NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unless otherwise indicated or unless the context requires otherwise the use of the words “we,” “us” or “our” refers to Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP, collectively.
1. Organization and Description of Business
HTA, a Maryland corporation, and
HTALP
, a Delaware limited partnership, were incorporated or formed, as applicable, on
April 20, 2006
. HTA operates as a REIT and is the general partner of
HTALP
, which is the operating partnership, in an umbrella partnership, or “UPREIT” structure. HTA has qualified and intends to continue to be taxed as a REIT for federal income tax purposes under the applicable sections of the Internal Revenue Code.
We own real estate primarily consisting of medical office buildings (“MOBs”) located on or adjacent to hospital campuses or in off-campus, community core outpatient locations across
33
states within the United States, and we lease space to tenants primarily consisting of health systems, research and academic institutions, and various sized physician practices. We generate substantially all of our revenues from rents and rental-related activities, such as property and facilities management and other incidental revenues related to the operation of real estate.
Our primary objective is to maximize stockholder value with 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 we expect to enhance our existing portfolio.
2. Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding our condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the U.S. (“GAAP”) in all material respects and have been consistently applied in preparing our accompanying condensed consolidated financial statements.
Basis of Presentation
Our accompanying condensed consolidated financial statements include our accounts and those of our subsidiaries and any consolidated variable interest entities (“VIEs”). All inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our opinion, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such results may be less favorable for the full year. Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our
2017
Annual Report on Form 10-K.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Principles of Consolidation
The condensed consolidated financial statements include the accounts of our subsidiaries and consolidated joint venture arrangements. The portions of the HTALP operating partnership not owned by us are presented as non-controlling interests in our consolidated balance sheets and statements of operations, consolidated statements of comprehensive income or loss, consolidated statements of equity, and consolidated statements of changes in partners’ capital. The portions of other joint venture arrangements not owned by us are presented as redeemable non-controlling interests on the accompanying condensed consolidated balance sheets. In addition, as described in
Note 1 - Organization and Description of Business
, certain third parties have been issued OP Units in HTALP. Holders of OP Units are considered to be noncontrolling interest holders in HTALP and their ownership interests are reflected as equity on the accompanying condensed consolidated balance sheets. Further, a portion of the earnings and losses of HTALP are allocated to noncontrolling interest holders based on their respective ownership percentages. Upon conversion of OP Units to common stock, any difference between the fair value of the common stock issued and the carrying value of the OP Units converted to common stock is recorded as a component of equity. As of
June 30, 2018
and
December 31, 2017
, there were approximately
3.9 million
and
4.1 million
, respectively, of OP Units issued and outstanding.
VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following: (i) the power to direct the activities that most significantly impact the entity’s economic performance; (ii) the obligation to absorb the expected losses of the entity; and (iii) the right to receive the expected returns of the entity. We consolidate our investment in VIEs when we determine that we are the primary beneficiary. A primary beneficiary is one that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. The HTALP operating partnership and our other joint venture arrangements are VIEs because the limited partners in those partnerships, although entitled to vote on certain matters, do not possess kick-out rights or substantive participating rights. Additionally, we determined that we are the primary beneficiary of our VIEs. Accordingly, we consolidate our interests in the HTALP operating partnership and in our other joint venture arrangements. However, because we hold what is deemed a majority voting interest in the HTALP operating partnership and our other joint venture arrangements, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs. We will evaluate on an ongoing basis the need to consolidate entities based on the standards set forth in GAAP as described above.
Reclassification
In November 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-18 Statement of Cash Flows: Restricted Cash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in cash, cash equivalents and restricted cash and restricted cash equivalents. Therefore, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the accompanying condensed consolidated statements of cash flows. We adopted ASU 2016-18 in the fourth quarter of 2017, as set forth in our 2017 Annual Report on Form 10-K as of January1, 2017, and as a result of the adoption, the guidance requires retrospective adoption for all periods presented. The following table represents the previously reported balances and the reclassified balances for the impacted items for the
six months ended June 30, 2017
in the accompanying condensed consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
As Previously Reported
|
|
As Reclassified
|
Cash flows from investing activities:
|
|
|
|
Other assets
(1)
|
$
|
(19,362
|
)
|
|
$
|
—
|
|
Net cash used in investing activities
|
(2,312,640
|
)
|
|
(2,293,278
|
)
|
|
|
|
|
Net change in cash, cash equivalents and restricted cash
(2)
|
$
|
80,213
|
|
|
$
|
99,575
|
|
Cash, cash equivalents and restricted cash - beginning of period
(2)
|
11,231
|
|
|
25,045
|
|
Cash, cash equivalents and restricted cash - end of period
(2)
|
$
|
91,444
|
|
|
$
|
124,620
|
|
|
|
|
|
(1) Prior to adoption of ASU 2016-18, the line item description was “Restricted cash, escrow deposits and other assets”.
|
(2) With the adoption of ASU 2016-18, the line item description now includes restricted cash.
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Assets Held for Sale
We consider properties as held for sale once management commits to a plan to sell the property and has determined that the sale is probable and expected to occur within one year. Upon designation as held for sale, we record the property at the lower of its carrying amount or fair value, less costs to sell, and cease depreciation and amortization. Assets and liabilities of properties sold or classified as held for sale are separately identified on our condensed consolidated balance sheets. See
Note 4 - Assets Held for Sale
for more detail on assets held for sale.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased. Restricted cash is comprised of reserve accounts for property taxes, insurance, capital improvements and tenant improvements as well as collateral accounts for debt and interest rate swaps and deposits for future investments.
With our adoption of ASU 2016-18 in the fourth quarter of 2017, as set forth in our 2017 Annual Report on Form 10-K as of January 1, 2017, the following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying condensed consolidated balance sheets to the combined amounts shown on the accompanying condensed consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2018
|
|
2017
|
Cash and cash equivalents
|
$
|
26,191
|
|
|
$
|
91,444
|
|
Restricted cash
|
13,414
|
|
|
33,176
|
|
Total cash, cash equivalents and restricted cash
|
$
|
39,605
|
|
|
$
|
124,620
|
|
Revenue Recognition
Minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between rental income recognized and amounts contractually due under the lease agreements are recorded as straight-line rent receivables. Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for real estate taxes, common area maintenance and other certain operating expenses are recognized as revenue on a gross basis in the period in which the related recoverable expenses are incurred. We accrue revenue corresponding to these expenses on a quarterly basis to adjust recorded amounts to our best estimate of the final annual amounts to be billed. Subsequent to year-end, on a calendar year basis, we perform reconciliations on a lease-by-lease basis and bill or credit each tenant for any differences between the estimated expenses we billed and the actual expenses that were incurred. We recognize lease termination fees when there is a signed termination letter agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. Rental income is reported net of amortization of inducements.
Effective January 1, 2018, with the adoption of Topic 606 and corresponding amendments, the revenue recognition process will be based on a five-step model to account for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. Topic 606 requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We have identified all of our revenue streams and we have concluded that rental income from leasing arrangements represents a substantial portion of our revenue and, therefore, is specifically excluded from Topic 606 and will be governed and evaluated with the anticipated adoption of Topic 842. The other revenue stream identified as impacting Topic 606 is concentrated in the recognition of real estate sales and this component does not have a material impact on our financial statements. For more detailed information on Topic 606 see “Recently Issued or Adopted Accounting Pronouncements” below.
Investments in Real Estate
Depreciation expense of buildings and improvements for the
three months ended June 30, 2018
and
2017
was
$50.6 million
and
$39.0 million
, respectively. Depreciation expense of buildings and improvements for the
six months ended June 30, 2018
and
2017
, was
$101.3 million
and
$71.7 million
, respectively.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Unconsolidated Joint Ventures
We account for our investments in unconsolidated joint ventures using the equity method of accounting because we have the ability to exercise significant influence, but not control, over the financial and operational policy decisions of the investments. Using the equity method of accounting, the initial investment is recognized at cost and subsequently adjusted for our share of the net income or loss and any distributions from the joint venture.
As of June 30, 2018
, we had a
50%
interest in one such investment with a carrying value and maximum exposure to risk of
$67.9 million
, which is recorded in investment in unconsolidated joint venture in the accompanying condensed consolidated balance sheets. We record our share of net income (loss) in income (loss) from unconsolidated joint venture in the accompanying condensed consolidated statements of operations. For the
three and six months ended June 30, 2018
, we recognized income of
$0.4 million
and
$1.0 million
from our unconsolidated joint venture, respectively. Our unconsolidated joint venture was acquired during the second quarter of
2017
and for the
three months ended June 30, 2017
we recognized income of
$63,000
.
Recently Issued or Adopted Accounting Pronouncements
The following table provides a brief description of recently adopted accounting pronouncements:
|
|
|
|
|
|
|
|
Accounting Pronouncement
|
|
Description
|
|
Effective Date
|
|
Effect on financial statements
|
Topic 606; collectively, ASU 2014-09, 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-05, ASU 2017-10, ASU 2017-13 and ASU 2017-14
Revenue from Contracts with Customers
(Issued May 2014, August 2015, March 2016, April 2016, May 2016, December 2016, February 2017, May 2017, September 2017 and November 2017)
|
|
In May 2014, the FASB issued Topic 606. The objective of Topic 606 is to establish a comprehensive new five-step model requiring a company to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (i.e., payment) to which the company expects to be entitled in exchange for those goods or services. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to Topic 606. Topic 606 does not apply to revenue from lease contracts until the adoption of the new leases standard in ASU 2016-02, in January 2019.
ASU 2017-05 applies to all nonfinancial assets (including real estate) for which the counterparty is not a customer and requires an entity to derecognize a nonfinancial asset in a partial sale transaction when it ceases to have a controlling financial interest in the asset and has transferred control of the asset. Once an entity transfers control of the nonfinancial asset, the entity is required to measure any noncontrolling interest it receives or retains at fair value. Under the current guidance, a partial sale is recognized and carryover basis is used for the retained interest resulting in only partial gain recognition by the entity, however, the new guidance eliminates the use of carryover basis and generally requires the full gain to be recognized.
In adopting Topic 606, companies may use either a full retrospective or a modified retrospective approach.
|
|
Topic 606 is effective for fiscal years beginning after December 15, 2017 along with the right of early adoption as of the original effective date.
|
|
We adopted Topic 606 effective January 1, 2018 to all open contracts using the modified retrospective approach.
As part of the adoption, we identified all revenue streams and concluded that revenues from leasing arrangements represented substantially all of our revenue and is generally excluded from the scope of Topic 606. Rather, rental revenue, including any executory type costs, will be governed and evaluated with the adoption of Topic 842 as described below. In addition, under Topic 606, revenue recognition for real estate sales will be substantially based on a principles-based approach to determine whether there has been transfer of control versus continuing involvement under the current guidance. There have not been, nor do we anticipate, any reclassifications or material impacts on our consolidated financial statements as a result of this adoption.
|
ASU 2017-09
Compensation - Stock Compensation (Topic 718): Clarifying the Scope of Modification
(Issued May 2017)
|
|
ASU 2017-09 amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms and conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718.
|
|
ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted.
|
|
We adopted ASU 2017-09 as of January 1, 2018. There have not been, nor do we anticipate, any reclassifications or material impacts on our consolidated financial statements as a result of this adoption.
|
ASU 2017-12
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
(Issued August 2017)
|
|
ASU 2017-12 expands and refines hedge accounting for both financial (e.g., interest rate) and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness.
|
|
ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted.
|
|
We adopted ASU 2017-12 as of January 1, 2018. Using the modified retrospective approach, the cumulative effect of the ineffective
ness for the year ended December 31, 2017 was immaterial; therefore, no adjustment was made to beginning retained earnings.
Additionally, as a result of the adoption, we no longer disclose the ineffective portion of the change in fair value of our derivative financial instruments. The entire change in the fair value of the hedging instruments included in the assessment of hedge effectiveness will now be recorded in other comprehensive income and subsequently reclassified to interest expense in the period the hedging instrument affects earnings.
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table provides a brief description of recently issued accounting pronouncements:
|
|
|
|
|
|
|
|
Accounting Pronouncement
|
|
Description
|
|
Effective Date
|
|
Effect on financial statements
|
Topic 842; collectively ASU 2016-02, 2018-01 and 2018-11
Leases
(Issued February 2016, January 2018 and July 2018)
|
|
In February 2016, the FASB issued Topic 842. Topic 842 will supersede the existing guidance for lease accounting and states that companies will be required to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. 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.
ASU 2018-01 provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease.
Within Topic 842, lessor accounting remained fairly unchanged. In adopting Topic 842, companies will be required to either use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements or with the adoption of ASU 2018-11, an optional transition method whereby an entity initially applies the new lease standard at the adoption date and recognizes a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption.
|
|
Topic 842 is effective for the fiscal years beginning after December 15, 2018 with early adoption permitted.
|
|
We will adopt the provisions of Topic 842 as of January 1, 2019. We anticipate that we will elect (a) the practical expedient offered that allows an entity to not reassess upon adoption (i) whether an expired or existing contract contains a lease arrangement, (ii) lease classification related to expired or existing lease arrangements, or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs, and (b) as part of ASU 2018-11, the practical expedient to not separate certain non-lease components, such as common area maintenance from lease revenue if (i) the timing and pattern of revenue recognition are the same for the non-lease component, and (ii) the related lease component and the combined single lease component would be classified as an operating lease.
As part of the adoption, all leases for which we are the lessee, including ground leases and certain other corporate leases, will be recorded in our consolidated financial statements as either financing or operating leases with corresponding right of use assets and lease liability obligations. Management has commenced the reevaluation of all leases where we are the lessee to determine (a) the total future lease payments, including an assessment of the availability and likelihood of our exercising extension options available to us under the terms of the respective leases, (b) an appropriate incremental borrowing rate in light of the extended term of our ground leases, and (c) an abstract of all applicable lease provisions that may cause the treatment of these leases to be classified differently under ASC 842 than what they are currently being classified as under current accounting guidance. We anticipate that our assessment will be concluded by December 31, 2018 and that we will have evaluated all leases sufficiently to provide a range of potential impact to our financial statements.
Further, with respect to initial direct costs, we are currently assessing the projected impact to the accounting of such costs, including the impact of potential changes to our use of internal and external leasing and leasing-related personnel, potential changes in compensation structures to such individuals, and other considerations of related costs that could have an impact to our financial statements. For the six months ended June 30, 2018, we have capitalized approximately $2.2 million of internal initial direct costs (as defined by the current lease standard, ASC 840 - Leases). Upon the adoption of Topic 842, these internal initial direct costs will either in part or in their entirety be classified as selling or general and administrative costs on our consolidated results of operations, depending on the finalization of our assessment of the impact of such adoption.
|
ASU 2016-13
Financial Instruments Credit Losses: Measurement of Credit Losses on Financial Instruments
(Issued June 2016)
|
|
ASU 2016-13 is intended to improve financial reporting by requiring more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. ASU 2016-13 requires that financial statement assets measured at an amortized cost be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis.
|
|
ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted.
|
|
We do not anticipate early adoption or there to be a material impact, however, we are evaluating the impact of adopting ASU 2016-13 on our consolidated financial statements.
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
|
|
|
|
|
|
|
|
Accounting Pronouncement
|
|
Description
|
|
Effective Date
|
|
Effect on financial statements
|
ASU 2018-07
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
(Issued June 2018)
|
|
ASU 2018-07 expands the scope of Topic 718 and the amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606.
|
|
ASU 2018-07 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted, but not earlier than an entity’s
adoption date of Topic 606.
|
|
We will adopt ASU 2018-07 as of January 1, 2019. We do not expect there to be a material impact to our consolidated financial statements and related notes.
|
3. Investments in Real Estate
For the
six months ended June 30, 2018
, our investments had an aggregate purchase price of
$12.3 million
. As part of these investments, we incurred
$65,000
of capitalized costs. The allocations for these investments, in which we own a controlling financial interest, are set forth below in the aggregate for the
six months ended June 30, 2018
and
2017
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
Land
|
$
|
1,084
|
|
|
$
|
73,560
|
|
Building and improvements
|
10,280
|
|
|
2,225,012
|
|
In place leases
|
662
|
|
|
172,620
|
|
Below market leases
|
(139
|
)
|
|
(27,529
|
)
|
Above market leases
|
—
|
|
|
11,098
|
|
Below market leasehold interests
|
—
|
|
|
53,722
|
|
Above market leasehold interests
|
—
|
|
|
(16,564
|
)
|
Net assets acquired
|
11,887
|
|
|
2,491,919
|
|
Other, net
(1)
|
447
|
|
|
54,196
|
|
Aggregate purchase price
|
$
|
12,334
|
|
|
$
|
2,546,115
|
|
|
|
|
|
(1) For the six months ended June 30, 2017, other, net, consisted primarily of capital expenditures and tenant improvements received as credits at the time of acquisition.
|
The acquired intangible assets and liabilities referenced above had weighted average lives of the following terms for the
six months ended June 30, 2018
and
2017
, respectively (in years):
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
Acquired intangible assets
|
8.1
|
|
22.4
|
Acquired intangible liabilities
|
8.1
|
|
21.6
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
4. Assets Held for Sale
As of
June 30, 2018
, we classified
one
of our properties as held for sale as we recommended and our Board of Directors committed to an approved plan to seek to dispose of the property. Subsequent to
June 30, 2018
, the held for sale property was sold for a gross sales price of
$9.3 million
. As of
December 31, 2017
, there were
no
properties held for sale. The following table represents the major classes of assets and liabilities, and the balance sheet classification as of
June 30, 2018
(in thousands):
|
|
|
|
|
|
June 30, 2018
|
Buildings and improvements
|
$
|
9,563
|
|
In place leases
|
1,859
|
|
|
11,422
|
|
Accumulated depreciation and amortization
|
(5,032
|
)
|
Real estate assets held for sale, net
|
6,390
|
|
Receivables and other assets, net
|
526
|
|
Assets held for sale, net
|
$
|
6,916
|
|
|
|
Security deposits, prepaid rent & other liabilities
|
$
|
161
|
|
Liabilities of assets held for sale
|
$
|
161
|
|
5. Impairment and Dispositions
During the
six months ended June 30, 2018
, we recorded impairment charges of
$4.6 million
on
two
MOBs located in Texas and South Carolina with an aggregate value of
$13.0 million
. During the
six months ended June 30, 2017
, we completed the disposition of an MOB located in Texas for a gross sales price of
$5.0 million
representing approximately
48,000
square feet of gross leasable area (“GLA”). In addition, during the
three months ended June 30, 2017
, we recorded impairment charges of
$5.1 million
related to
one
MOB located in Massachusetts.
Subsequent to
June 30, 2018
, we entered into an agreement to sell a portfolio of MOBs affiliated with Greenville Health System for
$285.0 million
. The portfolio consists of
16
MOBs totaling approximately
856,000
square feet of GLA located in Greenville, South Carolina. This transaction is subject to customary closing conditions and no closings are assured. In addition, we closed
one
MOB subsequent to
June 30, 2018
, for a gross sales price of
$9.3 million
which was classified as held for sale as of
June 30, 2018
. See
Note 4 - Assets Held for Sale
for more detail.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6. Intangible Assets and Liabilities
Intangible assets and liabilities consisted of the following as of
June 30, 2018
and
December 31, 2017
, respectively (in thousands, except weighted average remaining amortization terms):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Balance
|
|
Weighted Average Remaining
Amortization in Years
|
|
Balance
|
|
Weighted Average Remaining
Amortization in Years
|
Assets:
|
|
|
|
|
|
|
|
In place leases
|
$
|
471,268
|
|
|
9.7
|
|
$
|
474,252
|
|
|
9.8
|
Tenant relationships
|
162,670
|
|
|
10.3
|
|
164,947
|
|
|
10.2
|
Above market leases
|
39,187
|
|
|
6.2
|
|
40,082
|
|
|
6.3
|
Below market leasehold interests
|
92,362
|
|
|
64.6
|
|
92,362
|
|
|
63.4
|
|
765,487
|
|
|
|
|
771,643
|
|
|
|
Accumulated amortization
|
(344,214
|
)
|
|
|
|
(312,655
|
)
|
|
|
Total
|
$
|
421,273
|
|
|
20.9
|
|
$
|
458,988
|
|
|
19.5
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Below market leases
|
$
|
61,952
|
|
|
14.5
|
|
$
|
61,820
|
|
|
14.7
|
Above market leasehold interests
|
20,610
|
|
|
49.7
|
|
20,610
|
|
|
50.1
|
|
82,562
|
|
|
|
|
82,430
|
|
|
|
Accumulated amortization
|
(17,598
|
)
|
|
|
|
(14,227
|
)
|
|
|
Total
|
$
|
64,964
|
|
|
24.9
|
|
$
|
68,203
|
|
|
25.0
|
The following is a summary of the net intangible amortization for the
three and six months ended June 30, 2018
and
2017
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Amortization recorded against rental income related to above and (below) market leases
|
$
|
(246
|
)
|
|
$
|
(40
|
)
|
|
$
|
(308
|
)
|
|
$
|
(263
|
)
|
Rental expense related to above and (below) market leasehold interests
|
286
|
|
|
166
|
|
|
563
|
|
|
295
|
|
Amortization expense related to in place leases and tenant relationships
|
16,677
|
|
|
14,457
|
|
|
34,325
|
|
|
27,187
|
|
7. Receivables and Other Assets
Receivables and other assets consisted of the following as of
June 30, 2018
and
December 31, 2017
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Tenant receivables, net
|
$
|
16,606
|
|
|
$
|
20,269
|
|
Other receivables, net
|
15,159
|
|
|
9,305
|
|
Deferred financing costs, net
|
6,897
|
|
|
7,759
|
|
Deferred leasing costs, net
|
27,846
|
|
|
25,494
|
|
Straight-line rent receivables, net
|
93,176
|
|
|
85,143
|
|
Prepaid expenses, deposits, equipment and other, net
|
53,567
|
|
|
58,358
|
|
Derivative financial instruments - interest rate swaps
|
1,999
|
|
|
1,529
|
|
Total
|
$
|
215,250
|
|
|
$
|
207,857
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following is a summary of the amortization of deferred leasing costs and financing costs for the
three and six months ended June 30, 2018
, and
2017
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Amortization expense related to deferred leasing costs
|
$
|
1,303
|
|
|
$
|
1,472
|
|
|
$
|
2,809
|
|
|
$
|
2,734
|
|
Interest expense related to deferred financing costs
|
431
|
|
|
332
|
|
|
862
|
|
|
663
|
|
8. Debt
Debt consisted of the following as of
June 30, 2018
and
December 31, 2017
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Unsecured revolving credit facility
|
$
|
—
|
|
|
$
|
—
|
|
Unsecured term loans
|
500,000
|
|
|
500,000
|
|
Unsecured senior notes
|
1,850,000
|
|
|
1,850,000
|
|
Fixed rate mortgages loans
|
315,823
|
|
|
414,524
|
|
Variable rate mortgages loans
|
37,402
|
|
|
37,918
|
|
|
2,703,225
|
|
|
2,802,442
|
|
Deferred financing costs, net
|
(14,440
|
)
|
|
(15,850
|
)
|
Discount, net
|
(5,254
|
)
|
|
(5,561
|
)
|
Total
|
$
|
2,683,531
|
|
|
$
|
2,781,031
|
|
Unsecured Credit Agreement
Unsecured Revolving Credit Facility due 2022
In 2017,
HTALP
entered into an amended and restated
$1.3 billion
unsecured credit agreement (the “Unsecured Credit Agreement”) which increased the amount available under the unsecured revolving credit facility to
$1.0 billion
and extended the maturities of the unsecured revolving credit facility to
June 30, 2022
and for the
$300.0 million
unsecured term loan referenced below until
February 1, 2023
. The maximum principal amount of the Unsecured Credit Agreement may be increased by up to
$750.0 million
, subject to certain conditions, for a total principal amount of
$2.05 billion
.
Borrowings under the unsecured revolving credit facility accrue interest at a rate equal to adjusted
LIBOR
, plus a margin ranging from
0.83%
to
1.55%
per annum based on our credit rating. We also pay a facility fee ranging from
0.13%
to
0.30%
per annum on the aggregate commitments under the unsecured revolving credit facility. As of
June 30, 2018
, the margin associated with our borrowings was
1.00%
per annum and the facility fee was
0.20%
per annum.
Unsecured Term Loan due 2023
In 2017, we entered into an amended and restated Unsecured Credit Agreement as noted above. As part of this agreement, we obtained a
$300.0 million
unsecured term loan that was guaranteed by us with a maturity date of
February 1, 2023
. Borrowings under this unsecured term loan accrue interest equal to adjusted
LIBOR
, plus a margin ranging from
0.90%
to
1.75%
per annum based on our credit rating. The margin associated with our borrowings as of
June 30, 2018
was
1.10%
per annum. Including the impact of the interest rate swaps associated with our unsecured term loan, the interest rate was
3.28%
per annum, based on our current credit rating. As of
June 30, 2018
,
HTALP
had
$300.0 million
under this unsecured term loan outstanding.
$200.0 Million
Unsecured Term Loan due 2023
As of
June 30, 2018
,
HTALP
had a
$200.0 million
unsecured term loan outstanding, which matures on
September 26, 2023
. Borrowings under the unsecured term loan accrue interest at a rate equal to LIBOR, plus a margin ranging from
1.50%
to
2.45%
per annum based on our credit rating. The margin associated with our borrowings as of
June 30, 2018
was
1.65%
per annum.
HTALP
had interest rate swaps in place that fixed the interest rate at
3.27%
per annum, based on our current credit rating.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Subsequent to
June 30, 2018
,
HTALP
entered into a modification of our
$200.0 million
unsecured term loan due in 2023. The modification decreased pricing at our current credit rating by
65 basis points
from LIBOR plus
165 basis points
to LIBOR plus
100 basis points
. The maturity date was also extended by five months to January 2024. The other material terms of the unsecured term loan prior to the modification remained substantially unchanged.
$300.0 Million
Unsecured Senior Notes due 2021
As of
June 30, 2018
,
HTALP
had
$300.0 million
of unsecured senior notes outstanding that are guaranteed by us. These unsecured senior notes are registered under the Securities Act of 1933, as amended (the “Securities Act”), bear interest at
3.38%
per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at
99.21%
of the principal amount thereof, with an effective yield to maturity of
3.50%
per annum. As of
June 30, 2018
, HTALP had
$300.0 million
of these unsecured senior notes outstanding that mature on July 15, 2021.
$400.0 Million
Unsecured Senior Notes due 2022
In 2017, in connection with the
$500.0 million
unsecured senior notes due 2027 referenced below, HTALP issued
$400.0 million
of unsecured senior notes that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at
2.95%
per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at
99.94%
of the principal amount thereof, with an effective yield to maturity of
2.96%
per annum. As of
June 30, 2018
, HTALP had
$400.0 million
of these unsecured senior notes outstanding that mature on July 1, 2022.
$300.0 Million
Unsecured Senior Notes due 2023
As of
June 30, 2018
,
HTALP
had
$300.0 million
of unsecured senior notes outstanding that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at
3.70%
per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at
99.19%
of the principal amount thereof, with an effective yield to maturity of
3.80%
per annum. As of
June 30, 2018
, HTALP had
$300.0 million
of these unsecured senior notes outstanding that mature on April 15, 2023.
$350.0 Million
Unsecured Senior Notes due 2026
As of
June 30, 2018
,
HTALP
had
$350.0 million
of unsecured senior notes outstanding that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at
3.50%
per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at
99.72%
of the principal amount thereof, with an effective yield to maturity of
3.53%
per annum. As of
June 30, 2018
, HTALP had
$350.0 million
of these unsecured senior notes outstanding that mature on August 1, 2026.
$500.0 Million
Unsecured Senior Notes due 2027
In 2017, in connection with the
$400.0 million
unsecured senior notes due 2022 referenced above, HTALP issued
$500.0 million
of unsecured senior notes that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at
3.75%
per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at
99.49%
of the principal amount thereof, with an effective yield to maturity of
3.81%
per annum. As of
June 30, 2018
, HTALP had
$500.0 million
of these unsecured senior notes outstanding that mature on July 1, 2027.
Fixed and Variable Rate Mortgages
In 2017, we were required by the seller under the Duke acquisition to execute, as the borrower, for a part of the purchase price a senior secured first lien loan, subject to customary non-recourse carve-outs, a promissory note (the “Promissory Note”) in the amount of
$286.0 million
. The Promissory Note bears interest at
4.0%
per annum and is payable in
three
equal payments maturing on January 10, 2020 and is guaranteed by us. In June 2018, the first installment of
$96.0 million
was paid and as of
June 30, 2018
the outstanding balance was
$190.0 million
.
As of
June 30, 2018
,
HTALP
and its subsidiaries had fixed and variable rate mortgage loans with interest rates ranging from
2.85%
to
6.39%
per annum and a weighted average interest rate of
4.40%
per annum. Including the impact of the interest rate swap associated with our variable rate mortgages, the weighted average interest rate was
4.50%
per annum.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Future Debt Maturities
The following table summarizes the debt maturities and scheduled principal repayments of our indebtedness as of
June 30, 2018
(in thousands):
|
|
|
|
|
|
Year
|
|
Amount
|
2018
|
|
$
|
3,296
|
|
2019
|
|
107,676
|
|
2020
|
|
146,678
|
|
2021
|
|
305,772
|
|
2022
|
|
463,063
|
|
Thereafter
|
|
1,676,740
|
|
Total
|
|
$
|
2,703,225
|
|
Deferred Financing Costs
As of
June 30, 2018
, the future amortization of our deferred financing costs is as follows (in thousands):
|
|
|
|
|
|
Year
|
|
Amount
|
2018
|
|
$
|
1,411
|
|
2019
|
|
2,827
|
|
2020
|
|
2,804
|
|
2021
|
|
2,610
|
|
2022
|
|
1,987
|
|
Thereafter
|
|
2,801
|
|
Total
|
|
$
|
14,440
|
|
We are required by the terms of our applicable loan agreements to meet various affirmative and negative covenants that we believe are customary for these types of facilities, such as limitations on the incurrence of debt by us and our subsidiaries that own unencumbered assets, limitations on the nature of
HTALP
’s business, and limitations on distributions by
HTALP
and its subsidiaries that own unencumbered assets. Our loan agreements also impose various financial covenants on us, such as a maximum ratio of total indebtedness to total asset value, a minimum ratio of EBITDA to fixed charges, a minimum tangible net worth covenant, a maximum ratio of unsecured indebtedness to unencumbered asset value, rent coverage ratios and a minimum ratio of unencumbered Net Operating Income (“NOI”) to unsecured interest expense. As of
June 30, 2018
, we believe that we were in compliance with all such financial covenants and reporting requirements. In addition, certain of our loan agreements include events of default provisions that we believe are customary for these types of facilities, including restricting us from making dividend distributions to our stockholders in the event we are in default thereunder, except to the extent necessary for us to maintain our REIT status.
9. Derivative Financial Instruments and Hedging Activities
Risk Management Objective of Using Derivative Financial Instruments
We may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions. We do not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, we only enter into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which we and our affiliates may also have other financial relationships. We do not anticipate that any of the counterparties will fail to meet their obligations. We record counterparty credit risk valuation adjustments on interest rate swap derivative assets in order to properly reflect the credit quality of the counterparty. In addition, our fair value of interest rate swap derivative liabilities is adjusted to reflect the impact of our credit quality.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Cash Flow Hedges of Interest Rate Risk
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps and treasury locks as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate amounts from a counterparty in exchange for us making fixed rate payments over the life of the agreements without exchange of the underlying notional amount. A treasury lock is a synthetic forward sale of a U.S. treasury note, which is settled in cash based upon the difference between an agreed upon treasury rate and the prevailing treasury rate at settlement. Such treasury locks are entered into to effectively fix the treasury component of an upcoming debt issuance.
As a result of our adoption of ASU 2017-12 as of January 1, 2018, the entire change in the fair value of derivatives designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income in the accompanying condensed consolidated balance sheets and are subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings. During the
six months ended June 30, 2018
, such derivatives were used to hedge the variable cash flows associated with variable rate debt. Additionally, we will no longer disclose the ineffective portion of the change in fair value of our derivatives.
Amounts reported in accumulated other comprehensive income in the accompanying condensed consolidated balance sheets related to derivatives will be reclassified to interest expense as interest payments are made on our variable rate debt. During the next twelve months, we estimate that an additional
$1.4 million
will be reclassified from other comprehensive income in the accompanying condensed consolidated balance sheets as an increase to interest related to derivative financial instruments in the accompanying condensed consolidated statements of operations.
As of
June 30, 2018
, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk (in thousands, except number of instruments):
|
|
|
|
|
|
Interest Rate Swaps
|
|
June 30, 2018
|
Number of instruments
|
|
5
|
|
Notional amount
|
|
$
|
188,757
|
|
The table below presents the fair value of our derivative financial instruments designated as a hedge as well as our classification in the accompanying condensed consolidated balance sheets as of
June 30, 2018
and
December 31, 2017
, respectively (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
Fair Value at:
|
|
|
|
Fair Value at:
|
Derivatives Designated as Hedging Instruments:
|
|
Balance Sheet
Location
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Balance Sheet
Location
|
|
June 30, 2018
|
|
December 31, 2017
|
Interest rate swaps
|
|
Receivables and other assets
|
|
$
|
1,999
|
|
|
$
|
1,529
|
|
|
Derivative financial instruments
|
|
$
|
548
|
|
|
$
|
1,089
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The table below presents the gain or loss recognized on our derivative financial instruments designated as hedges as well as our classification in the accompanying condensed consolidated statements of operations for the
three and six months ended June 30, 2018
and
2017
, respectively (in thousands). As a result of the adoption of ASU 2017-12 as of January 1, 2018, we no longer disclose the ineffective portion of the change in fair value of our derivative financial instruments designated as hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in OCI on Derivative
|
|
|
|
Gain (Loss) Reclassified from Accumulated OCI into Income
|
|
|
Three Months Ended June 30,
|
|
|
|
Three Months Ended June 30,
|
Derivatives Cash Flow Hedging Relationships:
|
|
2018
|
|
2017
|
|
Statement of Operations Location
|
|
2018
|
|
2017
|
Interest rate swaps
|
|
$
|
371
|
|
|
$
|
(1,041
|
)
|
|
Interest related to derivative financial instruments
|
|
$
|
157
|
|
|
$
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in OCI on Derivative
|
|
|
|
Gain (Loss) Reclassified from Accumulated OCI into Income
|
|
|
Six Months Ended June 30,
|
|
|
|
Six Months Ended June 30,
|
Derivatives Cash Flow Hedging Relationships:
|
|
2018
|
|
2017
|
|
Statement of Operations Location
|
|
2018
|
|
2017
|
Interest rate swaps
|
|
$
|
1,341
|
|
|
$
|
(1,205
|
)
|
|
Interest related to derivative financial instruments
|
|
$
|
227
|
|
|
$
|
(369
|
)
|
Non-Designated Hedges
Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements and other identified risks, but do not meet the strict hedge accounting requirements of ASC 815 - Derivatives and Hedging. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly to gain or loss on change in fair value of derivative financial instruments in the accompanying condensed consolidated statements of operations. For the
three and six months ended June 30, 2017
, we recorded a gain on change in fair value of derivative financial instruments of
$45,000
and
$0.9 million
, respectively. There were
no
non-designated hedges
as of June 30, 2018
.
Tabular Disclosure of Offsetting Derivatives
The table below sets forth the net effects of offsetting and net presentation of our derivatives as of
June 30, 2018
and
December 31, 2017
, respectively (in thousands). The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets or liabilities are presented in the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of Derivative Assets
|
|
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts in the Consolidated Balance Sheets
|
|
Net Amounts of Assets Presented in the Consolidated Balance Sheets
|
|
Financial Instruments
|
|
Cash Collateral Received
|
|
Net Amount
|
June 30, 2018
|
|
$
|
1,999
|
|
|
$
|
—
|
|
|
$
|
1,999
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,999
|
|
December 31, 2017
|
|
1,529
|
|
|
—
|
|
|
1,529
|
|
|
—
|
|
|
—
|
|
|
1,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of Derivative Liabilities
|
|
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts in the Consolidated Balance Sheets
|
|
Net Amounts of Liabilities Presented in the Consolidated Balance Sheets
|
|
Financial Instruments
|
|
Cash Collateral Received
|
|
Net Amount
|
June 30, 2018
|
|
$
|
548
|
|
|
$
|
—
|
|
|
$
|
548
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
548
|
|
December 31, 2017
|
|
1,089
|
|
|
—
|
|
|
1,089
|
|
|
—
|
|
|
—
|
|
|
1,089
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Credit Risk Related Contingent Features
We have agreements with each of our derivative counterparties that contain a provision that if we default on any of our indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations.
We also have agreements with each of our derivative counterparties that incorporate provisions from our indebtedness with a lender affiliate of the derivative counterparty requiring it to maintain certain minimum financial covenant ratios on our indebtedness. Failure to comply with the covenant provisions would result in us being in default on any derivative instrument obligations covered by these agreements.
As of
June 30, 2018
, the fair value of derivatives in a net liability position, including accrued interest, but excluding any adjustment for nonperformance risk related to these agreements, was
$0.5 million
. As of
June 30, 2018
, we have not posted any collateral related to these agreements and we were not in breach of any of the provisions of these agreements. If we had breached any of the provisions of these agreements, we could have been required to settle our obligations under these agreements at an aggregate termination value of
$0.5 million
at
June 30, 2018
.
10. Commitments and Contingencies
Litigation
We engage in litigation from time to time with various parties as a routine part of our business, including tenant defaults. However, we are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material effect on our condensed consolidated financial position, results of operations or cash flows.
Environmental Matters
We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our condensed consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability at our properties that we believe would require additional disclosure or the recording of a loss contingency.
Other
Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In our opinion, these matters are not expected to have a material effect on our condensed consolidated financial position, results of operations or cash flows.
11. Stockholders’ Equity and Partners’ Capital
HTALP
’s operating partnership agreement provides that it will distribute cash flow from operations and net sale proceeds to its partners in accordance with their overall ownership interests at such times and in such amounts as the general partner determines. Dividend distributions are made such that a holder of
one
OP Unit in
HTALP
will receive distributions from
HTALP
in an amount equal to the dividend distributions paid to the holder of one share of our common stock. In addition, for each share of common stock issued or redeemed by us,
HTALP
issues or redeems a corresponding number of OP Units.
Common Stock Offerings
In June 2018, we settled a forward sale arrangement pursuant to a forward equity agreement that was entered into in October 2017, which included the sale of approximately
2.6 million
shares of our common stock for net proceeds of approximately
$73.8 million
, adjusted for costs to borrow equating to a net price to us of
$28.94
per share of common stock. Refer to
Note 13 - Per Share Data of HTA
to these condensed consolidated financial statements for a more detailed discussion related to our forward equity agreement.
Stock Repurchase Plan
On
June 8, 2018
, our Board of Directors approved a stock repurchase plan authorizing us to purchase up to
$100.0 million
of our common stock from time to time prior to the expiration thereof on
June 7, 2020
. During June 2018, pursuant to this plan, we repurchased
333,002
shares of our common stock, at an average price of
$26.26
per share, for an aggregate amount of
$8.7 million
. Subsequent to
June 30, 2018
, our Board of Directors terminated the foregoing plan and adopted a new plan with an increased share repurchase authorization of up to
$300 million
.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Common Stock Dividends
See our accompanying condensed consolidated statements of operations for the dividends declared during the
three and six months ended June 30, 2018
and
2017
. On
August 2, 2018
, our Board of Directors announced an increased quarterly dividend of
$0.310
per share of common stock and per OP unit to be paid on
October 5, 2018
to stockholders of record of our common stock and holders of our OP Units on
October 2, 2018
.
Incentive Plan
The Plan permits the grant of incentive awards to our employees, officers, non-employee directors and consultants as selected by our Board of Directors. The Plan authorizes us to grant awards in any of the following forms: options; stock appreciation rights; restricted stock; restricted or deferred stock units; performance awards; dividend equivalents; other stock-based awards, including units in
HTALP
; and cash-based awards. Subject to adjustment as provided in the Plan, the aggregate number of awards reserved and available for issuance under the Plan is
5,000,000
shares. As of
June 30, 2018
, there were
1,397,867
awards available for grant under the Plan.
Restricted Common Stock
For the
three and six months ended June 30, 2018
, we recognized compensation expense of
$2.2 million
and
$5.7 million
, respectively. For the
three and six months ended June 30, 2017
, we recognized compensation expense of
$1.3 million
and
$3.8 million
, respectively. Compensation expense was recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations.
As of
June 30, 2018
, we had
$10.1 million
of unrecognized compensation expense, net of estimated forfeitures, which we will recognize over a remaining weighted average period of
1.6
years.
The following is a summary of our restricted common stock activity as of
June 30, 2018
and
2017
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
Restricted Common Stock
|
|
Weighted
Average Grant
Date Fair Value
|
|
Restricted Common Stock
|
|
Weighted
Average Grant
Date Fair Value
|
Beginning balance
|
589,606
|
|
|
$
|
29.38
|
|
|
640,870
|
|
|
$
|
27.36
|
|
Granted
|
323,354
|
|
|
28.86
|
|
|
244,753
|
|
|
29.67
|
|
Vested
|
(219,418
|
)
|
|
28.97
|
|
|
(248,138
|
)
|
|
25.15
|
|
Forfeited
|
(28,611
|
)
|
|
29.59
|
|
|
(47,344
|
)
|
|
28.54
|
|
Ending balance
|
664,931
|
|
|
$
|
29.25
|
|
|
590,141
|
|
|
$
|
29.19
|
|
12. Fair Value of Financial Instruments
Financial Instruments Reported at Fair Value - Recurring
The table below presents our assets and liabilities measured at fair value on a recurring basis as of
June 30, 2018
, aggregated by the applicable level in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
1,999
|
|
|
$
|
—
|
|
|
$
|
1,999
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
548
|
|
|
$
|
—
|
|
|
$
|
548
|
|
The table below presents our assets and liabilities measured at fair value on a recurring basis as of
December 31, 2017
, aggregated by the applicable level in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
1,529
|
|
|
$
|
—
|
|
|
$
|
1,529
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
1,089
|
|
|
$
|
—
|
|
|
$
|
1,089
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Financial Instruments Reported at Fair Value - Non-Recurring
The table below presents our assets measured at fair value on a non-recurring basis as of
June 30, 2018
, aggregated by the applicable level in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
MOB
(1)
|
|
$
|
—
|
|
|
$
|
12,985
|
|
|
$
|
—
|
|
|
$
|
12,985
|
|
|
|
|
|
|
|
|
|
|
(1) During the six months ended June 30, 2018, we recognized $4.6 million of impairment charges to the carrying value of two MOBs. The estimated fair value as of June 30, 2018 for these MOBs was based upon a sales agreement.
|
The table below presents our assets measured at fair value on a non-recurring basis as of
December 31, 2017
, aggregated by the applicable level in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
MOB
(1)
|
|
$
|
—
|
|
|
$
|
10,271
|
|
|
$
|
—
|
|
|
$
|
10,271
|
|
|
|
|
|
|
|
|
|
|
(1) During the year ended December 31, 2017, we recognized $13.9 million of impairment charges to the carrying value of two MOBs and a portfolio of MOBs. The estimated fair value as of December 31, 2017 for these MOBs was based upon a pending sales agreement and real estate market comparables.
|
There have been no transfers of assets or liabilities between levels. We will record any such transfers at the end of the reporting period in which a change of event occurs that results in a transfer. Although we have determined that the majority of the inputs used to value our interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties. However, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our interest rate swap derivative positions and have determined that the credit valuation adjustments are not significant to their overall valuation. As a result, we have determined that our interest rate swap derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Financial Instruments Disclosed at Fair Value
We consider the carrying values of cash and cash equivalents, tenant and other receivables, restricted cash and accounts payable, and accrued liabilities, to approximate fair value for these financial instruments because of the short period of time between origination of the instruments and their expected realization. All of these financial instruments are considered Level 2.
The fair value of debt is estimated using borrowing rates available to us with similar terms and maturities, which is considered a Level 2 input.
As of June 30, 2018
, the fair value of the debt was
$2,643.1 million
compared to the carrying value of
$2,683.5 million
.
As of December 31, 2017
, the fair value of the debt was
$2,826.3 million
compared to the carrying value of
$2,781.0 million
.
13. Per Share Data of HTA
In October 2017, we entered a forward sale arrangement pursuant to a forward equity agreement to sell approximately
2.6 million
shares of our common stock through our ATM. In June 2018, we settled our forward sale arrangement for proceeds of approximately
$73.8 million
, adjusted for costs to borrow equating to a net price to us of
$28.94
per share of common stock. To account for the forward equity agreement, we considered the accounting guidance governing financial instruments and derivatives and concluded that our forward equity agreement was not a liability as it did not embody obligations to repurchase our shares of common stock nor did it embody obligations to issue a variable number of shares for which the monetary value was predominately fixed, varying with something other than the fair value of the shares, or varying inversely in relation to our shares. We also evaluated whether the agreement met the derivatives and hedging guidance scope exception to be accounted for as an equity instrument and concluded that the agreement can be classified as an equity contract based on the following assessment: (i) none of the agreements’ exercise contingencies were based on observable markets or indices besides those related to the market for our own stock price and operations; and (ii) none of the settlement provisions precluded the agreement from being indexed to our own common stock.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In addition, we considered the potential dilution resulting from the forward equity agreement on our earnings per common share calculations. We used the treasury method to determine the dilution resulting from the forward equity agreement during the period of time prior to settlement. The number of weighted-average shares outstanding - diluted used in the computation of earnings per common share for the
three and six months ended June 30, 2018
, included the effect from the assumed issuance of
2.6 million
shares of our common stock pursuant to the settlement of the forward equity agreement at the contractual price, less the assumed repurchase of our common stock at the average market price using the proceeds of approximately
$73.8 million
, adjusted for costs to borrow. For the
three and six months ended June 30, 2018
, approximately
392,000
and
346,000
weighted-average incremental shares were excluded from the computation of our weighted-average shares-diluted, as their impact was anti-dilutive.
We include unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as “participating securities” pursuant to the two-class method. The resulting classes are our common stock and restricted stock. Our forward equity agreement is not considered a participating security and, therefore, is not included in the computation of earnings per share using the two-class method. For the
three and six months ended June 30, 2018
and
2017
, all of our earnings were distributed and the calculated earnings per share amount would be the same for all classes.
For the
three months ended June 30, 2017
, approximately
4.2 million
shares of common stock were excluded from the computation of diluted shares as their impact would have been anti-dilutive. The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per share of HTA for the
three and six months ended June 30, 2018
and
2017
, respectively (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
15,657
|
|
|
$
|
(5,852
|
)
|
|
$
|
25,673
|
|
|
$
|
8,148
|
|
Net income attributable to noncontrolling interests
|
(311
|
)
|
|
(66
|
)
|
|
(525
|
)
|
|
(521
|
)
|
Net income (loss) attributable to common stockholders
|
$
|
15,346
|
|
|
$
|
(5,918
|
)
|
|
$
|
25,148
|
|
|
$
|
7,627
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
205,241
|
|
|
176,464
|
|
|
205,155
|
|
|
159,218
|
|
Dilutive shares - partnership units convertible into common stock
|
4,018
|
|
|
—
|
|
|
4,063
|
|
|
4,272
|
|
Adjusted weighted average shares outstanding - diluted
|
209,259
|
|
|
176,464
|
|
|
209,218
|
|
|
163,490
|
|
Earnings per common share - basic
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
0.07
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.12
|
|
|
$
|
0.05
|
|
Earnings per common share - diluted
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
$
|
0.07
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.12
|
|
|
$
|
0.05
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
14. Per Unit Data of
HTALP
In October 2017, we entered a forward sale arrangement pursuant to a forward equity agreement to sell approximately
2.6 million
shares of our common stock through our ATM. Refer to
Note 13 - Per Share Data of HTA
to these condensed consolidated financial statements for a more detailed discussion related to our forward equity agreement settled in June 2018.
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per unit of
HTALP
for the
three and six months ended June 30, 2018
, and
2017
, respectively (in thousands, except per unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
15,657
|
|
|
$
|
(5,852
|
)
|
|
$
|
25,673
|
|
|
$
|
8,148
|
|
Net income attributable to noncontrolling interests
|
(14
|
)
|
|
(22
|
)
|
|
(47
|
)
|
|
(52
|
)
|
Net income (loss) attributable to common unitholders
|
$
|
15,643
|
|
|
$
|
(5,874
|
)
|
|
$
|
25,626
|
|
|
$
|
8,096
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average units outstanding - basic
|
209,259
|
|
|
180,672
|
|
|
209,218
|
|
|
163,490
|
|
Dilutive units - partnership units convertible into common units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted weighted average units outstanding - diluted
|
209,259
|
|
|
180,672
|
|
|
209,218
|
|
|
163,490
|
|
Earnings per common unit - basic:
|
|
|
|
|
|
|
|
Net income (loss) attributable to common unitholders
|
$
|
0.07
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.12
|
|
|
$
|
0.05
|
|
Earnings per common unit - diluted:
|
|
|
|
|
|
|
|
Net income (loss) attributable to common unitholders
|
$
|
0.07
|
|
|
$
|
(0.03
|
)
|
|
$
|
0.12
|
|
|
$
|
0.05
|
|
15. Supplemental Cash Flow Information
The following is the supplemental cash flow information for the
six months ended June 30, 2018
and
2017
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
Interest paid
|
$
|
52,260
|
|
|
$
|
31,175
|
|
Income taxes paid
|
1,534
|
|
|
825
|
|
|
|
|
|
Supplemental Disclosure of Noncash Investing and Financing Activities:
|
|
|
|
Accrued capital expenditures
|
$
|
454
|
|
|
$
|
2,919
|
|
Debt assumed and entered into in connection with an acquisition
|
—
|
|
|
286,000
|
|
Dividend distributions declared, but not paid
|
64,571
|
|
|
61,492
|
|
Issuance of operating partnership units in HTALP in connection with an acquisition
|
—
|
|
|
610
|
|
Note receivable retired in connection with an acquisition
|
—
|
|
|
2,494
|
|
Redemption of noncontrolling interest
|
4,907
|
|
|
5,532
|
|