, 2021 and 2020, compensation expense resulting from the amortization of non-vested share grants to officers was approximately $0.9 million for each year, respectively.
Non-employee Directors Incentive Plan
The Company issues non-vested shares to its non-employee directors under the Incentive Plan. The directors’ shares have a one-year vesting period and are subject to forfeiture prior to such date upon termination of the director’s service, at no cost to the Company. For each of the years 2022, 2021 and 2020, compensation expense resulting from the amortization of non-vested share grants to directors was approximately $1.5 million, $1.2 million, and $1.0 million, respectively.
•On May 13, 2022, the Company granted a non-vested stock award to eight of its directors, with a grant date fair value of $0.8 million, which consisted of an aggregate of 26,840 non-vested shares, with a one-year vesting period.
•On August 2, 2022, the Company granted non-vested stock awards to twelve of its directors, with a grant date fair value of $1.8 million, which consisted of an aggregate of 70,816 non-vested shares, with a vesting period between one and three years.
Other Grants
The Company issued three one-time non-vested share grants related to executive management transition in 2016. For 2022, 2021 and 2020, compensation expense resulting from the amortization of these non-vested share grants to officers was approximately $0.8 million, $0.7 million, and $0.8 million, respectively.
In 2022, the Company made discretionary awards of 5,806 shares of non-vested stock to three employees.
A summary of the activity under the Incentive Plans and related information for the three years in the period ended December 31, 2022 follows:
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
Dollars in thousands, except per share data | 2022 | 2021 | 2020 |
Share-based awards, beginning of year | 1,562,028 | | 1,766,061 | | 1,754,066 | |
Granted | 657,475 | | 203,701 | | 197,999 | |
Vested | (418,949) | | (404,777) | | (186,004) | |
Forfeited | (5,426) | | (2,957) | | — | |
Share-based awards, end of year | 1,795,128 | | 1,562,028 | | 1,766,061 | |
| | | |
Weighted-average grant date fair value of | | | |
Share-based awards, beginning of year | $ | 31.10 | | $ | 30.51 | | $ | 29.82 | |
Share-based awards granted during the year | $ | 28.11 | | $ | 30.86 | | $ | 30.33 | |
Share-based awards vested during the year | $ | 31.52 | | $ | 28.38 | | $ | 23.82 | |
Stock-based awards forfeited during the year | $ | 31.48 | | $ | 33.04 | | $ | — | |
Share-based awards, end of year | $ | 29.91 | | $ | 31.10 | | $ | 30.51 | |
| | | |
Grant date fair value of shares granted during the year | $ | 18,480 | | $ | 6,286 | | $ | 6,006 | |
The vesting periods for the non-vested shares granted during 2022 ranged from one to eight years with a weighted-average amortization period remaining as of December 31, 2022 of approximately 4.3 years.
During 2022, 2021 and 2020, the Company withheld 137,892 shares, 129,987 shares and 54,223 shares, respectively, of common stock from its officers to pay estimated withholding taxes related to the vesting of shares.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
401(k) Plan
The Company maintains a 401(k) plan that allows eligible employees to defer salary, subject to certain limitations imposed by the Internal Revenue Code. The Company provides a matching contribution of up to 3% of each eligible employee’s salary, subject to certain limitations. The Company’s matching contributions were approximately $1.2 millionfor the year ended December 31, 2022, $0.7 million for 2021 and $0.6 million for 2020.
Employee Stock Purchase Plan
The outstanding options relate only to the Legacy HR Employee Stock Purchase Plan, which was terminated in November 2022. No new options will be issued under the restriction lapsed duringLegacy HR Employee Stock Purchase Plan and existing options will expire in March 2024.
During the years ended December 31, 2017, 20162022, 2021 and 2015 were $5.9 million, $5.4 million and $4.6 million, respectively.
We2020, the Company recognized compensation expense, equal to the fair market value of HTA’s stock on the grant date, over the service period which is generally three to four years. For the years ended December 31, 2017, 2016, and 2015, we recognized compensation expense of $6.9 million, $7.1 million and $5.7 million, respectively. Compensation expense was recorded in general and administrative expenses approximately $0.4 million, $0.4 million, and $0.3 million, respectively, of compensation expense related to the annual grant of options to its employees to purchase shares under the Legacy HR Employee Stock Purchase Plan.
Cash received from employees upon exercising options under the Legacy HR Employee Stock Purchase Plan was approximately $0.4 million for the year ended December 31, 2022, $0.8 million for the year ended December 31, 2021, and $0.7 million for the year ended December 31, 2020.
A summary of the Legacy HR Employee Stock Purchase Plan activity and related information for the three years in the accompanying consolidated statements of operations.
As of period ended December 31, 2017, we had $7.9 million of unrecognized compensation expense, net of estimated forfeitures, which we will recognize over a remaining weighted average period of 1.6 years.2022 is as follows:
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
Dollars in thousands, except per share data | 2022 | 2021 | 2020 |
Options outstanding, beginning of year | 348,514 | | 341,647 | | 332,659 | |
Granted | 255,960 | | 253,200 | | 212,716 | |
Exercised | (20,246) | | (30,281) | | (21,713) | |
Forfeited | (102,619) | | (71,630) | | (42,221) | |
Expired | (140,633) | | (144,422) | | (139,794) | |
Options outstanding and exercisable, end of year | 340,976 | | 348,514 | | 341,647 | |
| | | |
Weighted-average exercise price of | | | |
Options outstanding, beginning of year | $ | 25.38 | | $ | 24.70 | | $ | 25.59 | |
Options granted during the year | $ | 26.89 | | $ | 25.16 | | $ | 28.36 | |
Options exercised during the year | $ | 20.97 | | $ | 25.03 | | $ | 24.10 | |
Options forfeited during the year | $ | 21.88 | | $ | 25.45 | | $ | 25.29 | |
Options expired during the year | $ | 23.36 | | $ | 24.17 | | $ | 23.74 | |
Options outstanding, end of year | $ | 16.38 | | $ | 25.38 | | $ | 24.70 | |
| | | |
Weighted-average fair value of options granted during the year (calculated as of the grant date) | $ | 9.91 | | $ | 9.05 | | $ | 8.06 | |
Intrinsic value of options exercised during the year | $ | 75 | | $ | 165 | | $ | 101 | |
Intrinsic value of options outstanding and exercisable (calculated as of December 31) | $ | 985 | | $ | 1,997 | | $ | 1,673 | |
Exercise prices of options outstanding (calculated as of December 31) | $ | 16.38 | | $ | 25.91 | | $ | 24.70 | |
Weighted-average contractual life of outstanding options (calculated as of December 31, in years) | 0.8 | 0.8 | 0.8 |
The following isfair values for these options were estimated at the date of grant using a summary of our restricted common stock activity as of December 31, 2017 and 2016, respectively:
|
| | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| Restricted Common Stock | | Weighted Average Grant Date Fair Value | | Restricted Common Stock | | Weighted Average Grant Date Fair Value |
Beginning balance | 640,870 |
| | $ | 27.36 |
| | 487,850 |
| | $ | 23.13 |
|
Granted | 295,493 |
| | 29.75 |
| | 417,110 |
| | 29.82 |
|
Vested | (281,064 | ) | | 25.33 |
| | (237,999 | ) | | 23.28 |
|
Forfeited | (65,693 | ) | | 29.01 |
| | (26,091 | ) | | 26.09 |
|
Ending balance | 589,606 |
| | $ | 29.38 |
| | 640,870 |
| | $ | 27.36 |
|
11. Fair Value of Financial Instruments
Financial Instruments Reported at Fair Value - Recurring
The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2017, aggregated byBlack-Scholes options pricing model with the applicable levelweighted-average assumptions for the options granted during the period noted in the fair value hierarchy (in thousands):following table. The risk-free interest rate was based on the U.S. Treasury constant maturity-nominal two-year rate whose maturity is nearest to the date of the expiration of the latest option outstanding and exercisable; the expected dividend yield was based on the expected dividends of the current year as a percentage of the average stock price of the prior year; the expected life of each option was estimated using the historical exercise behavior of employees; expected volatility was based on
94
|
| | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | |
Derivative financial instruments | | $ | — |
| | $ | 1,529 |
| | $ | — |
| | $ | 1,529 |
|
Liabilities: | | | | | | | | |
Derivative financial instruments | | $ | — |
| | $ | 1,089 |
| | $ | — |
| | $ | 1,089 |
|
The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2016, aggregated by the applicable level in the fair value hierarchy (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | |
Derivative financial instruments | | $ | — |
|
| $ | 541 |
|
| $ | — |
| | $ | 541 |
|
Liabilities: | | | | | | | | |
Derivative financial instruments | | $ | — |
| | $ | 1,920 |
| | $ | — |
| | $ | 1,920 |
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, – (Continued)cont.
Financial Instruments Reported at Fair Value - Non-Recurring
The table below presents our assets measured at fair value on a non-recurring basis as of December 31, 2017, aggregated by the applicable level in the fair value hierarchy (in thousands): |
| | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | |
MOB (1) | | $ | — |
| | $ | 10,271 |
| | $ | — |
| | $ | 10,271 |
|
| | | | | | | | |
(1) During the year ended December 31, 2017, we recognized $13.9 million of impairment charges to the carrying value of two MOBs and a portfolio of MOBs. The estimated fair value as of December 31, 2017 for these MOBs was based upon a pending sales agreement and real estate market comparables. |
The table below presents our assets measured at fair value on a non-recurring basis as of December 31, 2016, aggregated by the applicable level in the fair value hierarchy (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | |
MOB (1) | | $ | — |
| | $ | 8,191 |
| | $ | — |
| | $ | 8,191 |
|
| | | | | | | | |
(1) During the year ended December 31, 2016, we recognized impairment charges of $1.3 million and $1.8 million to the carrying value of two MOBs. The estimated fair value as of December 31, 2016 for these two MOBs was based upon a pending sales agreement and real estate market comparables. |
There have been no transfers of assets or liabilities between levels. We will record any such transfers at the endhistorical volatility of the reporting period in which a change of event occurs that results in a transfer. Although we have determined that the majority of the inputs used to value our interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by usCompany’s common stock; and our counterparties. However, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate swap derivative positions and have determined that the credit valuation adjustments are not significant to their overall valuation. As a result, we have determined that our interest rate swap derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Financial Instruments Disclosed at Fair Value
We consider the carrying values of cash and cash equivalents, tenant and other receivables, restricted cash and accounts payable, and accrued liabilities, to approximate fair value for these financial instruments because of the short period of time between origination of the instruments and their expected realization. All of these financial instruments are considered Level 2.
The fair value of debt is estimated using borrowing rates available to us with similar terms and maturities, which is considered a Level 2 input. As of December 31, 2017, the fair value of the debt was $2,826.3 million compared to the carrying value of $2,781.0 million. As of December 31, 2016, the fair value of the debt was $1,784.0 million compared to the carrying value of $1,768.9 million.
12. Per Share Data of HTA
In October 2017, we entered a forward sale arrangement pursuant to a forward equity agreement to sell approximately 2.6 million shares of common stock through our ATM at a price of $29.40 per share, for anticipated proceeds of approximately $75 million to be settled in April 2018, subject to adjustments as provided in the forward equity agreement. To account for the forward equity agreement, we considered the accounting guidance governing financial instruments and derivatives and concluded that our forward equity agreement was not a liability as it did not embody obligations to repurchase our shares of common stock nor did it embody obligations to issue a variable number of shares for which the monetary value was predominately fixed, varying with something other than the fair value of the shares, or varying inversely in relation to our shares. We also evaluated whether the agreement met the derivatives and hedging guidance scope exception to be accounted for as an equity instrument and concluded that the agreement can be classified as an equity contract based on the following assessment: (i) none of the agreements’ exercise contingenciesforfeitures were based on observable markets or indices besides those related tohistorical forfeiture rates within the market for our own stock price and operations; and (ii) nonelook-back period.
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
Risk-free interest rates | 0.73 | % | 0.13 | % | 1.58 | % |
Expected dividend yields | 3.97 | % | 4.11 | % | 3.69 | % |
Expected life (in years) | 1.44 | 1.43 | 1.43 |
Expected volatility | 49.0 | % | 48.2 | % | 28.6 | % |
Expected forfeiture rates | 85 | % | 85 | % | 85 | % |
14. Earnings Per Share
The Company uses the two-class method of the settlement provisions precluded the agreement from being indexed to our own common stock.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In addition, we considered the potential dilution resulting from the forward equity agreement on ourcomputing net earnings per common share calculations. We useshares. The Company's non-vested share-based awards are considered participating securities pursuant to the two-class method.
The Company used the treasury method to determine the dilution resulting from the forward equity agreementagreements during the period of time prior to settlement. The number of weighted-average shares outstanding - diluted used in the computation of earnings per common share for the year ended December 31, 2017, includes2021 included the effect from the assumed issuance of 2.60.7 million shares of common stock pursuant to the settlement of the forward equity agreementagreements at the contractual price, less the assumed repurchase of the common sharesstock at the average market price using the anticipated proceeds of approximately $75.0$23.1 million, adjusted as provided for incosts to borrow. For the forward equity agreement. The impact to ouryear ended December 31, 2021, 1,682 weighted-average incremental shares of common stock were excluded from the computation of weighted-average common shares outstanding - diluted, as the impact was anti-dilutive. As of and for the year ended December 31, 2017, was 17,000, weighted-average incremental shares.
We include unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” pursuant to the two-class method. The resulting classes are our common stock and restricted stock. Our2022, these forward equity agreement isagreements settled and consequently, the Company did not considered a participating security and, therefore, is not included inhave any remaining shares subject to unsettled forward sale agreements.
The table below sets forth the computation of earnings per share using the two-class method. For the years ended December 31, 2017, 2016 and 2015, all of our earnings were distributed and the calculated earnings per share amount would be the same for all classes.
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per common share for the three years in the period ended December 31, 2022.
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
Dollars in thousands, except per share data | 2022 | 2021 | 2020 |
Weighted average common shares outstanding | | | |
Weighted average common shares outstanding | 254,296,810 | | 144,411,835 | | 135,666,503 | |
Non-vested shares | (1,940,607) | | (1,774,669) | | (1,736,358) | |
Weighted average common shares outstanding - basic | 252,356,203 | | 142,637,166 | | 133,930,145 | |
| | | |
Weighted average common shares outstanding - basic | 252,356,203 | | 142,637,166 | | 133,930,145 | |
Dilutive effect of forward equity shares | — | | — | | 6,283 | |
Dilutive effect of OP Units | 1,451,599 | | — | | — | |
Dilutive effect of employee stock purchase plan | 65,519 | | 73,062 | | 70,512 | |
Weighted average common shares outstanding - diluted | 253,873,321 | | 142,710,228 | | 134,006,940 | |
| | | |
| | | |
Net income attributable to common stockholders | $ | 40,897 | | $ | 66,659 | | $ | 72,195 | |
Dividends paid on nonvested share-based awards | (2,437) | | (2,154) | | (2,083) | |
| | | |
Net income applicable to common stockholders - basic | $ | 38,460 | | $ | 64,505 | | $ | 70,112 | |
Net income attributable to OP Units | 81 | | — | | — | |
Net income applicable to common stockholders - diluted | $ | 38,541 | | $ | 64,505 | | $ | 70,112 | |
| | | |
| | | |
| | | |
| | | |
| | | |
Basic earnings per common share - net income | $ | 0.15 | | $ | 0.45 | | $ | 0.52 | |
| | | |
| | | |
Diluted earnings per common share - net income | $ | 0.15 | | $ | 0.45 | | $ | 0.52 | |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
15. Commitments and Contingencies
Re/development Activity
During the year ended December 31, 2022, the Company funded $60.8 million toward development and redevelopment of properties.
Tenant Improvements
The Company may provide a tenant improvement allowance in new or renewal leases for the purpose of refurbishing or renovating tenant space. As of December 31, 2022, the Company had commitments of approximately $195.1 million that are expected to be spent on tenant improvements throughout the portfolio, excluding development properties currently under construction.
Land Held for Development
Land held for development includes parcels of land owned by the Company, upon which the Company intends to develop and own outpatient healthcare facilities. The Company's land held for development included twenty parcels as of December 31, 2022 and seven parcels as of December 31, 2021. The Company’s investments in land held for development totaled approximately $74.3 million as of December 31, 2022 and $24.8 million as of December 31, 2021. The current land held for development is located adjacent to certain of the Company's existing medical office buildings in New York, Massachusetts, California, Connecticut, Florida, North Carolina, Texas, Tennessee, Georgia, Washington, and Colorado.
Security Deposits and Letters of Credit
As of December 31, 2022, the Company held approximately $32.1 million in letters of credit and security deposits for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease. Generally, the Company may, at its discretion and upon notification to the tenant, draw upon these instruments if there are any defaults under the leases.
16. Other Data
Taxable Income (unaudited)
The Company has elected to be taxed as a REIT, as defined under the Internal Revenue Code. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its taxable income to its stockholders.
As a REIT, the Company generally will not be subject to federal income tax on taxable income it distributes currently to its stockholders. Accordingly, no provision for federal income taxes has been made in the accompanying Consolidated Financial Statements. If the Company fails to qualify as a REIT for any taxable year, then it will be subject to federal income taxes at regular corporate rates, including any applicable alternative minimum tax, and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies as a REIT, it may be subject to certain state and local taxes on its income and property and to federal income and excise tax on its undistributed taxable income.
Earnings and profits (as defined under the Internal Revenue Code), the current and accumulated amounts of which determine the taxability of distributions to stockholders, vary from net income attributable to common stockholders and taxable income because of different depreciation recovery periods, depreciation methods, and other items.
While Legacy HR was considered the accounting acquirer in the Merger for GAAP purposes, Legacy HR’s separate tax existence ceased with the Merger and Legacy HTA continues as the tax successor. On a tax basis, the Company’s gross real estate assets totaled approximately $13.0 billion as of December 31, 2022. As of December 31, 2021 and 2020 gross real estate assets on a tax basis were $5.0 billion and $4.7 billion for Legacy HR and $8.2 billion and $7.9 billion for Legacy HTA, respectively.
Characterization of Distributions (unaudited)
Distributions in excess of earnings and profits generally constitute a return of capital. The following table gives the characterization of the distributions on the Company’s common stock for the three years ended December 31, 2022.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
For the three years ended December 31, 2022, there were no preferred shares outstanding. As such, no dividends were distributed related to preferred shares for those periods.
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
| 2022 | 2021 | 2020 |
| PER SHARE | PER SHARE | PER SHARE |
Tax Treatment of Dividends Pre-Merger Healthcare Trust of America | | | |
Ordinary income 1 | $ | 0.5862 | | $ | 0.7920 | | $ | 0.6976 | |
Return of capital | 4.0162 | | 0.4930 | | 0.5582 | |
Capital gain | 1.2216 | | — | | 0.0092 | |
Common stock distributions | $ | 5.8240 | | $ | 1.2850 | | $ | 1.2650 | |
| | | |
Tax Treatment of Dividends Pre-Merger Healthcare Realty | | | |
Ordinary income 1 | $ | 0.2655 | | $ | 0.7500 | | $ | 0.7738 | |
Return of capital | 0.5555 | | 0.3600 | | 0.1084 | |
Capital gain | — | | 0.0964 | | 0.3178 | |
Common stock distributions | $ | 0.8210 | | $ | 1.2064 | | $ | 1.2000 | |
| | | |
Tax Treatment of Dividends Post-Merger Healthcare Realty | | | |
Ordinary income 1 | $ | 0.0422 | | $ | — | | $ | — | |
Return of capital | 0.2889 | | — | | — | |
Capital gain | 0.0879 | | — | | — | |
Common stock distributions | $ | 0.4190 | | $ | — | | $ | — | |
1Reporting year ordinary income is also Code Section 199A eligible per the The Tax Cut and Jobs Act of 2017.
State Income Taxes
The Company must pay certain state income taxes, which are typically included in general and administrative expense on the Company’s Consolidated Statements of Income.
The State of Texas gross margins tax on gross receipts from operations is disclosed in the table below as an income tax because it is considered such by the Securities and Exchange Commission.
State income tax expense and state income tax payments for the three years ended December 31, 2022 are detailed in the table below:
| | | | | | | | | | | |
| YEAR ENDED DECEMBER 31, |
Dollars in thousands | 2022 | 2021 | 2020 |
State income tax expense | | | |
Texas gross margins tax | $ | 1,693 | | $ | 564 | | $ | 546 | |
Other | 151 | | 8 | | 8 | |
Total state income tax expense | $ | 1,844 | | $ | 572 | | $ | 554 | |
State income tax payments, net of refunds and collections | $ | 1,834 | | $ | 560 | | $ | 557 | |
17. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practical to estimate that value.
•Cash, cash equivalents and restricted cash - The carrying amount approximates fair value.
•Borrowings under the Unsecured Credit Facility, Unsecured Term Loan due 2024 and Unsecured Term Loan due 2026 - The carrying amount approximates fair value because the borrowings are based on variable market interest rates.
•Senior unsecured notes payable - The fair value of notes and bonds payable is estimated using cash flow analyses, based on the Company’s current interest rates for similar types of borrowing arrangements.
•Mortgage notes payable - The fair value is estimated using cash flow analyses, based on the Company’s current interest rates for similar types of borrowing arrangements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont.
•Interest rate swap agreements - Interest rate swap agreements are recorded in other assets on the Company's Consolidated Balance Sheets at fair value. Fair value, using level 2 inputs, is estimated by utilizing pricing models that consider forward yield curves and discount rates.
The table below details the fair value and carrying values for our other financial instruments as of December 31, 2022 and 2021.
| | | | | | | | | | | | | | |
| December 31, 2022 | December 31, 2021 |
Dollars in millions | CARRYING VALUE | FAIR VALUE | CARRYING VALUE | FAIR VALUE |
Notes and bonds payable 1, 2 | $ | 5,351.8 | | $ | 5,149.6 | | $ | 1,801.3 | | $ | 1,797.4 | |
Real estate notes receivable 1 | $ | 99.6 | | $ | 99.6 | | $ | — | | $ | — | |
| | | | |
1Level 2 – model-derived valuations in which significant inputs and significant value drivers are observable in active markets.
2Fair value for senior notes includes accrued interest as of December 31, 2022.
18. Related-Party Transactions
In the ordinary course of conducting its business, the Company enters into agreements with affiliates in relation to the management and leasing of its real estate assets, including real estate assets owned through joint ventures.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that the information required to be disclosed is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow for timely decisions regarding required disclosure.
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.
Changes in Internal Control over Financial Reporting
On July 20, 2022, the Merger of Legacy HR and Legacy HTA was completed, and the Company is currently integrating Legacy HTA into its operations, compliance program and internal control processes. SEC regulations allow companies to exclude acquisitions from their assessment of internal control over financial reporting during the first year following an acquisition. Legacy HTA makes up 65% of the Company's total assets and 38% of total revenue. Based on the significance of the acquisition, the Company has excluded the acquired operations of Legacy HTA from management's assessment of internal control over financial reporting for the twelve months ended December 31, 2022. Excluding the Merger, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting, excluding Legacy HTA, as of December 31, 2022 using the principles and other criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on that assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2022. The Company’s independent registered public accounting firm, BDO USA, LLP, has also issued an attestation report on the effectiveness of the Company’s internal control over financial reporting included herein.
Report of
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
Healthcare Realty Trust Incorporated
Nashville, Tennessee
Opinion on Internal Control over Financial Reporting
We have audited Healthcare Realty Trust Incorporated’s (the “Company’s”) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedules and our report dated March 1, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
As indicated in the accompanying Item 9A, Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Healthcare Trust of America, Inc. (“Legacy HTA”), which was acquired on July 20, 2022, and which is included in the consolidated balance sheet of the Company as of December 31, 2022, and the related consolidated statements of income, comprehensive income, equity, and cash flows for the year then ended. Legacy HTA constituted 65% of total assets as of December 31, 2022, and 38% of revenues for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of Legacy HTA because of the timing of the acquisition which was completed on July 20, 2022. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Legacy HTA.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Nashville, Tennessee
March 1, 2023
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Directors
Information with respect to the Company’s directors, set forth in the Company’s Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 5, 2023 under the caption “Election of Directors,” is incorporated herein by reference.
Executive Officers
The executive officers of the Company are:
| | | | | | | | |
NAME | AGE | POSITION |
Todd J. Meredith | 48 | | President and Chief Executive Officer |
J. Christopher Douglas | 47 | | Executive Vice President and Chief Financial Officer |
John M. Bryant, Jr. | 56 | | Executive Vice President and General Counsel |
Robert E. Hull | 50 | | Executive Vice President - Investments |
Julie F. Wilson | 51 | | Executive Vice President - Operations |
Mr. Meredith was appointed President and Chief Executive Officer effective December 30, 2016. He served as the Company's Executive Vice President - Investments from February 2011 until December 30, 2016 and was responsible for overseeing the Company’s investment activities, including the acquisition, financing and development of medical office and other primarily outpatient medical facilities. Prior to February 2011, he led the Company’s development activities as a Senior Vice President. Before joining the Company in 2001, Mr. Meredith worked in investment banking.
Mr. Douglas was appointed Chief Financial Officer effective March 1, 2016 and has been employed by the Company since 2003. He served as the Company’s Senior Vice President, Acquisitions and Dispositions managing the Company’s acquisition and disposition team from 2011 until March 1, 2016. Prior to that, Mr. Douglas served as Senior Vice President, Asset Administration, administering the Company’s master lease portfolio and led a major disposition strategy in 2007. Mr. Douglas has a background in commercial and investment banking.
Mr. Bryant became the Company’s General Counsel in November 2003. From April 2002 until November 2003, Mr. Bryant was Vice President and Assistant General Counsel. Prior to joining the Company, Mr. Bryant was a shareholder with the law firm of Baker Donelson Bearman & Caldwell in Nashville, Tennessee.
Mr. Hull was appointed Executive Vice President - Investments effective January 1, 2017 and has been employed by the Company since 2004. He served as Senior Vice President - Investments from March 2011 until January 2017, managing the Company's development and acquisition activity. Prior to that, Mr. Hull served in various capacities on the Company's investments team. Before joining the Company, Mr. Hull worked in the senior living and commercial banking industries.
Ms. Wilson was appointed Executive Vice President - Operations effective July 1, 2021 and has been employed by the Company since 2001. She previously served as Senior Vice President - Leasing and Management from March 2008 until July 2021. Prior to that, Ms. Wilson worked in the leasing, property management and investments groups. Before joining the Company, Ms. Wilson worked in investment banking and commercial real estate brokerage.
Code of Ethics
The Company has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) that applies to its principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions, as well as all directors, officers and employees of the Company. The Code of Ethics is posted on the Company’s website (www.healthcarerealty.com) and is available in print free of charge to any stockholder who requests a copy. Interested parties may address a written request for a printed copy of the Code of Ethics to: Investor Relations, Healthcare Realty Trust Incorporated, 3310 West End Avenue, Suite 700, Nashville, Tennessee 37203. The Company intends to satisfy the disclosure requirement regarding any amendment to, or a waiver of, a provision of the
Code of Ethics for the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions by posting such information on the Company’s website.
Section 16(a) Compliance
Information with respect to compliance with Section 16(a) of the Exchange Act set forth in the Company’s Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 5, 2023 under the caption “Security Ownership of Certain Beneficial Owners and Management – Delinquent Section 16(a) Reports,” is incorporated herein by reference.
Stockholder Recommendation of Director Candidates
Information with respect to the Company’s policy relating to stockholder recommendations of director candidates is set forth in the Company’s Proxy Statement relating to the Annual Meeting of Stockholders to be held on June 5, 2023 under the caption “Shareholder Recommendation or Nomination of Director Candidates,” and is incorporated herein by reference.
Audit Committee
Information relating to the Company’s Audit Committee, its members and the Audit Committee’s financial experts, set forth in the Company’s Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 5, 2023 under the caption “Committee Membership,” is incorporated herein by reference.
Item 11. Executive Compensation
Information relating to executive compensation, set forth in the Company’s Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 5, 2023 under the captions “Compensation Discussion and Analysis,” “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report” and “Director Compensation,” is incorporated herein by reference, except with respect to the disclosure under the heading "Executive Compensation - Pay Versus Performance."
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information relating to the security ownership of management and certain beneficial owners, set forth in the Company’s Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 5, 2023 under the caption “Security Ownership of Certain Beneficial Owners and Management,” is incorporated herein by reference.
Information relating to securities authorized for issuance under the Company’s equity compensation plans, set forth in Item 5 of this report under the caption “Equity Compensation Plan Information,” is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information relating to certain relationships and related transactions, and director independence, set forth in the Company’s Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 5, 2023 under the captions “Certain Relationships and Related Transactions” and “Corporate Governance – Independence of Directors,” is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Our independent registered public accounting firm is BDO USA, LLP, Nashville, TN, PCAOB ID#243.
Information relating to the fees paid to the Company’s accountants, set forth in the Company’s Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 5, 2023 under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm,” is incorporated herein by reference.
Item 15. Exhibits and Financial Statement Schedules
Index to Historical Financial Statements, Financial Statement Schedules and Exhibits
1. Financial Statements
The following financial statements of Healthcare Realty Trust Incorporated are included in Item 8 of this Annual Report on Form 10-K.
•Consolidated Balance Sheets – December 31, 2022 and December 31, 2021.
•Consolidated Statements of Income for the years ended December 31, 2017, 20162022, December 31, 2021 and 2015, respectively (in thousands, except per share data):December 31, 2020.
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Numerator: | | | | | |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 33,557 |
|
Net income attributable to noncontrolling interests | (1,661 | ) | | (1,433 | ) | | (626 | ) |
Net income attributable to common stockholders | $ | 63,916 |
| | $ | 45,912 |
| | $ | 32,931 |
|
Denominator: | | | | | |
Weighted average shares outstanding - basic | 181,064 |
| | 136,620 |
| | 126,074 |
|
Dilutive shares - partnership units convertible into common stock | 4,197 |
| | 3,639 |
| | 1,930 |
|
Dilutive effect of forward equity sales agreement | 17 |
| | — |
| | — |
|
Adjusted weighted average shares outstanding - diluted | 185,278 |
| | 140,259 |
| | 128,004 |
|
Earnings per common share - basic | | | | | |
Net income attributable to common stockholders | $ | 0.35 |
| | $ | 0.34 |
| | $ | 0.26 |
|
Earnings per common share - diluted | | | | | |
Net income attributable to common stockholders | $ | 0.34 |
| | $ | 0.33 |
| | $ | 0.26 |
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13. Per Unit Data of HTALP
In October 2017, we entered a forward sale arrangement pursuant to a forward equity agreement to sell 2.6 million shares of common stock through our ATM. Refer to Note 12 - Per Share Data of HTA to these consolidated financial statements for a more detailed discussion related to our forward equity agreement executed in October 2017.
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per unit of HTALPComprehensive Income for the years ended December 31, 2017, 20162022, December 31, 2021 and 2015, respectively (in thousands, except per unit data):December 31, 2020.
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Numerator: | | | | | |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 33,557 |
|
Net income attributable to noncontrolling interests | (123 | ) | | (118 | ) | | (112 | ) |
Net income attributable to common unitholders | $ | 65,454 |
| | $ | 47,227 |
| | $ | 33,445 |
|
Denominator: | | | | | |
Weighted average units outstanding - basic | 185,261 |
| | 140,259 |
| | 128,079 |
|
Dilutive units - partnership units convertible into common units | — |
| | — |
| | — |
|
Dilutive effect of forward equity sales agreement | 17 |
| | — |
| | — |
|
Adjusted weighted average units outstanding - diluted | 185,278 |
| | 140,259 |
| | 128,079 |
|
Earnings per common unit - basic: | | | | | |
Net income attributable to common unitholders | $ | 0.35 |
| | $ | 0.34 |
| | $ | 0.26 |
|
Earnings per common unit - diluted: | | | | | |
Net income attributable to common unitholders | $ | 0.35 |
| | $ | 0.34 |
| | $ | 0.26 |
|
14. Supplemental Cash Flow Information
The following is the supplemental cash flow information•Consolidated Statements of Equity for the years ended December 31, 2017, 20162022, December 31, 2021 and 2015, respectively (in thousands):December 31, 2020.
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Supplemental Disclosure of Cash Flow Information: | | | | | |
Interest paid | $ | 64,988 |
| | $ | 50,883 |
| | $ | 52,688 |
|
Income taxes paid | 1,333 |
| | 1,059 |
| | 996 |
|
| | | | | |
Supplemental Disclosure of Noncash Investing and Financing Activities: | | | | | |
Accrued capital expenditures | $ | 3,155 |
| | $ | 5,092 |
| | $ | 5,696 |
|
Debt and interest rate swaps assumed and entered into in connection with an acquisition | 286,000 |
| | 28,163 |
| | — |
|
Dividend distributions declared, but not paid | 63,823 |
| | 43,867 |
| | 37,886 |
|
Issuance of operating partnership units in connection with acquisitions | 1,125 |
| | 71,754 |
| | — |
|
Note receivable included in the consideration of a disposition | — |
| | 12,737 |
| | — |
|
Note receivable retired in connection with an acquisition | 8,611 |
| | — |
| | — |
|
Redeemable noncontrolling interest assumed in connection with an acquisition | — |
| | 4,773 |
| | — |
|
Redemption of noncontrolling interest | 5,943 |
| | 5,709 |
| | — |
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
15. Tax Treatment of Dividends of HTA
The following is the income tax treatment of dividend distributionsCash Flows for the years ended December 31, 2017, 2016 and 2015 (in per share):
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Ordinary income | | $ | 0.7479 |
| | $ | 0.8970 |
| | $ | 0.6634 |
|
Return of capital | | 0.3720 |
| | 0.2880 |
| | 0.2116 |
|
Capital gain | | 0.0851 |
| | 0.0000 |
| | 0.0000 |
|
Total | | $ | 1.2050 |
| | $ | 1.1850 |
| | $ | 0.8750 |
|
16. Future Minimum Rent
We have operating leases with tenants that expire at various dates through 2043 which generally include fixed increases or adjustments based on the consumer price index. Leases also provide for additional rents based on certain operating expenses. Future minimum rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of2022, December 31, 2017 is as follows (in thousands):
|
| | | | |
Year | | Amount |
2018 | | $ | 512,216 |
|
2019 | | 474,815 |
|
2020 | | 425,433 |
|
2021 | | 380,282 |
|
2022 | | 323,142 |
|
Thereafter | | 1,418,110 |
|
Total | | $ | 3,533,998 |
|
A certain amount of our rental income is from tenants with leases which are subject to contingent rent provisions. These contingent rents are subject to the tenant achieving periodic revenues in excess of specified levels. For the years ended2021 and December 31, 2017, 2016 and 2015, the amount of contingent rent earned by us was not significant.2020.
•Notes to Consolidated Financial Statements. 17. Selected Quarterly
2. Financial Data of HTA (Unaudited)Statement Schedules
The following is the selected quarterly financial data of HTA for 2017 and 2016. We believe that all necessary adjustments, consisting of only normal recurring adjustments, have been included (in thousands, except per share data). |
| | | | | | | | | | | | | | | | |
| | Quarter Ended (1) |
2017 | | March 31 | | June 30 | | September 30 | | December 31 |
Revenues | | $ | 124,347 |
| | $ | 139,879 |
| | $ | 175,994 |
| | $ | 173,770 |
|
Net income (loss) | | 14,000 |
| | (5,852 | ) | | 13,957 |
| | 43,472 |
|
Net income (loss) attributable to common stockholders | | 13,545 |
| | (5,918 | ) | | 13,763 |
| | 42,526 |
|
Earnings per common share - basic: | | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | 0.10 |
| | $ | (0.03 | ) | | $ | 0.07 |
| | $ | 0.21 |
|
Earnings per common share - diluted: | | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | 0.09 |
| | $ | (0.03 | ) | | $ | 0.07 |
| | $ | 0.20 |
|
| | | | | | | | |
(1) The sum of the individual quarterly amounts may not agree to the annual amounts included in the accompanying consolidated statements of operations due to rounding. |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
| | | | | | | | | | | | | | | | |
| | Quarter Ended (1) |
2016 | | March 31 | | June 30 | | September 30 | | December 31 |
Revenues | | $ | 107,315 |
| | $ | 113,234 |
| | $ | 118,340 |
| | $ | 122,039 |
|
Net income | | 10,036 |
| | 13,516 |
| | 6,639 |
| | 17,154 |
|
Net income attributable to common stockholders | | 9,860 |
| | 13,074 |
| | 6,427 |
| | 16,551 |
|
Earnings per common share - basic: | | | | | | | | |
Net income attributable to common stockholders | | $ | 0.08 |
| | $ | 0.10 |
| | $ | 0.05 |
| | $ | 0.12 |
|
Earnings per common share - diluted: | | | | | | | | |
Net income attributable to common stockholders | | $ | 0.08 |
| | $ | 0.09 |
| | $ | 0.04 |
| | $ | 0.11 |
|
| | | | | | | | |
(1) The sum of the individual quarterly amounts may not agree to the annual amounts included in the accompanying consolidated statements of operations due to rounding. |
18. Selected Quarterly Financial Data of HTALP (Unaudited)
The following is the selected quarterly financial data of HTALP for 2017 and 2016. We believe that all necessary adjustments, consisting of only normal recurring adjustments, have been included (in thousands, except per unit data).
|
| | | | | | | | | | | | | | | | | |
| | Quarter Ended (1) | |
2017 | | March 31 | | June 30 | | September 30 | | December 31 | |
Revenues | | $ | 124,347 |
| | $ | 139,879 |
| | $ | 175,994 |
| | $ | 173,770 |
| |
Net income (loss) | | 14,000 |
| | (5,852 | ) | | 13,957 |
| | 43,472 |
| |
Net income (loss) attributable to common unitholders | | 13,970 |
| | (5,874 | ) | | 13,929 |
| | 43,429 |
| |
Earnings per common unit - basic: | | | | | | | | | |
Net income (loss) attributable to common unitholders | | $ | 0.10 |
| | $ | (0.03 | ) | | $ | 0.07 |
| | $ | 0.21 |
| |
Earnings per common unit - diluted: | | | | | | | | | |
Net income (loss) attributable to common unitholders | | $ | 0.10 |
| | $ | (0.03 | ) | | $ | 0.07 |
| | $ | 0.21 |
| |
| | | | | | | | | |
(1) The sum of the individual quarterly amounts may not agree to the annual amounts included in the accompanying consolidated statements of operations due to rounding. |
|
| | | | | | | | | | | | | | | | | |
| | Quarter Ended (1) | |
2016 | | March 31 | | June 30 | | September 30 | | December 31 | |
Revenues | | $ | 107,315 |
| | $ | 113,234 |
| | $ | 118,340 |
| | $ | 122,039 |
| |
Net income | | 10,036 |
| | 13,516 |
| | 6,639 |
| | 17,154 |
| |
Net income attributable to common unitholders | | 10,005 |
| | 13,520 |
| | 6,638 |
| | 17,064 |
| |
Earnings per common unit - basic: | | | | | | | | | |
Net income attributable to common unitholders | | $ | 0.08 |
| | $ | 0.10 |
| | $ | 0.05 |
| | $ | 0.12 |
| |
Earnings per common unit - diluted: | | | | | | | | | |
Net income attributable to common unitholders | | $ | 0.08 |
| | $ | 0.10 |
| | $ | 0.05 |
| | $ | 0.12 |
| |
| | | | | | | | | |
(1) The sum of the individual quarterly amounts may not agree to the annual amounts included in the accompanying consolidated statements of operations due to rounding. |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
|
| | | | | | | | | | | | | | | | | | | |
| Balance at Beginning of Period | | Charged to Expenses | | Adjustments to Valuation Accounts | | Deductions | | Balance at End of Period |
2017 - Allowance for doubtful accounts | $ | 2,024 |
| | $ | 438 |
| | $ | — |
| | $ | (226 | ) | | $ | 2,236 |
|
2016 - Allowance for doubtful accounts | 2,150 |
| | 846 |
| | — |
| | (972 | ) | | 2,024 |
|
2015 - Allowance for doubtful accounts | 2,017 |
| | 828 |
| | — |
| | (695 | ) | | 2,150 |
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
The following schedule presents our total real estate investments and accumulated depreciation for our operating properties as of December 31, 2017 (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Cost Capitalized Subsequent to Acquisition (a) | | Gross Amount at Which Carried at Close of Period | | | | | | | | |
| | Encumbrances | | Land | | Buildings, Improvements and Fixtures | | | Land | | Buildings, Improvements and Fixtures | | Total (c) | | Accumulated Depreciation (f) | | Date of Construction | | Date Acquired | | Life on Which Building Depreciation in Income Statement is Computed (h) |
Shelby MOBs | Alabaster, AL | $ | — |
| | $ | — |
| | $ | 25,095 |
| | $ | 703 |
| | $ | — |
| | $ | 25,798 |
| | $ | 25,798 |
| | $ | (1,329 | ) | | 1995-1998 | | 2016 | | 36 |
Simon Williamson Clinic | Birmingham, AL | — |
| | — |
| | 25,689 |
| | 4 |
| | — |
| | 25,693 |
| | 25,693 |
| | (1,278 | ) | | 2007 | | 2016 | | 36 |
Jasper | Jasper, AL | — |
| | — |
| | 5,973 |
| | 74 |
| | — |
| | 6,047 |
| | 6,047 |
| | (450 | ) | | 1979 | | 2016 | | 25 |
Phoenix Med Center | Glendale, AZ | — |
| | 453 |
| | 2,768 |
| | 553 |
| | 453 |
| | 3,321 |
| | 3,774 |
| | (1,024 | ) | | 1989 | | 2011 | | 39 |
Thunderbird MOP | Glendale, AZ | — |
| | 3,842 |
| | 19,679 |
| | 4,025 |
| | 3,842 |
| | 23,704 |
| | 27,546 |
| | (9,204 | ) | | 1976-1987 | | 2007 | | 39 |
Peoria MOB | Peoria, AZ | — |
| | 605 |
| | 4,394 |
| | 674 |
| | 605 |
| | 5,068 |
| | 5,673 |
| | (1,543 | ) | | 2000 | | 2010 | | 39 |
Baptist MC | Phoenix, AZ | — |
| | — |
| | 12,637 |
| | 2,135 |
| | — |
| | 14,772 |
| | 14,772 |
| | (4,151 | ) | | 1973 | | 2008 | | 39 |
Desert Ridge MOB | Phoenix, AZ | — |
| | — |
| | 27,738 |
| | 3,208 |
| | — |
| | 30,946 |
| | 30,946 |
| | (6,170 | ) | | 2004-2006 | | 2011 | | 39 |
Dignity Phoenix MOBs | Phoenix, AZ | — |
| | — |
| | 66,106 |
| | 434 |
| | — |
| | 66,540 |
| | 66,540 |
| | (1,803 | ) | | 1984-1997 | | 2017 | | 20-39 |
Estrella Med Center | Phoenix, AZ | — |
| | — |
| | 24,703 |
| | 2,929 |
| | — |
| | 27,632 |
| | 27,632 |
| | (6,729 | ) | | 2004 | | 2010 | | 39 |
Sun City Boswell MOBs | Sun City, AZ | — |
| | — |
| | 12,775 |
| | 2,906 |
| | — |
| | 15,681 |
| | 15,681 |
| | (5,508 | ) | | 1971-2001 | | 2009 | | 39 |
Sun City Boswell West | Sun City, AZ | — |
| | — |
| | 6,610 |
| | 2,379 |
| | — |
| | 8,989 |
| | 8,989 |
| | (2,862 | ) | | 1992 | | 2009 | | 39 |
Sun City Webb MP | Sun City, AZ | — |
| | — |
| | 16,188 |
| | 2,516 |
| | — |
| | 18,704 |
| | 18,704 |
| | (5,475 | ) | | 1997-2004 | | 2009 | | 39 |
Sun City West MOBs | Sun City, AZ | — |
| | 744 |
| | 13,466 |
| | 2,507 |
| | 744 |
| | 15,973 |
| | 16,717 |
| | (5,248 | ) | | 1987-2002 | | 2009 | | 39 |
Gateway Med Plaza | Tucson, AZ | — |
| | — |
| | 14,005 |
| | 37 |
| | — |
| | 14,042 |
| | 14,042 |
| | (3,112 | ) | | 2008 | | 2010 | | 39 |
Tucson Academy MOP | Tucson, AZ | — |
| | 1,193 |
| | 6,107 |
| | 1,423 |
| | 1,193 |
| | 7,530 |
| | 8,723 |
| | (2,850 | ) | | 1978 | | 2008 | | 39 |
Tucson Desert Life MOP | Tucson, AZ | — |
| | 1,309 |
| | 17,572 |
| | 4,409 |
| | 1,309 |
| | 21,981 |
| | 23,290 |
| | (7,002 | ) | | 1980-1984 | | 2007 | | 39 |
Dignity Mercy MOBs | Bakersfield, CA | — |
| | — |
| | 15,207 |
| | 7 |
| | — |
| | 15,214 |
| | 15,214 |
| | (419 | ) | | 1992 | | 2017 | | 35 |
5995 Plaza Drive | Cypress, CA | — |
| | 5,109 |
| | 17,961 |
| | 336 |
| | 5,109 |
| | 18,297 |
| | 23,406 |
| | (5,310 | ) | | 1986 | | 2008 | | 39 |
Dignity Glendale MOB | Glendale, CA | — |
| | — |
| | 7,244 |
| | 81 |
| | — |
| | 7,325 |
| | 7,325 |
| | (216 | ) | | 1980 | | 2017 | | 30 |
Mission Medical Center MOBs | Mission Viejo, CA | — |
| | 21,911 |
| | 117,672 |
| | 3 |
| | 21,911 |
| | 117,675 |
| | 139,586 |
| | (4,907 | ) | | 1972-1985 | | 2016 | | 39 |
Dignity Northridge MOBs | Northridge, CA | — |
| | — |
| | 21,467 |
| | 165 |
| | — |
| | 21,632 |
| | 21,632 |
| | (598 | ) | | 1979-1994 | | 2017 | | 30-35 |
San Luis Obispo MOB | San Luis Obispo, CA | — |
| | — |
| | 11,900 |
| | 2,636 |
| | — |
| | 14,536 |
| | 14,536 |
| | (4,036 | ) | | 2009 | | 2010 | | 39 |
Facey MOB | Santa Clarita, CA | — |
| | 6,452 |
| | 5,586 |
| | (5,515 | ) | | 6,452 |
| | 71 |
| | 6,523 |
| | — |
| | 2018 | | 2017 | | 39 |
Dignity Marian MOBs | Santa Maria, CA | — |
| | — |
| | 13,646 |
| | 14 |
| | — |
| | 13,660 |
| | 13,660 |
| | (467 | ) | | 1994-1995 | | 2017 | | 17-38 |
SCL Health MOBs | Denver, CO | — |
| | 11,652 |
| | 104,327 |
| | 2,110 |
| | 11,652 |
| | 106,437 |
| | 118,089 |
| | (1,856 | ) | | 2015-2017 | | 2017 | | 39 |
Hampden Place MOB | Englewood, CO | — |
| | 3,032 |
| | 12,553 |
| | 239 |
| | 3,032 |
| | 12,792 |
| | 15,824 |
| | (3,585 | ) | | 2004 | | 2009 | | 39 |
Highlands Ranch MOP | Highlands Ranch, CO | — |
| | 2,240 |
| | 10,426 |
| | 3,603 |
| | 2,240 |
| | 14,029 |
| | 16,269 |
| | (5,078 | ) | | 1983-1985 | | 2007 | | 39 |
Lone Tree Medical Office Buildings | Lone Tree, CO | — |
| | 3,736 |
| | 29,546 |
| | 1,188 |
| | 3,736 |
| | 30,734 |
| | 34,470 |
| | (3,326 | ) | | 2004-2008 | | 2014 | | 38 |
Lincoln Medical Center | Parker, CO | — |
| | 5,142 |
| | 28,638 |
| | 845 |
| | 5,142 |
| | 29,483 |
| | 34,625 |
| | (4,378 | ) | | 2008 | | 2013 | | 39 |
80 Fisher | Avon, CT | — |
| | — |
| | 5,094 |
| | — |
| | — |
| | 5,094 |
| | 5,094 |
| | (443 | ) | | 2008 | | 2016 | | 39 |
Northwestern MOBs | Bloomfield, CT | — |
| | 1,369 |
| | 6,287 |
| | 553 |
| | 1,369 |
| | 6,840 |
| | 8,209 |
| | (571 | ) | | 1985 | | 2016 | | 35 |
533 Cottage - Northwestern | Bloomfield, CT | — |
| | 726 |
| | 3,964 |
| | (530 | ) | | 726 |
| | 3,434 |
| | 4,160 |
| | (244 | ) | | 1955 | | 2016 | | 35 |
406 Farmington | Farmington, CT | — |
| | 379 |
| | 3,509 |
| | — |
| | 379 |
| | 3,509 |
| | 3,888 |
| | (210 | ) | | 1988 | | 2016 | | 39 |
704 Hebron | Glastonbury, CT | — |
| | 2,223 |
| | 6,544 |
| | — |
| | 2,223 |
| | 6,544 |
| | 8,767 |
| | (499 | ) | | 2001 | | 2016 | | 37 |
Gateway MOBs | Glastonbury, CT | — |
| | 10,896 |
| | 41,320 |
| | 2,565 |
| | 13,016 |
| | 41,765 |
| | 54,781 |
| | (2,966 | ) | | 2007-2017 | | 2016-2017 | | 39 |
Haynes MOBs | Manchester, CT | 7,389 |
| | 1,100 |
| | 14,620 |
| | — |
| | 1,100 |
| | 14,620 |
| | 15,720 |
| | (859 | ) | | 2007-2010 | | 2016 | | 39 |
Pomeroy MOBs | Meriden, CT | — |
| | 1,774 |
| | 10,078 |
| | (1 | ) | | 1,774 |
| | 10,077 |
| | 11,851 |
| | (758 | ) | | 2009-2011 | | 2016 | | 39 |
Saybrook MOBs | Middletown, CT | — |
| | — |
| | 10,314 |
| | 220 |
| | — |
| | 10,534 |
| | 10,534 |
| | (836 | ) | | 1989 | | 2016 | | 28 |
Yale Long Wharf | New Haven, CT | — |
| | 9,367 |
| | 58,691 |
| | 3,232 |
| | 9,367 |
| | 61,923 |
| | 71,290 |
| | (5,076 | ) | | 1977 | | 2016 | | 30 |
Devine MOBs | North Haven, CT | — |
| | 3,606 |
| | 27,278 |
| | (338 | ) | | 3,606 |
| | 26,940 |
| | 30,546 |
| | (1,515 | ) | | 2006-2017 | | 2016-2017 | | 35 |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION — (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Cost Capitalized Subsequent to Acquisition (a) | | Gross Amount at Which Carried at Close of Period | | | | | | | | |
| | Encumbrances | | Land | | Buildings, Improvements and Fixtures | | | Land | | Buildings, Improvements and Fixtures | | Total (c) | | Accumulated Depreciation (f) | | Date of Construction | | Date Acquired | | Life on Which Building Depreciation in Income Statement is Computed (h) |
Evergreen MOBs | South Windsor, CT | $ | 11,698 |
| | $ | 5,565 |
| | $ | 25,839 |
| | $ | (4 | ) | | $ | 5,565 |
| | $ | 25,835 |
| | $ | 31,400 |
| | $ | (1,675 | ) | | 2006-2011 | | 2016 | | 39 |
Day Hill MOBs | Windsor, CT | — |
| | 3,980 |
| | 7,055 |
| | 95 |
| | 3,980 |
| | 7,150 |
| | 11,130 |
| | (775 | ) | | 1990-1999 | | 2016 | | 30 |
Riverside MOB | Bradenton, FL | — |
| | 2,230 |
| | 7,689 |
| | 93 |
| | 2,230 |
| | 7,782 |
| | 10,012 |
| | (551 | ) | | 1980 | | 2016 | | 25 |
Brandon MOP | Brandon, FL | — |
| | 901 |
| | 6,946 |
| | 556 |
| | 901 |
| | 7,502 |
| | 8,403 |
| | (2,465 | ) | | 1997 | | 2008 | | 39 |
McMullen MOB | Clearwater, FL | — |
| | 3,470 |
| | 12,621 |
| | 17 |
| | 3,470 |
| | 12,638 |
| | 16,108 |
| | (1,659 | ) | | 2009 | | 2014 | | 39 |
Orlando Rehab Hospital | Edgewood, FL | — |
| | 2,600 |
| | 20,256 |
| | 3,000 |
| | 2,600 |
| | 23,256 |
| | 25,856 |
| | (5,055 | ) | | 2007 | | 2010 | | 39 |
Palmetto MOB | Hialeah, FL | — |
| | — |
| | 15,512 |
| | 2,047 |
| | — |
| | 17,559 |
| | 17,559 |
| | (3,709 | ) | | 1980 | | 2013 | | 39 |
East FL Senior Jacksonville | Jacksonville, FL | — |
| | 4,291 |
| | 9,220 |
| | (1 | ) | | 4,291 |
| | 9,219 |
| | 13,510 |
| | (3,600 | ) | | 1985 | | 2007 | | 39 |
King Street MOB | Jacksonville, FL | — |
| | — |
| | 7,232 |
| | 99 |
| | — |
| | 7,331 |
| | 7,331 |
| | (1,879 | ) | | 2007 | | 2010 | | 39 |
Jupiter MP | Jupiter, FL | — |
| | 1,204 |
| | 11,778 |
| | 574 |
| | 1,204 |
| | 12,352 |
| | 13,556 |
| | (1,791 | ) | | 1996-1997 | | 2013 | | 39 |
Central FL SC | Lakeland, FL | — |
| | 768 |
| | 3,002 |
| | 335 |
| | 768 |
| | 3,337 |
| | 4,105 |
| | (1,033 | ) | | 1995 | | 2008 | | 39 |
Vista Pro Center MOP | Lakeland, FL | — |
| | 1,082 |
| | 3,587 |
| | 780 |
| | 1,082 |
| | 4,367 |
| | 5,449 |
| | (1,449 | ) | | 1996-1999 | | 2007-2008 | | 39 |
Largo Medical Center | Largo, FL | 27,901 |
| | — |
| | 51,045 |
| | 573 |
| | — |
| | 51,618 |
| | 51,618 |
| | (6,162 | ) | | 2009 | | 2013 | | 39 |
Largo MOP | Largo, FL | — |
| | 729 |
| | 8,908 |
| | 2,107 |
| | 729 |
| | 11,015 |
| | 11,744 |
| | (3,218 | ) | | 1975-1986 | | 2008 | | 39 |
FL Family Medical Center | Lauderdale Lakes, FL | — |
| | — |
| | 4,257 |
| | 817 |
| | — |
| | 5,074 |
| | 5,074 |
| | (1,304 | ) | | 1978 | | 2013 | | 39 |
Northwest Medical Park | Margate, FL | — |
| | — |
| | 9,525 |
| | 144 |
| | 5 |
| | 9,664 |
| | 9,669 |
| | (1,430 | ) | | 2009 | | 2013 | | 39 |
Coral Reef | Miami, FL | — |
| | 5,144 |
| | — |
| | — |
| | 5,144 |
| | — |
| | 5,144 |
| | — |
| | 2017 | | 2017 | | N/A |
North Shore MOB | Miami, FL | — |
| | — |
| | 4,942 |
| | 717 |
| | — |
| | 5,659 |
| | 5,659 |
| | (1,533 | ) | | 1978 | | 2013 | | 39 |
Sunset Professional and Kendall MOBs | Miami, FL | — |
| | 11,855 |
| | 13,633 |
| | 3,802 |
| | 11,855 |
| | 17,435 |
| | 29,290 |
| | (3,217 | ) | | 1954-2006 | | 2014 | | 27 |
Common V MOB | Naples, FL | — |
| | 4,173 |
| | 9,070 |
| | 1,016 |
| | 4,173 |
| | 10,086 |
| | 14,259 |
| | (3,034 | ) | | 1990 | | 2007 | | 39 |
Florida Hospital MOBs | Orlando, Sebring and Tampa, FL | — |
| | — |
| | 151,647 |
| | 1,976 |
| | — |
| | 153,623 |
| | 153,623 |
| | (2,873 | ) | | 2006-2012 | | 2017 | | 39 |
Orlando Lake Underhill MOB | Orlando, FL | — |
| | — |
| | 8,515 |
| | 1,150 |
| | — |
| | 9,665 |
| | 9,665 |
| | (2,462 | ) | | 2000 | | 2010 | | 39 |
Orlando Oviedo MOB | Oviedo, FL | — |
| | — |
| | 5,711 |
| | 647 |
| | — |
| | 6,358 |
| | 6,358 |
| | (1,428 | ) | | 1998 | | 2010 | | 39 |
Heart & Family Health MOB | Port St. Lucie, FL | — |
| | 686 |
| | 8,102 |
| | 15 |
| | 686 |
| | 8,117 |
| | 8,803 |
| | (1,131 | ) | | 2008 | | 2013 | | 39 |
St. Lucie MC | Port St. Lucie, FL | — |
| | — |
| | 6,127 |
| | 8 |
| | — |
| | 6,135 |
| | 6,135 |
| | (927 | ) | | 2008 | | 2013 | | 39 |
East FL Senior Sunrise | Sunrise, FL | — |
| | 2,947 |
| | 12,825 |
| | — |
| | 2,947 |
| | 12,825 |
| | 15,772 |
| | (4,488 | ) | | 1989 | | 2007 | | 39 |
Tallahassee Rehab Hospital | Tallahassee, FL | — |
| | 7,142 |
| | 18,691 |
| | 2,400 |
| | 7,142 |
| | 21,091 |
| | 28,233 |
| | (4,876 | ) | | 2007 | | 2010 | | 39 |
Optimal MOBs | Tampa, FL | — |
| | 4,002 |
| | 67,288 |
| | (4 | ) | | 4,002 |
| | 67,284 |
| | 71,286 |
| | (1,146 | ) | | 2005-2015 | | 2017 | | 39 |
Tampa Medical Village MOB | Tampa, FL | — |
| | 3,627 |
| | 14,806 |
| | (8 | ) | | 3,627 |
| | 14,798 |
| | 18,425 |
| | (420 | ) | | 2003 | | 2017 | | 35 |
VA MOBs | Tampa, FL | — |
| | 17,802 |
| | 80,154 |
| | (208 | ) | | 17,802 |
| | 79,946 |
| | 97,748 |
| | (1,214 | ) | | 2013 | | 2017 | | 39 |
FL Ortho Institute | Temple Terrace, FL | — |
| | 2,923 |
| | 17,647 |
| | (1 | ) | | 2,923 |
| | 17,646 |
| | 20,569 |
| | (3,929 | ) | | 2001-2003 | | 2010 | | 39 |
Wellington MAP III | Wellington, FL | — |
| | — |
| | 10,511 |
| | 68 |
| | — |
| | 10,579 |
| | 10,579 |
| | (2,180 | ) | | 2006 | | 2010 | | 39 |
Victor Farris MOB | West Palm Beach, FL | — |
| | — |
| | 23,052 |
| | 1,560 |
| | — |
| | 24,612 |
| | 24,612 |
| | (4,273 | ) | | 1988 | | 2013 | | 39 |
East FL Senior Winter Park | Winter Park, FL | — |
| | 2,840 |
| | 12,825 |
| | — |
| | 2,840 |
| | 12,825 |
| | 15,665 |
| | (4,775 | ) | | 1988 | | 2007 | | 39 |
Camp Creek Med Center | Atlanta, GA | — |
| | 2,961 |
| | 19,688 |
| | 312 |
| | 2,961 |
| | 20,000 |
| | 22,961 |
| | (5,470 | ) | | 2006-2010 | | 2010-2012 | | 39 |
North Atlanta MOBs | Atlanta, GA | — |
| | — |
| | 41,836 |
| | 626 |
| | — |
| | 42,462 |
| | 42,462 |
| | (780 | ) | | 2011-2012 | | 2017 | | 39 |
Augusta Rehab Hospital | Augusta, GA | — |
| | 1,059 |
| | 20,899 |
| | — |
| | 1,059 |
| | 20,899 |
| | 21,958 |
| | (4,387 | ) | | 2007 | | 2010 | | 39 |
Austell Medical Park | Austell, GA | — |
| | 432 |
| | 4,057 |
| | 45 |
| | 432 |
| | 4,102 |
| | 4,534 |
| | (751 | ) | | 2007 | | 2013 | | 39 |
Harbin Clinic MOBs | Cedartown, Rome and Summerville, GA | — |
| | 7,097 |
| | 112,155 |
| | 1 |
| | 7,097 |
| | 112,156 |
| | 119,253 |
| | (2,234 | ) | | 1960-2010 | | 2017 | | 30-39 |
Decatur MP | Decatur, GA | — |
| | 3,166 |
| | 6,862 |
| | 895 |
| | 3,166 |
| | 7,757 |
| | 10,923 |
| | (2,374 | ) | | 1976 | | 2008 | | 39 |
Yorktown MC | Fayetteville, GA | — |
| | 2,802 |
| | 12,502 |
| | 3,207 |
| | 2,802 |
| | 15,709 |
| | 18,511 |
| | (5,940 | ) | | 1987 | | 2007 | | 39 |
Gwinett MOP | Lawrenceville, GA | — |
| | 1,290 |
| | 7,246 |
| | 2,566 |
| | 1,290 |
| | 9,812 |
| | 11,102 |
| | (3,265 | ) | | 1985 | | 2007 | | 39 |
Marietta Health Park | Marietta, GA | — |
| | 1,276 |
| | 12,197 |
| | 1,191 |
| | 1,276 |
| | 13,388 |
| | 14,664 |
| | (4,212 | ) | | 2000 | | 2008 | | 39 |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION — (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Cost Capitalized Subsequent to Acquisition (a) | | Gross Amount at Which Carried at Close of Period | | | | | | | | |
| | Encumbrances | | Land | | Buildings, Improvements and Fixtures | | | Land | | Buildings, Improvements and Fixtures | | Total (c) | | Accumulated Depreciation (f) | | Date of Construction | | Date Acquired | | Life on Which Building Depreciation in Income Statement is Computed (h) |
WellStar Tower MOB | Marietta, GA | $ | — |
| | $ | 748 |
| | $ | 13,528 |
| | $ | 96 |
| | $ | 748 |
| | $ | 13,624 |
| | $ | 14,372 |
| | $ | (1,190 | ) | | 2007 | | 2015 | | 39 |
Shakerag MC | Peachtree City, GA | — |
| | 743 |
| | 3,290 |
| | 1,291 |
| | 743 |
| | 4,581 |
| | 5,324 |
| | (1,844 | ) | | 1994 | | 2007 | | 39 |
Overlook at Eagle’s Landing | Stockbridge, GA | — |
| | 638 |
| | 6,685 |
| | 694 |
| | 638 |
| | 7,379 |
| | 8,017 |
| | (1,809 | ) | | 2004 | | 2010 | | 39 |
SouthCrest MOP | Stockbridge, GA | — |
| | 4,260 |
| | 14,636 |
| | 1,815 |
| | 4,260 |
| | 16,451 |
| | 20,711 |
| | (5,392 | ) | | 2005 | | 2008 | | 39 |
Cherokee Medical Center | Woodstock, GA | — |
| | — |
| | 16,558 |
| | 206 |
| | — |
| | 16,764 |
| | 16,764 |
| | (1,564 | ) | | 2001 | | 2015 | | 35 |
Honolulu MOB | Honolulu, HI | — |
| | — |
| | 27,336 |
| | 844 |
| | — |
| | 28,180 |
| | 28,180 |
| | (3,080 | ) | | 1997 | | 2014 | | 35 |
Kapolei Medical Park | Kapolei, HI | — |
| | — |
| | 16,253 |
| | (211 | ) | | — |
| | 16,042 |
| | 16,042 |
| | (1,969 | ) | | 1999 | | 2014 | | 35 |
Chicago MOBs | Chicago, IL | 52,200 |
| | 7,723 |
| | 129,520 |
| | 112 |
| | 7,723 |
| | 129,632 |
| | 137,355 |
| | (1,988 | ) | | 2006-2017 | | 2017 | | 38-39 |
Rush Oak Park MOB | Oak Park, IL | — |
| | 1,096 |
| | 38,550 |
| | — |
| | 1,096 |
| | 38,550 |
| | 39,646 |
| | (7,157 | ) | | 2000 | | 2012 | | 38 |
Brownsburg MOB | Brownsburg, IN | — |
| | 431 |
| | 639 |
| | 245 |
| | 431 |
| | 884 |
| | 1,315 |
| | (470 | ) | | 1989 | | 2008 | | 39 |
Athens SC | Crawfordsville, IN | — |
| | 381 |
| | 3,575 |
| | 296 |
| | 381 |
| | 3,871 |
| | 4,252 |
| | (1,405 | ) | | 2000 | | 2007 | | 39 |
Crawfordsville MOB | Crawfordsville, IN | — |
| | 318 |
| | 1,899 |
| | 174 |
| | 318 |
| | 2,073 |
| | 2,391 |
| | (740 | ) | | 1997 | | 2007 | | 39 |
Deaconess Clinic Downtown | Evansville, IN | — |
| | 1,748 |
| | 21,963 |
| | 60 |
| | 1,748 |
| | 22,023 |
| | 23,771 |
| | (5,913 | ) | | 1952-1967 | | 2010 | | 39 |
Deaconess Clinic Westside | Evansville, IN | — |
| | 360 |
| | 3,265 |
| | 356 |
| | 360 |
| | 3,621 |
| | 3,981 |
| | (945 | ) | | 2005 | | 2010 | | 39 |
Dupont MOB | Fort Wayne, IN | — |
| | — |
| | 8,246 |
| | 27 |
| | — |
| | 8,273 |
| | 8,273 |
| | (1,292 | ) | | 2004 | | 2013 | | 39 |
Ft. Wayne MOB | Fort Wayne, IN | — |
| | — |
| | 6,579 |
| | — |
| | — |
| | 6,579 |
| | 6,579 |
| | (1,526 | ) | | 2008 | | 2009 | | 39 |
Community MP | Indianapolis, IN | — |
| | 560 |
| | 3,581 |
| | 302 |
| | 560 |
| | 3,883 |
| | 4,443 |
| | (1,362 | ) | | 1995 | | 2008 | | 39 |
Eagle Highlands MOP | Indianapolis, IN | — |
| | 2,216 |
| | 11,154 |
| | 8,212 |
| | 2,216 |
| | 19,366 |
| | 21,582 |
| | (6,429 | ) | | 1988-1989 | | 2008 | | 39 |
Epler Parke MOP | Indianapolis, IN | — |
| | 1,556 |
| | 6,928 |
| | 1,208 |
| | 1,556 |
| | 8,136 |
| | 9,692 |
| | (3,010 | ) | | 2002-2003 | | 2007-2008 | | 39 |
Glendale Professional Plaza | Indianapolis, IN | — |
| | 570 |
| | 2,739 |
| | 1,603 |
| | 570 |
| | 4,342 |
| | 4,912 |
| | (1,740 | ) | | 1993 | | 2008 | | 39 |
MMP Eagle Highlands | Indianapolis, IN | — |
| | 1,044 |
| | 13,548 |
| | 2,626 |
| | 1,044 |
| | 16,174 |
| | 17,218 |
| | (5,782 | ) | | 1993 | | 2008 | | 39 |
MMP East | Indianapolis, IN | — |
| | 1,236 |
| | 9,840 |
| | 4,033 |
| | 1,236 |
| | 13,873 |
| | 15,109 |
| | (5,569 | ) | | 1996 | | 2008 | | 39 |
MMP North | Indianapolis, IN | — |
| | 1,518 |
| | 15,460 |
| | 4,326 |
| | 1,427 |
| | 19,877 |
| | 21,304 |
| | (6,758 | ) | | 1995 | | 2008 | | 39 |
MMP South | Indianapolis, IN | — |
| | 1,127 |
| | 10,414 |
| | 1,831 |
| | 1,127 |
| | 12,245 |
| | 13,372 |
| | (4,420 | ) | | 1994 | | 2008 | | 39 |
Southpointe MOP | Indianapolis, IN | — |
| | 2,190 |
| | 7,548 |
| | 2,674 |
| | 2,190 |
| | 10,222 |
| | 12,412 |
| | (3,653 | ) | | 1996 | | 2007 | | 39 |
St. Vincent MOB | Indianapolis, IN | 18,300 |
| | 2,964 |
| | 23,352 |
| | — |
| | 2,964 |
| | 23,352 |
| | 26,316 |
| | (496 | ) | | 2007 | | 2017 | | 35 |
Kokomo MOP | Kokomo, IN | — |
| | 1,779 |
| | 9,614 |
| | 2,322 |
| | 1,779 |
| | 11,936 |
| | 13,715 |
| | (3,831 | ) | | 1992-1994 | | 2007 | | 39 |
Deaconess Clinic Gateway | Newburgh, IN | — |
| | — |
| | 10,952 |
| | 26 |
| | — |
| | 10,978 |
| | 10,978 |
| | (2,590 | ) | | 2006 | | 2010 | | 39 |
Community Health Pavilion | Noblesville, IN | — |
| | 5,560 |
| | 28,988 |
| | 955 |
| | 5,560 |
| | 29,943 |
| | 35,503 |
| | (3,075 | ) | | 2009 | | 2015 | | 39 |
Zionsville MC | Zionsville, IN | — |
| | 655 |
| | 2,877 |
| | 981 |
| | 664 |
| | 3,849 |
| | 4,513 |
| | (1,384 | ) | | 1992 | | 2008 | | 39 |
KS Doctors MOB | Overland Park, KS | — |
| | 1,808 |
| | 9,517 |
| | 1,886 |
| | 1,808 |
| | 11,403 |
| | 13,211 |
| | (3,800 | ) | | 1978 | | 2008 | | 39 |
Nashoba Valley Med Center MOB | Ayer, MA | — |
| | — |
| | 5,529 |
| | 304 |
| | 299 |
| | 5,534 |
| | 5,833 |
| | (1,116 | ) | | 1976-2007 | | 2012 | | 31 |
670 Albany | Boston, MA | — |
| | — |
| | 104,365 |
| | 31 |
| | — |
| | 104,396 |
| | 104,396 |
| | (7,683 | ) | | 2005 | | 2015 | | 39 |
Tufts Medical Center | Boston, MA | 68,707 |
| | 32,514 |
| | 109,180 |
| | 5,484 |
| | 32,514 |
| | 114,664 |
| | 147,178 |
| | (13,422 | ) | | 1924-2015 | | 2014 | | 35 |
St. Elizabeth’s Med Center | Brighton, MA | — |
| | — |
| | 20,929 |
| | 2,749 |
| | 1,379 |
| | 22,299 |
| | 23,678 |
| | (4,112 | ) | | 1965-2013 | | 2012 | | 31 |
Good Samaritan MOBs | Brockton, MA | — |
| | — |
| | 15,887 |
| | 895 |
| | 144 |
| | 16,638 |
| | 16,782 |
| | (3,007 | ) | | 1980-2007 | | 2012 | | 31 |
Pearl Street MOBs | Brockton, MA | 6,647 |
| | 4,714 |
| | 18,193 |
| | 139 |
| | 4,714 |
| | 18,332 |
| | 23,046 |
| | (818 | ) | | 1966-2004 | | 2016 | | 39 |
Carney Hospital MOB | Dorchester, MA | — |
| | — |
| | 7,250 |
| | 751 |
| | 530 |
| | 7,471 |
| | 8,001 |
| | (1,410 | ) | | 1978 | | 2012 | | 31 |
St. Anne’s Hospital MOB | Fall River, MA | — |
| | — |
| | 9,304 |
| | 57 |
| | 40 |
| | 9,321 |
| | 9,361 |
| | (1,380 | ) | | 2011 | | 2012 | | 31 |
Norwood Hospital MOB | Foxborough, MA | — |
| | — |
| | 9,489 |
| | 239 |
| | 2,295 |
| | 7,433 |
| | 9,728 |
| | (1,548 | ) | | 1930-2000 | | 2012 | | 31 |
Holy Family Hospital MOB | Methuen, MA | — |
| | — |
| | 4,502 |
| | 274 |
| | 168 |
| | 4,608 |
| | 4,776 |
| | (1,070 | ) | | 1988 | | 2012 | | 31 |
N. Berkshire MOB | North Adams, MA | — |
| | — |
| | 7,259 |
| | (4,933 | ) | | — |
| | 2,326 |
| | 2,326 |
| | (1,642 | ) | | 2002 | | 2011 | | 39 |
Morton Hospital MOB | Taunton, MA | — |
| | — |
| | 15,317 |
| | 1,102 |
| | 502 |
| | 15,917 |
| | 16,419 |
| | (4,643 | ) | | 1988 | | 2012 | | 31 |
Stetson MOB | Weymouth, MA | — |
| | 3,362 |
| | 15,555 |
| | 856 |
| | 3,362 |
| | 16,411 |
| | 19,773 |
| | (2,243 | ) | | 1900-1986 | | 2015 | | 20 |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION — (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Cost Capitalized Subsequent to Acquisition (a) | | Gross Amount at Which Carried at Close of Period | | | | | | | | |
| | Encumbrances | | Land | | Buildings, Improvements and Fixtures | | | Land | | Buildings, Improvements and Fixtures | | Total (c) | | Accumulated Depreciation (f) | | Date of Construction | | Date Acquired | | Life on Which Building Depreciation in Income Statement is Computed (h) |
Johnston Professional Building | Baltimore, MD | $ | 13,530 |
| | $ | — |
| | $ | 21,481 |
| | $ | 217 |
| | $ | — |
| | $ | 21,698 |
| | $ | 21,698 |
| | $ | (2,475 | ) | | 1993 | | 2014 | | 35 |
Triad Tech Center | Baltimore, MD | 10,180 |
| | — |
| | 26,548 |
| | — |
| | — |
| | 26,548 |
| | 26,548 |
| | (5,620 | ) | | 1989 | | 2010 | | 39 |
St. John Providence MOB | Novi, MI | — |
| | — |
| | 42,371 |
| | 295 |
| | — |
| | 42,666 |
| | 42,666 |
| | (9,834 | ) | | 2007 | | 2012 | | 39 |
Fort Road MOB | St. Paul, MN | — |
| | 1,571 |
| | 5,786 |
| | 1,453 |
| | 1,571 |
| | 7,239 |
| | 8,810 |
| | (2,244 | ) | | 1981 | | 2008 | | 39 |
Gallery Professional Building | St. Paul, MN | — |
| | 1,157 |
| | 5,009 |
| | 3,509 |
| | 1,157 |
| | 8,518 |
| | 9,675 |
| | (4,385 | ) | | 1979 | | 2007 | | 39 |
Chesterfield Rehab Hospital | Chesterfield, MO | — |
| | 4,213 |
| | 27,898 |
| | 1,085 |
| | 4,313 |
| | 28,883 |
| | 33,196 |
| | (8,226 | ) | | 2007 | | 2007 | | 39 |
BJC West County MOB | Creve Coeur, MO | — |
| | 2,242 |
| | 13,130 |
| | 612 |
| | 2,242 |
| | 13,742 |
| | 15,984 |
| | (4,226 | ) | | 1978 | | 2008 | | 39 |
Winghaven MOB | O’Fallon, MO | — |
| | 1,455 |
| | 9,708 |
| | 642 |
| | 1,455 |
| | 10,350 |
| | 11,805 |
| | (3,411 | ) | | 2001 | | 2008 | | 39 |
BJC MOB | St. Louis, MO | — |
| | 304 |
| | 1,554 |
| | (915 | ) | | 304 |
| | 639 |
| | 943 |
| | (432 | ) | | 2001 | | 2008 | | 39 |
Des Peres MAP II | St. Louis, MO | — |
| | — |
| | 11,386 |
| | 1,102 |
| | — |
| | 12,488 |
| | 12,488 |
| | (3,115 | ) | | 2007 | | 2010 | | 39 |
Baptist Memorial MOB | Oxford, MS | — |
| | — |
| | 26,263 |
| | 5,749 |
| | — |
| | 32,012 |
| | 32,012 |
| | (182 | ) | | 2017 | | 2017 | | 39 |
Medical Park of Cary | Cary, NC | — |
| | 2,931 |
| | 19,855 |
| | 2,861 |
| | 2,931 |
| | 22,716 |
| | 25,647 |
| | (6,231 | ) | | 1994 | | 2010 | | 39 |
Rex Cary MOB | Cary, NC | — |
| | 1,449 |
| | 18,226 |
| | 217 |
| | 1,449 |
| | 18,443 |
| | 19,892 |
| | (1,491 | ) | | 2002 | | 2015 | | 39 |
Tryon Office Center | Cary, NC | — |
| | 2,200 |
| | 14,956 |
| | 365 |
| | 2,200 |
| | 15,321 |
| | 17,521 |
| | (1,437 | ) | | 2002-2006 | | 2015 | | 39 |
Carolinas Health MOB | Charlotte, NC | 59,800 |
| | — |
| | 75,198 |
| | — |
| | — |
| | 75,198 |
| | 75,198 |
| | (1,330 | ) | | 2006 | | 2017 | | 39 |
Duke Fertility Center | Durham, NC | — |
| | 596 |
| | 3,882 |
| | — |
| | 596 |
| | 3,882 |
| | 4,478 |
| | (156 | ) | | 2006 | | 2016 | | 39 |
Hock Plaza II | Durham, NC | — |
| | 680 |
| | 27,044 |
| | 233 |
| | 680 |
| | 27,277 |
| | 27,957 |
| | (995 | ) | | 2006 | | 2016 | | 36 |
UNC Rex Holly Springs | Holly Springs, NC | — |
| | — |
| | 27,591 |
| | 7,273 |
| | — |
| | 34,864 |
| | 34,864 |
| | (81 | ) | | 2011 | | 2017 | | 39 |
Medical Park MOBs | Mooresville, NC | — |
| | 1,771 |
| | 13,266 |
| | 77 |
| | 1,771 |
| | 13,343 |
| | 15,114 |
| | (552 | ) | | 2000-2005 | | 2017 | | 23 |
3100 Blue Ridge | Raleigh, NC | — |
| | 1,732 |
| | 8,891 |
| | 439 |
| | 1,732 |
| | 9,330 |
| | 11,062 |
| | (1,318 | ) | | 1985 | | 2014 | | 35 |
Raleigh Medical Center | Raleigh, NC | — |
| | 2,381 |
| | 15,630 |
| | 6,310 |
| | 2,381 |
| | 21,940 |
| | 24,321 |
| | (5,137 | ) | | 1989 | | 2010 | | 39 |
Nutfield Professional Center | Derry, NH | — |
| | 1,075 |
| | 10,320 |
| | 846 |
| | 1,075 |
| | 11,166 |
| | 12,241 |
| | (3,210 | ) | | 1963 | | 2008 | | 39 |
Hackensack MOB | North Bergen, NJ | — |
| | — |
| | 31,658 |
| | — |
| | — |
| | 31,658 |
| | 31,658 |
| | (510 | ) | | 2014 | | 2017 | | 39 |
Mountain View MOB | Las Cruces, NM | — |
| | — |
| | 41,553 |
| | 379 |
| | — |
| | 41,932 |
| | 41,932 |
| | (867 | ) | | 2003 | | 2017 | | 39 |
Santa Fe 1640 MOB | Santa Fe, NM | — |
| | 697 |
| | 4,268 |
| | 64 |
| | 697 |
| | 4,332 |
| | 5,029 |
| | (1,069 | ) | | 1985 | | 2010 | | 39 |
Santa Fe 440 MOB | Santa Fe, NM | — |
| | 842 |
| | 7,448 |
| | 13 |
| | 842 |
| | 7,461 |
| | 8,303 |
| | (1,846 | ) | | 1978 | | 2010 | | 39 |
San Martin MAP | Las Vegas, NV | — |
| | — |
| | 14,777 |
| | 2,990 |
| | — |
| | 17,767 |
| | 17,767 |
| | (3,328 | ) | | 2007 | | 2010 | | 39 |
Madison Ave MOB | Albany, NY | — |
| | 83 |
| | 2,759 |
| | 68 |
| | 83 |
| | 2,827 |
| | 2,910 |
| | (661 | ) | | 1964-2008 | | 2010 | | 39 |
Patroon Creek HQ | Albany, NY | — |
| | 1,870 |
| | 29,453 |
| | 5,382 |
| | 1,870 |
| | 34,835 |
| | 36,705 |
| | (8,079 | ) | | 2001 | | 2010 | | 39 |
Patroon Creek MOB | Albany, NY | — |
| | 1,439 |
| | 27,639 |
| | 559 |
| | 1,439 |
| | 28,198 |
| | 29,637 |
| | (6,223 | ) | | 2007 | | 2010 | | 39 |
Washington Ave MOB | Albany, NY | — |
| | 1,699 |
| | 18,440 |
| | 852 |
| | 1,699 |
| | 19,292 |
| | 20,991 |
| | (4,520 | ) | | 1998-2000 | | 2010 | | 39 |
Putnam MOB | Carmel, NY | — |
| | — |
| | 24,216 |
| | 134 |
| | — |
| | 24,350 |
| | 24,350 |
| | (4,803 | ) | | 2000 | | 2010 | | 39 |
Capital Region Health Park | Latham, NY | — |
| | 2,305 |
| | 37,494 |
| | 3,849 |
| | 2,305 |
| | 41,343 |
| | 43,648 |
| | (10,078 | ) | | 2001 | | 2010 | | 39 |
Westchester MOBs | White Plains, NY | — |
| | 17,274 |
| | 41,865 |
| | 2,292 |
| | 17,274 |
| | 44,157 |
| | 61,431 |
| | (7,078 | ) | | 1967-1983 | | 2014 | | 29 |
210 Westchester MOB | White Plains, NY | — |
| | 8,628 |
| | 18,408 |
| | — |
| | 8,628 |
| | 18,408 |
| | 27,036 |
| | (2,239 | ) | | 1981 | | 2014 | | 31 |
Kindred MOBs | Avon, OH, Germantown,TN, Indianapolis, IN and Springfield, MO | — |
| | 4,238 |
| | 118,778 |
| | (101 | ) | | 4,238 |
| | 118,677 |
| | 122,915 |
| | (1,929 | ) | | 2013-2016 | | 2017 | | 39 |
Diley Ridge MOB | Canal Winchester, OH | — |
| | — |
| | 9,811 |
| | 70 |
| | — |
| | 9,881 |
| | 9,881 |
| | (820 | ) | | 2010 | | 2015 | | 39 |
Good Sam MOB | Cincinnati, OH | 8,700 |
| | 1,825 |
| | 9,966 |
| | — |
| | 1,825 |
| | 9,966 |
| | 11,791 |
| | (200 | ) | | 2011 | | 2017 | | 39 |
Jewish MOB | Cincinnati, OH | — |
| | — |
| | 16,187 |
| | — |
| | — |
| | 16,187 |
| | 16,187 |
| | (393 | ) | | 1999 | | 2017 | | 35 |
Trihealth | Cincinnati, OH | — |
| | — |
| | 34,894 |
| | 313 |
| | — |
| | 35,207 |
| | 35,207 |
| | (423 | ) | | 2016 | | 2017 | | 39 |
Market Exchange MOP | Columbus, OH | — |
| | 2,326 |
| | 17,207 |
| | 3,496 |
| | 2,326 |
| | 20,703 |
| | 23,029 |
| | (6,042 | ) | | 2001-2003 | | 2007-2010 | | 39 |
Polaris MOB | Columbus, OH | — |
| | 1,447 |
| | 12,192 |
| | 19 |
| | 1,447 |
| | 12,211 |
| | 13,658 |
| | (689 | ) | | 2012 | | 2016 | | 39 |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION — (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Cost Capitalized Subsequent to Acquisition (a) | | Gross Amount at Which Carried at Close of Period | | | | | | | | |
| | Encumbrances | | Land | | Buildings, Improvements and Fixtures | | | Land | | Buildings, Improvements and Fixtures | | Total (c) | | Accumulated Depreciation (f) | | Date of Construction | | Date Acquired | | Life on Which Building Depreciation in Income Statement is Computed (h) |
Gahanna MOB | Gahanna, OH | $ | — |
| | $ | 1,078 |
| | $ | 5,674 |
| | $ | — |
| | $ | 1,078 |
| | $ | 5,674 |
| | $ | 6,752 |
| | $ | (311 | ) | | 1997 | | 2016 | | 30 |
Hilliard MOB | Hilliard, OH | — |
| | 946 |
| | 11,174 |
| | 697 |
| | 946 |
| | 11,871 |
| | 12,817 |
| | (1,046 | ) | | 2013 | | 2015 | | 39 |
Hilliard II MOB | Hilliard, OH | — |
| | 959 |
| | 7,260 |
| | 4 |
| | 959 |
| | 7,264 |
| | 8,223 |
| | (455 | ) | | 2014 | | 2016 | | 38 |
Park Place MOP | Kettering, OH | — |
| | 1,987 |
| | 11,341 |
| | 3,065 |
| | 1,987 |
| | 14,406 |
| | 16,393 |
| | (5,330 | ) | | 1998-2002 | | 2007 | | 39 |
Liberty Falls MP | Liberty, OH | — |
| | 842 |
| | 5,640 |
| | 991 |
| | 842 |
| | 6,631 |
| | 7,473 |
| | (2,380 | ) | | 2008 | | 2008 | | 39 |
Parma Ridge MOB | Parma, OH | — |
| | 372 |
| | 3,636 |
| | 842 |
| | 372 |
| | 4,478 |
| | 4,850 |
| | (1,528 | ) | | 1977 | | 2008 | | 39 |
Deaconess MOP | Oklahoma City, OK | — |
| | — |
| | 25,975 |
| | 3,672 |
| | — |
| | 29,647 |
| | 29,647 |
| | (9,069 | ) | | 1991-1996 | | 2008 | | 39 |
Silverton Health MOB | Woodburn, OR | — |
| | 953 |
| | 6,164 |
| | — |
| | 953 |
| | 6,164 |
| | 7,117 |
| | (349 | ) | | 2001 | | 2016 | | 35 |
Monroeville MOB | Monroeville, PA | — |
| | 3,264 |
| | 7,038 |
| | 1,036 |
| | 3,264 |
| | 8,074 |
| | 11,338 |
| | (2,121 | ) | | 1985-1989 | | 2013 | | 39 |
2750 Monroe MOB | Norristown, PA | — |
| | 2,323 |
| | 22,631 |
| | 5,423 |
| | 2,323 |
| | 28,054 |
| | 30,377 |
| | (9,338 | ) | | 1985 | | 2007 | | 39 |
Main Line Bryn Mawr MOB | Philadelphia, PA | — |
| | — |
| | 46,967 |
| | 695 |
| | — |
| | 47,662 |
| | 47,662 |
| | (709 | ) | | 2017 | | 2017 | | 39 |
Federal North MOB | Pittsburgh, PA | — |
| | 2,489 |
| | 30,268 |
| | 779 |
| | 2,489 |
| | 31,047 |
| | 33,536 |
| | (6,808 | ) | | 1999 | | 2010 | | 39 |
Highmark Penn Ave | Pittsburgh, PA | — |
| | 1,774 |
| | 38,921 |
| | 3,301 |
| | 1,774 |
| | 42,222 |
| | 43,996 |
| | (8,431 | ) | | 1907-1998 | | 2012 | | 39 |
WP Allegheny HQ MOB | Pittsburgh, PA | — |
| | 1,514 |
| | 32,368 |
| | 2,608 |
| | 1,514 |
| | 34,976 |
| | 36,490 |
| | (7,023 | ) | | 2002 | | 2010 | | 39 |
39 Broad Street | Charleston, SC | — |
| | 3,180 |
| | 1,970 |
| | 2,551 |
| | 3,476 |
| | 4,225 |
| | 7,701 |
| | (247 | ) | | 1891 | | 2015 | | 39 |
Cannon Park Place | Charleston, SC | — |
| | 425 |
| | 8,651 |
| | 890 |
| | 425 |
| | 9,541 |
| | 9,966 |
| | (2,088 | ) | | 1998 | | 2010 | | 39 |
MUSC Elm MOB | Charleston, SC | — |
| | 1,172 |
| | 4,361 |
| | 9 |
| | 1,172 |
| | 4,370 |
| | 5,542 |
| | (282 | ) | | 2015 | | 2016 | | 39 |
Tides Medical Arts Center | Charleston, SC | — |
| | 3,763 |
| | 19,787 |
| | 317 |
| | 3,763 |
| | 20,104 |
| | 23,867 |
| | (2,129 | ) | | 2007 | | 2014 | | 39 |
GHS Memorial | Greenville, SC | — |
| | — |
| | 8,301 |
| | 869 |
| | — |
| | 9,170 |
| | 9,170 |
| | (2,082 | ) | | 1992 | | 2009 | | 39 |
GHS MMC | Greenville, SC | 20,390 |
| | 995 |
| | 39,158 |
| | 2,231 |
| | 995 |
| | 41,389 |
| | 42,384 |
| | (9,651 | ) | | 1987-1998 | | 2009 | | 39 |
GHS MOBs I | Greenville, SC | — |
| | 1,644 |
| | 9,144 |
| | (792 | ) | | 294 |
| | 9,702 |
| | 9,996 |
| | (2,584 | ) | | ��1974-1990 | | 2009 | | 39 |
GHS Patewood MOP | Greenville, SC | — |
| | — |
| | 64,537 |
| | 1,170 |
| | — |
| | 65,707 |
| | 65,707 |
| | (15,703 | ) | | 1983-2007 | | 2009 | | 39 |
GHS Greer MOBs | Greenville, Travelers Rest and Greer, SC | — |
| | 1,309 |
| | 14,639 |
| | 280 |
| | 1,309 |
| | 14,919 |
| | 16,228 |
| | (3,528 | ) | | 1992-2008 | | 2009 | | 39 |
Hilton Head Heritage MOP | Hilton Head Island, SC | — |
| | 1,125 |
| | 5,398 |
| | (2,387 | ) | | 1,125 |
| | 3,011 |
| | 4,136 |
| | (1,278 | ) | | 1996 | | 2010 | | 39 |
Hilton Head Moss Creek MOB | Hilton Head Island, SC | — |
| | 209 |
| | 2,066 |
| | (837 | ) | | 209 |
| | 1,229 |
| | 1,438 |
| | (471 | ) | | 2010 | | 2010 | | 39 |
East Cooper Medical Arts Center | Mt. Pleasant, SC | — |
| | 2,470 |
| | 6,289 |
| | 125 |
| | 2,470 |
| | 6,414 |
| | 8,884 |
| | (1,218 | ) | | 2001 | | 2014 | | 32 |
East Cooper Medical Center | Mt. Pleasant, SC | — |
| | 2,073 |
| | 5,939 |
| | 1,543 |
| | 2,073 |
| | 7,482 |
| | 9,555 |
| | (1,831 | ) | | 1992 | | 2010 | | 39 |
MUSC University MOB | North Charleston, SC | — |
| | 1,282 |
| | 8,689 |
| | 24 |
| | 1,282 |
| | 8,713 |
| | 9,995 |
| | (989 | ) | | 2006 | | 2015 | | 36 |
Mary Black MOB | Spartanburg, SC | — |
| | — |
| | 12,523 |
| | 230 |
| | — |
| | 12,753 |
| | 12,753 |
| | (3,539 | ) | | 2006 | | 2009 | | 39 |
Lenox Office Park | Memphis, TN | — |
| | 1,670 |
| | 13,626 |
| | (6,221 | ) | | 1,670 |
| | 7,405 |
| | 9,075 |
| | (4,167 | ) | | 2000 | | 2007 | | 39 |
St. Thomas DePaul MOB | Murfreesboro, TN | — |
| | — |
| | 55,040 |
| | 2 |
| | — |
| | 55,042 |
| | 55,042 |
| | (1,009 | ) | | 2008 | | 2017 | | 39 |
Mountain Empire MOBs | Rogersville, Kingsport and Bristol, TN & Norton and Pennington Gap, VA | — |
| | 1,296 |
| | 36,523 |
| | 7,852 |
| | 1,278 |
| | 44,393 |
| | 45,671 |
| | (12,972 | ) | | 1976-2006 | | 2008-2011 | | 39 |
Amarillo Hospital | Amarillo, TX | — |
| | 1,110 |
| | 17,688 |
| | 29 |
| | 1,110 |
| | 17,717 |
| | 18,827 |
| | (4,683 | ) | | 2007 | | 2008 | | 39 |
Austin Heart MOB | Austin, TX | — |
| | — |
| | 15,172 |
| | 257 |
| | — |
| | 15,429 |
| | 15,429 |
| | (2,047 | ) | | 1999 | | 2013 | | 39 |
BS&W MOBs | Austin, TX | 60,150 |
| | — |
| | 300,952 |
| | 265 |
| | — |
| | 301,217 |
| | 301,217 |
| | (5,289 | ) | | 2009-2016 | | 2017 | | 39 |
Post Oak North MC | Austin, TX | — |
| | 887 |
| | 7,011 |
| | (39 | ) | | 887 |
| | 6,972 |
| | 7,859 |
| | (1,018 | ) | | 2007 | | 2013 | | 39 |
MatureWell MOB | Bryan, TX | — |
| | 1,307 |
| | 11,078 |
| | — |
| | 1,307 |
| | 11,078 |
| | 12,385 |
| | (346 | ) | | 2016 | | 2017 | | 39 |
Texas A&M Health Science Center | Bryan, TX | — |
| | — |
| | 32,494 |
| | 184 |
| | — |
| | 32,678 |
| | 32,678 |
| | (5,337 | ) | | 2011 | | 2013 | | 39 |
Dallas Rehab Hospital | Carrollton, TX | — |
| | 1,919 |
| | 16,341 |
| | — |
| | 1,919 |
| | 16,341 |
| | 18,260 |
| | (3,617 | ) | | 2006 | | 2010 | | 39 |
Cedar Hill MOB | Cedar Hill, TX | — |
| | 778 |
| | 4,830 |
| | 132 |
| | 778 |
| | 4,962 |
| | 5,740 |
| | (1,666 | ) | | 2007 | | 2008 | | 39 |
Cedar Park MOB | Cedar Park, TX | — |
| | — |
| | 30,338 |
| | 48 |
| | — |
| | 30,386 |
| | 30,386 |
| | (579 | ) | | 2007 | | 2017 | | 39 |
Corsicana MOB | Corsicana, TX | — |
| | — |
| | 6,781 |
| | 24 |
| | — |
| | 6,805 |
| | 6,805 |
| | (2,013 | ) | | 2007 | | 2009 | | 39 |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION — (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Initial Cost to Company | | Cost Capitalized Subsequent to Acquisition (a) | | Gross Amount at Which Carried at Close of Period | | | | | | | | |
| | Encumbrances | | Land | | Buildings, Improvements and Fixtures | | | Land | | Buildings, Improvements and Fixtures | | Total (c) | | Accumulated Depreciation (f) | | Date of Construction | | Date Acquired | | Life on Which Building Depreciation in Income Statement is Computed (h) |
Dallas LTAC Hospital | Dallas, TX | $ | — |
| | $ | 2,301 |
| | $ | 20,627 |
| | $ | — |
| | $ | 2,301 |
| | $ | 20,627 |
| | $ | 22,928 |
| | $ | (4,750 | ) | | 2007 | | 2009 | | 39 |
Forest Park Pavilion | Dallas, TX | — |
| | 9,670 |
| | 11,152 |
| | (745 | ) | | 9,670 |
| | 10,407 |
| | 20,077 |
| | (1,818 | ) | | 2010 | | 2012 | | 39 |
Forest Park Tower | Dallas, TX | — |
| | 3,340 |
| | 35,071 |
| | 1,623 |
| | 3,340 |
| | 36,694 |
| | 40,034 |
| | (5,808 | ) | | 2011 | | 2013 | | 39 |
Northpoint Medical | Dallas, TX | — |
| | 2,388 |
| | 14,621 |
| | 148 |
| | 2,388 |
| | 14,769 |
| | 17,157 |
| | (77 | ) | | 2017 | | 2017 | | 20 |
Baylor MOBs | Dallas/Fort Worth, TX | 29,500 |
| | 9,956 |
| | 122,852 |
| | 4,438 |
| | 9,956 |
| | 127,290 |
| | 137,246 |
| | (1,933 | ) | | 2013-2017 | | 2017 | | 39 |
Denton Med Rehab Hospital | Denton, TX | — |
| | 2,000 |
| | 11,704 |
| | — |
| | 2,000 |
| | 11,704 |
| | 13,704 |
| | (3,219 | ) | | 2008 | | 2009 | | 39 |
Denton MOB | Denton, TX | — |
| | — |
| | 7,543 |
| | 163 |
| | — |
| | 7,706 |
| | 7,706 |
| | (1,742 | ) | | 2000 | | 2010 | | 39 |
Cliff Medical Plaza | El Paso, TX | — |
| | 1,064 |
| | 1,972 |
| | 158 |
| | 1,064 |
| | 2,130 |
| | 3,194 |
| | (586 | ) | | 1977 | | 2016 | | 8 |
Providence Medical Plaza | El Paso, TX | — |
| | — |
| | 5,396 |
| | 424 |
| | — |
| | 5,820 |
| | 5,820 |
| | (753 | ) | | 1981 | | 2016 | | 20 |
Sierra Medical | El Paso, TX | — |
| | — |
| | 2,998 |
| | 234 |
| | — |
| | 3,232 |
| | 3,232 |
| | (537 | ) | | 1972 | | 2016 | | 15 |
Texas Health MOB | Fort Worth, TX | — |
| | — |
| | 38,429 |
| | 43 |
| | — |
| | 38,472 |
| | 38,472 |
| | (666 | ) | | 2014 | | 2017 | | 39 |
Conifer | Frisco, TX | — |
| | 4,807 |
| | 67,076 |
| | 12 |
| | 4,807 |
| | 67,088 |
| | 71,895 |
| | (1,141 | ) | | 2014 | | 2017 | | 39 |
Forest Park Frisco MC | Frisco, TX | — |
| | 1,238 |
| | 19,979 |
| | 2,869 |
| | 1,238 |
| | 22,848 |
| | 24,086 |
| | (3,622 | ) | | 2012 | | 2013 | | 39 |
Greenville MOB | Greenville, TX | — |
| | 616 |
| | 10,822 |
| | 385 |
| | 616 |
| | 11,207 |
| | 11,823 |
| | (3,384 | ) | | 2007 | | 2008 | | 39 |
7900 Fannin MOB | Houston, TX | — |
| | — |
| | 34,764 |
| | 1,669 |
| | — |
| | 36,433 |
| | 36,433 |
| | (8,068 | ) | | 2005 | | 2010 | | 39 |
Cypress Medical Building MOB | Houston, TX | — |
| | — |
| | 4,678 |
| | 356 |
| | — |
| | 5,034 |
| | 5,034 |
| | (537 | ) | | 1984 | | 2016 | | 30 |
Cypress Station MOB | Houston, TX | — |
| | 1,345 |
| | 8,312 |
| | 446 |
| | 1,345 |
| | 8,758 |
| | 10,103 |
| | (2,819 | ) | | 1981 | | 2008 | | 39 |
Park Plaza MOB | Houston, TX | — |
| | 5,719 |
| | 50,054 |
| | 602 |
| | 5,719 |
| | 50,656 |
| | 56,375 |
| | (4,894 | ) | | 1984 | | 2016 | | 24 |
Triumph Hospital NW | Houston, TX | — |
| | 1,377 |
| | 14,531 |
| | 237 |
| | 1,377 |
| | 14,768 |
| | 16,145 |
| | (5,113 | ) | | 1986 | | 2007 | | 39 |
Memorial Hermann MOBs | Humble, TX | — |
| | — |
| | 9,479 |
| | (1,551 | ) | | — |
| | 7,928 |
| | 7,928 |
| | (203 | ) | | 1993 | | 2017 | | 25-39 |
Jourdanton MOB | Jourdanton, TX | 13,200 |
| | — |
| | 17,803 |
| | 2 |
| | — |
| | 17,805 |
| | 17,805 |
| | (303 | ) | | 2013 | | 2017 | | 39 |
Houston Methodist MOBs | Katy, TX | — |
| | — |
| | 43,078 |
| | 16 |
| | — |
| | 43,094 |
| | 43,094 |
| | (819 | ) | | 2001-2006 | | 2017 | | 35-39 |
Lone Star Endoscopy MOB | Keller, TX | — |
| | 622 |
| | 3,502 |
| | (5 | ) | | 622 |
| | 3,497 |
| | 4,119 |
| | (1,031 | ) | | 2006 | | 2008 | | 39 |
Seton Medical MOB | Kyle, TX | 27,500 |
| | — |
| | 30,102 |
| | 22 |
| | — |
| | 30,124 |
| | 30,124 |
| | (611 | ) | | 2009 | | 2017 | | 39 |
Lewisville MOB | Lewisville, TX | — |
| | 452 |
| | 3,841 |
| | — |
| | 452 |
| | 3,841 |
| | 4,293 |
| | (967 | ) | | 2000 | | 2010 | | 39 |
Longview Regional MOBs | Longview, TX | 16,650 |
| | — |
| | 59,258 |
| | — |
| | — |
| | 59,258 |
| | 59,258 |
| | (1,045 | ) | | 2003-2015 | | 2017 | | 36-39 |
Terrace Medical Building | Nacogdoches, TX | — |
| | — |
| | 179 |
| | 5 |
| | — |
| | 184 |
| | 184 |
| | (79 | ) | | 1975 | | 2016 | | 5 |
Towers Medical Plaza | Nacogdoches, TX | — |
| | — |
| | 786 |
| | 97 |
| | — |
| | 883 |
| | 883 |
| | (221 | ) | | 1981 | | 2016 | | 10 |
North Cypress MOBs | North Cypress/Houston, TX | — |
| | 7,841 |
| | 121,215 |
| | 6 |
| | 7,841 |
| | 121,221 |
| | 129,062 |
| | (2,520 | ) | | 2006-2015 | | 2017 | | 35-39 |
Pearland MOB | Pearland, TX | — |
| | 912 |
| | 4,628 |
| | 634 |
| | 912 |
| | 5,262 |
| | 6,174 |
| | (1,495 | ) | | 2003-2007 | | 2010 | | 39 |
Independence Medical Village | Plano, TX | — |
| | 4,229 |
| | 17,874 |
| | 42 |
| | 4,229 |
| | 17,916 |
| | 22,145 |
| | (1,034 | ) | | 2014 | | 2016 | | 39 |
San Angelo MOB | San Angelo, TX | — |
| | — |
| | 3,907 |
| | 117 |
| | — |
| | 4,024 |
| | 4,024 |
| | (1,194 | ) | | 2007 | | 2009 | | 39 |
Mtn Plains Pecan Valley | San Antonio, TX | — |
| | 416 |
| | 13,690 |
| | 731 |
| | 416 |
| | 14,421 |
| | 14,837 |
| | (3,944 | ) | | 1998 | | 2008 | | 39 |
Sugar Land II MOB | Sugar Land, TX | — |
| | — |
| | 9,648 |
| | 310 |
| | — |
| | 9,958 |
| | 9,958 |
| | (3,294 | ) | | 1999 | | 2010 | | 39 |
Triumph Hospital SW | Sugar Land, TX | — |
| | 1,670 |
| | 14,018 |
| | (14 | ) | | 1,656 |
| | 14,018 |
| | 15,674 |
| | (5,013 | ) | | 1989 | | 2007 | | 39 |
Mtn Plains Clear Lake | Webster, TX | — |
| | 832 |
| | 21,168 |
| | 1,488 |
| | 832 |
| | 22,656 |
| | 23,488 |
| | (5,960 | ) | | 2006 | | 2008 | | 39 |
N. Texas Neurology MOB | Wichita Falls, TX | — |
| | 736 |
| | 5,611 |
| | (1,771 | ) | | 736 |
| | 3,840 |
| | 4,576 |
| | (1,639 | ) | | 1957 | | 2008 | | 39 |
Renaissance MC | Bountiful, UT | — |
| | 3,701 |
| | 24,442 |
| | 134 |
| | 3,701 |
| | 24,576 |
| | 28,277 |
| | (6,705 | ) | | 2004 | | 2008 | | 39 |
Fair Oaks MOB | Fairfax, VA | — |
| | — |
| | 47,616 |
| | (1 | ) | | — |
| | 47,615 |
| | 47,615 |
| | (730 | ) | | 2009 | | 2017 | | 39 |
Aurora - Menomenee | Menomonee Falls, WI | — |
| | 1,055 |
| | 14,998 |
| | — |
| | 1,055 |
| | 14,998 |
| | 16,053 |
| | (4,969 | ) | | 1964 | | 2009 | | 39 |
Aurora - Milwaukee | Milwaukee, WI | — |
| | 350 |
| | 5,508 |
| | — |
| | 350 |
| | 5,508 |
| | 5,858 |
| | (1,816 | ) | | 1983 | | 2009 | | 39 |
Columbia St. Mary's MOBs | Milwaukee, WI | — |
| | — |
| | 87,825 |
| | 40 |
| | — |
| | 87,865 |
| | 87,865 |
| | (1,336 | ) | | 1994-2007 | | 2017 | | 35-39 |
Total | | $ | 452,442 |
| | $ | 478,905 |
| | $ | 5,616,776 |
| | $ | 220,462 |
| | $ | 485,319 |
| | $ | 5,830,824 |
| | $ | 6,316,143 |
| | $ | (734,783 | ) | | | | | | |
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION — (Continued)
| | | | | | | | | | | |
(a)Schedule II | The cost capitalized subsequent to acquisition is net of dispositions. |
— | |
(b) | The above table excludes lease intangibles; see notes (d)Valuation and (g). |
| |
(c) | The changes in total real estateQualifying Accounts for the years ended December 31, 2017, 20162022, 2021, and 2015 are as follows (in thousands): |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Balance as of the beginning of the year | $ | 3,853,042 |
| | $ | 3,204,863 |
| | $ | 2,953,532 |
|
Acquisitions | 2,447,896 |
| | 647,339 |
| | 266,747 |
|
Additions | 86,723 |
| | 43,637 |
| | 28,828 |
|
Dispositions | (57,596 | ) | | (39,717 | ) | | (43,318 | ) |
Impairments | (13,922 | ) | | (3,080 | ) | | (926 | ) |
Balance as of the end of the year (d) | $ | 6,316,143 |
| | $ | 3,853,042 |
| | $ | 3,204,863 |
|
2020 | |
(d)Schedule III | The balances— | Real Estate and Accumulated Depreciation as of December 31, 2017, 2016 and 2015 exclude gross lease intangibles of $639.2 million, $467.6 million and $430.7 million, respectively. |
2022 | |
(e)Schedule IV | The aggregate cost of our real estate for federal income tax purposes was $6.4 billion. |
— | |
(f) | The changes in accumulated depreciation for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands): |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Balance as of the beginning of the year | $ | 581,505 |
| | $ | 474,223 |
| | $ | 383,966 |
|
Additions | 171,545 |
| | 117,282 |
| | 101,194 |
|
Dispositions | (18,267 | ) | | (10,000 | ) | | (10,937 | ) |
Balance as of the end of the year (g) | $ | 734,783 |
| | $ | 581,505 |
| | $ | 474,223 |
|
| |
(g) | The balancesMortgage Loans on Real Estate Assets as of December 31, 2017, 2016 and 2015 exclude accumulated amortization of lease intangibles of $286.9 million, $236.1 million and $201.9 million, respectively.2022 | 112 | |
All other schedules are omitted because they are either not applicable, not required or because the information is included in the consolidated financial statements or notes thereto.
3. Exhibits
| | | | | | | | | | | |
(h)EXHIBIT NUMBER | Tenant improvements are depreciated over the shorter | DESCRIPTION OF EXHIBITS | |
2.1 | — | Agreement and Plan of Merger, dated as of February 28, 2022, by and among Healthcare Realty Trust Incorporated (now known as HRTI, LLC), Healthcare Trust of America, Inc. (now known as Healthcare Realty Trust Incorporated), Healthcare Trust of America Holdings, L.P. (now known as Healthcare Realty Holdings, L.P.), and HR Acquisition 2, LLC. 1 | |
3.1 | — | | |
| — | | |
3.3 | — | | |
3.4 | — | | |
3.5 | — | | |
| | | | | | | | | | | |
3.6 | — | | |
4.1 | — | | |
4.2 | — | | |
4.3 | — | | |
4.4 | — | | |
4.5 | — | | |
4.6 | — | | |
4.7 | — | | |
4.8 | — | | |
4.9 | — | | |
4.10 | — | | |
4.11 | — | | |
4.12 | — | | |
4.13 | — | | |
4.14 | — | | |
4.15 | — | | |
4.16 | — | | |
4.17 | — | | |
4.18 | — | | |
4.19 | — | | |
4.20 | — | | |
4.21 | — | | |
4.22 | — | Guarantee of 2031 Note.4 | |
| — | Term Loan Agreement, dated as of May 13, 2022, among Healthcare Trust of America, Inc. (now known as Healthcare Realty Trust Incorporated), Healthcare Trust of America Holdings, LP (now known as Healthcare Realty Holdings, L.P.), the lenders named therein, and J.P. Morgan Chase Bank, N.A., as administrative agent for such lenders.12 | |
| — | Fourth Amended and Restated Revolving Credit and Term Loan Agreement, dated as of July 20, 2022, by and among Healthcare Trust of America Holdings, LP (now known as Healthcare Realty Holdings, L.P.), Healthcare Trust of America, Inc. (now known as Healthcare Realty Trust Incorporated), the lenders named therein, and Wells Fargo Bank, National Association.4 | |
| — | | |
| — | | |
| — | | |
| | | | | | | | | | | |
10.6 | — | Amendment No. 2 to Third Amended and Restated Employment Agreement, dated February 18, 2022, between Todd J. Meredith and Healthcare Realty Trust Incorporated (now known as HRTI, LLC).15 | |
10.7 | — | | |
10.8 | — | | |
10.9 | — | | |
10.10 | — | | |
10.11 | — | Amendment No. 2 to Amended and Restated Employment Agreement, dated February 18, 2022, between Robert E. Hull and Healthcare Realty Trust Incorporated (now known as HRTI, LLC).15 | |
10.12 | — | | |
10.13 | — | | |
10.14 | — | Amendment No. 2 to Amended and Restated Employment Agreement, dated February 18, 2022, between J. Christopher Douglas and Healthcare Realty Trust Incorporated (now known as HRTI, LLC).15 | |
10.15 | — | | |
10.16 | — | | |
10.17 | — | | |
10.18 | — | | |
10.19 | — | | |
10.20 | — | | |
10.21 | — | | |
10.22 | — | | |
10.23 | — | | |
10.24 | — | | |
21 | — | | |
23 | — | | |
| — | | |
| — | | |
| — | | |
101.INS | — | This instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | |
101.SCH | — | XBRL Taxonomy Extension Schema Document. (filed herewith) | |
101.CAL | — | XBRL Taxonomy Extension Calculation Linkbase Document. (filed herewith) | |
101.LAB | — | XBRL Taxonomy Extension Labels Linkbase Document. (filed herewith) | |
101.DEF | — | XBRL Taxonomy Extension Definition Linkbase Document. (filed herewith) | |
101.PRE | — | XBRL Taxonomy Extension Presentation Linkbase Document. (filed herewith) | |
104 | — | Cover Page Interactive Data File (formatted as Inline XBRL document and contained in Exhibit 101). | |
1Filed as an exhibit to Legacy HTA’s (File No. 001-35568) Form 8-K filed with the SEC on March 1, 2022 and hereby incorporated by reference.
2Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 8-K filed with the SEC on March 11, 2014 and hereby incorporated by reference.
3Filed as an exhibit to Legacy HTA’s (File No. 001-35568) Form 8-K filed with the SEC on December 16, 2014 and hereby incorporated by reference.
4Filed as an exhibit to the Company's (File No. 001-35568) Form 8-K filed with the SEC on July 26, 2022 and hereby incorporated by reference.
5Filed as an exhibit to Legacy HTA’s (File No. 001-35568) Form 8-K filed with the SEC on July 14, 2017 and hereby incorporated by reference.
6Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 8-K filed with the SEC on April 29, 2020 and hereby incorporated by reference.
7Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 8-K filed with the SEC on March 28, 2013 and hereby incorporated by reference.
8Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 8-K filed with the SEC on July 12, 2016 and hereby incorporated by reference.
9Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 8-K filed with the SEC on June 13, 2017 and hereby incorporated by reference.
10Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 8-K filed with the SEC on September 16, 2019 and hereby incorporated by reference.
11Filed as an exhibit to Legacy HTA's (File No. 001-35568 Form 8-K filed with the SEC on September 28, 2020 and hereby incorporated by reference.
12Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 8-K filed with the SEC on May 16, 2022 and hereby incorporated by reference.
13Filed as an exhibit to Legacy HR's (File No. 001-11852) Form 10-K for the year ended December 31, 2015 filed with the SEC on February 16, 2016 and hereby incorporated by reference.
14Filed as an exhibit to Legacy HR's (File No. 001-11852) Form 10-K for the year ended December 31, 2019 filed with the SEC on February 12, 2020 and hereby incorporated by reference.
15Filed as an exhibit to Legacy HR's (File No. 001-11852) Form 10-K for the year ended December 31, 2021 filed with the SEC on February 22, 2022 and hereby incorporated by reference.
16Filed as an exhibit to Legacy HR's (File No. 001-11852) Form 10-K for the year ended December 31, 2016 filed with the SEC on February 15, 2017 and hereby incorporated by reference.
17Filed as an exhibit to Legacy HR's (File No. 001-11852) Form 8-K filed with the SEC on February 2, 2016 and hereby incorporated by reference.
18Filed as an exhibit to Legacy HR's (File No. 001-11852) Form 10-Q for the quarter ended June 30, 2021 filed with the SEC on August 4, 2021 and hereby incorporated by reference.
19Filed as an exhibit to the Company's (File No. 001-35568) Form 8-K filed with the SEC on August 5, 2022 and hereby incorporated by reference.
20Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 8-K filed with the SEC on May 18, 2012 and hereby incorporated by reference.
21Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 8-K filed with the SEC on December 22, 2010 and hereby incorporated by reference.
22Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 10-K for the year ended December 31, 2016 filed with the SEC on February 21, 2017 and hereby incorporated by reference.
23Included as Appendix A to Legacy HTA's (File No. 001-35568) Definitive Proxy Statement on Schedule 14A filed with the SEC on April 30, 2021 and hereby incorporated by reference.
Executive Compensation Plans and Arrangements
The following is a list of Contentsall executive compensation plans and arrangements filed as exhibits to this Annual Report on Form 10-K:
1.Third Amended and Restated Employment Agreement, dated February 16, 2016, between Todd J. Meredith and the Company (filed as Exhibit 10.4)
2.Amendment No. 1 to Third Amended and Restated Employment Agreement, dated February 12, 2020, between Todd J. Meredith and the Company (filed as Exhibit 10.5)
3.Amendment No. 2 to Third Amended and Restated Employment Agreement, dated February 22, 2022, between Todd J. Meredith and the Company (filed as Exhibit 10.6)
4.Third Amended and Restated Employment Agreement, dated February 15, 2017, between John M. Bryant, Jr. and the Company (filed as Exhibit 10.7)
5.Amendment No. 1 to Third Amended and Restated Employment Agreement, dated February 12, 2020, between John M. Bryant, Jr. and the Company (filed as Exhibit 10.8)
6.Amended and Restated Employment Agreement, dated January 1, 2017, between Robert E. Hull and the Company (filed as Exhibit 10.9)
7.Amendment No. 1 to Amended and Restated Employment Agreement, dated February 12, 2020, between Robert E. Hull and the Company (filed as Exhibit 10.10)
8.Amendment No. 2 to Amended and Restated Employment Agreement, dated February 22, 2022, between Robert E. Hull and the Company (filed as Exhibit 10.11)
9.Amended and Restated Employment Agreement, dated February 2, 2016, between J. Christopher Douglas and the Company (filed as Exhibit 10.12)
10.Amendment No. 1 to Amended and Restated Employment Agreement, dated February 12, 2020, between J. Christopher Douglas and the Company (filed as Exhibit 10.13)
11.Amendment No. 2 to Amended and Restated Employment Agreement, dated February 22, 2022, between J. Christopher Douglas and the Company (filed as Exhibit 10.14)
12.Amended and Restated Employment Agreement between the Company and Julie F. Wilson, dated July 1, 2021 (filed as Exhibit 10.15)
13.Executive Incentive Program (filed as Exhibit 10.16)
14.Healthcare Realty Trust Incorporated Form of Restricted Stock Agreement for Officers (filed as Exhibit 10.21)
15.Healthcare Trust of America, Inc. (now Healthcare Realty Trust Incorporated) Amended and Restated 2006 Incentive Plan, dated April 29, 2021 (filed as Exhibit 10.23)
HEALTHCARE TRUST OF AMERICA, INC.16.Form of Healthcare Realty Trust Incorporated Restricted Stock Unit Agreement (filed as Exhibit 10.22)
17.Form of LTIP Award Agreement (filed as Exhibit 10.24)
Item 16. Form 10-K Summary
None.
SIGNATURES AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LPSCHEDULES
SCHEDULE
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| HEALTHCARE REALTY TRUST INCORPORATED |
| | |
| By: | /s/ TODD J. MEREDITH |
| | Todd J. Meredith |
| | President, Chief Executive Officer, and Director |
| | March 1, 2023 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
SIGNATURE | | TITLE | | DATE |
| | | | |
/s/ Todd J. Meredith | | President, Chief Executive Officer and Director | | March 1, 2023 |
Todd J. Meredith | | (Principal Executive Officer) | | |
| | | | |
/s/ J. Christopher Douglas | | Executive Vice President and Chief Financial | | March 1, 2023 |
J. Christopher Douglas | | Officer (Principal Financial Officer) | | |
| | | | |
/s/ Amanda L. Callaway | | Senior Vice President and Chief Accounting | | March 1, 2023 |
Amanda L. Callaway | | Officer (Principal Accounting Officer) | | |
| | | | |
/s/ John V. Abbott | | Director | | March 1, 2023 |
John V. Abbott | | | | |
| | | | |
/s/ Nancy H. Agee | | Director | | March 1, 2023 |
Nancy H. Agee | | | | |
| | | | |
/s/ W. Bradley Blair, II | | Director | | March 1, 2023 |
W. Bradley Blair, II | | | | |
| | | | |
/s/ Vicki U. Booth | | Director | | March 1, 2023 |
Vicki U. Booth | | | | |
| | | | |
/s/ Edward H. Braman | | Director | | March 1, 2023 |
Edward H. Braman | | | | |
| | | | |
/s/ Ajay Gupta | | Director | | March 1, 2023 |
Ajay Gupta | | | | |
| | | | |
/s/ James J. Kilroy | | Director | | March 1, 2023 |
James J. Kilroy | | | | |
| | | | |
/s/ Jay P. Leupp | | Director | | March 1, 2023 |
Jay P. Leupp | | | | |
| | | | |
/s/ Peter F. Lyle | | Director | | March 1, 2023 |
Peter F. Lyle | | | | |
| | | | |
/s/ Constance B. Moore | | Director | | March 1, 2023 |
Constance B. Moore | | | | |
| | | | |
/s/ John Knox Singleton | | Director | | March 1, 2023 |
John Knox Singleton | | | | |
| | | | |
/s/ Christann M. Vasquez | | Director | | March 1, 2023 |
Christann M. Vasquez | | | | |
Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2022, 2021 and 2020
| | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | | ADDITIONS AND DEDUCTIONS | | |
DESCRIPTION | BALANCE AT BEGINNING OF PERIOD | CHARGED/(CREDITED) TO COSTS AND EXPENSES | CHARGED TO OTHER ACCOUNTS | UNCOLLECTIBLE ACCOUNTS WRITTEN-OFF | BALANCE AT END OF PERIOD |
2022 | Accounts receivable allowance | $ | 654 | | $ | 3,306 | | $ | — | | $ | 6 | | $ | 3,954 | |
2021 | Accounts receivable allowance
| $ | 604 | | $ | 72 | | $ | — | | $ | 22 | | $ | 654 | |
2020 | Accounts receivable allowance
| $ | 418 | | $ | 207 | | $ | — | | $ | 21 | | $ | 604 | |
Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | LAND 1 | BUILDINGS, IMPROVEMENTS, LEASE INTANGIBLES AND CIP 1 | | | | | | |
MARKET | NUMBER OF PROP. | INITIAL INVESTMENT | COST CAPITALIZED subsequent to acquisition | TOTAL | INITIAL INVESTMENT | COST CAPITALIZED subsequent to acquisition | TOTAL | PERSONAL PROPERTY | 2, 3, 5 TOTAL PROPERTY | 1, 3 ACCUMULATED DEPRECIATION | 4 ENCUMBRANCES | 5 DATE ACQUIRED | DATE CONST. |
Dallas, TX | 45 | | $ | 95,647 | | $ | 1,063 | | $ | 96,710 | | $ | 1,081,969 | | $ | 129,495 | | $ | 1,211,464 | | $ | 551 | | $ | 1,308,725 | | $ | 202,031 | | $ | — | | 2003-2022 | 1974-2021 |
Seattle, WA | 29 | | 59,412 | | 4,883 | | 64,295 | | 558,280 | | 78,330 | | 636,610 | | 726 | | 701,631 | | 164,423 | | — | | 2008-2022 | 1974-2018 |
Los Angeles, CA | 23 | | 95,360 | | 3,164 | | 98,524 | | 436,629 | | 55,941 | | 492,570 | | 453 | | 591,547 | | 129,663 | | 38,373 | | 1993-2022 | 1959-2018 |
Boston, MA | 18 | | 128,904 | | — | | 128,904 | | 456,963 | | 2,173 | | 459,136 | | — | | 588,040 | | 13,513 | | — | | 2022 | 1860-2019 |
Charlotte, NC | 32 | | 35,366 | | 36 | | 35,402 | | 454,299 | | 25,616 | | 479,915 | | 105 | | 515,422 | | 95,363 | | — | | 2008-2022 | 1961-2018 |
Houston, TX | 34 | | 82,539 | | 2,850 | | 85,389 | | 669,553 | | 27,966 | | 697,519 | | 57 | | 782,965 | | 63,486 | | — | | 1993-2022 | 1974-2018 |
Miami, FL | 23 | | 72,304 | | 60 | | 72,364 | | 429,781 | | 17,413 | | 447,194 | | 105 | | 519,663 | | 52,920 | | — | | 1994-2022 | 1954-2021 |
Atlanta, GA | 28 | | 45,220 | | 4,159 | | 49,379 | | 463,963 | | 9,519 | | 473,482 | | 95 | | 522,956 | | 63,773 | | 15,778 | | 2017-2022 | 1960-2014 |
Tampa, FL | 20 | | 30,790 | | 743 | | 31,533 | | 419,354 | | (5,061) | | 414,293 | | 33 | | 445,859 | | 18,991 | | — | | 1994-2022 | 1954-2015 |
Denver, CO | 33 | | 70,478 | | 6,220 | | 76,698 | | 491,881 | | 51,208 | | 543,089 | | 609 | | 620,396 | | 65,123 | | 6,818 | | 2010-2022 | 1942-2020 |
Raleigh, NC | 27 | | 52,954 | | 3,666 | | 56,620 | | 394,574 | | 6,231 | | 400,805 | | 9 | | 457,434 | | 15,566 | | — | | 2019-2022 | 1977-2020 |
Phoenix, AZ | 35 | | 20,257 | | 5 | | 20,262 | | 448,657 | | 18,836 | | 467,493 | | 425 | | 488,180 | | 30,281 | | — | | 2007-2022 | 1971-2006 |
Chicago, IL | 7 | | 32,374 | | — | | 32,374 | | 271,285 | | 15,995 | | 287,280 | | 81 | | 319,735 | | 28,243 | | — | | 2004-2022 | 1970-2017 |
Indianapolis, IN | 36 | | 52,180 | | — | | 52,180 | | 292,372 | | 5,437 | | 297,809 | | 13 | | 350,002 | | 19,705 | | — | | 2019-2022 | 1988-2013 |
Hartford, CT | 30 | | 43,326 | | — | | 43,326 | | 234,702 | | 1,150 | | 235,852 | | — | | 279,178 | | 8,015 | | — | | 2022 | 1955-2017 |
Nashville, TN | 12 | | 41,291 | | 2,057 | | 43,348 | | 272,122 | | 84,395 | | 356,517 | | 1,424 | | 401,289 | | 92,720 | | — | | 2004-2022 | 1976-2021 |
New York, NY | 14 | | 64,402 | | — | | 64,402 | | 192,029 | | 2,220 | | 194,249 | | — | | 258,651 | | 4,771 | | — | | 2022 | 1920-2014 |
Austin, TX | 13 | | 25,718 | | 1,346 | | 27,064 | | 261,585 | | 28,675 | | 290,260 | | 142 | | 317,466 | | 40,363 | | — | | 2007-2022 | 1972-2015 |
Orlando, FL | 8 | | 20,698 | | 10 | | 20,708 | | 198,719 | | 3,556 | | 202,275 | | 1 | | 222,984 | | 11,654 | | — | | 1998-2022 | 1988-2009 |
Memphis, TN | 11 | | 12,811 | | 1,090 | | 13,901 | | 118,426 | | 70,325 | | 188,751 | | 317 | | 202,969 | | 60,624 | | — | | 1999-2022 | 1982-2021 |
Other (51 markets) | 210 | | 315,986 | | 10,276 | | 326,262 | | 3,324,552 | | 205,043 | | 3,529,595 | | 1,223 | | 3,857,080 | | 457,572 | | 23,728 | | 1993-2022 | |
Total real estate | 688 | | 1,398,017 | | 41,628 | | 1,439,645 | | 11,471,695 | | 834,463 | | 12,306,158 | | 6,369 | | 13,752,172 | | 1,638,800 | | 84,697 | | | |
| | | | | | | | | | | | | |
Land held for develop. | — | | 74,265 | | — | | 74,265 | | — | | — | | — | | — | | 74,265 | | 1,183 | | — | | | |
Construction in Progress | — | | — | | — | | — | | 35,560 | | — | | 35,560 | | — | | 35,560 | | — | | — | | | |
Corporate property | — | | 1,853 | | — | | 1,853 | | 1,787 | | 1,240 | | 3,027 | | 5,538 | | 10,418 | | 5,288 | | — | | | |
Financing lease right-of-use assets | — | | — | | — | | — | | — | | — | | — | | — | | 83,824 | | — | | — | | | |
Investment in financing receivables, net | — | | — | | — | | — | | — | | — | | — | | — | | 120,236 | | — | | — | | | |
Total properties | 688 | | 1,474,135 | | $ | 41,628 | | $ | 1,515,763 | | $ | 11,509,042 | | $ | 835,703 | | $ | 12,344,745 | | $ | 11,907 | | $ | 14,076,475 | | $ | 1,645,271 | | $ | 84,697 | | | |
1Includes one asset held for sale at 12/31/22 of approximately $18.9 million.
2Total properties as of December 31, 2022 have an estimated aggregate total cost of $13.0 billion for federal income tax purposes.
3Depreciation is provided for on a straight-line basis on buildings and improvements over 3.0 to 49.0 years, lease intangibles over 1.2 to 99.0 years, personal property over 3.0 to 20.0 years, and land improvements over 2.0 to 39.0 years.
4Includes unamortized premium of $0.5 million and unaccreted discount of $38 thousand and debt issuance costs of $0.3 million as of December 31, 2022.
5Includes merger of Healthcare Trust of America, Inc. buildings, acquired in 2022.
6Rollforward of Total Property and Accumulated Depreciation, including assets held for sale, for the year ended December 31, 2022, 2021 and 2020 follows:
| | | | | | | | | | | | | | | | | | | | |
| YEAR ENDED DEC. 31, 2022 | YEAR ENDED DEC. 31, 2021 | YEAR ENDED DEC. 31, 2020 |
Dollars in thousands | TOTAL PROPERTY | ACCUMULATED DEPRECIATION | TOTAL PROPERTY | ACCUMULATED DEPRECIATION | TOTAL PROPERTY | ACCUMULATED DEPRECIATION |
Beginning balance | $ | 5,104,942 | | $ | 1,338,743 | | $ | 4,670,226 | | $ | 1,249,679 | | $ | 4,359,993 | | $ | 1,121,102 | |
Additions during the period | | | | | | |
Real estate acquired | 9,780,070 | | 241,285 | | 374,912 | | 7,668 | | 430,205 | | 8,313 | |
Other improvements | 219,783 | | 205,703 | | 103,035 | | 191,875 | | 80,462 | | 178,636 | |
| | | | | | |
Land held for development | 49,416 | | — | | 2,021 | | — | | 2,579 | | 282 | |
Construction in progress | 31,586 | | — | | 3,974 | | — | | — | | — | |
Investment in financing receivable, net | (66,509) | | — | | 186,745 | | — | | — | | — | |
Financing lease right-of-use assets, net | 52,249 | | — | | 11,909 | | — | | 19,667 | | — | |
Corporate Properties | 3,640 | | 236 | | — | | — | | — | | — | |
Retirement/dispositions | | | | | | |
Real estate | (1,098,702) | | (140,696) | | (247,880) | | (110,479) | | (222,680) | | (58,654) | |
| | | | | | |
| | | | | | |
Ending balance | $ | 14,076,475 | | $ | 1,645,271 | | $ | 5,104,942 | | $ | 1,338,743 | | $ | 4,670,226 | | $ | 1,249,679 | |
Schedule IV - MORTGAGE LOANS ON REAL ESTATE ASSETS– Mortgage Loans on Real Estate Assets as of December 31, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Dollars in thousands | Final Maturity Date | Payment Terms | | Prior Liens | | Face Amount | | Carrying Amount | | Principal Amount of Loans Subject to Delinquent Principal or Interest |
Mortgage loan on real estate located in: | | | | | | | | | | |
Texas | 7.00 | % | 12/31/2023 | (1) | | $ | — | | | $ | 31,150 | | | $ | 30,552 | | | $ | — | |
Florida | 6.00 | % | 2/27/2026 | (2) | | $ | — | | | 13,062 | | | 12,988 | | | — | |
Mezzanine loans on real estate located in: | | | | | | | | | | |
Texas | 8.00 | % | 6/24/2024 | (3) | | — | | | 54,119 | | | 51,052 | | | — | |
North Carolina | 8.00 | % | 12/22/2024 | (4) | | — | | | 6,000 | | | 5,493 | | | — | |
Total real estate notes receivable | | | | | $ | — | | | $ | 104,331 | | | $ | 100,085 | | | $ | — | |
Accrued interest receivable | | | | | — | | | — | | | 758 | | | — | |
Deferred fee | | | | | — | | | — | | | (1,200) | | | — | |
Total real estate notes receivable, net | | | | | $ | — | | | $ | 104,331 | | | $ | 99,643 | | | $ | — | |
| | | | | | | | | | | |
1 Twelve-month prefunded interest reserve, with principal sum and interest on unpaid principal due on the maturity date. |
2 Construction loan up to $65 million with periodic disbursements. Interest only payments due with principal and any unpaid interest due on the maturity date. |
3 Interest is accrued and funded utilizing interest reserves, funded through payment-in-kind interest, until such time the interest reserve is fully funded. Thereafter, interest only payments due with principal and any unpaid interest due on the maturity date. |
4 Capitalized interest through maturity, with outstanding principal and accrued interest due on the maturity date. |
The following shows changes in the carrying amounts of mortgage loans on real estate assets during the years ended December 31, 2017, 20162022, 2021 and 2015 (in thousands):2020:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
Balance as of the beginning of the year | $ | — | | | $ | — | | | $ | — | |
Additions: | | | | | |
Fair value real estate notes assumed | 74,819 | | | — | | | — | |
New real estate notes | 23,325 | | | — | | | — | |
Capitalized interest | 1,499 | | | — | | | — | |
Accretion of fees and other items | — | | | — | | | — | |
Deductions: | | | | | |
Collection of real estate loans | — | | | — | | | — | |
Deferred fees and other items | — | | | — | | | — | |
Balance as of the end of the year | $ | 99,643 | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | 2015 |
Balance as of the beginning of the year | $ | 12,737 |
| | $ | — |
| | $ | — |
|
Additions: | | | | | |
New mortgage loans | — |
| | 12,737 |
| | — |
|
Deductions: | | | | | |
Mortgage loan included in the consideration for the acquisition of a building | — |
| | — |
| | — |
|
Collection of mortgage loans | (9,964 | ) | | — |
| | — |
|
Balance as of the end of the year | $ | 2,773 |
| | $ | 12,737 |
| | $ | — |
|
*****
SIGNATURES
Pursuant toAll other schedules for which provision is made in the requirementsapplicable accounting regulations of the Securities and Exchange Act of 1934,Commission are omitted because they are not required under the registrant has duly caused this Annual Report to be signed on its behalf byrelated instructions or are not applicable, or because the undersigned thereunto duly authorized.
|
| | | |
| Healthcare Trust of America, Inc. |
| | | |
By: | /s/ Scott D. Peters | | Chief Executive Officer, President and Chairman |
| Scott D. Peters | | (Principal Executive Officer) |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Robert A. Milligan | | Chief Financial Officer |
| Robert A. Milligan | | (Principal Financial Officer and Principal Accounting Officer) |
Date: | February 20, 2018 | | |
| | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant andrequired information is shown in the capacities and on the dates indicated. |
| | | |
By: | /s/ Scott D. Peters | | Chief Executive Officer, President and Chairman |
| Scott D. Peters | | (Principal Executive Officer) |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Robert A. Milligan | | Chief Financial Officer |
| Robert A. Milligan | | (Principal Financial Officer and Principal Accounting Officer) |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ W. Bradley Blair, II | | Director |
| W. Bradley Blair, II | | |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Maurice J. DeWald | | Director |
| Maurice J. DeWald | | |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Warren D. Fix | | Director |
| Warren D. Fix | | |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Peter N. Foss | | Director |
| Peter N. Foss | | |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Daniel S. Henson | | Director |
| Daniel S. Henson | | |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Larry L. Mathis | | Director |
| Larry L. Mathis | | |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Gary T. Wescombe | | Director |
| Gary T. Wescombe | | |
Date: | February 20, 2018 | | |
consolidated financial statements or notes thereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | |
| Healthcare Trust of America Holdings, LP |
| | | |
By: | Healthcare Trust of America, Inc., | | |
| its General Partner | | |
| | | |
By: | /s/ Scott D. Peters | | Chief Executive Officer, President and Chairman |
| Scott D. Peters | | (Principal Executive Officer) |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Robert A. Milligan | | Chief Financial Officer |
| Robert A. Milligan | | (Principal Financial Officer and Principal Accounting Officer) |
Date: | February 20, 2018 | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
| | | |
By: | /s/ Scott D. Peters | | Chief Executive Officer, President and Chairman |
| Scott D. Peters | | (Principal Executive Officer) of Healthcare Trust of America, Inc., |
Date: | February 20, 2018 | | general partner of Healthcare Trust of America Holdings, LP |
| | | |
By: | /s/ Robert A. Milligan | | Chief Financial Officer |
| Robert A. Milligan | | (Principal Financial Officer and Principal Accounting Officer) of |
Date: | February 20, 2018 | | Healthcare Trust of America, Inc., general partner of Healthcare Trust |
| | | of America Holdings, LP |
| | | |
By: | /s/ W. Bradley Blair, II | | Director of Healthcare Trust of America, Inc., general partner of |
| W. Bradley Blair, II | | Healthcare Trust of America Holdings, LP |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Maurice J. DeWald | | Director of Healthcare Trust of America, Inc., general partner of |
| Maurice J. DeWald | | Healthcare Trust of America Holdings, LP |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Warren D. Fix | | Director of Healthcare Trust of America, Inc., general partner of |
| Warren D. Fix | | Healthcare Trust of America Holdings, LP |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Peter N. Foss | | Director of Healthcare Trust of America, Inc., general partner of |
| Peter N. Foss | | Healthcare Trust of America Holdings, LP |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Daniel S. Henson | | Director of Healthcare Trust of America, Inc., general partner of |
| Daniel S. Henson | | Healthcare Trust of America Holdings, LP |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Larry L. Mathis | | Director of Healthcare Trust of America, Inc., general partner of |
| Larry L. Mathis | | Healthcare Trust of America Holdings, LP |
Date: | February 20, 2018 | | |
| | | |
By: | /s/ Gary T. Wescombe | | Director of Healthcare Trust of America, Inc., general partner of |
| Gary T. Wescombe | | Healthcare Trust of America Holdings, LP |
Date: | February 20, 2018 | | |
EXHIBIT INDEX
Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the exhibits.
The following exhibits are included, or incorporated by reference, in this Annual Report for the fiscal year ended December 31, 2017 (and are numbered in accordance with Item 601 of Regulation S-K).
|
| |
1.1 | Equity Distribution Agreement, dated January 27, 2016, among Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP, on the one hand, and Wells Fargo Securities, LLC, BMO Capital Markets Corp., Jefferies LLC and J.P. Morgan Securities LLC, on the other hand (included as Exhibit 1.1 to our Current Report on Form 8-K filed on January 27, 2016 and incorporated herein by reference). |
1.2 | Underwriting Agreement, dated May 2, 2017, by and among Healthcare Trust of America, Inc., Healthcare Trust of America Holdings, LP, on the one hand, and Wells Fargo Securities, LLC, J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC, as representatives of the several underwriters named therein, on the other hand (included as Exhibit 1.1 to our Current Report on Form 8-K filed on May 8, 2017 and incorporated herein by reference). |
1.3 | Underwriting Agreement, dated June 1, 2017, among Healthcare Trust of America Holdings, LP, Healthcare Trust of America, Inc., and Wells Fargo Securities, LLC, J.P. Morgan Securities LLC and U.S. Bancorp Investments, Inc., as representatives of the several underwriters named therein (included as Exhibit 1.1 to our Current Report on Form 8-K filed on June 7, 2017 and incorporated herein by reference). |
1.4 | |
1.5 | |
2.1 | |
2.2 | |
2.3 | |
2.4 | |
2.5 | |
2.6 | |
2.7 | |
2.8 | |
2.9 | |
2.10 | |
2.11 | |
2.12 | |
2.13 | |
|
| |
2.14 | |
2.15 | |
2.16 | |
3.1 | |
3.2 | |
3.3 | |
3.4 | |
3.5 | |
3.6 | |
3.7 | |
3.8 | |
3.9 | |
3.10 | |
3.11 | |
3.12 | |
4.1 | |
4.2 | |
4.3 | |
4.4 | |
5.1 | |
|
| |
5.2 | |
5.3 | |
5.4 | |
5.5 | |
8.1 | |
8.2 | |
10.1† | |
10.2† | |
10.3 | |
10.4 | |
10.5 | |
10.6 | |
10.7 | |
10.8 | |
10.9 | |
10.10 | |
10.11† | |
10.12† | |
10.13† | |
10.14† | |
10.15 | Credit Agreement by and among Healthcare Trust of America Holdings, LP, Healthcare Trust of America, Inc., JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, N.A. and Deutsche Bank Securities Inc., as syndication agents, U.S. Bank National Association, Fifth Third Bank, Capital One, N.A., Regions Bank, and Compass Bank, as documentation agents, and the Lenders Party Hereto dated March 29, 2012 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on April 2, 2012 and incorporated herein by reference). |
10.16 | |
10.17 | Credit Agreement by and among Healthcare Trust of America Holdings, LP, Wells Fargo Bank, N.A., as administrative agent, Wells Fargo Securities, LLC, as lead arranger, and the Lenders Party Hereto, dated July 20, 2012 (included as Exhibit 10.8 to our Quarterly Report on Form 10-Q filed on August 9, 2012 and incorporated herein by reference). |
|
| |
10.18 | |
10.19 | |
10.20 | |
10.21 | Amended and Restated Revolving Credit and Term Loan Agreement, dated November 19, 2014, by and among Healthcare Trust of America Holdings, LP, Healthcare Trust of America, Inc., JP Morgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, National Association and U.S. Bank National Association, as syndication agents, Bank of Montreal, PNC Bank, National Association, The Bank of Nova Scotia, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as documentation agents, Compass Bank, Fifth Third Bank, Regions Bank, and Capital One, N.A., as managing agents and the lenders party thereto (included as Exhibit 10.1 to our Current Report on Form 8-K filed on November 24, 2014 and incorporated herein by reference). |
10.22 | Guaranty dated November 19, 2014, by Healthcare Trust of America, Inc. for the benefit of JPMorgan Chase Bank, N.A., as administrative agent, the Lenders, and Bank of America, N.A., as swing lender and issuing bank (included as Exhibit 10.2 to our Current Report on Form 8-K filed on November 24, 2014 and incorporated herein by reference). |
10.23 | |
10.24 | First Amendment to the Amended and Restated Revolving Credit and Term Loan Agreement, dated February 11, 2015, by and among Healthcare Trust of America, Inc., Healthcare Trust of America Holdings, LP, Bank of America, N.A. and JPMorgan Chase Bank, N.A., as administrative agent for the lenders (included as Exhibit 10.33 to our Annual Report on Form 10-K filed on February 23, 2015 and incorporated herein by reference). |
10.25 | |
10.26 | |
10.27 | |
10.28 | |
10.29 | |
10.30 | Credit Agreement by and among Healthcare Trust of America Holdings, LP, Healthcare Trust of America, Inc., JPMorgan Chase Bank, N.A., as administrative agent, Wells Fargo Bank, National Association, U.S. Bank National Association, Capital One, N.A., PNC Bank, National Association and Bank of America, N.A., as syndication agents, Bank of Montreal, The Bank of Nova Scotia, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Compass Bank, Fifth Third Bank and Morgan Stanley Senior Funding, Inc., as documentation agents, Regions Bank, as managing agent, and the lenders named therein, dated July 27, 2017 (included as Exhibit 10.1 to our Current Report on Form 8-K filed on July 31, 2017 and incorporated herein by reference). |
10.31 | |
12.1* | |
21.1* | |
23.1* | |
23.2* | |
23.3 | |
23.4 | |
23.5 | |
23.6 | |
|
| |
23.7 | |
23.8 | |
23.9 | |
23.10 | |
23.11 | |
31.1* | |
31.2* | |
31.3* | |
31.4* | |
32.1** | |
32.2** | |
32.3** | |
32.4** | |
101.INS* | XBRL Instance Document. |
101.SCH* | XBRL Taxonomy Extension Schema Document. |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. |
| |
* | Filed herewith. |
** | Furnished herewith. |
† | Compensatory plan or arrangement. |