None.
Exchange Act of 1934, as amended, or 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 us, including our Chief Executive Officer and Chief AccountingFinancial Officer as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.
As of December 31, 2008,2011, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief AccountingFinancial Officer, of the effectiveness of our disclosure controls and procedures (as defined inRules 13a-15(e) and15d-15(e) under the Exchange Act). Based on this evaluation, the Chief Executive Officer and the Chief AccountingFinancial Officer concluded that our disclosure controls and procedures were effective.effective as of December 31, 2011.
(b) Management’s Reportreport on internal control over financial reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange ActRules 13a-15(f) and15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief AccountingFinancial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can only provide reasonable assurance with respect to financial statement preparation and presentation.
Based on our evaluation under the Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2008.2011.
(c) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the fourth quarter ended December 31, 2008of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This Annual Report onForm 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report wasis not subjectrequired to be subjected to attestation by our independent registered public accounting firm pursuant to temporary rulesthe Dodd-Frank Wall Street and Consumer Protection Act, which exempts non-accelerated filers from the auditor attestation requirement of section 404(b) of the SEC that permit us to provide only management’s report in this Annual Report onForm 10-K.Sarbanes-Oxley Act.
|
| |
Item 9B. | Other Information. |
None.
79
PART III
|
| |
Item 10. | Directors, Executive Officers and Corporate Governance. |
The following table and biographical descriptions set forth information with respectrequired by this Item 10 is incorporated by reference to the individuals who are our officers and directors.
| | | | | | | | | | |
Name | | Age*
| | Position | | Term of Office
|
|
Scott D. Peters | | | 51 | | | Chief Executive Officer, President and Chairman of the Board | | | Since 2006 | |
Kellie S. Pruitt | | | 43 | | | Chief Accounting Officer | | | Since 2009 | |
Andrea R. Biller | | | 59 | | | Executive Vice President and Secretary | | | Since 2006 | |
Danny Prosky | | | 43 | | | Executive Vice President — Acquisitions | | | Since 2006 | |
W. Bradley Blair, II | | | 65 | | | Independent Director | | | Since 2006 | |
Maurice J. DeWald | | | 69 | | | Independent Director | | | Since 2006 | |
Warren D. Fix | | | 70 | | | Independent Director | | | Since 2006 | |
Larry L. Mathis | | | 65 | | | Independent Director | | | Since 2007 | |
Gary T. Wescombe | | | 66 | | | Independent Director | | | Since 2006 | |
There are no family relationships between any directors, executive officers or between any director and executive officer.
Scott D. Petershas served as our Chairman of the Board since July 2006, Chief Executive Officer since April 2006 and President since June 2007. He served as the Chief Executive Officer of our advisor from July 2006 until July 2008. He served as the Executive Vice President of Grubb & Ellis Apartment REIT, Inc. from January 2006 to November 2008 and served as a director from April 2007 to June 2008. He also served as the Chief Executive Officer, President and a Director of Grubb & Ellis from December 2007 to July 2008, and as the Chief Executive Officer, President and Director of NNN Realty Advisors, a wholly owned subsidiary of Grubb & Ellis, from its formation in September 2006 and as its Chairman of the Board since its merger with Grubb & Ellis in December 2007 to July 2008. Mr. Peters also served as the Chief Executive Officer of Grubb & Ellis Realty Investors from November 2006 to July 2008, having served from September 2004 to October 2006, as the Executive Vice President and Chief Financial Officer. From December 2005 to January 2008, Mr. Peters also served as the Chief Executive Officer and President of G REIT, Inc., having previously served as its Executive Vice President and Chief Financial Officer since September 2004. Mr. Peters also served as the Executive Vice President and Chief Financial Officer of T REIT, Inc. from September 2004 to December 2006. From February 1997 to February 2007, Mr. Peters served as Senior Vice President, Chief Financial Officer and a Director of Golf Trust of America, Inc., a publicly traded REIT. Mr. Peters received a B.B.A. degree in accounting and finance from Kent State University.
Kellie S. Pruitthas served as our Chief Accounting Officer since January 2009. She also served as our Controller for a portion of January 2009. From September 2007 to December 2008, she served as the Vice President, Financial Reporting and Compliance, for Fender Musical Instruments Corporation. Prior to joining Fender Musical Instruments Corporation in 2007, Ms. Pruitt served as Senior Manager at Deloitte & Touche LLP, from 1995 to 2007, serving both public and privately held companies primarily concentrated in the real estate and consumer business industries. She graduated from the University of Texas, where she received a B.A. degree in Accounting and is a member of the AICPA. Ms. Pruitt is a Certified Public Accountant licensed in Arizona and Texas.
Andrea R. Billerhas served as our Executive Vice President and Secretary since April 2006 and as the Executive Vice President of our advisor since July 2006. Ms. Biller also served as the Executive Vice President and Secretary REIT II and as the Executive Vice President of Grubb & Ellis Healthcare REIT II Advisor, LLC, or REIT II Advisor, since January 2009. She has also served as the General Counsel, Executive Vice President and Secretary of Grubb & Ellis, our sponsor, since December 2007, and NNN Realty Advisors, since its formation in September 2006 and as a Director of NNN Realty Advisors since December 2007. She
80
has served as General Counsel for Grubb & Ellis Realty Investors since March 2003 and as Executive Vice President since January 2007. Ms. Biller has also served as the Secretary of Grubb & Ellis Securities since March 2004. Ms. Biller has also served as the Secretary and Executive Vice President of G REIT, Inc. from June 2004 and December 2005, respectively, until January 2008, the Secretary of T REIT, Inc. from May 2004 to July 2007, the Secretary of Grubb & Ellis Apartment REIT, Inc. from January 2006 through February 2009 and a Director of Grubb & Ellis Apartment REIT, Inc. since June 2008. Ms. Biller practiced as a private attorney specializing in securities and corporate law from 1990 to 1995 and 2000 to 2002. She practiced at the SEC from 1995 to 2000, including two years as special counsel for the Division of Corporation Finance. Ms. Biller received a B.A degree in Psychology from Washington University, an M.A. degree in Psychology from Glassboro State University and a J.D. degree from George Mason University School of Law, where she graduated first with distinction. Ms. Biller is a member of the California, Virginia and the District of Columbia State Bar Associations.
Danny Proskyhas served as our Executive Vice President — Acquisitions since April 2008, having served as our Vice President — Acquisitions since September 2006. Mr. Prosky has also served as the President and Chief Operating Officer of REIT II and as the President and Chief Operating Officer of REIT II Advisor since January 2009. He has served as Grubb & Ellis Realty Investors’ Executive Vice President, Healthcare Real Estate since May 2008, having served as its Managing Director — Healthcare Properties since March 2006. He is responsible for all medical property acquisitions, management and dispositions. Mr. Prosky previously worked with Health Care Property Investors, Inc., a healthcare-focused REIT where he served as the Assistant Vice President — Acquisitions & Dispositions from 2005 to March 2006, and as Assistant Vice President — Asset Management from 1999 to 2005. From 1992 to 1999, he served as the Manager, Financial Operations, Multi-tenant Facilities for American Health Properties, Inc. Mr. Prosky received a B.S. degree in Finance from the University of Colorado and an M.S. degree in Management from Boston University.
W. Bradley Blair, IIhas served as an Independent Director since September 2006. Mr. Blair served as the Chief Executive Officer, President and Chairman of the board of directors of Golf Trust of America, Inc. from the time of its formation and initial public offering in 1997 as a REIT until his resignation and retirement in November 2007. During such term, Mr. Blair managed the acquisition, operation, leasing and disposition of the assets of the portfolio. From 1993 until February 1997, Mr. Blair served as Executive Vice President, Chief Operating Officer and General Counsel for The Legends Group. As an officer of The Legends Group, Mr. Blair was responsible for all aspects of operations, including acquisitions, development and marketing. From 1978 to 1993, Mr. Blair was the Managing Partner at Blair Conaway Bograd & Martin, P.A., a law firm specializing in real estate, finance, taxation and acquisitions. Currently, Mr. Blair operates the Blair Group consulting practice, which focuses on real estate acquisitions and finance. Mr. Blair received a B.S. degree in Business from Indiana University and a J.D. degree from the University of North Carolina School of Law.
Maurice J. DeWaldhas served as an Independent Director since September 2006. He has served as the Chairman and Chief Executive Officer of Verity Financial Group, Inc., a financial advisory firm, since 1992, where the primary focus has been in both the healthcare and technology sectors. Mr. DeWald also serves as a Director of Mizuho Corporate Bank of California, Advanced Materials Group, Inc., Aperture Health, Inc. and as Chairman of Integrated Healthcare Holdings, Inc. Mr. DeWald also previously served as a Director of Tenet Healthcare Corporation as well as ARV Assisted Living, Inc. From 1962 to 1991, Mr. DeWald was with the international accounting and auditing firm of KPMG, LLP, where he served at various times as an Audit Partner, a member of their board of directors as well as the Managing Partner of Orange County and Los Angeles California offices as well as its Chicago office. Mr. DeWald has served as Chairman and Director of both the United Way of Greater Los Angeles and the United Way of Orange County California. Mr. DeWald received a B.B.A. degree in Accounting and Finance from the University of Notre Dame and is a member of its Mendoza School of Business Advisory Council. Mr. DeWald is a Certified Public Accountant.
Warren D. Fixhas served as an Independent Director since September 2006. He is the Chairman of FDW, LLC, a real estate investment and management firm. Mr. Fix also serves as a Director of Clark Investment Group, Clark Equity Capital, The Keller Financial Group, First Foundation Bank and Accel Networks. Until November of 2008, when he completed a process of dissolution, he served for five years as the Chief Executive Officer of WCH, Inc., formerly Candlewood Hotel Company, Inc., having served as its Executive
81
Vice President, Chief Financial Officer and Secretary since 1995. From July 1994 to October 1995, Mr. Fix was a Consultant to Doubletree Hotels, primarily developing debt and equity sources of capital for hotel acquisitions and refinancing. Mr. Fix has been a Partner in The Contrarian Group, a business management company since December 1992. From 1989 to December 1992, Mr. Fix served as President of The Pacific Company, a real estate investment and a development company. From 1964 to 1989, Mr. Fix held numerous positions, including Chief Financial Officer, within The Irvine Company, a major California-based real estate firm. He received a B.A. degree from Claremont McKenna College in California and is a graduate of the UCLA Executive Management Program, the Stanford Financial Management Program and the UCLA Anderson Corporate Director Program.
Larry L. Mathishas served as an Independent Director since April 2007. Since 1998 he has served as an Executive Consultant with D. Peterson & Associates in Houston, Texas, providing counsel to select clients on leadership, management, governance, and strategy and is the author ofThe Mathis Maxims, Lessons in Leadership.For over 35 years, Mr. Mathis has held numerous leadership positions in organizations charged with planning and directing the future of healthcare delivery in the United States. Mr. Mathis is the founding President and Chief Executive Officer of The Methodist Hospital System in Houston, Texas, having served that institution in various executive positions for 27 years, the last 14 years before his retirement in 1997 as CEO. During his extensive career in the healthcare industry, he has served as a member of the board of directors of a number of national, state and local industry and professional organizations, including Chairman of the board of directors of the Texas Hospital Association, the American Hospital Association, and the American College of Healthcare Executives, and has served the federal government as chairman of the National Advisory Council on Health Care Technology Assessment and as a member of the Medicare Prospective Payment Assessment Commission. From 1997 to 2003, Mr. Mathis was a member of the board of directors and Chairman of the compensation committee of Centerpulse, Inc., and from 2004 to present a member of the board and Chairman of the nominating and governance committee of Alexion Pharmaceuticals, Inc., both U.S. publicly traded companies. Mr. Mathis received a B.A. degree in Social Sciences from Pittsburg State University in Kansas and an M.A. degree in Health Administration from Washington University in St. Louis.
Gary T. Wescombehas served as an Independent Director since October 2006. He manages and develops real estate operating properties through American Oak Properties, LLC, where he is a Principal. He is also Director, Chief Financial Officer and Treasurer of the Arnold and Mabel Beckman Foundation, a nonprofit foundation established for the purpose of supporting scientific research. From October 1999 to December 2001, he was a Partner in Warmington Wescombe Realty Partners in Costa Mesa, California, where he focused on real estate investments and financing strategies. Prior to retiring in 1999, Mr. Wescombe was a Partner with Ernst & Young, LLP (previously Kenneth Leventhal & Company) from 1970 to 1999. In addition, Mr. Wescombe also served as a Director of G REIT, Inc. from December 2001 to January 2008 and has served as Chairman of the Trustees of G REIT Liquidating Trust since January 2008. Mr. Wescombe received a B.S. degree in Accounting and Finance from California State University, San Jose in 1965 and is a member of the American Institute of Certified Public Accountants and California Society of Certified Public Accountants.
Our Advisor
Management
The following table and biographical descriptions set forth information with respect to our advisor’s executive officers.
| | | | | | | | |
Name | | Age *
| | Position |
|
Jeffrey T. Hanson | | | 38 | | | | Chief Executive Officer | |
Andrea R. Biller | | | 59 | | | | Executive Vice President | |
Jeffrey T. Hansonhas served as the Chief Executive Officer of our advisor since January 2009. Mr. Hanson has also served as the Chief Executive Officer and Chairman of the Board of REIT II and as the
82
Chief Executive Officer of REIT II Advisor since January 2009. He has also served as the Executive Vice President, Investment Programs, of Grubb & Ellis since December 2007. In addition, he has served as the President and Chief investment Officer of Grubb & Ellis Realty Investors since December 2007 and January 2007, respectively, and has served as the President and Chief Executive Officer of Realty since July 2006 and as its Chairman of the board of directors since April 2007. Mr. Hanson’s responsibilities include managing Grubb & Ellis’ real estate portfolio and directing acquisitions and dispositions nationally for Grubb & Ellis’ public and private real estate programs. He has also served as the Chief Investment Officer of NNN Realty Advisors, a wholly owned subsidiary of Grubb & Ellis, since September 2006 and as a Director of NNN Realty Advisors since November 2008. From 1996 to July 2006, Mr. Hanson served as Senior Vice President with Grubb & Ellis Company’s Institutional Investment Group in the firm’s Newport Beach office. While with that entity, he managed investment sale assignments throughout Southern California and other Western U.S. markets for major private and institutional clients. Mr. Hanson is a member of the Sterling College Board of Trustees and formerly served as a member of the Grubb & Ellis President’s Counsel and Institutional Investment Group Board of Advisors. Mr. Hanson received a B.S. degree in Business from the University of Southern California with an emphasis in Real Estate Finance.
For biographical information regarding Ms. Biller, see — Directors, Executive Officers and Corporate Governance, above.
Grubb & Ellis Realty Investors owns a 75.0% managing member interest in our advisor. Grubb & Ellis Healthcare Management, LLC owns a 25.0% non-managing member interest in our advisor. The members of Grubb & Ellis Healthcare Management, LLC include Andrea R. Biller, our Executive Vice President and Secretary, our advisor’s Executive Vice President, our advisors’ Executive Vice President, Grubb & Ellis’ Executive Vice President, Secretary and General Counsel, NNN Realty Advisors’ Executive Vice President, Secretary, General Counsel, and Director, Grubb & Ellis Realty Investors’ Executive Vice President and General Counsel, and Grubb & Ellis Securities’ Secretary; Jeffrey T. Hanson, our advisor’s Chief Executive Officer, Grubb & Ellis’ Executive Vice President, Investment Programs, Grubb & Ellis Realty Investors’ President and Chief Investment Officer, NNN Realty Advisors’ Chief Investment Officer and Director and Realty’s Chief Executive Officer, Chairman of the board of directors; and Grubb & Ellis Realty Investors for the benefit of other employees who perform services for us. Ms. Biller own 18.0% membership interests in Grubb & Ellis Healthcare Management, LLC. Grubb & Ellis Realty Investors owns a 64.0% membership interest in Grubb & Ellis Healthcare Management, LLC.
We rely on our advisor to manage our day-to-day activities and to implement our investment strategy. We, our advisor and Grubb & Ellis Realty Investors are parties to an advisory agreement, as amended and restated on November 14, 2008 and effective as of October 24, 2008, or the Advisory Agreement, pursuant to which our advisor performs its duties and responsibilities as our fiduciary.
The Advisory Agreement expires on September 20, 2009. Our main objectives in amending the Advisory Agreement on November 14, 2008 were to reduce acquisition and asset management fees and to set the framework for our transition to self-management. Under the Advisory Agreement, as amended November 14, 2008, our advisor agreed to use reasonable efforts to cooperate with us as we pursue a self-management program.
Grubb & Ellis, NNN Realty Advisors and Grubb & Ellis Realty Investors
Our current sponsor Grubb & Ellis, headquartered in Santa Ana, California, is one of the nation’s leading commercial real estate services and investment companies. Drawing on the resources of nearly 5,500 real estate professionals, including a brokerage sales force of approximately 1,800 brokers nationwide, Grubb & Ellis and its affiliates combine local market knowledge with a national service network to provide innovative, customized solutions for real estate owners, corporate occupants and investors.
On December 7, 2007, NNN Realty Advisors, which previously served as our sponsor, merged with and into a wholly owned subsidiary of our current sponsor, Grubb & Ellis. The transaction was structured as a reverse merger whereby stockholders of NNN Realty Advisors received shares of Grubb & Ellis in exchange
83
for their NNN Realty Advisors shares and, immediately following the merger, former NNN Realty Advisor stockholders held approximately 59.5% of Grubb & Ellis.
The merger combined one of the world’s leading full-service commercial real estate organization with a leading sponsor of commercial real estate programs to create a diversified real estate services business providing a complete range of transaction, management and consulting services, and possessing a strong platform for continued growth. Grubb & Ellis continues to use the “Grubb & Ellis” name and continues to be listed on the New York Stock Exchangematerial under the ticker symbol “GBE.”
As a resultheadings "Proposal 1: Election of the merger, we consider Grubb & Ellis to be our sponsor. Upon Grubb & Ellis becoming our sponsor, we changed our name from NNN Healthcare/Office REIT, Inc. to Grubb & Ellis Healthcare REIT, Inc.
Grubb & Ellis Realty Investors, the parentDirectors," "Executive Officers," "Corporate Governance" and manager of our advisor and an indirect wholly owned subsidiary of our sponsor, offers a diverse line of investment products as well as a full-range of services including asset and property management, brokerage, leasing, analysis and consultation. Grubb & Ellis Realty Investors is also an active seller of real estate, bringing many of its investment programs full cycle.
Upon completion of our transition to self-management, we will no longer be advised by our advisor or consider our sponsor to be Grubb & Ellis.
Committees of Our Board of Directors
Our board of directors may establish committees it deems appropriate to address specific areas in more depth than may be possible at a full board meeting, provided that the majority of the members of each committee are independent directors. Our board of directors has established an audit committee, a compensation committee, a nominating and corporate governance committee and an investment committee.
Audit Committee. Our audit committee’s primary function is to assist the board with oversight of the integrity of our financial statements, compliance with legal and regulatory financial disclosure requirements, independent auditor’s qualifications and independence and the performance of our internal audit function and independent auditor. The audit committee is responsible for the selection, evaluation and, when necessary, replacement of our independent registered public accounting firm. Under our audit committee charter, the audit committee will always be comprised solely of independent directors. The audit committee is currently comprised of W. Bradley Blair, II, Warren D. Fix, and Gary T. Wescombe, all of whom are independent directors. Mr. DeWald currently serves as the chairman and has been designated as the audit committee financial expert.
The audit committee has adopted a written charter under which it operates. The charter is available on our sponsor’s website atwww.gbe-reits.com/healthcare.
Compensation Committee. The primary responsibilities of our compensation committee are to advise the board on compensation policies, establish performance objectives for our executive officers, prepare the report on executive compensation for inclusion in our annual proxy statement, review and recommend to our board of directors the appropriate level of director compensation and annually review our compensation strategy and assess its effectiveness. The compensation committee is currently comprised of W. Bradley Blair, II, Warren D. Fix and Gary T. Wescombe, all of whom are independent directors. Mr. Wescombe currently serves as the chairman.
The compensation committee has adopted a written charter under which it operates. The charter is available on our sponsor’s website atwww.gbe-reits.com/healthcare.
Nominating and Corporate Governance Committee. The nominating and corporate governance committee’s primary purposes are to identify qualified individuals to become board members, to recommend to the board the selection of director nominees for election at the annual meeting of stockholders, to make recommendations regarding the composition of our board of directors and its committees, to assess director independence and board effectiveness, to develop and implement corporate governance guidelines and to oversee our compliance and ethics program. The nominating and corporate governance committee is currently
84
comprised of W. Bradley Blair, II, Warren D. Fix and Larry L. Mathis, all of whom are independent directors. Mr. Fix currently serves as the chairman.
The nominating and corporate governance committee has adopted a written charter under which it operates. The charter is available on our sponsor’s website atwww.gbe-reits.com/healthcare.
Investment Committee. Our investment committee’s primary function is to assist the board of directors in fulfilling its responsibilities with respect to investments in specific real estate assets proposed by our advisor, reviewing and overseeing the performance of our assets, reviewing and overseeing the capital raising activities and performance of our dealer manager and reviewing our investment policies and procedures on an ongoing basis. The investment committee is currently comprised of W. Bradley Blair, II, Warren D. Fix, Scott D. Peters and Gary T. Wescombe. Messrs. Blair, Fix and Wescombe are independent directors. Mr. Blair currently serves as the chairman.
The investment committee has adopted a written charter under which it operates. The charter is available on our sponsor’s website atwww.gbe-reits.com/healthcare.
2006 Incentive Plan and Independent Directors Compensation Plan
We have adopted an incentive stock plan, which we use to attract and retain qualified independent directors, employees and consultants providing services to us who are considered essential to our long-term success by offering these individuals an opportunity to participate in our growth through awards in the form of, or based on, our common stock.
The incentive stock plan provides for the granting of awards to participants in the following forms to those independent directors, employees, and consultants selected by the plan administrator for participation in the incentive stock plan:
| | |
| • | options to purchase shares of our common stock, which may be nonstatutory stock options or incentive stock options under the U.S. tax code; |
|
| • | stock appreciation rights, which give the holder the right to receive the difference between the fair market value per share on the date of exercise over the grant price; |
|
| • | performance awards, which are payable in cash or stock upon the attainment of specified performance goals; |
|
| • | restricted stock, which is subject to restrictions on transferability and other restrictions set by the committee; |
|
| • | restricted stock units, which give the holder the right to receive shares of our common stock, or the equivalent value in cash or other property, in the future; |
|
| • | deferred stock units, which give the holder the right to receive shares of our common stock, or the equivalent value in cash or other property, at a future time; |
|
| • | dividend equivalents, which entitle the participant to payments equal to any dividends paid on the shares of our common stock underlying an award; and/or |
|
| • | other stock based awards in the discretion of the plan administrator, including unrestricted stock grants. |
Any such awards will provide for exercise prices, where applicable, that are not less than the fair market value of our common stock on the date of the grant. Any shares issued under the incentive stock plan will be subject to the ownership limits contained in our charter.
Our board of directors or a committee of its independent directors will administer the incentive stock plan, with sole authority to select participants, determine the types of awards to be granted and all of the terms and conditions of the awards, including whether the grant, vesting or settlement of awards may be subject to the attainment of one or more performance goals. No awards will be granted under the plan if the grant,
85
vestingand/or exercise of the awards would jeopardize our status as a REIT under the Code or otherwise violate the ownership and transfer restrictions imposed under our charter.
The maximum number of shares of our common stock that may be issued upon the exercise or grant of an award under the incentive stock plan is 2,000,000. In the event of a nonreciprocal corporate transaction that causes the per-share value of our common stock to change, such as a stock dividend, stock split, spin-off, rights offering, or large nonrecurring cash dividend, the share authorization limits of the incentive stock plan will be adjusted proportionately.
Unless otherwise provided in an award certificate, upon the death or disability of a participant, or upon a change in control, all of such participant’s outstanding awards under the incentive stock plan will become fully vested. The plan will automatically expire on the tenth anniversary of the date on which it is adopted, unless extended or earlier terminated by the board of directors. The board of directors may terminate the plan at any time, but such termination will have no adverse impact on any award that is outstanding at the time of such termination. The board of directors may amend the plan at any time, but any amendment would be subject to stockholder approval if, in the reasonable judgment of the board, stockholder approval would be required by any law, regulation or rule applicable to the plan. No termination or amendment of the plan may, without the written consent of the participant, reduce or diminish the value of an outstanding award determined as if the award had been exercised, vested, cashed in or otherwise settled on the date of such amendment or termination. The board may amend or terminate outstanding awards, but those amendments may require consent of the participant and, unless approved by the stockholders or otherwise permitted by the antidilution provisions of the plan, the exercise price of an outstanding option may not be reduced, directly or indirectly, and the original term of an option may not be extended.
Under Section 162(m) of the Code, a public company generally may not deduct compensation in excess of $1 million paid to its Chief Executive Officer and the four next most highly compensated executive officers. Until the annual meeting of our stockholders in 2010, or until the incentive stock plan is materially amended, if earlier, awards granted under the incentive stock plan will be exempt from the deduction limits of Section 162(m). In order for awards granted after the expiration of such grace period to be exempt, the incentive stock plan must be amended to comply with the exemption conditions and be resubmitted for approval by our stockholders.
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics, or the Code of Ethics, which contains general guidelines for conducting our business and is designed to help directors, employees and independent consultants resolve ethical issues in an increasingly complex business environment. The Code of Ethics applies to our principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions and all members of our board of directors. The Code of Ethics covers topics including, but not limited to, conflicts of interest, confidentiality of information, and compliance with laws and regulations. Stockholders may request a copy of the Code of Ethics, which will be provided without charge, by writing to Grubb & Ellis Healthcare REIT, Inc. at 1551 N. Tustin Avenue, Suite 300, Santa Ana, California 92705, Attention: Secretary.
Indemnification Agreements
We have entered into indemnification agreements with each of our independent directors, non-independent director and officers. Pursuant to the terms of these indemnification agreements, we will indemnify and advance expenses and costs incurred by our directors and officers in connection with any claims, suits or proceedings brought against such directors and officers as a result of his or her service. However, our indemnification obligation is subject to the limitations set forth in the indemnification agreements and in our charter.
86
Section"Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a)Compliance" in our definitive Proxy Statement for the 2012 Annual Meeting of the Exchange Act requires each director, officer, and individual beneficially owning more than 10.0% of a registered security of the company toStockholders, which we will file with the SEC within specified time frames, initial statements of beneficial ownership (Form 3) and statements of changes in beneficial ownership (Forms 4 and 5) of common stock of the company. These specified time frames require the reporting of changes in ownership within two business days of the transaction giving rise to the reporting obligation. Reporting persons are required to furnish us with copies of all Section 16(a) forms filed with the SEC. Based solely on a review of the copies of such forms furnished to us during and with respect to the year ended December 31, 2008 or written representations that no additional forms were required, to the best of our knowledge, all required Section 16(a) filings were timely and correctly made by reporting persons during 2008, except that Messrs. Blair, DeWald, Fix, Mathis and Wescombe did not timely file one Form 4.later than April 29, 2012.
|
| |
Item 11. | Executive Compensation. |
COMPENSATION DISCUSSION AND ANALYSIS
In the paragraphs that follow, we provide an overview ofThe information required by this Item 11 is incorporated by reference to the material compensation decisions that we have made with respect to Mr. Peters, our Chief Executive Officer and President, andunder the material factors that we considered in making those decisions. Following this Compensationheadings "Compensation Discussion and Analysis, under Summary Compensation Table, you will find a series" "Compensation Committee Report," and "Compensation of tables containing specific data about the compensation earned by Mr. PetersDirectors and Executive Officers" in 2008.
Compensation Program Objectives
During 2008, Mr. Peters was the only executive officer employed by us - each of our other executive officers was employed by our advisor or its affiliates, and was compensated by these entities for their services to us. Mr. Peters served as our Chief Executive Officer and President on a non-employee basis until November 2008, when we entered into an employment agreement with him as part of our transition to self-management. Our compensation committee was formed in August 2008. As a result,definitive Proxy Statement for the majority2012 Annual Meeting of 2008,Stockholders, which we did not have, nor did our board of directors consider, a compensation policy or program for our executive officers. As we complete our transition to self-management and expand our employee base, our compensation committee expects to continue to develop and refine our compensation program and objectives.
In designing Mr. Peters’ initial compensation package, our objective was to provide compensation that directly relates to and rewards his contribution to our operating and financial performance, and its transition toward self-management. We also are mindful of the importance of retaining qualified leadership.
How We Determined Mr. Peters’ Initial Compensation Package
In setting the terms of Mr. Peters’ compensation package, our compensation committee considered Mr. Peters’ past, present and anticipated future contributions to us, as well as the pay practices within the REIT industry.
| | |
| • | Mr. Peters has played an integral role with our Company since 2006, and his experience and length of service with our Company was the primary factor considered by our compensation committee in setting his initial pay. Our compensation committee also considered Mr. Peters’ leadership role in our transition to a self-management structure, as described elsewhere in this Annual Report onForm 10-K. |
|
| • | The compensation committee reviewed the NAREIT 2008 Compensation Survey for the chief executive officer position (the “NAREIT Survey”), as well as a report provided by Christenson Advisors, LLC, the compensation consultant engaged by the compensation committee. The compensation consultant’s report provided information regarding the compensation packages of chief executive officers of REITs with a total capitalization of approximately $1 billion to $2 billion. The compensation consultant’s report was not based on a formal benchmarking analysis but rather upon surveys and its knowledge of the industry. The committee did not target Mr. Peters’ compensation to be at the median or any other |
87
| | |
| | specific level of compensation within the surveyed group(s). Rather, the committee used both the NAREIT Survey and the consultant’s report to evaluate whether Mr. Peters’ compensation would be reasonable as compared to the compensation provided by the Company’s competitors. |
As we transition to self-management, our compensation committee feels that it is important to preserve discretion to change Mr. Peters’ compensation arrangement, including, among other things, to implement performance guidelines and objectives. As a result, in connection with its approval of Mr. Peters’ initial compensation package, our compensation committee reserved the right to review and revise the terms of such arrangement. Our compensation committee may change the terms of his employment arrangement and compensation; provided, however, that the committee agreed not to decrease Mr. Peters’ base salary by more than twenty percent.
Elements of Mr. Peters’ Compensation
Currently, the key elements of compensation for Mr. Peters are base salary, annual bonus and long-term equity incentive awards, as described in more detail below. In addition to these key elements, Mr. Peters is entitled to severance in the event we terminate his employment without cause before November 1, 2010.
Base Salary. Base salary provides the fixed portion of compensation for Mr. Peters and is intended to reward core competence in his role relative to skill, experience and contributions to our Company. Mr. Peters’ initial base salary is $350,000. As noted above, in determining Mr. Peters’ 2008 base salary, our compensation committee considered his history with our Company, his increased responsibilities and oversight, with a particular focus on his role in our transition to self-management, as well as salary practices in the REIT industry.
Annual Bonus. Pursuant to the terms of his employment agreement, Mr. Peters is eligible to earn an annual bonus, up to a maximum of 100% of his base salary. In determining Mr. Peters’ annual bonus for the year ended December 31, 2008, our compensation committee made a subjective assessment of Mr. Peters’ individual performance and increased responsibilities, particularly in connection with our transition towards self-management. His bonus for 2008 was prorated based on the number of days that he was employed by us during such year. Mr. Peters’ 2008 bonus is shown in the “Bonus” column of the Summary Compensation Table below.
Long-Term Equity Incentives. In connectionwill file with the commencement of his employment with us, Mr. Peters received 40,000 shares of restricted common stock, which vest as to one-third of the shares on each of the first, second and third anniversaries of the date of grant. Our compensation committee chose restricted common stock as the equity component of Mr. Peters’ arrangement because it both aligns his interests with those of our stockholders and provides a strong retentive component to his compensation arrangement. In addition, we currently use restricted common stock as the equity component of our director compensation program. Based on its knowledge of the industry and its review of peer practices, our compensation committee believes that the size of the restricted stock award is in line with current market practices.SEC not later than April 29, 2012.
Other Benefits. As discussed above, on November 14, 2008, we entered into an employment agreement with Mr. Peters. Pursuant to his employment agreement, if we terminate Mr. Peters’ employment for other than cause or disability prior to November 1, 2010, he will be entitled to receive a severance payment equal to 50% of his base salary, and a pro-rata bonus for the year of termination.
REPORT OF THE COMPENSATION COMMITTEE
Our compensation committee of our board of directors oversees our compensation program on behalf of our board. In fulfilling its oversight responsibilities, the committee reviewed and discussed with management the above Compensation Discussion and Analysis included in this report.
In reliance on the review and discussion referred to above, our compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in our Annual Report onForm 10-K for the year ended December 31, 2008, and our proxy statement on Schedule 14A to be filed in
88
connection with our 2009 annual meeting of stockholders, each of which has been or will be filed with the SEC.
This report shall not be deemed to be incorporated by reference by any general statement incorporating by reference this Annual Report onForm 10-K into any filing under the Securities Act of 1933, as amended, or the Exchange Act and shall not otherwise be deemed filed under such acts. This report is provided by the following independent directors, who constitute the committee:
Gary T. Wescombe, Chair
W. Bradley Blair, II
Warren D. Fix
Summary Compensation Table
The summary compensation table below reflects the total compensation earned by Mr. Peters, our Chief Executive Officer and President for the year ended December 31, 2008. We did not employ any other officer for the year ended December 31, 2008.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | All Other
| | | | |
Name and Principal Position | | Year | | | Salary ($)(1) | | | Bonus ($) | | | Stock Awards ($)(2) | | | Compensation ($)(3) | | | Total ($) | |
|
Scott D. Peters | | | | | | | | | | | | | | | | | | | | | | | | |
Chief Executive Officer and President | | | 2008 | | | | 148,333 | | | | 58,333 | | | | 17,037 | | | | 2,252 | | | | 225,955 | |
| | |
(1) | | Reflects (a) $90,000 received pursuant to Mr. Peters’ consulting arrangement with us from August 1, 2008, through October 31, 2008, and (b) $58,333 received as base salary pursuant to his employment agreement from November 1, 2008, through December 31, 2008. |
|
(2) | | The amounts in this column represent the proportionate amount of the total fair value of stock awards recognized by us in 2008 for financial accounting purposes, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. The amount included in the table includes the amount recorded as expense in our statement of operations for the year ended December 31, 2008. The fair values of these awards and the amounts expensed in 2008 were determined in accordance with Statement of Financial Accounting Standards, or SFAS, No. 123(R),Share-Based Payment,or SFAS No. 123(R). |
|
(3) | | Reflects our payment of Mr. Peters’ monthly premium for two months under COBRA for participation in Grubb & Ellis’s group medical, dental, vision and/or prescription drug plans. |
Grants of Plan-Based Awards
The following table presents information concerning plan-based awards granted to Mr. Peters for the year ended December 31, 2008.
Grants of Plan-Based Awards For Fiscal Year 2008
| | | | | | | | | | | | |
| | | | | All Other Stock
| | | Grant Date Fair
| |
| | | | | Awards: Number of
| | | Value of Stock and
| |
| | | | | Shares of Stock or
| | | Option Awards
| |
Name | | Grant Date | | | Units (#)(1) | | | ($)(2) | |
|
Scott D. Peters | | | 11/14/08 | | | | 40,000 | | | | 400,000 | |
| | |
(1) | | Reflects shares of restricted common stock granted to Mr. Peters under our 2006 Incentive Plan. |
|
(2) | | Reflects the grant date fair value of Mr. Peters’ restricted stock award, determined pursuant to SFAS No. 123(R). The fair value of each share of restricted common stock was estimated at the date of grant at $10.00 per share, the per share price of shares of our common stock in our offering. |
89
Outstanding Equity Awards
The following table presents information concerning outstanding equity awards held by Mr. Peters as of December 31, 2008.
Outstanding Equity Awards at 2008 Fiscal Year-End
| | | | | | | | |
| | Stock Awards | |
| | Number of Shares or Units of
| | | Market Value of Shares or
| |
| | Stock That Have
| | | Units of Stock That Have Not
| |
Name | | Not Vested (#) | | | Vested ($)(2) | |
|
Scott D. Peters | | | 40,000 | (1) | | | 400,000 | |
| | |
(1) | | Reflects shares of restricted common stock granted to Mr. Peters on November 14, 2008, which will vest and become non-forfeitable in equal annual installments of 33.3% each, on the first, second and third anniversaries of the grant date. |
|
(2) | | Calculated using the per share price of shares of our common stock as of the close of business on December 31, 2008 ($10.00). |
Potential Payments Upon Termination or Change in Control
Benefits Upon Termination of Employment. Our employment agreement with Mr. Peters provides that in the event that, during the two-year employment period, we terminate his employment other than for cause or disability (as such terms are defined in the employment agreement), Mr. Peters will be entitled to receive a lump sum severance payment equal to 50.0% of his annual base salary and a payment equal to a pro-rata portion of his annual bonus for the year in which his date of termination occurs. In addition, pursuant to the terms of his restricted stock award on November 14, 2008, his shares of restricted common stock will become fully vested upon his termination of employment by reason of death or disability. If Mr. Peters voluntarily terminates his employment, retires or if we terminate him for cause, he is not entitled to any payments or benefits under any plan or arrangement of our Company.
The following table summarizes the approximate value of the termination payments and benefits that Mr. Peters would receive if his employment had terminated at the close of business on December 31, 2008.
| | | | |
Termination of Employment By our Company other than for Cause or Disability | | $ | 233,333(1) | |
Termination of Employment By Reason of Death or Disability | | $ | 400,000(2) | |
| | |
(1) | | Reflects (a) a payment equal to a pro-rata portion of his annual bonus for 2008 ($58,333), and (b) a lump sum cash severance payment equal to 50% of his current annual base salary ($175,000). |
|
(2) | | Reflects the value of Mr. Peters’ unvested restricted stock award which, pursuant to our 2006 Incentive Plan, vests upon his termination of employment by reason of death or disability. The restricted stock award is valued based upon the price of our common stock on December 31, 2008 ($10.00). |
Benefits Upon Change in Control. Pursuant to the terms of our 2006 Incentive Plan, if a change in control of our Company had occurred on December 31, 2008, Mr. Peters’ shares of restricted common stock would have become fully vested, regardless of whether his employment was terminated. The value of Mr. Peters’ unvested restricted stock award is $400,000, based upon the price of our common stock on December 31, 2008 ($10.00).
2008 Director Compensation
Pursuant to the terms of our director compensation program, which are contained in our 2006 Independent Directors Compensation Plan, a sub-plan of our 2006 Incentive Plan, our independent directors received the following forms of compensation during 2008:
| | |
| • | Annual Retainer. Our independent directors receive an annual retainer of $36,000. |
90
| | |
| • | Meeting Fees. Our independent directors receive $1,000 for each board meeting attended in person or by telephone and $500 for each committee meeting attended in person or by telephone. An additional $500 is paid to the audit committee chair for each audit committee meeting attended in person or by telephone. If a board meeting is held on the same day as a committee meeting, an additional fee will not be paid for attending the committee meeting. |
|
| • | Equity Compensation. Upon initial election to our board of directors, each independent director receives 5,000 shares of restricted common stock, and an additional 2,500 shares of restricted common stock upon his or her subsequent election each year. The shares of restricted common stock vest as to 20% of the shares on the date of grant and on each anniversary thereafter over four years from the date of grant. |
|
| • | Expense Reimbursement. We reimburse our directors for reasonable out-of-pocket expenses incurred in connection with attendance at meetings, including committee meetings, of our board of directors. |
Independent directors do not receive other benefits from us. Our non-independent director, Mr. Peters, does not receive any compensation in connection with his service as a director of our Company.
The following table sets forth the compensation earned by our independent directors for the year ended December 31, 2008:
| | | | | | | | | | | | |
| | Fees Earned
| | | | | | | |
| | or Paid in Cash
| | | Stock Awards
| | | | |
Name | | ($)(1) | | | ($)(2) | | | Total ($) | |
|
W. Bradley Blair, II | | | 54,000 | | | | 22,681 | | | | 76,681 | |
Maurice J. DeWald | | | 55,000 | | | | 22,681 | | | | 77,681 | |
Warren D. Fix | | | 53,000 | | | | 22,681 | | | | 75,681 | |
Larry L. Mathis | | | 49,000 | | | | 22,681 | | | | 71,681 | |
Gary T. Wescombe | | | 52,500 | | | | 22,681 | | | | 75,181 | |
| | |
(1) | | Consists of the amounts described below: |
| | | | | | | | |
| | Basic Annual
| | | Meeting
| |
| | Retainer
| | | Fees
| |
Name | | ($) | | | ($) | |
|
Blair | | | 36,000 | | | | 18,000 | |
DeWald | | | 36,000 | | | | 19,000 | |
Fix | | | 36,000 | | | | 17,000 | |
Mathis | | | 36,000 | | | | 13,000 | |
Wescombe | | | 36,000 | | | | 16,500 | |
| | |
(2) | | The amounts in this column represent the proportionate amount of the total fair value of stock awards we recognized in 2008 for financial accounting purposes, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. The amounts included in the table for each award include the amount recorded as expense in our statement of operations for the year ended December 31, 2008. The fair values of these awards and the amounts expensed in 2008 were determined in accordance with SFAS No. 123(R). |
91
The following table shows the shares of restricted common stock awarded to each independent director for the year ended December 31, 2008, and the aggregate grant date fair value for each award (computed in accordance with SFAS No. 123(R)).
| | | | | | | | | | | | |
| | | | | | | | Full Grant
| |
| | | | | Number of
| | | Date Fair
| |
| | | | | Restricted
| | | Value of
| |
Director | | Grant Date | | | Shares (#) | | | Award ($) | |
|
Blair | | | 06/17/08 | | | | 2,500 | | | | 25,000 | |
DeWald | | | 06/17/08 | | | | 2,500 | | | | 25,000 | |
Fix | | | 06/17/08 | | | | 2,500 | | | | 25,000 | |
Mathis | | | 06/17/08 | | | | 2,500 | | | | 25,000 | |
Wescombe | | | 06/17/08 | | | | 2,500 | | | | 25,000 | |
The following table shows the aggregate number of nonvested shares of restricted common stock held by each independent director as of December 31, 2008:
| | | | |
| | Nonvested
| |
Director | | Restricted Stock (#) | |
|
Blair | | | 5,500 | |
DeWald | | | 5,500 | |
Fix | | | 5,500 | |
Mathis | | | 6,500 | |
Wescombe | | | 5,500 | |
Key Changes to the Director Compensation Program for 2009. On December 30, 2008, we amended the 2006 Independent Directors Compensation Plan as follows, which amendments became effective as of January 1, 2009:
| | |
| • | Annual Retainer. The annual retainer for independent directors was increased to $50,000. |
|
| • | Annual Retainer, Committee Chairman. The chairman of each board committee (including the audit committee, the compensation committee, the nominating and corporate governance committee and the investment committee) will receive an additional annual retainer of $7,500. |
|
| • | Meeting Fees. The meeting fee for each board meeting attended in person of by telephone was increased from $1,000 to $1,500 and the meeting fee for each committee meeting attended in person or by telephone was increased from $500 to $1,000. |
|
| • | Equity Compensation. Each independent director will receive a grant of 5,000 shares of restricted common stock upon each re-election to the board, rather than 2,500 shares. |
We amended the 2006 Independent Directors Compensation Plan primarily as a result of two factors. First, in connection with our transition to self-management, our board of directors is required to spend a substantially greater amount of time overseeing our company and the transition. As a result, we believed that a greater level of compensation was appropriate. Second, our board reviewed a survey from an independent consultant of the compensation paid to the independent directors of both traded and non-traded REITs and determined that our prior compensation structure was below average. As amended, we believe our compensation to be paid to our independent directors is consistent with the average compensation paid to independent directors of traded and non-traded REITs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2008, W. Bradley Blair, II, Maurice J. DeWald, Warren D. Fix, Larry L. Mathis and Gary T. Wescombe, all of whom are independent directors, served on our compensation committee. None of them was an officer or employee of our Company in 2008 or any time prior thereto. During 2008, none of the members of the compensation committee had any relationship with our Company requiring disclosure under Item 404 of
92
Regulation S-K. None of our executive officers served as a member of the board of directors or compensation committee, or similar committee, of any other company whose executive officer(s) served as a member of our board of directors or our compensation committee.
|
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
PRINCIPAL STOCKHOLDERS
The following table shows, asinformation required by this Item 12 is incorporated by reference to the material under the headings "Equity Compensation Plans" and "Security Ownership of March 13, 2009,Certain Beneficial Owners and Management" in our definitive Proxy Statement for the number2012 Annual Meeting of shares of our common stock beneficially owned by: (1) any person who is known by us to be the beneficial owner of more than 5.0% of the outstanding shares of our common stock, (2) our directors, (3) our named executive officers and (4) all of our directors and executive officers as a group. The percentage of common stock beneficially owned is based on 91,264,688 shares of our common stock outstanding as of March 13, 2009. Beneficial ownership is determined in accordanceStockholders, which we will file with the rules of the SEC and generally includes securities over which a person has voting or investment power and securities that a person has the right to acquire within 60 days.not later than April 29, 2012.
| | | | | | | | |
| | Number of Shares
| | | | |
Name of Beneficial Owners(1) | | Beneficially Owned | | | Percentage | |
|
Scott D. Peters(2) | | | 40,000 | | | | * | |
Shannon K S Johnson(3) | | | — | | | | * | |
W. Bradley Blair, II(2) | | | 10,000 | | | | * | |
Maurice J. DeWald(2) | | | 10,000 | | | | * | |
Warren D. Fix(2) | | | 11,371 | | | | * | |
Larry L. Mathis(2) | | | 15,525 | | | | * | |
Gary T. Wescombe(2) | | | 10,000 | | | | * | |
| | | | | | | | |
All directors and executive officers as a group (9 persons) | | | 96,896 | | | | * | |
| | | | | | | | |
| | |
* | | Represents less than 1.0% of our outstanding common stock. |
|
(1) | | The address of each beneficial owner listed isc/o Grubb & Ellis Healthcare REIT, Inc., The Promenade, 16427 North Scottsdale Road, Suite 440, Scottsdale, Arizona 85254, except for Shannon K S Johnson, whose address is 1551 N. Tustin Avenue, Suite 300, Santa Ana, California 92705. |
|
(2) | | Includes vested and non-vested shares of restricted common stock. |
|
(3) | | Served as our Chief Financial Officer until March 2009. |
EQUITY COMPENSATION PLAN INFORMATION
Under the terms of our 2006 Incentive Plan, as amended January 1, 2009, the aggregate number of shares of our common stock subject to options, shares of restricted common stock, stock purchase rights, stock appreciation rights or other awards, including those issuable under its sub-plan, the 2006 Independent Directors Compensation Plan, will be no more than 2,000,000 shares.
| | | | | | | | | | | | |
| | Number of Securities
| | | | | | Number of
| |
| | to be Issued Upon
| | | Weighted Average
| | | Securities
| |
| | Exercise of
| | | Exercise Price of
| | | Remaining
| |
| | Outstanding Options,
| | | Outstanding Options,
| | | Available for Future
| |
Plan Category
| | Warrants and Rights | | | Warrants and Rights | | | Issuance | |
|
Equity compensation plans approved by security holders(1) | | | — | | | | — | | | | 1,910,000 | |
Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
Total | | | — | | | | | | | | 1,910,000 | |
| | | | | | | | | | | | |
93
| | |
(1) | | On September 20, 2006, October 4, 2006, April 12, 2007, June 12, 2007 and June 17, 2008, we granted 15,000 shares, 5,000 shares, 5,000 shares, 12,500 shares and 12,500 shares, respectively, of restricted common stock, as defined in our 2006 Incentive Plan, to our independent directors under the 2006 Independent Directors Compensation Plan. On November 14, 2008, we also granted 40,000 shares of restricted common stock to Scott D. Peters, our Chief Executive Officer, President and Chairman of the board of directors, under our 2006 Incentive Plan. Such shares are not shown in the chart above as they are deemed outstanding shares of our common stock; however such grants reduce the number of securities remaining available for future issuance. |
|
| |
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 Among Our Affiliates
Some of our executive officers are also executive officers and employeesand/or holders of a direct or indirect interestRelated Party Transactions" in our advisor, our sponsor, Grubb & Ellis Realty Investors, or other affiliated entities.
Grubb & Ellis Realty Investors, which is an indirect wholly owned subsidiary of our sponsor Grubb & Ellis, owns a 75.0% managing member interest in our advisor. Grubb & Ellis Healthcare Management, LLC owns a 25.0% non-managing member interest in our advisor. The members of Grubb & Ellis Healthcare Management, LLC include Andrea R. Biller, our Executive Vice President and Secretary, our advisor’s Executive Vice President, Grubb & Ellis’ Executive Vice President, Secretary and General Counsel, NNN Realty Advisors’ Executive Vice President, Secretary, General Counsel and Director, Grubb & Ellis Realty Investors’ Executive Vice President and General Counsel and Grubb & Ellis Securities’ Secretary; and Grubb & Ellis Realty Investorsdefinitive Proxy Statement for the benefit2012 Annual Meeting of other employees who perform services for us. As of March 27, 2009, Ms. Biller owns an 18.0% membership interest in Grubb & Ellis Healthcare Management, LLC and Grubb & Ellis Realty Investors owns a 64.0%, membership interest in Grubb & Ellis Healthcare Management, LLC. See Item 1. Business — Our Structure for an organizational chart.
Fees and Expenses Paid to Affiliates
See Note 12, Related Party Transactions, to the Consolidated Financial Statements, for a further discussion of our related party transactions.
Certain Conflict Resolution Restrictions and Procedures
In order to reduce or eliminate certain potential conflicts of interest, our charter and the Advisory Agreement contain restrictions and conflict resolution procedures relating to: (1) transactionsStockholders, which we enter into with our advisor, our directors or their respective affiliates, (2) certain future offerings and (3) allocation of properties among affiliated entities. Each of the restrictions and procedures that apply to transactions with our advisor and its affiliates will also apply to any transaction with any entity or real estate program advised, managed or controlled by Grubb & Ellis and its affiliates. These restrictions and procedures include, among others, the following:
| | |
| • | Except as otherwise described in our Registration Statement on FormS-11 (FileNo. 333-133652, effective September 20, 2006) filed with the SEC, or our offering prospectus, we will not accept goods or services from our advisor or its affiliates unless a majority of our directors, including a majority of our independent directors, not otherwise interested in the transactions, approve such transactions as fair, competitive and commercially reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties. |
|
| • | We will not purchase or lease any asset (including any property) in which our advisor, any of our directors or any of their respective affiliates has an interest without a determination by a majority of our directors, including a majority of our independent directors, not otherwise interested in such transaction, that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the property to our advisor, such director or directors or any such affiliate, unless there is substantial justification for any amount that exceeds such cost and such excess amount is determined to |
94
| | |
| | be reasonable. In no event will we acquire any such asset at an amount in excess of its appraised value. We will not sell or lease assets to our advisor, any of our directors or any of their respective affiliates unless a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, determine the transaction is fair and reasonable to us, which determination will be supported by an appraisal obtained from a qualified, independent appraiser selected by a majority of our independent directors. |
| | |
| • | We will not make any loans to our advisor, any of our directors or any of their respective affiliates. In addition, any loans made to us by our advisor, our directors or any of their respective affiliates must be approved by a majority of our directors, including a majority of our independent directors, not otherwise interested in the transaction, as fair, competitive and commercially reasonable, and no less favorable to us than comparable loans between unaffiliated parties. |
|
| • | Our advisor and its affiliates shall be entitled to reimbursement, at cost, for actual expenses incurred by them on our behalf or on behalf of joint ventures in which we are a joint venture partner, subject to the limitation on reimbursement of operating expenses to the extent that they exceed the greater of 2.0% of our average invested assets or 25.0% of our net income, as described above. |
|
| • | The Advisory Agreement provides that if Grubb & Ellis Realty Investors identifies an opportunity to make an investment in one or more office buildings or other facilities for which greater than 50.0% of the gross leaseable area is leased to, or reasonably expected to be leased to, one or more medical or healthcare related tenants, either directly or indirectly through an affiliate or in a joint venture or other co-ownership arrangement, for itself or for any other Grubb & Ellis program, then Grubb & Ellis Realty Investors will provide us with the first opportunity to purchase such investment. Grubb & Ellis Realty Investors will provide all necessary information related to such investment to our advisor, in order to enable our board of directors to determine whether to proceed with such investment. Our advisor will present the information to our board of directors within three business days of receipt from Grubb & Ellis Realty Investors. If our board of directors does not affirmatively authorize our advisor to proceed with the investment on our behalf within seven days of receipt of such information from our advisor, then Grubb & Ellis Realty Investors may proceed with the investment opportunity for its own account or offer the investment opportunity to any other person or entity. This right of first opportunity will remain in effect after the end of our offering so long as monies raised by our advisor are available for funding new acquisitions of properties for which our advisor will continue to receive an acquisition fee pursuant to the Advisory Agreement. |
|
| • | The Advisory Agreement provides that our advisor and Grubb & Ellis Realty Investors agree to coordinate the timing, marketing and other activities for any new healthcare REIT sponsored by Grubb & Ellis Realty Investors or its affiliates so as not to negatively impact our company. In addition, the equity raising for any new healthcare REIT sponsored by Grubb & Ellis Realty Investors or its affiliates shall not begin until after the end of our offering, provided that consistent with industry practice and standards and without there being any negative impact on our equity raise, such new healthcare REIT may initiate a limited equity raise from a limited broker dealer group, commencing August 1, 2009 or later, to satisfy the escrow requirements applicable to such new healthcare REIT. |
Director Independence
We have a six-member board of directors. One of our directors, Scott D. Peters, is affiliated with us and we do not consider him to be an independent director. Our remaining directors qualify as “independent directors” as defined in our charter in compliancefile with the requirements of the North American Securities Administrators Association’s Statement of Policy Regarding Real Estate Investment Trusts. Our charter provides that a majority of the directors must be “independent directors.” As defined in our charter, the term “independent director” means a director who isSEC not on the date of determination, and within the last two years from the date of determination has not been, directly or indirectly associated with our sponsor or our advisor by virtue of: (1) ownership of an interest in our sponsor, our advisor or any of their affiliates, otherlater than the Corporation; (2) employment by our sponsor, our advisor or any of their affiliates; (3) service as an officer orApril 29, 2012.
95
director of our sponsor, our advisor or any of their affiliates; (4) performance of services, other than as a director for us; (5) service as a director or trustee of more than three REITs organized by our sponsor or advised by our advisor; or (6) maintenance of a material business or professional relationship with our sponsor, our advisor or any of their affiliates.
Each of our independent directors would also qualify as independent under the rules of the New York Stock Exchange and our Audit Committee members would qualify as independent under the New York Stock Exchange’s rules applicable to Audit Committee members. However, our stock is not listed on the New York Stock Exchange.
|
| |
Item 14. | Principal Accounting Fees and Services. |
Deloitte & Touche, LLP has served asThe 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 our independent auditors since April 24, 2006 and audited our consolidated financial statementsdefinitive Proxy Statement for the years ended December 31, 2008 and 2007.
The following table lists2012 Annual Meeting of Stockholders, which we will file with the fees for services billed by our independent auditors for 2008 and 2007:SEC not later than April 29, 2012.
75
| | | | | | | | |
Services | | 2008 | | | 2007 | |
|
Audit Fees(1) | | $ | 448,000 | | | $ | 428,000 | |
Audit related fees(2) | | | — | | | | 8,000 | |
Tax fees(3) | | | 19,000 | | | | 2,000 | |
All other fees | | | — | | | | — | |
| | | | | | | | |
Total | | $ | 467,000 | | | $ | 438,000 | |
| | | | | | | | |
| | |
(1) | | Audit fees billed in 2008 and 2007 consisted of the audit of our annual consolidated financial statements, a review of our quarterly consolidated financial statements, and statutory and regulatory audits, consents and other services related to filings with the SEC, including filings related to our offering. These amounts include fees paid by our advisor and its affiliates for costs in connection with our offering and to the extent cumulative other organizational and offering expenses exceed 1.5% of the gross proceeds of our offering, these amounts are not included within our consolidated financial statements, as they are subject to the accounting policy described in Note 11 to the Consolidated Financial Statements, Commitments and Contingencies — Other Organizational and Offering Expenses. |
|
(2) | | Audit related fees consist of financial accounting and reporting consultations. |
|
(3) | | Tax services consist of tax compliance and tax planning and advice. |
The audit committee preapproves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent auditor, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(b) of the Exchange Act and the rules and regulations of the SEC.
96
PART IV
|
| |
Item 15. | Exhibits, Financial Statement Schedules. |
(a)(1)Financial Statements:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(a)(2)Financial Statement Schedule:
Schedules:
The following financial statement scheduleschedules for the year ended December 31, 20082011 are submitted herewith:
(a)(3)Exhibits:
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference ininto this annual report.
(b) Exhibits:
See itemItem 15(a)(3) above.
(c) Financial Statement Schedule:
See Item 15(a)(2) above.
| | | | |
| | Page | |
|
Real Estate Operating Properties and Accumulated Depreciation (Schedule III) | | | 140 | |
97
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Grubb & Ellis Healthcare REIT,Trust of America, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of Grubb & Ellis Healthcare REIT,Trust of America, Inc. and subsidiaries (the “Company”) as of December 31, 20082011 and 20072010, and the related consolidated statements of operations,income, stockholders’ equity, (deficit) and cash flows for each of the three years in the period ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006.2011. Our audits also included the consolidated financial statement scheduleschedules listed in the indexIndex at Item 15. These consolidated financial statements and the consolidated financial statement scheduleschedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedthe financial statements and the consolidated financial statement scheduleschedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Grubb & Ellis Healthcare REIT,Trust of America, Inc. and subsidiaries as of December 31, 20082011 and 2007,2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2011, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedule,schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presentspresent fairly in all material respects the information set forth therein.
/s/Deloitte & Touche LLP
Los Angeles, CaliforniaPhoenix, Arizona
March 27, 200926, 2012
98
Healthcare REIT,Trust of America, Inc.
CONSOLIDATED BALANCE SHEETS
As of December 31, 20082011 and 20072010
| | | | | | | | |
| | December 31, | |
| | 2008 | | | 2007 | |
|
ASSETS | | | | |
Real estate investments: | | | | | | | | |
Operating properties, net | | $ | 810,920,000 | | | $ | 352,994,000 | |
Real estate note receivables, net | | | 15,360,000 | | | | — | |
Cash and cash equivalents | | | 128,331,000 | | | | 5,467,000 | |
Accounts and other receivables, net | | | 5,428,000 | | | | 1,233,000 | |
Restricted cash | | | 7,747,000 | | | | 4,605,000 | |
Identified intangible assets, net | | | 134,623,000 | | | | 62,921,000 | |
Other assets, net | | | 11,514,000 | | | | 4,392,000 | |
| | | | | | | | |
Total assets | | $ | 1,113,923,000 | | | $ | 431,612,000 | |
| | | | | | | | |
| | | | |
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY | | | | |
Liabilities: | | | | | | | | |
Mortgage loan payables, net | | $ | 460,762,000 | | | $ | 185,801,000 | |
Line of credit | | | — | | | | 51,801,000 | |
Accounts payable and accrued liabilities | | | 21,919,000 | | | | 7,983,000 | |
Accounts payable due to affiliates, net | | | 3,063,000 | | | | 2,356,000 | |
Derivative financial instruments | | | 14,198,000 | | | | 1,377,000 | |
Security deposits, prepaid rent and other liabilities | | | 4,582,000 | | | | 1,974,000 | |
Identified intangible liabilities, net | | | 8,128,000 | | | | 1,639,000 | |
| | | | | | | | |
Total liabilities | | | 512,652,000 | | | | 252,931,000 | |
| | | | | | | | |
Commitments and contingencies (Note 11) | | | | | | | | |
| | | | | | | | |
Minority interest of limited partner in operating partnership | | | 1,000 | | | | — | |
Minority interest of limited partner — redemption value of $3,133,000 (Note 11) | | | 1,950,000 | | | | 3,091,000 | |
Stockholders’ equity: | | | | | | | | |
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding | | | — | | | | — | |
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 75,465,437 and 21,449,451 shares issued and outstanding as of December 31, 2008 and 2007, respectively | | | 755,000 | | | | 214,000 | |
Additional paid-in capital | | | 673,351,000 | | | | 190,534,000 | |
Accumulated deficit | | | (74,786,000 | ) | | | (15,158,000 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 599,320,000 | | | | 175,590,000 | |
| | | | | | | | |
Total liabilities, minority interest and stockholders’ equity | | $ | 1,113,923,000 | | | $ | 431,612,000 | |
| | | | | | | | |
|
| | | | | | | |
| December 31, |
| 2011 | | 2010 |
ASSETS |
Real estate investments, net | $ | 1,806,471,000 |
| | $ | 1,797,463,000 |
|
Real estate notes receivable, net | 57,459,000 |
| | 57,091,000 |
|
Cash and cash equivalents | 69,491,000 |
| | 29,270,000 |
|
Accounts and other receivables, net | 12,658,000 |
| | 16,385,000 |
|
Restricted cash and escrow deposits | 16,718,000 |
| | 26,679,000 |
|
Identified intangible assets, net | 272,390,000 |
| | 304,355,000 |
|
Other assets, net | 56,442,000 |
| | 40,552,000 |
|
Total assets | $ | 2,291,629,000 |
| | $ | 2,271,795,000 |
|
LIABILITIES AND EQUITY |
Liabilities: | |
| | |
|
Mortgage and secured term loans payable, net | $ | 639,149,000 |
| | $ | 699,526,000 |
|
Outstanding balance on unsecured revolving credit facility | — |
| | 7,000,000 |
|
Accounts payable and accrued liabilities | 47,801,000 |
| | 43,033,000 |
|
Derivative financial instruments — interest rate swaps | 1,792,000 |
| | 1,527,000 |
|
Security deposits, prepaid rent and other liabilities | 19,930,000 |
| | 16,168,000 |
|
Identified intangible liabilities, net | 11,832,000 |
| | 13,428,000 |
|
Total liabilities | 720,504,000 |
| | 780,682,000 |
|
Commitments and contingencies (Note 11) |
|
| |
|
|
Redeemable noncontrolling interest of limited partners (Note 13) | 3,785,000 |
| | 3,867,000 |
|
Equity: | |
| | |
|
Stockholders’ equity: | |
| | |
|
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding | — |
| | — |
|
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 228,491,312 and 202,643,705 shares issued and outstanding as of December 31, 2011 and 2010, respectively | 2,284,000 |
| | 2,026,000 |
|
Additional paid-in capital | 2,032,305,000 |
| | 1,795,413,000 |
|
Accumulated deficit | (467,249,000 | ) | | (310,193,000 | ) |
Total stockholders’ equity | 1,567,340,000 |
| | 1,487,246,000 |
|
Total liabilities and equity | $ | 2,291,629,000 |
| | $ | 2,271,795,000 |
|
The accompanying notes are an integral part of these consolidated financial statements.
99
Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 20082011, 2010 and 2007 and
for the Period from April 28, 2006 (Date of Inception) through December 31, 20062009
| | | | | | | | | | | | |
| | | | | | | | Period from
| |
| | | | | | | | April 28, 2006
| |
| | | | | | | | (Date of Inception)
| |
| | Years Ended December 31, | | | through
| |
| | 2008 | | | 2007 | | | December 31, 2006 | |
|
Revenues: | | | | | | | | | | | | |
Rental income | | $ | 80,415,000 | | | $ | 17,626,000 | | | $ | — | |
Interest income from real estate note receivables | | | 3,000 | | | | — | | | | — | |
| | | | | | | | | | | | |
Total revenues | | | 80,418,000 | | | | 17,626,000 | | | | — | |
Expenses: | | | | | | | | | | | | |
Rental expenses | | | 28,174,000 | | | | 6,037,000 | | | | — | |
General and administrative | | | 9,560,000 | | | | 3,297,000 | | | | 242,000 | |
Depreciation and amortization | | | 37,398,000 | | | | 9,790,000 | | | | — | |
| | | | | | | | | | | | |
Total expenses | | | 75,132,000 | | | | 19,124,000 | | | | 242,000 | |
| | | | | | | | | | | | |
Income (loss) before other income (expense) | | | 5,286,000 | | | | (1,498,000 | ) | | | (242,000 | ) |
Other income (expense): | | | | | | | | | | | | |
Interest expense (including amortization of deferred financing costs and debt discount): | | | | | | | | | | | | |
Interest expense related to unsecured note payables to affiliate | | | (2,000 | ) | | | (84,000 | ) | | | — | |
Interest expense related to mortgage loan payables and line of credit | | | (21,341,000 | ) | | | (4,939,000 | ) | | | — | |
Loss on derivative financial instruments | | | (12,821,000 | ) | | | (1,377,000 | ) | | | — | |
Interest and dividend income | | | 469,000 | | | | 224,000 | | | | — | |
| | | | | | | | | | | | |
Loss before minority interests | | $ | (28,409,000 | ) | | $ | (7,674,000 | ) | | $ | (242,000 | ) |
| | | | | | | | | | | | |
Minority interests | | | (39,000 | ) | | | 8,000 | | | | — | |
| | | | | | | | | | | | |
Net loss | | $ | (28,448,000 | ) | | $ | (7,666,000 | ) | | $ | (242,000 | ) |
| | | | | | | | | | | | |
Net loss per share — basic and diluted | | $ | (0.66 | ) | | $ | (0.77 | ) | | $ | (149.03 | ) |
| | | | | | | | | | | | |
Weighted average number of shares outstanding — basic and diluted | | | 42,844,603 | | | | 9,952,771 | | | | 1,622 | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2011 | | 2010 | | 2009 |
Revenues: | |
| | |
| | |
|
Rental income | $ | 269,646,000 |
| | $ | 195,496,000 |
| | $ | 126,333,000 |
|
Interest income from mortgage notes receivable and other income | 4,792,000 |
| | 7,585,000 |
| | 3,153,000 |
|
Total revenues | 274,438,000 |
| | 203,081,000 |
| | 129,486,000 |
|
Expenses: | |
| | |
| | |
|
Rental expenses | 88,760,000 |
| | 65,662,000 |
| | 45,024,000 |
|
General and administrative expenses | 28,695,000 |
| | 18,753,000 |
| | 12,285,000 |
|
Asset management fees to former advisor (Note 12) | — |
| | — |
| | 3,783,000 |
|
Acquisition-related expenses (Note 2) | 2,130,000 |
| | 11,317,000 |
| | 15,997,000 |
|
Depreciation and amortization | 107,542,000 |
| | 78,561,000 |
| | 53,595,000 |
|
Redemption, termination, and release payment to former advisor (Note 12) | — |
| | 7,285,000 |
| | — |
|
Total expenses | 227,127,000 |
| | 181,578,000 |
| | 130,684,000 |
|
Income (loss) before other income (expense) | 47,311,000 |
| | 21,503,000 |
| | (1,198,000 | ) |
Other income (expense): | |
| | |
| | |
|
Interest expense (including amortization of deferred financing costs and debt premium/discount): | |
| | |
| | |
|
Interest expense related to mortgage and secured term loans payable and credit facility | (39,613,000 | ) | | (26,725,000 | ) | | (19,146,000 | ) |
Interest expense related to derivative financial instruments and net change in fair value of derivative financial instruments | (2,279,000 | ) | | (2,816,000 | ) | | (4,678,000 | ) |
Interest and dividend income | 174,000 |
| | 119,000 |
| | 249,000 |
|
Net income (loss) | $ | 5,593,000 |
| | $ | (7,919,000 | ) | | $ | (24,773,000 | ) |
Less: Net (income) loss attributable to noncontrolling interest of limited partners | (52,000 | ) | | 16,000 |
| | (304,000 | ) |
Net income (loss) attributable to controlling interest | $ | 5,541,000 |
| | $ | (7,903,000 | ) | | $ | (25,077,000 | ) |
Net income (loss) per share attributable to controlling interest on distributed and undistributed earnings — basic: | $ | 0.02 |
| | $ | (0.05 | ) | | $ | (0.22 | ) |
Net income (loss) per share attributable to controlling interest on distributed and undistributed earnings — diluted: | $ | 0.02 |
| | $ | (0.05 | ) | | $ | (0.22 | ) |
Weighted average number of shares outstanding | |
| | |
| | |
|
Basic | 223,900,167 |
| | 165,952,860 |
| | 112,819,638 |
|
Diluted | 224,391,553 |
| | 165,952,860 |
| | 112,819,638 |
|
The accompanying notes are an integral part of these consolidated financial statements.
100
Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 31, 20082011, 2010 and 2007 and
for the Period from April 28, 2006 (Date of Inception) through December 31, 20062009
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | | | | | | | Total
| |
| | Number of
| | | | | | Additional
| | | Preferred
| | | Accumulated
| | | Stockholders’
| |
| | Shares | | | Amount | | | Paid-In Capital | | | Stock | | | Deficit | | | Equity (Deficit) | |
|
BALANCE — April 28, 2006 (Date of Inception) | | | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Issuance of common stock | | | 200 | | | | — | | | | 2,000 | | | | — | | | | — | | | | 2,000 | |
Issuance of vested and nonvested restricted common stock | | | 20,000 | | | | — | | | | 40,000 | | | | — | | | | — | | | | 40,000 | |
Amortization of nonvested common stock compensation | | | — | | | | — | | | | 11,000 | | | | — | | | | — | | | | 11,000 | |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (242,000 | ) | | | (242,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE — December 31, 2006 | | | 20,200 | | | | — | | | | 53,000 | | | | — | | | | (242,000 | ) | | | (189,000 | ) |
Issuance of common stock | | | 21,130,370 | | | | 211,000 | | | | 210,835,000 | | | | — | | | | — | | | | 211,046,000 | |
Issuance of vested and nonvested restricted common stock | | | 17,500 | | | | — | | | | 35,000 | | | | — | | | | — | | | | 35,000 | |
Offering costs | | | — | | | | — | | | | (23,120,000 | ) | | | — | | | | — | | | | (23,120,000 | ) |
Amortization of nonvested common stock compensation | | | — | | | | — | | | | 61,000 | | | | — | | | | — | | | | 61,000 | |
Issuance of common stock under the DRIP | | | 281,381 | | | | 3,000 | | | | 2,670,000 | | | | — | | | | — | | | | 2,673,000 | |
Distributions | | | — | | | | — | | | | — | | | | — | | | | (7,250,000 | ) | | | (7,250,000 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (7,666,000 | ) | | | (7,666,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE — December 31, 2007 | | | 21,449,451 | | | | 214,000 | | | | 190,534,000 | | | | — | | | | (15,158,000 | ) | | | 175,590,000 | |
Issuance of common stock | | | 52,694,439 | | | | 528,000 | | | | 525,824,000 | | | | — | | | | — | | | | 526,352,000 | |
Issuance of vested and nonvested restricted common stock | | | 52,500 | | | | — | | | | 25,000 | | | | — | | | | — | | | | 25,000 | |
Offering costs | | | — | | | | — | | | | (55,146,000 | ) | | | — | | | | — | | | | (55,146,000 | ) |
Amortization of nonvested common stock compensation | | | — | | | | — | | | | 105,000 | | | | — | | | | — | | | | 105,000 | |
Issuance of common stock under the DRIP | | | 1,378,795 | | | | 14,000 | | | | 13,085,000 | | | | — | | | | — | | | | 13,099,000 | |
Repurchase of common stock | | | (109,748 | ) | | | (1,000 | ) | | | (1,076,000 | ) | | | — | | | | — | | | | (1,077,000 | ) |
Distributions | | | — | | | | — | | | | — | | | | — | | | | (31,180,000 | ) | | | (31,180,000 | ) |
Net loss | | | — | | | | — | | | | — | | | | — | | | | (28,448,000 | ) | | | (28,448,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
BALANCE — December 31, 2008 | | | 75,465,437 | | | $ | 755,000 | | | $ | 673,351,000 | | | $ | — | | | $ | (74,786,000 | ) | | $ | 599,320,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | Total Stockholders’ Equity |
| Number of Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | |
BALANCE — December 31, 2008 | 75,465,437 |
| | 755,000 |
| | 673,351,000 |
| | (74,786,000 | ) | | 599,320,000 |
|
Issuance of common stock | 62,696,254 |
| | 627,000 |
| | 622,025,000 |
| | — |
| | 622,652,000 |
|
Offering costs | — |
| | — |
| | (64,793,000 | ) | | — |
| | (64,793,000 | ) |
Issuance of restricted common stock | 100,000 |
| | — |
| | — |
| | — |
| | — |
|
Amortization of nonvested share-based compensation | — |
| | — |
| | 816,000 |
| | — |
| | 816,000 |
|
Issuance of common stock under the DRIP | 4,059,006 |
| | 40,000 |
| | 38,519,000 |
| | — |
| | 38,559,000 |
|
Repurchase of common stock | (1,730,011 | ) | | (17,000 | ) | | (16,249,000 | ) | | — |
| | (16,266,000 | ) |
Distributions | — |
| | — |
| | — |
| | (82,221,000 | ) | | (82,221,000 | ) |
Adjustment to redeemable noncontrolling interests | — |
| | — |
| | (1,673,000 | ) | | — |
| | (1,673,000 | ) |
Net loss attributable to controlling interest | — |
| | — |
| | — |
| | (25,077,000 | ) | | (25,077,000 | ) |
BALANCE — December 31, 2009 | 140,590,686 |
| | $ | 1,405,000 |
| | $ | 1,251,996,000 |
| | $ | (182,084,000 | ) | | $ | 1,071,317,000 |
|
Issuance of common stock | 61,191,096 |
| | 615,000 |
| | 594,062,000 |
| | — |
| | 594,677,000 |
|
Offering costs | — |
| | — |
| | (56,621,000 | ) | | — |
| | (56,621,000 | ) |
Issuance of restricted common stock | 357,500 |
| | — |
| | — |
| | — |
| | — |
|
Amortization of nonvested share-based compensation | — |
| | — |
| | 1,313,000 |
| | — |
| | 1,313,000 |
|
Issuance of common stock under the DRIP | 5,952,683 |
| | 60,000 |
| | 56,491,000 |
| | — |
| | 56,551,000 |
|
Repurchase of common stock | (5,448,260 | ) | | (54,000 | ) | | (51,802,000 | ) | | — |
| | (51,856,000 | ) |
Distributions | — |
| | — |
| | — |
| | (120,507,000 | ) | | (120,507,000 | ) |
Adjustment to redeemable noncontrolling interests | — |
| | — |
| | (26,000 | ) | | 301,000 |
| | 275,000 |
|
Net loss attributable to controlling interest | — |
| | — |
| | — |
| | (7,903,000 | ) | | (7,903,000 | ) |
BALANCE — December 31, 2010 | 202,643,705 |
| | $ | 2,026,000 |
| | $ | 1,795,413,000 |
| | $ | (310,193,000 | ) | | $ | 1,487,246,000 |
|
Issuance of common stock | 21,682,071 |
| | 216,000 |
| | 214,425,000 |
| | — |
| | 214,641,000 |
|
Offering costs | — |
| | — |
| | (18,896,000 | ) | | — |
| | (18,896,000 | ) |
Issuance of restricted common stock | 62,500 |
| | 1,000 |
| | (1,000 | ) | | — |
| | — |
|
Amortization of nonvested share-based compensation | — |
| | — |
| | 3,221,000 |
| | — |
| | 3,221,000 |
|
Issuance of common stock under the DRIP | 7,985,655 |
| | 80,000 |
| | 75,784,000 |
| | — |
| | 75,864,000 |
|
Repurchase of common stock | (3,882,619 | ) | | (39,000 | ) | | (37,641,000 | ) | | — |
| | (37,680,000 | ) |
Distributions | — |
| | — |
| | — |
| | (162,597,000 | ) | | (162,597,000 | ) |
Net income attributable to controlling interest | — |
| | — |
| | — |
| | 5,541,000 |
| | 5,541,000 |
|
BALANCE — December 31, 2011 | 228,491,312 |
| | $ | 2,284,000 |
| | $ | 2,032,305,000 |
| | $ | (467,249,000 | ) | | $ | 1,567,340,000 |
|
The accompanying notes are an integral part of these consolidated financial statements.
101
Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 20082011, 2010 and 2007 and for the Period from2009
|
| | | | | | | | | | | |
| | | | | |
| Years Ended December 31, |
| 2011 | | 2010 | | 2009 |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| | |
|
Net income (loss) | $ | 5,593,000 |
| | $ | (7,919,000 | ) | | $ | (24,773,000 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| | |
| | |
|
Depreciation and amortization (including deferred financing costs, above/below market leases, debt premium/discount, leasehold interests, deferred rent receivable, note receivable closing costs and discount, and lease inducements) | 104,045,000 |
| | 72,678,000 |
| | 48,808,000 |
|
Share-based compensation, net of forfeitures | 3,221,000 |
| | 1,313,000 |
| | 816,000 |
|
Loss on property insurance settlements | — |
| | — |
| | 6,000 |
|
Bad debt expense | 1,447,000 |
| | 1,022,000 |
| | 965,000 |
|
Change in fair value of derivative financial instruments | 856,000 |
| | (6,095,000 | ) | | (5,523,000 | ) |
Changes in operating assets and liabilities: | |
| | |
| | |
|
Accounts and other receivables, net | 2,424,000 |
| | (7,102,000 | ) | | (5,167,000 | ) |
Other assets | (5,388,000 | ) | | (3,207,000 | ) | | (3,332,000 | ) |
Accounts payable and accrued liabilities | 295,000 |
| | 7,815,000 |
| | 4,856,000 |
|
Accounts payable due to affiliates, net | — |
| | (4,776,000 | ) | | 3,631,000 |
|
Security deposits, prepaid rent and other liabilities | (686,000 | ) | | 4,774,000 |
| | 1,341,000 |
|
Net cash provided by operating activities | 111,807,000 |
| | 58,503,000 |
| | 21,628,000 |
|
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | |
| | |
|
Acquisition of real estate operating properties | (61,385,000 | ) | | (597,097,000 | ) | | (402,268,000 | ) |
Acquisition of real estate notes receivable | — |
| | — |
| | (37,135,000 | ) |
Acquisition costs related to real estate notes receivable | — |
| | — |
| | (555,000 | ) |
Capital expenditures | (16,034,000 | ) | | (14,888,000 | ) | | (9,060,000 | ) |
Restricted cash and escrow deposits | (4,502,000 | ) | | (12,614,000 | ) | | (6,318,000 | ) |
Release of restricted cash | 14,463,000 |
| | — |
| | — |
|
Real estate deposits | — |
| | (2,250,000 | ) | | (250,000 | ) |
Real estate deposits paid | (4,500,000 | ) | | — |
| | — |
|
Real estate deposits used | 6,000,000 |
| | — |
| | — |
|
Proceeds from insurance settlement | — |
| | — |
| | 481,000 |
|
Net cash used in investing activities | (65,958,000 | ) | | (626,849,000 | ) | | (455,105,000 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | |
| | |
|
Borrowings on mortgage loans payable and secured real estate term loan | 125,500,000 |
| | 79,125,000 |
| | 37,696,000 |
|
Purchase of noncontrolling interest | — |
| | (4,097,000 | ) | | — |
|
(Payments) borrowings under the unsecured revolving credit facility | (7,000,000 | ) | | 7,000,000 |
| | — |
|
Payments on mortgage loans payable and demand note | (192,083,000 | ) | | (123,117,000 | ) | | (11,671,000 | ) |
Derivative financial instrument termination payments | — |
| | (793,000 | ) | | — |
|
Proceeds from issuance of common stock | 214,641,000 |
| | 594,677,000 |
| | 622,652,000 |
|
Deferred financing costs | (3,401,000 | ) | | (7,507,000 | ) | | (792,000 | ) |
Security deposits | 596,000 |
| | 2,144,000 |
| | 767,000 |
|
Repurchase of common stock | (37,680,000 | ) | | (51,856,000 | ) | | (16,266,000 | ) |
Payment of offering costs | (21,137,000 | ) | | (56,621,000 | ) | | (68,360,000 | ) |
Distributions | (84,800,000 | ) | | (60,176,000 | ) | | (39,500,000 | ) |
Distributions to noncontrolling interest of limited partners | (264,000 | ) | | (164,000 | ) | | (379,000 | ) |
Net cash used in financing activities | (5,628,000 | ) | | 378,615,000 |
| | 524,147,000 |
|
NET CHANGE IN CASH AND CASH EQUIVALENTS | 40,221,000 |
| | (189,731,000 | ) | | 90,670,000 |
|
CASH AND CASH EQUIVALENTS — Beginning of period | 29,270,000 |
| | 219,001,000 |
| | 128,331,000 |
|
CASH AND CASH EQUIVALENTS — End of period | $ | 69,491,000 |
| | $ | 29,270,000 |
| | $ | 219,001,000 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | |
| | |
|
Cash paid for: | |
| | |
| | |
|
Interest | $ | 38,288,000 |
| | $ | 30,438,000 |
| | $ | 27,623,000 |
|
Income taxes | $ | 1,045,000 |
| | $ | 345,000 |
| | $ | 337,000 |
|
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: | |
| | |
| | |
|
Investing Activities: | |
| | |
| | |
|
Accrued capital expenditures | $ | 5,448,000 |
| | $ | 2,768,000 |
| | $ | 1,783,000 |
|
The following represents the significant increase in certain assets & liabilities in connection with our acquisitions of real estate investments & notes receivable: | |
| | |
| | |
|
Assumed mortgage loan payable, net | $ | 6,657,000 |
| | $ | 190,294,000 |
| | $ | 52,965,000 |
|
April 28, 2006 (Date
| | | | | | | | | | | | |
| | | | | | | | Period from
| |
| | | | | | | | April 28, 2006
| |
| | | | | | | | (Date of Inception)
| |
| | Years Ended December 31, | | | through
| |
| | 2008 | | | 2007 | | | December 31, 2006 | |
|
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | | | | |
Net loss | | $ | (28,448,000 | ) | | $ | (7,666,000 | ) | | $ | (242,000 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization (including deferred financing costs, above/below market leases, debt discount, leasehold interests, deferred rent receivable and lease inducements) | | | 35,617,000 | | | | 9,466,000 | | | | — | |
Stock based compensation, net of forfeitures | | | 130,000 | | | | 96,000 | | | | 51,000 | |
Loss on property insurance settlements | | | 90,000 | | | | — | | | | — | |
Bad debt expense | | | 442,000 | | | | — | | | | — | |
Change in fair value of derivative financial instruments | | | 12,822,000 | | | | 1,377,000 | | | | — | |
Minority interests | | | 39,000 | | | | (8,000 | ) | | | — | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Prepaid expenses | | | — | | | | — | | | | (180,000 | ) |
Accounts and other receivables, net | | | (4,261,000 | ) | | | (1,114,000 | ) | | | — | |
Other assets | | | (1,076,000 | ) | | | (655,000 | ) | | | (3,000 | ) |
Accounts payable and accrued liabilities | | | 5,578,000 | | | | 4,721,000 | | | | 62,000 | |
Accounts payable due to affiliates, net | | | (176,000 | ) | | | 927,000 | | | | 312,000 | |
Security deposits, prepaid rent and other liabilities | | | (80,000 | ) | | | (139,000 | ) | | | — | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 20,677,000 | | | | 7,005,000 | | | | — | |
| | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | |
Acquisition of real estate operating properties | | | (503,638,000 | ) | | | (380,398,000 | ) | | | — | |
Acquisition of real estate note receivables | | | (15,000,000 | ) | | | — | | | | — | |
Acquisition costs related to real estate note receivables | | | (338,000 | ) | | | — | | | | — | |
Capital expenditures | | | (4,478,000 | ) | | | (437,000 | ) | | | — | |
Restricted cash | | | (3,142,000 | ) | | | (4,605,000 | ) | | | — | |
Proceeds from insurance settlement | | | 121,000 | | | | — | | | | — | |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (526,475,000 | ) | | | (385,440,000 | ) | | | — | |
| | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
Borrowings on mortgage loan payables | | | 227,695,000 | | | | 148,906,000 | | | | — | |
Borrowings on unsecured note payables to affiliate | | | 6,000,000 | | | | 19,900,000 | | | | — | |
(Payments) borrowings under the line of credit, net | | | (51,801,000 | ) | | | 51,801,000 | | | | — | |
Payments on mortgage loan payables | | | (1,832,000 | ) | | | (151,000 | ) | | | — | |
Payments on unsecured note payables to affiliate | | | (6,000,000 | ) | | | (19,900,000 | ) | | | — | |
Proceeds from issuance of common stock | | | 528,816,000 | | | | 210,937,000 | | | | 2,000 | |
Deferred financing costs | | | (3,688,000 | ) | | | (2,496,000 | ) | | | — | |
Security deposits | | | 127,000 | | | | 35,000 | | | | — | |
Repurchase of common stock | | | (1,077,000 | ) | | | — | | | | — | |
Minority interest contributions to our operating partnership | | | — | | | | — | | | | 200,000 | |
Payment of offering costs | | | (54,339,000 | ) | | | (22,009,000 | ) | | | — | |
Distributions | | | (14,943,000 | ) | | | (3,323,000 | ) | | | — | |
Distributions to minority interest limited partner | | | (296,000 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Net cash provided by financing activities | | | 628,662,000 | | | | 383,700,000 | | | | 202,000 | |
| | | | | | | | | | | | |
NET CHANGE IN CASH AND CASH EQUIVALENTS | | | 122,864,000 | | | | 5,265,000 | | | | 202,000 | |
CASH AND CASH EQUIVALENTS — Beginning of period | | | 5,467,000 | | | | 202,000 | | | | — | |
| | | | | | | | | | | | |
CASH AND CASH EQUIVALENTS — End of period | | $ | 128,331,000 | | | $ | 5,467,000 | | | $ | 202,000 | |
| | | | | | | | | | | | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | | | | | | | |
Cash paid for: | | | | | | | | | | | | |
Interest | | $ | 19,323,000 | | | $ | 4,328,000 | | | $ | — | |
Income taxes | | $ | 45,000 | | | $ | 2,000 | | | $ | — | |
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: | | | | | | | | | | | | |
Investing Activities: | | | | | | | | | | | | |
Accrued capital expenditures | | $ | 2,112,000 | | | $ | 609,000 | | | $ | — | |
The following represents the increase in certain assets and liabilities in connection with our acquisitions of operating properties and note receivables: | | | | | | | | | | | | |
Accounts and other receivables, net | | $ | — | | | $ | 10,000 | | | $ | — | |
Other assets, net | | $ | 415,000 | | | $ | 715,000 | | | $ | — | |
Mortgage loan payables, net | | $ | 48,989,000 | | | $ | 37,039,000 | | | $ | — | |
Accounts payable and accrued liabilities | | $ | 2,542,000 | | | $ | 1,459,000 | | | $ | — | |
Accounts payable due to affiliates, net | | $ | 77,000 | | | $ | 5,000 | | | $ | — | |
Security deposits, prepaid rent and other liabilities | | $ | 2,416,000 | | | $ | 1,952,000 | | | $ | — | |
Minority interests | | $ | — | | | $ | 2,899,000 | | | $ | — | |
Financing Activities: | | | | | | | | | | | — | |
Issuance of common stock under the DRIP | | $ | 13,099,000 | | | $ | 2,673,000 | | | $ | — | |
Distributions declared but not paid | | $ | 4,393,000 | | | $ | 1,254,000 | | | $ | — | |
Accrued offering costs | | $ | 1,918,000 | | | $ | 1,111,000 | | | $ | — | |
Accrued deferred financing costs | | $ | 29,000 | | | $ | — | | | $ | — | |
Receivable from transfer agent for issuance of common stock | | $ | — | | | $ | 109,000 | | | $ | — | |
|
| | | | | | | | | | | |
Net change in security deposits, prepaid rent, and other liabilities | $ | — |
| | $ | 14,552,000 |
| | $ | — |
|
Issuance of operating partnership units in connection with Fannin acquisition | $ | — |
| | $ | 1,557,000 |
| | $ | — |
|
Financing Activities: | |
| | |
| | |
|
Issuance of common stock under the DRIP | $ | 75,864,000 |
| | $ | 56,551,000 |
| | $ | 38,559,000 |
|
Distributions declared but not paid including stock issued under the DRIP | $ | 14,120,000 |
| | $ | 12,317,000 |
| | $ | 8,555,000 |
|
Adjustment to redeemable noncontrolling interests | $ | — |
| | $ | (275,000 | ) | | $ | 1,673,000 |
|
The accompanying notes are an integral part of these consolidated financial statements.
102
Healthcare REIT,Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 20082011, 2010, and 2007 and for the Period from April 28, 2006
(Date of Inception) through December 31, 20062009
The use of the words “we,” “us” or “our” refers to Grubb & Ellis Healthcare REIT,Trust of America, Inc. and its subsidiaries, including Grubb & Ellis Healthcare REITTrust of America Holdings, L.P.,LP, except where the context otherwise requires.
| |
1. | Organization and Description of Business |
Grubb & Ellis Healthcare REIT,Trust of America, Inc., a Maryland corporation, was incorporated on April 20, 2006.2006. We were initially capitalized on April 28, 2006 and therefore we consider that to be our date of inception.
We are a fully integrated, self-administered, and self-managed real estate investment trust, or REIT. Accordingly, our internal management team manages our day-to-day operations and oversees and supervises our employees and outside service providers. Acquisitions and asset management services are performed in-house by our employees, with certain monitored services provided by third parties at market rates. We do not pay acquisition, disposition, or asset management fees to an external advisor, and we have not and will not pay any internalization fees.
We provide stockholders the potential for income and growth through investment in a diversified portfolio of real estate properties, focusingproperties. We focus primarily on medical office buildings and other facilities that serve the healthcare related facilities.industry. We may also invest to a limited extent in other real estate relatedestate-related assets, such as mortgage loans receivable. However, we do not presently intend to invest more than 15.0% of our total assets in such other real estate-related assets. We focus primarily on investments that produce recurring income. WeSubject to the discussion in Note 11, Commitments and Contingencies, we believe that we have qualified and elected to be taxed as a real estate investment trust, or REIT under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes and we intend to continue to be taxed as a REIT. We conduct substantially all of our operations through Healthcare Trust of America Holdings, LP, or our operating partnership.
As of December 31, 2011, we had made 79 portfolio acquisitions, which includes 248 buildings and two mortgage loans receivable. The aggregate purchase price of these acquisitions was $2,334,673,000.
We are conductingOn September 20, 2006, we commenced a best efforts initial public offering, or our initial offering, in which we are offeringoffered up to 200,000,000 shares of our common stock for $10.00$10.00 per share and up to 21,052,632 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, for $9.50at $9.50 per share, aggregating up to $2,200,000,000.$2,200,000,000. On March 19, 2010, we commenced a best efforts follow-on public offering, or our follow-on offering, in which we offered up to 200,000,000 shares of our common stock for $10.00 per share in our primary offering and up to 21,052,632 shares of our common stock pursuant to the DRIP at $9.50 per share, aggregating up to $2,200,000,000. We will sellstopped offering shares in ourthe primary offering untilon February 28, 2011. We continue to offer shares pursuant to the earlier of September 20, 2009, orDRIP; however, we may terminate the date on which the maximum amount has been sold. As of December 31, 2008,DRIP at any time. In aggregate, we had received and accepted subscriptions in our offeringinitial and follow-on offerings for 73,824,809220,673,545 shares of our common stock, or $737,398,000,$2,195,655,000, excluding shares of our common stock issued under the DRIP.
Our principal executive offices are located 16435 N. Scottsdale Road, Suite 320, Scottsdale, Arizona, 85254. Our telephone number is (480) 998-3478. For investor services, contact DST Systems, Inc. by telephone at (888) 801-0107.
We conduct substantially all of our operations through Grubb & Ellis Healthcare REIT Holdings, L.P., or our operating partnership. We are currently externally advised by Grubb & Ellis Healthcare REIT Advisor, LLC, or our advisor, pursuant to an advisory agreement, as amended and restated on November 14, 2008 and effective as of October 24, 2008, or the Advisory Agreement, between us, our advisor and Grubb & Ellis Realty Investors, LLC, or Grubb & Ellis Realty Investors, who is the managing member of our advisor. Our advisor is affiliated with us in that we and our advisor have a common officer, who also owns an indirect equity interest in our advisor. Our advisor engages affiliated entities, including Triple Net Properties Realty, Inc., or Realty, and Grubb & Ellis Management Services, Inc. to provide various services to us, including property management services.
The Advisory Agreement expires on September 20, 2009. Our main objectives in amending the Advisory Agreement on November 14, 2008 were to reduce acquisition and asset management fees and to set the framework for our transition to self-management. Under the Advisory Agreement, as amended November 14, 2008, our advisor agreed to use reasonable efforts to cooperate with us as we pursue aself-management program. Upon or prior to completion of our transition to self-management and/or the termination of the Advisory Agreement, we will no longer be advised by our advisor or consider our company to be sponsored by Grubb & Ellis Company, or Grubb & Ellis.
Self-management is a corporate model based on internal management rather than external management. In general, non-traded REITs are externally managed. With external management, a REIT is dependent upon an external advisor. An externally-managed REIT typically pays acquisition fees, asset management fees, property management fees and other fees to its advisor for services provided as we do under our Advisory Agreement. In contrast, under our self-management program, we will be managed internally by our management team led by Scott D. Peters, our Chief Executive Officer, President and Chairman of the board of directors, under the direction of our board of directors. With a self-managed REIT, fees paid to third parties are expected to be substantially reduced. By pursuing self-management, we have effectively eliminated the potential need for us to pay any fee to our advisor in the future to “internalize” certain of the functions that
103
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
they currently provide to us. The Advisory Agreement, as amended November 14, 2008, recognizes our self-management as the alternative to internalization.
The Advisory Agreement, as amended November 14, 2008, also resulted in the substantial reduction of the acquisition fees and the asset management fees payable to our advisor, potentially offsetting the various costs of self-management. Upon completion of our transition to self-management, we will no longer be advised by our advisor or consider our company to be sponsored by Grubb & Ellis Company, or Grubb & Ellis.
On December 7, 2007, NNN Realty Advisors, Inc., or NNN Realty Advisors, which previously served as our sponsor, merged with and into a wholly owned subsidiary of Grubb & Ellis. The transaction was structured as a reverse merger whereby stockholders of NNN Realty Advisors received shares of common stock of Grubb & Ellis in exchange for their NNN Realty Advisors shares of common stock and, immediately following the merger, former NNN Realty Advisor stockholders held approximately 59.5% of the common stock of Grubb & Ellis. As a result of the merger, we consider Grubb & Ellis to be our sponsor. Following the merger, NNN Healthcare/Office REIT, Inc., NNN Healthcare/Office REIT Holdings, L.P., NNN Healthcare/Office REIT Advisor, LLC, NNN Healthcare/Office Management, LLC, Triple Net Properties, LLC and NNN Capital Corp. changed their names to Grubb & Ellis Healthcare REIT, Inc., Grubb & Ellis Healthcare REIT Holdings, L.P., Grubb & Ellis Healthcare REIT Advisor, LLC, Grubb & Ellis Healthcare Management, LLC, Grubb & Ellis Realty Investors, LLC and Grubb & Ellis Securities, Inc., respectively.
As of December 31, 2008, we owned 41 geographically diverse properties comprising 5,156,000 square feet of gross leasable area, or GLA, and one real estate related asset, for an aggregate purchase price of $966,416,000.
| |
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 financial statements and the accompanying notes are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have 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 operating partnership, the wholly ownedwholly-owned subsidiaries of our operating partnership and any variable interest entities, or VIEs, as defined in the Financial Accounting Standards Board, Interpretation, or FIN, No. 46,Consolidation of Variable Interest Entities, an Interpretation ofthe FASB, Accounting Research Bulletin No. 51,as revised,Standard Codification, or FIN No. 46(R)ASC, 810, Consolidation, that weor ASC 810. All significant intercompany balances and transactions have concluded should be consolidated.been eliminated in the consolidated financial statements. We operate and intend to continue to operate in an umbrella partnership REIT, or UPREIT, structure in which our operating partnership, or wholly ownedwholly-owned subsidiaries of our operating partnership own substantially all of the properties we acquire.acquired on our behalf. We are the sole general partner of our operating partnership and as of December 31, 20082011 and 2007,December 31, 2010, we owned a 99.99%an approximately 99.93% and an approximately 99.92%, respectively, general partnershippartner interest in our operating partnership. Our advisor is a limited partnerAs of December 31, 2011 and 2010, approximately 0.07% and 0.08%, respectively, of our operating partnership and aswas owned by certain physician investors who obtained limited partner interests in connection with the Fannin acquisition (see Note 13).
Healthcare Trust of December 31, 2008 and 2007, owned a 0.01% limited partnership interest in our operating partnership. Our advisor is also entitled to certain subordinated distribution rights under the partnership agreement for our operating partnership. America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our operating partnership), the accounts of our operating partnership are consolidated in our consolidated financial statements. All significant intercompany accounts
In our previously issued statements of operations for the years ended December 31, 2010 and transactions2009, interest expense related to our derivative financial instruments in the amounts of $8,911,000 and $10,201,000, respectively, was presented within the line item entitled "Interest expense related to mortgage loans payable, credit facility, and derivative instruments". These amounts have been reclassified to conform to current-period presentation and are eliminatednow included within the line item entitled "Interest expense related to derivative financial instruments and net change in consolidation.
104
fair value of derivative financial instruments" in our consolidated statements of operations.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 on-going 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 material adverse ways, and those estimates could be different under different assumptions or conditions.
Cash and Cash Equivalents
Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased.
Restricted Cash
Restricted cash is comprised of impound reserve accounts for property taxes, insurance, capital improvements and tenant improvements.improvements as well as collateral accounts for debt and interest rate swaps.
Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts
In accordance with Statement of Financial Accounting Standards, or SFAS No. 13,Accounting for ASC 840, Leases, or SFAS No. 13, as amended and interpreted,ASC 840, 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 will be credited or charged, as applicable, to rent receivable. Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Tenant reimbursements are recognized and presented in accordance with Emerging Issues Task Force, or EITF, IssueASC 605-45, No. 99-19,Reporting Revenue Gross as a— Principal versus Net as an Agent, or Issue ConsiderationsNo. 99-19. IssueNo. 99-19. This guidance requires that these reimbursements be recorded on a gross basis, as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have credit risk. We recognize lease termination fees if 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 recorded on lease inducements.
Tenant receivables and unbilled deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and unbilled deferred rent. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements.leases. We maintain an allowance for deferred rent receivables arising from the straight-lining of rents. Such allowance is charged to bad debt expense which is included in general and administrative expense on our accompanying consolidated statement of operations. 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, 20082011, 2010, and 2007,2009, we had $416,000$1,498,000, $1,926,000 and $7,000,$1,222,000, respectively, in allowances for uncollectible accounts as determined to be necessary to reduce receivables to our estimate of the amount recoverable. During the years ended December 31, 20082011, 2010 and 2007, $442,0002009, $1,447,000, $1,022,000 and $11,000,$965,000, respectively, of receivables was directly written off to bad debt expense. For the period from April 28, 2006 (Date of Inception) through December 31, 2006, there was no bad debt expense recorded.
105
Grubb & Ellis Healthcare REIT, Inc.
Purchase Price Allocation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Properties Held for Sale
We account for our properties held for sale in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long Lived Assets, or SFAS No. 144, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and requires that, in a period in which a component of an entity either has been disposed of or is classified as held for sale, the statements of operations for current and prior periods shall report the results of operations of the component as discontinued operations.
In accordance with SFAS No. 144, at such time as a property is held for sale, such property is carried at the lower of: (1) its carrying amountASC 805, Business Combinations, or (2) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We classify operating properties as property held for sale in the period in which all of the following criteria are met:
| | |
| • | management, having the authority to approve the action, commits to a plan to sell the asset; |
|
| • | the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; |
|
| • | an active program to locate a buyer and other actions required to complete the plan to sell the asset has been initiated; |
|
| • | the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year; |
|
| • | the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and |
|
| • | given the actions required to complete the plan to sell the asset, it is unlikely that significant changes to the plan would be made or that the plan would be withdrawn. |
As of December 31, 2008 and 2007, we did not have any properties held for sale.
Purchase Price Allocation
In accordance with SFAS, No. 141,Business Combinations,ASC 805, we, with the assistance of independent valuation specialists, allocate the purchase price of acquired properties to tangible and identified intangible assets and liabilities based on their respective fair values. The allocation to tangible assets (building and land) is based upon our determination of the value of the property as if it were to be replaced and vacant using discounted cash flow models similar to those used by independent
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
appraisers. Factors considered by us include an estimate of carrying costs during the expectedlease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in place leases, the value of in place leases, tenant relationships and above or below market debt assumed.
The value allocable to the above or below market component of the acquired in place 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: (1) the contractual amounts to be paid pursuant to the lease over its remaining term, and (2) 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, with respect to a below market lease. The amounts allocated to above market leases are included in identified intangible assets, net in our accompanying consolidated balance sheets and amortized to rental income over the remaining non-cancelable lease term of the acquired leases with each property. The amounts allocated to below market lease values are included in identified intangible liabilities, net in our accompanying consolidated balance sheets and amortized to rental income over the remaining non-cancelable lease term plus any below market renewal options of the acquired leases with each property.
106
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The total amount of other intangible assets acquired is further allocated to in place lease costs and the value of 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 allocated to in place lease costs are included in identified intangible assets, net in our accompanying consolidated balance sheets and will be amortized over the average remaining non-cancelable lease term of the acquired leases with each property. The amounts allocated to the value of tenant relationships are included in identified intangible assets, net in our accompanying consolidated balance sheets and are amortized over the average remaining non-cancelable lease term of the acquired leases plus a market lease term.
The value allocable to 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 allocated to above or below market debt are included in mortgage loan payables,loans payable, net on our accompanying consolidated balance sheets and are amortized to interest expense over the remaining term of the assumed mortgage.
These allocations are subject to change based on information received within one year of the purchase related to one or more events identified at the time of purchase which confirm the value of an asset or liability received in an acquisition of property.
On January 1, 2009, in accordance with the provisions of ASC 805, Business Combinations, we began to expense acquisition-related costs for acquisitions. Prior to this date, acquisition-related expenses had been capitalized as part of the purchase price allocations. We expensed $2,130,000, $11,317,000 and $15,997,000 for acquisition related expenses during the years ended December 31, 2011, 2010, and 2009 respectively.
Operating Properties,Real Estate Investments, Net
Operating properties are carried at the lower of historical cost less accumulated depreciation or fair value less costs to sell. The cost of operating properties includes the cost of land and completed 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 241240 months, respectively. Furniture, fixtures and equipment is depreciated over five years. When depreciable property is retired, replaced or disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reflected in operations.
Investment in Real Estate Held-for-Sale
We evaluate the held-for-sale classification of our owned real estate each quarter. Assets that are classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. The fair value is 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. Assets are generally classified as held-for-sale once management commits to a plan to sell the properties and has determined that the sale of the asset is probable and transfer of the asset is expected to occur within one year. The results of operations of these real estate properties are reflected as discontinued operations in all periods reported, and the properties are presented separately on our balance sheet at the lower of their carrying value or their fair value less costs to sell. As of December 31, 2011, we determined that no building within our portfolio should be classified as held-for-sale.
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Recoverability of Real Estate Investments
An operating property is evaluated for potential impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Impairment losses are recorded on an operating property when indicators of impairment are present and the carrying amount of the asset is greater than the sum of the future undiscounted cash flows expected to be generated by that asset. We would recognize an impairment loss to the extent the carrying amount exceeded the fair value of the property. The fair value of the property is based on discounted cash flow analyses, which involve management’s best estimate of market participants’ holding periods, market comparables, future occupancy levels, rental rates, capitalization rates, lease-up periods, and capital requirements. For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, there were no impairment losses recorded.
Real Estate Notes Receivable, Net
Real estate notes receivable consist of mortgage loans. Interest income from loans is recognized as earned based upon the principal amount outstanding. Mortgage loans are collateralized by interests in real property. We record loans at cost. We evaluate the collectability of both interest and principal for each of our loans to determine whether they are impaired. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of the allowance is calculated by comparing the recorded investment to either the value determined by discounting the expected future cash flows using the loans effective interest rate or to the fair value of the collateral if the loan is collateral dependent.
Derivative Financial Instruments
We are exposed to the effect of interest rate changes 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 and caps, to effectively convert a portion of our variable-ratevariable rate debt to fixed-ratefixed rate debt. We do not enter into derivative instruments for speculative purposes.
Derivatives are recognized as either assets or liabilities in our consolidated balance sheets and are measured at fair value in accordance with SFAS No. 133,Derivative InstrumentsASC 815, Derivatives and Hedging, Activities,or
107
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
SFAS No. 133. ASC 815. Since our derivative instruments are not designated as hedge instruments, they do not qualify for hedge accounting under SFAS No. 133,ASC 815, and accordingly, changes in fair value are included as a component of interest expense in our consolidated statements of operations in the period of change.
Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures,
On January 1, 2008, we adopted SFAS No. 157,Fair Value Measurements, or SFAS No. 157. SFAS No. 157ASC 820, defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. We have provided these disclosures in Note 15, Fair Value of Financial Instruments.
SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Other Assets, Net
Other assets consist primarily of deferred rent receivables, lease inducements, leasing commissions, prepaid expenses, deposits and deferred financing costs. Costs incurred for property leasing have been capitalized as deferred assets. Deferred leasing costs include leasing commissions that are amortized using the straight-line method over the term of the related lease. Deferred financing costs include amounts paid to lenders and others to obtain financing. Such costs are amortized using the straight-line method over the term of the related loan, which approximates the effective interest rate method. Amortization of deferred financing costs is included in interest expense in our accompanying consolidated statements of operations. This section also includes depreciation of fixed assets not associated with our portfolio of properties.
Stock Compensation
We follow ASC 718, Compensation — Stock Compensation
We follow SFAS No. 123(R),Share-Based Payment, to account for our stock compensation pursuant to our 2006 Incentive Plan and the 2006 Independent Directors Compensation Plan, a sub-plan of our 2006 Incentive Plan. See Note 14, Stockholders’ Equity (Deficit) — 2006 Incentive Plan and Independent Directors Compensation Plan, for a further discussion of grants under our 2006 Incentive Plan.
108
Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Redeemable Noncontrolling Interests
Minority Interests
MinorityRedeemable noncontrolling interests relate to the interests in our consolidated entities that are not wholly owned by us. As these redeemable noncontrolling interests provide for redemption features not solely within the control of the issuer, we classify such interests outside of permanent equity in accordance with ASC 480-10, Distinguishing Liabilities from Equity.
Income Taxes
WeSubject to the discussion in Note 11, Commitments and Contingencies, regarding the closing agreement that we have entered into with the IRS, we believe that we have qualified and elected to be taxed as a REIT beginning with our taxable year ended December 31, 2007 under Sections 856 through 860 of the Code, for federal income tax purposes and we intend to continue to qualify to be taxed as a REIT. To continue to qualify as a REIT for federal income tax purposes, we must meet certain organizational and operational requirements, including a requirement to pay distributions to our stockholders of at least 90.0% of our annual taxable income (computed without regard to the dividends paid deduction and excluding net capital gain). As a REIT, we generally are not subject to federal income tax on net income that we distribute to our stockholders.
If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could have a material adverse effect on our results of operations and net cash available for distribution to stockholders.
In July 2006, the Financial Accounting Standards Board, or the FASB, issued Interpretation No. 48,Accounting for Uncertainty inWe follow ASC 740-10, Income Taxes, or FIN No. 48. We adopted FIN No. 48 effective January 1, 2007,ASC 740-10, and as a result we did not have any liability for uncertain tax positions that we believe should be recognized in our consolidated financial statements. We follow FIN No. 48requires us to recognize, measure, present and disclose in our consolidated financial statements uncertain tax positions that we have taken or expect to take on aon. We do not have any liability for uncertain tax return.positions that we believe should be recognized in our consolidated financial statements.
Segment Disclosure
ASC 280, Segment DisclosureReporting
The Financial Accounting Standards Board,, or FASB, issued Statement of Financial Accounting Standards, SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information,ASC 280, which establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments.segment. We have determined that we have one reportable segment, with activities related to investing in medical office buildings, healthcare relatedhealthcare-related facilities, quality commercial office properties and other real estateestate- related assets. Our investments in real estate and other real estate relatedestate-related assets are geographically diversified and managementour chief operating decision maker evaluates operating performance on an individual portfolioasset level. However, asAs each of our assets has similar economic characteristics, tenants, and products and services, our assets have been aggregated into one reportable segment for the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006.segment.
Recently Issued Accounting Pronouncements
Below are the recently issued accounting pronouncements and our evaluation of the impact of such pronouncements.
Fair Value Pronouncements
In September 2006,January 2010, the FASB issued SFAS No. 157,Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820), or ASU 2010-06, which will be appliedprovides amendments to other accounting pronouncementsSubtopic 820-10 that require or permit fair value measurements, defines fair value, establishes a framework for measuring fair valuenew disclosures and that clarify existing disclosures in generally accepted accounting principlesorder to increase transparency in financial reporting with regard to recurring and provides for expanded disclosure aboutnonrecurring fair value measurements. SFAS No. 157 was issuedASU 2010-06 requires new disclosures with respect to increase consistencythe amounts of significant transfers in and comparability inout of Level 1 and Level 2 fair value measurements and the reasons for those transfers, as well as separate presentation about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). In addition, ASU 2010-06 provides amendments that clarify existing disclosures, requiring a reporting entity to expandprovide fair value measurement disclosures for each class of assets and liabilities as well as disclosures about the valuation techniques and inputs used to measure fair value measurements. In February 2008, the FASB issued FASB Staff Position, or FSP,SFAS No. 157-1,Application of FASB Statement No. 157 to FASB Statement No. 13for both recurring and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13,or FSPFAS No. 157-1. FSPSFAS No. 157-1 excludes from the scope of SFAS No. 157 certain leasing transactions accounted for under SFAS No. 13,Accounting for Leases. In February 2008, the FASB also issued FSPSFAS No. 157-2,Effective Date of FASB Statement
109
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
No. 157,or FSPSFAS No. 157-2. FSPSFAS No. 157-2 defers the effective date of SFAS No. 157 for allnon-financial assets and non-financial liabilities, except those that are recognized or disclosed atnonrecurring fair value measurements that fall in either Level 2 or Level 3. Finally, ASU 2010-06 amends guidance on employers’ disclosures about postretirement benefit plan assets under ASC 715 to require that disclosures be provided by classes of assets instead of by major categories of assets. ASU 2010-06 is effective for the interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the financial statements on a recurring basis, torollforward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after November 1, 2008. In October 2008, the FASB issued FSPSFAS No. 157-3,Determining the Fair Value of a Financial Asset When the MarketDecember 15, 2010. Accordingly, ASU 2010-06 became effective for That Asset Is Not Active,or FSPSFAS No. 157-3. FSPSFAS No. 157-3 amends SFAS No. 157 by providing an example to illustrate key considerations and the emphasis on measurement principles when applying SFAS No. 157 to financial assets when the market for those financial assets is not active. We adopted SFAS No. 157 and FSPSFAS 157-1 on a prospective basisus on January 1, 2008.2010 (except for the Level 3 activity disclosures, which became effective for us on January 1, 2011). The adoption of SFAS No. 157 and FSPSFAS No. 157-1 didASU 2010-06 has not havehad a material impact on our consolidated financial statements exceptstatements.
In May 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (Included in ASC 820, Fair Value Measurement), or ASU 2011-04, which amends existing guidance to provide common fair value measurements and related disclosure requirements between GAAP and International Financial Reporting Standards, or IFRS. Additional disclosure requirements in the
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
amendment include: (1) for Level 3 fair value measurements, a description of the valuation processes used by the entity and a discussion of the sensitivity of the fair value measurements to changes in unobservable inputs; (2) discussion of the use of a nonfinancial asset that differs from the asset's highest and best use; and (3) the level of the fair value hierarchy of financial instruments for items that are not measured at fair value but for which disclosure of fair value is required. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011, with regards to enhanced disclosures (see Note 8, Derivative Financial Instruments).early adoption not permitted. We adopted FSPSFAS No. 157-3 upon issuance, which did notwill adopt ASU 2011-04 in fiscal 2012. We are currently evaluating the impact ASU 2011-04 will have a material impact on our consolidated financial statements. We adopted FSPSFAS No. 157-2 on a prospective basis on January 1, 2009. The implementation of FSPSFAS No. FAS 157-2 did not have and is not anticipated to have a material effect on the methods or processes we use to value these non-financial assets and non-financial liabilities or information disclosed.
Business Combination Pronouncements
In February 2007,On December 21, 2010, the FASB issued SFAS No. 159,ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations, to address differences in the ways entities have interpreted the requirements of ASC 805, Business Combinations, or ASC 805, for disclosures about pro forma revenue and earnings in a business combination. The Fair Value Option for Financial AssetsASU states that “if a public entity presents comparative financial statements, the entity should disclose revenue and Financial Liabilities,or SFAS No. 159. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objectiveearnings of the guidance is to improve financial reporting by providing entities withcombined entity as though the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. We adopted SFAS No. 159 on a prospective basis on January 1, 2008. The adoption of SFAS No. 159 did not have a material impact on our consolidated financial statements since we did not elect to applybusiness combination(s) that occurred during the fair value option for any of our eligible financial instruments or other items on the January 1, 2008 effective date.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, or SFAS No. 141(R), and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51, or SFAS No. 160. SFAS No. 141(R) and SFAS No. 160 will significantly change the accounting for, and reporting of, business combination transactions and noncontrolling (minority) interests in consolidated financial statements. SFAS No. 141(R) requires an acquiring entity to recognize acquired assets and liabilities assumed in a transaction at fair valuecurrent year had occurred as of the acquisition date, changesbeginning of the disclosure requirements for business combination transactionscomparable prior annual reporting period only.” In addition, the ASU “expand[s] the supplemental pro forma disclosures under ASC 805 to include a description of the nature and changes the accounting treatment for certain items, including contingent consideration agreements which will be required to be recorded at acquisition date fair value and acquisition costs which will be required to be expensed as incurred. SFAS No. 160 requires that noncontrolling interests be presented as a component of consolidated stockholders’ equity, eliminates minority interest accounting such that the amount of net incomematerial, nonrecurring pro forma adjustments directly attributable to the noncontrolling interests will be presented as part of consolidated net income in our accompanying consolidated statements of operations and not as a separate component of income and expense, and requires that upon any changes in ownership that resultbusiness combination included in the loss of control of the subsidiary, the noncontrolling interest be re-measured at fair value with the resultant gain or loss recordedreported pro forma revenue and earnings.” The amendments in net income. SFAS No. 141(R) and SFAS No. 160 require simultaneous adoption andthis ASU are to be appliedeffective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption of either standard was prohibited. We have adopted SFAS No. 141(R) and SFAS No. 160 on a prospective basis on January 1, 2009.2010. The adoption of SFAS No. 160 isASU 2010-29 has not expected to have a material impact on our consolidated statements of operations or cash flows. However, we are currently evaluating whether the adoption of SFAS No. 160 could have a material impact on the consolidated balance sheets and statements of stockholders’ equity. The adoption of SFAS No. 141(R) will have a material impact on our results of operations when we acquire real estate properties.
In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, or SFAS No. 161. SFAS No. 161 is intended to improve financial reporting about derivative
110
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, SFAS No. 161 requires cross-referencing within footnotes to enable financial statement users to locate important information about derivative instruments. SFAS No. 161 is effective for quarterly interim periods beginning after November 15, 2008, and fiscal years that include those quarterly interim periods with early application encouraged. We adopted SFAS No. 161 on a prospective basis on January 1, 2009. The adoption of SFAS No. 161 did not havehad a material impact on our consolidated financial statements.
Other Pronouncements
In April 2008,December 2011, the FASB issued FSPASU 2011-11, SFAS No. 142-3,Balance Sheet Determination(Topic 210) Disclosures about Offsetting Assets and Liabilities, or ASU 2011-11, the intention of which is to enhance current disclosures with respect to offsetting (netting) assets and liabilities and to minimize differences in presentation on the Useful Lifestatement of Intangible Assets,financial position prepared in accordance with U.S. GAAP as compared to the statement of financial position prepared in accordance with International Financial Reporting Standards, or FSPSFAS No. 142-3. FSPSFAS No. 142-3 is intendedIFRS. Entities are required to improvedisclose both gross information and net information about both instruments and transactions eligible for offset in the consistency between the useful lifestatement of recognized intangible assets under SFAS No. 142,Goodwillfinancial position and Other Intangible Assets,or SFAS No. 142,instruments and the period of expected cash flows usedtransactions subject to measure the fair value of the assets under SFAS No. 141(R). FSPSFAS No. 142-3 amends the factors an entity should consideragreement similar to a master netting agreement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments in developing renewal or extension assumptions in determining the useful life of recognized intangible assets. FSPSFAS No. 142-3 requiresASU 2011-11 will require an entity to considerprovide enhanced disclosures of information about offsetting and related arrangements to enable users of its own historical experience in renewing or extending similar arrangements, or to consider market participant assumptions consistent with the highest and best use of the assets if relevant historical experience does not exist. In addition to the required disclosures under SFAS No. 142, FSPSFAS No. 142-3 requires disclosure of the entity’s accounting policy regarding costs incurred to renew or extend the term of recognized intangible assets, the weighted average period to the next renewal or extension, and the total amount of capitalized costs incurred to renew or extend the term of recognized intangible assets. FSPSFAS No. 142-3 is effective for financial statements issuedto understand the effect of those arrangements on its financial position. Entities are required to apply the amendments for fiscal yearsannual reporting periods beginning on or after January 1, 2013, and interim periods beginning after December 15, 2008. Whilewithin those annual periods. An entity must provide the standarddisclosures required by those amendments retrospectively for determiningall comparative periods presented. We will adopt ASU 2011-11 in fiscal 2013. We are currently evaluating the useful life of recognized intangible assets is to be applied prospectively only to intangible assets acquired after the effective date, the disclosure requirements shall be applied prospectively to all recognized intangible assets as of, and subsequent to, the effective date. Early adoption is prohibited. Weimpact ASU 2011-11 will have adopted FSPSFAS No. 142-3 on a prospective basis on January 1, 2009. The adoption of FSPSFAS No. 142-3 did not have a material impact on our consolidated financial statements.
3. Real Estate Investments, Net
In June 2008, the FASB issued FSP Emerging Issues Task Force, or EITF, IssueNo. 03-6-1,Determining Whether Instruments GrantedInvestment in Share-Based Payment Transactions Are Participating Securities,or FSP EITFNo. 03-6-1. FSP EITFNo. 03-6-1 addresses whether instruments granted by an entity in share-based payment transactions should be considered as participating securities prior to vesting and, therefore, should be included in the earnings allocation in computing earnings per share under the two-class method described in paragraphs 60 and 61 of FASB Statement No. 128,Earnings per Share.FSP EITFNo. 03-6-1 clarifies that instruments granted in share-based payment transactions can be participating securities prior to vesting (that is, awards for which the requisite service had not yet been rendered). Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITFNo. 03-6-1 requires us to retrospectively adjust our earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform to the provisions of FSP EITFNo. 03-6-1. FSP EITFNo. 03-6-1 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. FSP EITFNo. 03-6-1 is effective for quarterly interim periods beginning after December 15, 2008, and fiscal years that include those quarterly interim periods. Early adoption was prohibited. We have adopted FSP EITFNo. 03-6-1 on a prospective basis on January 1, 2009. The adoption of FSP EITFNo. 03-6-1 did not have a material impact on our consolidated financial statements because we do not have any material share-based payment transactions.
111
Operating Properties
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
3. | Real Estate Investments |
Our investments in our consolidated properties consisted of the following as of December 31, 20082011 and 2007:2010:
| | | | | | | | |
| | December 31, | |
| | 2008 | | | 2007 | |
|
Land | | $ | 107,389,000 | | | $ | 52,428,000 | |
Building and improvements | | | 728,171,000 | | | | 305,150,000 | |
Furniture and equipment | | | 10,000 | | | | 5,000 | |
| | | | | | | | |
| | | 835,570,000 | | | | 357,583,000 | |
| | | | | | | | |
Less: accumulated depreciation | | | (24,650,000 | ) | | | (4,589,000 | ) |
| | | | | | | | |
| | $ | 810,920,000 | | | $ | 352,994,000 | |
| | | | | | | | |
|
| | | | | | | |
| December 31, |
| 2011 | | 2010 |
Land | $ | 168,065,000 |
| | $ | 167,123,000 |
|
Building and improvements | 1,803,174,000 |
| | 1,735,453,000 |
|
Furniture and equipment | 15,000 |
| | 10,000 |
|
| 1,971,254,000 |
| | 1,902,586,000 |
|
Less: accumulated depreciation | (164,783,000 | ) | | (105,123,000 | ) |
Total | $ | 1,806,471,000 |
| | $ | 1,797,463,000 |
|
Depreciation expense related to our portfolio of properties for the years ended December 31, 2011, 2010, and 2009 was $65,053,000, $48,724,000, and $32,456,000, respectively. Additionally, for the years ended December 31, 20082011, 2010, and 20072009, we recorded $513,000, $105,000, and for the period from April 28, 2006 (Date$31,000, respectively, in depreciation expense related to furniture and equipment used in our corporate and regional offices.
Healthcare Trust of Inception) throughAmerica, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At December 31, 20062010, we determined that four buildings within our Senior Care 1 portfolio, which is a portfolio consisting of six buildings located in various cities throughout Texas and California, met the criteria for classification as held for sale properties. Accordingly, we separately presented the assets and liabilities of these buildings on our consolidated balance sheet and included the operations of such properties within discontinued operations on our consolidated statement of operations for all periods presented. Additionally, we ceased recording depreciation and amortization related to these properties following their held for sale designation. During the third quarter of 2011, further communication with the potential buyer indicated that the buyer was $20,487,000, $4,616,000not going to purchase the properties, and $0, respectively.we were not actively marketing these properties for sale to other third parties.
Based on these circumstances, on September 30, 2011, we deemed it appropriate to reclassify the assets and liabilities of these properties out of held for sale on our consolidated balance sheet and to include the results of their operations within those of our operating properties on our consolidated statement of operations for all periods presented. We measured the assets to be reclassified at the lower of their carrying amounts before they were classified as held for sale (adjusted for any depreciation and amortization expense that would have been recognized had the assets been continuously classified as held and used) or their fair value at the date of the subsequent decision not to sell. As a result of this reclassification, on September 30, 2011, we recorded catch-up depreciation and amortization expense of $851,000, which represented depreciation and amortization on these properties from January 1, 2011 through September 30, 2011.
Property Acquisitions in 20082011
During the year ended December 31, 2008,2011, we completed the acquisition of 21 properties.two new property portfolios as well as purchased additional buildings within two of our existing portfolios. The aggregate purchase price of these properties was $542,976,000,$68,314,000. See Note 18, Business Combinations, for the allocation of which $254,135,000 was initially financed through our secured revolving linethe purchase price of credit with LaSalle Bank National Association, or LaSalle,the acquired properties to tangible assets and KeyBank National Association, or KeyBank, or our secured revolving line of credit with LaSalleto identified intangible assets and KeyBank (see Note 9), and $6,000,000 was initially financed through an unsecured note payable to NNN Realty Advisors (see Note 7).liabilities based on their respective fair values. A portion of the aggregate purchase price for these acquisitions was also initially financed or subsequently secured by $278,477,000$6,581,000 in mortgage loan payables. We paid $16,001,000 in acquisitionloans payable. Total acquisition-related expenses of $2,130,000 include amounts for legal fees, to our advisorclosing costs, due diligence and its affiliates in connection with these acquisitions.other costs. Acquisitions completed during the year ended December 31, 2011 are set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Borrowings Incurred in
| | | | |
| | | | | | | | | | | | | | Connection with the Acquisition | | | Acquisition
| |
| | | | | | | | | | | | | | Mortgage
| | | Line
| | | Unsecured
| | | Fee to our
| |
| | | | Date
| | | Ownership
| | | | Purchase
| | | Loan
| | | of
| | | Note Payable
| | | Advisor and
| |
Property | | Property Location | | Acquired | | | Percentage | | | | Price | | | Payables(1) | | | Credit(2) | | | to Affiliate(3) | | | its Affiliate | |
|
Medical Portfolio 1 | | Overland, KS and Largo, Brandon and Lakeland, FL | | | 02/01/08 | | | | 100 | | % | | $ | 36,950,000 | | | $ | 22,000,000 | | | $ | 16,000,000 | | | $ | — | | | $ | 1,109,000 | |
Fort Road Medical Building | | St. Paul, MN | | | 03/06/08 | | | | 100 | | % | | | 8,650,000 | | | | 5,800,000 | | | | 3,000,000 | | | | — | | | | 260,000 | |
Liberty Falls Medical Plaza | | Liberty Township, OH | | | 03/19/08 | | | | 100 | | % | | | 8,150,000 | | | | — | | | | 7,600,000 | | | | — | | | | 245,000 | |
Epler Parke Building B | | Indianapolis, IN | | | 03/24/08 | | | | 100 | | % | | | 5,850,000 | | | | 3,861,000 | | | | 6,100,000 | | | | — | | | | 176,000 | |
Cypress Station Medical Office Building | | Houston, TX | | | 03/25/08 | | | | 100 | | % | | | 11,200,000 | | | | 7,300,000 | | | | 4,500,000 | | | | — | | | | 336,000 | |
Vista Professional Center | | Lakeland, FL | | | 03/27/08 | | | | 100 | | % | | | 5,250,000 | | | | — | | | | 5,300,000 | | | | — | | | | 158,000 | |
Senior Care Portfolio 1 | | Arlington, Galveston, Port Arthur and Texas City, TX and Lomita and El Monte, CA
| | | Various | | | | 100 | | % | | | 39,600,000 | | | | 24,800,000 | | | | 14,800,000 | | | | 6,000,000 | | | | 1,188,000 | |
Amarillo Hospital | | Amarillo, TX | | | 05/15/08 | | | | 100 | | % | | | 20,000,000 | | | | — | | | | 20,000,000 | | | | — | | | | 600,000 | |
5995 Plaza Drive | | Cypress, CA | | | 05/29/08 | | | | 100 | | % | | | 25,700,000 | | | | 16,830,000 | | | | 26,050,000 | | | | — | | | | 771,000 | |
Nutfield Professional Center | | Derry, NH | | | 06/03/08 | | | | 100 | | % | | | 14,200,000 | | | | 8,808,000 | | | | 14,800,000 | | | | — | | | | 426,000 | |
112
|
| | | | | | | | | | | | | | |
Property | | Property Location | | Date Acquired | | Ownership Percentage | | Purchase Price | | Mortgage Loans Payable(1) |
Phoenix Portfolio--Paseo (2) |
| Phoenix, AZ |
| 2/11/2011 |
| 100% |
| $ | 3,762,000 |
|
| $ | 2,147,000 |
|
Columbia Portfolio--Northern Berkshire (2) |
| North Adams, MA |
| 2/16/2011 |
| 100 |
| 9,182,000 |
|
| 4,434,000 |
|
Holston Medical Portfolio |
| Bristol, TN |
| 3/24/2011 |
| 100 |
| 23,370,000 |
|
| — |
|
Desert Ridge Portfolio |
| Phoenix, AZ |
| 10/4/2011 |
| 100 |
| 32,000,000 |
|
| — |
|
| | | | | | | | $ | 68,314,000 |
| | $ | 6,581,000 |
|
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Borrowings Incurred in
| | | | |
| | | | | | | | | | | | | | Connection with the Acquisition | | | Acquisition
| |
| | | | | | | | | | | | | | Mortgage
| | | Line
| | | Unsecured
| | | Fee to our
| |
| | | | Date
| | | Ownership
| | | | Purchase
| | | Loan
| | | of
| | | Note Payable
| | | Advisor and
| |
Property | | Property Location | | Acquired | | | Percentage | | | | Price | | | Payables(1) | | | Credit(2) | | | to Affiliate(3) | | | its Affiliate | |
|
SouthCrest Medical Plaza | | Stockbridge, GA | | | 06/24/08 | | | | 100 | | % | | | 21,176,000 | | | | 12,870,000 | | | | — | | | | — | | | | 635,000 | |
Medical Portfolio 3 | | Indianapolis, IN | | | 06/26/08 | | | | 100 | | % | | | 90,100,000 | | | | 58,000,000 | | | | 32,735,000 | | | | — | | | | 2,703,000 | |
Academy Medical Center | | Tucson, AZ | | | 06/26/08 | | | | 100 | | % | | | 8,100,000 | | | | 5,016,000 | | | | 8,200,000 | | | | — | | | | 243,000 | |
Decatur Medical Plaza | | Decatur, GA | | | 06/27/08 | | | | 100 | | % | | | 12,000,000 | | | | 7,900,000 | | | | 12,600,000 | | | | — | | | | 360,000 | |
Medical Portfolio 2 | | O’Fallon and St. Louis, MO and Keller and Wichita Falls, TX | | | Various | | | | 100 | | % | | | 44,800,000 | | | | 30,304,000 | | | | — | | | | — | | | | 1,344,000 | |
Renaissance Medical Centre | | Bountiful, UT | | | 06/30/08 | | | | 100 | | % | | | 30,200,000 | | | | 20,495,000 | | | | — | | | | — | | | | 906,000 | |
Oklahoma City Medical Portfolio | | Oklahoma City, OK | | | 09/16/08 | | | | 100 | | % | | | 29,250,000 | | | | — | | | | 29,700,000 | | | | — | | | | 878,000 | |
Medical Portfolio 4 | | Phoenix, AZ, Parma and Jefferson West, OH, and Waxahachie, Greenville, and Cedar Hill, TX | | | Various | | | | 100 | | % | | | 48,000,000 | | | | 29,989,000 | | | | 40,750,000 | | | | — | | | | 1,440,000 | |
Mountain Empire Portfolio | | Kingsport and Bristol, TN and Pennington Gap and Norton, VA | | | 09/12/08 | | | | 100 | | % | | | 25,500,000 | | | | 17,304,000 | | | | 12,000,000 | | | | — | | | | 765,000 | |
Mountain Plains Portfolio | | San Antonio and Webster, TX | | | 12/18/08 | | | | 100 | | % | | | 43,000,000 | | | | — | | | | — | | | | — | | | | 1,075,000 | |
Marietta Health Park | | Marietta, GA | | | 12/22/08 | | | | 100 | | % | | | 15,300,000 | | | | 7,200,000 | | | | — | | | | — | | | | 383,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | $ | 542,976,000 | | | $ | 278,477,000 | | | $ | 254,135,000 | | | $ | 6,000,000 | | | $ | 16,001,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Represents the amount of the mortgage loan payable assumed by us or newly placed on the property in connection with the acquisition or secured by the property subsequent to acquisition. |
| |
(2) | | Borrowings under our secured revolving lineRepresent purchases of credit with LaSalle and KeyBank. |
|
(3) | | Represents our unsecured note payable to affiliate evidenced by an unsecured promissory note. Our unsecured note payable to affiliate bears interest at a fixed rate and requires monthly interest-only payments foradditional medical office buildings during the term of the unsecured note payable to affiliate.year ended December 31, 2011 that are within portfolios we had previously acquired. |
Property Acquisitions in 20072010
During the year ended December 31, 2007,2010, we completed the acquisition of 20 properties.24 new property portfolios as well as purchased additional buildings within six of our existing portfolios. Additionally, we purchased the remaining 20.0% interest that we previously did not own in HTA-Duke Chesterfield Rehab, LLC, the JV Company that owns Chesterfield Rehabilitation Center. The aggregate purchase price of these properties was $408,440,000, of which $115,471,000 was initially financed through our secured revolving line of credit with LaSalle Bank National Association, or LaSalle, and KeyBank National Association, or KeyBank, or our secured revolving line of credit with LaSalle and KeyBank (see Note 9), and $19,900,000 was initially financed through unsecured note payables to NNN Realty Advisors (see Note 7)$806,048,000. A portion of the aggregate purchase price for these acquisitions was also initially financed or subsequently secured by $186,050,000$218,538,000 in mortgage loan payables. We paid $12,255,000 in acquisitionloans payable. Total acquisition-related expenses of $11,317,000 include amounts for legal fees, to our advisorclosing costs, due diligence and its affiliates in connection with these acquisitions.other costs. Acquisitions completed during the year ended December 31, 2010 are set forth below:
Healthcare Trust of America, Inc.
113
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Borrowings Incurred in
| | | | |
| | | | | | | | | | | | | | Connection with the Acquisition | | | Acquisition
| |
| | | | | | | | | | | | | | Mortgage
| | | Line
| | | Unsecured
| | | Fee to our
| |
| | | | Date
| | | Ownership
| | | | Purchase
| | | Loan
| | | of
| | | Note Payables
| | | Advisor and
| |
Property | | Property Location | | Acquired | | | Percentage | | | | Price | | | Payables(1) | | | Credit(2) | | | to Affiliate(3) | | | its Affiliate | |
|
Southpointe Office Parke and Epler Parke I(4) | | Indianapolis, IN | | | 01/22/07 | | | | 100 | | % | | $ | 14,800,000 | | | $ | 9,146,000 | | | $ | — | | | $ | 5,115,000 | | | $ | 444,000 | |
Crawfordsville Medical Office Park and Athens Surgery Center(4) | | Crawfordsville, IN | | | 01/22/07 | | | | 100 | | % | | | 6,900,000 | | | | 4,264,000 | | | | — | | | | 2,385,000 | | | | 207,000 | |
The Gallery Professional Building(4) | | St. Paul, MN | | | 03/09/07 | | | | 100 | | % | | | 8,800,000 | | | | 6,000,000 | | | | — | | | | 1,000,000 | | | | 264,000 | |
Lenox Office Park, Building G(4) | | Memphis, TN | | | 03/23/07 | | | | 100 | | % | | | 18,500,000 | | | | 12,000,000 | | | | — | | | | — | | | | 555,000 | |
Commons V Medical Office Building | | Naples, FL | | | 04/24/07 | | | | 100 | | % | | | 14,100,000 | | | | 10,000,000 | | | | — | | | | — | | | | 423,000 | |
Yorktown Medical Center and Shakerag Medical Center | | Fayetteville and Peachtree City, GA | | | 05/02/07 | | | | 100 | | % | | | 21,500,000 | | | | 13,530,000 | | | | — | | | | — | | | | 645,000 | |
Thunderbird Medical Plaza | | Glendale, AZ | | | 05/15/07 | | | | 100 | | % | | | 25,000,000 | | | | 14,000,000 | | | | — | | | | — | | | | 750,000 | |
Triumph Hospital Northwest and Triumph Hospital Southwest | | Houston and Sugar Land, TX | | | 06/08/07 | | | | 100 | | % | | | 36,500,000 | | | | — | | | | — | | | | 4,000,000 | | | | 1,095,000 | |
Gwinnett Professional Center | | Lawrenceville, GA | | | 07/27/07 | | | | 100 | | % | | | 9,300,000 | | | | 5,734,000 | | | | — | | | | — | | | | 279,000 | |
1 and 4 Market Exchange | | Columbus, OH | | | 08/15/07 | | | | 100 | | % | | | 21,900,000 | | | | 14,500,000 | | | | — | | | | — | | | | 657,000 | |
Kokomo Medical Office Park | | Kokomo, IN | | | 08/30/07 | | | | 100 | | % | | | 13,350,000 | | | | 8,300,000 | | | | — | | | | 1,300,000 | | | | 401,000 | |
St. Mary Physicians Center | | Long Beach, CA | | | 09/05/07 | | | | 100 | | % | | | 13,800,000 | | | | 8,280,000 | | | | — | | | | 6,100,000 | | | | 414,000 | |
2750 Monroe Boulevard | | Valley Forge, PA | | | 09/10/07 | | | | 100 | | % | | | 26,700,000 | | | | — | | | | 27,870,000 | | | | — | | | | 801,000 | |
East Florida Senior | | Jacksonville, Winter | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Care Portfolio | | Park and Sunrise, FL | | | 09/28/07 | | | | 100 | | % | | | 52,000,000 | | | | 30,500,000 | | | | 11,000,000 | | | | — | | | | 1,560,000 | |
Northmeadow Medical Center | | Roswell, GA | | | 11/15/07 | | | | 100 | | % | | | 11,850,000 | | | | 8,000,000 | | | | 12,400,000 | | | | — | | | | 356,000 | |
Tucson Medical Office Portfolio | | Tucson, AZ | | | 11/20/07 | | | | 100 | | % | | | 21,050,000 | | | | — | | | | 22,000,000 | | | | — | | | | 632,000 | |
Lima Medical Office Portfolio | | Lima, OH | | | 12/07/07 | | | | 100 | | % | | | 25,250,000 | | | | — | | | | 26,000,000 | | | | — | | | | 758,000 | |
Highlands Ranch Medical Plaza | | Highlands Ranch, CO | | | 12/19/07 | | | | 100 | | % | | | 14,500,000 | | | | 8,853,000 | | | | 2,901,000 | | | | — | | | | 435,000 | |
Chesterfield Rehabilitation Center | | Chesterfield, MO | | | 12/20/07 | | | | 80.0 | | % | | | 36,440,000 | | | | 22,000,000 | | | | 12,800,000 | | | | — | | | | 1,093,000 | |
Park Place Office Park | | Dayton, OH | | | 12/20/07 | | | | 100 | | % | | | 16,200,000 | | | | 10,943,000 | | | | 500,000 | | | | — | | | | 486,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | $ | 408,440,000 | | | $ | 186,050,000 | | | $ | 115,471,000 | | | $ | 19,900,000 | | | $ | 12,255,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
Property | | Property Location | | Date Acquired | | Ownership Percentage | | Purchase Price | | Mortgage Loans Payable(1) | |
Camp Creek |
| Atlanta, GA |
| 3/2/2010 |
| 100 | % |
| $ | 19,550,000 |
|
| $ | — |
| |
King Street |
| Jacksonville, FL |
| 3/9/2010 |
| 100 |
|
| 10,775,000 |
|
| 6,602,000 |
| |
Sugarland |
| Houston, TX |
| 3/23/2010 |
| 100 |
|
| 12,400,000 |
|
| — |
| |
Deaconess |
| Evansville, IN |
| 3/23/2010 |
| 100 |
|
| 45,257,000 |
|
| 21,250,000 |
| |
Chesterfield Rehabilitation Center(2) |
| Chesterfield, MO |
| 3/24/2010 |
| 100 |
|
| 3,900,000 |
|
| — |
| |
Pearland — Cullen |
| Pearland, TX |
| 3/31/2010 |
| 100 |
|
| 6,775,000 |
|
| — |
| |
Hilton Head — Heritage |
| Hilton Head, SC |
| 3/31/2010 |
| 100 |
|
| 8,058,000 |
|
| — |
| |
Triad Technology Center |
| Baltimore, MD |
| 3/31/2010 |
| 100 |
|
| 29,250,000 |
|
| 12,000,000 |
| |
Mt. Pleasant (E. Cooper) |
| Mount Pleasant, SC |
| 3/31/2010 |
| 100 |
|
| 9,925,000 |
|
| — |
| |
Federal North |
| Pittsburgh, PA |
| 4/29/2010 |
| 100 |
|
| 40,472,000 |
|
| — |
| |
Balfour Concord Portfolio |
| Lewisville, TX |
| 6/25/2010 |
| 100 |
|
| 4,800,000 |
|
| — |
| |
Cannon Park Place |
| Charleston, SC |
| 6/28/2010 |
| 100 |
|
| 10,446,000 |
|
| — |
| |
7900 Fannin(3) |
| Houston, TX |
| 6/30/2010 |
| 84 |
|
| 38,100,000 |
|
| 22,687,000 |
| |
Balfour Concord Portfolio(4) |
| Denton, TX |
| 6/30/2010 |
| 100 |
|
| 8,700,000 |
|
| 4,657,000 |
| |
Pearland — Broadway(4) |
| Pearland, TX |
| 6/30/2010 |
| 100 |
|
| 3,701,000 |
|
| 2,381,000 |
| |
Overlook |
| Stockbridge, GA |
| 7/15/2010 |
| 100 |
|
| 8,140,000 |
|
| 5,440,000 |
| |
Sierra Vista |
| San Luis Obispo, CA |
| 8/4/2010 |
| 100 |
|
| 10,950,000 |
|
| — |
| |
Hilton Head — Moss Creek(4) |
| Hilton Head, SC |
| 8/12/2010 |
| 100 |
|
| 2,652,000 |
|
| — |
| |
Orlando Portfolio |
| Orlando & Oviedo, FL |
| 9/29/2010 |
| 100 |
|
| 18,300,000 |
|
| — |
| |
Santa Fe Portfolio — Building 440 |
| Santa Fe, NM |
| 9/30/2010 |
| 100 |
|
| 9,560,000 |
|
| — |
| |
Rendina Portfolio — San Martin and St. Francis |
| Las Vegas, NV and Poughkeepsie, NY |
| 9/30/2010 |
| 100 |
|
| 40,204,000 |
|
| — |
| |
Allegheny Admin Headquarters |
| Pittsburgh, PA |
| 10/29/2010 |
| 100 |
|
| 39,000,000 |
|
| — |
| |
Rendina Portfolio — Des Peres(4) |
| St. Louis, MO |
| 11/12/2010 |
| 100 |
|
| 14,034,000 |
|
| — |
| |
Raleigh Medical Center |
| Raleigh, NC |
| 11/12/2010 |
| 100 |
|
| 16,500,000 |
|
| — |
| |
Columbia Portfolio — Washington Medical Arts I & II |
| Albany, NY |
| 11/19/2010 |
| 100 |
|
| 23,533,000 |
|
| — |
| |
Columbia — 1092 Madison & Patroon Creek(4) |
| Albany, NY |
| 11/22/2010 |
| 100 |
|
| 36,254,000 |
|
| 26,057,000 |
| |
Columbia Portfolio — Capital Region Health Park & FL Orthopaedic(4) |
| Latham, NY and Temple Terrace, FL |
| 11/23/2010 |
| 100 |
|
| 63,254,000 |
|
| 29,432,000 |
| |
Rendina Portfolio — Gateway(4) |
| Tucson, AZ |
| 12/7/2010 |
| 100 |
|
| 16,349,000 |
|
| 10,613,000 |
| |
Florida Orthopaedic ASC |
| Temple Terrace, FL |
| 12/8/2010 |
| 100 |
|
| 5,875,000 |
|
| — |
| |
Select Medical LTACH Portfolio |
| Orlando and Tallahassee, FL, Augusta, GA, and Dallas, TX |
| 12/17/2010 |
| 100 |
|
| 102,045,000 |
|
| — |
| |
Santa Fe Portfolio — Building 1640(4) |
| Santa Fe, NM |
| 12/22/2010 |
| 100 |
|
| 6,232,000 |
|
| 3,555,000 |
| |
Phoenix Portfolio — Estrella & MOB IV |
| Phoenix, AZ |
| 12/22/2010 |
| 100 |
|
| 35,809,000 |
|
| 25,050,000 |
| |
Rendina Portfolio — Wellington(4) |
| Wellington, FL |
| 12/23/2010 |
| 100 |
|
| 12,825,000 |
|
| 8,303,000 |
| |
Columbia Portfolio — Putnam(4) |
| Carmel, NY |
| 12/29/2010 |
| 100 |
|
| 28,216,000 |
|
| 19,329,000 |
| |
Columbia Portfolio — CDPHP Corporate Headquarters(4) |
| Albany, NY |
| 12/30/2010 |
| 100 |
|
| 36,207,000 |
|
| 21,182,000 |
| |
Medical Park of Cary |
| Cary, NC |
| 12/30/2010 |
| 100 |
|
| 28,000,000 |
|
| — |
| |
Total | | | | | | |
| | $ | 806,048,000 |
| | $ | 218,538,000 |
| |
| | |
(1) | | Represents the amount of the mortgage loan payable assumed by us or newly placed on the property in connection with the acquisition or secured by the property subsequent to acquisition. |
| |
(2) | Represents our purchase of the remaining 20% interest we previously did not own in the JV Company that owns Chesterfield Rehabilitation Center. |
| Borrowings under our secured revolving line of credit with LaSalle and KeyBank. |
|
(3) | | Represents our unsecured note payables to affiliate evidenced by unsecured promissory notes. Our unsecured note payables to affiliate bears interest at a fixed rate and require monthly interest-only payments for the termpurchase of the unsecured note payables to affiliate.majority interest in the Fannin partnership, which owns the 7900 Fannin medical office building, the value of which is approximately $38,100,000. We acquired both the general partner interest and the majority of the limited partner interests in the Fannin partnership. The transaction provided the original physician |
114
Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
investors with the right to remain in the Fannin partnership, to receive limited partnership units in our operating partnership, and/or receive cash. Ten investors elected to remain in the Fannin partnership, which represents a 16% noncontrolling interest in the property.
| | |
(4) | | This property was acquired from an affiliate and as such an independent appraiser was engaged to valueRepresent purchases of additional medical office buildings during the property and the transaction was approved and determined by a majority of our board of directors, including a majority of our independent directors, as fair and reasonable to us, and at a price no greater than the cost of the investment to our affiliate or the property’s appraised value.year ended December 31, 2010 that are within portfolios we had previously acquired. |
| |
4. | Real Estate Note Receivables,4. Real Estate Notes Receivable, Net |
On December 31, 2008,1, 2009, we acquired a real estate relatednote receivable secured by the Rush Medical Office Building, or the Rush Presbyterian Note Receivable, for a total purchase price of $37,135,000, plus closing costs. The note may be repaid within ninety days prior to the maturity date or during a thirty-day period occurring during June 2012 for $37,135,000. Otherwise, it may be repaid for the full face amount of $41,150,000. We acquired this asset infrom an unaffiliated third party. We have determined that this note receivable is due from a variable interest entity for which we hold a significant variable interest but for which we are not the primary beneficiary. Therefore, we do not consolidate the entity. We do not expect to incur any losses based on our variable interest and any potential exposure to loss on this variable interest is limited to a 30-day period during which we could be required to purchase the property. Additionally, we do not expect to have any variable interest loss exposures on our other Notes Receivable.
On December 31, 2008, we acquired four note receivablesnotes receivable secured by two buildings located in Phoenix, Arizona and Berwyn, Illinois, or the Presidential Note Receivable, for a total purchase price of $15,000,000,$15,000,000, plus closing costs. We acquired the real estate related assetthese assets from an unaffiliated third party. On November 1, 2011, we entered into amendments to extend the maturity dates of these notes from November 1, 2011 to May 1, 2012. We financedexpect that we will collect the purchase priceaggregate principal balance of these notes in full upon the real estate related asset with funds raised through our offering. An acquisition feematurity date of $225,000, or approximately 1.5% of the purchase price, was paid to our advisor and its affiliate.May 1, 2012.
Real estate note receivables,notes receivable, net consisted of the following as of December 31, 20082011 and 2007:2010:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property Name
| | | | | | | | December 31, | | | | | Contractual | | | | | December 31, |
Location of Property | | Property Type | | Interest Rate | | Maturity Date | | 2008 | | 2007 | | | Property Type | | Interest Rate | | | Maturity Date | | 2011 | | 2010 |
| |
MacNeal Hospital Medical Office Building Berwyn, Illinois | | Medical Office Building | | | 5.95 | % | | | 11/01/11 | | | $ | 7,500,000 | | | $ | — | | | Medical Office Building | | 10.95 | % | (1) | | 5/1/2012 | | $ | 7,500,000 |
| | $ | 7,500,000 |
|
MacNeal Hospital Medical Office Building Berwyn, Illinois | | Medical Office Building | | | 5.95 | % | | | 11/01/11 | | | | 7,500,000 | | | | — | | | Medical Office Building | | 10.95 | % | (1) | | 5/1/2012 | | 7,500,000 |
| | 7,500,000 |
|
St. Luke’s Medical Office Building Phoenix, Arizona | | Medical Office Building | | | 5.85 | % | | | 11/01/11 | | | | 3,750,000 | | | | — | | | Medical Office Building | | 10.85 | % | (2) | | 5/1/2012 | | 3,750,000 |
| | 3,750,000 |
|
St. Luke’s Medical Office Building Phoenix, Arizona | | Medical Office Building | | | 5.85 | % | | | 11/01/11 | | | | 1,250,000 | | | | — | | | Medical Office Building | | 10.85 | % | (2) | | 5/1/2012 | | 1,250,000 |
| | 1,250,000 |
|
| | | | | | |
Rush Presbyterian Medical Office Building Oak Park, Illinois | | | Medical Office Building | | 7.76 | % | (3) | | 12/1/2014 | | 41,150,000 |
| | 41,150,000 |
|
Total real estate note receivable | | | | | | | | | | | | | 20,000,000 | | | | — | | | | | |
| | | | | 61,150,000 |
| | 61,150,000 |
|
Add: Note receivable closing costs | | | | | | | | | | | | | 360,000 | | | | — | | |
Less: discount | | | | | | | | | | | | | (5,000,000 | ) | | | — | | |
| | | | | | |
Real estate note receivables, net | | | | | | | | | | | | $ | 15,360,000 | | | $ | — | | |
| | | | | | |
Add: Note receivable closing costs, net | | | | | |
| | | | | 324,000 |
| | 540,000 |
|
Less: discount, net (4) | | | | | |
| | | | | (4,015,000 | ) | | (4,599,000 | ) |
Real estate notes receivable, net | | | | | |
| | | | | $ | 57,459,000 |
| | $ | 57,091,000 |
|
115
| |
(1) | The effective interest rate associated with these interest-only notes as of December 31, 2011 is 8.77%. |
| |
(2) | The effective interest rate associated with these interest-only notes as of December 31, 2011 is 8.63%. |
| |
(3) | Represents an average contractual interest rate for the life of this interest-only note with an effective interest rate of 8.60%. |
| |
(4) | The closing costs and discount are amortized on a straight-line basis over the respective life, and impact the yield, of each note. |
We monitor the credit quality of our real estate notes receivable portfolio on an ongoing basis by tracking possible credit quality indicators. As of December 31, 2011, all of our real estate notes receivable are current and we have not provided for any allowance for losses on notes receivable, and as of December 31, 2011 we have had no impairment with respect to our notes receivable. We made no significant purchases or sales of notes or other receivables during the year ended December 31, 2011.
5. Identified Intangible Assets, Net
Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
5.
| Identified Intangible Assets, Net |
Identified intangible assets, net for our properties consisted of the following as of December 31, 20082011 and 2007:2010:
| | | | | | | | |
| | December 31, | |
| | 2008 | | | 2007 | |
|
In place leases, net of accumulated amortization of $13,350,000 and $3,326,000 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 91 months and 79 months as of December 31, 2008 and 2007, respectively). | | $ | 55,144,000 | | | $ | 25,540,000 | |
Above market leases, net of accumulated amortization of $1,513,000 and $265,000 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 99 months and 119 months as of December 31, 2008 and 2007, respectively). | | | 10,482,000 | | | | 3,083,000 | |
Tenant relationships, net of accumulated amortization of $6,479,000 and $1,527,000 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 140 months and 140 months as of December 31, 2008 and 2007, respectively). | | | 64,881,000 | | | | 31,184,000 | |
Leasehold interests, net of accumulated amortization of $45,000 and $3,000 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 982 months and 1,071 months as of December 31, 2008 and 2007, respectively). | | | 3,998,000 | | | | 3,114,000 | |
Master lease, net of accumulated amortization of $231,000 and $0 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 8 months and 0 months as of December 31, 2008 and 2007, respectively). | | | 118,000 | | | | — | |
| | | | | | | | |
| | $ | 134,623,000 | | | $ | 62,921,000 | |
| | | | | | | | |
|
| | | | | | | | |
| | December 31, |
| | 2011 | | 2010 |
In place leases, net of accumulated amortization of $47,243,000 and $43,185,000 as of December 31, 2011 and 2010, respectively, (with a weighted average remaining life of 146 months and 154 months as of December 31, 2011 and 2010, respectively). | | $ | 109,335,000 |
| | $ | 124,330,000 |
|
Above market leases, net of accumulated amortization of $8,040,000 and $5,971,000 as of December 31, 2011 and 2010, respectively, (with a weighted average remaining life of 81 months and 89 months as of December 31, 2011 and 2010, respectively). | | 14,545,000 |
| | 17,943,000 |
|
Tenant relationships, net of accumulated amortization of $41,309,000 and $23,937,000 as of December 31, 2011 and 2010, respectively, (with a weighted average remaining life of 164 months and 168 months as of December 31, 2011 and 2010, respectively). | | 122,533,000 |
| | 136,021,000 |
|
Below market leasehold interests, net of accumulated amortization of $1,346,000 and $526,000 as of December 31, 2011 and 2010, respectively, (with a weighted average remaining life of 834 months and 855 months as of December 31, 2011 and 2010, respectively). | | 25,977,000 |
| | 26,061,000 |
|
Total | | $ | 272,390,000 |
| | $ | 304,355,000 |
|
Amortization expense recorded on the identified intangible assets related to our operating properties for the years ended December 31, 20082011, 2010, and 20072009 was $45,264,000, $32,479,000, and for the period from April 28, 2006 (Date of Inception) through December 31, 2006 was $18,229,000, $5,435,000 and $0,$22,724,000, respectively, which included $1,369,000, $265,000$3,607,000, $3,046,000, and $0,$1,889,000, respectively, of amortization recorded against rental income for above market leases and $42,000, $3,000$820,000, $423,000, and $0,$58,000, respectively, of amortization recorded against rental expenses for below market leasehold interests.
Estimated amortization expense on the identified intangible assets associated with our operating properties for each of the next five years and thereafter is as follows:
|
| | | | |
Year | | Amount |
2012 | | $ | 38,597,000 |
|
2013 | | 32,340,000 |
|
2014 | | 28,893,000 |
|
2015 | | 25,467,000 |
|
2016 | | 22,169,000 |
|
Thereafter | | 124,924,000 |
|
Total | | $ | 272,390,000 |
|
6. Other Assets, Net
Other assets, net for our operating properties consisted of the following as of December 31, 20082011 and 2010:
|
| | | | | | | | |
| | December 31, |
| | 2011 | | 2010 |
Deferred financing costs, net of accumulated amortization of $4,710,000 and $5,015,000 as of December 31, 2011 and 2010, respectively | | $ | 8,473,000 |
| | $ | 8,620,000 |
|
Lease commissions, net of accumulated amortization of $2,006,000 and $1,132,000 as of December 31, 2011 and 2010, respectively | | 7,755,000 |
| | 4,275,000 |
|
Lease inducements, net of accumulated amortization of $654,000 and $527,000 as of December 31, 2011 and 2010, respectively | | 1,166,000 |
| | 1,284,000 |
|
Deferred rent receivable (net of allowance) | | 29,627,000 |
| | 17,422,000 |
|
Prepaid expenses, deposits, and other assets | | 9,421,000 |
| | 8,951,000 |
|
Total | | $ | 56,442,000 |
| | $ | 40,552,000 |
|
Amortization expense recorded on deferred financing costs, lease commissions, lease inducements and note receivable
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
closing costs for the years ended December 31, 2011, 2010, and 2009 was $5,002,000, $3,163,000, and $2,064,000, respectively, of which $3,628,000, $2,195,000, and $1,885,000, respectively, of amortization was recorded as interest expense for deferred financing costs and $235,000, $248,000, and $153,000, respectively, of amortization was recorded against rental income for lease inducements.
Estimated amortization expense on the deferred financing costs, lease commissions and lease inducements for each of the next five years ending December 31 and thereafter is as follows:
| | | | |
Year | | Amount | |
|
2009 | | $ | 20,897,000 | |
2010 | | $ | 17,882,000 | |
2011 | | $ | 15,140,000 | |
2012 | | $ | 13,802,000 | |
2013 | | $ | 11,897,000 | |
Thereafter | | $ | 55,005,000 | |
116
Grubb & Ellis Healthcare REIT, Inc.
|
| | | | |
Year | | Amount |
2012 | | $ | 4,769,000 |
|
2013 | | 4,371,000 |
|
2014 | | 2,371,000 |
|
2015 | | 1,482,000 |
|
2016 | | 1,130,000 |
|
Thereafter | | 3,271,000 |
|
Total | | $ | 17,394,000 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other assets, net consisted of the following as of December 31, 2008 and 2007:
| | | | | | | | |
| | December 31, | |
| | 2008 | | | 2007 | |
|
Deferred financing costs, net of accumulated amortization of $1,461,000 and $170,000 as of December 31, 2008 and 2007, respectively | | $ | 4,751,000 | | | $ | 2,334,000 | |
Lease commissions, net of accumulated amortization of $99,000 and $7,000 as of December 31, 2008 and 2007, respectively | | | 1,009,000 | | | | 275,000 | |
Lease inducements, net of accumulated amortization of $107,000 and $19,000 as of December 31, 2008 and 2007, respectively | | | 753,000 | | | | 773,000 | |
Deferred rent receivable | | | 3,928,000 | | | | 534,000 | |
Prepaid expenses and deposits | | | 1,073,000 | | | | 476,000 | |
| | | | | | | | |
| | $ | 11,514,000 | | | $ | 4,392,000 | |
| | | | | | | | |
Amortization expense recorded on deferred financing costs, lease commissions, lease inducements and note receivable closing costs for the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006 was $1,472,000, $196,000 and $0, respectively, of which $1,291,000, $170,000 and $0, respectively, of amortization was recorded as interest expense for deferred financing costs and $88,000, $19,000 and $0, respectively, of amortization was recorded against rental income for lease inducements and note receivable closing costs.
Estimated amortization expense on the deferred financing costs, lease commissions and lease inducements as of December 31, 2008 for each of the next five years ending December 31 and thereafter is as follows:
| | | | |
Year | | Amount | |
|
2009 | | $ | 2,152,000 | |
2010 | | $ | 1,803,000 | |
2011 | | $ | 860,000 | |
2012 | | $ | 411,000 | |
2013 | | $ | 366,000 | |
Thereafter | | $ | 921,000 | |
| |
7. | Mortgage Loan Payables, Net and Unsecured Note Payables to Affiliate |
Mortgage Loan Payables,Loans Payable, Net
Mortgage loan payablesLoans Payable, Net
Mortgage loans payable were $462,542,000$636,558,000 ($460,762,000, net of discount)639,149,000, including premium) and $185,899,000$696,558,000 ($185,801,000,699,526,000, net of discount) as of December 31, 20082011 and 2007,2010, respectively. As of December 31, 2008,2011, we had fixed and variable rate mortgage loans with effective interest rates ranging from 1.90%1.77% to 12.75% per annum and a weighted average effective interest rate of 4.07%5.05% per annum. As of December 31, 2008,2011, we had $141,058,000$461,248,000 ($139,278,000, net of discount)463,839,000, including premium) of fixed rate debt, or 30.5%72.5% of mortgage loan payables,loans payable, at a weighted average interest rate of 5.76%6.02% per annum and $321,484,000$175,310,000 of variable rate debt, or 69.5%27.5% of mortgage loan payables,loans payable, at a weighted average interest rate of 3.33%2.51% per annum. As of December 31, 2007,2010, we had fixed and variable rate mortgage loans with effective interest rates ranging from 5.52%1.61% to 6.78%12.75% per annum and a weighted average effective interest rate of 6.07%4.95% per annum. As of December 31, 2007,2010, we had $90,919,000$470,815,000 ($90,821,000 net of discount)473,783,000, including premium) of fixed rate debt, or 48.9%67.6% of mortgage loan payables,loans payable, at a weighted average interest rate of 5.79%6.02% per annum and $94,980,000$225,743,000 of variable rate debt, or 51.1%32.4% of mortgage loan payables,loans payable, at a weighted average interest rate of 6.35%2.72% per annum.
117
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On February 1, 2011, we closed a senior secured real estate term loan in the amount of $125,500,000 from Wells Fargo Bank, National Association, or Wells Fargo Bank. The primary purposes of the term loan included refinancing four Wells Fargo Bank loans totaling approximately $89,969,000 and providing new financing on three of our existing properties. Interest is payable monthly at a rate of one-month LIBOR plus 2.35%, which, as of December 31, 2011, equated to 2.65%. Including the impact of the interest rate swap discussed below, the weighted average rate associated with this term loan is 3.10%. The weighted average rate on these four loans prior to the refinancing was 4.18% (including the impact of interest rate swaps). The term loan matures on December 31, 2013 and includes two 12-month extension options, subject to the satisfaction of certain conditions. The loan agreement for the term loan includes customary financial covenants for loans of this type, including a maximum ratio of total indebtedness to total assets, a minimum ratio of EBITDA to fixed charges, and a minimum level of tangible net worth. In addition, the term loan agreement for this secured term loan includes events of default that we believe are usual for loans and transactions of this type. The term loan is secured by 25 buildings within 12 property portfolios in 13 states and has a two year period in which no prepayment is permitted. Our operating partnership has guaranteed 25% of the principal balance and 100% of the interest under the term loan.
We are required by the terms of the applicable loan documents related to our mortgage loans payable and secured term loan to meet certain financial covenants, such as debt service coverage ratios, rent coverage ratios and reporting requirements. As of December 31, 2008 and 2007,2011, we believe that we were in compliance with all such financial covenants and requirements.requirements on our mortgage loans payable and secured term loan. As of December 31, 2010, we were in compliance with all such financial covenants and requirements on $638,558,000 of our mortgage loans payable and had made appropriate adjustments to comply with such covenants on $58,000,000 of our mortgage loans payable by maintaining a deposit of $12,000,000 within a restricted collateral account. On May 3, 2011, we paid off this $58,000,000 principal balance and thus withdrew our deposit of $12,000,000 from the restricted collateral account.
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Mortgage loan payables,loans payable, net consisted of the following as of December 31, 20082011 and 2007:2010:
| | | | | | | | | | | | | | | | |
| | | | | | | | December 31, | |
Property/ Loan | | Interest Rate | | | Maturity Date | | | 2008 | | | 2007 | |
|
Fixed Rate Debt: | | | | | | | | | | | | | | | | |
Southpointe Office Parke and Epler Parke I | | | 6.11 | % | | | 09/01/16 | | | $ | 9,146,000 | | | $ | 9,146,000 | |
Crawfordsville Medical Office Park and Athens Surgery Center | | | 6.12 | % | | | 10/01/16 | | | | 4,264,000 | | | | 4,264,000 | |
The Gallery Professional Building | | | 5.76 | % | | | 03/01/17 | | | | 6,000,000 | | | | 6,000,000 | |
Lenox Office Park, Building G | | | 5.88 | % | | | 02/01/17 | | | | 12,000,000 | | | | 12,000,000 | |
Commons V Medical Office Building | | | 5.54 | % | | | 06/11/17 | | | | 9,939,000 | | | | 10,000,000 | |
Yorktown Medical Center and Shakerag Medical Center | | | 5.52 | % | | | 05/11/17 | | | | 13,530,000 | | | | 13,530,000 | |
Thunderbird Medical Plaza | | | 5.67 | % | | | 06/11/17 | | | | 14,000,000 | | | | 14,000,000 | |
Gwinnett Professional Center | | | 5.88 | % | | | 01/01/14 | | | | 5,604,000 | | | | 5,699,000 | |
St. Mary Physicians Center | | | 5.80 | % | | | 09/04/09 | | | | 8,280,000 | | | | 8,280,000 | |
Northmeadow Medical Center | | | 5.99 | % | | | 12/01/14 | | | | 7,866,000 | | | | 8,000,000 | |
Medical Porfolio 2 | | | 5.91 | % | | | 07/01/13 | | | | 14,408,000 | | | | — | |
Renaissance Medical Centre | | | 5.38 | % | | | 09/01/15 | | | | 19,078,000 | | | | — | |
Renaissance Medical Centre | | | 12.75 | % | | | 09/01/15 | | | | 1,245,000 | | | | — | |
Medical Porfolio 4 | | | 5.50 | % | | | 06/01/19 | | | | 6,771,000 | | | | — | |
Medical Porfolio 4 | | | 6.18 | % | | | 06/01/19 | | | | 1,727,000 | | | | — | |
Marietta Health Park | | | 5.11 | % | | | 11/01/15 | | | | 7,200,000 | | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | 141,058,000 | | | | 90,919,000 | |
Variable Rate Debt: | | | | | | | | | | | | | | | | |
Senior Care Portfolio 1 | | | 4.75 | %(a) | | | 03/31/10 | | | | 24,800,000 | (b) | | | — | |
1 and 4 Market Exchange | | | 1.93 | %(a) | | | 09/30/10 | | | | 14,500,000 | (b) | | | 14,500,000 | (c) |
East Florida Senior Care Portfolio | | | 1.90 | %(a) | | | 10/01/10 | | | | 29,917,000 | (b) | | | 30,384,000 | (c) |
Kokomo Medical Office Park | | | 1.98 | %(a) | | | 11/30/10 | | | | 8,300,000 | (b) | | | 8,300,000 | (c) |
Chesterfield Rehabilitation Center | | | 3.54 | %(a) | | | 12/30/10 | | | | 22,000,000 | (b) | | | 22,000,000 | (c) |
Park Place Office Park | | | 2.13 | %(a) | | | 12/31/10 | | | | 10,943,000 | (b) | | | 10,943,000 | (c) |
Highlands Ranch Medical Plaza | | | 2.13 | %(a) | | | 12/31/10 | | | | 8,853,000 | (b) | | | 8,853,000 | (c) |
Medical Portfolio 1 | | | 2.26 | %(a) | | | 02/28/11 | | | | 21,340,000 | (b) | | | — | |
Fort Road Medical Building | | | 3.09 | %(a) | | | 03/06/11 | | | | 5,800,000 | (b) | | | — | |
Medical Portfolio 3 | | | 3.69 | %(a) | | | 06/26/11 | | | | 58,000,000 | (b) | | | — | |
SouthCrest Medical Plaza | | | 2.78 | %(a) | | | 06/30/11 | | | | 12,870,000 | (b) | | | — | |
Wachovia Pool Loan(d) | | | 4.65 | %(a) | | | 06/30/11 | | | | 50,322,000 | (b) | | | — | |
Cypress Station Medical Office Building | | | 2.26 | %(a) | | | 09/01/11 | | | | 7,235,000 | (b) | | | — | |
Medical Portfolio 4 | | | 3.25 | %(a) | | | 09/24/11 | | | | 21,400,000 | (b) | | | — | |
Decatur Medical Plaza | | | 3.25 | %(a) | | | 09/26/11 | | | | 7,900,000 | (b) | | | — | |
Mountain Empire Portfolio | | | 3.97 | %(a) | | | 09/28/11 | | | | 17,304,000 | (b) | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | 321,484,000 | | | | 94,980,000 | |
| | | | | | | | | | | | | | | | |
Total fixed and variable debt | | | | | | | | | | | 462,542,000 | | | | 185,899,000 | |
| | | | | | | | | | | | | | | | |
Less: discount | | | | | | | | | | | (1,780,000 | ) | | | (98,000 | ) |
| | | | | | | | | | | | | | | | |
Mortgage loan payables, net | | | | | | | | | | $ | 460,762,000 | | | $ | 185,801,000 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | |
| | | | | | December 31, |
Property | | Interest Rate | | Maturity Date | | 2011 | | 2010 | |
Fixed Rate Debt: | | |
| | | | |
| | |
| |
Southpointe Office Parke and Epler Parke I | | 6.11 | % | | 9/1/2016 | | $ | 9,017,000 |
| | $ | 9,121,000 |
| |
Crawfordsville Medical Office Park and Athens Surgery Center | | 6.12 |
| | 10/1/2016 | | 4,208,000 |
| | 4,256,000 |
| |
The Gallery Professional Building | | 5.76 |
| | 3/1/2017 | | 5,948,000 |
| | 6,000,000 |
| |
Lenox Office Park, Building G | | 5.88 |
| | 2/1/2017 | | 11,881,000 |
| | 12,000,000 |
| |
Commons V Medical Office Building | | 5.54 |
| | 6/11/2017 | | 9,528,000 |
| | 9,672,000 |
| |
Yorktown Medical Center and Shakerag Medical Center | | 5.52 |
| | 5/11/2017 | | 13,257,000 |
| | 13,434,000 |
| |
Thunderbird Medical Plaza | | 5.67 |
| | 6/11/2017 | | 13,553,000 |
| | 13,740,000 |
| |
Gwinnett Professional Center | | 5.88 |
| | 1/1/2014 | | 5,311,000 |
| | 5,417,000 |
| |
Northmeadow Medical Center | | 5.99 |
| | 12/1/2014 | | 7,375,000 |
| | 7,545,000 |
| |
Medical Portfolio 2 | | 5.91 |
| | 7/1/2013 | | 13,813,000 |
| | 14,024,000 |
| |
Renaissance Medical Centre | | 5.38 |
| | 9/1/2015 | | 18,118,000 |
| | 18,464,000 |
| |
Renaissance Medical Centre | | 12.75 |
| | 9/1/2015 | | 1,237,000 |
| | 1,240,000 |
| |
Medical Portfolio 4 | | 5.50 |
| | 6/1/2019 | | 6,202,000 |
| | 6,404,000 |
| |
Medical Portfolio 4 | | 6.18 |
| | 6/1/2019 | | 1,593,000 |
| | 1,625,000 |
| |
Marietta Health Park | | 5.11 |
| | 11/1/2015 | | 7,200,000 |
| | 7,200,000 |
| |
Hampden Place | | 5.98 |
| | 1/1/2012 | | — |
| | 8,551,000 |
| |
Greenville — Patewood | | 6.18 |
| | 1/1/2016 | | 35,157,000 |
| | 35,609,000 |
| |
Greenville — Greer | | 6.00 |
| | 2/1/2017 | | 8,304,000 |
| | 8,413,000 |
| |
Greenville — Memorial | | 6.00 |
| | 2/1/2017 | | 4,396,000 |
| | 4,454,000 |
| |
Greenville — MMC | | 6.25 |
| | 6/1/2020 | | 22,467,000 |
| | 22,743,000 |
| |
Sun City-Note B | | 6.54 |
| | 9/1/2014 | | 14,598,000 |
| | 14,819,000 |
| |
Sun City-Note C | | 6.50 |
| | 9/1/2014 | | 4,291,000 |
| | 4,412,000 |
| |
Sun City Note D | | 6.98 |
| | 9/1/2014 | | 13,657,000 |
| | 13,839,000 |
| |
King Street | | 5.88 |
| | 3/5/2017 | | 6,185,000 |
| | 6,429,000 |
| |
Wisconsin MOB II — Mequon | | 6.25 |
| | 7/10/2017 | | 9,832,000 |
| | 9,952,000 |
| |
Balfour Concord — Denton | | 7.95 |
| | 8/10/2012 | | 4,454,000 |
| | 4,592,000 |
| |
Pearland-Broadway | | 5.57 |
| | 9/1/2012 | | 2,318,000 |
| | 2,361,000 |
| |
7900 Fannin-Note A | | 7.30 |
| | 1/1/2021 | | 21,571,000 |
| | 21,783,000 |
| |
7900 Fannin-Note B | | 7.68 |
| | 1/1/2016 | | 812,000 |
| | 819,000 |
| |
Deaconess — Evansville | | 4.90 |
| | 8/6/2015 | | 20,842,000 |
| | 21,151,000 |
| |
Overlook | | 6.00 |
| | 11/5/2016 | | 5,324,000 |
| | 5,408,000 |
| |
Triad | | 5.60 |
| | 9/1/2022 | | 11,800,000 |
| | 11,961,000 |
| |
Santa Fe — Building 1640 | | 5.57 |
| | 7/1/2015 | | 3,489,000 |
| | 3,555,000 |
| |
Rendina — Wellington | | 5.97 |
| | 12/1/2016 | | 8,201,000 |
| | 8,296,000 |
| |
Rendina — Gateway | | 6.49 |
| | 9/1/2018 | | 10,397,000 |
| | 10,596,000 |
| |
Columbia — Patroon Creek Note A | | 6.10 |
| | 6/1/2016 | | 22,732,000 |
| | 23,123,000 |
| |
Columbia — Patroon Creek Note B | | 6.10 |
| | 6/1/2016 | | 841,000 |
| | 890,000 |
| |
Columbia — 1092 Madison | | 6.25 |
| | 2/1/2018 | | 1,964,000 |
| | 2,006,000 |
| |
Columbia — FL Orthopaedic | | 5.45 |
| | 7/10/2013 | | 6,795,000 |
| | 7,041,000 |
| |
Columbia — Capital Region Health Park | | 6.51 |
| | 7/10/2012 | | 21,535,000 |
| | 22,309,000 |
| |
Columbia — Putnam | | 5.33 |
| | 5/1/2015 | | 19,005,000 |
| | 19,329,000 |
| |
Columbia — CDPHP | | 5.40 |
| | 6/1/2016 | | 20,851,000 |
| | 21,182,000 |
| |
Phoenix — Estrella | | 6.26 |
| | 8/1/2017 | | 20,449,000 |
| | 20,695,000 |
| |
Phoenix — MOB IV | | 6.01 |
| | 6/11/2017 | | 4,291,000 |
| | 4,355,000 |
| |
Phoenix — Paseo | | 6.32 |
| | 10/11/2016 | | 2,118,000 |
| | — |
| |
Columbia — N. Berkshire | | 6.01 |
| | 12/11/2012 | | 4,331,000 |
| | — |
| |
Total fixed rate debt | | |
| | | | 461,248,000 |
| | 470,815,000 |
| |
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | | | | | | | | | | | | | | |
| | | | | | December 31, | |
Property | | Interest Rate | | Maturity Date | | 2011 (a) | | 2010 (b) | |
Variable Rate Debt: | | |
| | | | | | |
| | |
| |
Chesterfield Rehabilitation Center |
| 1.95 | % | | (c) | | 12/30/2012 | | 21,120,000 |
| | 22,000,000 |
| |
Park Place Office Park |
| 1.85 |
| | (c) | | 12/31/2010 | | — |
| (d) | 10,943,000 |
| |
Highlands Ranch Medical Plaza |
| 1.85 |
| | (c) | | 12/31/2010 | | — |
| (e) | 8,853,000 |
| |
Medical Portfolio 1 |
| 1.98 |
| | (c) | | 2/28/2011 | | — |
| (e) | 19,580,000 |
| |
Medical Portfolio 3 |
| 2.55 |
| | (c) | | 6/26/2011 | | — |
| (d) | 58,000,000 |
| |
SouthCrest Medical Plaza |
| 2.50 |
| | (c) | | 6/30/2011 | | — |
| (e) | 12,870,000 |
| |
Wachovia Pool Loans(d) |
| 4.65 |
| | (c) | | 6/30/2011 | | — |
| (e) | 48,666,000 |
| |
Cypress Station Medical Office Building |
| 2.05 |
| | (c) | | 9/1/2011 | | — |
| (d) | 7,043,000 |
| |
Decatur Medical Plaza |
| 2.30 |
| | (c) | | 9/26/2011 | | — |
| (d) | 7,900,000 |
| |
Mountain Empire Portfolio |
| 2.48 |
| | (c) | | 9/27/2012 | | 17,935,000 |
| | 18,408,000 |
| |
Wells Fargo Secured Real Estate Term Loan |
| 2.65 |
| | (c) | | 12/31/2013 | | 125,500,000 |
|
| — |
| |
Sun City-Sun 1 |
| 1.77 |
| | (c) | | 12/31/2014 | | 1,438,000 |
| | 2,000,000 |
| |
Sun City-Sun 2 |
| 1.77 |
| | (c) | | 12/31/2014 | | 9,317,000 |
| | 9,480,000 |
| |
Total variable rate debt | | |
| | | | | | 175,310,000 |
| | 225,743,000 |
| |
Total fixed and variable debt | | |
| | | | | | 636,558,000 |
| | 696,558,000 |
| |
Add: Net premium | | |
| | | | | | 2,591,000 |
| | 2,968,000 |
| |
Mortgage loans payable, net | | |
| | | | | | $ | 639,149,000 |
| | $ | 699,526,000 |
| |
| | |
(a) | | Represents the interest rate in effect asAs of December 31, 2008. |
|
(b) | | As of December 31, 2008,2011, we had variable rate mortgage loans on 20three of our properties with effective interest rates ranging from 1.90%1.77% to 4.75%2.67% per annum and a weighted average effective interest rate of 3.33%2.51% per annum. However, asAs of December 31, 2008,2011, we had fixed rate interest rate swaps ranging from |
118
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | |
| | 4.51% to 6.02%,and caps on the entire principal balances of our Mountain Empire and Sun City-Sun 2 variable rate mortgage loan payablesloans payable as well as on 20$75,000,000 of our properties,Wells Fargo secured real estate term loan, thereby effectively fixing our interest raterates on those mortgage loan payables.loans payable at 5.87%, 2.00%, and 3.42% respectively. |
| |
|
(c)(b) | | As of December 31, 2007,2010, we had variable rate mortgage loans on six15 of our properties with effective interest rates ranging from 6.15%1.76% to 6.78%4.65% per annum and a weighted average effective interest rate of 6.35%2.72% per annum. However, asAs of December 31, 2007,2010, we had fixed rate interest rate swaps ranging from 5.52% to 6.02%,and caps on all of our Medical Portfolio 1, Decatur, Mountain Empire, and Sun City-Sun 2 variable rate mortgage loan payables,loans payable, thereby effectively fixing our interest raterates on those mortgage loan payables.loans payable at 5.23%, 5.16%, 5.87%, and 2.00%, respectively. |
| |
(c) | Represents the interest rate in effect as of December 31, 2011. |
| |
(d) | | WeRepresent loan balances that have a mortgage loan inmatured or that we have paid off during the principal amount of $50,322,000 secured by Epler Parke Building B, 5995 Plaza Drive, Nutfield Professional Center, Medical Portfolio 2 and Academy Medical Center.year ended December 31, 2011. |
| |
(e) | Represent bank loans, the aggregate principal balance of, which as of December 31, 2010, was $89,969,000, which were refinanced using the proceeds of our $125,500,000 senior secured real estate term loan. We closed on this term loan with Wells Fargo Bank, N.A., on February 1, 2011, as discussed above within this Note 7. |
The principal payments due on our mortgage loan payables as of December 31, 2008loans payable for each of the next five years ending December 31 and thereafter is as follows:
| | | | |
Year | | Amount | |
|
2009 | | $ | 11,900,000 | |
2010 | | $ | 123,410,000 | |
2011 | | $ | 199,029,000 | |
2012 | | $ | 2,047,000 | |
2013 | | $ | 15,512,000 | |
Thereafter | | $ | 110,644,000 | |
|
| | | | |
Year | | Amount |
2012 | | $ | 79,561,000 |
|
2013 | | 153,358,000 |
|
2014 | | 58,981,000 |
|
2015 | | 72,625,000 |
|
2016 | | 104,696,000 |
|
Thereafter | | 167,337,000 |
|
Total | | $ | 636,558,000 |
|
The table above does not reflect all available extension options. Of the amounts maturing in 2010, $64,596,000 have two one year extensions available and $54,717,0002012, $17,935,000 have a one year extension option available. Of the amounts maturing in 2011, $180,831,0002013, $125,500,000 have twoa one year extensionsextension available.
Healthcare Trust of America, Inc.
Unsecured Note Payables to AffiliateNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8. Derivative Financial Instruments
For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we entered into, and subsequently paid down, the following unsecured note payables with NNN Realty Advisors, evidenced by unsecured promissory notes:
| | | | | | | | | | | | | | | | |
Date of Note | | Amount | | | Maturity Date | | | Interest Rate | | | Date Paid in Full | |
|
06/30/08 | | $ | 6,000,000 | | | | 12/30/14 | | | | 4.96 | % | | | 07/07/08 | |
09/05/07 | | $ | 6,100,000 | | | | 03/05/08 | | | | 6.86 | % | | | 09/11/07 | |
08/30/07 | | $ | 1,300,000 | | | | 03/01/08 | | | | 6.85 | % | | | 09/04/07 | |
06/08/07 | | $ | 4,000,000 | | | | 12/08/07 | | | | 6.82 | % | | | 06/18/07 | |
03/09/07 | | $ | 1,000,000 | | | | 09/09/07 | | | | 6.84 | % | | | 03/28/07 | |
01/22/07 | | $ | 7,500,000 | | | | 07/22/07 | | | | 6.86 | % | | | 03/28/07 | |
The unsecured note payables to affiliate bore interest at a fixed rate and required monthly interest-only payments for the terms of the unsecured note payables to affiliate. As of December 31, 2008 and 2007, there were no amounts outstanding under the unsecured note payables to affiliate.
Because these loans were related party loans, the terms of the unsecured note payables to affiliate were approved by our board of directors, including a majority of our independent directors, and deemed fair, competitive and commercially reasonable by our board of directors.
| |
8. | Derivative Financial Instruments |
SFAS No. 133,Accounting for Derivative InstrumentsASC 815, Derivatives and Hedging Activities, or SFAS No. 133, as amended and interpreted,ASC 815, establishes accounting and reporting standards for derivative instruments, including
119
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
certain derivative instruments embedded in other contracts, and for hedging activities. We utilize derivatives such as fixed interest rate swaps and interest rate caps to add stability to interest expense and to manage our exposure to interest rate movements. Consistent with SFAS No. 133ASC 815, we record derivative financial instruments on our accompanying consolidated balance sheets as either an asset or a liability measured at fair value. SFAS No. 133ASC 815 permits special hedge accounting if certain requirements are met. Hedge accounting allows for gains and losses on derivatives designated as hedges to be offset by the change in value of the hedged item(s) or to be deferred in other comprehensive income.
In anticipation of the $125,500,000 senior secured real estate term loan that we closed on February 1, 2011, we purchased an interest rate swap with Wells Fargo Bank as counterparty, for a notional amount of $75,000,000. The interest rate swap was amended on January 25, 2011. The interest rate swap is secured by the pool of assets collateralizing the secured term loan. The effective date of the swap is February 1, 2011, and matures no later than December 31, 2013. The swap will fix one-month LIBOR at 1.0725%, which, when added to the spread of 2.35%, will result in a total interest rate of approximately 3.42% for $75,000,000 of the term loan during the initial term. We have not designated this swap as an accounting hedge. As of December 31, 20082010, we had $2,400,000 on deposit in a collateral account related to this interest rate swap. This amount was reimbursed to us in full upon the closing of the term loan on February 1, 2011.
As of December 31, 2011 and 2007,December 31, 2010, no derivatives were designated as fair value hedges or cash flow hedges. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements of SFAS No. 133.ASC 815. Changes in the fair value of derivative financial instruments are recorded in loss onthe line item entitled "Interest expense related to derivative financial instruments and net change in fair value of derivative financial instruments" in our accompanying consolidated statements of operations.
The following table lists the derivative financial instruments held by us as of December 31, 2008:2011:
| | | | | | | | | | | | | | | | | | | | | |
Notional Amount | | | | Index | | Rate | | | Fair Value | | | Instrument | | | Maturity | |
|
$ | 14,500,000 | | | | LIBOR | | | 5.97 | % | | $ | (870,000 | ) | | | Swap | | | | 09/28/10 | |
$ | 8,300,000 | | | | LIBOR | | | 5.86 | % | | $ | (512,000 | ) | | | Swap | | | | 11/30/10 | |
$ | 8,853,000 | | | | LIBOR | | | 5.52 | % | | $ | (480,000 | ) | | | Swap | | | | 12/31/10 | |
$ | 10,943,000 | | | | LIBOR | | | 5.52 | % | | $ | (593,000 | ) | | | Swap | | | | 12/31/10 | |
$ | 22,000,000 | | | | LIBOR | | | 5.59 | % | | $ | (1,167,000 | ) | | | Swap | | | | 12/30/10 | |
$ | 29,917,000 | | | | LIBOR | | | 6.02 | % | | $ | (1,776,000 | ) | | | Swap | | | | 10/01/10 | |
$ | 21,340,000 | | | | LIBOR | | | 5.23 | % | | $ | (976,000 | ) | | | Swap | | | | 01/31/11 | |
$ | 5,800,000 | | | | LIBOR | | | 4.70 | % | | $ | (221,000 | ) | | | Swap | | | | 03/06/11 | |
$ | 7,235,000 | | | | LIBOR | | | 4.51 | % | | $ | (168,000 | ) | | | Swap | | | | 05/03/10 | |
$ | 24,800,000 | | | | LIBOR | | | 4.85 | % | | $ | (554,000 | ) | | | Swap | | | | 03/31/10 | |
$ | 50,322,000 | | | | LIBOR | | | 5.60 | % | | $ | (1,797,000 | ) | | | Swap | | | | 06/30/10 | |
$ | 12,870,000 | | | | LIBOR | | | 5.65 | % | | $ | (460,000 | ) | | | Swap | | | | 06/30/10 | |
$ | 58,000,000 | | | | LIBOR | | | 5.59 | % | | $ | (1,972,000 | ) | | | Swap | | | | 06/26/10 | |
$ | 21,400,000 | | | | LIBOR | | | 5.27 | % | | $ | (936,000 | ) | | | Swap | | | | 09/23/11 | |
$ | 7,900,000 | | | | LIBOR | | | 5.16 | % | | $ | (355,000 | ) | | | Swap | | | | 09/26/11 | |
$ | 17,304,000 | | | | LIBOR | | | 5.87 | % | | $ | (1,361,000 | ) | | | Swap | | | | 09/28/13 | |
|
| | | | | | | | | | | | | | | |
Notional Amount | | Index | | Rate | | Fair Value | | Instrument | | Maturity |
| $16,578,000 |
| | LIBOR | | 5.87 | % | | $ | (946,000 | ) | | Swap | | 9/28/2013 |
75,000,000 |
| | LIBOR | | 3.42 |
| | (846,000 | ) | | Swap | | 12/31/2013 |
9,330,000 |
| | LIBOR | | 2.00 |
| | 89,000 |
| | Cap | | 12/31/2014 |
The following table lists the derivative financial instruments held by us as of December 31, 2007:2010:
| | | | | | | | | | | | | | | | | | | | | |
Notional Amount | | | | Index | | Rate | | | Fair Value | | | Instrument | | | Maturity | |
|
$ | 14,500,000 | | | | LIBOR | | | 5.97 | % | | $ | (306,000 | ) | | | Swap | | | | 09/28/10 | |
$ | 8,300,000 | | | | LIBOR | | | 5.86 | % | | $ | (164,000 | ) | | | Swap | | | | 11/30/10 | |
$ | 8,853,000 | | | | LIBOR | | | 5.52 | % | | $ | (23,000 | ) | | | Swap | | | | 12/31/10 | |
$ | 10,943,000 | | | | LIBOR | | | 5.52 | % | | $ | (65,000 | ) | | | Swap | | | | 12/31/10 | |
$ | 22,000,000 | | | | LIBOR | | | 5.59 | % | | $ | (117,000 | ) | | | Swap | | | | 12/30/10 | |
$ | 30,384,000 | | | | LIBOR | | | 6.02 | % | | $ | (702,000 | ) | | | Swap | | | | 10/01/10 | |
|
| | | | | | | | | | | | | | | |
Notional Amount | | Index | | Rate | | Fair Value | | Instrument | | Maturity |
| $19,507,000 |
|
| LIBOR |
| 5.23 | % |
| $ | (109,000 | ) |
| Swap |
| 1/31/2011 |
7,900,000 |
|
| LIBOR |
| 5.16 |
|
| (185,000 | ) |
| Swap |
| 9/26/2011 |
16,912,000 |
|
| LIBOR |
| 5.87 |
|
| (1,233,000 | ) |
| Swap |
| 9/28/2013 |
75,000,000 |
|
| LIBOR |
| 3.42 |
|
| 297,000 |
|
| Swap |
| 12/31/2013 |
9,480,000 |
|
| LIBOR |
| 2.00 |
|
| 383,000 |
|
| Cap |
| 12/31/2014 |
As of December 31, 20082011 and 2007,December 31, 2010, the fair value of our derivative financial instruments was $(14,198,000) and $(1,377,000), respectively.as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Asset Derivatives | | Liability Derivatives |
Derivatives Not | | December 31, 2011 | | December 31, 2010 | | December 31, 2011 | | December 31, 2010 |
Designated as | | Balance Sheet | | | | Balance Sheet | | | | Balance Sheet | | | | Balance Sheet | | |
Hedging Instruments: | | Location | | Fair Value | | Location | | Fair Value | | Location | | Fair Value | | Location | | Fair Value |
Interest Rate Swaps | | Other Assets | | $ | — |
| | Other Assets | | $ | 297,000 |
| | Derivative Financial Instruments | | $ | 1,792,000 |
| | Derivative Financial Instruments | | $ | 1,527,000 |
|
Interest Rate Cap | | Other Assets | | $ | 89,000 |
| | Other Assets | | $ | 383,000 |
| | | | |
| | | | |
|
For the years ended December 31, 2008 and 2007 and for the period April 28, 2006 (Date
Healthcare Trust of Inception) through December 31, 2006, we recorded $12,821,000, $1,377,000 and $0, respectively, as an increase to
120
America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the years ended December 31, 2011, 2010, and 2009, the derivative financial instruments associated with our operating properties had the following effect on our consolidated statements of operations:
|
| | | | | | | | | | | | | | |
| | | | Recognized |
Derivatives Not Designated | | Location of Gain (Loss) | | For the Year Ended |
as Hedging Instruments Under: | | Recognized: | | December 31, 2011 | | December 31, 2010 | | December 31, 2009 |
Interest Rate Swaps | | Interest expense related to derivative financial instruments and net change in fair value of derivative financial instruments | | $ | (562,000 | ) | | $ | 6,461,000 |
| | $ | 5,279,000 |
|
Interest Rate Cap | | Interest expense related to derivative financial instruments and net change in fair value of derivative financial instruments | | $ | (294,000 | ) | | $ | (507,000 | ) | | $ | — |
|
We have agreements with each of our interest expenserate swap derivative counterparties that contain a provision whereby if we default on certain of our unsecured indebtedness, then we could also be declared in default on our interest rate swap derivative obligations resulting in an acceleration of payment. In addition, we are exposed to credit risk in the event of non-performance by our derivative counterparties. We believe we mitigate our credit risk by entering into agreements with credit-worthy counterparties. We record counterparty credit risk valuation adjustments on interest rate swap derivative assets in order to properly reflect the credit quality of the counterparty. In addition, our fair value of interest rate swap derivative liabilities is adjusted to reflect the impact of our credit quality. As of December 31, 2011 and December 31, 2010, there have been no termination events or events of default related to the change in the fair value of our derivative financial instruments. See Note 16, Fair Value Measurements forinterest rate swaps.
9. Revolving Credit Facility
On November 22, 2010, we entered into a further discussion of the fair value of our derivative financial instruments.
We have a loancredit agreement, or the Loan Agreement,credit agreement, with LaSalleJPMorgan Chase Bank, N.A., as administrative agent, or JPMorgan, Wells Fargo Bank and KeyBank, in which we obtained a securedDeutsche Bank Securities Inc., as syndication agents, U.S. Bank National Association and Fifth Third Bank, as documentation agents, and the lenders named therein to obtain an unsecured revolving line of credit with LaSalle and KeyBankfacility in an aggregate maximum principal amount of $80,000,000. $275,000,000, or the unsecured credit facility. In anticipation of this new credit facility, on August 19, 2010, we voluntarily closed the $80,000,000 secured revolving facility we originally entered into in 2007. No borrowings were made on this previous credit facility during the years ended December 31, 2010 or 2009.
On May 13, 2011, we increased the unsecured credit facility from an aggregate maximum principal amount of $275,000,000 to $575,000,000 as well as extended its maturity date from November 2013 to May 2014, pursuant to an amendment to the credit agreement.
The actual amount of credit available under the Loan Agreementcredit agreement is a function of certain loan to cost, loan to valueloan-to-cost, loan-to-value and debt service coverage ratios contained in the Loan Agreement. Thecredit agreement. Subject to the terms of the credit agreement, the maximum principal amount of the Loan Agreementcredit agreement may be increased, to $120,000,000 subject to the terms of the Loan Agreement. Also,such additional financial institutions may becomefinancing being offered and provided by existing lenders under the Loan Agreement. The initial maturity date of the Loan Agreement is September 10, 2010, which may be extended by one12-month period subject to satisfaction of certain conditions, including payment of an extension feecredit agreement. Borrowings under this unsecured credit facility accrue interest at a rate per annum equal to 0.20% of the principal balance of loans then outstanding.
At our option, loans under the Loan Agreement bear interest at per annum rates equal to: (1) the London Interbank OfferedAdjusted LIBO Rate or LIBOR, plus a margin ranging from 2.50% to 3.50% based on our operating partnership's total leverage ratio, which we refer to as Eurodollar loans. Our operating partnership is required to pay a fee on the unused portion of 1.50%, (2) the greaterlenders' commitments under the credit agreement at a rate dependent on the proportion of LaSalle’s prime rate or the Federal Funds Rate (as definedaverage daily used amount to the lenders' commitments. The margin associated with borrowings during the year ended December 31, 2011 was 2.50% and the average daily commitment fee for both the year ended December 31, 2011 was 0.5%. As of December 31, 2011 and December 31, 2010, we had $0 and $7,000,000, respectively, outstanding on our unsecured revolving credit facility. The $7,000,000 drawn as of December 31, 2010 for the purpose of funding the acquisition of operating properties was repaid in the Loan Agreement) plus 0.50%, or (3) a combination of these rates.
full on January 31, 2011.
The Loan Agreementcredit agreement contains various affirmative and negative covenants that we believe are usual and customary for facilities and transactions of this type, including limitations on the incurrence of debt by us, our operating partnership and ourits subsidiaries that own properties that serve as collateral for the Loan Agreement,unencumbered assets, limitations on the nature of our operating partnership's business, and limitations on distributions by our operating partnership and its subsidiaries that own properties that serve as collateralunencumbered assets. Pursuant to the credit agreement, beginning with the quarter ending September 30, 2011, our operating partnership may not make cash distribution payments to us and we may not make cash distributions to our stockholders in excess of the greater of: (i) 100% of normalized adjusted FFO (as defined in the credit agreement) for the Loan Agreement. The Loan Agreementperiod of four quarters ending September 30, 2011 and December 31, 2011, (ii) 95% of normalized adjusted FFO for the period of four quarters ending March 31, 2012 and (iii) 90% of normalized
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
adjusted FFO for the period of four quarters ending June 30, 2012 and thereafter. Shares of our common stock issued under the DRIP are not subject to the limitation on distribution payments. Additionally, the credit agreement also imposes the followinga number of financial covenants on us and our operating partnership, as applicable: (1)including: a maximum ratio of total indebtedness to total asset value; a minimum ratio of operating cash flowEBITDA to interest expense, (2)fixed charges; a minimum tangible net worth covenant; a maximum ratio of unsecured indebtedness to unencumbered asset value; a minimum ratio of unencumbered net operating cash flowincome to fixed charges, (3)unsecured indebtedness; and a maximumminimum ratio of liabilities tounencumbered asset value (4) a maximum distribution covenantto total commitments. As of December 31, 2011 and (5) a minimum net worth covenant,December 31, 2010, we were in compliance with all of which are defined in the Loan Agreement.applicable covenants. In addition, the Loan Agreementcredit agreement includes events of default that we believe are customaryusual for facilities and transactions of this type. Astype, including restricting us from making distributions to our stockholders in the event we are in default under the credit agreement, except to the extent necessary for us to maintain our REIT status.
See Note 22, Subsequent Events, for information regarding our January and February 2012 draws of December 31, 2008$27,000,000 and 2007, we were in compliance with all such covenants and requirements.$55,000,000, respectively, on our unsecured revolving credit facility. Additionally, see Note 22 for discussion of our proposed new credit facility.
10. Identified Intangible Liabilities, Net
As of December 31, 2008 and 2007, borrowings under our secured revolving line of credit with LaSalle and KeyBank totaled $0 and $51,801,000, respectively. Borrowings as of December 31, 2007 bore interest at a weighted average interest rate of 6.93% per annum.
| |
10. | Identified Intangible Liabilities, Net |
Identified intangible liabilities, net for our properties consisted of the following as of December 31, 20082011 and 2007:2010:
| | | | | | | | |
| | December 31, | |
| | 2008 | | | 2007 | |
|
Below market leases, net of accumulated amortization of $1,400,000 and $245,000 as of December 31, 2008 and 2007, respectively, (with a weighted average remaining life of 113 months and 55 months as of December 31, 2008 and 2007, respectively). | | $ | 8,128,000 | | | $ | 1,639,000 | |
| | | | | | | | |
| | $ | 8,128,000 | | | $ | 1,639,000 | |
| | | | | | | | |
|
| | | | | | | | |
| | December 31, |
| | 2011 | | 2010 |
Below market leases, net of accumulated amortization of $4,214,000 and $4,735,000 as of December 31, 2011 and 2010, respectively, (with a weighted average remaining life of 208 months and 213 months as of December 31, 2011 and 2010, respectively). | | $ | 8,164,000 |
| | $ | 9,640,000 |
|
Above market leasehold interests, net of accumulated amortization of $159,000 and $40,000 as of December 31, 2010 and 2009, respectively, (with a weighted average remaining life of 730 months and 738 months as of December 31, 2011 and 2010, respectively). | | 3,668,000 |
| | 3,788,000 |
|
Total | | $ | 11,832,000 |
| | $ | 13,428,000 |
|
Amortization expense recorded on the identified intangible liabilities attributable to our properties for the years ended December 31, 2011, 2010 and 2009 was $1,744,000, $1,737,000, and $1,783,000, respectively. Of these amounts, for the years ended December 31, 20082011, 2010, and 20072009, $1,624,000, $1,697,000, and for the period from April 28, 2006 (Date of Inception) through December 31, 2006$1,783,000, respectively was $1,280,000, $255,000recorded to rental income and $120,000, $40,000, and $0, respectively which iswas recorded toagainst rental incomeexpense in our accompanying consolidated statements of operations.
121
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated amortization expense on the identified intangible liabilities as of December 31, 2008associated with our properties for each of the next five years ending December 31 and thereafter is as follows:
| | | | |
Year | | Amount | |
|
2009 | | $ | 1,751,000 | |
2010 | | $ | 1,441,000 | |
2011 | | $ | 1,013,000 | |
2012 | | $ | 841,000 | |
2013 | | $ | 704,000 | |
Thereafter | | $ | 2,378,000 | |
| |
11. | Commitments and Contingencies |
Litigation |
| | | | |
Year | | Amount |
2012 | | $ | 1,459,000 |
|
2013 | | 1,259,000 |
|
2014 | | 861,000 |
|
2015 | | 683,000 |
|
2016 | | 572,000 |
|
Thereafter | | 6,998,000 |
|
Total | | $ | 11,832,000 |
|
11. Commitments and Contingencies
Litigation
We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse 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,
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 that we believe would require additional disclosure or the recording of a loss contingency.
Other Organizational and Offering Expenses
Our otherDuring the time that we were offering shares under our initial and follow-on offerings as a self-managed company, we were responsible for all of our organizational and offering expenses are being paid by our advisor or its affiliates on our behalf.expenses. These other organizational and offering expenses includeincluded all expenses (other than selling commissions and the marketing support feedealer manager fees, which generally representrepresented 7.0% and 2.5%3.0% of our gross offering proceeds, respectively) to be paid by us in connection with our offering. These expenses will only becomeinitial and follow-on offerings.
Tax Status
We have entered into a closing agreement with the IRS, or the Closing Agreement, pursuant to which (i) the IRS agreed not to challenge our liabilitydividends as preferential for our taxable years 2007, 2008, 2009, and 2010, and (ii) we paid a compliance fee in an immaterial amount to the extent other organizational and offering expenses do not exceed 1.5% of the gross proceeds of our offering. As of December 31, 2008, our advisor and its affiliates have not incurred other organizational and offering expenses that exceed 1.5% of the gross proceeds of our offering. As of December 31, 2007, our advisor and its affiliates had incurred other organizational and offering expenses of $1,086,000 in excess of 1.5% of the gross proceeds of our offering, and therefore these expenses are not recorded in our accompanying consolidated financial statements as of December 31, 2007, however, these expenses were recorded and have been paid in 2008.IRS. In the future, to the extent our advisor or its affiliates incur additional other organizational and offering expenses in excess of 1.5% of the gross proceeds of our offering, these amounts may become our liability. See Note 12, Related Party Transactions — Offering Stage, for a further discussion of other organizational and offering expenses.
Chesterfield Rehabilitation Center
The operating agreement with BD St. Louis Development, LLC, or BD St. Louis, for G&E Healthcare REIT/Duke Chesterfield Rehab, LLC, or the JV Company, which owns Chesterfield Rehabilitation Center, provides that from January 1, 2010 to March 31, 2010, our operating partnership has the right and option to purchase the 20.0% membership interest in the JV Company held by BD St. Louis at a fixed price of
122
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$3,900,000. We anticipate exercising our right to purchase the 20.0% membership interest. However, if we do not exercise that right, the operating agreement provides that from January 1, 2011 to March 31, 2011, BD St. Louis has the right and option to sell all, but not less than all, of its 20.0% membership interest in the JV Company to our operating partnership at the greater of $10.00 or the fair market value as determined in accordance with the operating agreement.terms of the Closing Agreement, any reimbursement to us for our payment of this compliance fee will be considered gross income. As a result of December 31, 2008 the estimated redemption value is $3,133,000.Closing Agreement, we continue to qualify as a REIT and to satisfy our distribution requirements.
Other
Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In our opinion, these matters are not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
| |
12. | Related Party Transactions |
Fees and Expenses Paid to Affiliates
12. Related Party Transactions
Transition: Self-Management
SomeUpon the effectiveness of our executive officers are also executive officersinitial offering on September 20, 2006, we entered into an advisory agreement with our former advisor, or the Advisory Agreement, and employeesand/or holders of a direct or indirect interest in our advisor, our sponsor, Grubb & Ellis Realty Investors, LLC, or other affiliated entities. Upon the effectiveness of our offering, we entered into the Advisory AgreementGERI, and a dealer manager agreement or the Dealer Manager Agreement, with Grubb & Ellis Securities, Inc., or Grubb & Ellis Securities, or our former dealer manager. These agreements entitleentitled our former advisor, our former dealer manager and their affiliates to specified compensation for certain services as well as reimbursement of certain expenses.
OnIn 2008, we announced our plans to transition to a self-managed company. As part of our transition to self management, on November 14, 2008, we amended and restated the Advisory Agreement with our advisor and Grubb & Ellis Realty Investors. The Advisory Agreement, as amended November 14, 2008, was effective as of October 24, 2008, to reduce acquisition and expiresasset management fees, eliminate the need to pay disposition or internalization fees, to set the framework for our transition to self-management and to create an enterprise value for our company. On November 14, 2008, we also amended the partnership agreement for our operating partnership. Pursuant to the terms of the partnership agreement as amended, our former advisor had the ability to elect to defer its right, if applicable, to receive a subordinated distribution from our operating partnership after the termination or expiration of the advisory agreement upon certain liquidity events if specified stockholder return thresholds were met. This right was subject to a number of conditions and had been the subject of dispute between the parties, as well as monetary and other claims.
On May 21, 2009, we provided notice to Grubb & Ellis Securities that we would proceed with a dealer manager transition pursuant to which Grubb & Ellis Securities ceased to serve as our dealer manager for our initial offering at the end of the day on August 28, 2009. Commencing August 29, 2009, Realty Capital Securities, LLC, or RCS, an unaffiliated third party, assumed the role of dealer manager for the remainder of the offering period. The Advisory Agreement expired in accordance with its terms on September 20, 2009.
On October 18, 2010, we and our former advisor and certain of its affiliates entered into a redemption, termination and release agreement, or the Redemption Agreement. Pursuant to the Redemption Agreement, we purchased the limited partner interest, including all rights with respect to a subordinated distribution upon the occurrence of specified liquidity events and other rights held by our former advisor in our operating partnership, for $8,000,000, of which $7,285,000 is reflected in our Consolidated Statement of Operations for the year ended December 31, 2010. In addition, pursuant to the Redemption Agreement the parties resolved all monetary claims and other matters between them, and entered into certain mutual and other releases of the parties. We believe that the execution of the Redemption Agreement represented the final stage of our successful separation from our former advisor.
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fees and Expenses Paid to Former Affiliates
In the aggregate, for the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $82,622,000, $38,283,000 and $312,000, respectively,fees to our former advisor orand its affiliates as detailed below.of $0, $0, and $71,194,000, respectively.
Offering Stage
Selling Commissions
OurPrior to the transition of the dealer manager receivesfunction to RCS, our former dealer manager received selling commissions of up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. Our former dealer manager may re-allowre-allowed all or a portion of these fees to participating broker-dealers. For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $36,307,000, $14,568,000$0, $0, and $0,$35,337,000, respectively, in selling commissions to our former dealer manager. Such selling commissions are charged to stockholders’ equity (deficit) as such amounts arewere reimbursed to our former dealer manager from the gross proceeds of our initial offering.
Marketing Support FeeFees and Due Diligence Expense Reimbursements
Our former dealer manager receivesreceived non-accountable marketing support fees of up to 2.5% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. Our former dealer manager may re-allowre-allowed a portion up to 1.5% of the gross offering proceeds for non-accountable marketing fees to participating broker-dealers. In addition, in our initial offering, we may reimbursereimbursed our former dealer manager or its affiliates an additional 0.5% of the gross offering proceeds for accountable bona fide due diligence expenses, all or a portion of which could be re-allowed to participating broker-dealers for accountable bona fide due diligence expenses.broker-dealers. For the years ended December 31, 20082011, 2010, and 20072009, we incurred $0, $0, and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we incurred
123
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$13,209,000, $5,382,000 and $0,$12,786,000, respectively, in marketing support fees and due diligence expense reimbursements to our former dealer manager. Such fees and reimbursements are charged to stockholders’ equity (deficit) as such amounts are reimbursed to our former dealer manager or its affiliates from the gross proceeds of our initial offering.
Other Organizational and Offering Expenses
Our other organizational and offering expenses arewere paid by our former advisor or Grubb & Ellis Realty Investorsits affiliates, who we generally refer to as our former advisor, on our behalf. Our former advisor or Grubb & Ellis Realty Investors arewas reimbursed for actual expenses incurred up to 1.5% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $5,630,000, $3,170,000$0, $0, and $0,$2,557,000, respectively, in offering expenses to our advisor and its affiliates.former advisor. Other organizational expenses are expensed as incurred, and offering expenses are charged to stockholders’ equity (deficit) as such amounts are reimbursed to our former advisor or its affiliates from the gross proceeds of our initial offering.
Acquisition and Development Stage
Acquisition Fee
For the period from September 20, 2006 through October 24, 2008,We paid our former advisor or its affiliates received, as compensation for services rendered in connection with the investigation, selection and acquisition of properties, an acquisition fee of up to 3.0% of the contract purchase price for each property acquired or up to 4.0% of the total development cost of any development property acquired, as applicable.
In connection with the Advisory Agreement, as amended November 14, 2008, the acquisition fee payable to our advisor or its affiliate for services rendered in connection with the investigation, selection and acquisition of our properties was reduced from up to 3.0% to an amount determined as follows:
| | |
| • | for the first $375,000,000 in aggregate contract purchase price for properties acquired directly or indirectly by us after October 24, 2008, 2.5% of the contract purchase price of each such property; |
|
| • | for the second $375,000,000 in aggregate contract purchase price for properties acquired directly or indirectly by us after October 24, 2008, 2.0% of the contract purchase price of each such property, which amount is subject to downward adjustment, but not below 1.5%, based on reasonable projections regarding the anticipated amount of net proceeds to be received in our offering; and |
|
| • | for above $750,000,000 in aggregate contract purchase price for properties acquired directly or indirectly by us after October 24, 2008, 2.25% of the contract purchase price of each such property. |
The Advisory Agreement, as amended November 14, 2008, also provides that we will pay an acquisition fee in connection with the acquisition of real estate related assets in an amount equal to 1.5% of the amount funded to acquire or originate each such real estate related asset.
Our advisor or its affiliate will be entitled to receive these acquisition fees for real estateproperties and other real estate related assets acquired with funds raised in our initial offering includingby our former dealer manager for such acquisitions completed after the terminationexpiration of the Advisory Agreement, as amended November 14, 2008, subjectAgreement. We are no longer required to certain conditions.pay such fees to our former advisor.
For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $16,226,000, $12,253,000$0, $0, and $0,$10,738,000, respectively, in acquisition fees to our advisor or its affiliates. Through December 31, 2008, acquisitionformer advisor. Acquisition fees are capitalized as partincluded in acquisition-related expenses in our accompanying consolidated statements of the purchase price allocations.
124
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reimbursement of Acquisition Expenses
Our advisor or its affiliates are reimbursedoperations for acquisition expenses related to selecting, evaluating, acquiring and investing in properties. Acquisition expenses, excluding amounts paid to third parties, will not exceed 0.5% of the purchase price of the properties. The reimbursement of acquisition fees and expenses, including real estate commissions paid to unaffiliated parties, will not exceed, in the aggregate, 6.0% of the purchase price or total development costs, unless fees in excess of such limits are determined to be commercially competitive, fair and reasonable to us by a majority of our directors not interested in the transaction and by a majority of our independent directors not interested in the transaction. For the years ended December 31, 200820112010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we incurred $24,000, $12,000 and $0, respectively, for such expenses to our advisor and its affiliates, excluding amounts our advisor and its affiliates paid directly to third parties. Through December 31, 2008, acquisition expenses are capitalized as part of the purchase price allocations.2009.
Operational Stage
Asset Management Fee
For the period from September 20, 2006 through October 24, 2008,Prior to our transition to self-management, our former advisor or its affiliates werewas paid a monthly fee for services rendered in connection with the management of our assets in an amount equalassets. As part of our transition to one-twelfth of 1.0% of the average invested assets calculated as of the close of business on the last day of each month, subjectself-management, this fee to our stockholders receiving annualized distributions in an amount equal to at least 5.0% per annum on average invested capital. The asset management fee is calculated and payable monthly in cash or shares of our common stock at the option of ourformer advisor or one of its affiliates.
In connection with the Advisory Agreement, as amended November 14, 2008, the monthly asset management fee we pay to our advisorwas eliminated in connection with the managementexpiration of our assets was reduced from one-twelfth of 1.0% of our average invested assets to one-twelfth of 0.5% of our average invested assets.the Advisory Agreement.
For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $6,177,000, $1,590,000$0, $0, and $0,$3,783,000, respectively, in asset management fees to our advisor and its affiliates, which is included in general and administrative in our accompanying consolidated statementsformer advisor.
Healthcare Trust of operations.America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Property Management Fee
Our former advisor or its affiliates arewas paid a monthly property management fee equal to 4.0% of the monthly gross cash receipts from each property managed.of our properties through August 31, 2009. For properties managed by other third parties besides our former advisor, or its affiliates, our former advisor or its affiliates will bewas paid up to 1.0% of the gross cash receipts from the property foras a monthly oversight fee. For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $2,372,000, $591,000$0, $0, and $0,$2,289,000, respectively, in property management fees and oversight fees to our former advisor, and its affiliates, which is included in rental expenses in our accompanying consolidated statements of operations. As part of our transition to self-management, this fee to our former advisor was eliminated in connection with the expiration of the Advisory Agreement. Under self-management, we pay property management fees to third parties at market rates.
Lease Fee
Our former advisor, or its affiliates, as the property manager, may receivewas paid a separate fee for leasing activities in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties, as determined by a survey of brokers and agents in such area ranging between 3.0% and 8.0% of gross revenues generated from the initial term of the lease. For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $1,248,000, $265,000$0, $0, and $0,$1,665,000, respectively, to Triple Net Properties Realty, Inc., or Realty and its affiliates in lease fees.
125
fees, which are capitalized and included in other assets, net, in our accompanying consolidated balance sheets.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On-site Personnel and Engineering Payroll
For the years ended December 31, 20082011, 2010, and 20072009, GERI incurred $0, $0, and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, Grubb & Ellis Realty Investors incurred payroll for$1,827,000 respectively, in on-site personnel and engineering on our behalf of $1,012,000, $162,000 and $0, respectively,payroll, which is included in rental expenses in our accompanying consolidated statements of operations.
Operating Expenses
We reimbursereimbursed our former advisor or its affiliates for operating expenses incurred in rendering its services to us, subject to certain limitations on our operating expenses. However, we cannotWe did not reimburse our former advisor or its affiliates for operating expenses that in the four consecutive fiscal quarters then ended exceedexceeded the greater of: (1) 2.0% of our average invested assets, as defined in the Advisory Agreement, or (2) 25.0% of our net income, as defined in the Advisory Agreement, unless a majority of our independent directors determinedetermined that such excess expenses were justified based on unusual and non-recurring factors they deem sufficient. For the 12 months ended December 31, 2008, ourfactors. Our operating expenses did not exceed this limitation. Our operating expenses as a percentagelimitation during the term of average invested assets and as a percentage of net income were 1.2% and 81.4%, respectively, for the 12 months ended December 31, 2008.Advisory Agreement.
For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, Grubb & Ellis Realty Investors2009, GERI incurred on our behalf $278,000, $203,000$0, $0, and $312,000,$35,000, respectively, in operating expenses which is included in general and administrative expenses in our accompanying consolidated statements of operations.
Related Party Services Agreement
We entered into a services agreement, effective January 1, 2008, with Grubb & Ellis Realty InvestorsGERI for subscription agreement processing and investor services. The services agreement had an initial one year term and is automatically renewed forwas subject to successive one year terms. Since Grubb & Ellis Realty Investors isrenewals. On March 17, 2009, GERI provided notice of its termination of the managing memberservices agreement. The termination was to be effective September 20, 2009; however as part of our advisor,transition to self-management, we transitioned to DST Systems, Inc., our transfer agent and provider of subscription processing and investor relations services, as of August 10, 2009. Accordingly, the terms of this agreement were approved and determined by a majority of our directors, including a majority of our independent directors, as fair and reasonable to us and at fees charged to us in an amount no greater than the cost to Grubb & Ellis Realty Investors for providing such services to us, which amount shall be no greater than that which would be paid to an unaffiliated third party for similar services. The services agreement requires Grubb & Ellis Realty Investors to provide us with a 180 day advance written notice for any termination, while we have the right to terminate upon 30 days advance written notice.GERI terminated on August 9, 2009.
For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, we incurred $130,000,$0, $0, and $0,$177,000, respectively, for investor services that Grubb & Ellis Realty InvestorsGERI provided to us, which is included in general and administrative expenses in our accompanying consolidated statements of operations.
Liquidity Stage
ForDisposition Fee
We paid no disposition fees to our former advisor under the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Dateterms of Inception) through December 31, 2006, our advisor and its affiliates incurred $172,000, $0 and $0, respectively, in subscription agreement processing that Grubb & Ellis Realty Investors provided to us. As an other organizational and offering expense, these subscription agreement processing expenses will only become our liability to the extent cumulative other organizational and offering expenses do not exceed 1.5% of the gross proceeds of our offering.
Compensation for Additional Services
Our advisor or its affiliates are paid for services performed for us other than those required to be rendered by our advisor or its affiliates under the Advisory Agreement. The rateIn addition, we have no obligation to pay any disposition fees to our former advisor in the future.
Healthcare Trust of compensation for these
126
America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
services must be approved by a majority of our board of directors, including a majority of our independent directors, and cannot exceed an amount that would be paid to unaffiliated third parties for similar services. For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we incurred $7,000, $3,000 and $0, respectively, for tax services that Grubb & Ellis Realty Investors provided to us, which is included in general and administrative in our accompanying consolidated statements of operations.
Liquidity Stage
Disposition Fee
Our advisor or its affiliates will be paid, for services relating to a sale of one or more properties, a disposition fee up to the lesser of 1.75% of the contract sales price or 50.0% of a customary competitive real estate commission given the circumstances surrounding the sale, as determined by our board of directors, which will not exceed market norms. The amount of disposition fees paid, plus any real estate commissions paid to unaffiliated parties, will not exceed the lesser of a customary competitive real estate disposition fee given the circumstances surrounding the sale or an amount equal to 6.0% of the contract sales price. For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such disposition fees.
Subordinated Participation Interest
Subordinated Distribution of Net Sales Proceeds
Upon liquidation of our portfolio, our advisor will be paid a subordinated distribution of net sales proceeds. The distribution will be equal to 15.0% of the net proceeds from the sales of properties, after subtracting distributions to our stockholders of: (1) their initial contributed capital (less amounts paid to repurchase shares of our common stock pursuant to our share repurchase program) plus (2) an annual cumulative, non-compounded return of 8.0% on average invested capital. Actual amounts depend upon the sales prices of properties upon liquidation.
For the years ended December 31, 2008 and 2007 and for the period April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such distribution.
Subordinated Distribution upon Listing
Upon the listing of shares of our common stock on a national securities exchange, our advisor will be paid a distribution equal to 15.0% of the amount by which: (1) the market value of our outstanding common stock at listing plus distributions paid prior to listing exceeds (2) the sum of the total amount of capital raised from stockholders (less amounts paid to repurchase shares pursuant to our share repurchase plan) and the amount of cash that, if distributed to stockholders as of the date of listing, would have provided them an annual 8.0% cumulative, non-compounded return on average invested capital through the date of listing. Actual amounts depend upon the market value of shares of our common stock at the time of listing, among other factors. For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur such distribution.
Subordinated Distribution upon Termination
Upon termination of the Advisory Agreement, other than a termination by us for cause, our advisor will be entitled to receive a distribution from our operating partnership in an amount equal to 15.0% of the amount, if any, by which: (1) the fair market value of all of the assets of our operating partnership as of the date of the termination (determined by appraisal), less any indebtedness secured by such assets, plus the cumulative distributions made to us by our operating partnership from our inception through the termination
127
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
date, exceeds (2) the sum of the total amount of capital raised from stockholders (less amounts paid to redeem shares pursuant to our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on average invested capital through the termination date. However, our advisor will not be entitled to this distribution if our shares have been listed on a national securities exchange prior to the termination of the Advisory Agreement.
Pursuant to the terms of the Partnership Agreement Amendment,partnership agreement for our operating partnership, as amended on November 14, 2008, our former advisor may elect to defer itshad the right to receive a subordinated distribution fromupon the occurrence of certain liquidity events based on the value of our operating partnership afterassets owned at the termination oftime the Advisory Agreement subject to certain conditions.
On November 14, 2008, we entered into an amendment to the partnership agreement for our operating partnership, or the Partnership Agreement Amendment. The Partnership Agreement Amendment provides that after the termination of the Advisory Agreement without cause, if there is a listing of our shares of common stock on a national securities exchange or a merger in which our stockholders receive in exchange for shares of our common stock shares of a company that are tracked on a national securities exchange, our advisor will be entitled to receive a distribution from our operating partnership in an amount equal to 15.0% of the amount, if any, by which: (1) the fair market value of the assets of our operating partnership (determined by appraisal as of the listing date or merger date, as applicable) owned as of the termination of the Advisory Agreement,was terminated plus any assets acquired after such termination for which our former advisor was entitled to receivereceived an acquisition fee (as described above under Advisory Agreement — Acquisition Fee), or the Included Assets, less any indebtedness secured by the Included Assets, plus the cumulative distributions made byfee. On October 18, 2010, this right was purchased along with our former advisor’s partnership units in our operating partnership to us and the limited partners who received partnership units in connection with the acquisition of the Included Assets, from our inception through the listing date or merger date, as applicable, exceeds (2) the sum of the total amount of capital raised from stockholders and the capital value of partnership units issued in connection with the acquisition of the Included Assets through the listing date or merger date, as applicable, (excluding any capital raised after the completion of our offering) (less amounts paid to redeem shares pursuant to the Redemption Agreement as discussed above. As a result, our share repurchase plan) plus an annual 8.0% cumulative, noncompounded return on such invested capital andformer advisor no longer has the capital value of such partnership units measured for the period from inception through the listing date or merger date, as applicable.
For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not incur suchright to receive any subordinated distribution.
Accounts Payable Due to Affiliates, Net
The following amounts were outstanding to affiliates as13. Redeemable Noncontrolling Interest of December 31, 2008 and 2007:
| | | | | | | | | | |
| | | | December 31, | |
Entity | | Fee | | 2008 | | | 2007 | |
|
Grubb & Ellis Realty Investors | | Operating Expenses | | $ | 33,000 | | | $ | 79,000 | |
Grubb & Ellis Realty Investors | | Offering Costs | | | 797,000 | | | | 798,000 | |
Grubb & Ellis Realty Investors | | Due Diligence | | | — | | | | 25,000 | |
Grubb & Ellis Realty Investors | | On-site Payroll and Engineering | | | 207,000 | | | | 51,000 | |
Grubb & Ellis Realty Investors | | Acquisition Related Expenses | | | 103,000 | | | | 4,000 | |
Grubb & Ellis Securities | | Selling Commissions and Marketing Support Fees | | | 1,120,000 | | | | 288,000 | |
Realty | | Asset and Property Management Fees | | | 726,000 | | | | 941,000 | |
Realty | | Lease Commissions | | | 77,000 | | | | 170,000 | |
| | | | | | | | | | |
| | | | $ | 3,063,000 | | | $ | 2,356,000 | |
| | | | | | | | | | |
128
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unsecured Note Payables to Affiliate
For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we incurred $2,000, $84,000 and $0, respectively, in interest expense to NNN Realty Advisors. See Note 7, Mortgage Loan Payables, Net and Unsecured Note Payables to Affiliate — Unsecured Note Payables to Affiliate, for a further discussion.
Limited Partners
As of December 31, 20082011 and 2007,2010, we owned a 99.99%an approximately 99.93% and an approximately 99.92%, respectively, general partnership interest in our operating partnership and our advisor owned a 0.01% limited partnershippartner interest in our operating partnership. As such, 0.01%of December 31, 2011, and December 31, 2010, approximately 0.07% and 0.08% of our operating partnership was owned by individual investors that elected to exchange their partnership interests in the partnership that owns the 7900 Fannin Medical Office Building for limited partner units of our operating partnership. We acquired the majority interest in the Fannin partnership on June 30, 2010. In aggregate, as of December 31, 2011, approximately 0.07% of the earnings of our operating partnership are allocated to minority interests.the redeemable noncontrolling interest of limited partners.
On June 30, 2010, we completed the acquisition of the majority interest in the Fannin partnership, which owns the 7900 Fannin Medical Office Building located in Houston, Texas on the Texas Medical Center campus. At closing, we acquired the general partner interest and 84% of the limited partner interests in the Fannin partnership. The original investors, each of whom was a physician practicing at the Fannin medical office building at the time of acquisition, were provided the right to remain in the Fannin partnership, receive limited partner units in our operating partnership, and/or receive cash. Some of the original investors elected to remain in the Fannin partnership post-closing as limited partners. Those investors electing to remain in the Fannin partnership or to receive limited partner units in our operating partnership were provided opportunities for future redemption of their interests/units, exercisable at the option of the holder during periods specified within the agreement.
In addition, asAs of December 31, 2008 and 2007,2009, we owned an 80.0% interest in the JV Company that owns the Chesterfield Rehabilitation Center, which was originally purchased on December 20, 2007. As ofThe redeemable noncontrolling interest balance related to this arrangement at December 31, 2008 and 2007, the balance2009 was comprised of the minority interest’snoncontrolling interest's initial contribution, and 20.0% of the earnings at the Chesterfield Rehabilitation Center. Center, and accretion of the change in the redemption value over the period from the purchase date to January 1, 2011, the earliest redemption date. On March 24, 2010, our subsidiary exercised its call option to buy, for $3,900,000, 100% of the interest owned by its joint venture partner, BD St. Louis, in the JV Company. As a result of the closing of the purchase on March 24, 2010, we own a 100% interest in the Chesterfield Rehabilitation Center, and the associated redeemable noncontrolling interest balance related to this entity was reduced to zero.
Redeemable noncontrolling interests are accounted for in accordance with ASC 480, Distinguishing Liabilities From Equity, or ASC 480, at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the redemption value from the purchase date to the earliest redemption date are accreted using the straight-line method. Additionally, as the noncontrolling interests provide for redemption features not solely within the control of the issuer, we classify such interests outside of permanent equity. As of December 31, 2011 and 2010, redeemable noncontrolling interest of limited partners was $3,785,000 and $3,867,000, respectively. Below is a table reflecting the activity of the redeemable noncontrolling interests.
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
| | | |
Balance as of December 31, 2009 | $ | 3,549,000 |
|
Net loss attributable to noncontrolling interest of limited partners | (16,000 | ) |
Distributions | (145,000 | ) |
Valuation adjustments to noncontrolling interests | 570,000 |
|
Redemption of limited partner interest of former advisor | (197,000 | ) |
Purchase of Chesterfield 20% interest | (3,900,000 | ) |
Addition of noncontrolling interest attributable to the Fannin acquisition | 4,006,000 |
|
Balance as of December 31, 2010 | $ | 3,867,000 |
|
| |
Balance as of December 31, 2010 | $ | 3,867,000 |
|
Net income attributable to noncontrolling interest of limited partners | 52,000 |
|
Distributions | (134,000 | ) |
Balance as of December 31, 2011 | $ | 3,785,000 |
|
For the year ended December 31, 2008, we recorded a purchase price allocation adjustment related2011, the $52,000 in net income attributable to noncontrolling interest shown on our December 31, 2011 consolidated statement of operations reflects net income attributable to the Chesterfield Rehabilitation Center.
| |
14. | Stockholders’ Equity (Deficit) |
Common Stock
ThroughFannin partnership. For the year ended December 31, 2008,2010, the ($16,000) in net loss attributable to noncontrolling interest shown on our December 31, 2010 consolidated statement of operations reflects $64,000 in net income earned by the noncontrolling interest in the JV Company prior to our purchase of this noncontrolling interest on March 24, 2010 and $18,000 in net income attributable to our former advisor's limited partner interest, offset by a net loss of ($98,000) attributable to the Fannin partnership following our purchase of the majority interest in this partnership on June 30, 2010.
14. Stockholders’ Equity
Common Stock
Through December 31, 2011, we granted an aggregate of 90,200961,687 shares of restricted common stock to our independent directors, Chief Executive Officer, Chief Financial Officer, Executive Vice President — Acquisitions, Executive Vice President — Asset Management, and affiliatesother employees pursuant to the terms and conditions of our 2006 Incentive Plan.Plan, Employment Agreements, and the employee retention program described below. Through December 31, 2008,2011, we issued 73,824,809219,394,430 shares of our common stock in connection with our initial offering and 1,660,176follow-on offering and 19,657,520 shares of our common stock under the DRIP, and we repurchased 109,74811,170,638 shares of our common stock under our share repurchase plan. As of December 31, 20082011 and 2007,2010, we had 75,465,437228,491,312 and 21,449,451202,643,705 shares of our common stock outstanding, respectively.
We arePursuant to our follow-on offering, and sellingwe offered to the public up to 200,000,000 shares of our $0.01 par value common stock for $10.00 per share and up to 21,052,632 shares of our $0.01 par value common stock to be issued pursuant to the DRIP at $9.50 per share. Our charter authorizes us to issue 1,000,000,000 shares of our common stock. On February 28, 2011, we stopped offering shares in our primary offering. However, for noncustodial accounts, subscription agreements signed on or before February 28, 2011 with all documents and funds received by end of business March 15, 2011 were accepted. For custodial accounts, subscription agreements signed on or before February 28, 2011 with all documents and funds received by end of business March 31, 2011 were accepted.
On December 20, 2010, our stockholders approved an amendment to our charter to provide for the reclassification and conversion of our common stock in the event our shares are listed on a national securities exchange to implement a phased in liquidity program. We proposed these amendments and submitted them for approval by our stockholders to prepare our company in the event we pursue a listing. Under the phased in liquidity program, our common stock would reclassify and convert into shares of Class A common stock and Class B common stock immediately prior to a listing. In the event of a listing, the shares of Class A common stock would be immediately listed on a national securities exchange. The shares of Class B common stock would not be listed. Rather, those shares would convert into shares of Class A common stock and become listed in defined phases, over a defined period of time within 18 months of a listing. The phased in liquidity program is intended to provide for our stock to be transitioned into the public market in a way that minimizes the stock-pricing instability that could result from concentrated sales of our stock.
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Preferred Stock
Our charter authorizes us to issue 200,000,000 shares of our $0.01 par value preferred stock. As of December 31, 20082011 and 2007,2010, no shares of preferred stock were issued and outstanding.
Distribution Reinvestment Plan
We adopted the DRIP that allows stockholders to purchase additional shares of common stock through the reinvestment of distributions, subject to certain conditions. We registered and reserved 21,052,632 shares of our common stock for sale pursuant to the DRIP in our initial offering and we registered and reserved 21,052,632 shares of our common stock for sale pursuant to the DRIP in our follow-on offering. For the years ended December 31, 20082011, 2010 and 20072009, $75,864,000, $56,551,000, and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, $13,099,000, $2,673,000 and $0,$38,559,000, respectively, in distributions were reinvested and 1,378,795, 281,3817,985,655, 5,952,683, and 04,059,006 shares of our common stock, respectively, were issued under the DRIP. As of December 31, 2008 and 2007, a total of $15,772,000 and $2,673,000, respectively, in distributions were reinvested and 1,660,176 and 281,381 sharesWith the termination of our common stock, respectively, were issuedfollow-on offering on February 28, 2011, except for the DRIP, we will periodically review potential alternatives for our DRIP, including the amendment, suspension or termination of the plan.
On August 1, 2011, our board of directors adopted an amended and restated distribution reinvestment plan, or the amended DRIP, which became effective August 11, 2011.
The DRIP originally provided that the purchase price for shares under the DRIP.DRIP be offered at $9.50 per share for up to 12 months subsequent to the close of our last public offering of shares prior to the potential listing of the shares on a national securities exchange, or a listing. Certain rules and regulations promulgated by the Financial Industry Regulatory Authority, Inc., or FINRA, require that we or a third party firm establish a per share estimated valuation not based on the price to acquire our shares in a public offering not later than 18 months after the conclusion of a public offering.
Our board has determined that it is in the best interests of the company and its stockholders to ensure that we have adequate time to undertake procedures necessary to calculate an estimated value per share as required by FINRA. Accordingly, the amended DRIP provides that the purchase price for shares under the DRIP will initially be offered at $9.50 per share for up to 18 months subsequent to the close of our last public offering of shares prior to a listing. We stopped offering shares in our follow-on offering on February 28, 2011 and therefore we currently anticipate that we will establish a per share valuation for our shares by August 28, 2012. After we publish such valuation, under the amended DRIP participants may acquire shares at 95% of the per share valuation determined by the Company or another firm chosen for that purpose until a listing. From and after the date of a listing, participants may acquire shares at a price equal to 100% of the average daily open and close price per share on the distribution payment date, as reported by the national securities exchange on which the shares are traded.
Share Repurchase Plan
Our board of directors has approved a share repurchase plan. On August 24, 2006, we received SEC exemptive relief from rules restricting issuer purchases during distributions. The share repurchase plan allows
129
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
for share repurchases by us when certain criteria are met by the requesting stockholders. Share repurchases will be made at the sole discretion of our board of directors. On November 24, 2010, we, with the approval of our board of directors, elected to amend and restate our share repurchase plan. Starting in the first calendar quarter of 2011, we will fund a maximum of $10 million of share repurchase requests per quarter, subject to available funding. Funds for the repurchase of shares of our common stock will come exclusively from the proceeds we receive from the sale of shares of our common stock under the DRIP.
Our board In addition, with the termination of directors adopted and approved certain amendments toour follow-on offering on February 28, 2011, except for the DRIP, we are conducting an ongoing review of potential alternatives for our share repurchase plan, which became effective August 25, 2008. The primary purposeincluding the suspension or termination of the amendments is to provide stockholders with the opportunity to have their shares of our common stock redeemed, at the sole discretion of our board of directors, during the period we are engaged in a public offering at increasing prices based upon the period of time the shares of common stock have been continuously held. Under the amended share repurchase plan, redemption prices range from $9.25 per share, or 92.5% of the price paid per share, following a one year holding period to an amount equal to not less than 100% of the price paid per share following a four year holding period. Under the previous share repurchase plan, stockholders could only request to have their shares of our common stock redeemed at $9.00 per share during the period we are engaged in a public offering.
plan.
For the year ended December 31, 2008,2011, we repurchased 109,7483,882,619 shares of our common stock, at an average price of $9.70 per share, for an aggregate amount of $1,077,000. During$37,680,000. For the year ended December 31, 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2010, we did not repurchase any sharerepurchased 5,448,260 shares of our common stock.stock, at an average price of $9.52 per share, for an aggregate amount of $51,856,000. For the year ended December 31, 2009, we repurchased 1,730,011 shares of our common stock, at an average price of $9.40 per share, for an aggregate amount of $16,266,000. As of December 31, 2011 and 2010, we had repurchased a total of 11,170,638 shares of our common stock, at an average price of $9.57 per share, for an aggregate amount of $106,879,000 and 7,288,019 shares of our common stock, at an average price of $9.49 per share, for an aggregate amount of $69,199,000, respectively.
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Amended and Restated 2006 Incentive Plan and 2006 Independent Directors Compensation Plan
Under the termsOn February 24, 2011, as a result of our compensation committee's and board of directors' comprehensive review of our compensation structure, our board of directors amended and restated our 2006 Incentive Plan, or the Amended and Restated 2006 Plan. Consistent with the original plan, the Amended and Restated 2006 Plan permits the grant of incentive awards to our employees, officers, non-employee directors, and consultants as selected by our board or the compensation committee. Our philosophy regarding compensation is to structure employee compensation to promote and reward performance-based behavior, which results in risk-managed, added value to our company and stockholders. The plan is designed to provide maximum flexibility to our company consistent with our current size, the stage of our life cycle, and our overall strategic plan. As and when our board and compensation committee determine various performance-based awards, the details of such awards, such as vesting terms and post-termination exercise periods, will be addressed in the individual award agreements.
The Amended and Restated 2006 Incentive Plan authorizes the granting of awards in any of the following forms: options, stock appreciation rights, restricted stock, restricted or deferred stock units, performance awards, dividend equivalents, other stock-based awards, including units in operating partnership, and cash-based awards. Subject to adjustment as provided in the Amended and Restated 2006 Incentive Plan, the aggregate number of shares of our common stock subjectreserved and available for issuance pursuant to options,awards granted under the Amended and Restated 2006 Incentive Plan is 10,000,000 (which includes 2,000,000 shares of restricted common stock, stock purchase rights, stock appreciation rights or other awards, including those issuableoriginally reserved for issuance under its sub-plan, the 2006 Independent Directors Compensation Plan, will be no more than 2,000,000 shares.plan and 8,000,000 new shares added pursuant to the amendment and restatement).
On September 20, 2006During the years ended December 31, 2011 and October 4, 2006,2010, we granted an aggregate of 15,00037,500 and 37,500 shares, and 5,000 shares, respectively, of restricted common stock, as defined in our 2006 Incentive Plan, to our independent directors under the 2006 Independent Director Compensation Plan. On April 12, 2007, we granted 5,000 shares of restricted common stock to our newly appointed independent director. On each of June 12, 2007 and June 17, 2008, in connection with their re-election, we granted 12,500 shares of restricted common stock in the aggregate to our independent directors. Each of these restricted stock awards vested 20.0% on the grant date and 20.0% will vest on each of the first four anniversaries of the date of grant.
On November 14, 2008, we granted Mr. Peters 40,000 shares of restricted common stock under, and pursuant to the terms and conditions of our 2006 Incentive Plan. The shares of restricted common stock will vestvested and becomebecame non-forfeitable in equal annual installments of 33.3% each, on the first, second and third anniversaries of the grant date. Pursuant to the terms of his new employment agreement, on July 1, 2009, Mr. Peters was entitled to receive 50,000 shares of fully vested stock under, and pursuant to, the terms and conditions of our 2006 Incentive plan and his employment agreement. Pursuant to the terms of his new employment agreement, on July 1, 2009, Mr. Peters was also entitled to receive an annual award of 100,000 shares of restricted common stock with three additional annual awards of 100,000 shares beginning July 1, 2010, subject to board approval, under, and pursuant to, the terms and conditions of our 2006 Incentive plan and his employment agreement. On May 20, 2010, the Board approved an amendment to Mr. Peters’ employment agreement with the Company to increase the number of restricted shares Mr. Peters is entitled to receive on each of the first three anniversaries of the effective date of his employment agreement from 100,000 to 120,000. The share awards will vest and become non-forfeitable over the balance of the term of his employment agreement. The terms of his employment agreement provide Mr. Peters with the option to receive cash in lieu of stock for up to 50% of the grants made under his employment agreement at the time of issuance at the common stock fair value on the grant date, which option has been exercised with respect to all grants under his agreement. Accordingly, Mr. Peters received grants of 120,000 shares on July 1, 2011 and 2010, respectively, and elected to receive a restricted cash award in lieu of 60,000 shares during each of those years.
Employee Retention Program
On May 20, 2010, the Board approved the adoption of an employee retention program pursuant to which the Company will grant its executive officers and employees restricted shares of the Company’s common stock. The purpose of this program is to incentivize the Company’s executive officers and employees to remain with the Company for a minimum of three years, subject to meeting the Company’s performance standards.
As part of the first stage of this program, on May 24, 2010, our named executive officers were entitled to receive grants aggregating to 200,000 shares of restricted stock. Mr. Peters elected to receive a restricted cash award in lieu of half of his total grant. Additionally, on January 3, 2011, Mr. Peters, Ms. Pruitt, Mr. Engstrom, and other key employees, were entitled to receive grants of 200,000, 80,000, 80,000, and 10,000 shares of restricted stock, respectively. Mr. Peters elected to receive a restricted cash award in lieu of 100,000 shares. The restricted shares and the restricted cash award granted to Mr. Peters on January 3, 2011 vested one-fourth upon grant, and the remaining shares and cash award will vest in thirds on each anniversary of the grant date, provided that he is employed by the Company on such date. All of the shares granted to Ms. Pruitt, Mr. Engstrom, and the other employees will vest 100% on the third anniversary of the grant date, provided that the grantee is employed by the Company on such date.
In December 2010 and January 2011, we granted 110,000 and 16,000 shares, respectively, to other employees as part of the second stage of this program. Each of these grants will vest 100% on the third anniversary of the grant date, provided that the grantee is employed by the Company on such date.
Healthcare Trust of America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Share-Based Compensation
The fair value of each share of restricted common stock wasand restricted common stock unit that has been granted under the plan is estimated at the date of grant at $10.00 per share, the per share price of shares of our common stock in our offering,initial and follow-on offerings, and is amortized on a straight-line basis over the vesting period. Shares of restricted common stock and restricted common stock units may not be sold, transferred, exchanged, assigned, pledged, hypothecated or otherwise encumbered. Such restrictions expire upon vesting. For the years ended December 31, 20082011, 2010, and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009 we recognized compensation expense of $130,000, $96,000$3,221,000, $1,313,000, and $51,000,$816,000, respectively, related to the restricted common stock grants, whichgrants. Such compensation expense is included in general and administrative expenses in our accompanying consolidated statements of operations. Shares of restricted common stock have full voting rights and rights to dividends. Shares of restricted common stock units do not have voting rights or rights to dividends.
A portion of our awards may be paid in cash in lieu of stock in accordance with the respective employment agreement and vesting schedule of such awards. These awards are revalued every reporting period end with the cash redemption liability reflected on our consolidated balance sheets, if material. For the year ended December 31, 2011, 104,167 shares were settled in cash for approximately $1,042,000. For the year ended December 31, 2010, 32,500 shares were settled in cash for approximately $325,000. For the year ended December 31, 2009, 37,500 shares were settled in cash for approximately $375,000. As of December 31, 2011 and 2010, the liability balances associated with the cash awards were $663,000 and $263,000, respectively.
As of December 31, 20082011 and 2007,2010, there was $623,000approximately $3,962,000 and $228,000,$4,143,000, respectively, of total unrecognized compensation expense net of estimated forfeitures, related to nonvested shares of restricted common stock. As of December 31, 2008,2011, this expense is expected to be recognized over a remaining weighted average period of 2.82.3 years.
130
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 20082011 and 2007,2010, the fair value of the nonvested shares of restricted common stock and restricted common stock units was $685,000$6,165,000 and $260,000,$4,352,000, respectively. A summary of the status of the nonvested shares of restricted common stock and restricted common stock units as of December 31, 2008, 20072011, 2010, and 2006, and the changes for the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009 is presented below:
| | | | | | | | |
| | | | | Weighted
| |
| | Restricted
| | | Average Grant
| |
| | Common
| | | Date Fair
| |
| | Stock | | | Value | |
|
Balance — April 28, 2006 (Date of Inception) | | | — | | | $ | — | |
Granted | | | 20,000 | | | | 10.00 | |
Vested | | | (4,000 | ) | | | 10.00 | |
Forfeited | | | — | | | | — | |
| | | | | | | | |
Balance — December 31, 2006 | | | 16,000 | | | | 10.00 | |
Granted | | | 17,500 | | | | 10.00 | |
Vested | | | (7,500 | ) | | | 10.00 | |
Forfeited | | | — | | | | — | |
| | | | | | | | |
Balance — December 31, 2007 | | | 26,000 | | | | 10.00 | |
Granted | | | 52,500 | | | | 10.00 | |
Vested | | | (10,000 | ) | | | 10.00 | |
Forfeited | | | — | | | | — | |
| | | | | | | | |
Balance — December 31, 2008 | | | 68,500 | | | $ | 10.00 | |
| | | | | | | | |
Expected to vest — December 31, 2008 | | | 68,500 | | | $ | 10.00 | |
| | | | | | | | |
| |
15. | Subordinated Participation Interest |
On November 14, 2008, we entered into an amendment to the partnership agreement for our operating partnership, or the Partnership Agreement Amendment. Pursuant to the terms |
| | | | | | |
| Restricted Common Stock/Units | | Weighted Average Grant Date Fair Value |
Balance — December 31, 2008 | 68,500 |
| | $ | 10.00 |
|
Granted, net | 165,000 |
| | 10.00 |
|
Vested | (65,833 | ) | | 10.00 |
|
Balance — December 31, 2009 | 167,667 |
| | $ | 10.00 |
|
Nonvested shares expected to vest — December 31, 2009 | 167,667 |
| | $ | 10.00 |
|
Granted, net | 357,500 |
| | $ | 10.00 |
|
Vested | (85,157 | ) | | 10.00 |
|
Forfeited | (4,842 | ) | | — |
|
Balance — December 31, 2010 | 435,168 |
| | $ | 10.00 |
|
Nonvested shares expected to vest — December 31, 2010 | 435,168 |
| | $ | 10.00 |
|
Granted, net | 383,500 |
| | $ | 10.00 |
|
Vested | (163,681 | ) | | 10.00 |
|
Forfeited | (38,481 | ) | | 10.00 |
|
Balance — December 31, 2011 | 616,506 |
| | $ | 10.00 |
|
Nonvested shares expected to vest — December 31, 2011 | 616,506 |
| | $ | 10.00 |
|
Healthcare Trust of the Partnership Agreement Amendment, our advisor may elect to defer its right to receive a subordinated distribution from our operating partnership after the termination of the Advisory Agreement, subject to certain conditions.America, Inc.
The Partnership Agreement Amendment provides that after the termination of the Advisory Agreement if there is a listing of our shares on a national securities exchange or a merger in which our stockholders receive in exchange for shares of our common stock shares of a company that are tracked on a national securities exchange, our advisor will be entitled to receive a distribution from our operating partnership in an amount equal to 15.0% of the amount, if any, by which: (1) the fair market value of the assets of our operating partnership (determined by appraisal as of the listing date or merger date, as applicable) owned as of the termination of the Advisory Agreement, plus any assets acquired after such termination for which our advisor was entitled to receive an acquisition fee (as described above under Advisory Agreement — Acquisition Fee), or the Included Assets, less any indebtedness secured by the Included Assets, plus the cumulative distributions made by our operating partnership to us and the limited partners who received partnership units in connection with the acquisition of the Included Assets, from our inception through the listing date or merger date, as applicable, exceeds (2) the sum of the total amount of capital raised from stockholders and the capital value of partnership units issued in connection with the acquisition of the Included Assets through the listing date or merger date, as applicable, (excluding any capital raised after the completion of our offering) (less amounts paid to redeem shares of our common stock pursuant to our share repurchase plan) plus an annual 8.0% cumulative, non-compounded return on such invested capital and the capital value of such partnership units measured for the period from inception through the listing date or merger date, as applicable.
131
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Fair Value of Financial Instruments
In addition, the Partnership Agreement Amendment providesASC 820, Fair Value Measurements and Disclosures, or ASC 820, defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 emphasizes that after the termination date in the event offair value is a liquidation or sale of all or substantially allmarket-based measurement, as opposed to a transaction-specific measurement and most of the assetsprovisions were effective for our consolidated financial statements beginning January 1, 2008.
Fair value is defined by ASC 820 as 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 operating partnership,asset or an other liquidity event, then our advisor willliability, various techniques and assumptions can be entitledused to receive a distributionestimate the fair value. Financial assets and liabilities are measured using inputs from our operating partnership in an amount equal to 15.0%three levels of the net proceedsfair 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 derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs).
Level 3 — Unobservable inputs, only used to the saleextent that observable inputs are not available, reflect our assumptions about the pricing of the Included Assets, after subtracting distributions to our stockholders and the limited partners who received partnership units in connection with the acquisitionan asset or liability.
ASC 825, Financial Instruments, ASC 825, requires disclosure of the Included Assets of: (1) their initial invested capital and the capitalfair value of such partnership units (less amounts paid to repurchase shares pursuant to our share repurchase program) through the date of the other liquidity event plus (2) anfinancial instruments in interim financial statements as well as in annual 8.0% cumulative, non-compounded return on such invested capital and the capital value of such partnership units measured for the period from inception through the other liquidity event date.
For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we have not recorded any charges to earnings related to the subordinated participation interest.
| |
16. financial statements. | Fair Value of Financial Instruments |
We use fair value measurements to record the 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 under SFAS No. 107,Disclosure About Fair Value of Financial Instruments, or SFAS No. 107.value.
Financial Instruments Reported at Fair Value
Cash and Cash Equivalents
We invest in money market funds which are classified within Level 1 of the fair value hierarchy because they are valued using unadjusted quoted market prices in active markets for identical securities.
Derivative Financial Instruments
Currently, we use interest rate swaps and interest rate caps to manage interest rate risk associated with floating rate debt. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including 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 and interest rate caps are determined using the market standard methodology of netting the discounted future fixed cash payments and 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.
To comply with the provisions of SFAS No. 157,ASC 820, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk 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.
Although we have determined that the majority of the inputs used to value our interest rate swap and interest rate cap derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivativesthese instruments utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, as of December 31, 2008,2011, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate swap and interest rate cap derivative positions and have determined that the credit valuation adjustments are not significant to thetheir overall valuation of our derivatives.valuation. As a result, we have determined that our interest rate swap and interest rate cap derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
132
Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Earnout Liability
As of December 31, 2011, we owned one property, purchased during the third quarter of 2010, that is subject to an earnout provision obligating us to pay additional consideration to the seller contingent on the future leasing and occupancy of vacant space at the property. This earnout payment is based on a predetermined formula and has a set 24-month time period regarding the obligation to make these payments. If, at the end of this time period, certain space has not been leased and occupied, we will have no further obligation. Its fair value is based upon the expected probability of lease-up and subsequent payment of the earnout through the expiration of the earnout period, which ends in August 2012.
As such, valuation of this liability required utilization of Level 3 inputs, including management estimates of the timing and likelihood of lease-up, as there is no public market for this item and thus Level 1 and Level 2 inputs are unavailable for an item of this nature. As a result, we have determined that the valuation of the earnout is classified within Level 3 of the fair value hierarchy. During the year ended December 31, 2011, there have been no purchases, sales, issuances, or settlements with respect to this earnout liability.
As of December 31, 2011, there have been no transfers of assets or liabilities between levels.
Assets and liabilitiesLiabilities at fair valueFair Value
The table below presents our assets and liabilities measured at fair value on a recurring basis as of December 31, 2008,2011, aggregated by the level in the fair value hierarchy within which those measurements fall.fall:
| | | | | | | | | | | | | | | | |
| | Quoted Prices in
| | | | | | | | | | |
| | Active Markets for
| | | | | | | | | | |
| | Identical Assets
| | | Significant Other
| | | Significant
| | | | |
| | and Liabilities
| | | Observable Inputs
| | | Unobservable Inputs
| | | | |
| | (Level 1 ) | | | (Level 2) | | | (Level 3) | | | Total | |
|
Assets | | | | | | | | | | | | | | | | |
Money market funds | | $ | 110,330,000 | | | $ | — | | | $ | — | | | $ | 110,330,000 | |
| | | | | | | | | | | | | | | | |
Total assets at fair value | | $ | 110,330,000 | | | $ | — | | | $ | — | | | $ | 110,330,000 | |
| | | | | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | | | | |
Derivative financial instruments | | $ | — | | | $ | (14,198,000 | ) | | $ | — | | | $ | (14,198,000 | ) |
| | | | | | | | | | | | | | | | |
Total liabilities at fair value | | $ | — | | | $ | (14,198,000 | ) | | $ | — | | | $ | (14,198,000 | ) |
| | | | | | | | | | | | | | | | |
We did not have any |
| | | | | | | | | | | | | | | |
| Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1 ) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Assets | |
| | |
| | |
| | |
|
Derivative financial instruments | $ | — |
| | $ | 89,000 |
| | $ | — |
| | $ | 89,000 |
|
Total assets at fair value | $ | — |
| | $ | 89,000 |
| | $ | — |
| | $ | 89,000 |
|
Liabilities | |
| | |
| | |
| | |
|
Derivative financial instruments | $ | — |
| | $ | (1,792,000 | ) | | $ | — |
| | $ | (1,792,000 | ) |
Earnout liability | $ | — |
| | $ | — |
| | $ | (2,481,000 | ) | | $ | (2,481,000 | ) |
Total liabilities at fair value | $ | — |
| | $ | (1,792,000 | ) | | $ | (2,481,000 | ) | | $ | (4,273,000 | ) |
The table below presents our assets and liabilities measured at fair value measurements using significant unobservable inputs (Level 3)on a recurring basis as of December 31, 2008.2010, aggregated by the level in the fair value hierarchy within which those measurements fall:
|
| | | | | | | | | | | | | | | |
| Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1 ) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Assets | |
| | |
| | |
| | |
|
Money market funds | $ | 43,000 |
| | $ | — |
| | $ | — |
| | $ | 43,000 |
|
Derivative financial instruments(a) | — |
| | 680,000 |
| | — |
|
| 680,000 |
|
Total assets at fair value | $ | 43,000 |
| | $ | 680,000 |
| | $ | — |
|
| $ | 723,000 |
|
Liabilities | |
| | |
| | |
| | |
|
Derivative financial instruments | $ | — |
| | $ | (1,527,000 | ) | | $ | — |
| | $ | (1,527,000 | ) |
Earnout liability | $ | — |
| | $ | — |
| | $ | (2,481,000 | ) | | $ | (2,481,000 | ) |
Total liabilities at fair value | $ | — |
| | $ | (1,527,000 | ) | | $ | (2,481,000 | ) | | $ | (4,008,000 | ) |
Financial Instruments Disclosed at Fair Value
SFAS No. 107ASC 825 requires disclosure of the fair value of financial instruments, whether or not recognized on the face of the balance sheet. Fair value is defined under SFAS No. 157.
ASC 820.
Our accompanying consolidated balance sheets include the following financial instruments: real estate note receivables,notes receivable, net, cash and cash equivalents, restricted cash, accounts and other receivables, net, accounts payable and accrued liabilities, accounts payable due to affiliates, net, mortgage loan payables,loans payable, net, and borrowings under the linecredit facility.
Healthcare Trust of credit.America, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The carrying value of our note receivables, net reasonably approximates fair value based on expected interest rates for notes to similar borrowers with similar terms and remaining maturities.
We consider the carrying values of cash and cash equivalents, restricted cash, accounts and other receivables, net, 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. The fair value of accounts payable due to affiliates, net is not determinable due to the related party nature.
The fair value of the mortgage loan payable is estimated using borrowing rates available to us for mortgage loan payablesloans payable with similar terms and maturities. As of December 31, 2008,2011, the fair value of the mortgage loan payablesloans payable was $456,606,000,$687,862,000 compared to the carrying value of $460,762,000.$639,149,000. As of December 31, 2007,2010, the fair value of the mortgage loan payablesloans payable was $181,067,000,$727,370,000, compared to the carrying value of $185,801,000. $699,526,000.
The fair value of our secured revolving line of credit with LaSalle and KeyBank asthe notes receivable is estimated by discounting the expected cash flows on the notes at current rates at which management believes similar loans would be made. As of December 31, 2008 and 20072011, the fair value of these notes was $0 and $51,801,000,approximately $64,046,000 compared to athe carrying value of $0 and $51,801,000.
133
$57,459,000. As of December 31, 2010, the fair value of these notes was approximately $67,540,000 compared to the carrying value of $57,091,000.
Grubb & Ellis Healthcare REIT, Inc.
16. Tax Treatment of Distributions
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
17. | Tax Treatment of Distributions |
The income tax treatment for stockholder distributions reportable for the years ended December 31, 2008, 20072011, 2010, and 20062009 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | |
| | 2008 | | | 2007 | | | 2006 | |
|
Ordinary income | | $ | 5,879,000 | | | | 21.0 | % | | $ | 915,000 | | | | 15.3 | % | | $ | — | | | | — | % |
Capital gain | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Return of capital | | | 22,163,000 | | | | 79.0 | | | | 5,081,000 | | | | 84.7 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 28,042,000 | | | | 100 | % | | $ | 5,996,000 | | | | 100 | % | | $ | — | | | | — | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2011 | | 2010 | | 2009 |
Ordinary income | | $ | 65,712,000 |
| | 40.9 | % | | $ | 47,041,000 |
| | 40.3 | % | | $ | 2,836,000 |
| | 3.6 | % |
Return of capital | | 94,952,000 |
| | 59.1 |
| | 69,686,000 |
| | 59.7 |
| | 75,223,000 |
| | 96.4 |
|
| | $ | 160,664,000 |
| | 100.0 | % | | $ | 116,727,000 |
| | 100.0 | % | | $ | 78,059,000 |
| | 100.0 | % |
17. Future Minimum Rent
Rental Income
We have operating leases with tenants that expire at various dates through 2037 and in some cases subject to scheduled fixed increases or adjustments based on the consumer price index. Generally, the leases grant tenants renewal options. 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 of December 31, 20082011 for each of the next five years ending December 31 and thereafter is as follows:
| | | | |
Year | | Amount | |
|
2009 | | $ | 83,797,000 | |
2010 | | $ | 77,291,000 | |
2011 | | $ | 68,364,000 | |
2012 | | $ | 62,464,000 | |
2013 | | $ | 50,866,000 | |
Thereafter | | $ | 213,320,000 | |
| | | | |
Total | | $ | 556,102,000 | |
| | | | |
|
| | | |
Year | Amount |
2012 | $ | 211,029,000 |
|
2013 | 195,055,000 |
|
2014 | 178,568,000 |
|
2015 | 161,815,000 |
|
2016 | 145,674,000 |
|
Thereafter | 672,733,000 |
|
Total | $ | 1,564,874,000 |
|
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 ended December 31, 20082011, 2010 and 2007 and the period from April 28, 2006 (Date of Inception) through December 31, 2006,2009, the amount of contingent rent earned by us was not significant.
Healthcare Trust of America, Inc.
| |
19. | Business Combinations |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 have terms up to 99 years, excluding extension options. Operating lease obligations include our corporate office location in Scottsdale, Arizona and our regional office location in Charleston, South Carolina. Future minimum lease obligations under non-cancelable ground leases and other operating leases as of December 31, 2011 are as follows:
|
| | | |
Year | Amount |
2012 | $ | 3,062,000 |
|
2013 | 3,111,000 |
|
2014 | 3,100,000 |
|
2015 | 2,745,000 |
|
2016 | 2,677,000 |
|
Thereafter | 210,603,000 |
|
Total | $ | 225,298,000 |
|
18. Business Combinations
For the year ended December 31, 2008,2011, we completed the acquisition of 21 consolidated properties, adding a totaltwo new property portfolios as well as purchased additional medical office buildings within two of approximately 2,920,000 square feet of GLA to our property portfolio.existing portfolios. The aggregate purchase price of the 21 propertiesfor these acquisitions was $542,976,000$68,314,000 plus closing costs of $14,213,000.$851,000. See Note 3, Real Estate Investments, for a listing of the properties acquired and the dates of acquisition. Results of operations for the property acquisitions are reflected in our consolidated statements of operations for the year ended December 31, 20082011 for the periods subsequent to the acquisition dates.
In accordance with SFAS No. 141, we allocated the purchase price to the fair value of the assets acquired and the liabilities assumed, including allocating to the intangibles associated with the in place leases, considering the following factors: lease origination costs and tenant relationships. Certain allocations asAs of December 31, 20082011, the aggregate purchase price was allocated in the amounts shown in the table below. As the acquisitions that occurred in 2011 were determined to be individually not significant but material collectively, the allocations for these acquisitions are subject to change based on information received within one yearpresented in the aggregate, in accordance with the guidance prescribed by ASC 805. The allocable portion of the aggregate purchase date relatedprice does not include $348,000 in certain credits representative of certain purchase price adjustments and liabilities assumed by us that served to one or more events atreduce the timetotal cash tendered for these acquisitions.
|
| | | |
2011 Acquisitions | Total |
Land | $ | 945,000 |
|
Building as vacant | 49,631,000 |
|
Site improvements | 1,784,000 |
|
Unamortized tenant improvement costs | 2,657,000 |
|
Leasehold interest in land, net | 603,000 |
|
Above market debt | (76,000 | ) |
Above market leases | 209,000 |
|
Below market leases | (149,000 | ) |
Unamortized lease origination costs | 1,235,000 |
|
In place leases | 6,436,000 |
|
Tenant relationships | 4,691,000 |
|
Net assets acquired | $ | 67,966,000 |
|
For the year ended December 31, 2010, we completed the acquisition of 24 property portfolios, as well as purchased additional medical office buildings within six of our existing property portfolios. In addition, we purchased the remaining 20% interest in the JV Company that owns Chesterfield Rehabilitation Center. The aggregate purchase which confirmprice for these acquisitions was $806,048,000 plus closing costs of $6,253,000. The aggregate purchase price was allocated in the valueamount of an asset acquired or a$44,050,000 to land, $608,708,000 to building and improvements, $28,093,000 to tenant improvements, $22,291,000 to lease commissions, $39,713,000 to leases in place, $57,066,000 to tenant relationships, $2,004,000 to leasehold interest in land, $(272,000) to lease fee interest in land, $(5,005,000) to above market debt, $8,608,000 to above market leases, and $(4,112,000) to below market leases. Amounts presented in the allocations pertain to all acquisitions completed during the year ended December 31, 2010 except for the Chesterfield Rehabilitation Center noncontrolling interest purchase; this purchase of
134
Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
liability assumedthe remaining 20% interest in the joint venture entity that owns the Chesterfield Rehabilitation Center was accounted for as an acquisition of a property. The following table summarizesequity transaction and thus not included within the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition for our properties where theaggregate purchase price exceeded 10.0%allocation. Additionally, the allocable portion of the aggregate purchase price did not include $1,004,000 in certain credits representative of contingent purchase price adjustments and liabilities assumed by us that served to reduce the total cash tendered for these acquisitions.
In accordance with ASC 805, Business Combinations (“ASC 805”), we, with assistance from independent valuation specialists, allocate the purchase price of acquired properties to tangible and identified intangible assets and liabilities based on their respective fair values. The allocation to tangible assets (building and land) is based upon our determination of the 21 propertiesvalue of the property as if it were to be replaced and allvacant using discounted cash flow models similar to those used by independent appraisers. 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 property is allocated to the above or below market value of in place leases, the value of in place leases, tenant relationships, above or below market debt assumed, and any contingent consideration transferred in the combination.
As of December 31, 2011, we owned one property, purchased during the third quarter of 2010, that is subject to an earnout provision obligating us to pay additional consideration to the seller contingent on the future leasing and occupancy of vacant space at the property. This earnout payment is based on a predetermined formula and has a set 24-month time period regarding the obligation to make these payments. If, at the end of this time period, certain space has not been leased and occupied, we will have no further obligation. The total liability balance associated with the earnout at December 31, 2011, which is recorded within "Security deposits, prepaid rent, and other properties aggregated together:liabilities" in our consolidated balance sheet, was $2,481,000.
| | | | |
| | Total | |
|
Land | | $ | 55,062,000 | |
Building and improvements | | | 418,060,000 | |
Above market leases | | | 8,768,000 | |
In place leases | | | 41,308,000 | |
Tenant relationships | | | 38,694,000 | |
Leasehold interest | | | 926,000 | |
Master lease | | | 349,000 | |
| | | | |
Total assets acquired | | | 563,167,000 | |
Below market leases | | | (7,768,000 | ) |
| | | | |
Total liabilities assumed | | | (7,768,000 | ) |
| | | | |
Net assets acquired | | $ | 555,399,000 | |
| | | | |
Brief descriptions of the property acquisitions completed in 2011 are as follows:
Medical office building located in Phoenix, Arizona, which was purchased on February 11, 2011 for $3,762,000. This acquisition represented the final building of three in our existing Phoenix portfolio; the other two buildings comprising this portfolio were purchased during the fourth quarter of 2010.
Building located in North Adams, Massachusetts, which was purchased on February 16, 2011 for $9,182,000. This building was the final building within a portfolio of nine medical office buildings located in Albany and Carmel, New York, North Adams, Massachusetts, and Temple Terrace, Florida; the other eight buildings comprising the portfolio were purchased during the fourth quarter of 2010.
A two-building portfolio located in Bristol, Tennessee, which was purchased on March 24, 2011 for an aggregate price of $23,370,000. The first building was purchased for $5,925,000 and the second was purchased for $17,445,000. Both buildings within this portfolio are located near the campus of Wellmont Health System's Bristol Regional Medical Center.
A two-building portfolio located in Phoenix, Arizona, which was purchased on October 4, 2011 for $32,000,000. This portfolio consists of two Class A medical office buildings, comprising a total of approximately 118,000 rentable square feet (unaudited).
We recorded revenues and net losses for the year ended December 31, 2011 of approximately $4,903,000 and $(498,000), respectively, related to the above acquisitions. Net losses include $283,000 in closing cost expenses related to the acquisitions.
Supplementary Pro Forma Information
Assuming the 2011 property acquisitions discussed above had occurred on January 1, 2008,2010, for the year ended December 31, 2011, pro forma revenues, net income attributable to controlling interest and net income per basic and diluted share would have been $273,512,000, $5,890,000 and $0.03, respectively. Supplemental pro forma earnings for the year ended December 31, 2008,2011 were adjusted to exclude $283,000 of acquisition-related costs incurred during the year ended December 31, 2011.
Also, assuming the 2011 property acquisitions discussed above had occurred on January 1, 2010, for the year ended December 31, 2010, pro forma revenues, net income (loss) attributable to controlling interest and net income (loss) per basic and diluted share would have been $109,346,000, $(40,590,000)$204,265,000, $(7,821,000) and $(0.95)$(0.05), respectively.
Assuming the property acquisitions discussed above had occurred on January 1, 2007, Supplemental pro forma earnings for the year ended December 31, 2007, pro forma revenues, net income (loss) and net income (loss) per basic and diluted share would have been $75,711,000, $(32,134,000) and $(3.23), respectively.
2010 were adjusted to exclude $283,000 of acquisition-related costs incurred during the year ended December 31, 2011.
The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.
| |
20. |
Healthcare Trust of America, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
19. Concentration of Credit Risk |
Financial instruments that potentially subject us to a concentration of credit risk are primarily cash and cash equivalents, restricted cash, and accounts receivable from tenants. On July 21, 2010, President Obama signed into law the sweeping financial regulatory reform act entitled the “Dodd-Frank Wall Street Reform and Consumer Protection Act”, which implements changes to the regulation of the financial services industry, including provisions that made permanent the $250,000 limit for federal deposit insurance and increased the cash limit of Securities Investor Protection Corporation, or SIPC, protection from $100,000 to $250,000, and provided unlimited federal deposit insurance until January 1, 2013, for non-interest bearing demand transaction accounts at all insured depository institutions. As of December 31, 2008 and 2007,2011, we had bank cash and cash equivalent and restricted cash accountsbalances of $3.1 million in excess of Federal Deposit Insurance Corporation, or FDIC, insured limits. We believe this risk is not significant. ConcentrationOur concentration of credit risk with respect to accounts receivable from tenants is limited. We perform credit evaluations of prospective tenants, and security deposits or letters of credit are obtained upon lease execution. In addition, we evaluate tenants in connection with the acquisition of a property.
For the year ended As of December 31, 2008,2011, we had interests in seven consolidated properties26 buildings located in Texas, which accounted for 17.1%15.0% of our totalannualized rental income, interests in 44 buildings in Arizona, which accounted for 12.1% of our annualized rental income, interests in 22 buildings located in South Carolina, which accounted for 9.6% of our annualized rental income, interests in 20 buildings in Florida, which accounted for 8.7% of our annualized rental income, and interests in five consolidated properties located44 buildings in Indiana, which accounted for 15.5%8.1% of our annualized rental income. This rental income is based on contractual base rent from leases in effect as of December 31, 2011. Accordingly, there is a geographic concentration of risk subject to fluctuations in each of these states’ economies.
As of December 31, 2010, we had interests in 26 buildings located in Texas, which accounted for 15.3% of our total annualized rental income. Medical Portfolio 3 accountsincome, interests in 36 consolidated properties in Arizona, which accounted for 11.3%11.7% of our aggregate total annualized rental income, interests in 22 consolidated properties located in South Carolina, which accounted for 9.7% of our total annualized rental income, interests in 20 consolidated properties in Florida, which accounted for 8.8% of our total annualized rental income, and interests in 44 consolidated properties in Indiana, which accounted for 8.5% of our total annualized rental income. This rental income is based on contractual base rent from leases in effect as of December 31, 2008.2010. Accordingly, there is a geographic concentration of risk subject to fluctuations in each state’s economy.of these states’ economies.
For the year endedAs of December 31, 2008, none of our tenants at our consolidated properties accounted for 10.0% or more of our aggregate annual rental income
135
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the year ended December 31, 2007,2009, we had interests in three consolidated properties19 buildings located in Ohio,Texas, which accounted for 15.1%16.9% of our total rental income, interests in six consolidated properties18 buildings located in Florida,South Carolina, which accounted for 14.2%13.0% of our total rental income, and interestinterests in three consolidated properties33 buildings located in Georgia,Arizona, which accounted for 12.8%12.2% of our total rental income. This rental income is based on contractual base rent from leases in effect as of December 31, 2007.2009. Accordingly, there is a geographic concentration of risk subject to fluctuations in each state’s economy.
For the yearyears ended December 31, 2007, one2011, 2010, and 2009, none of our tenants at our consolidated properties accounted for 10.0% or more of our aggregate annual rental income, as follows:income.
| | | | | | | | | | | | | | | | | | | |
| | | | | Percentage of
| | | | | | | | | Lease
| |
| | 2007 Annual
| | | 2007 Annual
| | | | | | GLA
| | | Expiration
| |
Tenant | | Base Rent * | | | Base Rent | | | | Property | | (Square Feet) | | | Date | |
|
Institute for Senior Living of Florida | | $ | 4,095,000 | | | | 11.2 | | % | | East Florida Senior Care Portfolio | | | 355,000 | | | | 05/31/14 | |
20. Per Share Data
| | |
* | | Annualized rental income is based on contractual base rent from leases in effect as of December 31, 2007. The loss of the tenant or their inability to pay rent could have a material adverse effect on our business and results of operations. |
For the period from April 28, 2006 (Date of Inception) through December 31, 2006, we did not own any properties.
We report earnings (loss) per share pursuant to SFAS No. 128,ASC 260, Earnings Per Share.Share, or ASC 260. We include unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” in the computation of basic and diluted income per share pursuant to the two-class method as described in ASC 260. We have two classes of common stock for purposes of calculating our earnings per share. These classes are our common stock and our restricted stock. For the years ended December 31, 2011, 2010, and 2009, all of our earnings were distributed and the calculated earnings per share amount would be the same for both classes as they all have the same rights to distributed earnings.
Basic earnings (loss) per share attributable for all periods presented are computed by dividing net income (loss) by the weighted average number of shares of our common stock outstanding during the period. Diluted earnings (loss) per share are computed based on the weighted average number of shares of our common stock and all potentially dilutive securities, if any. Shares of restricted common stock giveFor the year ended December 31, 2011, our potentially dilutive securities did not have a material impact to our earnings per share. For the years ended December 31, 2010 and 2009, we did not have any securities that gave rise to potentially dilutive shares of our common stock.
Healthcare Trust of America, Inc.
For the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006, we recorded a net loss of $28,448,000, $7,666,000 and $242,000, respectively. As of December 31, 2008, 2007 and 2006, 68,500 shares, 26,000 shares and 16,000 shares, respectively, of restricted common stock were outstanding, but were excluded from the computation of diluted earnings per share because such shares of restricted common stock were anti-dilutive during these periods.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
22. |
| | | | | | | | | | | | | | Years Ended December 31, | | 2011 | | 2010 | | 2009 | Numerator: | | | | | | Net income (loss) | $ | 5,593,000 |
| | $ | (7,919,000 | ) | | $ | (24,773,000 | ) | (Income) loss attributable to noncontrolling interest of limited partners | (52,000 | ) | | 16,000 |
| | (304,000 | ) | Net income (loss) attributable to controlling interest | 5,541,000 |
| | (7,903,000 | ) | | (25,077,000 | ) | Denominator: | | | | | | Weighted average number of shares outstanding--basic | 223,900,167 |
| | 165,952,860 |
| | 112,819,638 |
| Dilutive restricted stock | 491,386 |
| | — |
| | — |
| Weighted average number of shares outstanding--diluted | 224,391,553 |
| | 165,952,860 |
| | 112,819,638 |
| Basic earnings per common share: | | | | | | Net income per share attributable to controlling interest | $ | 0.02 |
| | $ | (0.05 | ) | | $ | (0.22 | ) | Diluted earnings per common share: | | | | | | Net income per share attributable to controlling interest | $ | 0.02 |
| | $ | (0.05 | ) | | $ | (0.22 | ) |
21. Selected Quarterly Financial Data (Unaudited) |
Set forth below is the unaudited selected quarterly financial data. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with GAAP, the unaudited selected quarterly financial data when read in conjunction with our consolidated financial statements.
|
| | | | | | | | | | | | | | | |
| Quarters Ended |
| December 31, 2011 | | September 30, 2011 | | June 30, 2011 | | March 31, 2011 |
Revenues | $ | 65,532,000 |
| | $ | 69,940,000 |
| | $ | 68,074,000 |
| | $ | 70,892,000 |
|
Expenses | (53,801,000 | ) | | (58,807,000 | ) | | (55,541,000 | ) | | (58,978,000 | ) |
Income before other income | 11,731,000 |
| | 11,133,000 |
| | 12,533,000 |
| | 11,914,000 |
|
Other expense, net | (9,724,000 | ) | | (10,899,000 | ) | | (11,371,000 | ) | | (9,724,000 | ) |
Net income | 2,007,000 |
|
| 234,000 |
|
| 1,162,000 |
|
| 2,190,000 |
|
Less: net (income) loss attributable to noncontrolling interest of limited partners | (12,000 | ) | | (9,000 | ) | | 9,000 |
| | (40,000 | ) |
Net income attributable to controlling interest | $ | 1,995,000 |
| | $ | 225,000 |
| | $ | 1,171,000 |
| | $ | 2,150,000 |
|
Net income per share — basic and diluted: | |
| | |
| | |
| | |
|
Net income per share attributable to controlling interest | $ | — |
| | $ | — |
| | $ | 0.01 |
| | $ | 0.01 |
|
Weighted average number of shares outstanding — | |
| | |
| | |
| | |
|
Basic | 227,825,381 |
| | 229,390,941 |
| | 228,340,776 |
| | 214,797,450 |
|
Diluted | 228,316,767 |
| | 229,568,328 |
| | 228,800,828 |
| | 214,996,502 |
|
136
Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | | | | | | | | | | | | | | | |
| | Quarters Ended | |
| | December 31, 2008 | | | September 30, 2008 | | | June 30, 2008 | | | March 31, 2008 | |
|
Revenues | | $ | 27,108,000 | | | $ | 23,920,000 | | | $ | 16,273,000 | | | $ | 13,117,000 | |
Expenses | | | (24,814,000 | ) | | | (22,671,000 | ) | | | (15,078,000 | ) | | | (12,569,000 | ) |
| | | | | | | | | | | | | | | | |
Income before other income (expense) | | | 2,294,000 | | | | 1,249,000 | | | | 1,195,000 | | | | 548,000 | |
Other expense, net | | | (18,890,000 | ) | | | (6,887,000 | ) | | | (681,000 | ) | | | (7,237,000 | ) |
| | | | | | | | | | | | | | | | |
(Loss) income before minority interests | | | (16,596,000 | ) | | | (5,638,000 | ) | | | 514,000 | | | | (6,689,000 | ) |
| | | | | | | | | | | | | | | | |
Minority interests | | | 117,000 | | | | (47,000 | ) | | | (188,000 | ) | | | 79,000 | |
| | | | | | | | | | | | | | | | |
Net (loss) income | | $ | (16,479,000 | ) | | $ | (5,685,000 | ) | | $ | 326,000 | | | $ | (6,610,000 | ) |
| | | | | | | | | | | | | | | | |
Net income (loss) per share — basic | | $ | (0.25 | ) | | $ | (0.12 | ) | | $ | 0.01 | | | $ | (0.27 | ) |
| | | | | | | | | | | | | | | | |
Net income (loss) per share — diluted | | $ | (0.25 | ) | | $ | (0.12 | ) | | $ | 0.01 | | | $ | (0.27 | ) |
| | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding — | | | | | | | | | | | | | | | | |
Basic | | | 65,904,688 | | | | 47,735,536 | | | | 33,164,866 | | | | 24,266,342 | |
| | | | | | | | | | | | | | | | |
Diluted | | | 65,904,688 | | | | 47,735,536 | | | | 33,165,015 | | | | 24,266,342 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Quarters Ended | |
| | December 31, 2007 | | | September 30, 2007 | | | June 30, 2007 | | | March 31, 2007 | |
|
Revenues | | $ | 8,914,000 | | | $ | 4,787,000 | | | $ | 3,183,000 | | | $ | 742,000 | |
Expenses | | | (8,850,000 | ) | | | (5,545,000 | ) | | | (3,726,000 | ) | | | (1,003,000 | ) |
| | | | | | | | | | | | | | | | |
Income (loss) before other income (expense) | | | 64,000 | | | | (758,000 | ) | | | (543,000 | ) | | | (261,000 | ) |
Other expense, net | | | (4,070,000 | ) | | | (1,175,000 | ) | | | (660,000 | ) | | | (271,000 | ) |
| | | | | | | | | | | | | | | | |
Loss before minority interests | | | (4,006,000 | ) | | | (1,933,000 | ) | | | (1,203,000 | ) | | | (532,000 | ) |
| | | | | | | | | | | | | | | | |
Minority interests | | | 8,000 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Net loss | | $ | (3,998,000 | ) | | $ | (1,933,000 | ) | | $ | (1,203,000 | ) | | $ | (532,000 | ) |
| | | | | | | | | | | | | | | | |
Loss per share — basic and diluted | | $ | (0.21 | ) | | $ | (0.15 | ) | | $ | (0.18 | ) | | $ | (0.73 | ) |
| | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding — basic and diluted | | | 18,893,438 | | | | 13,223,746 | | | | 6,727,995 | | | | 730,986 | |
| | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | |
| Quarters Ended |
| December 31, 2010 | | September 30, 2010 | | June 30, 2010 | | March 31, 2010 |
Revenues | $ | 57,504,000 |
| | $ | 52,496,000 |
| | $ | 47,328,000 |
| | $ | 45,753,000 |
|
Expenses | (58,598,000 | ) | | (43,806,000 | ) | | (40,363,000 | ) | | (38,811,000 | ) |
Income (loss) before other income (expense) | (1,094,000 | ) | | 8,690,000 |
| | 6,965,000 |
| | 6,942,000 |
|
Other expense, net | (7,596,000 | ) | | (7,682,000 | ) | | (6,720,000 | ) | | (7,424,000 | ) |
Net income (loss) | (8,690,000 | ) | | 1,008,000 |
| | 245,000 |
| | (482,000 | ) |
Less: net (income) loss attributable to noncontrolling interest of limited partners | (44,000 | ) | | 125,000 |
| | (1,000 | ) | | (64,000 | ) |
Net income (loss) attributable to controlling interest | $ | (8,734,000 | ) | | $ | 1,133,000 |
| | $ | 244,000 |
| | $ | (546,000 | ) |
Net income (loss) per share — basic and diluted: | |
| | |
| | |
| | |
|
Net loss per share attributable to controlling interest | $ | (0.05 | ) | | $ | — |
| | $ | — |
| | $ | — |
|
Weighted average number of shares outstanding — | |
| | |
| | |
| | |
|
Basic | 191,583,752 |
| | 166,281,800 |
| | 154,594,418 |
| | 145,335,661 |
|
Diluted | 191,583,752 |
| | 166,480,852 |
| | 154,815,137 |
| | 145,335,661 |
|
Status
22. Subsequent Events
The significant events that occurred subsequent to the balance sheet date but prior to the filing of our Offeringthis report that would have a material impact on the consolidated financial statements are summarized below.
Share Repurchases
FromIn January 1, 2009 through March 13, 2009,2012, we had received and accepted subscriptions in our offering for 15,206,071repurchased 1,006,188 shares of our common stock at an average price of $9.80 per share, for an aggregate amount of $151,903,000, excluding shares$9,861,000, under our share repurchase plan.
Completed Acquisitions
On January 12, 2012, we purchased a medical office building located in Novi, Michigan for $51,320,000.
On January 31, 2012, we purchased a medical office building located in Atlanta, Georgia for approximately $8,867,000.
On March 1, 2012, we purchased a medical office building located in Pittsburgh, Pennsylvania for $54,000,000.
Pending Acquisitions
On March 9, 2012, we entered into a purchase and sale agreement for a medical office building portfolio located in the eastern United States for an aggregate purchase price of our common stock issued under$100,000,000. The portfolio, which is expected to be master leased on a triple net basis, consists of a combination of on-campus assets and off-campus medical office buildings. There can be no assurance that the DRIP.acquisition will close on the expected schedule, if at all.
Financing
In February 2012, JP Morgan, Deutsche Bank, and Wells Fargo signed engagement letters to serve as Joint Lead Arrangers for a new unsecured credit facility of at least $825,000,000, consisting of a $575,000,000 revolving tranche and a $250,000,000 term loan tranche. As of March 13, 2009, we23, 2012, the Joint Lead Arrangers and other additional lenders had received and accepted subscriptionscommitted in excess of that amount to the new credit facility. This credit facility will replace our offering for 89,030,880 sharesexisting credit facility. It will have an initial term of our common stock, for an aggregate amount4 years, with one twelve-month extension. We anticipate closing the facility in the near future.
Healthcare Trust of $889,301,000, excluding shares of our common stock issued under the DRIP.
137
America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Share Repurchases
Credit Facility Borrowing
In January 2009,and February, 2012, we repurchased 133,842drew $27,000,000 and $55,000,000, respectively, on our unsecured revolving credit facility in order to fund the acquisition of operating properties.
Distributions
On January 3, 2012, for the month ended December 31, 2011, we paid distributions of $14,100,000 ($7,562,000 in cash and $6,538,000 in shares of our common stock,stock) pursuant to the DRIP.
On February 1, 2012, for an aggregate amountthe month ended January 31, 2012, we paid distributions of $1,310,000, under$14,099,000 ($7,580,000 in cash and $6,519,000 in shares of our share repurchase plan.
Property Acquisitions
In March 2009, we acquired a medical condo and a four-building medical office property comprising 188,000 square feet of gross leasable area in two states, for an aggregate purchase price of $34,104,000.
Termination of Services Agreement
common stock) pursuant to the DRIP.
On March 17, 2009, Grubb & Ellis Realty Investors provided notice1, 2012, for the month ended February 29, 2012, we paid distributions of its termination$13,229,000 ($7,138,000 in cash and $6,091,000 in shares of the Services Agreement,our common stock) pursuant to which it provides subscription processingthe DRIP.
In December, 2011, our board of directors authorized distributions for the months of January, February, and investor relations services to us. The terminationMarch 2012. These distributions will be effective September 20, 2009.calculated based on stockholders of record each day during each such month at a rate of $0.00198630 per share per day and will equal a daily amount that, if paid each day for a 365-day period, would equal a 7.25% annualized rate based on a share price of $10.00. These distributions will be paid in February, March, and April 2012, respectively, in cash or reinvested in stock for those participating in the DRIP.
138
Healthcare Trust of America, Inc.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
December 31, 2011
|
| | | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Period | | Charged to Expenses | | Adjustments to Valuation Accounts | | Deductions | | Balance at End of Period |
Year Ended December 31, 2009 | | |
| | |
| | |
| | |
| | |
|
Allowance for doubtful accounts | | $ | 398,000 |
| | $ | 965,000 |
| | $ | — |
| | $ | 141,000 |
| | $ | 1,222,000 |
|
Year Ended December 31, 2010 | | |
| | |
| | |
| | |
| | |
|
Allowance for doubtful accounts | | $ | 1,222,000 |
| | $ | 1,022,000 |
| | $ | — |
| | $ | 318,000 |
| | $ | 1,926,000 |
|
Year Ended December 31, 2011 | | |
| | |
| | |
| | |
| | |
|
Allowance for doubtful accounts | | $ | 1,926,000 |
| | $ | 1,447,000 |
| | $ | — |
| | $ | 1,875,000 |
| | $ | 1,498,000 |
|
Healthcare REIT,Trust of America, Inc.
SCHEDULE III — REAL ESTATE OPERATING PROPERTIESINVESTMENTS AND
ACCUMULATED DEPRECIATION
December 31, 20082011
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Cost
| | | Gross Amount at Which
| | | | | | | | | |
| | | | | | | Initial Cost to Company | | | Capitalized
| | | Carried at Close of Period | | | | | | | | | |
| | | | | | | | | | Buildings,
| | | Subsequent
| | | | | | Buildings,
| | | | | | | | | | | | |
| | | | | | | | | | Improvements and
| | | to
| | | | | | Improvements and
| | | | | | Accumulated
| | | Date of
| | Date
| |
| | | | Encumbrances | | | Land | | | Fixtures | | | Acquisition(a) | | | Land | | | Fixtures | | | Total(b) | | | Depreciation(d)(e) | | | construction | | acquired | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Southpointe Office Parke and Epler Parke I (Medical Office) | | Indianapolis, IN | | $ | 9,146,000 | | | $ | 2,889,000 | | | $ | 10,015,000 | | | $ | 130,000 | | | $ | 2,889,000 | | | $ | 10,145,000 | | | $ | 13,034,000 | | | $ | (754,000) | | | 1991 & 1996/2002 | | | 01/22/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Crawfordsville Medical Office Park and Athens Surgery Center (Medical Office) | | Crawfordsville, IN | | | 4,264,000 | | | | 699,000 | | | | 5,473,000 | | | | — | | | | 699,000 | | | | 5,473,000 | | | | 6,172,000 | | | | (364,000) | | | 1998/2000 | | | 01/22/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The Gallery Professional Building (Medical Office) | | St. Paul, MN | | | 6,000,000 | | | | 1,157,000 | | | | 5,009,000 | | | | 1,008,000 | | | | 1,157,000 | | | | 6,017,000 | | | | 7,174,000 | | | | (450,000) | | | 1979 | | | 03/09/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lenox Office Park, Building G (Office) | | Memphis, TN | | | 12,000,000 | | | | 1,670,000 | | | | 13,626,000 | | | | 23,000 | | | | 1,670,000 | | | | 13,649,000 | | | | 15,319,000 | | | | (1,275,000) | | | 2000 | | | 03/23/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Commons V Medical Office Building (Medical Office) | | Naples, FL | | | 9,939,000 | | | | 4,173,000 | | | | 9,070,000 | | | | — | | | | 4,173,000 | | | | 9,070,000 | | | | 13,243,000 | | | | (471,000) | | | 1991 | | | 04/24/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Yorktown Medical Center and Shakerag Medical Center (Medical Office) | | Peachtree City and Fayetteville, GA | | | 13,530,000 | | | | 3,545,000 | | | | 15,792,000 | | | | 49,000 | | | | 3,545,000 | | | | 15,841,000 | | | | 19,386,000 | | | | (1,192,000) | | | 1987/1994 | | | 05/02/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Thunderbird Medical Plaza (Medical Office) | | Glendale, AZ | | | 14,000,000 | | | | 3,842,000 | | | | 19,680,000 | | | | 275,000 | | | | 3,842,000 | | | | 19,955,000 | | | | 23,797,000 | | | | (1,205,000) | | | 1975, 1983, 1987 | | | 05/15/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Triumph Hospital Northwest and Triumph Hospital Southwest (Healthcare Related Facility) | | Houston and Sugarland, TX | | | — | | | | 3,047,000 | | | | 28,550,000 | | | | (1,000 | ) | | | 3,047,000 | | | | 28,549,000 | | | | 31,596,000 | | | | (1,829,000) | | | 1986/1989 | | | 06/08/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gwinnett Professional Center (Medical Office) | | Lawrenceville, GA | | | 5,604,000 | | | | 1,290,000 | | | | 7,246,000 | | | | 198,000 | | | | 1,290,000 | | | | 7,444,000 | | | | 8,734,000 | | | | (426,000) | | | 1985 | | | 07/27/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
1 and 4 Market Exchange (Medical Office) | | Columbus, OH | | | 14,500,000 | | | | 2,326,000 | | | | 17,208,000 | | | | 276,000 | | | | 2,326,000 | | | | 17,484,000 | | | | 19,810,000 | | | | (883,000) | | | 2001/2003 | | | 08/15/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Kokomo Medical Office Park (Medical Office) | | Kokomo, IN | | | 8,300,000 | | | | 1,779,000 | | | | 9,613,000 | | | | 225,000 | | | | 1,779,000 | | | | 9,838,000 | | | | 11,617,000 | | | | (589,000) | | | 1992, 1994, 1995, 2003 | | | 08/30/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
St. Mary Physicians Center (Medical Office) | | Long Beach, CA | | | 8,280,000 | | | | 1,815,000 | | | | 10,242,000 | | | | (4,000 | ) | | | 1,815,000 | | | | 10,238,000 | | | | 12,053,000 | | | | (386,000) | | | 1992 | | | 09/05/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2750 Monroe Boulevard (Office) | | Valley Forge, PA | | | — | | | | 2,323,000 | | | | 22,634,000 | | | | (3,000 | ) | | | 2,323,000 | | | | 22,631,000 | | | | 24,954,000 | | | | (1,052,000) | | | 1985 | | | 09/10/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
East Florida Senior Care Portfolio (Healthcare Related Facility) | | Jacksonville, Winter Park and Sunrise, FL | | | 29,917,000 | | | | 10,078,000 | | | | 34,870,000 | | | | (1,000 | ) | | | 10,078,000 | | | | 34,869,000 | | | | 44,947,000 | | | | (1,887,000) | | | 1985, 1988, 1989 | | | 09/28/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Northmeadow Medical Center (Medical Office) | | Roswell, GA | | | 7,865,000 | | | | 1,245,000 | | | | 9,109,000 | | | | 171,000 | | | | 1,245,000 | | | | 9,280,000 | | | | 10,525,000 | | | | (441,000) | | | 1999 | | | 11/15/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tucson Medical Office Portfolio (Medical Office) | | Tucson, AZ | | | — | | | | 1,309,000 | | | | 17,574,000 | | | | 181,000 | | | | 1,309,000 | | | | 17,755,000 | | | | 19,064,000 | | | | (738,000) | | | 1979, 1980, 1994 1970, 1985, 1990, | | | 11/20/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lima Medical Office Portfolio (Medical Office) | | Lima, OH | | | — | | | | 701,000 | | | | 18,336,000 | | | | 37,000 | | | | 701,000 | | | | 18,373,000 | | | | 19,074,000 | | | | (930,000) | | | 1996, 2004, 1920 | | | 12/07/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Highlands Ranch Park Plaza (Medical Office) | | Highlands Ranch, CO | | | 8,853,000 | | | | 2,240,000 | | | | 10,426,000 | | | | 255,000 | | | | 2,240,000 | | | | 10,681,000 | | | | 12,921,000 | | | | (490,000) | | | 19,831,985 | | | 12/19/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Park Place Office Park (Medical Office) | | Dayton, OH | | | 10,943,000 | | | | 1,987,000 | | | | 11,341,000 | | | | 138,000 | | | | 1,987,000 | | | | 11,479,000 | | | | 13,466,000 | | | | (603,000) | | | 1987, 1988, 2002 | | | 12/20/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Chesterfield Rehabilitation Center (Medical Office) | | Chesterfield, MO | | | 22,000,000 | | | | 4,212,000 | | | | 27,901,000 | | | | — | | | | 4,212,000 | | | | 27,901,000 | | | | 32,113,000 | | | | (807,000) | | | 2007 | | | 12/20/07 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Medical Portfolio 1 (Medical Office) | | Overland, KS and Largo, Brandon, and Lakeland, FL | | | 21,340,000 | | | | 4,206,000 | | | | 28,373,000 | | | | 810,000 | | | | 4,206,000 | | | | 29,183,000 | | | | 33,389,000 | | | | (1,035,000) | | | 1978, 1986, 1997, 1995 | | | 02/01/08 | |
139
The following schedule presents our total real estate investments and accumulated depreciation for both our operating properties and those properties classified as held for sale as of December 31, 2011:
Grubb & Ellis |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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(b) | | Accumulated Depreciation(d)(e) | | Date of construction | | Date acquired |
Southpointe Office Parke and Epler Parke I (Medical Office) | Indianapolis, IN | $ | 9,017,000 |
| | $ | 2,889,000 |
| | $ | 10,015,000 |
| | $ | 190,000 |
| | $ | 2,889,000 |
| | $ | 10,205,000 |
| | $ | 13,094,000 |
| | (1,724,000 | ) | | 1991 &1996/2002 | | 1/22/2007 |
Crawfordsville Medical Office Park and Athens Surgery Center (Medical Office) | Crawfordsville, IN | 4,209,000 |
| | 699,000 |
| | 5,474,000 |
| | 102,000 |
| | 699,000 |
| | 5,576,000 |
| | 6,275,000 |
| | (948,000 | ) | | 1998/2000 | | 1/22/2007 |
The Gallery Professional Building (Medical Office) | St. Paul, MN | 5,948,000 |
| | 1,157,000 |
| | 5,009,000 |
| | 2,909,000 |
| | 1,157,000 |
| | 7,918,000 |
| | 9,075,000 |
| | (1,568,000 | ) | | 1979 | | 3/9/2007 |
Lenox Office Park, Building G (Office) | Memphis, TN | 11,881,000 |
| | 1,670,000 |
| | 13,626,000 |
| | (959,000 | ) | | 1,670,000 |
| | 12,667,000 |
| | 14,337,000 |
| | (1,898,000 | ) | | 2000 | | 3/23/2007 |
Commons V Medical Office Building (Medical Office) | Naples, FL | 9,528,000 |
| | 4,173,000 |
| | 9,070,000 |
| | 84,000 |
| | 4,173,000 |
| | 9,154,000 |
| | 13,327,000 |
| | (1,276,000 | ) | | 1991 | | 4/24/2007 |
Yorktown Medical Center and Shakerag Medical Center (Medical Office) | Peachtree City and Fayetteville, GA | 13,257,000 |
| | 3,545,000 |
| | 15,792,000 |
| | 1,882,000 |
| | 3,545,000 |
| | 17,674,000 |
| | 21,219,000 |
| | (2,995,000 | ) | | 1987/1994 | | 5/2/2007 |
Thunderbird Medical Plaza (Medical Office) | Glendale, AZ | 13,553,000 |
| | 3,842,000 |
| | 19,680,000 |
| | 1,782,000 |
| | 3,842,000 |
| | 21,462,000 |
| | 25,304,000 |
| | (3,569,000 | ) | | 1975, 1983, 1987 | | 5/15/2007 |
Triumph Hospital Northwest and Triumph Hospital Southwest (Healthcare Related Facility) | Houston and Sugarland, TX | — |
| | 3,047,000 |
| | 28,550,000 |
| | 257,000 |
| | 3,047,000 |
| | 28,807,000 |
| | 31,854,000 |
| | (5,294,000 | ) | | 1986/1989 | | 6/8/2007 |
Gwinnett Professional Center (Medical Office) | Lawrenceville, GA | 5,311,000 |
| | 1,290,000 |
| | 7,246,000 |
| | 990,000 |
| | 1,290,000 |
| | 8,236,000 |
| | 9,526,000 |
| | (1,312,000 | ) | | 1985 | | 7/27/2007 |
1 and 4 Market Exchange (Medical Office) | Columbus, OH | 10,093,000 |
| | 2,326,000 |
| | 17,208,000 |
| | 1,138,000 |
| | 2,326,000 |
| | 18,346,000 |
| | 20,672,000 |
| | (2,139,000 | ) | | 2001/2003 | | 8/15/2007 |
Kokomo Medical Office Park (Medical Office) | Kokomo, IN | 8,147,000 |
| | 1,779,000 |
| | 9,613,000 |
| | 314,000 |
| | 1,779,000 |
| | 9,927,000 |
| | 11,706,000 |
| | (1,773,000 | ) | | 1992, 1994, 1995, 2003 | | 8/30/2007 |
St. Mary Physicians Center (Medical Office) | Long Beach, CA | — |
| | 1,815,000 |
| | 10,242,000 |
| | 162,000 |
| | 1,815,000 |
| | 10,404,000 |
| | 12,219,000 |
| | (1,211,000 | ) | | 1992 | | 9/5/2007 |
2750 Monroe Boulevard (Office) | Valley Forge, PA | — |
| | 2,323,000 |
| | 22,631,000 |
| | 4,864,000 |
| | 2,323,000 |
| | 27,495,000 |
| | 29,818,000 |
| | (3,072,000 | ) | | 1985 | | 9/10/2007 |
East Florida Senior Care Portfolio (Healthcare Related Facility) | Jacksonville, Winter Park and Sunrise,FL | — |
| | 10,078,000 |
| | 34,870,000 |
| | — |
| | 10,078,000 |
| | 34,870,000 |
| | 44,948,000 |
| | (6,417,000 | ) | | 1985, 1988, 1989 | | 9/28/2007 |
Northmeadow Medical Center (Medical Office) | Roswell, GA | 7,375,000 |
| | 1,245,000 |
| | 9,109,000 |
| | 174,000 |
| | 1,245,000 |
| | 9,283,000 |
| | 10,528,000 |
| | (1,553,000 | ) | | 1999 | | 11/15/2007 |
Tucson Medical Office Portfolio (Medical Office) | Tucson, AZ | — |
| | 1,309,000 |
| | 17,574,000 |
| | 374,000 |
| | 1,309,000 |
| | 17,948,000 |
| | 19,257,000 |
| | (2,666,000 | ) | | 1979, 1980, 1994 1970, 1985, 1990, | | 11/20/2007 |
Lima Medical Office Portfolio (Medical Office) | Lima, OH | — |
| | 701,000 |
| | 19,052,000 |
| | 87,000 |
| | 701,000 |
| | 19,139,000 |
| | 19,840,000 |
| | (3,055,000 | ) | | 1996, 2004, 1920 | | 12/7/2007 |
Highlands Ranch Park Plaza (Medical Office) | Highlands Ranch, CO | 8,114,000 |
| | 2,240,000 |
| | 10,426,000 |
| | 1,103,000 |
| | 2,240,000 |
| | 11,529,000 |
| | 13,769,000 |
| | (1,859,000 | ) | | 1983, 1985 | | 12/19/2007 |
Park Place Office Park (Medical Office) | Dayton, OH | — |
| | 1,987,000 |
| | 11,341,000 |
| | 1,087,000 |
| | 1,987,000 |
| | 12,428,000 |
| | 14,415,000 |
| | (2,160,000 | ) | | 1987, 1988, 2002 | | 12/20/2007 |
Chesterfield Rehabilitation Center (Medical Office) | Chesterfield, MO | 21,120,000 |
| | 4,212,000 |
| | 27,901,000 |
| | 770,000 |
| | 4,313,000 |
| | 28,570,000 |
| | 32,883,000 |
| | (3,290,000 | ) | | 2007 | | 12/20/2007 |
Medical Portfolio 1 (Medical Office) | Overland, KS and Largo, Brandon, and Lakeland, FL | 21,439,000 |
| | 4,206,000 |
| | 28,373,000 |
| | 1,446,000 |
| | 4,206,000 |
| | 29,819,000 |
| | 34,025,000 |
| | (4,501,000 | ) | | 1978, 1986, 1997, 1995 | | 2/1/2008 |
Healthcare REIT,Trust of America, Inc.
SCHEDULE III — REAL ESTATE OPERATING PROPERTIESINVESTMENTS AND
ACCUMULATED DEPRECIATION — (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Cost
| | | Gross Amount at Which
| | | | | | | | | |
| | | | | | | Initial Cost to Company | | | Capitalized
| | | Carried at Close of Period | | | | | | | | | |
| | | | | | | | | | Buildings,
| | | Subsequent
| | | | | | Buildings,
| | | | | | | | | | | | |
| | | | | | | | | | Improvements and
| | | to
| | | | | | Improvements and
| | | | | | Accumulated
| | | Date of
| | Date
| |
| | | | Encumbrances | | | Land | | | Fixtures | | | Acquisition(a) | | | Land | | | Fixtures | | | Total(b) | | | Depreciation(d)(e) | | | construction | | acquired | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fort Road Medical Building (Medical Office) | | St. Paul, MN | | $ | 5,800,000 | | | $ | 1,571,000 | | | $ | 5,786,000 | | | $ | 21,000 | | | $ | 1,571,000 | | | $ | 5,807,000 | | | $ | 7,378,000 | | | $ | (184,000) | | | 1981 | | | 03/06/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liberty Falls Medical Plaza (Medical Office) | | Liberty Township, OH | | | — | | | | 842,000 | | | | 5,639,000 | | | | 1,000 | | | | 842,000 | | | | 5,640,000 | | | | 6,482,000 | | | | (155,000) | | | 2008 | | | 03/19/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Epler Parke Building B (Medical Office) | | Indianapolis, IN | | | 3,861,000 | | | | 857,000 | | | | 4,497,000 | | | | (17,000 | ) | | | 857,000 | | | | 4,480,000 | | | | 5,337,000 | | | | (183,000) | | | 2004 | | | 03/24/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cypress Station Medical Office Building (Medical Office) | | Houston, TX | | | 7,235,000 | | | | 1,345,000 | | | | 8,312,000 | | | | 11,000 | | | | 1,345,000 | | | | 8,323,000 | | | | 9,668,000 | | | | (254,000) | | | 1981/2004-2006 | | | 03/25/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Vista Professional Center (Medical Office) | | Lakeland, FL | | | — | | | | 1,082,000 | | | | 3,588,000 | | | | (29,000 | ) | | | 1,082,000 | | | | 3,559,000 | | | | 4,641,000 | | | | (150,000) | | | 1996/1998 | | | 03/27/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Senior Care Portfolio 1 (Healthcare Related Facility) | | Arlington, Galveston, Port Arthur and Texas City, TX and Lomita and El Monte, CA | | | 24,800,000 | | | | 4,871,000 | | | | 30,002,000 | | | | — | | | | 4,871,000 | | | | 30,002,000 | | | | 34,873,000 | | | | (679,000) | | | 1993, 1994, 1994, 1994/1996 1964/1969 1959/1963 | | | Various | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amarillo Hospital (Healthcare Related Facility) | | Amarillo, TX | | | — | | | | 1,110,000 | | | | 17,688,000 | | | | — | | | | 1,110,000 | | | | 17,688,000 | | | | 18,798,000 | | | | (331,000) | | | 2007 | | | 05/15/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
5995 Plaza Drive (Office) | | Cypress, CA | | | 16,830,000 | | | | 5,109,000 | | | | 17,961,000 | | | | 58,000 | | | | 5,109,000 | | | | 18,019,000 | | | | 23,128,000 | | | | (398,000) | | | 1986 | | | 05/29/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nutfield Professional Center (Medical Office) | | Derry, NH | | | 8,808,000 | | | | 1,075,000 | | | | 10,320,000 | | | | 38,000 | | | | 1,075,000 | | | | 10,358,000 | | | | 11,433,000 | | | | (172,000) | | | 1963/1990 & 1996 | | | 06/03/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
SouthCrest Medical Plaza (Medical Office) | | Stockbridge, GA | | | 12,870,000 | | | | 4,259,000 | | | | 14,636,000 | | | | (103,000 | ) | | | 4,259,000 | | | | 14,533,000 | | | | 18,792,000 | | | | (307,000) | | | 2005-2006 | | | 06/24/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Medical Portfolio 3 (Medical Office) | | Indianapolis, IN | | | 58,000,000 | | | | 9,355,000 | | | | 70,259,000 | | | | 1,335,000 | | | | 9,355,000 | | | | 71,594,000 | | | | 80,949,000 | | | | (1,744,000) | | | 1995, 1993, 1994, 1996, 1993, 1995, 1989, 1988, 1989, 1992, 1989 | | | 06/26/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Academy Medical Center (Medical Office) | | Tuczon, AZ | | | 5,016,000 | | | | 1,193,000 | | | | 6,106,000 | | | | 154,000 | | | | 1,193,000 | | | | 6,260,000 | | | | 7,453,000 | | | | (163,000) | | | 1975-1985 | | | 06/26/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Decatur Medical Plaza (Medical Office) | | Decatur, GA | | | 7,900,000 | | | | 3,166,000 | | | | 6,862,000 | | | | 325,000 | | | | 3,166,000 | | | | 7,187,000 | | | | 10,353,000 | | | | (118,000) | | | 1976 | | | 06/27/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Medical Portfolio 2 (Medical Office) | | O’Fallon and St. Louis, MO and Keller and Wichita Falls, TX | | | 30,216,000 | | | | 5,360,000 | | | | 33,506,000 | | | | 43,000 | | | | 5,360,000 | | | | 33,549,000 | | | | 38,909,000 | | | | (674,000) | | | 2001, 2001, 2006, 1957/1989/2003 & 2003 | | | Various | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Renaissance Medical Centre (Medical Office) | | Bountiful, UT | | | 20,323,000 | | | | 3,701,000 | | | | 24,442,000 | | | | — | | | | 3,701,000 | | | | 24,442,000 | | | | 28,143,000 | | | | (345,000) | | | 2004 | | | 06/30/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Oklahoma City Medical Portfolio (Medical Office) | | Oklahoma City, OK | | | — | | | | — | | | | 25,976,000 | | | | 456,000 | | | | — | | | | 26,432,000 | | | | 26,432,000 | | | | (208,000) | | | 1991, 1996/2007 | | | 09/16/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Medical Portfolio 4 (Medical Office) | | Phoenix, AZ, Parma and Jefferson West, OH, and Waxahachie, Greenville, and Cedar Hill, TX | | | 29,898,000 | | | | 2,632,000 | | | | 38,652,000 | | | | 343,000 | | | | 2,632,000 | | | | 38,995,000 | | | | 41,627,000 | | | | (415,000) | | | 1972/1980 & 2006, 1977, 1984, 2006, 2007, 2007 | | | Various | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mountain Empire Portfolio (Medical Office) | | Kingsport and Bristol, TN and Pennington Gap and Norton, VA | | | 17,304,000 | | | | 804,000 | | | | 18,400,000 | | | | — | | | | 804,000 | | | | 18,403,000 | | | | 19,207,000 | | | | — | | | 1986/1991/1993/1982/ 1990,1997/1976 & 2007, 1986, 1993 & 1995, 1981 & 1987/1999 | | | 09/12/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mountain Plains — TX (Medical Office) | | San Antonio and Webster, TX | | | — | | | | 1,248,000 | | | | 34,858,000 | | | | — | | | | 1,248,000 | | | | 34,858,000 | | | | 36,106,000 | | | | (363,000) | | | 1998, 2005, 2006, 2006 | | | 12/18/08 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Marietta Health Park (Medical Office) | | Marietta, GA | | | 7,200,000 | | | | 1,276,000 | | | | 12,197,000 | | | | — | | | | 1,276,000 | | | | 12,197,000 | | | | 13,473,000 | | | | — | | | 2000 | | | 12/22/08 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | $ | 462,542,000 | | | $ | 107,389,000 | | | $ | 721,775,000 | | | $ | 6,403,000 | | | $ | 107,389,000 | | | $ | 728,181,000 | | | $ | 835,570,000 | (c) | | $ | (24,650,000) | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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(b) | | Accumulated Depreciation(d)(e) | | Date of construction | | Date acquired |
Fort Road Medical Building (Medical Office) | St. Paul, MN | $ | — |
| | $ | 1,571,000 |
| | $ | 5,786,000 |
| | 235,000 |
| | $ | 1,571,000 |
| | $ | 6,021,000 |
| | $ | 7,592,000 |
| | (798,000 | ) | | 1981 | | 3/6/2008 |
Liberty Falls Medical Plaza (Medical Office) | Liberty Township, OH | — |
| | 842,000 |
| | 5,640,000 |
| | 613,000 |
| | 842,000 |
| | 6,253,000 |
| | 7,095,000 |
| | (982,000 | ) | | 2008 | | 3/19/2008 |
Epler Parke Building B (Medical Office) | Indianapolis, IN | 3,100,000 |
| | 857,000 |
| | 4,461,000 |
| | (135,000 | ) | | 857,000 |
| | 4,326,000 |
| | 5,183,000 |
| | (867,000 | ) | | 2004 | | 3/24/2008 |
Cypress Station Medical Office Building (Medical Office) | Houston, TX | — |
| | 1,345,000 |
| | 8,312,000 |
| | 636,000 |
| | 1,345,000 |
| | 8,948,000 |
| | 10,293,000 |
| | (1,230,000 | ) | | 1981/2004-2006 | | 3/25/2008 |
Vista Professional Center (Medical Office) | Lakeland, FL | — |
| | 1,082,000 |
| | 3,588,000 |
| | 3,000 |
| | 1,082,000 |
| | 3,591,000 |
| | 4,673,000 |
| | (659,000 | ) | | 1996/1998 | | 3/27/2008 |
Senior Care Portfolio 1 (Healthcare Related Facility) | Arlington, Galveston, Port Arthur and Texas City, TX and Lomita and El Monte, CA | — |
| | 4,871,000 |
| | 30,002,000 |
| | — |
| | 4,871,000 |
| | 30,002,000 |
| | 34,873,000 |
| | (3,547,000 | ) | | 1993, 1994, 1994, 1994/1996 1964/1969 1959/1963 | | Various |
Amarillo Hospital (Healthcare Related Facility) | Amarillo, TX | — |
| | 1,110,000 |
| | 17,688,000 |
| | 5,000 |
| | 1,110,000 |
| | 17,693,000 |
| | 18,803,000 |
| | (1,825,000 | ) | | 2007 | | 5/15/2008 |
5995 Plaza Drive (Office) | Cypress, CA | 14,645,000 |
| | 5,109,000 |
| | 17,961,000 |
| | 315,000 |
| | 5,109,000 |
| | 18,276,000 |
| | 23,385,000 |
| | (2,449,000 | ) | | 1986 | | 5/29/2008 |
Nutfield Professional Center (Medical Office) | Derry, NH | 9,169,000 |
| | 1,075,000 |
| | 10,320,000 |
| | 104,000 |
| | 1,075,000 |
| | 10,424,000 |
| | 11,499,000 |
| | (1,082,000 | ) | | 1963/1990 & 1996 | | 6/3/2008 |
SouthCrest Medical Plaza (Medical Office) | Stockbridge, GA | 10,917,000 |
| | 4,259,000 |
| | 14,636,000 |
| | 119,000 |
| | 4,259,000 |
| | 14,755,000 |
| | 19,014,000 |
| | (2,258,000 | ) | | 2005-2006 | | 6/24/2008 |
Medical Portfolio 3 (Medical Office) | Indianapolis, IN | — |
| | 9,355,000 |
| | 70,259,000 |
| | 7,249,000 |
| | 9,355,000 |
| | 77,508,000 |
| | 86,863,000 |
| | (12,508,000 | ) | | 1995, 1993, 1994, 1996, 1993, 1995, 1989, 1988, 1989, 1992, 1989 | | 6/26/2008 |
Academy Medical Center (Medical Office) | Tucson, AZ | 3,166,000 |
| | 1,193,000 |
| | 6,106,000 |
| | 822,000 |
| | 1,193,000 |
| | 6,928,000 |
| | 8,121,000 |
| | (1,055,000 | ) | | 1975-1985 | | 6/26/2008 |
Decatur Medical Plaza (Medical Office) | Decatur, GA | — |
| | 3,166,000 |
| | 6,862,000 |
| | 343,000 |
| | 3,166,000 |
| | 7,205,000 |
| | 10,371,000 |
| | (888,000 | ) | | 1976 | | 6/27/2008 |
Medical Portfolio 2 (Medical Office) | O’Fallon and St. Louis, MO and Keller and Wichita Falls, TX | 24,829,000 |
| | 5,360,000 |
| | 33,506,000 |
| | 190,000 |
| | 5,360,000 |
| | 33,696,000 |
| | 39,056,000 |
| | (4,679,000 | ) | | 2001, 2001, 2006, 1957/1989/2003 & 2003 | | Various |
Renaissance Medical Centre (Medical Office) | Bountiful, UT | 19,354,000 |
| | 3,701,000 |
| | 24,442,000 |
| | 65,000 |
| | 3,701,000 |
| | 24,507,000 |
| | 28,208,000 |
| | (2,318,000 | ) | | 2004 | | 6/30/2008 |
Oklahoma City Medical Portfolio (Medical Office) | Oklahoma City, OK | — |
| | |
| | 25,976,000 |
| | 1,474,000 |
| | |
| | 27,450,000 |
| | 27,450,000 |
| | (2,915,000 | ) | | 1991, 1996/2007 | | 9/16/2008 |
Medical Portfolio 4 (Medical Office) | Phoenix, AZ, Parma and Jefferson West, OH, and Waxahachie, Greenville, and Cedar Hill, TX | 7,795,000 |
| | 2,632,000 |
| | 38,652,000 |
| | 1,377,000 |
| | 2,632,000 |
| | 40,029,000 |
| | 42,661,000 |
| | (4,726,000 | ) | | 1972/1980 & 2006, 1977, 1984, 2006, 2007, 2007 | | Various |
Mountain Empire Portfolio (Medical Office) | Kingsport and Bristol, TN and Pennington Gap and Norton, VA | 17,935,000 |
| | 804,000 |
| | 20,149,000 |
| | 730,000 |
| | 804,000 |
| | 20,879,000 |
| | 21,683,000 |
| | (3,256,000 | ) | | 1986/1991/1993/1982/1990,1997/1976 & 2007, 1986, 1993 & 1995, 1981 & 1987/1999 | | 9/12/2008 |
Mountain Plains — TX (Medical Office) | San Antonio and Webster, TX | — |
| | 1,248,000 |
| | 34,857,000 |
| | 36,000 |
| | 1,248,000 |
| | 34,893,000 |
| | 36,141,000 |
| | (3,566,000 | ) | | 1998, 2005, 2006, 2006 | | 12/18/2008 |
Marietta Health Park (Medical Office) | Marietta, GA | 7,200,000 |
| | 1,276,000 |
| | 12,197,000 |
| | 215,000 |
| | 1,276,000 |
| | 12,412,000 |
| | 13,688,000 |
| | (1,516,000 | ) | | 2000 | | 12/22/2008 |
Wisconsin Medical Portfolio 1 | Milwaukee, WI | — |
| | 1,980,000 |
| | 26,032,000 |
| | — |
| | 1,980,000 |
| | 26,032,000 |
| | 28,012,000 |
| | (3,351,000 | ) | | 1964/1969, 1983-1997 & 2007 | | 2/27/2009 |
Wisconsin Medical Portfolio 2 | Franklin, WI | 9,832,000 |
| | 1,574,000 |
| | 31,655,000 |
| | — |
| | 1,574,000 |
| | 31,655,000 |
| | 33,229,000 |
| | (3,275,000 | ) | | 2001-2004 | | 5/28/2009 |
Greenville Hospital Portfolio | Greenville, SC | 70,323,000 |
| | 3,952,000 |
| | 135,776,000 |
| | 92,000 |
| | 3,948,000 |
| | 137,222,000 |
| | 139,820,000 |
| | (9,169,000 | ) | | 1974, 1982-1999, & 2004-2009 | | 9/18/2009 |
140
Healthcare Trust of America, Inc.
Grubb & Ellis Healthcare REIT, Inc.
SCHEDULE III — REAL ESTATE OPERATING PROPERTIESINVESTMENTS 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(b) | | Accumulated Depreciation(d)(e) | | Date of construction | | Date acquired |
Mary Black Medical Office Building | Spartanburg, SC | — |
| | |
| | 12,523,000 |
| | (3,000 | ) | | |
| | 12,520,000 |
| | 12,520,000 |
| | (968,000 | ) | | 2006 | | 12/11/2009 |
Hampden Place Medical Office Building | Englewood, CO | — |
| | 3,032,000 |
| | 12,553,000 |
| | (110,000 | ) | | 3,032,000 |
| | 12,443,000 |
| | 15,475,000 |
| | (925,000 | ) | | 2004 | | 12/21/2009 |
Dallas LTAC Hospital | Dallas, TX | — |
| | 2,301,000 |
| | 20,627,000 |
| | — |
| | 2,301,000 |
| | 20,627,000 |
| | 22,928,000 |
| | (1,203,000 | ) | | 2007 | | 12/23/2009 |
Smyth Professional Building | Baltimore, MD | — |
| | |
| | 7,760,000 |
| | (118,000 | ) | | |
| | 7,642,000 |
| | 7,642,000 |
| | (621,000 | ) | | 1984 | | 12/30/2009 |
Atlee Medical Portfolio | Coriscana, TX and Ft. Wayne, IN and San Angelo, TX | — |
| | |
| | 17,267,000 |
| | — |
| | |
| | 17,267,000 |
| | 17,267,000 |
| | (1,177,000 | ) | | 2007-2008 | | 12/30/2009 |
Denton Medical Rehabilitation Hospital | Denton, TX | — |
| | 2,000,000 |
| | 11,704,000 |
| | — |
| | 2,000,000 |
| | 11,704,000 |
| | 13,704,000 |
| | (805,000 | ) | | 2008 | | 12/30/2009 |
Banner Sun City Medical Portfolio | Sun City, AZ and Sun City West, AZ | 43,302,000 |
| | 744,000 |
| | 70,035,000 |
| | 2,090,000 |
| | 744,000 |
| | 72,125,000 |
| | 72,870,000 |
| | (7,329,000 | ) | | 1971-1997 & 2001-2004 | | 12/31/2009 |
Camp Creek | Atlanta, GA | |
| | 2,022,000 |
| | 12,965,000 |
| | (42,000 | ) | | 2,022,000 |
| | 12,923,000 |
| | 14,945,000 |
| | (1,168,000 | ) | | 2006 | | 3/2/2010 |
King Street | Jacksonville, GA | 6,185,000 |
| | — |
| | 7,232,000 |
| | (283,000 | ) | | — |
| | 6,949,000 |
| | 6,949,000 |
| | (404,000 | ) | | 2007 | | 3/9/2010 |
Deaconess Evansville Clinic Portfolio | Evansville, IN | 20,842,000 |
| | 2,109,000 |
| | 36,180,000 |
| | 15,000 |
| | 2,109,000 |
| | 36,195,000 |
| | 38,304,000 |
| | (2,266,000 | ) | | 1952-2006/1994 | | 3/23/2010 |
Sugar Land II Medical Office Building | Sugar Land, TX | |
| | — |
| | 9,648,000 |
| | 80,000 |
| | — |
| | 9,728,000 |
| | 9,728,000 |
| | (720,000 | ) | | 1999 | | 3/23/2010 |
East Cooper Medical Center | Mount Pleasant, SC | |
| | 2,073,000 |
| | 5,939,000 |
| | 2,000 |
| | 2,073,000 |
| | 5,941,000 |
| | 8,014,000 |
| | (476,000 | ) | | 1992 | | 3/31/2010 |
Pearland Medical Portfolio | Pearland, TX | 2,318,000 |
| | 1,602,000 |
| | 7,017,000 |
| | 47,000 |
| | 1,602,000 |
| | 7,064,000 |
| | 8,666,000 |
| | (578,000 | ) | | 2003-2007 | | 3/31/2010 |
Hilton Head Medical Portfolio | Hilton Head Island, SC | |
| | 1,333,000 |
| | 7,463,000 |
| | — |
| | 1,333,000 |
| | 7,463,000 |
| | 8,796,000 |
| | (440,000 | ) | | 1996-2010 | | 3/31/2010 |
NIH @ Triad Technology Center | Baltimore, MD | 11,800,000 |
| | — |
| | 26,548,000 |
| | — |
| | — |
| | 26,548,000 |
| | 26,548,000 |
| | (1,276,000 | ) | | 1989 | | 3/31/2010 |
Federal North Medical Office Building | Pittsburgh, PA | |
| | 2,489,000 |
| | 30,268,000 |
| | 8,000 |
| | 2,489,000 |
| | 30,276,000 |
| | 32,765,000 |
| | (1,481,000 | ) | | 1999 | | 4/29/2010 |
Balfour Concord Portfolio | Denton,TX and Lewisville,TX | 4,454,000 |
| | 452,000 |
| | 11,384,000 |
| | — |
| | 452,000 |
| | 11,384,000 |
| | 11,836,000 |
| | (594,000 | ) | | 2000 | | 6/25/2010 |
Cannon Park Place | Charleston, SC | |
| | 425,000 |
| | 8,651,000 |
| | — |
| | 425,000 |
| | 8,651,000 |
| | 9,076,000 |
| | (378,000 | ) | | 1998 | | 6/28/2010 |
7900 Fannin | Houston, TX | 22,383,000 |
| | — |
| | 34,764,000 |
| | 54,000 |
| | — |
| | 34,818,000 |
| | 34,818,000 |
| | (1,519,000 | ) | | 2005 | | 6/30/2010 |
Overlook at Eagle’s Landing | Stockbridge, GA | 5,324,000 |
| | 638,000 |
| | 6,685,000 |
| | 34,000 |
| | 638,000 |
| | 6,719,000 |
| | 7,357,000 |
| | (363,000 | ) | | 2004 | | 7/15/2010 |
Sierra Vista Medical Office Building | San Luis Obispo, CA | |
| | — |
| | 11,900,000 |
| | 1,160,000 |
| | — |
| | 13,060,000 |
| | 13,060,000 |
| | (575,000 | ) | | 2009 | | 8/4/2010 |
Orlando Medical Portfolio | Orlando, FL | |
| | — |
| | 14,226,000 |
| | 329,000 |
| | — |
| | 14,555,000 |
| | 14,555,000 |
| | (722,000 | ) | | 1998-2000 | | 9/29/2010 |
Santa Fe Medical Portfolio | Sante Fe, NM | 3,490,000 |
| | 1,539,000 |
| | 11,716,000 |
| | — |
| | 1,539,000 |
| | 11,716,000 |
| | 13,255,000 |
| | (497,000 | ) | | 1978/2010-1985/2004 | | 9/30/2010 |
Rendina Medical Portfolio | Las Vegas, NV and Poughkeepsie, NY and St. Louis, MO and Tucson, AZ and Wellington, FL | 18,598,000 |
| | — |
| | 68,488,000 |
| | 524,000 |
| | — |
| | 69,012,000 |
| | 69,012,000 |
| | (2,493,000 | ) | | 2006-2008 | | 9/30/2010 |
Allegheny HQ Building | Pittsburgh, PA | |
| | 1,514,000 |
| | 32,368,000 |
| | (19,000 | ) | | 1,514,000 |
| | 32,349,000 |
| | 33,863,000 |
| | (1,170,000 | ) | | 2002 | | 10/29/2010 |
Raleigh Medical Center | Raleigh, NC | |
| | 1,281,000 |
| | 12,530,000 |
| | 259,000 |
| | 1,281,000 |
| | 12,789,000 |
| | 14,070,000 |
| | (552,000 | ) | | 1989 | | 11/12/2010 |
Columbia Medical Portfolio | Albany, NY, and Latham, NY, and Temple Terrace, FL, Carmel NY, and N. Adams, MA | 98,055,000 |
| | 9,567,000 |
| | 160,696,000 |
| | 566,000 |
| | 9,567,000 |
| | 161,262,000 |
| | 170,829,000 |
| | (5,488,000 | ) | | 1964-2007 | | 11/19/2010 |
Florida Orthopedic ASC | Temple Terrace, FL | |
| | 752,000 |
| | 4,211,000 |
| | — |
| | 752,000 |
| | 4,211,000 |
| | 4,963,000 |
| | (167,000 | ) | | 2001 | | 12/8/2010 |
Select Medical LTACH | Augusta, GA and Dallas, TX and Orlando, FL, and Tallahassee, FL | |
| | 12,719,000 |
| | 76,186,000 |
| | — |
| | 12,719,000 |
| | 76,186,000 |
| | 88,905,000 |
| | (2,382,000 | ) | | 2006-2007 | | 12/17/2010 |
Phoenix MOB Portfolio | Phoenix, AZ | 26,857,000 |
| | 1,058,000 |
| | 31,865,000 |
| | 868,000 |
| | 1,058,000 |
| | 32,733,000 |
| | 33,790,000 |
| | (1,280,000 | ) | | 1989-2004 | | 12/22/2010 |
Medical Park of Cary | Cary, NC | |
| | 2,931,000 |
| | 19,855,000 |
| | 140,000 |
| | 2,931,000 |
| | 19,995,000 |
| | 22,926,000 |
| | (824,000 | ) | | 1996 | | 12/30/2010 |
Holston Medical Portfolio | Bristol, TN |
|
|
| 492,000 |
|
| 16,374,000 |
|
|
|
|
| 492,000 |
|
| 16,374,000 |
|
| 16,866,000 |
|
| (509,000 | ) |
| 1983 |
| 3/24/2011 |
Desert Ridge Portfolio | Phoenix, AZ |
|
|
| — |
|
| 27,738,000 |
|
| 60,000 |
|
|
|
|
| 27,798,000 |
|
| 27,798,000 |
|
| (235,000 | ) |
| 2004-2006 |
| 10/4/2011 |
| | $ | 636,558,000 |
| | $ | 167,968,000 |
| | $ | 1,763,031,000 |
| | $ | 38,905,000 |
| | $ | 168,065,000 |
| | $ | 1,803,189,000 |
| | $ | 1,969,904,000 |
| | $ | (164,784,000 | ) | | | | |
Healthcare Trust of America, Inc.
SCHEDULE III — REAL ESTATE INVESTMENTS AND
ACCUMULATED DEPRECIATION — (Continued)
(a) The cost capitalized subsequent to acquisition is net of dispositions.
(b) The changes in total real estate for the years ended December 31, 2011, 2010 and 2009 are as follows:
|
| | | |
| Amount |
Balance as of December 31, 2008 | $ | 835,570,000 |
|
Acquisitions | 363,679,000 |
|
Additions | 7,556,000 |
|
Dispositions | (327,000 | ) |
Balance as of December 31, 2009 | 1,206,478,000 |
|
Acquisitions | 683,055,000 |
|
Additions | 13,358,000 |
|
Dispositions | (305,000 | ) |
Balance as of December 31, 2010 | 1,902,586,000 |
|
Acquisitions | 55,017,000 |
|
Additions | 19,157,000 |
|
Dispositions | (5,506,000 | ) |
Balance as of December 31, 2011 | $ | 1,971,254,000 |
|
| |
(b) (c) | The changes in totalaggregate cost of our real estate for the years ended December 31, 2008 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 2006 are as follows:federal income tax purposes was $2,325,377,000. |
| | | | |
| | Amount | |
|
Balance as of April 28, 2006 (Date of Inception) | | $ | — | |
Acquisitions | | | — | |
Additions | | | — | |
Dispositions | | | — | |
| | | | |
Balance as of December 31, 2006 | | | — | |
Acquisitions | | | 356,565,000 | |
Additions | | | 1,046,000 | |
Dispositions | | | (33,000 | ) |
| | | | |
Balance as of December 31, 2007 | | | 357,578,000 | |
Acquisitions | | | 473,132,000 | |
Additions | | | 6,590,000 | |
Dispositions | | | (1,730,000 | ) |
| | | | |
Balance as of December 31, 2008 | | $ | 835,570,000 | |
| | | | |
(c) The aggregate cost of our real estate for federal income tax purposes was $994,509,000.
| |
(d) | The changes in accumulated depreciation for the years ended December 31, 20082011, 2010 and 2007 and for the period from April 28, 2006 (Date of Inception) through December 31, 20062009 are as follows: |
| | | | |
| | Amount | |
|
Balance as of April 28, 2006 (Date of Inception) | | $ | — | |
Additions | | | — | |
Dispositions | | | — | |
| | | | |
Balance as of December 31, 2006 | | | — | |
Additions | | | 4,590,000 | |
Dispositions | | | (2,000 | ) |
| | | | |
Balance as of December 31, 2007 | | | 4,588,000 | |
Additions | | | 20,523,000 | |
Dispositions | | | (461,000 | ) |
| | | | |
Balance as of December 31, 2008 | | $ | 24,650,000 | |
| | | | |