18
GOVERNMENT REGULATIONS
Healthcare-Related Regulations
Overview. The healthcare industry is heavily regulated by federal, state and local governmental agencies. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, fraud and abuse, relationships with physicians and other referral sources, and reimbursement. Changes in these laws and regulations could negatively affect the ability of our tenants to satisfy their contractual obligations, including making lease payments to us.
Healthcare Legislation. In March 2010, President Obama signed the Affordable Care Act into law.Reform. The Affordable Care Act, along with othercurrent wave of healthcare reform efforts, has resultedlaunched with the ACA in comprehensive healthcare reform in the U.S.2010. The laws are intended to reduce the number of individuals in the U.S. withoutACA expanded health insurance coverage through tax subsidies and significantly changefederal health insurance programs, individual and employer mandates for health insurance coverage, and the means by which healthcare is organized, deliveredcreation of health insurance exchanges (federal and reimbursed. state marketplaces).
The Affordable Care Act expanded reporting requirementsBiden administration has indicated that it will maintain and responsibilitiesbuild upon the ACA and has suggested proposals that would include the adoption of a national public health insurance option (“Medicare for all”), increasing the value of current tax credits related to facility ownershipinsurance premiums, and management, patient safety, quality of care, and certain financial transactions, including payments by the pharmaceutical and medical industryexpanding coverage to doctors and teaching hospitals. In the ordinary course of their businesses, our tenants may be regularly subjected to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations. If they do not comply with the additional reporting requirements and responsibilities, our tenants’ ability to participate in federal healthcare programs may be adversely affected. Moreover, there may be other aspects of the comprehensive healthcare reform legislation for which regulations have not yet been adopted, which, depending on how they are implemented, could adversely affect our tenants and their ability to meet their lease obligations to us.low-income individuals.
The Affordable Care Act has faced numerous judicial, legislative and executive challenges. Although there continue to be judicial challenges to the Affordable Care Act, the Supreme Court has thus far upheld the Affordable Care Act, including, most recently, in their June 25, 2015 ruling on King v. Burwell. However, President Trump and Congressional Republicans promised they would seek the repeal of the Affordable Care Act. On January 20, 2017, newly-sworn-in President Trump issued an executive order aimed at seeking the prompt repeal of the Affordable Care Act, and directed the heads of all executive departments and agencies to minimize the economic and regulatory burdens of the Affordable Care Act to the maximum extent permitted by law. In addition, there have been and continue to be numerous Congressional attempts to amend and repeal the Affordable Care Act. On December 22, 2017, President Trump signed the TCJA, which amends certain provisions of the Affordable Care Act including the elimination of the individual insurance mandate. We cannot predict whether any future attempts to amend or repeal the Affordable Care Act will be successful. The future of the Affordable Care Act is uncertain and any changes to existing laws and regulations, including the Affordable Care Act’s repeal, modification or replacement, could have a long-term financial impact on the delivery of and payment for healthcare. Both our tenants and us may be adversely affected by the law or its repeal, modification or replacement.
Reimbursement Programs. Sources of revenue for our tenants may include the federal Medicare program, TRICARE, state Medicaid programs, private insurance carriers, health maintenance organizations, preferred provider arrangements and self-insured employers, among others. Medicare, TRICARE and Medicaid programs, as well as numerous private insurance and managed care plans, generally require participating providers to accept government-determined reimbursement levels as payment in full for services rendered, without regard to facility charges. Changes in the reimbursement rate or methods of payment from third-party payors, including Medicare and Medicaid, could result in a substantial reduction in our tenants’ revenues.
In previous years, Medicare’s physician fee-for-service reimbursements were subject to a significant, automatic reduction in rates. Congress repeatedly enacted temporary legislation postponing the implementation of these physician rate cuts. In April 2015, the Medicare Access and CHIP Reauthorization Act of 2015, enacted rules that establishes physician reimbursement rates that allow for steady increases in rates over the near future.
Despite this “doc-fix” legislation, we cannot predict whether future Congressional proposals will seek to reduce physician reimbursements. Efforts by other such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. Further, revenue realizable under third-party payor agreements can change after examination and retroactive adjustment by payors during the claims settlement processes or as a result of post-payment audits. Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable, because additional documentation is necessary or because certain services were not covered or were not medically necessary.
Amendments to or repeal of the Affordable Care ActACA and regulatory changes could impose further limitations on government and private payments to healthcare providers. The Affordable Care ActACA expanded Medicaid coverage to all individuals under age 65 with incomes up to 133% of the federal poverty level. While the federal government agreed to pay the Medicaid expansion costs for newly eligible beneficiaries from 2014 through 2016, the federal government’s portion began declining in 2017. Further, the U.S. Supreme Court held in 2012 that states could not be required to expand their Medicaid programs, which has resulted in some states deciding not to expand their Medicaid programs. More recently, the Trump administration has enacted, or is considering enacting, measures designed to reduce Medicaid expenditures. In some other cases, states have enacted or are considering enacting measures designed to reduce their Medicaid expenditures and to make changes to private healthcare insurance. Efforts to reduce costs will likely continue, which may result in reduced or slower growth in reimbursement for certain services provided by our tenants. In addition, the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, TRICARE, Medicaid and other government sponsored payment programs. The financial impact on our tenants’ failure to comply with such laws and regulations could restrict their ability to make rent payments to us.
Various laws and Center for Medicare and Medicaid Services (“CMS”) initiatives and rules may also reduce or change medical provider compensation and reimbursement.
These new laws, initiatives and CMS rules reflect an ongoing effort to reduce healthcare costs and reimburse medical providers based on criteria other than fee-for-service. Although their impact is difficult to predict, these laws, initiatives and CMS rules may adversely impact medical providers’ reimbursement and our tenants’ ability to make rent payments to us.
Fraud and Abuse Laws. There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from, or are in a position to make referrals in connection with, government-sponsored healthcare programs, including the Medicare and Medicaid programs. Additionally, the Affordable Care ActACA includes program integrity provisions that both create new authorities and expand existing authorities for federal and state governments
to address fraud, waste and abuse in federal healthcare programs. Our lease arrangements with certain tenants may also be subject to these fraud and abuse laws. These laws include, among others:
•the Federal Anti-Kickback Statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, the referral or recommendation for the ordering of any item or service reimbursed by a federal healthcare program, including Medicare or Medicaid;
•the Federal Physician Self-Referral Prohibition, commonly referred to as the “Stark Law,” which: (1) requires hospital landlords of facilities with financial relationships to charge a fair market value rent that does not take into account the volume or value of referrals and subject to specific exceptions; and (2) restricts physicians from making referrals for specifically designated health services for which payment may be made under Medicare and Medicaid programs to an entity with which the physician, or an immediate family member, has a financial relationship;
•the False Claims Act, which prohibits any person from knowingly presenting or causing to be presented false or fraudulent claims for payment to the federal government, including claims paid by the Medicare and Medicaid programs;
•the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health and Human Services to impose monetary penalties for certain fraudulent acts and regulatory violations and to exclude violators from participating in federal healthcare programs;
•the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act of the American Recovery and Reinvestment Act of 2009, which protects the privacy and security of personal health information; and
•State laws which prohibit kickbacks, self-referrals and false claims, and are generally applicable to commercial and state payors.
In the ordinary course of their business, our tenants may be subject to inquiries, investigations and audits by federal and state agencies that oversee applicable laws and regulations. Private enforcement of healthcare fraud has also increased, due in large part to amendments to the civil False Claims Act that were designed to encourage private individuals to sue on behalf of the government. These whistleblower suits, known as qui tam suits, may be filed by almost anyone, including present and former employees or patients. In addition to the False Claims Act, there may be civil litigation between private parties which seek damages for violations of federal and state laws. These types of actions may result in monetary penalties, punitive sanctions, damage assessments, imprisonment, increased governmental oversight, denial of Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid programs. Investigation by a federal or state governmental body for violation of fraud and abuse laws, imposition of any of these penalties upon one of our tenants, and civil litigation could jeopardize that tenant’s ability to operate or to make rent payments to us.
Healthcare Licensure and Certification. Some of our medical properties and our tenants may require a license, multiple licenses, a certificate of need (“CON”), or other certification to operate. Failure to obtain a license, CON, other certification, or loss of a required license, CON, or some other certification would prevent a facility from operating in the manner intended by the tenant. This event could adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate physical plant expansion, including the addition of new beds or services or acquisition of medical equipment and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws are not uniform throughout the U.S. and are subject to change. We cannot predict the impact of state CON laws on our facilities or the operations of our tenants.
Real Estate Ownership-Related Regulations
Many laws and governmental regulations are applicable to our properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently. For example:
Costs of Compliance with the Americans with Disabilities Act. Under the Americans with Disabilities Act of 1990, as amended (the “ADA”), all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. Although we believe that we are in substantial compliance with present requirements of the ADA, none of our properties have been audited and we have only conducted investigations of a limited number of our properties to determine compliance. We may incur additional costs in connection with compliance with the ADA. Additional federal, state and local laws also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the cost of compliance with the ADA or other legislation. We may incur substantial costs to comply with the ADA or any other legislation.
Costs of Government Environmental Regulation and Private Litigation. Environmental laws and regulations hold us liable for the costs of removal or remediation of certain hazardous or toxic substances which may be on our properties. These laws could impose liability on us without regard to whether we caused the presence or release of the hazardous materials. Government investigations and remediation actions may cause substantial costs and the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances and such persons oftentimes must incur the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. As the owner and operator of our properties, we may be deemed to have arranged for the disposal or treatment of hazardous or toxic substances.
Use of Hazardous Substances by Some of Our Tenants. Some of our tenants routinely handle hazardous substances and wastes on our properties as part of their routine operations. Environmental laws and regulations subject these tenants, and potentially us, to liability resulting from such activities. Our leases require our tenants to comply with these environmental laws and regulations and to indemnify us for any related liabilities. We are unaware of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of our properties.
Other Federal, State and Local Regulations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may incur governmental fines or private damage awards. While we believe that our properties are currently in material compliance with all of these regulatory requirements, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures. We believe, based in part on engineering reports which are generally obtained by us at the time we acquire the properties, that all of our properties comply in all material respects with current regulations. However, if we were required to make significant expenditures under applicable regulations, our financial condition, results of operations, cash flow, ability to satisfy our debt service obligations and to pay distributions to our stockholders could be adversely affected.
EMPLOYEESHUMAN CAPITAL
As of December 31, 2018,2021, we had approximately 282357 employees, of which less than 1% are subject to a collective bargaining agreement.
Our commitment to our employees continues to be a high priority for us. In addition to base salary, our annual compensation and benefit plans includes short-term incentive bonuses, long-term incentive stock plans, a 401(k) plan, healthcare and insurance benefits, health savings accounts, paid time off, tuition assistance, employee assistance programs, among other benefits. We are committed to the health, safety and well-being of all of our employees. In response to the COVID-19 pandemic, we have taken additional precautionary measures to adjust our business operations and to address the needs of our employees. In addition to our ongoing sponsorship of various health and wellness initiatives to aid in the overall well-being of our employees, we have provided hazard pay, deployed comprehensive personal protective equipment, and have implemented many new protocols both in our tenant buildings and regional office locations based on the Center for Disease Control and other government mandated or recommended guidelines.
We support employee development through numerous company-sponsored training programs and professional development opportunities. Our employees regularly participate in various industry-specific training programs and conferences, and are encouraged to seek out relevant certifications or accreditations that provide additional expertise in real estate and other relevant sector-specific subjects. In addition, we provide internal cross-functional training opportunities in order that our employees may familiarize themselves with multiple aspects of our business.
TAX MATTERS
We filed an election with our 2007 federal income tax return to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). We believe we have satisfied the requirements to qualify as a REIT for all tax years starting in 2007 and we intend to maintain our qualification as a REIT in the future. As a qualified REIT, with limited exceptions, we are generally not subject to federal and certain state income tax on net income that we currently distribute to stockholders. We expect to continue to make distributions sufficient to avoid income tax.
While we believe that we are organized and qualified as a REIT and we intend to operate in a manner that will allow us to continue to qualify as a REIT, there can be no assurance that we will be successful in this regard. Our qualification as a REIT depends upon our ability to meet, through our annual operating results, asset diversification, distribution levels and diversity of stock ownership and the various qualification tests imposed under the Code. If we fail to maintain our qualification as a REIT, corporate level income tax would apply to our taxable income at the current corporate tax rates. As a result, the amount available for distributions to stockholders would be reduced and we would no longer be required to make distributions. Failure to qualify as a REIT could also adversely affect our ability to make investments and raise capital.
Qualification as a REIT involves the application of highly technical and complex provisions of the Code for which there are limited judicial and administrative interpretations and involves the determination of a variety of factual matters and circumstances not entirely within our control.
EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding our executive officers included in Part III, Item 10 of this Annual Report is incorporated herein by reference.
Item 1A. Risk Factors
Risk Factor Summary
The following summarizes the principal factors that make an investment in our Company speculative or risky, all of which are more fully described in the Risk Factors section below. This summary should be read in conjunction with the Risk Factors section below and should not be relied upon as an exhaustive summary of the material risks facing our business. The order of presentation is not necessarily indicative of the level of risk that each factor poses to us.
Risks Related to Our Business
We are dependentOur business model and the operations of our business involve risks, including those related to:
•our dependency on investments and the performance of those investments primarily in the healthcare property sector, making our profitability more vulnerable to a downturn or slowdown in that specific sector than ifsector;
•the competition we were investing in multiple industries.
We concentrate ourface for investments in the healthcare property sector. As a result, we are subject to risks inherent to investments in a single industry. A downturn or slowdown in the healthcare property sector would have a greater adverse impact on our business than if we had investments in multiple industries. Specifically, a downturn in the healthcare property sector could negatively impact the ability of our tenants to make lease payments to us as well as our ability to maintain rental and occupancy rates, which could adversely affect our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Our ability to make future acquisitions may be impeded, or the cost of these acquisitions may be increased, due to a variety of factors, including competition for the acquisition of MOBs and other facilities that serve the healthcare industry.facilities;
At any given time, we may be pursuing property acquisitions or have properties subject to letters of intent, but we cannot assure you that we will acquire any such properties because the letters of intent are non-binding and potential transaction opportunities are subject to a variety of factors, including: (i) the willingness of the current property owner to proceed with a potential transaction with us; (ii) our completion of due diligence that is satisfactory to us and our receipt of internal approvals; (iii) the negotiation and execution of mutually acceptable binding purchase agreements; and (iv) the satisfaction of closing conditions, including our receipt of third-party consents and approvals. We also compete with many other entities engaged in real estate investment activities for the acquisition of MOBs and other facilities that serve the healthcare industry, including national, regional and local operators, acquirers and developers of healthcare properties. The competition for the acquisition of healthcare properties may significantly increase the prices we must pay for MOBs and other facilities that serve the healthcare industry or other real estate related assets we seek to acquire. This competition may also effectively limit the number of suitable investment opportunities offered to us or the number of properties that we are able to acquire, and may increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms. The potential sellers of our acquisition targets may find our competitors to be more attractive purchasers because they may have greater resources, may be willing to pay more to acquire the properties, may have pre-existing relationships or may have a more compatible operating philosophy. In particular, larger healthcare REITs may enjoy significant competitive advantages over us that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Moreover, our competitors generally may be able to accept more risk with respect to their acquisitions than we can prudently manage or are willing to accept. In addition, the number of our competitors and the amount of funds competing for suitable investment properties may increase, which could result in increased demand for these properties and, therefore, increased prices to acquire them. Because of an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices for the purchase of single properties in comparison with the purchase of multi-property portfolios. If we pay higher prices for MOBs and other facilities that serve the healthcare industry, or otherwise incur significant costs and divert management attention in connection with the evaluation and negotiation of potential acquisitions, including potential transactions that we are subsequently unable or elect not to complete, our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders may be adversely affected.
We may not be able to maintain or expand •our relationships with hospitals, healthcarecertain tenants, health systems and developers, which may impede our ability to identify and complete acquisitions directly from hospitals, healthcare systems and developers, and may otherwise adversely affect our growth, business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.hospitals;
The success of our business depends to a large extent on our past, current and future relationships with hospitals, healthcare systems and developers, including our ability to acquire properties directly from hospitals, healthcare systems and developers. We invest a significant amount of time to develop and maintain these relationships, and these relationships have helped us secure acquisition opportunities. Facilities that are acquired directly from hospitals, healthcare systems and developers are typically more attractive to us as a purchaser because of the absence of a formal competitive marketing process, which could lead to higher prices. If any of our relationships with hospitals, healthcare systems and developers deteriorates, or if a conflict of interest or a non-compete arrangement prevents us from expanding these relationships, our professional reputation within the industry could be damaged and we may not be able to secure attractive acquisition opportunities directly from hospitals, healthcare systems and developers in the future, which could adversely affect our ability to locate and acquire facilities at attractive prices.
Our results of operations, our ability to pay distributions to our stockholders and our ability to dispose of our investments are subject to •general economic conditions affecting theof commercial real estate and the credit markets.markets;
Our business is sensitive to national, regional and local economic conditions, as well as the commercial real estate and credit markets. For example, a financial disruption or credit crisis could negatively impact the value of commercial real estate assets, contributing to a general slowdown in our industry. A slow economic recovery could cause a reduction in the overall volume of transactions, number of sales and leasing activities of the type that we previously experienced. We are unable to predict future changes in national, regional or local economic, demographic or real estate market conditions.
Adverse economic conditions in the commercial real estate and credit markets may result in:
defaults by tenants at our properties due to bankruptcy, lack of liquidity or operational failures;
increases in vacancy rates due to tenant defaults, the expiration or termination of tenant leases and reduced demand for MOBs and other facilities that serve the healthcare industry;
increases in tenant inducements, tenant improvement expenditures, rent concessions or reduced rental rates, especially to maintain or increase occupancies at our properties;
reduced values of our properties, thereby limiting our ability to dispose of our assets at attractive prices or obtain debt financing secured by our properties on satisfactory terms, as well as reducing the availability of unsecured loans;
the value and liquidity of our short-term investments and cash deposits being reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investments and other factors;
one or more lenders under our credit facilities refusing to fund their financing commitments to us and, in such event, we are unable to replace the financing commitments of any such lender or lenders on favorable terms, or at all;
a recession or rise in interest rates, which could make it more difficult for us to lease our properties or dispose of our properties or make alternative interest-bearing and other investments more attractive, thereby lowering the relative value of our existing real estate investments;
one or more counterparties to our interest rate swaps default on their obligations to us, thereby increasing the risk that we may not realize the benefits of these instruments;
increases in •the supply of competing properties or decreases in the demand for our properties, which may impact our ability to maintain or increase occupancy levels and rents at our properties or to dispose of our investments; and
increased insurance premiums, real estate taxes or energy costs or other expenses, which may reduce funds available for distribution to our stockholders or, to the extent such increases are passed through to our tenants, may lead to tenant defaults, tenant turnover, or make it difficult for us to increase rents to tenants on lease turnoverexternal capital which may limit our ability to increase our returns.
Our business, financial condition and results of operations, the market price of our common stock and our ability to pay distributions to our stockholders may be adversely affected to the extent an economic slowdownmake new investments, refinance debt, or downturn is prolonged or becomes more severe.
Our growth depends on external sources of capital that are outside of our control, which may affect our ability to seize strategic opportunities, satisfy debt obligations and make distributions to our stockholders.stockholders;
In order to qualify as a REIT, we must distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financings, from operating cash flow. Consequently, we may need to rely on third-party sources to fund our capital needs, meet our debt service obligations, make distributions to our stockholders or make future investments necessary to implement our business strategy. We may not be able to obtain financing on favorable terms, in the time period we desire, or at all. Our access to third-party sources of capital depends, in part, on a number of factors, including: general market conditions; the market’s perception of our growth potential; our current debt levels; our current and expected future earnings; our cash flow and cash distributions; and the market price per share of our common stock. If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, satisfy our principal and interest obligations to our lenders or make the cash distributions to our stockholders necessary to maintain our qualification as a REIT.
Our success depends to a significant degree upon •the continued contributions of certain key personnel, each of whom would be difficult to replace. If we were to lose the benefit of the experience, effortsinvolvement and abilities of one or more of these individuals, our operating results could suffer.
Our ability to achieve our investment objectives and to pay distributions is dependent upon the performancecontributions of our Board of Directors,members and certain key personnel;
•significant stockholders attempt to effect changes at our executive officers andcompany or acquire control over our other employees, in the identification and acquisition of investments, the determination and finalization of our financing arrangements, the asset management of our investments, and the operation of our day-to-day activities. Our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in this Annual Report or other periodic filings with the SEC. We rely primarily on the management ability of our executive officers and the governance by the members of our Board of Directors, each of whom would be difficult to replace. We do not have any key-person life insurance on our executive officers. Although we have entered into employment agreements with each of our executive officers, these employment agreements contain various termination and resignation rights. If we were to lose the benefit of the experience, efforts and abilities of these executives, without satisfactory replacements, our operating results could suffer. In addition, if any member of our Board of Directors were to resign, we would lose the benefit of such director’s governance, experience and familiarity with us and the sector within which we operate. As a result of the foregoing, we may be unable to achieve our investment objectives or to pay distributions to our stockholders.company;
We rely on information technology in our operations; any •material failure, inadequacy, interruption or security failure of that technology could harm our business, results of operations and financial condition.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, and tenant and lease data. Although we have taken steps to protect the securityfailures of our information systemstechnology and related infrastructure;
•internal investigations related to the data maintained in those systems, it is possible that our safetywhistleblower policy; and security
•pandemics and other health concerns, including the ongoing COVID-19 pandemic, and measures will not be ableintended to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have an adverse effect on our business, results of operations and financial condition.limit their spread.
Risks Related to ourOur Organizational Structure
We mayOur organizational structure involves exposure to risks, including those related to:
•our acquisitions of property in exchange for limited partnership units of our operating partnership on termsinterests that could limit our liquidity or our flexibility.flexibility;
We may continue•possible changes to acquire properties by issuing limited partnership units of our operating partnership, HTALP, in exchange for a property owner contributing property to us. If we continue to enter into such transactions in order to induce the contributors of such properties to accept units of our operating partnership rather than cash in exchange for their properties, it may be necessary for us to provide additional incentives. For instance, our operating partnership’s limited partnership agreement provides that any holder of units may exchange limited partnership units on a one-for-one basis for, at our option, cash equal to the value of an equivalent number of shares of common stock. We may, however, enter into additional contractual arrangements with contributors of property under which we would agree to repurchase a contributor’s units for shares of our common stock or cash, at the option of the contributor, at set times. If the contributor required us to repurchase units for cash pursuant to such a provision, it would limit our liquidity and, thus, our ability to use cash to make other investments, satisfy other obligations or make distributions to stockholders. Moreover, if we were required to repurchase units for cash at a time when we did not have sufficient cash to fund the repurchase, we might be required to sell one or more of our properties to raise funds to satisfy this obligation. Furthermore, we might agree that if distributions the contributor received as a limited partner in our operating partnership did not provide the contributor with an established return level, then upon redemption of the contributor’s units we would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to our operating partnership, we might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares. Such an agreement would prevent us from selling those properties, even if market conditions would allow such a sale to be favorable to us.
Our Board of Directors may change our investment objectives and major strategies and take other actions without seeking stockholder approval.
Our Board of Directors determines our investment objectives and major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our Board of Directors may amend and/or revise these and other strategies without a vote of the stockholders. Under our charterstockholder approval; and Maryland law, our stockholders will have a right to vote only on the following matters:
the election or removal of directors;
our dissolution;
certain mergers, consolidations, conversions, statutory share exchanges and sales or other dispositions of all or substantially all of our assets; and
amendments of our charter, except that our Board of Directors may amend our charter without stockholder approval to change our name or the name or other designation or the par value of any class or series of our stock and the aggregate par value of our stock, increase or decrease the aggregate number of our shares of stock or the number of our shares of any class or series that we have the authority to issue or effect certain reverse stock splits.
As a result, our stockholders will not have a right to approve most actions taken by our Board of Directors.
Certain•various provisions of Maryland law could delay, defer restricting our ability and/or preventtiming to effect a change of control transaction.
Certain provisions of the Maryland General Corporation Law (“MGCL”) applicable to us may have the effect of inhibiting or deterring a third party from making a proposal to acquire us or of delaying or preventing a change of control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
provisions of the MGCL that permit our Board of Directors, without our stockholders’ approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses;
“business combination” provisions that, subject to limitations, prohibit certain business combinations, asset transfers and equity security issuances or reclassifications between us and an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of our then outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose supermajority voting requirements unless certain minimum price conditions are satisfied; and
“control share” provisions that provide that holders of “control shares” of HTA (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
In the case of the business combination provisions of the MGCL, our Board of Directors has adopted a resolution providing that any business combination between us and any other person is exempted from this statute, provided that such business combination is first approved by our Board. This resolution, however, may be altered or repealed in whole or in part at any time. In the case of the control share provisions of the MGCL, we have opted out of these provisions pursuant to a provision in our bylaws. We may, however, by amendment to our bylaws, opt in to the control share provisions of the MGCL. We may also choose to adopt other takeover defenses in the future. Any such actions could deter a transaction that may otherwise be in the interest of our stockholders.
Risks Related to Investments in Real Estate and Other Real Estate Related Assets
We are dependent on Investments in real estate and other real estate related assets expose us to risk, including risks related to:
•the financial stability of our tenants.tenants, including the consequences to us from their bankruptcy or financial insolvency;
Lease payment defaults by our tenants would cause us to lose the revenue associated with such leases. Although 59%•concentrations or instability of our annualized base rent was derived from tenants (or their parent companies) that have a credit rating, a tenants’ credit rating (or its’ parents credit rating) is no guarantee of a tenant’s abilitytenant base;
•competition to perform its lease obligations and a parent company may choose not to satisfy the obligations of a subsidiary that fails to perform its obligations. If the property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as a landlord and we may incur substantial costs in protecting our investment and re-leasing our property, and we may not be able to re-lease the property for the rent previously received, if at all. Lease terminations and expirations could also reduce the value of our properties.
We face potential adverse consequences of bankruptcy or insolvency by our tenants.
We are exposed to the risk that our tenants could become bankrupt or insolvent. This risk would be magnified to the extent that a tenant leased space from us in multiple facilities. The bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization. For example, a debtor-tenant may reject its lease with us in a bankruptcy proceeding. In such a case, our claim against the debtor-tenant for unpaid and future rents would be limited by the statutory cap of the U.S. Bankruptcy Code. This statutory cap might be substantially less than the remaining rent actually owed to us under the lease, and it is quite likely that any claim we might have against the tenant for unpaid rent would not be paid in full. In addition, a debtor-tenant may assert in a bankruptcy proceeding that its lease should be re-characterized as a financing agreement. If such a claim is successful, our rights and remedies as a lender, compared to our rights and remedies as a landlord, would generally be more limited.
Our tenant base may not remain stable or could become more concentrated which could harm our operating results and financial condition.
Our tenant base may not remain stable or could become more concentrated among particular physicians and physician groups with varying practices and other medical service providers in the future. Subject to the terms of the applicable leases, our tenants could decide to leave our properties for numerous reasons, including, but not limited to, financial stress or changes in the tenant’s ownership or management. Our tenants service the healthcare industry and our tenant mix could become even more concentrated if a preponderance of our tenants practice in a particular medical field or are reliant upon a particular healthcare system. If any of our tenants become financially unstable, our operating results and prospects could suffer, particularly if our tenants become more concentrated.
Our MOBs, developments, redevelopments, and other facilities that serve the healthcare industry and our tenants may be subject to competition.
Our MOBs, developments, redevelopments, and other facilities that serve the healthcare industry often face competition from nearby hospitals, developers, and other MOBs that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, while others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of financial support are not available to buildings we own or develop.
Similarly, our tenants face competition from other medical practices in nearby hospitals and other medical facilities. Further, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. Competition and loss of referrals could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues. Any reduction in rental revenues resulting from the inability of our MOBs and other facilities that serve property types with other real estate not owned by us;
•the healthcare industry and our tenants to compete successfully may have an adverse effect on our business,ongoing financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
The hospitals on whose campuses our MOBs are located and their affiliated healthcare systems could fail to remain competitive or financially viable, which could adversely impact their ability to attract physicians and physician groups to our MOBs and our other facilities that serve the healthcare industry.
Our MOB operations and other facilities that serve the healthcare industry depend on the viability of thetenant groups, hospitals, on whose campuses our MOBs are located and their affiliated healthcarerelated health systems in orderrelevant to attract physicians and other healthcare-related users. The viability of these hospitals, in turn, depends on factors such as the quality and mix of healthcare services provided, competition, demographic trends in the surrounding community, market position and growth potential, as well as the ability of the affiliated healthcare systems to provide economies of scale and access to capital. If a hospital whose campus is located on or near one of our MOBs is unable to meet its financial obligations, and if an affiliated healthcare system is unable to support that hospital, the hospital may not be able to compete successfully or could be forced to close or relocate, which could adversely impact its ability to attract physicians and other healthcare-related users. Because we rely on our proximity to and affiliations with these hospitals to create tenant demand for space in our MOBs, their inability to remain competitive or financially viable, or to attract physicians and physician groups, could adversely affect our MOB operations and have an adverse effect on us.us;
The•the unique nature of certain of our properties,property types, including our senior healthcare properties, may make it difficultcare facilities;
•the impact to leaseus of climate change and severe weather;
•uninsured losses or transfer our property or find replacement tenants, which could require us to spend considerable capital to adapt the property to an alternative use or otherwise negatively affect our performance.
Somepotential of the properties we own or may seek to acquire are specialized medical facilities or otherwise designed or built for a particular tenant of a specific type of use known as a single use facility. For example, senior healthcare facilities present unique challenges with respect to leasing and transfer. Skilled nursing, assisted living and independent living facilities are typically highly customized and may not be easily modified to accommodate non-healthcare-related uses. The improvements generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly and oftentimes operator-specific. As a result, these property types may not be suitable for lease to traditional office tenants or other healthcare tenants with unique needs without significant expenditures or renovations. A new or replacement tenant may require different features in a property, depending on that tenant’s particular operations.
If we or our tenants terminate or do not renew the leases for our properties or our tenants lose their regulatory authorityand operations to operate such properties or default on their lease obligations to us for any reason, we may not be able to locate, or may incur additional costs to locate, suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to modify a property for a new tenant, or for multiple tenants with varying infrastructure requirements, before we are able to re-lease the space or we could otherwise incur re-leasing costs. Furthermore, because transfers of healthcare facilities may be subject to regulatory approvals not required for transfers of other types of properties, there may be significant delays in transferring operations of senior healthcare facilities to successor operators. Any loss of revenues or additional capital expenditures required as a result may have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and under-insured;
•our ability to make distributionsintegrate acquired assets with existing operations or our failure to our stockholders.operate newly acquired assets successfully;
Uninsured losses relating•the impact to real estate and lender requirements to obtain insurance may reduce stockholder returns.us of increases in property taxes;
There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution•limitations or environmental matters, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. If anyrestrictions on the use of our properties incurs a casualty loss that is not fully covered by insurance, from existing ground lease or other arrangements;
•the valuerisks to us of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure our stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, we could suffer reduced earnings that would result in less cash to be distributed to our stockholders. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase and could have an adverse effect on the net income from the property and, thus, the cash available for distribution to our stockholders.
We may fail to successfully operate acquired properties.
Our ability to successfully operate any properties is subject to the following risks:
we may acquire properties that are not initially accretive to our results upon acquisition and we may not successfully manage and lease those properties to meet our expectations;
we may spend more than budgeted to make necessary improvements or renovations to acquired properties;
we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations and, as a result, our results of operations and financial condition could be adversely affected;
market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
we may acquire properties subject to liabilities, including contingent liabilities, and without any recourse, or with only limited recourse, with respect to unknown liabilities for the clean-up of undisclosed environmental contamination, claims by tenants or other persons dealing with former owners of the properties, liabilities, claims, and litigation, including indemnification obligations, whether or not incurred in the ordinary course of business, relating to periods prior to or following our acquisitions, claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties, and liabilities for taxes relating to periods prior to our acquisitions.
If we are unable to successfully operate acquired properties, our financial condition, results of operations, the market price of our common stock, cash flow and ability to satisfy our principal and interest obligations and to make distributions to our stockholders could be adversely affected.
We may not be able to control our operating costs or our expenses may remain constant or increase, even if our revenue does not increase, which could cause our results of operations to be adversely affected.
Factors that may adversely affect our ability to control operating costs include the need to pay for insurance and other operating costs, including real estate taxes, which could increase over time, the need periodically to repair, renovate and re-let space, the cost of compliance with governmental regulation, including zoning and tax laws, the potential for liability under applicable laws, interest rate levels and the availability of financing. If our operating costs increase as a result of any of the foregoing factors, our results of operations may be adversely affected. The expenses of owning and operating MOBs and other facilities that serve the healthcare industry are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property. As a result, if our revenue declines, we may not be able to reduce our expenses accordingly. Certain costs associated with real estate investments may not be reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease. If one or more of our properties is mortgaged and we are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take possession of the properties, resulting in a further reduction in our net income.
Increases in property taxes could adversely affect our cash flow.
Our properties are subject to real and personal property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. Some of our leases generally provide that the property taxes or increases therein are charged to the tenants as an expense related to the real properties that they occupy, while other leases provide that we are generally responsible for such taxes. We are also generally responsible for real property taxes related to any vacant space. In any case, as the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if the tenant is obligated to do so under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale.
Our ownership of certain MOB properties and other facilities are subject to ground leases or other similar agreements which limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties.
As of December 31, 2018, we held interests in MOB properties and other facilities that serve the healthcare industry through leasehold interests in the land on which the buildings are located and we may acquire additional properties in the future that are subject to ground leases or other similar agreements. As of December 31, 2018, these properties represented 40% of our total GLA. Many of our ground leases and other similar agreements limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties without the ground landlord’s consent, which may impair their value.
Our real estate development, redevelopment and construction platform is subjectactivities;
•the impact to risks that could adversely impact our results of operations.
A componentus of our current growth strategy is, when appropriate, to pursue accretive development and redevelopment projects. However, there are inherent risks associated with these development and redevelopment projects, including, but not limited to the following:
the development costs of a project may exceed budgeted amounts, causing the project to be unprofitable or to incur a loss;
we may encounter delays as a result of a variety of factors that are beyond our control, including natural disasters, material shortages, and regulatory requirements;
time required to complete the construction of a project or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flows and liquidity;
lease rates and rents at newly developed or redeveloped properties may fluctuate based on factors beyond our control, including market and economic conditions as well as the aforementioned budget overages;
we may be unable to obtain favorable financing terms to fund our development projects;
financing arrangements may require certain milestones, covenants, and other contractual terms that may be violated if the performance of our development and redevelopment projects differs from our projected income;
demand from prospective tenants may be reduced due to competition from other developers; and
tenants who pre-lease a portion of our development projects may fail to occupy the property upon development completion.
Uncertain market conditions relating to the future disposition of properties or other real estate related assets could cause us to sell our properties or real estate assets and the corresponding market rates and terms for those dispositions being on unfavorable terms or at a loss in terms;
•the future.
We intend to hold our various real estate investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives. Our Chief Executive Officer and our Boardimpact of Directors may exercise their discretion as to whether and when to sell a property and we will have no obligation to sell properties at any particular time. Our Board of Directors may also choose to effect a liquidity event in which we liquidate our investments in other real estate related assets. We generally intend to hold properties for an extended period of time and our mortgage investments until maturity, and we cannot predict with certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our properties, we may not be able to sell our properties at a profit in the future or at all, and we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Additionally, if we liquidate our mortgage investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss. For instance, if we are required to liquidate mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values. Any inability to sell a property or liquidation of a mortgage investment prior to maturity could adversely impact our business, financial condition and results of operation, the market price of our common stock and ability to pay distributions to our stockholders.
The mortgage or other real estate-related loans in which we have in the past, and may in the future, invest may be impacted by unfavorable real estate market conditions and delays in liquidation, which could decrease their value.
If we make additional investments in real estate notes receivable, we will be at risk of loss on those investments, including losses as a result of borrower defaults on mortgage loans. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and lease expirations, interest rate levels and the other economic and liability risks associated with real estate as described elsewhere under this heading. Furthermore, if there are borrower defaults under our mortgage loan investments, we may not be ableor real-estate loans;
•the impact of risks related to foreclose on or obtain a suitable remedy with respect to such investments. Specifically, we may not be able to repossess and sell the properties under our mortgage loans quickly, which could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. In the event of a borrower default, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan. Additionally, if we acquire property by foreclosure following a borrower default under our mortgage loan investments, we will have the economic and liability risks as the owner described above. Thus, we do not know whether the values of the property securing any of our investments in, real estate related assets will remain at or originations of, mezzanine loans;
•the levels existing on the dates we initially make the related investment. If the valuesimpact to us of the underlying properties decline, our risk will increase and the valuevariability of our interests may decrease.
Lease rates under our long-term leases may be lower than fair market lease rates, over time.
We have entered into and may in the future enter into long-termincluding those on longer-term leases or for leases with tenants at certain of contractual lease rates; and
•our properties. Certain of our long-term leases provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases is less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions could be lower than if we did not enter into long-term leases.
Rents associated with new leases for properties in our portfolio may be less than expiring rents (lease roll-down) on existing leases, which may adversely affect our financial condition, results of operations and cash flow.
Our operating results depend upon our ability to maintain and increase rental rates at our properties while also maintaining or increasing occupancy. The rental rates for expiring leases may be higher than starting rental rates for new leases and we may also be required to offer greater rental concessions than we have historically. The rental rate spread between expiring leases and new leases may vary both from property to property and among different leased spaces within a single property. If we are unable to obtain sufficient rental rates across our portfolio, our business, financial condition and results of operation, the market price of our common stock and ability to pay distributions to our stockholders could be adversely affected.
Costs associated with complyingcompliance with the Americans with Disabilities Act of 1990 may result in unanticipated expenses.and other similar legislature.
Under the ADA, all places
Risks Related to the Healthcare Industry
New laws or regulations affecting the heavily regulated healthcare industry, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us.
The healthcare industry is heavily regulated by federal, state and local governmental agencies. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to make distributions to our stockholders.
Many of our medical properties and our tenants may require a license or multiple licenses or a CON to operate. Failure to obtain a license or a CON or loss of a required license or a CON would prevent a facility from operating in the manner intended by the tenant. These events could adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services or acquisition of medical equipment, and the construction of facilities that servedependence on the healthcare industry by requiring a CON or other similar approval. State CON involves risks to us, including those related to:
•laws are not uniform throughoutaffecting the U.S.healthcare industry, healthcare legislation reform, and are subject to change. We cannot predict the impact of state CON laws on our facilities or the operationslicensure of our tenants.tenants;
In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility and require new CON authorization to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Comprehensive healthcare reform legislation could adversely affect our business, financial condition and results of operations, the market price of our common stock and our ability to pay distributions to stockholders.
In March 2010, then President Obama signed the Affordable Care Act. The Affordable Care Act, along with other healthcare reform efforts has resulted in comprehensive healthcare reform in the U.S. through a phased approach, which began in 2010 and will conclude in 2018. It remains difficult to predict the impact of these laws on us due to their complexity, lack of implementing regulations or interpretive guidance, and the gradual implementation of the laws over a multi-year period. During the 2016 Presidential and Congressional campaigns, Republicans promised they would seek the repeal of the Affordable Care Act. On January 20, 2017, newly-sworn-in President Trump issued an executive order aimed at seeking the prompt repeal of the Affordable Care Act, and directed the heads of all executive departments and agencies to minimize the economic and regulatory burdens of the Affordable Care Act to the maximum extent permitted by law. In addition, there have been and continue to be numerous Congressional attempts to amend and repeal the law. We cannot predict whether any of these attempts to amend or repeal the law will be successful. The future of the Affordable Care Act is uncertain and any•adverse changes to existing laws and regulations, including the Affordable Care Act’s repeal, modification or replacement, could have a long-term financial impact on the delivery of and payment for healthcare. Both our tenants and us may be adversely affected by the law or its repeal, modification or replacement.
Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.
Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers, health maintenance organizations, preferred provider arrangements and self-insured employers, among others. Changes in the reimbursement rate or methods of paymentrates from third-party payors includingto our tenants;
•government budget deficits and reduced appropriations to Medicare and Medicaid, could impact Medicaid; and
•the revenueviolation of our tenants.
The healthcare industry also faces various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. A focus on controlling costs could have an adverse effect on the financial condition of some or all of our tenants. The financial impact onlaws by our tenants, could restrict their ability to make rent payments to us, which would have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Government budget deficits could lead to a reduction in Medicaid and Medicare reimbursement, which could adversely affect the financial condition of our tenants.
Adverse U.S. economic conditions have negatively affected state budgets, which may put pressure on states to decrease reimbursement rates with the goal of decreasing state expenditures under state Medicaid programs. The need to control Medicaid expenditures may be exacerbated by the potential for increased enrollment in state Medicaid programs due to unemployment, declines in family incomes and eligibility expansions required by the recently enacted healthcare reform law. These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement rates under both the federal Medicare program and state Medicaid programs. Potential reductions in reimbursements under these programs could negatively impact the ability of our tenants and their ability to meet their obligations to us, which could, in turn, have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Some tenants at our MOBs and our other facilities that serve the healthcare industry are subject toincluding fraud and abuse laws the violation of which by a tenant may jeopardize the tenant’s ability to make rent payments to us.and licensure violations.
As described in the Item 1 - Business, there are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from, or are in a position to make referrals in connection with, government-sponsored healthcare programs, including the Medicare and Medicaid programs. In the ordinary course of their business, our tenants may be subject to inquiries, investigations and audits by federal and state agencies as well as whistleblower suits under the False Claims Act from private individuals. An investigation by a federal or state governmental agency for violation of fraud and abuse laws, a whistleblower suit, or the imposition of criminal/civil penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments. In turn, this may have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Risks Related to Debt Financing
We haveOur debt financing arrangements involve risks to us, including those related to:
•our dependence on indebtedness and intend to incur indebtedness, which may increase ourassociated business risks, could hinderincluding the hindrance of our ability to make distributions and could decrease the value of our Company.distributions;
As of December 31, 2018, we had total debt outstanding of $2.5 billion. We intend•changes to continue to finance a portionor elimination of the purchase price of our investments in real estate and other real estate related assets by borrowing funds. In addition, weLondon Inter-Bank Offered Rate;
•restrictive covenants that may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90% of our annual ordinary taxable income to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes. We have historically maintained a low leveraged balance sheet and intend to continue to maintain this structure over the long term. However, our total leverage may fluctuate on a short term basis as we execute our business strategy.
High debt levels will cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of the Company. For tax purposes, a foreclosure of any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds related thereto. We may give full or partial guarantees to lenders of mortgage debt to our affiliated entities that own our properties. When we give a guaranty on behalf of an affiliated entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by our affiliated entity. If any mortgage contains cross-collateralization or cross-default provisions, a default by us on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default by us, our ability to pay cash distributions to our stockholders could be adversely affected.
Covenants in the instruments governing our existing indebtedness limit our operational flexibilityflexibility; and a covenant breach could adversely affect our operations.
The terms of the instruments governing our existing indebtedness require us to comply with a number of customary financial and other covenants. These provisions include, among other things: a limitation on the incurrence of additional indebtedness; limitations on mergers; investments; acquisitions; redemptions of capital stock; transactions with affiliates; and maintenance of specified financial ratios. Our continued ability to incur debt and operate our business is subject to compliance with these covenants, which limit our operational flexibility. Breaches of these covenants could result in defaults by us under applicable debt instruments, even if payment obligations are satisfied. Financial and other covenants that limit our operational flexibility, as well as defaults resulting from our breach of any of these covenants in our debt instruments, could have an •adverse effect on our financial condition and results of operations.
Adverse changes in our credit ratings could impair our abilityand the potential inability for us to obtainseek additional debt and equity financing on favorable terms, if at all, and negatively impact the market price of our securities, including our common stock.all.
Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us. Our credit ratings can affect the amount and type of capital we can access, as well as the terms of any financings we may obtain. There can be no assurance that we will be able to maintain our current credit ratings, and, in the event that our current credit ratings deteriorate, we would likely incur higher borrowing costs and it may be more difficult or expensive for us to obtain additional financing or refinance existing obligations and commitments. Also, a downgrade in our credit ratings would trigger additional costs or other potentially negative consequences for us under our current and future credit facilities and debt instruments.
Risks Related to Joint Ventures
Our investments in joint venture arrangements involves risks to us that the terms of our agreements could impair our cash flow, operating flexibility and/or our results of operations.
Federal Income Tax Risks
We face risks related to certain tax laws and associated taxation of our company, including those related to:
•our failure to qualify as a REIT for U.S. federal income tax purposes;
•our ability to continue qualifying as a REIT; and
•ownership limits with respect to capital stock contained in our corporate charter may delay, defer or prevent a change of control or other transaction.
Risks Related to Our Common Stock and Forward Sale Agreements
Our common stock, including our common stock sold pursuant to forward sales agreements involves risks, including those related to:
•historical and possible future fluctuations in the price of our common stock;
•future offerings of debt securities ranking senior to our common stock, or our issuance of additional equity securities that may be senior and/or dilutive to our existing stockholders;
•changes in the frequency or amount of our dividends;
•increases in market interest rates;
•the failure of securities analysts to publish reports about us or the downgrading of our common stock and/or the healthcare real-estate sector;
•settlement provisions contained in our forward sale agreements resulting in dilution to our stockholders;
•the U.S. federal income tax treatment of cash we might receive from cash settlement of our forward sale agreements may jeopardize our qualification as a REIT; and
•in case of our bankruptcy or insolvency we would not receive the expected proceeds from any forward sales of our common stock.
Risks Related to the Merger
We face risks related to the proposed merger with Healthcare Realty Trust Incorporated, including those related to:
•the effect of the announcement and pendency of the merger agreement on our business;
•the satisfaction or waiver of certain conditions;
•litigation or other legal proceedings relating to the merger agreement; and
•the fact that the exchange ratio will not be adjusted in the event of changes in stock prices.
Risk Factors
This section highlights significant factors, events and uncertainties that could create risk with an investment in our securities. The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results, cash flows, liquidity, ability to pay dividends and the price of our common stock. These risk factors do not identify all risks that we face. Our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations.
Risks Related to Our Business
We are dependent on investments in the healthcare property sector, making our profitability more vulnerable to a downturn or slowdown in that specific sector than if we were investing in multiple industries.
We concentrate our investments in the healthcare property sector. As a result, we are subject to risks inherent to investments in a single industry. A downturn or slowdown in the healthcare property sector would have a greater adverse impact on our business than if we had investments in multiple industries. Specifically, a downturn in the healthcare property sector could negatively impact the ability of our tenants to make lease payments to us as well as our ability to maintain rental and occupancy rates, which could adversely affect our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Our ability to make future acquisitions may be impeded, or the cost of these acquisitions may be increased, due to a variety of factors, including competition for the acquisition of MOBs and other facilities that serve the healthcare industry.
At any given time, we may be pursuing property acquisitions or have properties subject to letters of intent, but we cannot assure you that we will acquire any such properties because the letters of intent are non-binding and potential transaction opportunities are subject to a variety of factors, including: (i) the willingness of the current property owner to proceed with a potential transaction with us; (ii) our completion of due diligence that is satisfactory to us and our receipt of internal approvals; (iii) the negotiation and execution of mutually acceptable binding purchase agreements; and (iv) the satisfaction of closing conditions, including our receipt of third-party consents and approvals. We also compete with many other entities engaged in real estate investment activities for the acquisition of MOBs and other facilities that serve the healthcare industry, including national, regional and local operators, acquirers and developers of healthcare properties. The competition for the acquisition of healthcare properties may significantly increase the prices we must pay for MOBs and other facilities that serve the healthcare industry or other real estate related assets we seek to acquire. This competition may also effectively limit the number of suitable investment opportunities offered to us or the number of properties that we are able to acquire, and may increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms. The potential sellers of our acquisition targets may find our competitors to be more attractive purchasers because they may have greater resources, may be willing to pay more to acquire the properties, may have pre-existing relationships or may have a more compatible operating philosophy. In particular, larger healthcare REITs may enjoy significant competitive advantages over us that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Moreover, our competitors generally may be able to accept more risk with respect to their acquisitions than we can prudently manage or are willing to accept. In addition, the number of our competitors and the amount of funds competing for suitable investment properties may increase, which could result in increased demand for these properties and, therefore, increased prices to acquire them. Because of an increased interest in single-property acquisitions among tax-motivated individual purchasers, we may pay higher prices for the purchase of single properties in comparison with the purchase of multi-property portfolios. If we pay higher prices for MOBs and other facilities that serve the healthcare industry, or otherwise incur significant costs and divert management attention in connection with the evaluation and negotiation of potential acquisitions, including potential transactions that we are subsequently unable or elect not to complete, our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders may be adversely affected.
We may not be able to maintain or expand our relationships with hospitals, healthcare systems and developers, which may impede our ability to identify and complete acquisitions directly from hospitals, healthcare systems and developers, and may otherwise adversely affect our growth, business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
The success of our business depends to a large extent on our past, current and future relationships with hospitals, healthcare systems and developers, including our ability to acquire properties directly from hospitals, healthcare systems and developers. We invest a significant amount of time to develop and maintain these relationships, and these relationships have helped us secure acquisition opportunities. Facilities that are acquired directly from hospitals, healthcare systems and developers are typically more attractive to us as a purchaser because of the absence of a formal competitive marketing process, which could lead to higher prices. If any of our relationships with hospitals, healthcare systems and developers deteriorates, or if a conflict of interest or a non-compete arrangement prevents us from expanding these relationships, our professional reputation within the industry could be damaged and we may not be able to secure attractive acquisition opportunities directly from hospitals, healthcare systems and developers in the future, which could adversely affect our ability to locate and acquire facilities at attractive prices.
Our results of operations, our ability to pay distributions to our stockholders and our ability to dispose of our investments are subject to general economic conditions affecting the commercial real estate and credit markets.
Our business is sensitive to national, regional and local economic conditions, as well as the commercial real estate and credit markets. For example, a financial disruption or credit crisis could negatively impact the value of commercial real estate assets, contributing to a general slowdown in our industry. A slow economic recovery could cause a reduction in the overall volume of transactions, number of sales and leasing activities of the type that we previously experienced. We are unable to predict future changes in national, regional or local economic, demographic or real estate market conditions.
Adverse economic conditions in the commercial real estate and credit markets may result in:
•defaults by tenants at our properties due to bankruptcy, lack of liquidity or operational failures;
•increases in vacancy rates due to tenant defaults, the expiration or termination of tenant leases, and reduced demand for MOBs and other facilities that serve the healthcare industry;
•increases in tenant inducements, tenant improvement expenditures, rent concessions or reduced rental rates, especially to maintain or increase occupancy at our properties;
•reduced values of our properties, thereby limiting our ability to dispose of our assets at attractive prices or obtain debt financing secured by our properties on satisfactory terms, as well as reducing the availability of unsecured loans;
•the value and liquidity of our short-term investments and cash deposits being reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, the dislocation of the markets for our short-term investments, increased volatility in market rates for such investments and other factors;
•one or more lenders under our credit facilities refusing to fund their financing commitments to us and, in such event, we are unable to replace the financing commitments of any such lender or lenders on favorable terms, or at all;
•a recession or rise in interest rates, which could make it more difficult for us to lease our properties or dispose of our properties or make alternative interest-bearing and other investments more attractive, thereby lowering the relative value of our existing real estate investments;
•one or more counterparties to our interest rate swaps default on their obligations to us, thereby increasing the risk that we may not realize the benefits of these instruments;
•increases in the supply of competing properties or decreases in the demand for our properties, which may impact our ability to maintain or increase occupancy levels and rents at our properties or to dispose of our investments; and
•increased insurance premiums, real estate taxes or energy costs or other expenses, which may reduce funds available for distribution to our stockholders or, to the extent such increases are passed through to our tenants, may lead to tenant defaults, tenant turnover, or make it difficult for us to increase rents to tenants on lease turnover which may limit our ability to increase our returns.
Our business, financial condition and results of operations, the market price of our common stock and our ability to pay distributions to our stockholders may be adversely affected to the extent an economic slowdown or downturn is prolonged or becomes more severe.
Our growth depends on external sources of capital that are outside of our control, which may affect our ability to seize strategic opportunities, satisfy debt obligations and make distributions to our stockholders.
In order to qualify as a REIT, we must distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financings, from operating cash flow. Consequently, we may need to rely on third-party sources to fund our capital needs, meet our debt service obligations, make distributions to our stockholders or make future investments necessary to implement our business strategy. We may not be able to obtain financing on favorable terms, in the time period we desire, or at all. Our access to third-party sources of capital depends, in part, on a number of factors, including: general market conditions; the market’s perception of our growth potential; our current debt levels; our current and expected future earnings; our cash flow and cash distributions; and the market price per share of our common stock. If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, satisfy our principal and interest obligations to our lenders or make the cash distributions to our stockholders necessary to maintain our qualification as a REIT.
Our success depends to a significant degree upon the continued contributions of our Board members, our interim Chief Executive Officer and other key personnel, each of whom would be difficult to replace. If we are unable to employ a satisfactory successor to our interim Chief Executive Officer or if we were to lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating results could suffer.
Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our Board of Directors, our executive officers and our other employees. A special committee of our Board is currently engaged in a search process to identify and employ a successor to our interim Chief Executive Officer who was appointed following the resignation of our former Chairman and Chief Executive Officer effective August 2, 2021. If we are unable to employ a satisfactory replacement Chief Executive Officer or are unable to do so on a timely basis, our operating results could suffer. Our Board of Directors establishes important policies, governance objectives and strategic goals, and our management team serves a critical role in the identification and acquisition of investments, the determination and finalization of our financing arrangements, the asset management of our investments, and the operation of our day-to-day activities. Our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in our 2020 from 10-K or other filings with the Securities and Exchange Commission. We rely primarily on the management ability of our executive officers and the governance by the members of our Board of Directors, each of whom would be difficult to replace. We do not have any key-person life insurance on our executive officers. Although we have entered into employment agreements with each of our executive officers, these employment agreements contain various termination and resignation rights. If we were to lose the benefit of the experience, efforts and abilities of these executives, without satisfactory replacements, our operating results could suffer. In addition, if any member of our Board of Directors were to resign, we would lose the benefit of such director’s governance expertise and experience, and familiarity with us and the sector within which we operate. As a result of the foregoing, we may be unable to achieve our investment objectives or to pay distributions to our stockholders.
Significant stockholders may attempt to effect changes at our company or acquire control over our company, which could impact the pursuit of business strategies and adversely affect our results of operations and financial condition.
We recently received communications from an investor regarding our governance and strategic direction. Other investors could take steps to involve themselves in our governance and strategic direction. Activist investors may attempt to effect changes in our strategic direction and how we are governed, or to acquire control over the company. Some investors seek to increase short-term stockholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. While we welcome varying opinions from all shareholders, activist campaigns that contest or conflict with our strategic direction could have an adverse effect on our results of operations and financial condition as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our board and senior management from the pursuit of business strategies. In addition, perceived uncertainties as to our future direction as a result of changes to the composition of our board may lead to the perception of a change in the direction of the business, instability or lack of continuity which may be exploited by our competitors, may cause concern to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.
We rely on information technology in our operations; any material failure, inadequacy, interruption or security failure of that technology could harm our business, results of operations and financial condition.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, and tenant and lease data. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have an adverse effect on our business, results of operations and financial condition.
Our recently substantially completed internal investigation into circumstances relating to reports pursuant to our whistleblower policy could result in adverse consequences that would adversely affect our financial condition or results of operations.
We, with the assistance of outside legal counsel, and our board’s audit committee, with the assistance of independent legal counsel, recently substantially completed an internal investigation into circumstances relating to reports pursuant to our whistleblower policy. On November 4, 2021, we filed a Current Report on Form 8-K in which we reported on the results of the internal investigation. Although we concluded that the matters that were the subject of the ongoing investigation have not had a material adverse impact on the Company’s financial condition or results of operations, we cannot exclude the possibility of unanticipated adverse consequences of the internal investigation, including, but not limited to, the possibility that the Securities and Exchange Commission or other governmental authorities or regulators may commence investigations into the facts underlying our internal investigation; the consequences of any such government investigations, including the imposition of civil or criminal penalties; the risk that we may become subject to shareholder lawsuits, the defense of which may be costly; potential reputational harm resulting from the facts underlying the internal investigation; the possibility that executives or other employees may resign or be terminated; the impact of the investigation on historical financial statements; the effect of the internal investigation on our conclusions regarding the effectiveness of our internal control over financial reporting and our disclosure controls and procedures and on our ability to timely file the reports we are required to file with the Securities and Exchange Commission.
Pandemics and other health concerns, including the currently ongoing COVID-19 pandemic, and the measures intended to prevent their spread, could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Pandemics, including the ongoing COVID-19 pandemic and those caused by possible new strains or mutations of the SARS-CoV-2 virus, as well as both future widespread and localized outbreaks of infectious diseases and other health concerns, and the measures taken to prevent the spread or lessen the impact, could cause a material disruption to our industry or deteriorate the economy as a whole. The impacts of such events could be severe and far-reaching, and may impact our operations in several ways. Such operational impacts include, but are not limited to, the following: (i) tenants could experience deteriorating financial conditions and be unable or unwilling to pay rent on time and in full; (ii) we may have to restructure tenants' obligations and may not be able to do so on terms that are favorable to us; (iii) inquiries and tours at our properties could decrease; (iv) move-ins and new tenanting efforts, and re-letting efforts could slow or stop altogether; (v) move-outs and potential early termination of leases thereunder could increase; (vi) operating expenses, including the costs of certain essential services or supplies, including payments to third-party contractors, service providers, and employees essential to ensure continuity in our building operations may increase; and (vii) costs of development, including expenditures for materials utilized in construction and labor essential to complete existing developments in progress may increase substantively.
Further, disruption in the real estate markets may restrict our ability to deploy capital for new investments, or limit our ability to make new investments on terms that are favorable to us.
Additionally, these types of events could cause severe economic, market and other disruptions worldwide which could stretch to bank lending, capital and other financial markets. If these markets are affected, future access to capital and other sources of funding could be constrained which could adversely affect the availability and terms of our future borrowings, our ability to refinance existing debt, our ability to draw on our revolving credit facility, and our ability to raise equity financing on terms that are favorable to us.
Risks Related to Our Organizational Structure
We may structure acquisitions of property in exchange for limited partnership units of our operating partnership on terms that could limit our liquidity or our flexibility.
We may continue to acquire properties by issuing limited partnership units of our operating partnership, HTALP, in exchange for a property owner contributing property to us. If we continue to enter into such transactions in order to induce the contributors of such properties to accept units of our operating partnership rather than cash in exchange for their properties, it may be necessary for us to provide additional incentives. For instance, our operating partnership’s limited partnership agreement provides that any holder of units may exchange limited partnership units on a one-for-one basis for, at our option, cash equal to the value of an equivalent number of shares of common stock. We may, however, enter into additional contractual arrangements with contributors of property under which we would agree to repurchase a contributor’s units for shares of our common stock or cash, at the option of the contributor, at set times. If the contributor required us to repurchase units for cash pursuant to such a provision, it would limit our liquidity and, thus, our ability to use cash to make other investments, satisfy other obligations or make distributions to stockholders. Moreover, if we were required to repurchase units for cash at a time when we did not have sufficient cash to fund the repurchase, we might be required to sell one or more of our properties to raise funds to satisfy this obligation. Furthermore, we might agree that if distributions the contributor received as a limited partner in our operating partnership did not provide the contributor with an established return level, then upon redemption of the contributor’s units we would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to our operating partnership, we might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares. Such an agreement would prevent us from selling those properties, even if market conditions would allow such a sale to be favorable to us.
Our Board of Directors may change our investment objectives and major strategies and take other actions without seeking stockholder approval.
Our Board of Directors determines our investment objectives and major strategies, including our strategies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Our Board of Directors may amend or revise these and other strategies without a vote of the stockholders. Under our charter and Maryland law, our stockholders will have a right to vote only on the following matters:
•the election or removal of directors;
•our dissolution;
•certain mergers, consolidations, conversions, statutory share exchanges and sales or other dispositions of all or substantially all of our assets; and
•amendments of our charter, except that our Board of Directors may amend our charter without stockholder approval to change our name or the name or other designation or the par value of any class or series of our stock and the aggregate par value of our stock, increase or decrease the aggregate number of our shares of stock or the number of our shares of any class or series that we have the authority to issue or effect certain reverse stock splits.
As a result, our stockholders will not have a right to approve most actions taken by our Board of Directors.
Certain provisions of Maryland law could delay, defer or prevent a change of control transaction.
Certain provisions of the Maryland General Corporation Law (“MGCL”) applicable to us may have the effect of inhibiting or deterring a third party from making a proposal to acquire us or of delaying or preventing a change of control under circumstances that otherwise could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
•provisions under Subtitle 8 of Title 3 of the MGCL that permit our Board of Directors, without our stockholders’ approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses;
•“business combination” provisions that, subject to limitations, prohibit certain business combinations, asset transfers and equity security issuances or reclassifications between us and an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of our then outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose supermajority voting requirements unless certain minimum price conditions are satisfied; and
•“control share” provisions that provide that holders of “control shares” of HTA (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
Pursuant to a resolution adopted by our Board of Directors, we are prohibited from classifying the Board under Subtitle 8 unless stockholders entitled to vote generally in the election of directors approve a proposal to repeal such resolution by the affirmative of a majority of the votes cast on the matter. In the case of the business combination provisions of the MGCL, our Board of Directors has adopted a resolution providing that any business combination between us and any other person is exempted from this statute, provided that such business combination is first approved by our Board. This resolution, however, may be altered or repealed in whole or in part at any time. In the case of the control share provisions of the MGCL, we have opted out of these provisions pursuant to a provision in our bylaws. We may, however, by amendment to our bylaws, opt in to the control share provisions of the MGCL. We may also choose to adopt other takeover defenses in the future. Any such actions could deter a transaction that may otherwise be in the interest of our stockholders.
Risks Related to Investments in Real Estate and Other Real Estate Related Assets
We are dependent on the financial stability of our tenants.
Lease payment defaults by our tenants would cause us to lose the revenue associated with such leases. Although 58% of our annualized base rent was derived from tenants (or their parent companies) that have a credit rating, a tenants’ credit rating (or its’ parents credit rating) is no guarantee of a tenant’s ability to perform its lease obligations and a parent company may choose not to satisfy the obligations of a subsidiary that fails to perform its obligations. If the property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as a landlord and we may incur substantial costs in protecting our investment and re-leasing our property, and we may not be able to re-lease the property for the rent previously received, if at all. Lease terminations and expirations could also reduce the value of our properties.
We face potential adverse consequences of bankruptcy or insolvency by our tenants.
We are exposed to the risk that our tenants could become bankrupt or insolvent. This risk would be magnified to the extent that a tenant leased space from us in multiple facilities. The bankruptcy and insolvency laws afford certain rights to a party that has filed for bankruptcy or reorganization. For example, a debtor-tenant may reject its lease with us in a bankruptcy proceeding. In such a case, our claim against the debtor-tenant for unpaid and future rents would be limited by the statutory cap of the U.S. Bankruptcy Code. This statutory cap might be substantially less than the remaining rent actually owed to us under the lease, and it is quite likely that any claim we might have against the tenant for unpaid rent would not be paid in full. In addition, a debtor-tenant may assert in a bankruptcy proceeding that its lease should be re-characterized as a financing agreement. If such a claim is successful, our rights and remedies as a lender, compared to our rights and remedies as a landlord, would generally be more limited.
Our tenant base may not remain stable or could become more concentrated which could harm our operating results and financial condition.
Our tenant base may not remain stable or could become more concentrated among particular physicians and physician groups with varying practices and other medical service providers in the future. Subject to the terms of the applicable leases, our tenants could decide to leave our properties for numerous reasons, including, but not limited to, financial stress or changes in the tenant’s ownership or management. Our tenants service the healthcare industry and our tenant mix could become even more concentrated if a preponderance of our tenants practice in a particular medical field or are reliant upon a particular healthcare system. If any of our tenants become financially unstable, our operating results and prospects could suffer, particularly if our tenants become more concentrated.
Our MOBs, developments, redevelopments, and other facilities that serve the healthcare industry and our tenants may be subject to competition.
Our MOBs, developments, redevelopments, and other facilities that serve the healthcare industry often face competition from nearby hospitals, developers, and other MOBs that provide comparable services. Some of those competing facilities are owned by governmental agencies and supported by tax revenues, while others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of financial support are not available to buildings we own or develop.
Similarly, our tenants face competition from other medical practices in nearby hospitals and other medical facilities. Further, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients. Competition and loss of referrals could adversely affect our tenants’ ability to make rental payments, which could adversely affect our rental revenues. Any reduction in rental revenues resulting from the inability of our MOBs and other facilities that serve the healthcare industry and our tenants to compete successfully may have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
The hospitals on whose campuses our MOBs are located and their affiliated healthcare systems could fail to remain competitive or financially viable, which could adversely impact their ability to attract physicians and physician groups to our MOBs and our other facilities that serve the healthcare industry.
Our MOB operations and other facilities that serve the healthcare industry depend on the viability of the hospitals on whose campuses our MOBs are located and their affiliated healthcare systems in order to attract physicians and other healthcare-related users. The viability of these hospitals, in turn, depends on factors such as the quality and mix of healthcare services provided, competition, demographic trends in the surrounding community, market position and growth potential, as well as the ability of the affiliated healthcare systems to provide economies of scale and access to capital. If a hospital whose campus is located on or near one of our MOBs is unable to meet its financial obligations, and if an affiliated healthcare system is unable to support that hospital, the hospital may not be able to compete successfully or could be forced to close or relocate, which could adversely impact its ability to attract physicians and other healthcare-related users. Because we rely on our proximity to and affiliations with these hospitals to create tenant demand for space in our MOBs, their inability to remain competitive or financially viable, or to attract physicians and physician groups, could adversely affect our MOB operations and have an adverse effect on us.
The unique nature of certain of our properties, including our senior healthcare properties, may make it difficult to lease or transfer our property or find replacement tenants, which could require us to spend considerable capital to adapt the property to an alternative use or otherwise negatively affect our performance.
Some of the properties we own or may seek to acquire are specialized medical facilities or otherwise designed or built for a particular tenant of a specific type of use known as a single use facility. For example, senior healthcare facilities present unique challenges with respect to leasing and transfer. Skilled nursing, assisted living and independent living facilities are typically highly customized and may not be easily modified to accommodate non-healthcare-related uses. The improvements generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly and oftentimes operator-specific. As a result, these property types may not be suitable for lease to traditional office tenants or other healthcare tenants with unique needs without significant expenditures or renovations. A new or replacement tenant may require different features in a property, depending on that tenant’s particular operations.
If we or our tenants terminate or do not renew the leases for our properties or our tenants lose their regulatory authority to operate such properties or default on their lease obligations to us for any reason, we may not be able to locate, or may incur additional costs to locate, suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to modify a property for a new tenant, or for multiple tenants with varying infrastructure requirements, before we are able to re-lease the space or we could otherwise incur re-leasing costs. Furthermore, because transfers of healthcare facilities may be subject to regulatory approvals not required for transfers of other types of properties, there may be significant delays in transferring operations of senior healthcare facilities to successor operators. Any loss of revenues or additional capital expenditures required as a result may have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
We face possible risks and costs associated with the effects of climate change and severe weather.
We cannot predict the rate at which climate change will progress. However, the physical effects of climate change could have a material adverse effect on our properties, operations and business. For example, many of our properties are located along the east coast of the U.S. and in Texas. To the extent that climate change impacts changes in weather patterns, our markets could experience severe weather, including hurricanes, severe winter storms and coastal flooding due to increases in storm intensity and rising sea levels. Over time, these conditions could result in declining demand for space at our properties, tenant disruption or displacement, delays in construction, resulting in increased construction costs, or in our inability to operate the buildings at all. Climate change and severe weather may also have indirect effects on our business by increasing the cost of, or decreasing the availability of, property insurance on terms we find acceptable, by increasing the cost of energy, maintenance, repair of water and/or wind damage, and snow removal at our properties.
Although Congress has not yet enacted comprehensive federal legislation to address climate change, numerous states and municipalities have adopted laws and policies on climate change and emission reduction targets. Changes in federal, state and local legislation and regulation based on concerns about climate change could result in increased capital expenditures on our existing properties and our new development properties (for example, to improve their energy efficiency and/or resistance to severe weather) without a corresponding increase in revenue, resulting in adverse impacts to our net income. There can be no assurance that climate change and severe weather will not have a material adverse effect on our properties, operations, or business.
Uninsured losses relating to real estate and lender requirements to obtain insurance may reduce stockholder returns.
There are types of losses relating to real estate, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, for which we do not intend to obtain insurance unless we are required to do so by mortgage lenders. If any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure our stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, we could suffer reduced earnings that would result in less cash to be distributed to our stockholders. In cases where we are required by mortgage lenders to obtain casualty loss insurance for catastrophic events or terrorism, such insurance may not be available, or may not be available at a reasonable cost, which could inhibit our ability to finance or refinance our properties. Additionally, if we obtain such insurance, the costs associated with owning a property would increase and could have an adverse effect on the net income from the property and, thus, the cash available for distribution to our stockholders.
We may fail to successfully operate acquired properties.
Our ability to successfully operate any properties is subject to the following risks:
•we may acquire properties that are not initially accretive to our results upon acquisition and we may not successfully manage and lease those properties to meet our expectations;
•we may spend more than amounts budgeted to make necessary improvements or renovations to acquired properties;
•we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations and, as a result, our results of operations and financial condition could be adversely affected;
•market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
•we may acquire properties subject to liabilities, including contingent liabilities, and without any recourse, or with only limited recourse to third-parties, with respect to unknown liabilities for the clean-up of undisclosed environmental contamination, claims by tenants or other persons dealing with former owners of the properties, liabilities, claims, and litigation, including indemnification obligations, whether or not incurred in the ordinary course of business, relating to periods prior to or following our acquisitions, claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties, and liabilities for taxes relating to periods prior to our acquisitions.
If we are unable to successfully operate acquired properties, our financial condition, results of operations, the market price of our common stock, cash flow and ability to satisfy our principal and interest obligations and to make distributions to our stockholders could be adversely affected.
We may not be able to control our operating costs or our expenses may remain constant or increase, even if our revenue does not increase, which could cause our results of operations to be adversely affected.
Factors that may adversely affect our ability to control operating costs include the need to pay for insurance and other operating costs, including real estate taxes, which could increase over time, the need periodically to repair, renovate and re-let space, the cost of compliance with governmental regulation, including zoning and tax laws, the potential for liability under applicable laws, interest rate levels and the availability of financing. If our operating costs increase as a result of any of the foregoing factors, our results of operations may be adversely affected. The expenses of owning and operating MOBs and other facilities that serve the healthcare industry are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the property. As a result, if our revenue declines, we may not be able to reduce our expenses accordingly. Certain costs associated with real estate investments may not be reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease. If one or more of our properties is mortgaged and we are unable to meet the mortgage payments, the lender could foreclose on the mortgage and take possession of the properties, resulting in a further reduction in our net income.
Increases in property taxes could adversely affect our cash flow.
Our properties are subject to real and personal property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. Some of our leases generally provide that the property taxes or increases therein are charged to the tenants as an expense related to the real properties that they occupy, while other leases provide that we are generally responsible for such taxes. We are also generally responsible for real property taxes related to any vacant space. In any case, as the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if the tenant is obligated to do so under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale.
Our ownership of certain MOB properties and other facilities are subject to ground leases or other similar agreements which limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties.
As of December 31, 2021, we held interests in certain MOB properties and other facilities that serve the healthcare industry through leasehold interests in the land on which the buildings are located and we may acquire additional properties in the future that are subject to ground leases or other similar agreements. As of December 31, 2021, these properties represented 37% of our total GLA. Many of our ground leases and other similar agreements limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties without the ground landlord’s consent, which may impair their value.
Our real estate development, redevelopment and construction platform is subject to risks that could adversely impact our results of operations.
A component of our current growth strategy is, when appropriate, to pursue accretive development and redevelopment projects. However, there are inherent risks associated with these development and redevelopment projects, including, but not limited to, the following:
•the development costs of a project may exceed budgeted amounts, causing the project to be unprofitable or to incur a loss;
•we may encounter delays as a result of a variety of factors that are beyond our control, including natural disasters, material shortages, and regulatory requirements;
•the time required to complete the construction of a project or to lease up the completed project may be longer than originally anticipated, thereby adversely affecting our cash flows and liquidity;
•lease rates and rents at newly developed or redeveloped properties may fluctuate based on factors beyond our control, including market and economic conditions as well as the aforementioned budget overages;
•we may be unable to obtain favorable financing terms to fund our development projects;
•financing arrangements may require certain milestones, covenants, and other contractual terms that may be violated if the performance of our development and redevelopment projects differs from our projected income;
•demand from prospective tenants may be reduced due to competition from other developers; and
•tenants who pre-lease a portion of our development projects may fail to occupy the property upon development completion.
Uncertain market conditions relating to the future disposition of properties or other real estate related assets could cause us to sell our properties or real estate assets on unfavorable terms or at a loss in the future.
We intend to hold our various real estate investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives. Our Chief Executive Officer and our Board of Directors may exercise their discretion as to whether and when to sell a property and we will have no obligation to sell properties at any particular time. Our Board of Directors may also choose to effect a liquidity event in which we liquidate our investments in other real estate related assets. We generally intend to hold properties for an extended period of time and our mortgage investments until maturity, and we cannot predict with certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our properties, we may not be able to sell our properties at a profit in the future or at all, and we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Additionally, if we liquidate our mortgage investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss. For instance, if we are required to liquidate mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values. Any
inability to sell a property or liquidation of a mortgage investment prior to maturity could adversely impact our business, financial condition and results of operation, the market price of our common stock and ability to pay distributions to our stockholders.
The mortgage or other real estate-related loans in which we have in the past, and may in the future, invest may be impacted by unfavorable real estate market conditions and delays in liquidation, which could decrease their value.
If we make additional investments in notes secured by real estate or other collateral, we will be at risk of loss on those investments, including losses as a result of borrower defaults on mortgage loans. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and lease expirations, interest rate levels and the other economic and liability risks associated with real estate as described elsewhere under this heading. Furthermore, if there are borrower defaults under our mortgage loan investments, we may not be able to foreclose on, or obtain a suitable remedy with respect to, such investments. Specifically, we may not be able to repossess and sell the properties under our mortgage loans quickly, which could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. In the event of a borrower default, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan. Additionally, if we acquire property by foreclosure following a borrower default under our mortgage loan investments, we will have the economic and liability risks as the owner described above. Thus, we do not know whether the values of the property securing any of our investments in real estate related assets will remain at the levels existing on the dates we initially make the related investment. If the values of the underlying properties decline, our risk will increase and the value of our interests may decrease.
Our investments in, or originations of, mezzanine loans will be subject to specific risks relating to the particular property or entity obligated to repay the loan, and our loan assets will involve greater risks of loss than senior loans secured by income-producing properties.
Mezzanine loan investments involve special risks relating to the particular borrower, including its financial condition, liquidity, results of operations, business, and prospects. We may also originate other real estate-related investments which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property or other properties. These types of assets involve a higher degree of risk than long-term senior mortgage lending secured by income producing real property because the loan may become unsecured as a result of foreclosure by the senior lender and because it is in a subordinated position and there may not be adequate equity in the property. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy such loan. If a borrower defaults on a loan or debt senior to our loan, or in the event of a borrower bankruptcy, such loan will be satisfied only after the senior debt. We may be unable to enforce guaranties of payment and/or performance given as security for some loans. As a result, we may not recover some or all of our initial expenditure. Mezzanine and term loans may partially finance the construction of real estate projects and so involve additional risks inherent in the construction process, such as adherence to budgets and construction schedules. In addition, mezzanine and term loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Significant losses related to our mezzanine and term loans would result in operating losses for us and may limit our ability to make distributions to our stockholders.
Lease rates under our long-term leases may be lower than fair market lease rates over time.
We have entered into and may in the future enter into long-term leases with tenants at certain of our properties. Certain of our long-term leases provide for rent to increase over time. However, if we do not accurately judge the potential for future increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases is less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions could be lower than if we did not enter into long-term leases.
Rents associated with new leases for properties in our portfolio may be less than expiring rents (lease roll-down) on existing leases, which may adversely affect our financial condition, results of operations and cash flow.
Our operating results depend upon our ability to maintain and increase rental rates at our properties while also maintaining or increasing occupancy. The rental rates for expiring leases may be higher than starting rental rates for new leases and we may also be required to offer greater rental concessions than we have historically. The rental rate spread between expiring leases and new leases may vary both from property to property and among different leased spaces within a single property. If we are unable to obtain sufficient rental rates across our portfolio, our business, financial condition and results of operation, the market price of our common stock and ability to pay distributions to our stockholders could be adversely affected.
Costs associated with complying with the Americans with Disabilities Act of 1990 may result in unanticipated expenses.
Under the ADA, all places of public accommodation are required to meet certain U.S. federal requirements related to access and use by disabled persons. A number of additional U.S. federal, state and local laws may also require modifications to our properties, or restrict certain further renovations of the properties, with respect to access thereto by disabled persons. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants and/or an order to correct any non-complying feature, which could result in substantial capital expenditures. We have not conducted an audit or investigation of all of our properties to determine our compliance and we cannot predict the ultimate cost of compliance with the ADA or other legislation. If one or more of our properties is not in compliance with the ADA or other related legislation, then we would be required to incur additional costs to bring the facility into compliance. If we incur substantial costs to comply with the ADA or other related legislation, our business, financial condition and results of operations, the market price of our common stock and ability to make distributions to our stockholders may be adversely affected.
Risks Related to the Healthcare Industry
New laws or regulations affecting the heavily regulated healthcare industry, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us.
The healthcare industry is heavily regulated by federal, state and local governmental agencies. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources. Changes in these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to make distributions to our stockholders.
Many of our medical properties and our tenants may require a license or multiple licenses or a CON to operate. Failure to obtain a license or a CON or loss of a required license or a CON would prevent a facility from operating in the manner intended by the tenant. These events could adversely affect our tenants’ ability to make rent payments to us. State and local laws also may regulate expansion, including the addition of new beds or services, or acquisition of medical equipment, and the construction of facilities that serve the healthcare industry, by requiring a CON or other similar approval. State CON laws are not uniform throughout the U.S. and are subject to change. We cannot predict the impact of state CON laws on our facilities or the operations of our tenants.
In limited circumstances, loss of state licensure or certification or closure of a facility could ultimately result in the loss of authority to operate the facility and require a new CON authorization to re-institute operations. As a result, a portion of the value of the facility may be reduced, which would adversely impact our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Comprehensive healthcare reform legislation could adversely affect our business, financial condition and results of operations, the market price of our common stock and our ability to pay distributions to stockholders.
In March 2010, then President Obama signed the Affordable Care Act (the “ACA”). The ACA, along with other healthcare reform efforts, has resulted in comprehensive healthcare reform in the U.S. through a phased approach, which began in 2010 and concluded in 2018. It remains difficult to predict the impact of these laws on us due to their complexity, lack of implementing regulations or interpretive guidance, and the gradual implementation of the laws over a multi-year period. During the 2016 Presidential and Congressional campaigns, Republicans promised they would seek the repeal of the ACA. On January 20, 2017, then newly-sworn-in President Trump issued an executive order aimed at seeking the prompt repeal of the ACA, and directed the heads of all executive departments and agencies to minimize the economic and regulatory burdens of the ACA to the maximum extent permitted by law. In addition, there have been and continue to be numerous Congressional attempts to amend and repeal the law. While no full repeal bills have passed both chambers of Congress, the 2017 Tax Cuts and Jobs Act eliminated the tax penalty associated with a key provision of the ACA known as the “individual mandate” beginning January 1, 2019. On December 14, 2018, a Texas federal district court judge, in the case of Texas v. Azar, declared the ACA unconstitutional, reasoning that the individual mandate tax penalty was essential to and not severable from the remainder of the ACA. The case was appealed to the U.S. Court of Appeals for the Fifth Circuit. On December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit ruled that the ACA’s “individual mandate” was unconstitutional but sent the case back to the
District Court for further analysis of whether the entire ACA is also rendered unconstitutional. In November 2020, Joseph Biden was elected President, and in January 2021, the Democratic Party obtained control of the Senate. As a result of these electoral developments, we believe it is unlikely that continued legislative efforts will be pursued to repeal the ACA. Instead, we believe it is possible that legislation will be pursued in order to enhance or reform the ACA. At this time, we are unable to state with certainty what the impact of any potential legislation may have on our business. Both we and our tenants may be adversely affected by new laws, or any modification and/or replacement of existing law.
Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.
Sources of revenue for our tenants may include the federal Medicare program, state Medicaid programs, private insurance carriers, health maintenance organizations, preferred provider arrangements and self-insured employers, among others. Changes in the reimbursement rate or methods of payment from third-party payors, including Medicare and Medicaid, could impact the revenue of our tenants.
The healthcare industry also faces various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. A focus on controlling costs could have an adverse effect on the financial condition of some or all of our tenants. The financial impact on our tenants could restrict their ability to make rent payments to us, which would have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Government budget deficits could lead to a reduction in Medicaid and Medicare reimbursement, which could adversely affect the financial condition of our tenants.
Adverse U.S. economic conditions have negatively affected state budgets, which may put pressure on states to decrease reimbursement rates with the goal of decreasing state expenditures under state Medicaid programs. The need to control Medicaid expenditures may be exacerbated by the potential for increased enrollment in state Medicaid programs due to unemployment, declines in family incomes and eligibility expansions required by the recently enacted healthcare reform law. These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement rates under both the federal Medicare program and state Medicaid programs. Potential reductions in reimbursements under these programs could negatively impact the ability of our tenants and their ability to meet their obligations to us, which could, in turn, have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.
Some tenants at our MOBs and our other facilities that serve the healthcare industry are subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant’s ability to make rent payments to us.
As described in the Item 1 - Business, there are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from, or are in a position to make referrals in connection with, government-sponsored healthcare programs, including the Medicare and Medicaid programs. In the ordinary course of their business, our tenants may be subject to inquiries, investigations and audits by federal and state agencies as well as whistleblower suits under the False Claims Act from private individuals. An investigation by a federal or state governmental agency for violation of fraud and abuse laws, a whistleblower suit, or the imposition of criminal/civil penalties upon one of our tenants could jeopardize that tenant’s ability to operate or to make rent payments. In turn, this may have an adverse effect on our business, financial condition and results of operations and our ability to make distributions to our stockholders.
Risks Related to Debt Financing
We have and intend to incur indebtedness, which may increase our business risks, could hinder our ability to make distributions and could decrease the value of our Company.
As of December 31, 2021, we had total debt outstanding of $3.0 billion. We intend to continue to finance a portion of the purchase price of our investments in real estate and other real estate related assets by borrowing funds. In addition, we may incur mortgage debt and pledge some or all of our real properties as security for that debt to obtain funds to acquire additional real properties or for working capital. We may also borrow funds to satisfy the REIT tax qualification requirement that we distribute at least 90% of our annual ordinary taxable income to our stockholders. Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes. We have historically maintained a low leveraged balance sheet and intend to continue to maintain this structure over the long term. However, our total leverage may fluctuate on a short term basis as we execute our business strategy.
High debt levels will cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to our stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of the Company. For tax purposes, a foreclosure of any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds related thereto. We may give full or partial guarantees to lenders of mortgage debt to our affiliated entities that own our properties. When we give a guaranty on behalf of an affiliated entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by our affiliated entity. If any mortgage contains cross-collateralization or cross-default provisions, a default by us on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default by us, our ability to pay cash distributions to our stockholders could be adversely affected.
The elimination of LIBOR may adversely affect interest expense related to our indebtedness.
Current borrowings under our unsecured term loans, which are hedged, and our unsecured revolving credit facility is based on LIBOR. On March 5, 2021, the United Kingdom Financial Conduct Authority (“FCA”), a regulator of financial services firms and financial markets in the United Kingdom, formally announced the cessation of LIBOR as of June 30, 2023. The Alternative Reference Rates Committee, a group of private-market participant convened by the U.S. Federal Reserve Board and the New York Federal Reserve, has recommended Secured Overnight Financing Rate (“SOFR”) as a more robust reference rate alternative to U.S. dollar LIBOR. Concurrent with the FCA’s announcement, the International Swaps and Derivatives Association (“ISDA”) determined that the announcement constituted an index cessation event and consequently the fallback spread adjustments were fixed and published, with the spread adjustment between U.S. dollar 1-Month LIBOR and SOFR at 0.11%. If we intend to hedge our LIBOR denominated debt, we cannot predict whether hedging opportunities will exist on acceptable terms.
Covenants in the instruments governing our existing indebtedness limit our operational flexibility and a covenant breach could adversely affect our operations.
The terms of the instruments governing our existing indebtedness require us to comply with a number of customary financial and other covenants. These provisions include, among other things: a limitation on the incurrence of additional indebtedness; limitations on mergers; investments; acquisitions; redemptions of capital stock; transactions with affiliates; and maintenance of specified financial ratios. Our continued ability to incur debt and operate our business is subject to compliance with these covenants, which limit our operational flexibility. Breaches of these covenants could result in defaults by us under applicable debt instruments, even if payment obligations are satisfied. Financial and other covenants that limit our operational flexibility, as well as defaults resulting from our breach of any of these covenants in our debt instruments, could have an adverse effect on our financial condition and results of operations.
Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on favorable terms, if at all, and negatively impact the market price of our securities, including our common stock.
Our credit ratings are based on our operating performance, liquidity and leverage ratios, overall financial position and other factors employed by the credit rating agencies in their rating analysis of us. Our credit ratings can affect the amount and type of capital we can access, as well as the terms of any financings we may obtain. There can be no assurance that we will be able to maintain our current credit ratings, and, in the event that our current credit ratings deteriorate, we would likely incur higher borrowing costs and it may be more difficult or expensive for us to obtain additional financing or refinance existing obligations and commitments. Also, a downgrade in our credit ratings would trigger additional costs or other potentially negative consequences for us under our current and future credit facilities and debt instruments.
Risks Related to Joint Ventures
The terms of joint venture agreements or other joint ownership arrangements into which we have entered and may enter could impair our cash flow, our operating flexibility and our results of operations.
In connection with the purchase of real estate, we have entered and may continue to enter into joint ventures with third parties. We may also purchase or develop properties in co-ownership arrangements with the sellers of the properties, developers or other persons. Our joint venture partners may also have rights to take actions over which we have no control and may take actions contrary to our interests. Joint ownership of an investment in real estate may involve risks not associated with direct ownership of real estate, including the following:
•a venture partner may at any time have economic or other business interests or goals which are or become inconsistent with our business interests or goals, including inconsistent goals relating to the sale of properties held in a joint venture or the timing of the termination and liquidation of the venture;
•a venture partner might become bankrupt and such proceedings could have an adverse impact on the operation of the partnership or joint venture;
•a venture partner’s actions might have the result of subjecting the property to liabilities in excess of those contemplated; and
•a venture partner may be in a position to take action contrary to our instructions or requests, or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT.
Under certain joint venture arrangements, neither venture partner may have the power to control the venture and, thus, an impasse could occur, which might adversely affect the joint venture and decrease potential returns to our stockholders. If we have a right of first refusal or buy/sell right to buy-out a venture partner, we may be unable to finance such a buy-out or we may be forced to exercise those rights at a time when it would not otherwise be in our best interest to do so. If our interest is subject to a buy/sell right in favor of us, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to purchase an interest of a venture partner subject to the buy/sell right, in which case we may be forced to sell our interest when we would otherwise prefer to retain our interest. In addition, we may not be able to sell our interest in a joint venture on a timely basis or on acceptable terms if we desire to exit the venture for any reason, particularly if our interest is subject to a right of first refusal in favor of our venture partner.
Federal Income Tax Risks
Failure to qualify as a REIT for U.S. federal income tax purposes would subject us to federal income tax on our taxable income at regular corporate rates, which would substantially reduce our ability to make distributions to our stockholders.
We elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our taxable year ended December 31, 2007 and we believe that our current and intended manner of operation will enable us to continue to meet the requirements to be taxed as a REIT. To qualify as a REIT, we must meet various requirements set forth in the Code concerning, among other things, the ownership of our outstanding common stock, the nature of our assets, the sources of our income and the amount of our distributions to our stockholders. The REIT qualification requirements are extremely complex and interpretations of the federal income tax laws governing qualification as a REIT are limited. Accordingly, we cannot be certain that we will be successful in operating so as to qualify as a REIT. At any time, new laws, interpretations or court decisions may change the federal tax laws relating to, or the federal income tax consequences of, qualification as a REIT. It is possible that future economic, market, legal, tax or other considerations may cause our Board of Directors to revoke our REIT election, which it may do without stockholder approval.
If we were to fail to qualify as a REIT for any taxable year, we would not be able to deduct distributions to stockholders in computing our taxable income and we would be subject to U.S. federal income tax on our taxable income at corporate rates. We could also be subject to the federal alternative minimum tax and increased state and local taxes. Losing our qualification as a REIT would reduce our net earnings available for investment or distribution to stockholders due to the additional tax liability and we would no longer be required to make distributions. To the extent that distributions had been made in anticipation of our qualifying as a REIT, we might be required to borrow funds or liquidate some investments in order to pay the applicable corporate income tax. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our qualification as a REIT.
As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and would substantially reduce our ability to make distributions to our stockholders.
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To continue to qualify as a REIT and to avoid the payment of U.S. federal income and excise taxes, we may be forced to borrow funds, use proceeds from the issuance of securities or sell assets to pay distributions, which may result in our distributing amounts that may otherwise be used for our operations or cause us to forgo otherwise attractive opportunities.
To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and by excluding net capital gains. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of: (a) 85% of our ordinary income; (b) 95% of our capital gain net income; and (c) 100% of our undistributed income from prior years. These requirements could cause us to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to liquidate otherwise attractive investments. These requirements could additionally cause us to distribute amounts that otherwise would be spent on acquisitions of properties and it is possible that we might be required to borrow funds, use proceeds from the issuance of securities or sell assets in order to distribute enough of our taxable income to maintain our qualification as a REIT and to avoid the payment of federal income and excise taxes. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
To preserve our qualification as a REIT, our charter contains ownership limits with respect to our capital stock that may delay, defer or prevent a change of control of HTA or other transaction that may be benefit our stockholders.
To assist us in preserving our qualification as a REIT, among other purposes, our charter contains a limitation on ownership that prohibits any individual, entity or group, unless exempted prospectively or retroactively by our Board of Directors, from directly acquiring beneficial ownership of more than 9.8% of the value of HTA’s then outstanding capital stock (which includes common stock and any preferred stock HTA may issue) or more than 9.8% of the value or number of shares, whichever is more restrictive, of HTA’s then outstanding common stock.
Any attempted transfer of HTA’s stock which, if effective, would result in HTA’s stock being beneficially owned by fewer than 100 persons will be null and void. Any attempted transfer of HTA’s stock which, if effective, would result in violation of the ownership limits discussed above or in HTA being “closely held” under Section 856(h) of the Code or otherwise failing to qualify as a REIT, will cause the number of shares causing the violation (rounded up to the nearest whole share) to be automatically transferred to a trust for the exclusive benefit of one or more charitable beneficiaries and the proposed transferee will not acquire any rights in the shares.
Risks Related to Our Common Stock
The price of our common stock has and may continue to fluctuate significantly, which may make it difficult for you to sell our common stock when you want or at prices you find attractive.
The price of our common stock on the NYSE constantly changes and has been subject to significant price fluctuations. We expect that the market price of our common stock will continue to fluctuate significantly. Our stock price can fluctuate as a result of a variety of factors, many of which are beyond our control. These factors may include:
•actual or anticipated variations in our quarterly operating results;
•changes in our earnings estimates or publication of research reports about us or the real estate industry, although no assurance can be given that any research reports about us will be published;
•future sales of substantial amounts of our common stock by our existing or future stockholders;
•increases in market interest rates, which may lead purchasers of our stock to demand a higher yield;
•changes in market valuations of similar companies;
•adverse market reaction to any increased indebtedness we incur in the future;
•additions or departures of key personnel;
•actions by institutional stockholders;
•speculation in the press or investment community; and
•general market and economic conditions.
In addition, the stock market in general may experience extreme volatility that may be unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the market price of our common stock.
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Future offerings of debt securities, which would be senior to our common stock, or equity securities, which would dilute our existing stockholders and may be senior to our common stock, may adversely affect the market price of our common stock.
In the future, we may issue debt or equity securities, including medium term notes, senior or subordinated notes and classes of preferred or common stock. Debt securities or shares of preferred stock will generally be entitled to receive dividends, both current and in connection with any liquidation or sale, prior to the holders of our common stock. Our Board of Directors may issue such securities without stockholder approval and under Maryland law may amend our charter to increase the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series without stockholder approval. We are not required to offer any such additional debt or equity securities to existing common stockholders on a preemptive basis. Therefore, offerings of our common stock or other equity securities may dilute the percentage ownership interest of our existing stockholders. To the extent we issue additional equity interests, our stockholders’ percentage ownership interest in us will be diluted. Depending upon the terms and pricing of any additional offerings and the value of our real properties and other real estate related assets, our stockholders may also experience dilution in both the book value and fair market value of their shares. As a result, future offerings of debt or equity securities, or the perception that such offerings may occur, may reduce the market price of our common stock and/or the dividends that we pay with respect to our common stock.
Our dividends to stockholders may change, which could adversely affect the market price of our common stock.
All dividends on our common stock will be at the sole discretion of our Board of Directors and will depend upon our actual and projected financial condition, results of operations, cash flows, liquidity and funds from operations, maintenance of our REIT qualification, applicable law and such other matters as our Board of Directors may deem relevant from time to time. We may not be able to make dividends in the future or may need to fund such dividends from external sources, as to which no assurances can be given. In addition, we may choose to retain operating cash flow for investment purposes, working capital reserves or other purposes, and these retained funds, although increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. Our failure to meet the market’s expectations with regard to future cash dividends likely would adversely affect the market price of our common stock.
Increases in market interest rates may result in a decrease in the value of our common stock.
One of the factors that may influence the price of our common stock will be the dividend distribution rate on our common stock (as a percentage of the price of our common stock) relative to market interest rates. If market interest rates rise, prospective purchasers of common stock may expect a higher dividend distribution rate. Higher interest rates would not, however, result in more funds being available for dividends and, in fact, would likely increase our borrowing costs and might decrease our funds available for dividends. We therefore may not be able, or we may not choose, to provide a higher dividend distribution rate. As a result, prospective purchasers may decide to purchase other securities rather than our common stock, which would reduce the demand for, and result in a decline in the market price of, our common stock.
If securities analysts do not publish research or reports about our business or if they downgrade our common stock or the healthcare-related real estate sector, the price of our common stock could decline.
The trading market for our common stock will rely in part upon the research and reports that industry or financial analysts publish about us or our business. We have no control over these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our stock or our industry, or the stock of any of our competitors, the price of our common stock could decline. If one or more of these analysts ceases coverage of our Company, we could lose attention in the market, which in turn could cause the price of our common stock to decline.
Risks Related to Forward Sale Agreements
Settlement provisions contained in a forward sale agreement could result in substantial dilution to our earnings per share and return on equity or result in substantial cash payment obligations.
If we enter into one or more forward sale agreements, the relevant forward purchaser will have the right to accelerate that particular forward sale agreement (with respect to all or any portion of the transaction under that particular forward sale agreement that the relevant forward purchaser determines is affected by such event) and require us to settle on a date specified by the relevant forward purchaser if:
•the relevant forward purchaser is unable to, or would incur a materially increased cost to, establish, maintain or unwind its hedge position with respect to that particular forward sale agreement;
•the relevant forward purchaser determines that it is unable, after using commercially reasonable efforts, to continue to borrow an amount of common stock equal to the amount of common stock underlying that particular forward sale agreement or that, with respect to borrowing such amount of common stock, it would incur a cost that is greater than the initial stock borrow cost specified in that particular forward sale agreement, subject to a prior notice requirement;
•a termination event occurs as a result of us declaring a dividend or distribution on our common stock with a cash value in excess of a specified amount per calendar quarter, or with an ex-dividend date prior to the anticipated ex-dividend date for such cash dividend;
•an extraordinary event (as such term is defined in that particular forward sale agreement and which includes certain mergers and tender offers and the delisting of our common stock) occurs or our Board of Directors votes to approve or there is a public announcement of, in either case, any action that, if consummated, would constitute such an extraordinary event; or
•certain other events of default, termination events or other specified events occur, including, among other things, any material misrepresentation made by us in connection with entering into that particular forward sale agreement, or a nationalization, a bankruptcy termination event or a change in law (as such terms are defined in that particular forward sale agreement).
A forward purchaser’s decision to exercise its right to accelerate the settlement of a particular forward sale agreement will be made irrespective of our need for capital. In such cases, we could be required to issue and deliver common stock under the physical settlement provisions of that particular forward sale agreement or, if we so elect and the forward purchaser so permits our election, net share settlement provisions of that particular forward sale agreement irrespective of our capital needs, which would result in dilution to our earnings per share and return on equity.
We expect that settlement of any forward sale agreement will generally occur no later than the date specified in the particular forward sale agreement, which will be no later than twelve months following the trade date of that forward sale agreement. However, any forward sale agreement may be settled earlier than that specified date in whole or in part at our option. We expect that each forward sale agreement will be physically settled by delivery of our common stock unless we elect to cash settle or net share settle a particular forward sale agreement. Upon physical settlement or, if we so elect, net share settlement of a particular forward sale agreement, delivery of shares of our common stock in connection with such physical settlement or, to the extent we are obligated to deliver common stock, net share settlement, will result in dilution to our earnings per share and return on equity. If we elect cash settlement or net share settlement with respect to all or a portion of our common stock underlying a particular forward sale agreement, we expect that the relevant forward purchaser (or an affiliate thereof) will purchase a number of common stock necessary to satisfy its or its affiliate’s obligation to return the common stock borrowed from third parties in connection with sales of common stock under that forward sale agreement, adjusted in the case of net share settlement by any shares deliverable by or to us under the forward sale agreement. In addition, the purchase of common stock in connection with the relevant forward purchaser or its affiliate unwinding its hedge positions could cause the price of our common stock to increase over such time (or prevent a decrease over such time), thereby increasing the amount of cash we would owe to the relevant forward purchaser (or decreasing the amount of cash that the relevant forward purchaser would owe us) upon a cash settlement of the relevant forward sale agreement or increasing the number of common stock we would deliver to the relevant forward purchaser (or decreasing the number of common stock that the relevant forward purchaser would deliver to us) upon net share settlement of the relevant forward sale agreement.
The forward sale price that we expect to receive upon physical settlement of a particular forward sale agreement will be subject to adjustment on a daily basis based on a floating interest rate factor equal to a specified daily rate less a spread and will be decreased based on amounts related to expected dividends on our common stock during the term of the particular forward sale agreement. If the specified daily rate is less than the spread on any day, the interest factor will result in a daily reduction of the applicable forward sale price. As of the date of this prospectus supplement, the specified daily rate was less than the expected spread for any particular forward agreement. If the market value of our common stock, determined in accordance with the terms of the relevant forward sale agreement, during the relevant valuation period under the particular forward sale agreement is above the applicable forward sale price, in the case of cash settlement, we would pay the relevant forward purchaser under that particular forward sale agreement an amount in cash equal to the difference or, in the case of net share settlement, we would deliver to the relevant forward purchaser a number of common stock having a value, determined in accordance with the terms of the relevant forward sale agreement, equal to the difference. Thus, we could be responsible for a potentially substantial cash payment in the case of cash settlement of a particular forward sale agreement. If the market value of our common stock, determined in accordance with the terms of the relevant forward sale agreement, during the relevant valuation period under that particular forward sale agreement is below the applicable forward sale price, in the case of cash settlement, we would be paid the difference in cash by the relevant forward purchaser under that particular forward sale agreement or, in the case of net share settlement, we would receive from the relevant forward purchaser a number of common stock having a value equal to the difference. See “Plan of Distribution” for information on the forward sale agreements.
The U.S. federal income tax treatment of the cash that we might receive from cash settlement of a forward sale agreement is unclear and could jeopardize our ability to meet the REIT qualification requirements.
In the event that we elect to settle any forward sale agreement for cash and the settlement price is below the applicable forward sale price, we would be entitled to receive a cash payment from the relevant forward purchaser. Under Section 1032 of the Internal Revenue Code of 1986, as amended (the “Code”), generally, no gains and losses are recognized by a corporation in dealing in its own shares, including pursuant to a “securities futures contract,” as defined in the Code by reference to the Exchange Act. Although we believe that any amount received by us in exchange for our common stock would qualify for the exemption under Section 1032 of the Code, because it is not entirely clear whether a forward sale agreement qualifies as a “securities futures contract,” the U.S. federal income tax treatment of any cash settlement payment we receive is uncertain. In the event that we recognize a significant gain from the cash settlement of a forward sale agreement, we might not be able to satisfy the gross income requirements applicable to REITs under the Code. In that case, we may be able to rely upon the relief provisions under the Code in order to avoid the loss of our REIT status. Even if the relief provisions apply, we will be subject to a 100% tax on the greater of (i) the excess of 75% of our gross income (excluding gross income from prohibited transactions) over the amount of such income attributable to sources that qualify under the 75% test or (ii) the excess of 95% of our gross income (excluding gross income from prohibited transactions) over the amount of such gross income attributable to sources that qualify under the 95% test as discussed in the accompanying prospectus under “Material U.S. Federal Income Tax Considerations-Taxation of our Company,” multiplied in either case by a fraction intended to reflect our profitability. In the event that these relief provisions were not available, we could lose our REIT status under the Code.
In case of our bankruptcy or insolvency, any forward sale agreements will automatically terminate, and we would not receive the expected proceeds from any forward sales of our common stock.
If we file for or consent to a proceeding seeking a judgment in bankruptcy or insolvency or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or we or a regulatory authority with jurisdiction over us presents a petition for our winding-up or liquidation, and we consent to such a petition, any forward sale agreements that are then in effect will automatically terminate. If any such forward sale agreement so terminates under these circumstances, we would not be obligated to deliver to the relevant forward purchaser any of our common stock not previously delivered, and the relevant forward purchaser would be discharged from its obligation to pay the applicable forward sale price per share in respect of any of our common stock not previously settled under the applicable forward sale agreement. Therefore, to the extent that there are any of our common stock with respect to which any forward sale agreement has not been settled at the time of the commencement of any such bankruptcy or insolvency proceedings, we would not receive the relevant forward sale price per share in respect of those common stock.
Risks Related to the Merger
The announcement and pendency of the Merger Agreement could have an adverse effect on our business.
On February 28, 2022, Healthcare Trust of America, Inc. (the “Company”), a Maryland corporation, Healthcare Trust of America Holdings, LP, a Delaware limited partnership (the “Company OP”) of which the Company is the sole general partner, HR Acquisition 2, LLC, a Maryland limited liability company and a direct, wholly owned subsidiary of the Company (“Merger Sub”), and Healthcare Realty Trust Incorporated, a Maryland corporation (“HR”), entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into HR, with HR surviving the merger (the “Merger”).
The announcement and pendency of the Merger could cause disruption in our business, including the potential loss or disruption of commercial relationships prior to the completion of the Merger. For example, some of our tenants, prospective tenants or vendors may delay or defer decisions, which could negatively affect our revenues, earnings, cash flows and expenses, regardless of whether the Merger is completed. Similarly, our current and prospective employees may experience uncertainty about their future roles with the combined company following the Merger, which may adversely affect our ability to attract and retain key personnel during the pendency of the Merger.
The Merger Agreement generally requires us to use commercially reasonable efforts to operate our business in the ordinary course of business pending consummation of the Merger, but includes certain contractual restrictions on the conduct of our business prior to completion of the Merger. Due to these operating restrictions, during the pendency of the Merger Agreement we may be unable to pursue strategic transactions, undertake significant capital projects, undertake certain financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
The Merger Agreement also contains provisions that limit our ability to pursue alternatives to the Merger and that could discourage a potential competing acquirer of us from making a favorable alternative transaction proposal. In addition, matters relating to the Merger (including integration planning) will require substantial commitments of time and resources by our management, which could divert their time and attention. We have also incurred, and will continue to incur, significant non-recurring costs in connection with the Merger that we may be unable to recover. Further, the Merger Agreement requires us to pay a substantial termination fee to HR in certain circumstances or if our stockholders do not approve the transaction.
The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement.
Completion of the Merger is subject to the satisfaction or waiver of certain conditions.
Completion of the Merger is subject to the satisfaction or waiver of certain conditions, including: (1) approval by the Company’s stockholders of the issuance of Company Common Stock to HR’s stockholders pursuant to the terms of the Merger Agreement and approval by HR’s stockholders of the Merger and the transactions contemplated under the Merger Agreement; (2) the effectiveness of the registration statement on Form S-4 to be filed with the SEC by the Company in connection with the transactions contemplated by the Merger Agreement; (3) approval for listing on the NYSE of the shares of Company Common Stock to be issued in the Merger or reserved for issuance in connection therewith; (4) no injunction or law prohibiting the Merger; (5) accuracy of each party’s representations, subject in most cases to materiality or material adverse effect qualifications; (6) material compliance with each party’s covenants; (7) receipt by each of HR and us of an opinion to the effect that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code, and (8) receipt by each of HR and us of an opinion that the other party qualifies as a REIT under the Code.
We cannot provide assurance that these conditions to completing the Merger will be satisfied or waived, and accordingly, that our pending Merger with HR will be completed on the timeline that we anticipate or at all. Failure to complete the Merger could negatively affect our stock price and our future business and financial results.
An adverse outcome in any litigation or other legal proceedings relating to the Merger Agreement could have a material adverse impact on our business and our ability to consummate the transactions contemplated by the Merger Agreement.
Transactions like the Merger are frequently the subject of litigation or other legal proceedings, including actions alleging that either our board of directors breached their respective duties to their stockholders by entering into the Merger Agreement, by failing to obtain a greater value in the transaction for their stockholders or otherwise. We believe that any such litigation or proceedings would be without merit, but there can be no assurance that they will not be brought. If litigation or other legal proceedings are brought against us or against our board in connection with the Merger Agreement, we will defend against it, but we might not be successful in doing so. An adverse outcome in such matters, as well as the costs and efforts of a defense even if successful, could have a material adverse effect on our business, results of operation or financial position, including through the possible diversion of either company’s resources or distraction of key personnel.
The exchange ratio will not be adjusted in the event of any change in the stock prices of either us or HR.
Upon the consummation of the Merger, each outstanding share of HR Common Stock will be converted automatically into the right to receive one share of Company Common Stock, with cash paid in lieu of any fractional shares. The exchange ratio of 1.0 will not be adjusted for changes in the market prices of either shares of our Common Stock or shares of HR Common Stock. Changes in the market price of shares of HR Common Stock prior to the effective time of the Merger will affect the market value of the merger consideration that HR’s stockholders will receive on the closing date of the Merger. Stock price changes may result from a variety of factors (many of which are beyond our or HR’s control), including the following factors:
•market reaction to the announcement of the Merger and the prospects of the combined company;
•changes in the respective businesses, operations, assets, liabilities and prospects of us and HR;
•changes in market assessments of the business, operations, financial position and prospects of either company or the combined company;
•market assessments of the likelihood that the Merger will be completed;
•interest rates, general market and economic conditions and other factors generally affecting the market prices of our Common Stock and HR Common Stock;
•federal, state and local legislation, governmental regulation and legal developments in the businesses in which we and HR operate; and
•other factors beyond the control of us and HR, including those described or referred to in this “Risk Factors” section.
The market price of shares of HR Common Stock at the closing of the Merger may vary from its price on the date the Merger Agreement was executed, on the date of the proxy statement/prospectus and on the date of our special meeting. As a result, the market value of the merger consideration represented by the exchange ratio will also vary.
If the market price of shares of Company Common Stock increases between the date the Merger Agreement was signed, the date of the proxy statement/prospectus or the date of our special meeting and the closing of the Merger, HR’s stockholders could receive shares of Company Common Stock that have a market value upon completion of the Merger that is greater than the market value of such shares calculated pursuant to the exchange ratio on the date the Merger Agreement was signed, the date of the proxy statement/prospectus or on the date of the special meeting, respectively. Alternatively, if the market price of shares of Company Common Stock declines between the date the Merger Agreement was signed, the date of the proxy
statement/prospectus or the date of our special meeting and the closing of the Merger, HR’s stockholders could receive shares of Company Common Stock that have a market value upon completion of the Merger that is less than the market value of such shares calculated pursuant to the exchange ratio on the date the Merger Agreement was signed, the date of the proxy statement/prospectus or on the date of the special meeting, respectively.
Therefore, while the number of shares of Company Common Stock to be issued per share of our Common Stock is fixed, HR’s stockholders cannot be sure of the market value of the merger consideration they will receive upon completion of the Merger.
However, subject to the closing of the Merger and the other transactions contemplated therein, the holders of shares of Company Common Stock issued and outstanding on the last business day prior to the closing date of the Merger will receive a special distribution in the amount of $4.82 in cash per share of Company Common Stock held on such date (the “Special Distribution Payment”), regardless of the fluctuation in the market prices of shares of HR Common Stock and Company Common Stock.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
WeSince inception, we have invested $6.8$7.8 billion primarily in MOBs, development projects, land and other healthcare real estate assets that serve the healthcare industry through December 31, 2018.2021. As of December 31, 2018,2021, our portfolio consisted of approximately 23.226.1 million square feet of GLA, with a leased rate of 92.0%89.3% (includes leases which have been executed, but which have not yet commenced). Approximately 68%67% of our portfolio was located on the campuses of, or adjacent to, nationally and regionally recognized healthcare systems. Our portfolio is diversified geographically across 32 states, with no state having more than 20%21% of the total GLA as of December 31, 2018.2021. All but threetwo of our properties are 100% owned.
As of December 31, 2018,2021, we owned fee simple interests in properties representing 60%63% of our total GLA. We hold long-term leasehold interests in the remaining properties in our portfolio, representing 40%37% of our total GLA. As of December 31, 2018,2021, these leasehold interests had an average remaining term of 48.246.5 years, excluding available extension options.
The following information generally applies to our properties:
•we believe all of our properties are adequately covered by insurance and are suitable for their intended purposes;
•our properties are located in markets where we are subject to competition in attracting new tenants and retaining current tenants; and
•depreciation is provided on a straight-line basis over the estimated useful lives of the buildings, up to 39 years, and over the shorter of the lease term or useful lives of the tenant improvements.
Tenant Lease Expirations
The following table presents the sensitivity of our annualized base rent due to tenant lease expirations for existing leases for the next 10 years: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Expiration (1) | | Number of Expiring Leases | | Annualized Base Rent of Expiring Leases (2)(3) | | Percent of Total Annualized Base Rent | | Total GLA of Expiring Leases (2) | | Percent of GLA of Expiring Leases |
Month-to-month | | 121 | | | $ | 6,915 | | | 1.2 | % | | 245 | | | 1.0 | % |
2022 | | 662 | | | 57,635 | | | 9.9 | | | 2,097 | | | 9.0 | |
2023 | | 592 | | | 61,494 | | | 10.5 | | | 2,564 | | | 11.0 | |
2024 | | 572 | | | 69,928 | | | 12.0 | | | 2,713 | | | 11.7 | |
2025 | | 426 | | | 55,980 | | | 9.6 | | | 2,239 | | | 9.6 | |
2026 | | 469 | | | 50,555 | | | 8.6 | | | 2,344 | | | 10.1 | |
2027 | | 309 | | | 68,387 | | | 11.7 | | | 2,597 | | | 11.2 | |
2028 | | 175 | | | 35,001 | | | 6.0 | | | 1,405 | | | 6.0 | |
2029 | | 236 | | | 44,570 | | | 7.6 | | | 1,816 | | | 7.8 | |
2030 | | 110 | | | 30,808 | | | 5.3 | | | 1,183 | | | 5.1 | |
2031 | | 68 | | | 23,265 | | | 4.0 | | | 1,112 | | | 4.8 | |
Thereafter | | 281 | | | 79,812 | | | 13.6 | | | 2,944 | | | 12.7 | |
Total | | 4,021 | | | $ | 584,350 | | | 100 | % | | 23,259 | | | 100 | % |
| | | | | | | | | | |
(1) Leases scheduled to expire on December 31 of a given year are included within that year in the table. |
(2) Amounts presented in thousands. |
(3) Annualized base rent is calculated by multiplying contractual base rent as of the end of the year by 12 (excluding the impact of abatements, concessions, and straight-line rent). |
44
|
| | | | | | | | | | | | | | | | |
Expiration (1) | | Number of Expiring Leases | | Total GLA of Expiring Leases (2) | | Percent of GLA of Expiring Leases | | Annualized Base Rent of Expiring Leases (2)(3) | | Percent of Total Annualized Base Rent |
Month-to-month | | 165 |
| | 515 |
| | 2.4 | % | | $ | 13,497 |
| | 2.6 | % |
2019 | | 576 |
| | 2,217 |
| | 10.4 |
| | 58,776 |
| | 11.3 |
|
2020 | | 446 |
| | 1,884 |
| | 8.8 |
| | 47,505 |
| | 9.1 |
|
2021 | | 617 |
| | 2,943 |
| | 13.8 |
| | 67,421 |
| | 13.0 |
|
2022 | | 400 |
| | 2,118 |
| | 9.9 |
| | 51,206 |
| | 9.9 |
|
2023 | | 321 |
| | 1,914 |
| | 9.0 |
| | 42,302 |
| | 8.1 |
|
2024 | | 196 |
| | 1,275 |
| | 6.0 |
| | 31,344 |
| | 6.0 |
|
2025 | | 174 |
| | 1,148 |
| | 5.4 |
| | 27,394 |
| | 5.3 |
|
2026 | | 157 |
| | 1,247 |
| | 5.9 |
| | 26,212 |
| | 5.1 |
|
2027 | | 156 |
| | 2,036 |
| | 9.6 |
| | 55,136 |
| | 10.6 |
|
2028 | | 108 |
| | 989 |
| | 4.6 |
| | 22,404 |
| | 4.3 |
|
Thereafter | | 217 |
| | 3,014 |
| | 14.2 |
| | 76,314 |
| | 14.7 |
|
Total | | 3,533 |
| | 21,300 |
| | 100 | % | | $ | 519,511 |
| | 100 | % |
| | | | | | | | | | |
(1) Leases scheduled to expire on December 31 of a given year are included within that year in the table. |
(2) Amounts presented in thousands. |
(3) Annualized base rent is calculated by multiplying contractual base rent as of the end of the year by 12 (excluding the impact of abatements, concessions, and straight-line rent). |
Geographic Diversification/Concentration Table
The following table lists the states in which our properties are located and provides certain information regarding our portfolio’s geographic diversification/concentration as of December 31, 2018:2021: | | | | | | | | | | | | | | | | | | | | | | | | | | |
State | | GLA (1) | | Percent of GLA | | Annualized Base Rent (1)(2) | | Percent of Annualized Base Rent |
Texas | | 5,315 | | | 20.4 | % | | $ | 118,777 | | | 20.3 | % |
Florida | | 3,093 | | | 11.9 | | | 76,638 | | | 13.1 | |
North Carolina | | 1,812 | | | 6.9 | | | 38,963 | | | 6.7 | |
Massachusetts | | 965 | | | 3.7 | | | 36,346 | | | 6.2 | |
Indiana | | 1,811 | | | 7.0 | | | 34,087 | | | 5.8 | |
Georgia | | 1,280 | | | 4.9 | | | 30,024 | | | 5.1 | |
New York | | 1,390 | | | 5.3 | | | 29,155 | | | 5.0 | |
Pennsylvania | | 1,454 | | | 5.6 | | | 29,072 | | | 5.0 | |
Arizona | | 1,529 | | | 5.9 | | | 28,932 | | | 5.0 | |
Connecticut | | 1,187 | | | 4.6 | | | 25,215 | | | 4.3 | |
California | | 992 | | | 3.8 | | | 23,334 | | | 4.0 | |
Ohio | | 932 | | | 3.6 | | | 16,757 | | | 2.9 | |
Colorado | | 708 | | | 2.7 | | | 14,892 | | | 2.5 | |
Illinois | | 454 | | | 1.7 | | | 13,706 | | | 2.3 | |
Missouri | | 355 | | | 1.4 | | | 9,694 | | | 1.7 | |
South Carolina | | 377 | | | 1.4 | | | 8,745 | | | 1.5 | |
Wisconsin | | 368 | | | 1.4 | | | 7,084 | | | 1.2 | |
Alabama | | 319 | | | 1.2 | | | 6,456 | | | 1.1 | |
Michigan | | 203 | | | 0.8 | | | 5,194 | | | 0.9 | |
Maryland | | 181 | | | 0.7 | | | 4,834 | | | 0.8 | |
Tennessee | | 176 | | | 0.7 | | | 4,578 | | | 0.8 | |
Hawaii | | 146 | | | 0.6 | | | 4,021 | | | 0.7 | |
Virginia | | 158 | | | 0.6 | | | 3,607 | | | 0.6 | |
Utah | | 159 | | | 0.6 | | | 2,911 | | | 0.5 | |
New Mexico | | 141 | | | 0.5 | | | 2,365 | | | 0.4 | |
Oklahoma | | 186 | | | 0.7 | | | 2,294 | | | 0.4 | |
New Jersey | | 57 | | | 0.2 | | | 1,819 | | | 0.3 | |
Mississippi | | 80 | | | 0.3 | | | 1,591 | | | 0.3 | |
Nevada | | 73 | | | 0.3 | | | 1,547 | | | 0.3 | |
Idaho | | 83 | | | 0.3 | | | 1,178 | | | 0.2 | |
Oregon | | 21 | | | 0.1 | | | 314 | | | 0.1 | |
Minnesota | | 50 | | | 0.2 | | | 220 | | | — | |
Total | | 26,055 | | | 100 | % | | $ | 584,350 | | | 100 | % |
| | | | | | | | |
(1) Amounts presented in thousands. |
(2) Annualized base rent is calculated by multiplying contractual base rent as of the end of the year by 12 (excluding the impact of abatements, concessions, and straight-line rent). |
|
| | | | | | | | | | | | | |
State | | GLA (1) | | Percent of GLA | | Annualized Base Rent (1)(2) | | Percent of Annualized Base Rent |
Texas | | 4,617 |
| | 19.9 | % | | $ | 108,986 |
| | 21.0 | % |
Florida | | 2,759 |
| | 11.9 |
| | 65,207 |
| | 12.5 |
|
Indiana | | 1,810 |
| | 7.8 |
| | 32,492 |
| | 6.2 |
|
Massachusetts | | 965 |
| | 4.2 |
| | 32,117 |
| | 6.2 |
|
Arizona | | 1,531 |
| | 6.6 |
| | 28,191 |
| | 5.4 |
|
Georgia | | 1,160 |
| | 5.0 |
| | 26,886 |
| | 5.2 |
|
Pennsylvania | | 1,305 |
| | 5.6 |
| | 24,068 |
| | 4.6 |
|
North Carolina | | 1,002 |
| | 4.3 |
| | 23,763 |
| | 4.6 |
|
New York | | 1,108 |
| | 4.8 |
| | 22,725 |
| | 4.4 |
|
Connecticut | | 977 |
| | 4.2 |
| | 21,271 |
| | 4.1 |
|
California | | 740 |
| | 3.2 |
| | 19,347 |
| | 3.7 |
|
Colorado | | 538 |
| | 2.3 |
| | 17,393 |
| | 3.3 |
|
Ohio | | 761 |
| | 3.3 |
| | 13,512 |
| | 2.6 |
|
Illinois | | 382 |
| | 1.7 |
| | 11,530 |
| | 2.2 |
|
Tennessee | | 524 |
| | 2.3 |
| | 10,852 |
| | 2.1 |
|
Missouri | | 355 |
| | 1.5 |
| | 9,270 |
| | 1.8 |
|
South Carolina | | 321 |
| | 1.4 |
| | 6,560 |
| | 1.3 |
|
Wisconsin | | 368 |
| | 1.6 |
| | 6,411 |
| | 1.2 |
|
Alabama | | 319 |
| | 1.4 |
| | 6,209 |
| | 1.2 |
|
Michigan | | 203 |
| | 0.9 |
| | 4,708 |
| | 0.9 |
|
Maryland | | 181 |
| | 0.8 |
| | 4,658 |
| | 0.9 |
|
Hawaii | | 145 |
| | 0.6 |
| | 4,142 |
| | 0.8 |
|
New Mexico | | 162 |
| | 0.7 |
| | 3,541 |
| | 0.7 |
|
Virginia | | 164 |
| | 0.7 |
| | 3,213 |
| | 0.6 |
|
Oklahoma | | 186 |
| | 0.8 |
| | 3,003 |
| | 0.6 |
|
New Jersey | | 57 |
| | 0.3 |
| | 1,695 |
| | 0.3 |
|
Utah | | 112 |
| | 0.5 |
| | 1,681 |
| | 0.3 |
|
Minnesota | | 158 |
| | 0.7 |
| | 1,412 |
| | 0.3 |
|
Mississippi | | 78 |
| | 0.3 |
| | 1,410 |
| | 0.3 |
|
Kansas | | 66 |
| | 0.3 |
| | 1,383 |
| | 0.3 |
|
Nevada | | 73 |
| | 0.3 |
| | 1,314 |
| | 0.3 |
|
Oregon | | 23 |
| | 0.1 |
| | 561 |
| | 0.1 |
|
Total | | 23,150 |
| | 100 | % | | $ | 519,511 |
| | 100 | % |
| | | | | | | | |
(1) Amounts presented in thousands. |
(2) Annualized base rent is calculated by multiplying contractual base rent as of the end of the year by 12 (excluding the impact of abatements, concessions, and straight-line rent). |
Item 3. Legal Proceedings
We are subject to claims and litigation arising in the ordinary course of business. We are also subject to employee claims and/or threatened claims from time to time. We do not believe any liability from any reasonably foreseeable disposition of such claims and litigation, individually or in the aggregate, would have a material adverse effect on our accompanying consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
HTA has common stock and is reported on the NYSE under the trading symbol “HTA”. There is no established market for trading HTALP’s OP Units.
Dividends
In accordance with the terms of HTALP’s partnership agreement, the dividend HTA pays to its stockholders is equal to the amount of distributions it receives from HTALP. Please refer to Liquidity and Capital Resources - Dividends within Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for more information relating to our dividend policy.
Stockholders
As of February 11, 2019,22, 2022, HTA had 2,1351,908 stockholders of record.
Stock Performance Graph
The graph below compares the cumulative returns of HTA, US REIT (RMS) Index, S&P 500 Index and SNLDow Jones U.S. REIT HealthcareReal Estate Health Care Index from the date of our listing on the NYSE on June 6, 2012 through December 31, 2018.2021. All periods prior to 2015 have been adjusted retroactively to reflect the reverse stock split effective December 15, 2014. The total returns assume dividends are reinvested.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the three months ended December 31, 2018,2021, we repurchased shares of our common stock as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) (2) | | Average Price Paid per Share (1) (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs |
October 1, 2021 to October 31, 2021 | | 97 | | | $ | 32.96 | | | — | | | — | |
November 1, 2021 to November 30, 2021 | | 506 | | | 33.39 | | | — | | | — | |
December 1, 2021 to December 31, 2021 | | 160 | | | 33.25 | | | — | | | — | |
| | | | | | | | |
(1) Purchases represent shares of common stock withheld by us to satisfy withholding obligations on the vesting of restricted shares. The price paid per share was the then applicable closing price of our common stock on the NYSE. |
(2) For each share of common stock redeemed by HTA, HTALP redeems a corresponding number of OP Units in the HTALP operating partnership. Therefore, the OP Units in the HTALP operating partnership repurchased by HTALP are the same as the shares of common stock repurchased by HTA as shown above. |
|
| | | | | | | | | | | | |
Period | | Total Number of Shares Purchased (1) (2) | | Average Price Paid per Share (1) (2) | | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | | Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs |
October 1, 2018 to October 31, 2018 | | 289,627 |
| | $ | 25.69 |
| | — |
| | (3) |
November 1, 2018 to November 30, 2018 | | 1,012,135 |
| | 26.28 |
| | — |
| | (3) |
December 1, 2018 to December 31, 2018 | | 647,851 |
| | 25.93 |
| | — |
| | (3) |
| | | | | | | | |
(1) Purchases represent repurchased shares of our common stock and shares withheld to satisfy withholding obligations on the vesting of restricted shares. The price paid per share was the then closing price of our common stock on the NYSE. |
(2) For each share of common stock redeemed by HTA, HTALP redeems a corresponding number of OP Units in the HTALP operating partnership. Therefore, the OP Units in the HTALP operating partnership repurchased by HTALP are the same as the shares of common stock repurchased by HTA as shown above. |
(3) In August 2018, our Board of Directors approved a stock repurchase plan with a share repurchase authorization of up to $300.0 million of our common stock. During the three months ended December 31, 2018, a portion of the repurchased shares included 1,941,718 repurchased shares of our outstanding common stock, at an average price of $26.08 per share, for an aggregate amount of approximately $50.7 million under our stock repurchase plan. |
Securities Authorized for Issuance under Equity Compensation Plans
The Amended and Restated 2006 Incentive Plan (the “Plan”) authorizes the granting of awards in any of the following forms: options; stock appreciation rights; restricted stock; restricted or deferred stock units; performance awards; dividend equivalents; other stock-based awards, including units in operating partnership; and cash-based awards. Subject to adjustment as provided in the Plan, the aggregate number of shares of our common stock reserved and available for issuance pursuant to awards granted under the Plan is 5,000,000.9,804,333.
Recent Sales of Unregistered Securities, Use of Proceeds from Registered Securities Paid
None.
Item 6. Selected Financial Data
The following should be read with Item 1A - Risk Factors, Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, our accompanying consolidated financial statements and the notes thereto, as acquisitions, changes in accounting policies and other items impact the comparability of our financial data. Our historical results are not necessarily indicative of results for any future period.
Healthcare Trust of America, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands, except per share data) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 |
Balance Sheet Data as of December 31: | | | | | | | | | |
Real estate investments, net | $ | 6,167,829 | | | $ | 6,110,165 | | | $ | 6,045,801 | | | $ | 5,665,621 | | | $ | 5,947,874 | |
Total assets | 6,889,689 | | | 6,790,692 | | | 6,638,749 | | | 6,188,476 | | | 6,449,582 | |
Debt | 3,028,122 | | | 3,026,999 | | | 2,749,775 | | | 2,541,232 | | | 2,781,031 | |
Non-controlling interests | 86,712 | | | 60,680 | | | 72,635 | | | 78,890 | | | 84,666 | |
Total equity | 3,344,316 | | | 3,234,919 | | | 3,430,644 | | | 3,334,914 | | | 3,363,448 | |
Statement of Operations Data: | | | | | | | | | |
Total revenues | $ | 767,073 | | | $ | 738,965 | | | $ | 692,040 | | | $ | 696,426 | | | $ | 613,990 | |
Rental expenses | 236,850 | | | 226,859 | | | 211,479 | | | 220,617 | | | 192,147 | |
Net income attributable to common stockholders | 98,016 | | | 52,618 | | | 30,154 | | | 213,463 | | | 63,916 | |
Net income attributable to common stockholders per share - basic | 0.45 | | | 0.24 | | | 0.15 | | | 1.04 | | | 0.35 | |
Net income attributable to common stockholders per share - diluted | 0.44 | | | 0.24 | | | 0.14 | | | 1.02 | | | 0.34 | |
Statement of Cash Flows Data: | | | | | | | | | |
Cash flows provided by operating activities | $ | 385,616 | | | $ | 387,962 | | | $ | 340,394 | | | $ | 337,396 | | | $ | 307,543 | |
Cash flows (used in) provided by investing activities | (399,855) | | | (319,260) | | | (667,289) | | | 176,309 | | | (2,455,096) | |
Cash flows (used in) provided by financing activities | (47,457) | | | 12,447 | | | 230,981 | | | (498,735) | | | 2,241,068 | |
Other Data: | | | | | | | | | |
Dividends declared to stockholders | $ | 286,040 | | | $ | 277,626 | | | $ | 260,593 | | | $ | 253,699 | | | $ | 227,024 | |
Dividends declared per share | 1.29 | | | 1.27 | | | 1.25 | | | 1.23 | | | 1.21 | |
Dividends paid in cash to stockholders | 281,820 | | | 275,816 | | | 256,117 | | | 252,651 | | | 207,087 | |
FFO attributable to common stockholders (1) | 386,386 | | | 344,699 | | | 319,738 | | | 335,565 | | | 284,226 | |
Normalized FFO attributable to common stockholders (1) | 391,810 | | | 379,311 | | | 344,272 | | | 340,400 | | | 301,957 | |
NOI (2) | 530,223 | | | 512,106 | | | 480,561 | | | 475,809 | | | 421,843 | |
| | | | | | | | | |
(1) For additional information on FFO and Normalized FFO, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common stockholders and an explanation of why we present these non-GAAP financial measures. |
(2) For additional information on NOI, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common stockholders and an explanation of why we present this non-GAAP financial measure. |
48
|
| | | | | | | | | | | | | | | | | | | |
| December 31, |
(In thousands) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
Balance Sheet Data: | | | | | | | | | |
Real estate investments, net | $ | 5,665,621 |
| | $ | 5,947,874 |
| | $ | 3,503,020 |
| | $ | 2,959,468 |
| | $ | 2,822,844 |
|
Total assets (1) | 6,188,476 |
| | 6,449,582 |
| | 3,747,844 |
| | 3,172,300 |
| | 3,031,384 |
|
Debt (1) | 2,541,232 |
| | 2,781,031 |
| | 1,768,905 |
| | 1,590,696 |
| | 1,402,195 |
|
Noncontrolling interests | 78,890 |
| | 84,666 |
| | 93,143 |
| | 27,534 |
| | 29,282 |
|
Total equity | 3,334,914 |
| | 3,363,448 |
| | 1,780,417 |
| | 1,406,958 |
| | 1,476,421 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands, except per share data) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
Statement of Operations Data: | | | | | | | | | |
Total revenues | $ | 696,426 |
| | $ | 613,990 |
| | $ | 460,928 |
| | $ | 403,822 |
| | $ | 371,505 |
|
Rental expenses | 220,617 |
| | 192,147 |
| | 143,751 |
| | 123,390 |
| | 113,508 |
|
Net income attributable to common stockholders | 213,463 |
| | 63,916 |
| | 45,912 |
| | 32,931 |
| | 45,371 |
|
Net income attributable to common stockholders per share - basic | 1.04 |
| | 0.35 |
| | 0.34 |
| | 0.26 |
| | 0.38 |
|
Net income attributable to common stockholders per share - diluted | 1.02 |
| | 0.34 |
| | 0.33 |
| | 0.26 |
| | 0.37 |
|
Statement of Cash Flows Data: | | | | | | | | | |
Cash flows provided by operating activities | $ | 337,396 |
| | $ | 307,543 |
| | $ | 203,695 |
| | $ | 191,095 |
| | $ | 168,499 |
|
Cash flows provided by (used in) investing activities (2) | 176,309 |
| | (2,455,096 | ) | | (608,393 | ) | | (274,171 | ) | | (257,017 | ) |
Cash flows (used in) provided by financing activities | (498,735 | ) | | 2,241,068 |
| | 400,781 |
| | 80,826 |
| | 83,535 |
|
Other Data: | | | | | | | | | |
Dividends declared to stockholders | $ | 253,699 |
| | $ | 227,024 |
| | $ | 164,221 |
| | $ | 147,539 |
| | $ | 139,355 |
|
Dividends declared per share | 1.23 |
| | 1.21 |
| | 1.19 |
| | 1.17 |
| | 1.16 |
|
Dividends paid in cash to stockholders | 252,651 |
| | 207,087 |
| | 159,174 |
| | 146,372 |
| | 137,158 |
|
FFO attributable to common stockholders (3) | 335,565 |
| | 284,226 |
| | 215,570 |
| | 188,206 |
| | 157,746 |
|
Normalized FFO attributable to common stockholders (3) | 340,400 |
| | 301,957 |
| | 225,221 |
| | 195,920 |
| | 176,639 |
|
NOI (4) | 475,809 |
| | 421,843 |
| | 317,177 |
| | 280,432 |
| | 257,997 |
|
| | | | | | | | | |
(1) The amounts for 2014 differ from amounts previously reported in our Annual Report for the year ended December 31, 2014, as a result of the retrospective presentation of the early adoption of Accounting Standards Update (“ASU”) 2015-03 and 2015-15 as of December 31, 2015. |
(2) The amounts for 2014-2016 differ from amounts previously reported in our Annual Report for the years ended December 31, 2014, 2015, and 2016, as a result of the retrospective presentation of the early adoption of ASU 2016-18 as of January 1, 2017. |
(3) For additional information on FFO and Normalized FFO, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common stockholders and an explanation of why we present these non-GAAP financial measures. |
(4) For additional information on NOI, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common stockholders and an explanation of why we present this non-GAAP financial measure. |
Healthcare Trust of America Holdings, LP | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands, except per unit data) | 2021 | | 2020 | | 2019 | | 2018 | | 2017 |
Balance Sheet Data as of December 31: | | | | | | | | | |
Real estate investments, net | $ | 6,167,829 | | | $ | 6,110,165 | | | $ | 6,045,801 | | | $ | 5,665,621 | | | $ | 5,947,874 | |
Total assets | 6,889,689 | | | 6,790,692 | | | 6,638,749 | | | 6,188,476 | | | 6,449,582 | |
Debt | 3,028,122 | | | 3,026,999 | | | 2,749,775 | | | 2,541,232 | | | 2,781,031 | |
Total partners’ capital | 3,344,316 | | | 3,234,919 | | | 3,430,644 | | | 3,334,914 | | | 3,363,448 | |
Statement of Operations Data: | | | | | | | | | |
Total revenues | $ | 767,073 | | | $ | 738,965 | | | $ | 692,040 | | | $ | 696,426 | | | $ | 613,990 | |
Rental expenses | 236,850 | | | 226,859 | | | 211,479 | | | 220,617 | | | 192,147 | |
Net income attributable to common OP unitholders | 99,784 | | | 53,508 | | | 30,692 | | | 217,537 | | | 65,454 | |
Net income attributable to common OP unitholders per unit - basic | 0.45 | | | 0.24 | | | 0.15 | | | 1.04 | | | 0.35 | |
Net income attributable to common OP unitholders per unit - diluted | 0.45 | | | 0.24 | | | 0.15 | | | 1.04 | | | 0.35 | |
Statement of Cash Flows Data: | | | | | | | | | |
Cash flows provided by operating activities | $ | 385,616 | | | $ | 387,962 | | | $ | 340,394 | | | $ | 337,396 | | | $ | 307,543 | |
Cash flows (used in) provided by investing activities | (399,855) | | | (319,260) | | | (667,289) | | | 176,309 | | | (2,455,096) | |
Cash flows (used in) provided by financing activities | (47,457) | | | 12,447 | | | 230,981 | | | (498,735) | | | 2,241,068 | |
Other Data: | | | | | | | | | |
Distributions declared to general partner | $ | 286,040 | | | $ | 277,626 | | | $ | 260,593 | | | $ | 253,699 | | | $ | 227,024 | |
Distributions declared per unit | 1.29 | | | 1.27 | | | 1.25 | | | 1.23 | | | 1.21 | |
Distributions paid in cash to general partner | 281,820 | | | 275,816 | | | 256,117 | | | 252,651 | | | 207,087 | |
FFO attributable to common OP Unitholders (1) | 388,154 | | | 345,589 | | | 320,276 | | | 339,639 | | | 285,764 | |
Normalized FFO attributable to common OP Unitholders (1) | 391,810 | | | 379,311 | | | 344,272 | | | 340,400 | | | 301,957 | |
NOI (2) | 530,223 | | | 512,106 | | | 480,561 | | | 475,809 | | | 421,843 | |
| | | | | | | | | |
(1) For additional information on FFO and Normalized FFO, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common unitholders and an explanation of why we present these non-GAAP financial measures. |
(2) For additional information on NOI, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common unitholders and an explanation of why we present this non-GAAP financial measure. |
|
| | | | | | | | | | | | | | | | | | | |
| December 31, |
(In thousands) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
Balance Sheet Data: | | | | | | | | | |
Real estate investments, net | $ | 5,665,621 |
| | $ | 5,947,874 |
| | $ | 3,503,020 |
| | $ | 2,959,468 |
| | $ | 2,822,844 |
|
Total assets (1) | 6,188,476 |
| | 6,449,582 |
| | 3,747,844 |
| | 3,172,300 |
| | 3,031,384 |
|
Debt (1) | 2,541,232 |
| | 2,781,031 |
| | 1,768,905 |
| | 1,590,696 |
| | 1,402,195 |
|
Total partners’ capital | 3,334,914 |
| | 3,363,448 |
| | 1,780,417 |
| | 1,406,958 |
| | 1,476,421 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
(In thousands, except per unit data) | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
Statement of Operations Data: | | | | | | | | | |
Total revenues | $ | 696,426 |
| | $ | 613,990 |
| | $ | 460,928 |
| | $ | 403,822 |
| | $ | 371,505 |
|
Rental expenses | 220,617 |
| | 192,147 |
| | 143,751 |
| | 123,390 |
| | 113,508 |
|
Net income attributable to common unitholders | 217,537 |
| | 65,454 |
| | 47,227 |
| | 33,445 |
| | 45,861 |
|
Net income attributable to common unitholders per unit - basic | 1.04 |
| | 0.35 |
| | 0.34 |
| | 0.26 |
| | 0.38 |
|
Net income attributable to common unitholders per unit - diluted | 1.04 |
| | 0.35 |
| | 0.34 |
| | 0.26 |
| | 0.38 |
|
Statement of Cash Flows Data: | | | | | | | | | |
Cash flows provided by operating activities | $ | 337,396 |
| | $ | 307,543 |
| | $ | 203,695 |
| | $ | 191,095 |
| | $ | 168,499 |
|
Cash flows provided by (used in) investing activities (2) | 176,309 |
| | (2,455,096 | ) | | (608,393 | ) | | (274,171 | ) | | (257,017 | ) |
Cash flows (used in) provided by financing activities | (498,735 | ) | | 2,241,068 |
| | 400,781 |
| | 80,826 |
| | 83,535 |
|
Other Data: | | | | | | | | | |
Distributions declared to general partner | $ | 253,699 |
| | $ | 227,024 |
| | $ | 164,221 |
| | $ | 147,539 |
| | $ | 139,355 |
|
Distributions declared per unit | 1.23 |
| | 1.21 |
| | 1.19 |
| | 1.17 |
| | 1.16 |
|
Distributions paid in cash to general partner | 252,651 |
| | 207,087 |
| | 159,174 |
| | 146,372 |
| | 137,158 |
|
FFO attributable to common OP Unitholders (3) | 339,639 |
| | 285,764 |
| | 216,885 |
| | 188,720 |
| | 158,236 |
|
Normalized FFO attributable to common OP Unitholders (3) | 340,400 |
| | 301,957 |
| | 225,221 |
| | 195,920 |
| | 176,639 |
|
NOI (4) | 475,809 |
| | 421,843 |
| | 317,177 |
| | 280,432 |
| | 257,997 |
|
| | | | | | | | | |
(1) The amounts for 2014 differ from amounts previously reported in our Annual Report for the year ended December 31, 2014, as a result of the retrospective presentation of the early adoption of ASU 2015-03 and 2015-15 as of December 31, 2015. |
(2) The amounts for 2014-2016 differ from amounts previously reported in our Annual Report for the years ended December 31, 2014, 2015, and 2016, as a result of the retrospective presentation of the early adoption of ASU 2016-18 as of January 1, 2017. |
(3) For additional information on FFO and Normalized FFO, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common unitholders and an explanation of why we present these non-GAAP financial measures. |
(4) For additional information on NOI, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, which includes a reconciliation to net income or loss attributable to common unitholders and an explanation of why we present this non-GAAP financial measure. |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The use of the words “we,” “us” or “our” refers to HTA and HTALP, collectively.
The following discussion should be read in conjunction with our consolidated financial statements and notes appearing elsewhere in this Annual Report. Such consolidated financial statements and information have been prepared to reflect HTA and HTALP’s financial position as of December 31, 20182021 and 2017,2020, together with results of operations and cash flows for the years ended December 31, 2018, 20172021, 2020 and 2016.2019.
The information set forth below is intended to provide readers with an understanding of our financial condition, changes in financial condition and results of operations.
•Forward-Looking Statements;
•Executive Summary;
•Company Highlights;
•Critical Accounting Policies;
•Recently Issued or Adopted Accounting Pronouncements;
•Factors Which May Influence Results of Operations;
•Results of Operations;
•Non-GAAP Financial Measures;
•Liquidity and Capital Resources;
•Commitments and Contingencies;
•Debt Service Requirements;
•Contractual Obligations;
•Off-Balance Sheet Arrangements; and
•Inflation.
Forward-Looking Statements
Certain statements contained in this Annual Report constitute forward-looking statements within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”)). Such statements include, in particular, statements about our plans, strategies, prospects and estimates regarding future MOB market performance. Additionally, such statements are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially and in adverse ways from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Forward-looking statements are generally identifiable by the use of such terms as “expect,” “project,” “may,” “should,” “could,” “would,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “opinion,” “predict,” “potential,” “pro forma” or the negative of such terms and other comparable terminology. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Annual Report is filed with the SEC. We cannot guarantee the accuracy of any such forward-looking statements contained in this Annual Report, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Forward-looking statements regarding HR and HTA, include, but are not limited to, statements related to the Proposed Transaction, including the anticipated timing, benefits and financial and operational impact thereof; HR’s expected financing for the transaction; other statements of management’s belief, intentions or goals; and other statements that are not historical facts. These forward-looking statements are based on each of the companies’ current plans, objectives, estimates, expectations and intentions and inherently involve significant risks and uncertainties. Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks and uncertainties associated with: HR’s and HTA’s ability to complete the Proposed Transaction on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary shareholder approvals and satisfaction of other closing conditions to consummate the Proposed Transaction; the occurrence of any event, change or other circumstance that could give rise to the termination of the definitive transaction agreement relating to the Proposed Transaction; risks related to diverting the attention of HR and HTA management from ongoing business operations; failure to realize the expected benefits of the Proposed Transaction; significant transaction costs and/or unknown or inestimable liabilities; the risk of shareholder litigation in connection with the Proposed Transaction, including resulting
expense or delay; the risk that HTA’s business will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; the ability to obtain the expected financing to consummate the Proposed Transaction; risks related to future opportunities and plans for the Company, including the uncertainty of expected future financial performance and results of the Company following completion of the Proposed Transaction; effects relating to the announcement of the Proposed Transaction or any further announcements or the consummation of the Proposed Transaction on the market price of HR’s or HTA’s common stock; the possibility that, if HR does not achieve the perceived benefits of the Proposed Transaction as rapidly or to the extent anticipated by financial analysts or investors, the market price of HR’s common stock could decline; general adverse economic and local real estate conditions; the inability of significant tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business; increases in interest rates; increases in operating expenses and real estate taxes; changes in the dividend policy for HR’s common stock or its ability to pay dividends; impairment charges; pandemics or other health crises, such as COVID-19; and other risks and uncertainties affecting HR and HTA, including those described from time to time under the caption “Risk Factors” and elsewhere in HR’s and HTA’s SEC filings and reports, including HR’s Annual Report on Form 10-K for the year ended December 31, 2021, HTA’s Annual Report on Form 10-K for the year ended December 31, 2021, and other filings and reports by either company. Moreover, other risks and uncertainties of which HR or HTA are not currently aware may also affect each of the companies’ forward-looking statements and may cause actual results and the timing of events to differ materially from those anticipated. The forward-looking statements made in this communication are made only as of the date hereof or as of the dates indicated in the forward-looking statements, even if they are subsequently made available by HR or HTA on their respective websites or otherwise. Neither HR nor HTA undertakes any obligation to update or supplement any forward-looking statements to reflect actual results, new information, future events, changes in its expectations or other circumstances that exist after the date as of which the forward-looking statements were made, except as required by law.
Any such forward-looking statements reflect our current views about future events, are subject to unknown risks, uncertainties, and other factors, and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide dividends to stockholders and maintain the value of our real estate properties, may be significantly hindered. Factors that might impair our ability to meet such forward-looking statements include, without limitation, those discussed in Part I, Item 1A - Risk Factors are included herein and other filings with the SEC.
Forward-looking statements express expectations of future events. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties that could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, our stockholders are urged not to place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date made. In addition, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to projections over time, except as required by law.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Executive Summary
We are the largest publicly-traded REIT focused on MOBs in the U.S. as measured by the GLA of our MOBs. We conduct substantially all of our operations through HTALP. We invest in MOBs that we believe will serve the future of healthcare delivery and MOBs that are primarily located on health system campuses, near university medical centers, or in core community outpatient locations. We also focus on our key markets that have certain demographic and macro-economic trends and where we can utilize our institutional full-service operating platform to generate strong tenant and health system relationships and operating cost efficiencies. Our primary objective is to maximize stockholder value with disciplined growth through strategic investments that provide an attractive risk-adjusted return for our stockholders by consistently increasing our cash flow. In pursuing this objective, we: (i) seek internal growth through proactive asset management, leasing, building services and property management oversight; (ii) target accretive acquisitions and developments of MOBs in markets with attractive demographics that complement our existing portfolio; and (iii) actively manage our balance sheet to maintain flexibility with conservative leverage. Additionally, from time to time we consider, on an opportunistic basis, significant portfolio acquisitions that we believe fit our core business and could enhance our existing portfolio.
Since 2006, we have invested $6.8$7.8 billion primarily in MOBs, development projects, land and other healthcare real estate assets consisting of approximately 23.226.1 million square feet of GLA throughout the U.S. Approximately 68%67% of our portfolio was located on the campuses of, or adjacent to, nationally and regionally recognized healthcare systems. Our portfolio is diversified geographically across 32 states, with no state having more than 20%21% of our total GLA as of December 31, 2018.2021. We are concentrated in 20 to 25 key markets that are experiencing higher economic and demographic trends than other markets, on average, that we expect will drive demand for MOBs. As of December 31, 2018,2021, we had approximately 1 million square feet of GLA in nineten of our top ten20 key markets and approximately 93%95% of our portfolio, based on GLA, is located in the top 75 MSAs, with Dallas, Houston, Boston, TampaAtlanta and AtlantaMiami being our largest markets by investment.
Company Highlights
Portfolio Operating Performance
•For the year ended December 31, 2018,2021, total revenue increased 13.4%3.8%, or $82.4$28.1 million, to $696.4$767.1 million, compared to $614.0$739.0 million for the year ended December 31, 2017.2020.
•For the year ended December 31, 2018,2021, net income was $217.6$99.8 million, compared to $65.6$53.5 million for the year ended December 31, 2017.2020.
•For the year ended December 31, 2018,2021, net income attributable to common stockholders was $1.02$0.44 per diluted share, or $213.5$98.0 million, compared to $0.34$0.24 per diluted share, or $63.9$52.6 million, for the year ended December 31, 2017.2020.
•For the year ended December 31, 2018,2021, HTA’s FFO, as defined by NAREIT, was $335.6$386.4 million, or $1.60$1.72 per diluted share, compared to $1.53$1.56 per diluted share, or $284.2$344.7 million, for the year ended December 31, 2017.2020.
•For the year ended December 31, 2018,2021, HTALP’s FFO, as defined by NAREIT, was $339.6$388.2 million, or $1.62$1.73 per diluted OP Unit, compared to $1.54$1.56 per diluted OP Unit, or $285.8$345.6 million, for the year ended December 31, 2017.2020.
•For the year ended December 31, 2018,2021, HTA’s and HTALP’s Normalized FFO was $1.62$1.75 per diluted share and OP Unit, or $340.4$391.8 million, compared to $1.63$1.71 per diluted share and OP Unit, or $302.0$379.3 million, for the year ended December 31, 2017.2020.
•For additional information on FFO and Normalized FFO, see “FFO and Normalized FFO” below, which includes a reconciliation to net income attributable to common stockholders/unitholders and an explanation of why we present this non-GAAP financial measure.
•For the year ended December 31, 2018,2021, NOI increased 12.8%3.5%, or $54.0$18.1 million, to $475.8$530.2 million, compared to $421.8$512.1 million for the year ended December 31, 2017.2020.
•For the year ended December 31, 2018,2021, Same-Property Cash NOI increased 2.5%1.7%, or $7.5$7.8 million, to $308.9$460.8 million, compared to $453.0 million for the year ended December 31, 2017.2020.
•For additional information on NOI and Same-Property Cash NOI, see “NOI, Cash NOI and Same-Property Cash NOI” below, which includes a reconciliation from net income and an explanation of why we present these non-GAAP financial measures.
Key Market Focused Strategy and Investments
We believe we have been one of the most active investors in the medical office sector over the last decade. This has enabled us to create a high quality portfolio focused on MOBs serving the future of healthcare with scale and significance in 20 to 25 key markets.
•Our investment strategy includes alignment with key healthcare systems, hospitals, and leading academic medical universities. We are the largest owner of on-campus or adjacent MOBs in the country, with approximately 1617.4 million square feet of GLA, or 68%67% of our portfolio, located in these locations. The remaining 32%33% of our portfolio is located in core community outpatient locations where healthcare is increasingly being delivered.
•Over the last several years, our investments have been focused in our 20 to 25 key markets which we believe will outperform the broader U.S. from an economic and demographic perspective. As of December 31, 2018,2021, approximately 93%95% of our portfolio’s GLA is located in the top 75 MSAs. Our key markets represent top MSAs with strong growth metrics in jobs, household income and population, as well as low unemployment and mature healthcare infrastructures. Many of our key markets are also supported by strong university systems.
•Our key market focus has enabled us to establish scale and effectively utilize our asset management and leasing platform to deliver consistent same store growth and additional yield on investments, and also cost effective service to tenants. As of December 31, 2018,2021, we had approximately 1 million square feet of GLA in nineten of our top ten20 key markets and approximately 0.5 million square feet of GLA in each17 of our top 1520 key markets. We expect to establish this scale across 20 to 25 key markets as our portfolio expands.
•During the year ended December 31, 2018,2021, HTA closed on approximately $308.8 million of investments totaling approximately 960,000 square feet of GLA, with expected year-one contractual MOB yields of approximately 5.7%. These properties were approximately 85% leased as of closing, and are located within HTA's key markets. Additionally, HTA funded approximately $80 million in loan funding commitments for MOB development projects in Houston, Texas and Charlotte, North Carolina.
•During the year ended December 31, 2021, we completed the disposition of 20fifteen MOBs primarily located in Greenville, South Carolinanon-key markets for an aggregate gross sales price of $308.6$88.3 million, representing approximately 1.2 million599,000 square feet of GLA, and generating net gains of $166.0approximately $39.2 million.
•During the year ended December 31, 2018,2021, we (i) announced acompleted the development of three new developmenton-campus MOBs located in ourthe key gateway marketmarkets of Miami, FloridaFlorida; Bakersfield, California; and (ii) commenced two redevelopments, including an agreement to build a new on-campus MOBDallas, Texas. Total construction costs on these developments were approximately $110 million and totaled approximately 245,000 square feet of GLA and are currently 78% leased. Our development pipeline consists of five projects in Raleigh, North Carolina.the pre-leasing process, totaling over 850,000 square feet of GLA. These projects will have total expected constructionare located in Houston, Orlando and Raleigh and are highlighted by HTA's previously announced strategic partnership with Medistar Corporation to co-develop the Texas A&M Innovation Plaza - Horizon Tower located in Houston, Texas, a 485,000 square foot medical office and life sciences tower with anticipated costs of approximately $70.6$215 million and are approximately 78% pre-leasedexpected to major health systems.commence construction in 2022.
Internal Growth through Proactive In-House Property Management and Leasing
We believe we have the largest full-service operating platform in the medical office sector that consists of our in-house property management and leasing functions which allows us to better manage and service our existing portfolio. In each of these markets, we have established a strong in-house asset management and leasing platform that has allowed us to develop valuable relationships with health systems, physician practices, universities, and regional development firms that have led to investment and leasing opportunities. Our full-service operating platform has also enabled us to focus on generating cost efficiencies as we gain scale across individual markets and regions.
•As of December 31, 2018,2021, our in-house asset management and leasing platform operated approximately 21.625.1 million square feet of GLA, or 93%,96% of our total portfolio, a significant increase from 8.8 million square feet, or 70%, of GLA managed in-house in 2012.
•As of December 31, 2018,2021, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 92.0%89.3% by GLA, an increase of 20 basis points, compared to December 31, 2017, and our occupancy rate was 91.0%87.5% by GLA.
•We entered into new and renewal leases on approximately 2.8 million square feet of GLA, or over 12%,10.8% of the GLA of our total portfolio, during the year ended December 31, 2018.2021.
•During the year ended December 31, 2018,2021, tenant retention for the Same-Property portfolio was 81%74%, which included approximately 2.42.8 million square feet of GLA of expiring leases, which we believe is indicative of our commitment to maintaining buildings in desirable locations and fostering strong tenant relationships. Tenant retention is defined as the sum of the total leased GLA of tenants that renewed a lease during the period over the total GLA of leases that renewed or expired during the period.
Financial Strategy and Balance Sheet Flexibility
•As of December 31, 2018,2021, we had total leverage, measured by debt less cash and cash equivalents to total capitalization, of 31.3%27.7%. Total liquidity was $1.1 billion, including cash and cash equivalentsinclusive of $126.2 million and $1.0 billion available on our unsecured revolving credit facility and cash and cash equivalents of $52.4 million as of December 31, 2018.2021.
•As of December 31, 2018,2021, the weighted average remaining term of our debt portfolio was 5.0 years, including extension options.6.6 years.
During the year ended December 31, 2018, we paid down approximately $241.0 million of outstanding secured mortgage loans, including the settlement of three cash flow hedges, utilizing net proceeds from our Greenville Disposition to do so. Additionally, in August 2018, HTALP entered into a modification of our $200.0 million unsecured term loan previously due in 2023. The modification decreased pricing at our current credit rating by 65 basis points and extended the maturity date to 2024. The other material terms of the unsecured term loan prior to the modification remained substantially unchanged.
•In August 2018, our Board of Directors approved a stock repurchase plan authorizing us to purchase up to $300.0 million of our common stock from time to time prior to the expiration thereof on June 7, 2020. During the year ended December 31, 2018, we repurchased approximately 2.6 million shares of our outstanding common stock, at an average price of $26.12 per share, for an aggregate amount of approximately $67.2 million, pursuant to this stock repurchase plan. As of December 31, 2018, the remaining amount of common stock available for repurchase under the stock repurchase plan was approximately $232.8 million.
In December 2018,March 2021, we entered into new equity distribution agreements with various sales agents with respect to our at the market (“ATM”at-the-market ("ATM") offering program of common stock with an aggregate sales amount of up to $500.0 million. We contemporaneously terminated$750.0 million, which replaced our prior ATM equity distribution agreements.offering program that expired in February 2021. As of December 31, 2021, $750.0 million remained available for issuance by us under our current ATM.
In June 2018,•During the year ended December 31, 2021, we settled a forward sale arrangement pursuant to a forward equity agreement that was entered into in October 2017, which includedissued approximately 2.69.4 million shares of our common stock under our ATM program for net proceeds of approximately $73.8$251.3 million, adjusted for costs to borrow equating to a net price to us of $28.94$26.68 per share of common stock.
On February 14, 2019, our Board of Directors announced a quarterly dividend of $0.310 per share of common stock and per OP Unit.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires our management to use judgment in the application of accounting principles, including making estimates. We base our estimates on experience and various other assumptions we believe are reasonable under the circumstances. These estimates affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. However, if our judgment or interpretation of the facts and circumstances relating to the various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in different presentation of our financial statements. We periodically reevaluate our estimates and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates about matters that are inherently uncertain. Below is a discussion of accounting policies that we consider critical as they may require more complex judgment in their application or require estimates about matters that are inherently uncertain. For further information on significant accounting policies that impact us, see Note 2 - Summary of Significant Accounting Policies in the accompanying consolidated financial statements in Part IV, Item 15.
Basis of Presentation
Our accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries and joint venture entities in which we own a majority interest with the ability control operations. We consolidate variable interest entities (“VIEs”) when we are the primary beneficiary. All inter-company balances and transactions have been eliminated in the accompanying consolidated financial statements.
We make judgments with respect to our level of influence or control and whether we are (or are not) the primary beneficiary of a VIE. Consideration of various factors include, but are not limited to, our ability to direct the activities that most significantly impact the entity’s economic performance, our form or ownership interest, our representation on the entity’s governing body, the size and seniority of our investment, our ability and rights of other investors to participate in policy making decisions, replace the manager and/or liquidate the entity, if applicable. Our ability to correctly assess our influence or control over an entity when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. If we perform a primary beneficiary analysis at a date other than at inception of the VIE, our assumptions may be different and may result in the identification of a different primary beneficiary.
Revenue Recognition
Rental revenue is our primary source of revenue. At the inception of a new lease we assess the terms and conditions to determine proper classification. If the estimates utilized by us in our assessment were different, then our lease classification for accounting purposes may have been different, which could impact the timing and amount of revenue recognized. We recognize rental revenue from operating leases on a straight-line basis over the term of the related lease (including rent holidays). Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. Effective January 1, 2018, with the adoption of Topic 606 - Revenue from Contracts with Customers, the revenue recognition process is based on a five-step model to account for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. Topic 606 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For more detailed information on Topic 606, see Note 2 - Summary of Significant Accounting Policies to the accompanying consolidated financial statements in Part IV, Item 15.
Leases
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02, codified as ASC 842 - Leases (Topic 842). This new standard superseded ASC Topic 840 and states that companies will be required to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. Topic 842 requires qualitative and quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand the nature of the entity’s leasing activities, including significant judgments and changes in judgments.
As a lessor, we lease space in our MOBs primarily to medical enterprises. The assets underlying these leases consist of buildings and associated land which are included as real estate investments on our accompanying consolidated balance sheets. All of our leases for which we are the lessor are classified as operating leases under Topic 842.
Leases, for which we are the lessee, are classified as separate components on our accompanying consolidated balance sheets. Operating leases are included as right-of-use (“ROU”) assets - operating leases, net, with a corresponding lease liability - operating leases. Financing leases are included in receivables and other assets, net with a corresponding lease liability in security deposits, prepaid rent and other liabilities. A lease liability is recognized for our obligation related to the lease and an ROU asset represents our right to use the underlying asset over the lease term. For more detailed information on Topic 842, see Note 2 - Summary of Significant Accounting Policies to the accompanying consolidated financial statements in Part IV, Item 15.
Investments in Real Estate
With the adoption of ASU 2017-01 in January 2017, the majority of our investments in real estate investments have been accounted for as asset acquisitions and we record the purchase price to tangible and intangible assets and liabilities based on their relative fair values. Tangible assets primarily consist of land and buildings and improvements. Additionally, the purchase price includes acquisition related expenses, above or below market leases, above or below market leasehold interests, in place leases, tenant relationships, above or below market debt assumed, interest rate swaps assumed and any contingent consideration recorded when the contingency is resolved. The determination of the fair value requires us to make certain estimates and assumptions.
The fair value of the land and buildings and improvements is based upon our determination of the value of the property as if it were to be replaced or as if it were vacant using discounted cash flow models similar to those used by market participants. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases.
The value of in place leases is based on our evaluation of the specific characteristics of each tenant’s lease. The factors considered include estimated lease-up periods, market rent and other market conditions.
We analyze the acquired leases to determine whether the rental rates are above or below market. The value associated with above or below market leases is based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be received pursuant to the lease over its remaining term and (ii) our estimate of the amounts that would be received using fair market rates over the remaining term of the lease.
We analyze the acquired leasehold interests to determine whether the rental rates are above or below market. The value associated with above or below market leasehold interests is based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term and (ii) our estimate of the amounts that would be paid using fair market rates over the remaining term of the lease.
We record debt or interest rate swaps assumed at fair value. The amount of above or below market debt is determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage. The value of interest rate swaps is based upon a discounted cash flow analysis on the expected cash flows, taking into account interest rate curves and the period to maturity.
We are required to make certain estimates in order to determine the fair value of the tangible and intangible assets and liabilities acquired in a business investment. Our assumptions directly impact our results of operations, as amounts allocated to certain assets and liabilities have different depreciation and amortization lives. In addition, the amortization and depreciation of these assets and liabilities are recorded in different line items in our accompanying consolidated statements of operations.
Recoverability of Real Estate Investments
Real estate investments are evaluated for potential impairment at least annually, or whenever events or changes in circumstances indicate that itstheir carrying amount may not be recoverable. Impairment losses are recorded when indicators of impairment are present and the carrying amount of the asset is greater than the sum of future undiscounted cash flows expected to be generated by that asset over the remaining expected holding period. We would recognize an impairment loss when the carrying amount is not recoverable to the extent the carrying amount exceeds the fair value of the property. The fair value is generally based on discounted cash flow analyses. In performing the analysis we utilize a variety of methodologies, including undiscounted cash flow models for certain properties that meet quantitative and/or qualitative thresholds. Our methodology contemplates in-place cash flows from existing tenants, with certain assumptions for future anticipated occupancy levels, lease-up and absorption periods after known or estimated vacating tenants, inflationary adjustments for rents and operating expenses, market lease assumptions based on in-place rents and comparative properties' rates, ordinary tenant concessions, such as free rent, and planned tenant improvement and maintenance or other capital expenditures, as well as other initial direct costs, such as leasing commissions paid to third-parties. We also utilize capitalization rates to arrive at a final value of our property, less estimated selling costs. Further, we also will consider executed sales agreements or management’s best estimate of market comparables future occupancy levels, rental rates, capitalization rates, lease-up periods and capital requirements.in arriving at our total undiscounted cash flows.
Recently Issued or Adopted Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies in the accompanying consolidated financial statements in Part IV, Item 15 for a discussion of recently issued or adopted accounting pronouncements.
Factors Which May Influence Results of Operations
The economic uncertainty created by the COVID-19 pandemic and the potential for new strains of SARS-CoV-2 or entirely new types of viruses and/or global propagation of communicable disease continue to present risks to the Company and the future results of our operations. Should current and planned measures, including further development and delivery of vaccines and other measures intended to reduce or eliminate the spread of COVID-19, past and/or proposed economic stimulus, and other laws, acts and orders proposed or enacted by federal, state and local agencies or foreign governments, ultimately not be successful or limited in their efficacy, our business and the broader real estate industry may experience significant adverse consequences. These consequences include loss of revenues, increased expenses, difficulty in maintaining an active workforce, and constraints on our ability to secure capital or financing, among other factors. Please refer to Part I, Item 1A - Risk Factors for a comprehensive summary of these and other risks associated with pandemics and other health concerns.
We are not aware of any other material trends or uncertainties, other than national economic conditions affecting real estate generally and the risk factors previously listed in Part I, Item 1A - Risk Factors, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the investment, management and operation of our properties.
Rental Income
The amount of rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that will become available from tenant vacancies or unscheduled lease terminations at the then applicable rental rates. Negative trends in one or more of these factors could adversely affect our rental income in future periods.
Investment Activity
During the years ended December 31, 2018, 20172021, 2020 and 2016,2019, we had investments with an aggregate purchase price of $17.8$308.8 million, $2.7 billion$191.7 million and $700.8$560.5 million, respectively. During the years ended December 31, 2018, 20172021, 2020 and 2016,2019, we had dispositions with an aggregate gross sales price of $308.6$90.0 million, $85.2$24.3 million and $39.5$4.9 million, respectively. The amount of any future acquisitions or dispositions could have a significant impact on our results of operations in future periods.
Results of Operations
Comparison of the Years Ended December 31, 2018, 20172021 and 20162020
As of December 31, 2018, 20172021 and 2016,2020, we owned and operated approximately 23.2 million, 24.126.1 million and 17.725.4 million square feet of GLA, respectively, with a leased rate of 92.0%, 91.8%89.3% and 91.9%89.8%, respectively (which includes leases which have been executed, but which have not yet commenced), and an occupancy rate of 91.0%, 91.0%87.5% and 91.2%89.1%, respectively. All explanations are applicable to both HTA and HTALP unless otherwise noted.
Comparison of the years ended December 31, 20182021 and 2017,2020, respectively, is set forth below: | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | Change | | % Change |
Revenues: | | | | | | | |
Rental income | $ | 763,923 | | | $ | 738,414 | | | $ | 25,509 | | | 3.5 | % |
Interest and other operating income | 3,150 | | | 551 | | | 2,599 | | | NM |
Total revenues | 767,073 | | | 738,965 | | | 28,108 | | | 3.8 | |
Expenses: | | | | | | | |
Rental | 236,850 | | | 226,859 | | | 9,991 | | | 4.4 | |
General and administrative | 49,744 | | | 42,969 | | | 6,775 | | | 15.8 | |
Transaction | 372 | | | 965 | | | (593) | | | (61.5) | |
Depreciation and amortization | 303,834 | | | 303,828 | | | 6 | | | — | |
Interest expense | 92,762 | | | 94,613 | | | (1,851) | | | (2.0) | |
Impairment | 22,938 | | | — | | | 22,938 | | | NM |
Total expenses | 706,500 | | | 669,234 | | | 37,266 | | | 5.6 | |
Gain (loss) on sale of real estate, net | 39,228 | | | 9,590 | | | 29,638 | | | NM |
Loss on sale of corporate asset, net | (2,106) | | | — | | | (2,106) | | | NM |
Loss on extinguishment of debt, net | — | | | (27,726) | | | 27,726 | | | NM |
Income from unconsolidated joint venture | 1,604 | | | 1,612 | | | (8) | | | (0.5) | |
Other income | 485 | | | 301 | | | 184 | | | 61.1 | |
Net income | $ | 99,784 | | | $ | 53,508 | | | $ | 46,276 | | | 86.5 | % |
| | | | | | | |
NOI | $ | 530,223 | | | $ | 512,106 | | | $ | 18,117 | | | 3.5 | % |
Same-Property Cash NOI | $ | 460,792 | | | $ | 452,972 | | | $ | 7,820 | | | 1.7 | % |
|
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | Change | | % Change |
Revenues: | | | | | | | |
Rental income | $ | 696,030 |
| | $ | 612,556 |
| | $ | 83,474 |
| | 13.6 | % |
Interest and other operating income | 396 |
| | 1,434 |
| | (1,038 | ) | | (72.4 | ) |
Total revenues | 696,426 |
| | 613,990 |
| | 82,436 |
| | 13.4 |
|
Expenses: | | | | | | | |
Rental | 220,617 |
| | 192,147 |
| | 28,470 |
| | 14.8 |
|
General and administrative | 35,196 |
| | 33,403 |
| | 1,793 |
| | 5.4 |
|
Transaction | 1,003 |
| | 5,885 |
| | (4,882 | ) | | (83.0 | ) |
Depreciation and amortization | 279,630 |
| | 244,986 |
| | 34,644 |
| | 14.1 |
|
Impairment | 8,887 |
| | 13,922 |
| | (5,035 | ) | | (36.2 | ) |
Total expenses | 545,333 |
| | 490,343 |
| | 54,990 |
| | 11.2 |
|
Interest income (expense): | | | | | | | |
Interest related to derivative financial instruments | 694 |
| | (1,031 | ) | | 1,725 |
| | NM |
|
Gain on change in fair value of derivative financial instruments, net | — |
| | 884 |
| | (884 | ) | | NM |
|
Total interest related to derivative financial instruments, including net change in fair value of derivative financial instruments | 694 |
| | (147 | ) | | 841 |
| | NM |
|
Interest related to debt | (102,543 | ) | | (85,344 | ) | | (17,199 | ) | | (20.2 | ) |
Gain on sale of real estate, net | 165,977 |
| | 37,802 |
| | 128,175 |
| | NM |
|
Gain (loss) on extinguishment of debt, net | 242 |
| | (11,192 | ) | | 11,434 |
| | NM |
|
Income from unconsolidated joint venture | 1,735 |
| | 782 |
| | 953 |
| | NM |
|
Other income | 428 |
| | 29 |
| | 399 |
| | NM |
|
Net income | $ | 217,626 |
| | $ | 65,577 |
| | $ | 152,049 |
| | NM |
|
| | | | | | | |
NOI | $ | 475,809 |
| | $ | 421,843 |
| | $ | 53,966 |
| | 12.8 | % |
Same-Property Cash NOI | $ | 308,885 |
| | $ | 301,347 |
| | $ | 7,538 |
| | 2.5 | % |
Comparison of the years ended December 31, 20172020 and 2016,2019, respectively, and related discussions can be found in the Item 7. MD&A section under the Results of Operations header in our Annual Report on Form 10-K as filed on February 24, 2021 for the year ended December 31, 2020 which is set forth below: |
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | Change | | % Change |
Revenues: | | | | | | | |
Rental income | $ | 612,556 |
| | $ | 460,563 |
| | $ | 151,993 |
| | 33.0 | % |
Interest and other operating income | 1,434 |
| | 365 |
| | 1,069 |
| | NM |
|
Total revenues | 613,990 |
| | 460,928 |
| | 153,062 |
| | 33.2 |
|
Expenses: | | | | | | | |
Rental | 192,147 |
| | 143,751 |
| | 48,396 |
| | 33.7 |
|
General and administrative | 33,403 |
| | 28,773 |
| | 4,630 |
| | 16.1 |
|
Transaction | 5,885 |
| | 6,538 |
| | (653 | ) | | (10.0 | ) |
Depreciation and amortization | 244,986 |
| | 176,866 |
| | 68,120 |
| | 38.5 |
|
Impairment | 13,922 |
| | 3,080 |
| | 10,842 |
| | NM |
|
Total expenses | 490,343 |
| | 359,008 |
| | 131,335 |
| | 36.6 |
|
Interest income (expense): | | | | | | | |
Interest related to derivative financial instruments | (1,031 | ) | | (2,377 | ) | | 1,346 |
| | 56.6 |
|
Gain on change in fair value of derivative financial instruments, net | 884 |
| | 1,344 |
| | (460 | ) | | (34.2 | ) |
Total interest related to derivative financial instruments, including net change in fair value of derivative financial instruments | (147 | ) | | (1,033 | ) | | 886 |
| | 85.8 |
|
Interest related to debt | (85,344 | ) | | (59,769 | ) | | (25,575 | ) | | (42.8 | ) |
Gain on sale of real estate, net | 37,802 |
| | 8,966 |
| | 28,836 |
| | NM |
|
Loss on extinguishment of debt, net | (11,192 | ) | | (3,025 | ) | | (8,167 | ) | | NM |
|
Income from unconsolidated joint venture | 782 |
| | — |
| | 782 |
| | NM |
|
Other income | 29 |
| | 286 |
| | (257 | ) | | (89.9 | ) |
Net income | $ | 65,577 |
| | $ | 47,345 |
| | $ | 18,232 |
| | 38.5 | % |
| | | | | | | |
NOI | $ | 421,843 |
| | $ | 317,177 |
| | $ | 104,666 |
| | 33.0 | % |
Same-Property Cash NOI | $ | 284,839 |
| | $ | 276,865 |
| | $ | 7,974 |
| | 2.9 | % |
herein incorporated by reference.Rental Income
For the years ended December 31, 20182021 and 2017,2020, respectively, rental income was comprised of the following (in thousands): |
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | Change | | % Change |
Contractual rental income | $ | 667,407 |
| | $ | 589,913 |
| | $ | 77,494 |
| | 13.1 | % |
Straight-line rent and amortization of above and (below) market leases | 16,401 |
| | 13,695 |
| | 2,706 |
| | 19.8 |
|
Other rental revenue | 12,222 |
| | 8,948 |
| | 3,274 |
| | 36.6 |
|
Total rental income | $ | 696,030 |
| | $ | 612,556 |
| | $ | 83,474 |
| | 13.6 | % |
For the years ended December 31, 2017 and 2016, respectively, rental income was comprised of the following (in thousands):
|
| | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 | | Change | | % Change |
Contractual rental income | $ | 589,913 |
| | $ | 445,469 |
| | $ | 144,444 |
| | 32.4 | % |
Straight-line rent and amortization of above and (below) market leases | 13,695 |
| | 8,118 |
| | 5,577 |
| | 68.7 |
|
Other rental revenue | 8,948 |
| | 6,976 |
| | 1,972 |
| | 28.3 |
|
Total rental income | $ | 612,556 |
| | $ | 460,563 |
| | $ | 151,993 |
| | 33.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | Change | | % Change |
Contractual rental income | $ | 728,218 | | | $ | 698,962 | | | $ | 29,256 | | | 4.2 | % |
Straight-line rent and amortization of above and (below) market leases | 19,950 | | | 24,115 | | | (4,165) | | | (17.3) | |
Other rental revenue | 15,755 | | | 15,337 | | | 418 | | | 2.7 | |
Total rental income | $ | 763,923 | | | $ | 738,414 | | | $ | 25,509 | | | 3.5 | % |
Contractual rental income, which includes expense reimbursements, increased $77.5$29.3 million for the year ended December 31, 2018,2021, compared to the year ended December 31, 2017.2020. The increase was primarily due to $90.6$24.7 million of additional contractual rental income from our 20172020 and 20182021 acquisitions, and contractual rent increases for the year ended December 31, 2018, partially offset by a decrease in contractual rent as a result2021.
Average starting and expiring base rents for new and renewal leases consisted of the following for the years ended December 31, 2018, 20172021 and 2016,2020, respectively (in thousands, except in average base rents per square foot of GLA):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
New and renewal leases: | | | | | |
Average starting base rents | $ | 23.30 |
| | $ | 22.58 |
| | $ | 22.57 |
|
Average expiring base rents | 22.67 |
| | 22.43 |
| | 22.38 |
|
| | | | | |
Square feet of GLA | 2,830 |
| | 2,712 |
| | 1,603 |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
New and renewal leases: | | | |
Average starting base rents | $ | 25.04 | | | $ | 27.04 | |
Average expiring base rents | 21.98 | | | 25.84 | |
| | | |
Square feet of GLA | 2,826 | | | 3,865 | |
Lease rates can vary across markets, and lease rates that are considered above or below current market rent may change over time. Leases that expired in 20182021 had rents that we believed were at market rates. In general, leasing concessions vary depending on lease type and term.
Tenant improvements, leasing commissions and tenant concessions for new and renewal leases consisted of the following for the years ended December 31, 2018, 20172021 and 2016,2020, respectively (in per square foot of GLA): | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
New leases: | | | |
Tenant improvements | $ | 35.70 | | | $ | 38.16 | |
Leasing commissions | 5.96 | | | 2.86 | |
Tenant concessions | 7.05 | | | 3.70 | |
Renewal leases: | | | |
Tenant improvements | $ | 9.75 | | | $ | 5.58 | |
Leasing commissions | 2.89 | | | 2.87 | |
Tenant concessions | 0.14 | | | 1.99 | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
New leases: | | | | | |
Tenant improvements | $ | 25.38 |
| | $ | 17.98 |
| | $ | 23.50 |
|
Leasing commissions | 1.88 |
| | 1.99 |
| | 3.63 |
|
Tenant concessions | 1.48 |
| | 2.42 |
| | 3.36 |
|
Renewal leases: | | | | | |
Tenant improvements | $ | 7.29 |
| | $ | 8.15 |
| | $ | 7.34 |
|
Leasing commissions | 1.08 |
| | 1.50 |
| | 1.57 |
|
Tenant concessions | 0.59 |
| | 1.78 |
| | 1.58 |
|
The average term for new and renewal leases executed consisted of the following for the years ended December 31, 2018, 20172021 and 2016,2020, respectively (in years):
|
| | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
New leases | 7.3 | | 6.5 | | 6.2 |
Renewal leases | 5.8 | | 4.8 | | 4.7 |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
New leases | 6.4 | | 7.9 |
Renewal leases | 4.9 | | 5.4 |
Rental Expenses
For the years ended December 31, 2018, 20172021 and 2016,2020, rental expenses attributable to our properties were $220.6 million, $192.1$236.9 million and $143.8$226.9 million, respectively. The increase in rental expenses for the year ended December 31, 2018 compared 2017 wereis primarily due to $35.3$8.4 million of additional rental expenses associated with our 20172020 and 20182021 acquisitions for the year ended December 31, 2018, respectively, partially offset by improved operating efficiencies and a decrease in rental expense as a result of the buildings we sold during 2017 and 2018. The increase in rental expenses for the year ended December 31, 2017 compared to 2016, was primarily due to $51.4 million of additional rental expenses associated with our 2016 and 2017 acquisitions for the year ended December 31, 2017, partially offset by improved operating efficiencies and a decrease in rental expenses as a result of the buildings we sold during 2016 and 2017.2021.
General and Administrative Expenses
For the years ended December 31, 2018, 20172021 and 20162020 general and administrative expenses were $35.2 million, $33.4$49.7 million and $28.8$43.0 million, respectively. These increases wereThis increase was driven by costs related to the Company’s: (i) whistleblower investigation (as further outlined in the Company’s Current Report on Form 8-K filed November 4, 2021), (ii) CEO search costs, (iii) the announced strategic review process, and (iv) employee retention costs and administrative costs with respect to having an interim CEO. Costs related to these matters primarily due toincluded: (i) an increase in non-cash compensation expense and an overall increaseemployee expenses including $0.9 million of increased bonus accruals related to Company out-performance on total shareholder return in head count due to the continued growthQ3 2021, $0.7 million of the company. GeneralCEO search fees, and administrative expenses include such costs as salaries, corporate overhead$0.5 million of short-term consulting and other employee retention costs; (ii) increased legal and professional fees among other items.of $2.3 million primarily related to ongoing whistleblower and strategic review matters; (iii) increased corporate-related travel costs of $0.5 million; and (iv) increased board fees of $0.6 million as a result of a significant increase in board and committee meetings pertaining to the CEO search and whistleblower and strategic review matters, as well as additional compensation for the lead independent director in his appointed role as board chairman.
Transaction Expenses
For the years ended December 31, 2018, 20172021 and 2016,2020, transaction expenses were $1.0 million, $5.9$0.4 million and $6.5$1.0 million, respectively. The increasedecrease in 20172021 compared to 20182020 was primarily due to $4.6 milliondecreased acquisition costs in 2021 as compared to 2020.
Depreciation and Amortization Expense
For each of the years ended December 31, 2018, 20172021 and 2016,2020, depreciation and amortization expense was $279.6 million, $245.0 million$303.8 million. Depreciation and $176.9 million, respectively. These increasesamortization for 2021 was neutral compared to 2020 as most of our investments were associated with our 2017 and 2018 investments, partially offset by buildings we sold during 2017 and 2018.
Impairment
Duringin the year ended December 31, 2018, we recorded impairment chargeslast half of $8.9 million which related to six MOBs located in Tennessee, Texas and South Carolina. During the year ended December 31, 2017, we recorded impairment charges of $13.9 million related to two MOBs2021 and a 13 property portfolio was disposed of MOBs located in Massachusetts, South Carolina and Texas. During the year ended December 31, 2016, we recorded impairment chargesfirst half of $3.1 million that related to two MOBs in our portfolio.2021.
Interest Expense
Interest expense increaseddecreased by $15.5$1.9 million during the year ended December 31, 20182021 compared to 2017.2020. For the year ended December 31, 2018,2021, the increasedecrease was primarily the result of higher weighteddue to lower average debt outstanding,interest rates as a result of the full year impact of the issuance of two long-term senior unsecured notes, a $400.0 million and $500.0 million 5-year and 10-year senior unsecured notes issued in June 2017 at a coupon rate of 2.95% per annum and 3.75% per annum, respectively and a $300.0 million unsecured term loan we obtained in July 2017. Interest expense, excluding the impact of the net change in fair value of derivative financial instruments, increased by $24.2 million during the year ended December 31, 2017, compared to 2016. The increase was primarily the result of higher average debt outstanding during the year ended December 31, 2017, as a result of partially funding our investments over the last 12 months with debt and a change in the composition of debt, driven by an increase in long-term senior unsecured notes, including the $350.0 million 10-year senior unsecured notes issued by HTALP in July 2016 at a coupon rate of 3.50% per annum, the $400.0 million and $500.0 million 5-year and 10-year senior unsecured notes issued by HTALP in June 2017 at a coupon rate of 2.95% per annum and 3.75% per annum, respectively.2020.
To achieve our objectives, we borrow at both fixed and variable rates. From time to time, we also enter into derivative financial instruments, such as interest rate swaps, in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes.
Gain (loss) on Sale of Real Estate
For the year ended December 31, 2018,2021, we realized a net gain of $39.2 million from the disposition of fifteen MOBs located in non-key markets in Tennessee, Virginia, Minnesota and Ohio. For the year ended December 31, 2020, we realized a net gain on the sale of real estate of $166.0 million. These gains were primarily$7.6 million from the resultdisposition of the Greenville Disposition.one MOB Kansas City. See Note 4 - ImpairmentDispositions and DispositionsImpairment in the accompanying consolidated financial statements in Part IV, Item 15 for more detail on the Greenville Disposition. For the year ended December 31, 2017, we realized a net gain of $37.8 million from the disposition of four MOBs located in Wisconsin, California and Texas. For the year ended December 31, 2016, we realized a net gain of $9.0 million from the disposition of six senior care facilities located in Texas and California.dispositions.
Gain (loss)Loss on Extinguishment of Debt
For the years ended December 31, 2018, we realized a net gain on the extinguishment of debt of $0.2 million. For the year ended December 31, 2017 and 2016,2020, we realized a net loss on the extinguishment of debt of $11.2$27.7 million, and $3.0 million, respectively. The gainrelated to make-whole provisions in 2018the redemption of senior unsecured notes. For the year ended December 31, 2021 there was primarily due to the prepayment of fixed rate mortgages which we had associated above market debt, partially offset by a loss onno extinguishment of debt related to the Greenville Disposition. The increased loss in 2017 over 2016 was primarily due to fees we incurred in connection with the execution and our termination of a bridge loan facility we entered into as part of the Duke acquisition.debt.
Net Income
Net income increased $152.0$46.3 million to $217.6$99.8 million for the year ended December 31, 2018,2021, compared to the year ended December 31, 2017. Net income increased $18.2 million to $65.6$53.5 million for the year ended December 31, 2017 compared to the year ended December 31, 2016. These increases were2020. This increase was primarily the result of continued growth in our operations, improved operating efficiencies, and the $166.0 million net gainadditional gains recognized on the sale of real estate we realized for the year ended December 31, 2018.
$29.6 million and a loss in 2020 on extinguishment of debt of $27.7 million.
NOI and Same-Property Cash NOI
NOI increased $54.0$18.1 million to $475.8$530.2 million for the year ended December 31, 2018,2021, compared to the year ended December 31, 2017.2020. The increase was primarily due to $60.1$19.1 million of additional NOI from our 20172020 and 20182021 acquisitions for the year ended December 31, 2018,2021, partially offset by a decrease in$4.2 million of reduced NOI as a result offrom our 2020 and 2021 dispositions for the buildings we sold during 2017 and 2018 and a reduction in straight-line rent from properties we owned more than a year.year ended December 31, 2021.
Same-Property Cash NOI increased $104.7$7.8 million, or 1.7%, to $421.8$460.8 million for the year ended December 31, 2017,2021, compared to the year ended December 31, 2016. The increase was primarily due to $96.2 million of additional NOI from our 2016 and 2017 acquisitions for the year ended December 31, 2017, partially offset by a decrease in NOI as a result of the buildings we sold during 2016 and 2017 and a reduction in straight-line rent from properties we owned more than a year.
Same-Property Cash NOI increased $7.5 million, or 2.5%, to $308.9$453.0 million for the year ended December 31, 2018, compared to the year ended December 31, 2017. Same-Property Cash NOI increased $8.0 million, or 2.9%, to $284.8 million for the year ended December 31, 2017, compared to the year ended December 31, 2016.2020. These increases were primarily the result of contractual rent escalations an increase in average occupancy, and improved operating efficiencies.efficiencies offset by a slight decrease in average occupancy.
Non-GAAP Financial Measures
FFO and Normalized FFO
We compute FFO in accordance with the current standards established by NAREIT. NAREIT defines FFO is defined as net income or loss attributable to common stockholders/unitholders (computed in accordance with GAAP), excluding gains or losses from sales of real estate property and impairment write-downs of depreciable assets, plus depreciation and amortization related to investments in real estate, and after adjustments for unconsolidated partnerships and joint ventures. BecauseAdditionally, with respect to gains and losses on the sale of assets incidental to the main business of a REIT, the REIT has the option to include or exclude such gains and losses in the calculation of FFO. Since FFO excludes depreciation and amortization unique to real estate, among other items, it provides a perspective not immediately apparent from net income or loss attributable to common stockholders/unitholders.
We also compute Normalized FFO, which excludes from FFO: (i) transaction expenses; (ii) gain or loss on change in fair value of derivative financial instruments; (iii) gain or loss on extinguishment of debt; (iv) noncontrolling(iii) non-controlling income or loss from OP Units included in diluted shares (only applicable to the Company); and (v)(iv) other normalizing items,adjustments, which include items that are unusual and infrequent in nature. Our methodology for calculating Normalized FFO may be different from the methods utilized by other REITs and, accordingly, may not be comparable to other REITs.
We present FFO and Normalized FFO because we consider them important supplemental measures of our operating performance and believe they are frequently used by securities analysts, investors and other interested parties in the evaluation of REITs. Historical cost accounting assumes that the value of real estate assets diminishes ratably over time. Since real estate values have historically risen or fallen based on market conditions, many industry investors have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. FFO and Normalized FFO should not be considered as alternatives to net income or loss attributable to common stockholders/unitholders (computed in accordance with GAAP) as indicators of our financial performance, nor are they indicative of cash available to fund cash needs. FFO and Normalized FFO should be reviewed in connection with other GAAP measurements.
In addition, the amounts included in the calculation of FFO and Normalized FFO are generally the same for HTALP and HTA, except for net income or loss attributable to common stockholders/unitholders, noncontrollingnon-controlling income or loss from OP Units included in diluted shares (only applicable to the Company) and the weighted average shares of our common stock or HTALP OP Units outstanding.
The following is the reconciliation of HTA’s FFO and Normalized FFO to net income attributable to common
stockholders for the years ended December 31, 2018, 20172021 and 2016,2020, respectively (in thousands, except per share data): | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
Net income attributable to common stockholders | $ | 98,016 | | | $ | 52,618 | | | |
Depreciation and amortization expense related to investments in real estate | 300,605 | | | 299,722 | | | |
Gain on sale of real estate, net | (39,228) | | | (9,590) | | | |
Loss on sale of corporate asset, net | 2,106 | | | — | | | |
Impairment | 22,938 | | | — | | | |
Proportionate share of joint venture depreciation and amortization | 1,949 | | | 1,949 | | | |
FFO attributable to common stockholders | $ | 386,386 | | | $ | 344,699 | | | |
Transaction expenses | 372 | | | 965 | | | |
| | | | | |
Loss on extinguishment of debt, net | — | | | 27,726 | | | |
Non-controlling income from OP Units included in diluted shares | 1,768 | | | 890 | | | |
Other normalizing adjustments (1) | 3,284 | | | 5,031 | | | |
Normalized FFO attributable to common stockholders | $ | 391,810 | | | $ | 379,311 | | | |
| | | | | |
Net income attributable to common stockholders per diluted share | $ | 0.44 | | | $ | 0.24 | | | |
FFO adjustments per diluted share, net | 1.28 | | | 1.32 | | | |
FFO attributable to common stockholders per diluted share | $ | 1.72 | | | $ | 1.56 | | | |
Normalized FFO adjustments per diluted share, net | 0.03 | | | 0.15 | | | |
Normalized FFO attributable to common stockholders per diluted share | $ | 1.75 | | | $ | 1.71 | | | |
| | | | | |
Weighted average diluted common shares outstanding | 224,215 | | | 221,666 | | | |
| | | | | |
(1) For the year ended December 31, 2021, other normalizing adjustments includes the following: costs related to whistleblower investigation of $1,645; CEO search fees of $743; costs related to strategic matters of $387; and corresponding additional board and consulting fees of $509. For the year ended December 31, 2020, other normalizing adjustments includes the following: non-recurring bad debt of $4,672, incremental hazard pay to facilities employees of $314, and incremental personal protective equipment of $45. | | |
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Net income attributable to common stockholders | $ | 213,463 |
| | $ | 63,916 |
| | $ | 45,912 |
|
Depreciation and amortization expense related to investments in real estate | 277,446 |
| | 243,221 |
| | 175,544 |
|
Gain on sale of real estate, net | (165,977 | ) | | (37,802 | ) | | (8,966 | ) |
Impairment | 8,887 |
| | 13,922 |
| | 3,080 |
|
Proportionate share of joint venture depreciation and amortization | 1,746 |
| | 969 |
| | — |
|
FFO attributable to common stockholders | $ | 335,565 |
| | $ | 284,226 |
| | $ | 215,570 |
|
Transaction expenses (1) | 859 |
| | 1,242 |
| | 6,538 |
|
Gain on change in fair value of derivative financial instruments, net | — |
| | (884 | ) | | (1,344 | ) |
(Gain) loss on extinguishment of debt, net | (242 | ) | | 11,192 |
| | 3,025 |
|
Noncontrolling income from OP Units included in diluted shares | 4,074 |
| | 1,538 |
| | 1,315 |
|
Other normalizing items, net (2) (3) | 144 |
| | 4,643 |
| | 117 |
|
Normalized FFO attributable to common stockholders | $ | 340,400 |
| | $ | 301,957 |
| | $ | 225,221 |
|
| | | | | |
Net income attributable to common stockholders per diluted share | $ | 1.02 |
| | $ | 0.34 |
| | $ | 0.33 |
|
FFO adjustments per diluted share, net | 0.58 |
| | 1.19 |
| | 1.21 |
|
FFO attributable to common stockholders per diluted share | $ | 1.60 |
| | $ | 1.53 |
| | $ | 1.54 |
|
Normalized FFO adjustments per diluted share, net | 0.02 |
| | 0.10 |
| | 0.07 |
|
Normalized FFO attributable to common stockholders per diluted share | $ | 1.62 |
| | $ | 1.63 |
| | $ | 1.61 |
|
| | | | | |
Weighted average diluted common shares outstanding | 210,061 |
| | 185,278 |
| | 140,259 |
|
| | | | | |
(1) For the year ended December 31, 2017, amounts reflect the prospective presentation of the early adoption of ASU 2017-01 as of January 1, 2017. |
(2) For the year ended December 31, 2017, other normalizing items included $4.6 million of non-incremental costs related to the Duke acquisition that were included in transaction expenses on our consolidated statements of operations. |
(3) For the years ended December 31, 2017 and 2016, other normalizing items excludes lease termination fees as they are deemed to be generated in the ordinary course of business. |
The following is the reconciliation of HTALP’s FFO and Normalized FFO to net income attributable to common unitholders for the years ended December 31, 2018, 20172021 and 2016,2020, respectively (in thousands, except per unit data):
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Net income attributable to common unitholders | $ | 217,537 |
| | $ | 65,454 |
| | $ | 47,227 |
|
Depreciation and amortization expense related to investments in real estate | 277,446 |
| | 243,221 |
| | 175,544 |
|
Gain on sale of real estate, net | (165,977 | ) | | (37,802 | ) | | (8,966 | ) |
Impairment | 8,887 |
| | 13,922 |
| | 3,080 |
|
Proportionate share of joint venture depreciation and amortization | 1,746 |
| | 969 |
| | — |
|
FFO attributable to common unitholders | $ | 339,639 |
| | $ | 285,764 |
| | $ | 216,885 |
|
Transaction expenses (1) | 859 |
| | 1,242 |
| | 6,538 |
|
Gain on change in fair value of derivative financial instruments, net | — |
| | (884 | ) | | (1,344 | ) |
(Gain) loss on extinguishment of debt, net | (242 | ) | | 11,192 |
| | 3,025 |
|
Other normalizing items, net (2) (3) | 144 |
| | 4,643 |
| | 117 |
|
Normalized FFO attributable to common unitholders | $ | 340,400 |
| | $ | 301,957 |
| | $ | 225,221 |
|
| | | | | |
Net income attributable to common unitholders per diluted unit | $ | 1.04 |
| | $ | 0.35 |
| | $ | 0.34 |
|
FFO adjustments per diluted unit, net | 0.58 |
| | 1.19 |
| | 1.21 |
|
FFO attributable to common unitholders per diluted unit | $ | 1.62 |
| | $ | 1.54 |
| | $ | 1.55 |
|
Normalized FFO adjustments per diluted unit, net | 0.00 |
| | 0.09 |
| | 0.06 |
|
Normalized FFO attributable to common unitholders per diluted unit | $ | 1.62 |
| | $ | 1.63 |
| | $ | 1.61 |
|
| | | | | |
Weighted average diluted common units outstanding | 210,061 |
| | 185,278 |
| | 140,259 |
|
| | | | | |
(1) For the year ended December 31, 2017, amounts reflect the prospective presentation of the early adoption of ASU 2017-01 as of January 1, 2017. |
(2) For the year ended December 31, 2017, other normalizing items included $4.6 million of non-incremental costs related to the Duke acquisition that were included in transaction expenses on our consolidated statements of operations. |
(3) For the years ended December 31, 2017 and 2016, other normalizing items excludes lease termination fees as they are deemed to be generated in the ordinary course of business. |
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
Net income attributable to common OP unitholders | $ | 99,784 | | | $ | 53,508 | | | |
Depreciation and amortization expense related to investments in real estate | 300,605 | | | 299,722 | | | |
Gain on sale of real estate, net | (39,228) | | | (9,590) | | | |
Loss on sale of corporate asset, net | 2,106 | | | — | | | |
Impairment | 22,938 | | | — | | | |
Proportionate share of joint venture depreciation and amortization | 1,949 | | | 1,949 | | | |
FFO attributable to common OP unitholders | $ | 388,154 | | | $ | 345,589 | | | |
Transaction expenses | 372 | | | 965 | | | |
| | | | | |
Loss on extinguishment of debt, net | — | | | 27,726 | | | |
Other normalizing adjustments (1) | 3,284 | | | 5,031 | | | |
Normalized FFO attributable to common OP unitholders | $ | 391,810 | | | $ | 379,311 | | | |
| | | | | |
Net income attributable to common OP unitholders per diluted OP unit | $ | 0.45 | | | $ | 0.24 | | | |
FFO adjustments per diluted OP unit, net | 1.28 | | | 1.32 | | | |
FFO attributable to common OP unitholders per diluted OP unit | $ | 1.73 | | | $ | 1.56 | | | |
Normalized FFO adjustments per diluted OP unit, net | 0.02 | | | 0.15 | | | |
Normalized FFO attributable to common OP unitholders per diluted OP unit | $ | 1.75 | | | $ | 1.71 | | | |
| | | | | |
Weighted average diluted common OP units outstanding | 224,215 | | | 221,666 | | | |
| | | | | |
(1) For the year ended December 31, 2021, other normalizing adjustments includes the following: costs related to whistleblower investigation of $1,645; CEO search fees of $743; costs related to strategic matters of $387; and corresponding additional board and consulting fees of $509. For the year ended December 31, 2020, other normalizing adjustments includes the following: non-recurring bad debt of $4,672, incremental hazard pay to facilities employees of $314, and incremental personal protective equipment of $45. | | |
NOI, Cash NOI and Same-Property Cash NOI
NOI is a non-GAAP financial measure that is defined as net income or loss (computed in accordance with GAAP) before: (i) general and administrative expenses; (ii) transaction expenses; (iii) depreciation and amortization expense; (iv) impairment; (v) interest expense and net change in fair value of derivative financial instruments;expense; (vi) gain or loss on sales of real estate;estate and corporate assets; (vii) gain or loss on extinguishment of debt; (viii) income or loss from unconsolidated joint venture; and (ix) other income or expense. We believe that NOI provides an accurate measure of the operating performance of our operating assets because NOI excludes certain items that are not associated with the management of our properties. Additionally, we believe that NOI is a widely accepted measure of comparative operating performance of REITs. However, our use of the term NOI may not be comparable to that of other REITs as they may have different methodologies for computing this amount. NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. NOI should be reviewed in connection with other GAAP measurements.
Cash NOI is a non-GAAP financial measure which excludes from NOI: (i) straight-line rent adjustments; (ii) amortization of below and above market leases/leasehold interests;interests and other GAAP adjustments; (iii) notes receivable interest income; and (iv) other GAAPnormalizing adjustments. Contractual base rent, contractual rent increases, contractual rent concessions and changes in occupancy or lease rates upon commencement and expiration of leases are a primary driver of our revenue performance. We believe that Cash NOI, which removes the impact of straight-line rent adjustments, provides another measurement of the operating performance of ouroperating assets. Additionally, we believe that Cash NOI is a widely accepted measure of comparative operating performance of REITs. However, our use of the term Cash NOI may not be comparable to that of other REITs as they may have different methodologies for computing this amount. Cash NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. Cash NOI should be reviewed in connection with other GAAP measurements.
To facilitate the comparison of Cash NOI between periods, we calculate comparable amounts for a subset of our owned and operational properties referred to as “Same-Property”. Same-Property Cash NOI excludes (i) properties which have not been owned and operated by us during the entire span of all periods presented and disposed properties, (ii) our share of unconsolidated joint ventures, (iii) development, redevelopment and land parcels, (iv) properties intended for disposition in the near term which have (a) been approved by the Board of Directors, (b) is actively marketed for sale, and (c) an offer has been received at prices we would transact and the sales process is ongoing, and (v) certain non-routine items. Same-Property Cash NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. Same-Property Cash NOI should be reviewed in connection with other GAAP measurements.
The following is the reconciliation of HTA’s and HTALP’s NOI, Cash NOI and Same-Property Cash NOI to net income for the years ended December 31, 20182021 and 2017,2020, respectively (in thousands): | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Net income | $ | 99,784 | | | $ | 53,508 | |
General and administrative expenses | 49,744 | | | 42,969 | |
Transaction expenses | 372 | | | 965 | |
Depreciation and amortization expense | 303,834 | | | 303,828 | |
Impairment | 22,938 | | | — | |
Interest expense | 92,762 | | | 94,613 | |
Gain on sale of real estate, net | (39,228) | | | (9,590) | |
Loss on sale of corporate asset, net | 2,106 | | | — | |
Loss on extinguishment of debt, net | — | | | 27,726 | |
Income from unconsolidated joint venture | (1,604) | | | (1,612) | |
Other income | (485) | | | (301) | |
NOI | $ | 530,223 | | | $ | 512,106 | |
Straight-line rent adjustments, net | (13,883) | | | (15,971) | |
Amortization of (below) and above market leases/leasehold interests, net and other GAAP adjustments | (1,899) | | | (2,722) | |
Notes receivable interest income | (2,730) | | | (161) | |
Other normalizing adjustments (1) | — | | | 5,031 | |
Cash NOI | $ | 511,711 | | | $ | 498,283 | |
|
| | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 |
Net income | $ | 217,626 |
| | $ | 65,577 |
|
General and administrative expenses | 35,196 |
| | 33,403 |
|
Transaction expenses (1) | 1,003 |
| | 5,885 |
|
Depreciation and amortization expense | 279,630 |
| | 244,986 |
|
Impairment | 8,887 |
| | 13,922 |
|
Interest expense and net change in fair value of derivative financial instruments | 101,849 |
| | 85,491 |
|
Gain on sale of real estate, net | (165,977 | ) | | (37,802 | ) |
(Gain) loss on extinguishment of debt, net | (242 | ) | | 11,192 |
|
Income from unconsolidated joint venture | (1,735 | ) | | (782 | ) |
Other income | (428 | ) | | (29 | ) |
NOI | $ | 475,809 |
| | $ | 421,843 |
|
Straight-line rent adjustments, net | (10,683 | ) | | (8,637 | ) |
Amortization of (below) and above market leases/leasehold interests, net | 216 |
| | 354 |
|
Notes receivable interest income | (131 | ) | | (1,193 | ) |
Other GAAP adjustments | (117 | ) | | (19 | ) |
Cash NOI (2) | $ | 465,094 |
| | $ | 412,348 |
|
| | | |
(1) For the year ended December 31, 2017, transaction costs included $4.6 million of non-incremental costs related to the Duke acquisition. |
(2) For the December 31, 2018 growth comparison, the reconciliation of NOI to Cash NOI changed to include notes receivable interest income and other GAAP adjustments. |
The following is the reconciliation of HTA’s and HTALP’s Same-Property Cash NOI to Cash NOI for the years ended December 31, 20182021 and 2017,2020, respectively (in thousands):
|
| | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 |
Cash NOI | $ | 465,094 |
| | $ | 412,348 |
|
Acquisitions not owned/operated for all periods presented and disposed properties Cash NOI | (147,881 | ) | | (99,043 | ) |
Redevelopment Cash NOI | (2,273 | ) | | (4,797 | ) |
Intended for sale Cash NOI | (6,055 | ) | | (7,161 | ) |
Same-Property Cash NOI (1) (2) | $ | 308,885 |
| | $ | 301,347 |
|
| | | |
(1) For the December 31, 2018 growth comparison, the reconciliation of Cash NOI to Same-Property Cash NOI changed to expand the disclosure of our Same-Property Cash NOI exclusions. |
(2) Same-Property includes 318 buildings for the years ended December 31, 2018 and 2017. |
The following is the reconciliation of HTA’s and HTALP’s NOI, Cash NOI and Same-Property Cash NOI to net income for the years ended December 31, 2017 and 2016, respectively (in thousands):
|
| | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 |
Net income | $ | 65,577 |
| | $ | 47,345 |
|
General and administrative expenses | 33,403 |
| | 28,773 |
|
Transaction expenses (1) | 5,885 |
| | 6,538 |
|
Depreciation and amortization expense | 244,986 |
| | 176,866 |
|
Impairment | 13,922 |
| | 3,080 |
|
Interest expense and net change in fair value of derivative financial instruments | 85,491 |
| | 60,802 |
|
Gain on sale of real estate, net | (37,802 | ) | | (8,966 | ) |
Loss on extinguishment of debt, net | 11,192 |
| | 3,025 |
|
Income from unconsolidated joint venture | (782 | ) | | — |
|
Other income | (29 | ) | | (286 | ) |
NOI | $ | 421,843 |
| | $ | 317,177 |
|
Straight-line rent adjustments, net | (8,637 | ) | | (4,159 | ) |
Amortization of (below) and above market leases/leasehold interests, net | 354 |
| | 682 |
|
Cash NOI | $ | 413,560 |
| | $ | 313,700 |
|
| | | |
(1) For the year ended December 31, 2017, transaction costs reflect the prospective presentation of the adoption of ASU 2017-01 as of January 1, 2017. Additionally, for the year ended December 31, 2017, transaction costs included $4.6 million of non-incremental costs related to the Duke acquisition. |
The following is the reconciliation of HTA’s and HTALP’s Same-Property Cash NOI to Cash NOI for the years ended December 31, 2017 and 2016, respectively (in thousands):
|
| | | | | | | |
| Year Ended December 31, |
| 2017 | | 2016 |
Cash NOI | $ | 413,560 |
| | $ | 313,700 |
|
Notes receivable interest income | (1,193 | ) | | (183 | ) |
Non Same-Property Cash NOI | (127,528 | ) | | (36,652 | ) |
Same-Property Cash NOI (1) | $ | 284,839 |
| | $ | 276,865 |
|
| | | |
(1) Same-Property includes 295 buildings for the years ended December 31, 2017 and 2016. |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Cash NOI | $ | 511,711 | | | $ | 498,283 | |
Acquisitions not owned/operated for all periods presented and disposed properties Cash NOI | (24,401) | | | (12,133) | |
Redevelopment Cash NOI | (928) | | | (4,435) | |
Intended for sale Cash NOI | (25,590) | | | (28,743) | |
Same-Property Cash NOI (2) | $ | 460,792 | | | $ | 452,972 | |
| | | |
(1) For the year ended December 31, 2020, other normalizing adjustments includes the following: Non-recurring bad debt of $4,672, incremental hazard pay to facilities employees of $314, and incremental personal protective equipment of $45. |
(2) Same-Property includes 414 buildings for the years ended December 31, 2021 and 2020. |
Liquidity and Capital Resources
Our primary sources of cash include: (i) cash flow from operations; (ii) borrowings under our unsecured revolving credit facility; (iii) net proceeds from the issuances of debt and equity securities; and (iv) proceeds from our dispositions. During the next 12 months our primary uses of cash are expected to include: (a) the funding of acquisitions of MOBs, development properties and other facilities that serve the healthcare industry; (b) capital expenditures; (c) the payment of operating expenses; (d) debt service payments, including principal payments; and (e) the payment of dividends to our stockholders. We anticipate cash flow from operations, restricted cash and reserve accounts and our unsecured revolving credit facility, if needed, will be sufficient to fund our operating expenses, capital expenditures and dividends to stockholders. Investments and maturing indebtedness may require funds from the issuance of debt and/or equity securities or proceeds from sales of real estate.
As of December 31, 2018,2021, we had liquidity of $1.1 billion, including $1.0 billion available under our unsecured revolving credit facility and $126.2$52.4 million of cash and cash equivalents.
In addition, we had unencumbered assets with a gross book value of $6.6$7.9 billion. The unencumbered properties may be used as collateral to secure additional financings in future periods or refinance our current debt as it becomes due. Our ability to raise funds from future debt and equity issuances is dependent on our investment grade credit ratings, general economic and market conditions and our operating performance.
When we acquire a property, we prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs. As of December 31, 2018,2021, we estimate that our expenditures for capital improvements including lease commissions for 20192022 will range from $70$115 million to $80$135 million depending on leasing activity. In addition, we have approximately $110 million inclusive of costs to complete on active development projects and incremental tenant improvements as part of our recently completed development projects. Although we cannot provide assurance that we will not exceed these estimated expenditure levels, our liquidity of $1.1 billion allows us the flexibility to fund such capital expenditures.
If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewal leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of our leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needsneeds.
Cash Flows
The following is a summary of our cash flows for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Current Year Change | | Prior Year Change |
| 2021 | | 2020 | | 2019 | | |
Cash, cash equivalents and restricted cash - beginning of year | $ | 118,765 | | | $ | 37,616 | | | $ | 133,530 | | | $ | 81,149 | | | $ | (95,914) | |
Net cash provided by operating activities | 385,616 | | | 387,962 | | | 340,394 | | | (2,346) | | | 47,568 | |
Net cash used in investing activities | (399,855) | | | (319,260) | | | (667,289) | | | (80,595) | | | 348,029 | |
Net cash (used in) provided by financing activities | (47,457) | | | 12,447 | | | 230,981 | | | (59,904) | | | (218,534) | |
Cash, cash equivalents and restricted cash - end of year | $ | 57,069 | | | $ | 118,765 | | | $ | 37,616 | | | $ | (61,696) | | | $ | 81,149 | |
|
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Current Year Change | | Prior Year Change |
| 2018 | | 2017 | | 2016 | | |
Cash, cash equivalents and restricted cash - beginning of year | $ | 118,560 |
| | $ | 25,045 |
| | $ | 28,962 |
| | $ | 93,515 |
| | $ | (3,917 | ) |
Net cash provided by operating activities | 337,396 |
| | 307,543 |
| | 203,695 |
| | 29,853 |
| | 103,848 |
|
Net cash provided by (used in) investing activities | 176,309 |
| | (2,455,096 | ) | | (608,393 | ) | | 2,631,405 |
| | (1,846,703 | ) |
Net cash (used in) provided by financing activities | (498,735 | ) | | 2,241,068 |
| | 400,781 |
| | (2,739,803 | ) | | 1,840,287 |
|
Cash, cash equivalents and restricted cash - end of year | $ | 133,530 |
| | $ | 118,560 |
| | $ | 25,045 |
| | $ | 14,970 |
| | $ | 93,515 |
|
Net cash provided by operating activities increased in 2018 primarily due2021 was flat compared to the impact2020 as most of our 20172021investments were in the last half of 2021 and 2018 acquisitions, contractual rent increases and improved operating efficiencies, partially offset by our 2017 and 2018 dispositions.a 13 property portfolio was disposed of in the first half of 2021. We do anticipate cash flows from operating activities to increase as a result from the impact of the above itemsthose later investments, contractual increases and continued leasing activity in our existing portfolio.
For the year ended December 31, 2018, net cash provided by investing activities primarily related to proceeds from the sale of real estate of $305.1 million, which was partially offset by capital expenditures of $77.9 million and development of real estate of $34.3 million. For the year ended December 31, 2017,2021, net cash used in investing activities primarily related to the investment in real estate of $2.4 billion, investment in unconsolidated joint venture of $68.8$264.3 million, and capital expenditures of $64.8$97.2 million, which wasadvances on real estate notes receivable of $82.2 million and development costs of $63.3 million, partially offset by proceeds from the sale of real estate of $80.6$87.6 million and collection of real estate notes receivable of $15.4 million. For the year ended December 31, 2016,2020, net cash used in investing activities primarily related to the investmentinvestments in real estate of $592.0$185.3 million, and capital expenditures of $43.0$74.7 million which wasand development costs of $77.1 million, partially offset by proceeds from the sale of real estate of $26.6$22.9 million. For the year ended December 31, 2019, net cash used in investing activities primarily related to investments in real estate of $553.3 million, capital expenditures of $91.5 million and development costs of $28.1 million, partially offset by proceeds from the sale of real estate of $4.9 million.
For the year ended December 31, 2018,2021, net cash used in financing activities primarily related to dividends paid to holders of our common stock of $252.7$281.8 million, payments on our secured mortgage loansdeferred financing costs of $241.0$8.1 million, and repurchasesdistributions paid to non-controlling interest of our common stocklimited partners of $70.3$5.4 million, which was partially offset by net proceeds of shares of common stock issued of $72.8$251.3 million. For the year ended December 31, 2017,2020, net cash provided by financing activities primarily related to the proceeds from unsecured senior notes of $793.6 million and net proceeds of shares of common stock issued of $1.7 billion and net proceeds$50.0 million, offset by payments on the issuance ofour unsecured senior notes of $900.0$300.0 million, which was partially offset by dividends paid to holders of our common stock of $207.1$275.8 million, net payments on our unsecured revolving credit facility of $88.0 million and payments on our secured mortgage loans of $77.0$114.1 million, net payments under our revolving credit facility of $100.0 million and the repurchase and cancellation of our common stock of $5.2 million. For the year ended December 31, 2016,2019, net cash provided by financing activities primarily related to the proceeds from unsecured notes of $906.9 million, net proceeds of shares of common stock issued of $418.9$323.4 million, and proceeds from unsecured senior notesnet borrowings under our revolving credit facility of $347.7$100.0 million which was partially offset by payments on our unsecured notes of $700.0 million, dividends paid to holders of our common stock of $159.2$256.1 million, net payments on our unsecured revolving credit facility of $130.0 million, and payments on our secured mortgage loans of $110.9$97.4 million, and the repurchase and cancellation of our common stock of $12.2 million.
63
Dividends
The amount of dividends we pay to our stockholders is determined by our Board of Directors, in their sole discretion, and is dependent on a number of factors, including funds available, our financial condition, capital expenditure requirements and annual dividend distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended. We have paid monthly or quarterly dividends since February 2007, and if our investments produce sufficient cash flow, we expect to continue to pay dividends to our stockholders. Because our cash available for dividend distributions in any year may be less than 90% of our taxable income for the year, we may obtain the necessary funds through borrowings, issuing new securities or selling assets to pay out enough of our taxable income to satisfy our dividend distribution requirement. Our organizational documents do not establish a limit on dividends that may constitute a return of capital for federal income tax purposes. The dividend we pay to our stockholders is equal to the distributions received from HTALP in accordance with the terms of the HTALP partnership agreement. It is our intention to continue to pay dividends. However, our Board of Directors may reduce our dividend rate and we cannot guarantee the timing and amount of dividends that we may pay in the future, if any.
For the year ended December 31, 2018,2021, we paid cash dividends of $252.7$281.8 million on our common stock. In January 2019,2022, we paid cash dividends on our common stock of $63.7$74.4 million for the quarter ended December 31, 2018.2021.
Financing
We have historically maintained a low leveraged balance sheet and intend to continue to maintain this structure in the long term. However, our total leverage may fluctuate on a short-term basis as we execute our business strategy. As of December 31, 2018,2021, our leverage ratio, measured by debt less cash and cash equivalents to total capitalization, was 31.3%27.7%.
As of December 31, 2018,2021, we had debt outstanding of $2.5$3.0 billion and the weighted average interest rate therein was 3.47%2.87% per annum, inclusive of the impact of our cash flow hedges. The following is a summary of our unsecured and secured debt. See Note 78 - Debt in the accompanying consolidated financial statements in Part IV, Item 15 for a further discussion of our debt.
Unsecured Revolving Credit Facility
As of December 31, 2018,2021, the full $1.0 billion was available on our $1.0 billion unsecured revolving credit facility. Our unsecured revolving credit facility matures in June 2022.October 2025.
Unsecured Term Loans
As of December 31, 2018,2021, we had $500.0 million of unsecured term loans outstanding, comprised of $300.0 million under our Unsecured Credit Agreement maturing in 2023,2025, and $200.0 million under our unsecured term loan maturing in 2024.
Unsecured Senior Notes
As of December 31, 2018,2021, we had $1.85$2.55 billion of unsecured senior notes outstanding, comprised of $300.0 million of senior notes maturing in 2021, $400.0 million of senior notes maturing in 2022, $300.0 million of senior notes maturing in 2023, $350.0$600.0 million of senior notes maturing in 2026, and $500.0 million of senior notes maturing in 2027.
Fixed and Variable Rate Mortgages
During the year ended December 31, 2018, we made payments on our fixed and variable rate mortgages of $241.0 million and have $97.42027, $650.0 million of principal payments duesenior notes maturing in 2019.2030, and $800.0 million of senior notes maturing in 2031.
Commitments and Contingencies
See Note 910 - Commitments and Contingencies in the accompanying consolidated financial statements in Part IV, Item 15 for a further discussion of our commitments and contingencies.
Debt Service Requirements
We are required by the terms of our applicable loan agreements to meet certain financial covenants, such as minimum net worth and liquidity, and reporting requirements, among others. As of December 31, 2018,2021, we believe that we were in compliance with all such covenants and we are not aware of any covenants that it is reasonably likely that we would not be able to meet in accordance with our loan agreements.
Contractual Obligations
The table below presents our obligations and commitments to make future payments under our debt obligations and lease agreements as of December 31, 20182021 (in thousands):
|
| | | | | | | | | | | | | | | | | | | |
| Payment Due by Period |
| Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years | | Total |
Debt | $ | 97,361 |
| | $ | 399,934 |
| | $ | 1,014,126 |
| | $ | 1,050,000 |
| | $ | 2,561,421 |
|
Interest (1) | 88,965 |
| | 164,680 |
| | 116,297 |
| | 112,289 |
| | 482,231 |
|
Ground lease and other operating lease obligations | 10,309 |
| | 20,285 |
| | 20,163 |
| | 639,234 |
| | 689,991 |
|
Total | $ | 196,635 |
| | $ | 584,899 |
| | $ | 1,150,586 |
| | $ | 1,801,523 |
| | $ | 3,733,643 |
|
| | | | | | | | | |
(1) Interest on variable rate debt is calculated using the forward rates in effect at December 31, 2018 and excludes the impact of our interest rate swaps. |
For more detail regarding our adoption of Topic 842 as of January 1, 2019 see “Topic 842, Leases” subsection of the “Recently Issued Accounting Pronouncements” within Note 2 - Summary of Significant Accounting Policies in the accompanying consolidated financial statements in Part IV, Item 15. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payment Due by Period |
| Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years | | Total |
Debt | $ | — | | | $ | 200,000 | | | $ | 900,000 | | | $ | 1,950,000 | | | $ | 3,050,000 | |
Interest (1) | 83,190 | | | 170,538 | | | 158,088 | | | 161,275 | | | 573,091 | |
Ground lease and other operating lease obligations | 11,198 | | | 22,403 | | | 21,027 | | | 637,478 | | | 692,106 | |
Total | $ | 94,388 | | | $ | 392,941 | | | $ | 1,079,115 | | | $ | 2,748,753 | | | $ | 4,315,197 | |
| | | | | | | | | |
(1) Interest on variable rate debt is calculated using the forward rates in effect at December 31, 2021 and excludes the impact of our interest rate swaps. Forward rates do not contemplate the transition of LIBOR to Secured Overnight Financing Rate or other rate to be used in the calculation of interest amounts. Any differences between LIBOR and alternative rates are not deemed to be material. |
Off-Balance Sheet Arrangements
As of and during the year ended December 31, 2018,2021, we had no material off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, other than operating lease arrangements consisting primarily of ground leases which as of December 31, 20182021 were not carried on our consolidated balance sheets.
Inflation
We are exposed to inflation risk as income from future long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that protect us from the impact of normal inflation. These provisions include rent escalations, reimbursement billings for operating expense pass-through charges and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of our leases, among other factors, the leases may not reset frequently enough to cover inflation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. In pursuing our business plan, we believe the primary market risk to which we have exposure is interest rate risk.
We are exposed to the effects of interest rate changes on our variable rate debt. Interest rate changes on our fixed rate debt will generally not affect our future earnings or cash flows unless such instruments mature or are otherwise terminated. Our interest rate risk is monitored using a variety of techniques. In order to mitigate our interest rate risk, we enter into derivative financial instruments such as interest rate swaps and caps. To the extent we enter into such derivative financial instruments, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, it does not possess credit risk. It is our policy to enter into these transactions with what we believe are high quality counterparties, including those with whom we have a lending relationship. We believe the likelihood of realized losses from counterparty non-performance is remote. We manage the market risk associated with interest rate swaps or caps by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. We do not enter into derivative or interest rate transactions for speculative purposes.
The table below presents, as of December 31, 2018,2021, information about HTA's financial instruments that are sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations, the table presents principal amounts of our fixedcash flows and variable debt and therelated weighted average interest rates excluding the impact of cash flow hedges, by year of expected maturity to evaluate the expected cash flows and sensitivity todates. For interest rate changesswaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in effect as of December 31, 2021 (in thousands, except interest rates):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expected Maturity Date |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Fixed rate debt, gross | $ | 97,361 |
| | $ | 97,430 |
| | $ | 302,504 |
| | $ | 402,005 |
| | $ | 312,121 |
| | $ | 850,000 |
| | $ | 2,061,421 |
|
Weighted average interest rate on fixed rate debt (per annum) | 3.98 | % | | 3.97 | % | | 3.37 | % | | 2.95 | % | | 3.71 | % | | 3.65 | % | | 3.51 | % |
Variable rate debt, gross | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 300,000 |
| | $ | 200,000 |
| | $ | 500,000 |
|
Weighted average interest rate on variable rate debt based on forward rates in effect as of December 31, 2018 (per annum) | N/A |
| | N/A |
| | N/A |
| | N/A |
| | 3.54 | % | | 3.46 | % | | 3.51 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expected Maturity Date | | |
| 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total (1) | | Fair Value |
Fixed rate debt, gross | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 600,000 | | | $ | 1,950,000 | | | $ | 2,550,000 | | | $ | 2,616,630 | |
Weighted average interest rate on fixed rate debt (per annum) | — | % | | — | % | | — | % | | — | % | | 3.50 | % | | 2.82 | % | | 2.98 | % | | |
Variable rate debt, gross | $ | — | | | $ | — | | | $ | 200,000 | | | $ | 300,000 | | | $ | — | | | $ | — | | | $ | 500,000 | | | $ | 500,972 | |
Weighted average interest rate on variable rate debt (per annum) | — | % | | — | % | | 2.25 | % | | 2.52 | % | | — | % | | — | % | | 2.41 | % | | |
Interest Rate Swaps: | | | | | | | | | | | | | | | |
Variable to Fixed | $ | — | | | $ | 300,000 | | | $ | 200,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 500,000 | | | $ | 5,069 | |
Average pay rate | — | % | | 1.42 | % | | 1.32 | % | | — | % | | — | % | | — | % | | 1.38 | % | | |
Average receive rate | — | % | | 1.24 | % | | 1.25 | % | | — | % | | — | % | | — | % | | 1.24 | % | | |
| | | | | | | | | | | | | | | |
(1) Total for interest rate swaps represents notional amount of derivative financial instruments designated as cash flow hedges. |
As of December 31, 2018,2021, we had $2.6$3.1 billion of gross fixed and variable rate debt with interest rates ranging from 2.85%0.98% to 4.00%3.75% per annum and a weighted average interest rate of 3.53%2.67% per annum, excluding the impact of cash flow hedges. We had $2.1$2.6 billion (excluding net premium/discount and deferred financing costs) of fixed rate debt with a weighted average interest rate of 3.51%2.98% per annum and $500.0 million (excluding net premium/discount and deferred financing costs) of variable rate debt with a weighted average interest rate of 3.59%1.09% per annum as of December 31, 2018,2021, excluding the impact of cash flow hedges.
As of December 31, 2018, the fair value of our fixed rate debt was $2.0 billion and the fair value of our variable rate debt was $502.4 million based upon prevailing market rates as of December 31, 2018.
As of December 31, 2018, we had cash flow hedges outstanding that effectively fix $155.0 million of our variable rate debt. Including the impact of these cash flow hedges, the effective rate on our variable rate and total debt is 3.30% and 3.47% per annum, respectively.
In addition to changes in interest rates, the value of our future properties is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.
Item 8. Financial Statements and Supplementary Data
See the disclosure listed at Item 15 - Exhibits, Financial Statement Schedules subsections (a)(1) and (a)(2).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Healthcare Trust of America, Inc.
a) (a) Evaluation of disclosure controls and procedures. HTA’s management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including HTA’s Chief Executive Officer (as the principal executive officer) and HTA’s Chief Financial Officer (as the principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosures.
As of December 31, 2018,2021, an evaluation was conducted by HTA under the supervision and with the participation of its management, including HTA’s Chief Executive Officer and HTA’s Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, HTA’s Chief Executive Officer and HTA’s Chief Financial Officer each concluded that HTA’s disclosure controls and procedures were effective as of December 31, 2018.2021.
(b) Management’s report on internal control over financial reporting. HTA’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of HTA’s management, including its Chief Executive Officer and Chief Financial Officer, HTA conducted an evaluation of the effectiveness of its internal control over financial reporting based on the criteria in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, HTA’s Interim Chief Executive Officer and HTA’s Chief Financial Officer concluded that HTA’s internal control over financial reporting was effective as of December 31, 2018.
2021.
Our independent registered public accounting firm, Deloitte & Touche LLP, independently assessed the effectiveness of HTA’s internal control over financial reporting. Deloitte & Touche LLP has issued a report, which is included at the end of Item 9A of this Annual Report.
(c) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 20182021 that have materially affected, or are reasonably believed to be likely to materially affect, our internal control over financial reporting.
February 19, 2019March 1, 2022
Healthcare Trust of America Holdings, LP
(a) Evaluation of disclosure controls and procedures. HTALP’s management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including HTA’s Chief Executive Officer (as the principal executive officer) and HTA’sChief Financial Officer (as the principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosures.
As of December 31, 2018,2021, an evaluation was conducted by HTALP under the supervision and with the participation of its management, including HTA’s Chief Executive Officer and HTA’s Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, HTA’s Interim Chief Executive Officer and HTA’sChief Financial Officer, on behalf of HTA in its capacity as general partner of HTALP, each concluded that HTALP’s disclosure controls and procedures were effective as of December 31, 2018.2021.
(b) Management’s report on internal control over financial reporting. HTALP’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of its management, including HTA’s Chief Executive Officer and HTA’s Chief Financial Officer, HTALP conducted an evaluation of the effectiveness of its internal control over financial reporting based on the criteria in the 2013 Internal Control-Integrated Framework issued by COSO. Based on this evaluation, HTALP’s management, including HTA’s Chief Executive Officer and HTA’s Chief Financial Officer, concluded that HTALP’s internal control over financial reporting was effective as of December 31, 2018.2021.
This Annual Report does not include an attestation report of HTALP’s independent registered public accounting firm, Deloitte & Touche LLP, pursuant to rules of the SEC applicable to “non-accelerated filers.”
(c) Changes in internal control over financial reporting. There were no changes in HTALP’s internal control over financial reporting that occurred during the year ended December 31, 20182021 that have materially affected, or are reasonably believed to be likely to materially affect, HTALP’s internal control over financial reporting.
February 19, 2019March 1, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Healthcare Trust of America, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Healthcare Trust of America, Inc. and subsidiaries (the “Company”) as of December 31, 2018,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2018,2021, of the Company and our report dated February 19, 2019,March 1, 2022, expressed an unqualified opinion on those consolidated financial statements and financial statement schedules.statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that:that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 19, 2019March 1, 2022
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 will be set forth in the Proxy Statement and is incorporated herein by reference to the material under the headings “Proposal 1: Election of Directors,” “Corporate Governance,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in HTA’s definitive Proxy Statement for the 2019 Annual Meeting of Stockholders, which it will file with the SEC no later than April 30, 2019.reference.
Item 11. Executive Compensation
The information required by this Item 11 will be set forth in the Proxy Statement and is incorporated herein by reference to the material under the headings “Compensation of Directors,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Compensation of Executive Officers” in HTA’s definitive Proxy Statement for the 2019 Annual Meeting of Stockholders, which it will file with the SEC no later than April 30, 2019.reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 will be set forth in the Proxy Statement and is incorporated herein by reference to the material under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plans” in HTA’s definitive Proxy Statement for the 2019 Annual Meeting of Stockholders, which it will file with the SEC no later than April 30, 2019.reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 will be set forth in the Proxy Statement and is incorporated herein by reference to the material under the heading “Certain Relationships and Related Party Transactions” in HTA’s definitive Proxy Statement for the 2019 Annual Meeting of Stockholders, which it will file with the SEC no later than April 30, 2019.reference.
Item 14. Principal Accounting Fees and Services
The information required by this Item 14 will be set forth in the Proxy Statement and is incorporated herein by reference to the material under the heading “Relationship with Independent Registered Public Accounting Firm: Audit and Non-Audit Fees” in HTA’s definitive Proxy Statement for the 2019 Annual Meeting of Stockholders, which it will file with the SEC no later than April 30, 2019.
reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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| Page |
(a)(1) Financial Statements: | |
| | |
| Page |
(a)(1) Financial Statements:
| |
| | |
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 34) | |
| | |
| | |
Financial Statements of Healthcare Trust of America, Inc. | |
| | |
| | |
| | |
| | |
| | |
Financial Statements of Healthcare Trust of America Holdings, LP | |
| | |
| | |
| | |
| | |
| | |
Notes for Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP | |
| | |
(a)(2) Financial Statement Schedules:
|
| | | | | | | |
Financial Statement Schedules of Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP | |
| | |
| | |
All other schedules have been omitted because they are inapplicable.
(a)(3) Exhibits:
The exhibits listed on the Exhibit Index (preceding the signature section of this Annual Report) are incorporated by reference into this Annual Report.
(b) Exhibits:
See Item 15(a)(1) above.
(c) Financial Statement Schedules:
See Item 15(a)(2) above.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Healthcare Trust of America, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Healthcare Trust of America, Inc. and subsidiaries (the “Company”) as of December 31, 20182021 and 2017,2020, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2018,2021, and the related notes and the consolidated financial statement schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2019,March 1, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Recoverability of Real Estate and Real Estate Related Assets - Refer to Notes 2 and 4 to the financial statements
Critical Audit Matter Description
The Company’s real estate investments are evaluated for potential impairment whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable. Impairment losses are recorded when indicators of impairment are present and the carrying amount of the asset is greater than the sum of future undiscounted cash flows expected to be generated by that asset over the remaining expected holding period. The Company’s undiscounted future cash flows analysis and the assessment of expected remaining holding period requires management to make significant estimates and assumptions related to future occupancy levels, rental rates, lease-up periods and capitalization rates.
Changes in these assumptions could have a significant impact on the real estate assets identified for further analysis. For the year ended December 31, 2021, the Company recorded impairment charges of $22.9 million on its real estate investments.
Given the Company’s evaluation of the sum of future undiscounted cash flows expected to be generated by an asset over the remaining expected holding period when indicators of impairment are present requires management to make significant estimates and assumptions related to future occupancy levels, rental rates, and capitalization rates, performing audit procedures to evaluate the reasonableness of management’s undiscounted future cash flows analysis and assessment of expected remaining holding period required a high degree of auditor judgment and an increased extent of effort, including the need to involve our
fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of real estate assets for possible indicators of impairment included the following, among others:
•We tested the effectiveness of controls over management’s analysis for impairment indicators, including the identification of impairment indicator properties and significant estimates and assumptions used by management in preparing undiscounted future cash flows analysis for properties with impairment indicators.
•We audited management’s impairment indicator analysis by:
◦Evaluating management's process for identifying impairment indicators and whether management appropriately considered the examples of impairment indicators provided within the Financial Accounting Standards Board’s (FASB) Accounting Standard Codification (ASC) 360, Property, Plant, and Equipment.
◦Conducting independent market analysis to determine if there were additional indicators of impairment not identified by management.
◦Conducting inquiries of property management, leasing, asset management, and other departments outside of the accounting department to determine if there might be additional indicators of impairment not identified by management.
•With the assistance of our fair value specialists, we evaluated management’s undiscounted cash flow analysis for various properties that exhibited indicators of impairment by:
◦Evaluating whether the valuation method used was in accordance with ASC 820, Fair Value Measurement.
◦Evaluating the undiscounted future cash flows analysis, including estimates of future occupancy levels, rental rates, lease-up periods and capitalization rates, in addition to the assessment of expected remaining holding period for each real estate asset with possible impairment indicators by (1) evaluating the source information and assumptions used by management and (2) testing the mathematical accuracy of the undiscounted future cash flows analysis.
Investments in Real Estate - Refer to Notes 2 and 3 to the financial statements
Critical Audit Matter Description
For the year ended December 31, 2021, the Company had acquired investments in real estate with an aggregate purchase price of $308.8 million. The Company accounted for these acquisitions as asset acquisitions. Accordingly, the purchase price for assets acquired and liabilities assumed was allocated, based on relative fair value, to land, buildings and improvements, in-place leases, above or below market leases, and other intangible assets. The method for determining relative fair value varied depending on the type of asset or liability and involved management making significant estimates related to assumptions such as future cash flows, discount rates, and costs during the expected lease-up periods.
Given the relative fair value determination of assets acquired and liabilities assumed requires management to make significant estimates related to assumptions such as future cash flows, discount rates, and costs during hypothetical lease-up periods, performing audit procedures to evaluate the reasonableness of these assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the relative fair value of assets acquired and liabilities assumed for investments in real estate included the following, among others:
•We tested the effectiveness of controls over the purchase price allocation, including management’s controls over the review of purchase price allocations prepared by third party specialists.
•For properties selected for further evaluation by our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology, (2) current market data, (3) cost to replace certain assets, and (4) assumptions used in the discounted cash flows, including testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing our estimates to those used by management.
•We assessed the reasonableness of management’s projections of rental revenue by comparing the assumptions used in the projections to external market sources, in-place lease agreements, historical data, and results from other areas of the audit.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 19, 2019March 1, 2022
We have served as the Company’s auditor since 2006.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners and the Board of Directors of the General Partner of Healthcare Trust of America Holdings, LP
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Healthcare Trust of America Holdings, LP and subsidiaries (the “Company”) as of December 31, 20182021 and 2017,2020, the related consolidated statements of operations, comprehensive income, changes in partners’ capital, and cash flows, for each of the three years in the period ended December 31, 2018,2021, and the related notes and the financial statement schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Recoverability of Real Estate and Real Estate Related Assets - Refer to Notes 2 and 4 to the financial statements
Critical Audit Matter Description
The Company’s real estate investments are evaluated for potential impairment whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable. Impairment losses are recorded when indicators of impairment are present and the carrying amount of the asset is greater than the sum of future undiscounted cash flows expected to be generated by that asset over the remaining expected holding period. The Company’s undiscounted future cash flows analysis and the assessment of expected remaining holding period requires management to make significant estimates and assumptions related to future occupancy levels, rental rates, lease-up periods and capitalization rates.
Changes in these assumptions could have a significant impact on the real estate assets identified for further analysis. For the year ended December 31, 2021, the Company recorded impairment charges of $22.9 million on its real estate investments.
Given the Company’s evaluation of the sum of future undiscounted cash flows expected to be generated by an asset over the remaining expected holding period when indicators of impairment are present requires management to make significant estimates and assumptions related to future occupancy levels, rental rates, and capitalization rates, performing audit procedures to evaluate the reasonableness of management’s undiscounted future cash flows analysis and assessment of expected remaining holding period required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of real estate assets for possible indicators of impairment included the following, among others:
•We tested the effectiveness of controls over management’s analysis for impairment indicators, including the identification of impairment indicator properties and significant estimates and assumptions used by management in preparing undiscounted future cash flows analysis for properties with impairment indicators.
•We audited management’s impairment indicator analysis by:
◦Evaluating management's process for identifying impairment indicators and whether management appropriately considered the examples of impairment indicators provided within the Financial Accounting Standards Board’s (FASB) Accounting Standard Codification (ASC) 360, Property, Plant, and Equipment.
◦Conducting independent market analysis to determine if there were additional indicators of impairment not identified by management.
◦Conducting inquiries of property management, leasing, asset management, and other departments outside of the accounting department to determine if there might be additional indicators of impairment not identified by management.
•With the assistance of our fair value specialists, we evaluated management’s undiscounted cash flow analysis for various properties that exhibited indicators of impairment by:
◦Evaluating whether the valuation method used was in accordance with ASC 820, Fair Value Measurement.
◦Evaluating the undiscounted future cash flows analysis, including estimates of future occupancy levels, rental rates, lease-up periods and capitalization rates, in addition to the assessment of expected remaining holding period for each real estate asset with possible impairment indicators by (1) evaluating the source information and assumptions used by management and (2) testing the mathematical accuracy of the undiscounted future cash flows analysis.
Investments in Real Estate - Refer to Notes 2 and 3 to the financial statements
Critical Audit Matter Description
For the year ended December 31, 2021, the Company had acquired investments in real estate with an aggregate purchase price of $308.8 million. The Company accounted for these acquisitions as asset acquisitions. Accordingly, the purchase price for assets acquired and liabilities assumed was allocated based on relative fair value, to land, buildings and improvements, in-place leases, above or below market leases, and other intangible assets. The method for determining relative fair value varied depending on the type of asset or liability and involved management making significant estimates related to assumptions such as future cash flows, discount rates, and costs during the expected lease-up periods.
Given the relative fair value determination of assets acquired and liabilities assumed requires management to make significant estimates related to assumptions such as future cash flows, discount rates, and costs during hypothetical lease-up periods, performing audit procedures to evaluate the reasonableness of these assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the relative fair value of assets acquired and liabilities assumed for investments in real estate included the following, among others:
•We tested the effectiveness of controls over the purchase price allocation, including management’s controls over the review of purchase price allocations prepared by third party specialists.
•For properties selected for further evaluation by our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology, (2) current market data, (3) cost to replace certain assets, and (4) assumptions used in the discounted cash flows, including testing the mathematical accuracy of the calculation, and developing a range of independent estimates and comparing our estimates to those used by management.
•We assessed the reasonableness of management’s projections of rental revenue by comparing the assumptions used in the projections to external market sources, in-place lease agreements, historical data, and results from other areas of the audit.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 19, 2019March 1, 2022
We have served as the Company’s auditor since 2013.
HEALTHCARE TRUST OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
| | | | December 31, | | December 31, |
| | 2018 | | 2017 | | 2021 | | 2020 |
ASSETS | | | | | ASSETS | | | | |
Real estate investments: | | | | | Real estate investments: | |
Land | | $ | 481,871 |
| | $ | 485,319 |
| Land | | $ | 640,382 | | | $ | 596,269 | |
Building and improvements | | 5,787,152 |
| | 5,830,824 |
| Building and improvements | | 6,688,516 | | | 6,507,816 | |
Lease intangibles | | 599,864 |
| | 639,199 |
| Lease intangibles | | 404,714 | | | 628,621 | |
Construction in progress | | 4,903 |
| | 14,223 |
| Construction in progress | | 32,685 | | | 80,178 | |
| | 6,873,790 |
| | 6,969,565 |
| | 7,766,297 | | | 7,812,884 | |
Accumulated depreciation and amortization | | (1,208,169 | ) | | (1,021,691 | ) | Accumulated depreciation and amortization | | (1,598,468) | | | (1,702,719) | |
Real estate investments, net | | 5,665,621 |
| | 5,947,874 |
| Real estate investments, net | | 6,167,829 | | | 6,110,165 | |
Assets held for sale, net | | Assets held for sale, net | | 27,070 | | | — | |
Investment in unconsolidated joint venture | | 67,172 |
| | 68,577 |
| Investment in unconsolidated joint venture | | 62,834 | | | 64,360 | |
Cash and cash equivalents | | 126,221 |
| | 100,356 |
| Cash and cash equivalents | | 52,353 | | | 115,407 | |
Restricted cash | | 7,309 |
| | 18,204 |
| Restricted cash | | 4,716 | | | 3,358 | |
Receivables and other assets, net | | 223,415 |
| | 207,857 |
| Receivables and other assets, net | | 334,941 | | | 251,728 | |
Right-of-use assets - operating leases, net | | Right-of-use assets - operating leases, net | | 229,226 | | | 235,223 | |
Other intangibles, net | | 98,738 |
| | 106,714 |
| Other intangibles, net | | 10,720 | | | 10,451 | |
Total assets | | $ | 6,188,476 |
| | $ | 6,449,582 |
| Total assets | | $ | 6,889,689 | | | $ | 6,790,692 | |
LIABILITIES AND EQUITY | | | | | LIABILITIES AND EQUITY | | | | |
Liabilities: | | | | | Liabilities: | |
Debt | | $ | 2,541,232 |
| | $ | 2,781,031 |
| Debt | | $ | 3,028,122 | | | $ | 3,026,999 | |
Accounts payable and accrued liabilities | | 185,073 |
| | 167,852 |
| Accounts payable and accrued liabilities | | 198,078 | | | 200,358 | |
Liabilities of assets held for sale | | Liabilities of assets held for sale | | 262 | | | — | |
Derivative financial instruments - interest rate swaps | | — |
| | 1,089 |
| Derivative financial instruments - interest rate swaps | | 5,069 | | | 14,957 | |
Security deposits, prepaid rent and other liabilities | | 59,567 |
| | 61,222 |
| Security deposits, prepaid rent and other liabilities | | 86,225 | | | 82,553 | |
Lease liabilities - operating leases | | Lease liabilities - operating leases | | 196,286 | | | 198,367 | |
Intangible liabilities, net | | 61,146 |
| | 68,203 |
| Intangible liabilities, net | | 31,331 | | | 32,539 | |
Total liabilities | | 2,847,018 |
| | 3,079,397 |
| Total liabilities | | 3,545,373 | | | 3,555,773 | |
Commitments and contingencies | |
| |
| Commitments and contingencies | | 0 | | 0 |
Redeemable noncontrolling interests | | 6,544 |
| | 6,737 |
| |
Redeemable non-controlling interests | | Redeemable non-controlling interests | | — | | | — | |
Equity: | | | | | Equity: | |
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding | | — |
| | — |
| 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; 205,267,349 and 204,892,118 shares issued and outstanding as of December 31, 2018 and 2017, respectively | | 2,053 |
| | 2,049 |
| |
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 228,879,846 and 218,578,012 shares issued and outstanding as of December 31, 2021 and 2020, respectively | | Common stock, $0.01 par value; 1,000,000,000 shares authorized; 228,879,846 and 218,578,012 shares issued and outstanding as of December 31, 2021 and 2020, respectively | | 2,289 | | | 2,186 | |
Additional paid-in capital | | 4,525,969 |
| | 4,508,528 |
| Additional paid-in capital | | 5,178,132 | | | 4,916,784 | |
Accumulated other comprehensive income | | 307 |
| | 274 |
| |
Accumulated other comprehensive loss | | Accumulated other comprehensive loss | | (7,041) | | | (16,979) | |
Cumulative dividends in excess of earnings | | (1,272,305 | ) | | (1,232,069 | ) | Cumulative dividends in excess of earnings | | (1,915,776) | | | (1,727,752) | |
Total stockholders’ equity | | 3,256,024 |
| | 3,278,782 |
| Total stockholders’ equity | | 3,257,604 | | | 3,174,239 | |
Noncontrolling interests | | 78,890 |
| | 84,666 |
| |
Non-controlling interests | | Non-controlling interests | | 86,712 | | | 60,680 | |
Total equity | | 3,334,914 |
| | 3,363,448 |
| Total equity | | 3,344,316 | | | 3,234,919 | |
Total liabilities and equity | | $ | 6,188,476 |
| | $ | 6,449,582 |
| Total liabilities and equity | | $ | 6,889,689 | | | $ | 6,790,692 | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
| | | Year Ended December 31, | | Year Ended December 31, |
| 2018 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 |
Revenues: | | | | | | Revenues: | | | | | |
Rental income | $ | 696,030 |
| | $ | 612,556 |
| | $ | 460,563 |
| Rental income | $ | 763,923 | | | $ | 738,414 | | | $ | 691,527 | |
Interest and other operating income | 396 |
| | 1,434 |
| | 365 |
| Interest and other operating income | 3,150 | | | 551 | | | 513 | |
Total revenues | 696,426 |
|
| 613,990 |
| | 460,928 |
| Total revenues | 767,073 | | | 738,965 | | | 692,040 | |
Expenses: | | | | | | Expenses: | |
Rental | 220,617 |
| | 192,147 |
| | 143,751 |
| Rental | 236,850 | | | 226,859 | | | 211,479 | |
General and administrative | 35,196 |
| | 33,403 |
| | 28,773 |
| General and administrative | 49,744 | | | 42,969 | | | 41,360 | |
Transaction | 1,003 |
| | 5,885 |
| | 6,538 |
| Transaction | 372 | | | 965 | | | 2,350 | |
Depreciation and amortization | 279,630 |
| | 244,986 |
| | 176,866 |
| Depreciation and amortization | 303,834 | | | 303,828 | | | 290,384 | |
Interest expense | | Interest expense | 92,762 | | | 94,613 | | | 96,632 | |
Impairment | 8,887 |
| | 13,922 |
| | 3,080 |
| Impairment | 22,938 | | | — | | | — | |
Total expenses | 545,333 |
| | 490,343 |
| | 359,008 |
| Total expenses | 706,500 | | | 669,234 | | | 642,205 | |
Interest income (expense): | | | | | | |
Interest related to derivative financial instruments | 694 |
| | (1,031 | ) | | (2,377 | ) | |
Gain on change in fair value of derivative financial instruments, net | — |
| | 884 |
| | 1,344 |
| |
Total interest related to derivative financial instruments, including net change in fair value of derivative financial instruments | 694 |
| | (147 | ) | | (1,033 | ) | |
Interest related to debt | (102,543 | ) | | (85,344 | ) | | (59,769 | ) | |
Gain on sale of real estate, net | 165,977 |
| | 37,802 |
| | 8,966 |
| |
Gain (loss) on extinguishment of debt, net | 242 |
| | (11,192 | ) | | (3,025 | ) | |
Gain (loss) on sale of real estate, net | | Gain (loss) on sale of real estate, net | 39,228 | | | 9,590 | | | (154) | |
Loss on sale of corporate asset, net | | Loss on sale of corporate asset, net | (2,106) | | | — | | | — | |
Loss on extinguishment of debt, net | | Loss on extinguishment of debt, net | — | | | (27,726) | | | (21,646) | |
Income from unconsolidated joint venture | 1,735 |
| | 782 |
| | — |
| Income from unconsolidated joint venture | 1,604 | | | 1,612 | | | 1,882 | |
Other income | 428 |
| | 29 |
| | 286 |
| Other income | 485 | | | 301 | | | 841 | |
Net income | $ | 217,626 |
| | $ | 65,577 |
| | $ | 47,345 |
| Net income | $ | 99,784 | | | $ | 53,508 | | | $ | 30,758 | |
Net income attributable to noncontrolling interests (1) | (4,163 | ) | | (1,661 | ) | | (1,433 | ) | |
Net income attributable to non-controlling interests (1) | | Net income attributable to non-controlling interests (1) | (1,768) | | | (890) | | | (604) | |
Net income attributable to common stockholders | $ | 213,463 |
| | $ | 63,916 |
| | $ | 45,912 |
| Net income attributable to common stockholders | $ | 98,016 | | | $ | 52,618 | | | $ | 30,154 | |
Earnings per common share - basic: | | | | | | Earnings per common share - basic: | | | | | |
Net income attributable to common stockholders | $ | 1.04 |
| | $ | 0.35 |
| | $ | 0.34 |
| Net income attributable to common stockholders | $ | 0.45 | | | $ | 0.24 | | | $ | 0.15 | |
Earnings per common share - diluted: | | | | | | Earnings per common share - diluted: | | | | | |
Net income attributable to common stockholders | $ | 1.02 |
| | $ | 0.34 |
| | $ | 0.33 |
| Net income attributable to common stockholders | $ | 0.44 | | | $ | 0.24 | | | $ | 0.14 | |
Weighted average common shares outstanding: | | | | | | Weighted average common shares outstanding: | | | | | |
Basic | 206,065 |
| | 181,064 |
| | 136,620 |
| Basic | 219,439 | | | 218,078 | | | 205,720 | |
Diluted | 210,061 |
| | 185,278 |
| | 140,259 |
| Diluted | 224,215 | | | 221,666 | | | 209,605 | |
| | | | | | | | | | | |
(1) Includes amounts attributable to redeemable noncontrolling interests. | |
(1) Includes amounts attributable to redeemable non-controlling interests for 2019. | | (1) Includes amounts attributable to redeemable non-controlling interests for 2019. |
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
| | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | | | | | |
Net income | | $ | 217,626 |
| | $ | 65,577 |
| | $ | 47,345 |
|
| | | | | | |
Other comprehensive income | | | | | | |
Change in unrealized gains on cash flow hedges | | 34 |
| | 280 |
| | — |
|
Total other comprehensive income | | 34 |
| | 280 |
| | — |
|
| | | | | | |
Total comprehensive income | | 217,660 |
| | 65,857 |
| | 47,345 |
|
Comprehensive income attributable to noncontrolling interests | | (4,075 | ) | | (1,544 | ) | | (1,315 | ) |
Total comprehensive income attributable to common stockholders | | $ | 213,585 |
| | $ | 64,313 |
| | $ | 46,030 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | | | | | |
Net income | | $ | 99,784 | | | $ | 53,508 | | | $ | 30,758 | |
| | | | | | |
Other comprehensive income (loss) | | | | | | |
Change in unrealized gains (losses) on cash flow hedges | | 10,114 | | | (21,876) | | | 4,316 | |
Total other comprehensive (loss) income | | 10,114 | | | (21,876) | | | 4,316 | |
| | | | | | |
Total comprehensive income | | 109,898 | | | 31,632 | | | 35,074 | |
Comprehensive income attributable to non-controlling interests | | (1,944) | | | (539) | | | (615) | |
Total comprehensive income attributable to common stockholders | | $ | 107,954 | | | $ | 31,093 | | | $ | 34,459 | |
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Cumulative Dividends in Excess of Earnings | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount |
Balance as of December 31, 2015 | 127,027 |
| | $ | 1,270 |
| | $ | 2,328,806 |
| | $ | — |
| | $ | (950,652 | ) | | $ | 1,379,424 |
| | $ | 27,534 |
| | $ | 1,406,958 |
|
Issuance of common stock in HTA | 14,138 |
| | 141 |
| | 417,022 |
| | — |
| | — |
| | 417,163 |
| | — |
| | 417,163 |
|
Issuance of operating partnership units in HTALP in connection with an acquisition | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 74,460 |
| | 74,460 |
|
Share-based award transactions, net | 391 |
| | 4 |
| | 7,067 |
| | — |
| | — |
| | 7,071 |
| | — |
| | 7,071 |
|
Repurchase and cancellation of common stock | (94 | ) | | (1 | ) | | (2,641 | ) | | — |
| | — |
| | (2,642 | ) | | — |
| | (2,642 | ) |
Redemption of noncontrolling interest and other | 257 |
| | 3 |
| | 4,564 |
| | — |
| | — |
| | 4,567 |
| | (5,709 | ) | | (1,142 | ) |
Dividends declared ($1.190 per common share) | — |
| | — |
| | — |
| | — |
| | (164,221 | ) | | (164,221 | ) | | (4,457 | ) | | (168,678 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 45,912 |
| | 45,912 |
| | 1,315 |
| | 47,227 |
|
Balance as of December 31, 2016 | 141,719 |
| | 1,417 |
| | 2,754,818 |
| | — |
| | (1,068,961 | ) | | 1,687,274 |
| | 93,143 |
| | 1,780,417 |
|
Issuance of common stock in HTA | 62,823 |
| | 628 |
| | 1,746,328 |
| | — |
| | — |
| | 1,746,956 |
| | — |
| | 1,746,956 |
|
Issuance of operating partnership units in HTALP in connection with an acquisition | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,125 |
| | 1,125 |
|
Share-based award transactions, net | 230 |
| | 3 |
| | 6,867 |
| | — |
| | — |
| | 6,870 |
| | — |
| | 6,870 |
|
Repurchase and cancellation of common stock | (116 | ) | | (1 | ) | | (3,412 | ) | | — |
| | — |
| | (3,413 | ) | | — |
| | (3,413 | ) |
Redemption of noncontrolling interest and other | 236 |
| | 2 |
| | 3,927 |
| | — |
| | — |
| | 3,929 |
| | (5,943 | ) | | (2,014 | ) |
Dividends declared ($1.210 per common share) | — |
| | — |
| | — |
| | — |
| | (227,024 | ) | | (227,024 | ) | | (5,203 | ) | | (232,227 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 63,916 |
| | 63,916 |
| | 1,538 |
| | 65,454 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 274 |
| | — |
| | 274 |
| | 6 |
| | 280 |
|
Balance as of December 31, 2017 | 204,892 |
| | 2,049 |
| | 4,508,528 |
| | 274 |
| | (1,232,069 | ) | | 3,278,782 |
| | 84,666 |
| | 3,363,448 |
|
Issuance of common stock in HTA | 2,550 |
| | 25 |
| | 72,789 |
| | — |
| | — |
| | 72,814 |
| | — |
| | 72,814 |
|
Share-based award transactions, net | 308 |
| | 4 |
| | 9,751 |
| | — |
| | — |
| | 9,755 |
| | 411 |
| | 10,166 |
|
Repurchase and cancellation of common stock | (2,678 | ) | | (27 | ) | | (70,292 | ) | | — |
| | — |
| | (70,319 | ) | | — |
| | (70,319 | ) |
Redemption of noncontrolling interest and other | 195 |
| | 2 |
| | 5,193 |
| | — |
| | — |
| | 5,195 |
| | (5,195 | ) | | — |
|
Dividends declared ($1.230 per common share) | — |
| | — |
| | — |
| | — |
| | (253,699 | ) | | (253,699 | ) | | (5,067 | ) | | (258,766 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 213,463 |
| | 213,463 |
| | 4,074 |
| | 217,537 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 33 |
| | — |
| | 33 |
| | 1 |
| | 34 |
|
Balance as of December 31, 2018 | 205,267 |
| | $ | 2,053 |
| | $ | 4,525,969 |
| | $ | 307 |
| | $ | (1,272,305 | ) | | $ | 3,256,024 |
| | $ | 78,890 |
| | $ | 3,334,914 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Cumulative Dividends in Excess of Earnings | | Total Stockholders’ Equity | | Non-controlling Interests | | Total Equity |
| Shares | | Amount |
Balance as of December 31, 2018 | 205,267 | | | $ | 2,053 | | | $ | 4,525,969 | | | $ | 307 | | | $ | (1,272,305) | | | $ | 3,256,024 | | | $ | 78,890 | | | $ | 3,334,914 | |
Issuance of common stock, net | 11,096 | | | 112 | | | 322,106 | | | — | | | — | | | 322,218 | | | — | | | 322,218 | |
Issuance of OP Units in HTALP | | | | | | | | | | | | | 2,603 | | | 2,603 | |
Issuance of limited partner OP Units in connection with acquisitions | — | | | — | | | — | | | — | | | — | | | — | | | 2,000 | | | 2,000 | |
Share-based award transactions, net | 319 | | | 3 | | | 10,124 | | | — | | | — | | | 10,127 | | | — | | | 10,127 | |
Repurchase and cancellation of common stock | (487) | | | (5) | | | (12,173) | | | — | | | — | | | (12,178) | | | — | | | (12,178) | |
Redemption of non-controlling interest and other | 258 | | | 2 | | | 8,016 | | | — | | | — | | | 8,018 | | | (6,293) | | | 1,725 | |
Dividends declared ($1.250 per common share) | — | | | — | | | — | | | — | | | (260,593) | | | (260,593) | | | (5,180) | | | (265,773) | |
Net income | — | | | — | | | — | | | — | | | 30,154 | | | 30,154 | | | 538 | | | 30,692 | |
Other comprehensive income | — | | | — | | | — | | | 4,239 | | | | | 4,239 | | | 77 | | | 4,316 | |
Balance as of December 31, 2019 | 216,453 | | | 2,165 | | | 4,854,042 | | | 4,546 | | | (1,502,744) | | | 3,358,009 | | | 72,635 | | | 3,430,644 | |
Issuance of common stock, net | 1,675 | | | 17 | | | 50,003 | | | — | | | — | | | 50,020 | | | — | | | 50,020 | |
Issuance of OP Units in HTALP | — | | | — | | | — | | | — | | | — | | | — | | | 1,378 | | | 1,378 | |
Share-based award transactions, net | 263 | | | 3 | | | 8,913 | | | — | | | — | | | 8,916 | | | — | | | 8,916 | |
Repurchase and cancellation of common stock | (174) | | | (2) | | | (5,190) | | | — | | | — | | | (5,192) | | | — | | | (5,192) | |
Redemption of non-controlling interest and other | 361 | | | 3 | | | 9,016 | | | — | | | — | | | 9,019 | | | (9,019) | | | — | |
Dividends declared ($1.270 per common share) | — | | | — | | | — | | | — | | | (277,626) | | | (277,626) | | | (4,853) | | | (282,479) | |
Net income | — | | | — | | | — | | | — | | | 52,618 | | | 52,618 | | | 890 | | | 53,508 | |
Other comprehensive loss | — | | | — | | | — | | | (21,525) | | | — | | | (21,525) | | | (351) | | | (21,876) | |
Balance as of December 31, 2020 | 218,578 | | | 2,186 | | | 4,916,784 | | | (16,979) | | | (1,727,752) | | | 3,174,239 | | | 60,680 | | | 3,234,919 | |
Issuance of common stock, net | 9,419 | | | 94 | | | 251,156 | | | — | | | — | | | 251,250 | | | — | | | 251,250 | |
Issuance of OP Units in HTALP | — | | | — | | | — | | | — | | | — | | | — | | | 35,785 | | | 35,785 | |
Share-based award transactions, net | 391 | | | 4 | | | 7,258 | | | — | | | — | | | 7,262 | | | — | | | 7,262 | |
Repurchase and cancellation of common stock | (125) | | | (1) | | | (3,413) | | | — | | | — | | | (3,414) | | | — | | | (3,414) | |
Redemption of non-controlling interest and other | 617 | | | 6 | | | 6,347 | | | — | | | — | | | 6,353 | | | (6,353) | | | — | |
Dividends declared ($1.290 per common share) | — | | | — | | | — | | | — | | | (286,040) | | | (286,040) | | | (5,344) | | | (291,384) | |
Net income | — | | | — | | | — | | | — | | | 98,016 | | | 98,016 | | | 1,768 | | | 99,784 | |
Other comprehensive income | — | | | — | | | — | | | 9,938 | | | — | | | 9,938 | | | 176 | | | 10,114 | |
Balance as of December 31, 2021 | 228,880 | | | $ | 2,289 | | | $ | 5,178,132 | | | $ | (7,041) | | | $ | (1,915,776) | | | $ | 3,257,604 | | | $ | 86,712 | | | $ | 3,344,316 | |
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2018 | | 2017 | | 2016 |
Cash flows from operating activities: | | | | | |
Net income | $ | 217,626 |
| | $ | 65,577 |
| | $ | 47,345 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 271,441 |
| | 239,044 |
| | 175,285 |
|
Share-based compensation expense | 9,755 |
| | 6,870 |
| | 7,071 |
|
Impairment | 8,887 |
| | 13,922 |
| | 3,080 |
|
Income from unconsolidated joint venture | (1,735 | ) | | (782 | ) | | — |
|
Distributions from unconsolidated joint venture | 2,665 |
| | 750 |
| | — |
|
Gain on sale of real estate, net | (165,977 | ) | | (37,802 | ) | | (8,966 | ) |
(Gain) loss on extinguishment of debt, net | (242 | ) | | 11,192 |
| | 3,025 |
|
Change in fair value of derivative financial instruments | — |
| | (884 | ) | | (1,344 | ) |
Changes in operating assets and liabilities: | | | | | |
Receivables and other assets, net | (17,558 | ) | | (33,295 | ) | | (21,234 | ) |
Accounts payable and accrued liabilities | 9,478 |
| | 37,406 |
| | 2,171 |
|
Prepaid rent and other liabilities | 3,056 |
| | 5,545 |
| | (2,738 | ) |
Net cash provided by operating activities | 337,396 |
| | 307,543 |
| | 203,695 |
|
Cash flows from investing activities: | | | | | |
Investments in real estate | (17,389 | ) | | (2,383,581 | ) | | (591,954 | ) |
Investment in unconsolidated joint venture | — |
| | (68,839 | ) | | — |
|
Development of real estate | (34,270 | ) | | (25,191 | ) | | — |
|
Proceeds from the sale of real estate | 305,135 |
| | 80,640 |
| | 26,555 |
|
Capital expenditures | (77,870 | ) | | (64,833 | ) | | (42,994 | ) |
Collection of real estate notes receivable | 703 |
| | 9,964 |
| | — |
|
Advances on real estate notes receivable | — |
| | (3,256 | ) | | — |
|
Net cash provided by (used in) investing activities | 176,309 |
| | (2,455,096 | ) | | (608,393 | ) |
Cash flows from financing activities: | | | | | |
Borrowings on unsecured revolving credit facility | 145,000 |
| | 570,000 |
| | 574,000 |
|
Payments on unsecured revolving credit facility | (145,000 | ) | | (658,000 | ) | | (704,000 | ) |
Proceeds from unsecured senior notes | — |
| | 900,000 |
| | 347,725 |
|
Borrowings on unsecured term loans | — |
| | — |
| | 200,000 |
|
Payments on unsecured term loans | — |
| | — |
| | (155,000 | ) |
Payments on secured mortgage loans | (241,021 | ) | | (77,024 | ) | | (110,935 | ) |
Deferred financing costs | (782 | ) | | (16,904 | ) | | (3,191 | ) |
Debt extinguishment costs | (1,909 | ) | | (10,571 | ) | | — |
|
Security deposits | — |
| | 2,419 |
| | 924 |
|
Proceeds from issuance of common stock | 72,814 |
| | 1,746,956 |
| | 418,891 |
|
Issuance of OP Units | 411 |
| | — |
| | 2,706 |
|
Repurchase and cancellation of common stock | (70,319 | ) | | (3,413 | ) | | (2,642 | ) |
Dividends paid | (252,651 | ) | | (207,087 | ) | | (159,174 | ) |
Distributions paid to noncontrolling interest of limited partners | (5,278 | ) | | (5,308 | ) | | (3,951 | ) |
Redemption of redeemable noncontrolling interest | — |
| | — |
| | (4,572 | ) |
Net cash (used in) provided by financing activities | (498,735 | ) | | 2,241,068 |
| | 400,781 |
|
Net change in cash, cash equivalents and restricted cash | 14,970 |
| | 93,515 |
| | (3,917 | ) |
Cash, cash equivalents and restricted cash - beginning of year | 118,560 |
| | 25,045 |
| | 28,962 |
|
Cash, cash equivalents and restricted cash - end of year | $ | 133,530 |
| | $ | 118,560 |
| | $ | 25,045 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
Cash flows from operating activities: | | | | | |
Net income | $ | 99,784 | | | $ | 53,508 | | | $ | 30,758 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | 283,300 | | | 283,039 | | | 280,969 | |
Share-based compensation expense | 7,262 | | | 8,916 | | | 10,127 | |
Impairment | 22,938 | | | — | | | — | |
Income from unconsolidated joint venture | (1,604) | | | (1,612) | | | (1,882) | |
Distributions from unconsolidated joint venture | 3,130 | | | 3,240 | | | 3,030 | |
(Gain) loss on sale of real estate, net | (39,228) | | | (9,590) | | | 154 | |
Loss on sale of corporate asset, net | 2,106 | | | — | | | — | |
Loss on extinguishment of debt, net | — | | | 27,726 | | | 21,646 | |
| | | | | |
Changes in operating assets and liabilities: | | | | | |
Receivables and other assets, net | (4,699) | | | (11,042) | | | (12,857) | |
Accounts payable and accrued liabilities | 9,430 | | | 2,066 | | | (128) | |
Prepaid rent and other liabilities | 3,197 | | | 31,711 | | | 8,577 | |
Net cash provided by operating activities | 385,616 | | | 387,962 | | | 340,394 | |
Cash flows from investing activities: | | | | | |
Investments in real estate | (264,340) | | | (185,286) | | | (553,298) | |
| | | | | |
Development of real estate | (63,306) | | | (77,077) | | | (28,066) | |
Proceeds from the sale of real estate | 87,628 | | | 22,939 | | | 4,880 | |
Proceeds from the sale of corporate assets | 10,127 | | | — | | | — | |
Capital expenditures | (97,155) | | | (74,743) | | | (91,544) | |
Other investment | (6,000) | | | — | | | — | |
Collection of real estate notes receivable | 15,405 | | | 907 | | | 739 | |
Advances on real estate notes receivable | (82,214) | | | (6,000) | | | — | |
Net cash used in investing activities | (399,855) | | | (319,260) | | | (667,289) | |
Cash flows from financing activities: | | | | | |
Borrowings on unsecured revolving credit facility | 310,000 | | | 1,329,862 | | | 610,000 | |
Payments on unsecured revolving credit facility | (310,000) | | | (1,429,862) | | | (510,000) | |
Proceeds from unsecured senior notes | — | | | 793,568 | | | 906,927 | |
Payments on unsecured senior notes | — | | | (300,000) | | | (700,000) | |
Payments on secured mortgage loans | — | | | (114,060) | | | (97,361) | |
Deferred financing costs | (8,053) | | | (6,800) | | | (7,776) | |
Debt extinguishment costs | — | | | (25,939) | | | (18,383) | |
| | | | | |
Proceeds from issuance of common stock | 251,250 | | | 50,020 | | | 323,393 | |
Issuance of OP Units | — | | | 1,378 | | | — | |
Repurchase and cancellation of common stock | (3,414) | | | (5,192) | | | (12,178) | |
Dividends paid | (281,820) | | | (275,816) | | | (256,117) | |
Distributions paid to non-controlling interest of limited partners | (5,420) | | | (4,712) | | | (8,758) | |
Sale of non-controlling interest | — | | | — | | | 1,234 | |
Net cash (used in) provided by financing activities | (47,457) | | | 12,447 | | | 230,981 | |
Net change in cash, cash equivalents and restricted cash | (61,696) | | | 81,149 | | | (95,914) | |
Cash, cash equivalents and restricted cash - beginning of year | 118,765 | | | 37,616 | | | 133,530 | |
Cash, cash equivalents and restricted cash - end of year | $ | 57,069 | | | $ | 118,765 | | | $ | 37,616 | |
The accompanying notes are an integral part of these consolidated financial statements.