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. As of
September 30, 2017
, HTA owned a
98.0%
partnership interest and other limited partners, including some of our directors, executive officers and their affiliates, owned the remaining partnership interest (including the LTIP Units) in
HTALP
. As the sole general partner of
HTALP
, HTA has the full, exclusive and complete responsibility for
HTALP
’s day-to-day management and control. HTA operates in an umbrella partnership REIT structure in which
HTALP
and its subsidiaries hold substantially all of the assets. HTA’s only material asset is its ownership of partnership interests of
HTALP
. As a result, HTA does not conduct business itself, other than acting as the sole general partner of
HTALP
, issuing public equity from time to time and guaranteeing certain debts of
HTALP
.
HTALP
conducts the operations of the business and issues publicly-traded debt, but has no publicly-traded equity.
HTA is the largest publicly-traded REIT focused on medical office buildings (“MOBs”) in the U.S. as measured by the gross leasable area (“GLA”) of our MOBs. HTA conducts substantially all of its operations through HTALP. We invest in MOBs that we believe will serve the future of healthcare delivery, and MOBs that are primarily located on health system campuses, near university medical centers, or in core community outpatient locations. We also focus on our key markets that have certain demographic and macro-economic trends and where we can utilize our institutional property management and leasing platform to generate strong tenant 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 and property management oversight; (ii) target accretive acquisitions and developments of MOBs in markets with attractive demographics that complement our existing portfolio; and (iii) actively manage our balance sheet to maintain flexibility with conservative leverage. Additionally, from time to time we consider, on an opportunistic basis, significant portfolio acquisitions that we believe fit our core business and could enhance our existing portfolio. HTA has qualified to be taxed as a REIT for federal income tax purposes and intends to continue to be taxed as a REIT.
Since 2006, we have invested
$7.0 billion
to create a portfolio of MOBs and other healthcare assets consisting of approximately
24.2 million
square feet of GLA throughout the U.S. As of
September 30, 2017
, our portfolio included
$2.24 billion
of investments, net of development credits received at closing, in connection with our acquisition of the Duke MOB business (the “Duke Acquisition”), which includes a
50%
ownership interest in an unconsolidated joint venture for
$68.8 million
as of the date of acquisition. Our only remaining obligations related to the Duke Acquisition are the potential acquisition of a land parcel in Miami, FL and a single property in Texas that are each currently excluded from our purchase obligations due to current outstanding physical condition issues.
As of
September 30, 2017
, approximately
96%
of our portfolio, based on GLA, was located on the campuses of, or aligned with, nationally or regionally recognized healthcare systems. Our portfolio is diversified geographically across
33
states, with no state having more than
19%
of our total GLA as of
September 30, 2017
. We are concentrated in 20 to 25 key markets that are experiencing higher economic and demographic trends than other markets, on average, that we expect will drive demand for MOBs. Approximately
92%
of our portfolio, based on GLA, is located in the top
75
metropolitan statistical areas (“MSAs”) with Atlanta, Boston, Dallas, Houston and Tampa being our largest markets by investment.
Our principal executive office is located at 16435 North Scottsdale Road, Suite 320, Scottsdale, Arizona, 85254.
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 U.S. generally accepted accounting principles (“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.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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 2016 Annual Report on Form 10-K.
Principles of Consolidation
The 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 in our consolidated balance sheets. In addition, as described in
Note 1 - Organization and Description of Business
, certain third parties have been issued OP Units in HTALP. Holders of OP Units are considered to be noncontrolling interest holders in HTALP and their ownership interests are reflected as equity in the consolidated balance sheets. Further, a 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
September 30, 2017
and
December 31, 2016
, there were approximately
4.1 million
and
4.3 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.
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 September 30, 2017
, we had a
50%
interest in one such investment with a carrying value, maximum exposure to risk, of
$68.3 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 nine months ended September 30, 2017
, we recognized income of
$318,000
and
$381,000
, respectively, from our unconsolidated joint venture.
Investments in Real Estate
Depreciation expense of buildings and improvements for the
three months ended September 30, 2017
and
2016
was
$49.8 million
and
$31.1 million
, respectively. Depreciation expense of buildings and improvements for the
nine months ended September 30, 2017
and
2016
was
$121.5 million
and
$86.6 million
, respectively.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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
|
ASU 2017-01
Business Combinations:
Clarifying the Definition of a Business
(Issued January 2017)
|
|
ASU 2017-01 clarifies the definition of a business by adding guidance to assist entities evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including, but not limited to, acquisitions, disposals, goodwill and consolidation.
|
|
ASU 2017-01 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted.
|
|
We adopted ASU 2017-01 as of January 1, 2017 on a prospective basis. We expect that the majority of our future investments in real estate will be accounted for as asset acquisitions under ASU 2017-01. The adoption of ASU 2017-01 will impact how we account for acquisition-related expenses and contingent consideration, which may result in lower acquisition-related expenses and eliminate fair value adjustments related to future contingent consideration arrangements.
|
The following table provides a brief description of recently issued accounting pronouncements:
|
|
|
|
|
|
|
|
Accounting Pronouncement
|
|
Description
|
|
Effective Date
|
|
Effect on financial statements
|
ASU 2014-09
Revenue from Contracts with Customers
(Issued May 2014)
|
|
ASU 2014-09 is 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 ASU 2014-09. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach.
|
|
In August 2015, the FASB deferred the effective date of ASU 2014-09 to the first interim period within annual reporting periods beginning after December 15, 2017 along with the right of early adoption as of the original effective date.
|
|
We have identified all of our revenue streams and concluded rental income from leasing arrangements represents a substantial portion of our revenue and is specifically excluded from ASU 2014-09 and will be governed and evaluated with the anticipated adoption of ASU 2016-02 as described below. Upon adoption of ASU 2016-02, ASU 2014-09 may apply to executory costs and other components of revenue due under leases that are deemed to be non-lease components (such as common area maintenance and other reimbursement revenue), even when the revenue for such activities is not separately stipulated in the lease. In that case, the revenue from these items previously recognized on a straight-line basis under the current lease guidance would be recognized under the new revenue guidance as the related services are delivered. As a result, while total revenue recognized over time would not differ under the new guidance, the recognition pattern would be different. Under ASU 2014-09, revenue recognition for real estate sales is largely based on the transfer of control versus continuing involvement under the current guidance. Upon adoption, there will not be a material impact on our consolidated financial statements since we have historically disposed of the majority of our properties with no future controls or contingencies. We will adopt ASU 2014-09 effective January 1, 2018 using the modified retrospective approach.
|
ASU 2016-02
Leases
(Issued February 2016)
|
|
ASU 2016-02 will supersede the existing guidance for lease accounting and states that companies will be required to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 requires qualitative and quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand the nature of the entity’s leasing activities, including significant judgments and changes in judgments. Within ASU 2016-02 lessor accounting remained fairly unchanged. In adopting ASU 2016-02, companies will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.
|
|
ASU 2016-02 is effective for the fiscal years beginning after December 15, 2018 with early adoption permitted.
|
|
We are still evaluating the full impact of ASU 2016-02 on our consolidated financial statements, however, we will adopt ASU 2016-02 as of January 1, 2019 and anticipate that we will elect a practical expedient offered in ASU 2016-02 that allows an entity to not reassess the following upon adoption (elected as a group): (i) whether an expired or existing contract contains a lease arrangement; (ii) lease classification related to expired or existing lease arrangements; or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs. As a result of the adoption, all new or amended leases for which we are the lessee, including corporate and ground leases, that are entered into on or after January 1, 2019, will be recorded on our consolidated financial statements as either financing leases or operating leases with a related right of use asset and lease liability. In addition, we expect that certain executory and non-lease components, such as common area maintenance, will need to be accounted for separately from the lease component of the lease. Lease components will continue to be recognized on a straight-line basis over the lease term and certain non-lease components will be accounted for under the new revenue recognition guidance in ASU 2014-09 as mentioned above.
|
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 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.
|
ASU 2016-15
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments
(Issued August 2016)
|
|
ASU 2016-15 clarifies the guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions; and (viii) separately identifiable cash flows and application of the predominance principle.
|
|
ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted.
|
|
We will adopt ASU 2016-15 during the fourth quarter of 2017 and apply the standard retrospectively for all periods presented. We will reclass cash payments related to debt prepayment and extinguishment costs from operating activities to financing activities. Based on our initial assessment the other listed provisions will not have a material impact on our consolidated financial statements and related notes resulting from the adoption of this standard.
|
ASU 2016-18
Statement of Cash Flows: Restricted Cash
(Issued November 2016)
|
|
ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
|
|
ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted.
|
|
We will adopt ASU 2016-18 during the fourth quarter of 2017 and apply the standard retrospectively for all periods presented. Restricted cash and escrow deposits consist primarily of cash escrowed for real estate acquisitions, real estate taxes, property insurance and capital improvements. We will provide a reconciliation of the changes in cash and cash equivalents and restricted cash and escrow deposits within our consolidated balance sheets to the consolidated statement of cash flows.
|
ASU 2017-05
Other Income: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
(Issued February 2017)
|
|
ASU 2017-05 defines an in-substance nonfinancial asset, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sales of real estate, removes exception to the financial asset derecognition model and clarifies the accounting for contributions of nonfinancial assets to joint ventures.
|
|
ASU 2017-05 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted.
|
|
We will adopt ASU 2017-05 as of January 1, 2018. We do not anticipate there to be a material impact on our consolidated financial statements, as we currently do not have this type of income. However, going forward we will continue to monitor any future impact.
|
ASU 2017-09
Compensation - Stock Compensation (Topic 718): Clarifying the Scope of Modification
(Issued May 2017)
|
|
ASU 2017-09 amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms and conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718.
|
|
ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted.
|
|
We will adopt ASU 2017-09 as of January 1, 2018. We do not anticipate there to be a material impact on our consolidated financial statements.
|
ASU 2017-12
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
(Issued August 2017)
|
|
ASU 2017-12 expands and refines hedge accounting for both financial (e.g., interest rate) and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness.
|
|
ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 with early adoption permitted.
|
|
We do not anticipate early adoption, however, we are evaluating the impact of adopting ASU 2017-12 on our consolidated financial statements.
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
3. Investments in Real Estate
Our investments, including the Duke Acquisition, brings our total investments for the
nine months ended September 30, 2017
, to an aggregate purchase price of
$2.7 billion
. As part of these investments, we incurred
$17.2 million
of costs attributable to these investments, which were capitalized in accordance with the adoption of ASU 2017-01 during the
nine months ended September 30, 2017
. In addition, as part of an acquisition, we issued
20,687
OP Units with a market value at the time of issuance of
$0.6 million
.
The allocations for these investments, in which we own a controlling financial interest, are set forth below in the aggregate for the
nine months ended September 30, 2017
and
2016
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
Land
|
$
|
93,064
|
|
|
$
|
77,949
|
|
Building and improvements
|
2,336,544
|
|
|
505,138
|
|
In place leases
|
187,890
|
|
|
50,997
|
|
Below market leases
|
(27,817
|
)
|
|
(12,790
|
)
|
Above market leases
|
11,718
|
|
|
4,413
|
|
Below market leasehold interests
|
54,252
|
|
|
4,188
|
|
Above market leasehold interests
|
(8,978
|
)
|
|
(50
|
)
|
Below market debt
|
—
|
|
|
360
|
|
Interest rate swaps
|
—
|
|
|
(779
|
)
|
Net assets acquired
|
2,646,673
|
|
|
629,426
|
|
Other, net
(1)
|
60,781
|
|
|
3,540
|
|
Aggregate purchase price
|
$
|
2,707,454
|
|
|
$
|
632,966
|
|
|
|
|
|
(1) For the nine months ended September 30, 2017, other, net, consisted primarily of capital expenditures and tenant improvements received as credits at the time of acquisition.
|
Subsequent to
September 30, 2017
, we completed an investment with a purchase price of
$8.3 million
. As part of the acquisition, we issued to the seller as a part of the acquisition consideration a total of
16,972
OP Units with a market value at the time of issuance of
$0.5 million
. The purchase price of this investment was subject to certain post-closing adjustments. Due to the recent timing of this investment, we have not yet completed our purchase price allocation with respect to this investment and, therefore, we cannot provide disclosures at this time similar to those set forth above in
Note 3 - Investments in Real Estate
to our condensed consolidated financial statements.
The acquired intangible assets and liabilities referenced above had weighted average lives of the following for the
nine months ended September 30, 2017
and
2016
, respectively (in years):
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
Acquired intangible assets
|
20.6
|
|
9.1
|
Acquired intangible liabilities
|
19.9
|
|
8.3
|
4. Impairment and Dispositions
During the
nine months ended September 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 GLA. In addition, during the
nine months ended September 30, 2017
, we recorded impairment charges of
$5.1 million
related to one MOB located in Massachusetts. During the
nine months ended September 30, 2016
, we completed a disposition of
four
senior care facilities for an aggregate gross sales price of
$26.5 million
. During the
nine months ended September 30, 2016
, we recorded
no
impairment charges.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. Intangible Assets and Liabilities
Intangible assets and liabilities consisted of the following as of
September 30, 2017
and
December 31, 2016
, respectively (in thousands, except weighted average remaining amortization):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Balance
|
|
Weighted Average Remaining
Amortization in Years
|
|
Balance
|
|
Weighted Average Remaining
Amortization in Years
|
Assets:
|
|
|
|
|
|
|
|
In place leases
|
$
|
478,052
|
|
|
9.7
|
|
$
|
294,597
|
|
|
9.7
|
Tenant relationships
|
170,539
|
|
|
10.7
|
|
172,974
|
|
|
10.6
|
Above market leases
|
39,724
|
|
|
6.3
|
|
28,401
|
|
|
6.3
|
Below market leasehold interests
|
92,362
|
|
|
63.4
|
|
38,136
|
|
|
60.4
|
|
780,677
|
|
|
|
|
534,108
|
|
|
|
Accumulated amortization
|
(299,398
|
)
|
|
|
|
(256,305
|
)
|
|
|
Total
|
$
|
481,279
|
|
|
19.2
|
|
$
|
277,803
|
|
|
16.1
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Below market leases
|
$
|
61,788
|
|
|
14.7
|
|
$
|
34,370
|
|
|
18.6
|
Above market leasehold interests
|
20,610
|
|
|
50.3
|
|
11,632
|
|
|
53.0
|
|
82,398
|
|
|
|
|
46,002
|
|
|
|
Accumulated amortization
|
(12,546
|
)
|
|
|
|
(8,946
|
)
|
|
|
Total
|
$
|
69,852
|
|
|
24.9
|
|
$
|
37,056
|
|
|
28.5
|
The following is a summary of the net intangible amortization for the
three and nine months ended September 30, 2017
and
2016
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Amortization recorded against rental income related to above and (below) market leases
|
$
|
(108
|
)
|
|
$
|
(115
|
)
|
|
$
|
(371
|
)
|
|
$
|
202
|
|
Rental expense related to above and (below) market leasehold interests
|
322
|
|
|
118
|
|
|
617
|
|
|
321
|
|
Amortization expense related to in place leases and tenant relationships
|
18,757
|
|
|
15,266
|
|
|
45,944
|
|
|
39,483
|
|
6. Receivables and Other Assets
Receivables and other assets consisted of the following as of
September 30, 2017
and
December 31, 2016
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Tenant receivables, net
|
$
|
14,417
|
|
|
$
|
8,722
|
|
Other receivables, net
|
10,161
|
|
|
9,233
|
|
Deferred financing costs, net
|
8,190
|
|
|
4,198
|
|
Deferred leasing costs, net
|
23,794
|
|
|
20,811
|
|
Straight-line rent receivables, net
|
83,133
|
|
|
74,052
|
|
Prepaid expenses, deposits, equipment and other, net
|
65,383
|
|
|
55,904
|
|
Derivative financial instruments - interest rate swaps
|
952
|
|
|
541
|
|
Total
|
$
|
206,030
|
|
|
$
|
173,461
|
|
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 nine months ended September 30, 2017
and
2016
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Amortization expense related to deferred leasing costs
|
$
|
1,445
|
|
|
$
|
1,224
|
|
|
$
|
4,179
|
|
|
$
|
3,368
|
|
Interest expense related to deferred financing costs
|
398
|
|
|
331
|
|
|
1,061
|
|
|
994
|
|
7. Debt
Debt consisted of the following as of
September 30, 2017
and
December 31, 2016
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Unsecured revolving credit facility
|
$
|
75,000
|
|
|
$
|
88,000
|
|
Unsecured term loans
|
500,000
|
|
|
500,000
|
|
Unsecured senior notes
|
1,850,000
|
|
|
950,000
|
|
Fixed rate mortgages loans
|
415,853
|
|
|
204,562
|
|
Variable rate mortgages loans
|
38,169
|
|
|
38,904
|
|
|
2,879,022
|
|
|
1,781,466
|
|
Deferred financing costs, net
|
(16,552
|
)
|
|
(9,527
|
)
|
Discount, net
|
(5,712
|
)
|
|
(3,034
|
)
|
Total
|
$
|
2,856,758
|
|
|
$
|
1,768,905
|
|
Unsecured Credit Agreement
Unsecured Revolving Credit Facility due 2022
On July 27, 2017,
HTALP
entered into an amended and restated
$1.3 billion
unsecured credit agreement (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
September 30, 2017
, the margin associated with our borrowings was
1.00%
per annum and the facility fee was
0.20%
per annum.
Unsecured Term Loan due 2023
On July 27, 2017, we entered into an amended and restated Unsecured Credit Agreement as noted above. As part of this agreement, we obtained a
$300.0 million
unsecured term loan that was guaranteed by us with a maturity date of
February 1, 2023
. Borrowings under this unsecured term loan accrue interest equal to adjusted
LIBOR
, plus a margin ranging from
0.90%
to
1.75%
per annum based on our credit rating. The margin associated with our borrowings as of
September 30, 2017
was
1.10%
per annum. Including the impact of the interest rate swaps associated with our unsecured term loan, the interest rate was
2.40%
per annum, based on our current credit rating. As of
September 30, 2017
,
HTALP
had
$300.0 million
under this unsecured term loan outstanding.
Bridge Loan Facility
In connection with the Duke Acquisition, in May 2017, we entered into a senior unsecured bridge loan facility (the “Bridge Loan Facility”) which provided to us up to
$2.47 billion
, less the aggregate amount of net proceeds from debt or equity capital raises or a senior term loan facility. The Bridge Loan Facility was made available to us on the closing of the Duke Acquisition and was scheduled to mature
364
days from the closing. In June 2017, we terminated the Bridge Loan Facility and
no
proceeds were used because we elected to fund the Duke Acquisition through other equity and debt offerings. In connection with the execution and subsequent termination of the Bridge Loan Facility, we incurred
$10.4 million
in related fees, which we recorded in income (loss) on extinguishment of debt in the accompanying condensed consolidated statements of operations.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
$200.0 Million
Unsecured Term Loan due 2023
As of
September 30, 2017
,
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
September 30, 2017
was
1.65%
per annum.
HTALP
had interest rate swaps in place that fixed the interest rate at
2.93%
per annum, based on our current credit rating.
$300.0 Million
Unsecured Senior Notes due 2021
As of
September 30, 2017
,
HTALP
had
$300.0 million
of unsecured senior notes outstanding that are guaranteed by us. These unsecured senior notes are registered under the Securities Act of 1933, as amended (the “Securities Act”), bear interest at
3.38%
per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at
99.21%
of the principal amount thereof, with an effective yield to maturity of
3.50%
per annum. As of
September 30, 2017
, HTALP had
$300.0 million
of these unsecured senior notes outstanding that mature on July 15, 2021.
$400.0 Million
Unsecured Senior Notes due 2022
In June 2017, in connection with the Duke Acquisition and the
$500.0 million
unsecured senior notes due 2027 referenced below, HTALP issued
$400.0 million
of unsecured senior notes that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at
2.95%
per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at
99.94%
of the principal amount thereof, with an effective yield to maturity of
2.96%
per annum. As of
September 30, 2017
, HTALP had
$400.0 million
of these unsecured senior notes outstanding that mature on July 1, 2022.
$300.0 Million
Unsecured Senior Notes due 2023
As of
September 30, 2017
,
HTALP
had
$300.0 million
of unsecured senior notes outstanding that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at
3.70%
per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at
99.19%
of the principal amount thereof, with an effective yield to maturity of
3.80%
per annum. As of
September 30, 2017
, HTALP had
$300.0 million
of these unsecured senior notes outstanding that mature on April 15, 2023.
$350.0 Million
Unsecured Senior Notes due 2026
As of
September 30, 2017
,
HTALP
had
$350.0 million
of unsecured senior notes outstanding that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at
3.50%
per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at
99.72%
of the principal amount thereof, with an effective yield to maturity of
3.53%
per annum. As of
September 30, 2017
, HTALP had
$350.0 million
of these unsecured senior notes outstanding that mature on August 1, 2026.
$500.0 Million
Unsecured Senior Notes due 2027
In June 2017, in connection with the Duke Acquisition and the
$400.0 million
unsecured senior notes due 2022 referenced above, HTALP issued
$500.0 million
of unsecured senior notes that are guaranteed by us. These unsecured senior notes are registered under the Securities Act, bear interest at
3.75%
per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at
99.49%
of the principal amount thereof, with an effective yield to maturity of
3.81%
per annum. As of
September 30, 2017
, HTALP had
$500.0 million
of these unsecured senior notes outstanding that mature on July 1, 2027.
Fixed and Variable Rate Mortgages
In June 2017, as part of the Duke Acquisition, we were required by the seller to execute as the borrower for a part of the purchase price a senior secured first lien loan, subject to customary non-recourse carve-outs, in the amount of
$286.0 million
(the “Promissory Note”). The Promissory Note bears interest at
4.0%
per annum and is payable in
three
equal payments maturing on January 10, 2020 and is guaranteed by us.
As of
September 30, 2017
,
HTALP
and its subsidiaries had fixed and variable rate mortgages loans with interest rates ranging from
2.70%
to
6.39%
per annum and a weighted average interest rate of
4.31%
per annum. Including the impact of the interest rate swap associated with our variable rate mortgages, the weighted average interest rate was
4.46%
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
September 30, 2017
(in thousands):
|
|
|
|
|
|
Year
|
|
Amount
|
Remainder of 2017
|
|
$
|
1,166
|
|
2018
|
|
100,827
|
|
2019
|
|
105,940
|
|
2020
|
|
144,892
|
|
2021
|
|
303,933
|
|
Thereafter
|
|
2,222,264
|
|
Total
|
|
$
|
2,879,022
|
|
Deferred Financing Costs
As of
September 30, 2017
, the future amortization of our deferred financing costs is as follows (in thousands):
|
|
|
|
|
|
Year
|
|
Amount
|
Remainder of 2017
|
|
$
|
618
|
|
2018
|
|
2,821
|
|
2019
|
|
2,826
|
|
2020
|
|
2,804
|
|
2021
|
|
2,610
|
|
Thereafter
|
|
4,873
|
|
Total
|
|
$
|
16,552
|
|
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 to unsecured interest expense. As of
September 30, 2017
, we believe that we were in compliance with all such financial covenants and reporting requirements. In addition, certain of our loan agreements include events of default provisions that we believe are customary for these types of facilities, including restricting us from making dividend distributions to our stockholders in the event we are in default thereunder, except to the extent necessary for us to maintain our REIT status.
8. 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.
The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income in the accompanying condensed consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the
three and nine months ended September 30, 2017
, such derivatives were used to hedge the variable cash flows associated with variable rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the
three and nine months ended September 30, 2017
, we recorded approximately
$4,000
and
$31,000
, respectively, of hedge ineffectiveness in earnings. We designated our derivative financial instruments as cash flow hedges in
March 2017
.
During the
nine months ended September 30, 2017
, we entered into and settled
two
treasury locks designated as cash flow hedges with an aggregate notional amount of
$250.0 million
to hedge future fixed rate debt issuances, which fixed the
10
-year swap rates at an average rate of
2.26%
per annum. Upon settlement of these contracts during the
nine months ended September 30, 2017
, we paid and reported a loss of
$0.7 million
which was recorded in accumulated other comprehensive loss in our accompanying condensed consolidated statements of comprehensive income (loss) and a gain of
$25,000
which was recorded in the change in fair value of our derivative financial instruments in our accompanying condensed consolidated statements of operations.
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
$0.4 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
September 30, 2017
, 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
|
|
September 30, 2017
|
Number of instruments
|
|
5
|
|
Notional amount
|
|
$
|
189,751
|
|
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
September 30, 2017
(in thousands). In
March 2017
, we designated our derivative financial instruments as cash flow hedges. As such, prior to March 2017 we did not have derivatives designated as hedging instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
Fair Value at:
|
|
|
|
Fair Value at:
|
Derivatives Designated as Hedging Instruments:
|
|
Balance Sheet
Location
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Balance Sheet
Location
|
|
September 30, 2017
|
|
December 31, 2016
|
Interest rate swaps
|
|
Receivables and other assets
|
|
$
|
952
|
|
|
$
|
—
|
|
|
Derivative financial instruments
|
|
$
|
1,441
|
|
|
$
|
—
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The tables below present the gain or loss recognized on our derivative financial instruments designated as hedges as well as our classification in the accompanying condensed consolidated statements of operations for the
three and nine months ended September 30, 2017
and
2016
(in thousands). In
March 2017
, we designated our derivative financial instruments as cash flow hedges. As such, prior to March 2017 we did not have derivatives designated as hedging instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in OCI on Derivative
(Effective Portion):
|
|
|
|
Gain (Loss) Reclassified from Accumulated OCI into Income
(Effective Portion):
|
|
|
|
Gain (Loss) Recognized in Income on Derivative
(Ineffective Portion and Amount Excluded from
Effectiveness Testing):
|
|
|
Three Months Ended September 30,
|
|
|
|
Three Months Ended September 30,
|
|
|
|
Three Months Ended September 30,
|
Derivatives Cash Flow Hedging Relationships:
|
|
2017
|
|
2016
|
|
Statement of Operations Location
|
|
2017
|
|
2016
|
|
Statement of Operations Location
|
|
2017
|
|
2016
|
Interest rate swaps
|
|
$
|
9
|
|
|
$
|
—
|
|
|
Interest related to derivative financial instruments
|
|
$
|
(196
|
)
|
|
$
|
—
|
|
|
Interest related to derivative financial instruments
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in OCI on Derivative
(Effective Portion):
|
|
|
|
Gain (Loss) Reclassified from Accumulated OCI into Income
(Effective Portion):
|
|
|
|
Gain (Loss) Recognized in Income on Derivative
(Ineffective Portion and Amount Excluded from
Effectiveness Testing):
|
|
|
Nine Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
Nine Months Ended
September 30,
|
Derivatives Cash Flow Hedging Relationships:
|
|
2017
|
|
2016
|
|
Statement of Operations Location
|
|
2017
|
|
2016
|
|
Statement of Operations Location
|
|
2017
|
|
2016
|
Interest rate swaps
|
|
$
|
(1,196
|
)
|
|
$
|
—
|
|
|
Interest related to derivative financial instruments
|
|
$
|
(565
|
)
|
|
—
|
|
|
Interest related to derivative financial instruments
|
|
$
|
(31
|
)
|
|
$
|
—
|
|
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
nine months ended September 30, 2017
, we recorded a gain on change in fair value of derivative financial instruments of
$0.9 million
. For the
three months ended September 30, 2017
, we did
no
t record a gain or loss on change in fair value of derivative financial instruments as we did not have any derivative financial instruments classified as non-designated hedges.
The table below presents the fair value of our derivative financial instruments not designated as hedges as well as our classification in the accompanying condensed consolidated balance sheets as of
December 31, 2016
(in thousands). In
March 2017
, we designated our derivative financial instruments as cash flow hedges. As such, as of March 2017 we did not have derivatives not designated as hedging instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
Fair Value at:
|
|
|
|
Fair Value at:
|
Derivatives NOT Designated as Hedging Instruments:
|
|
Balance Sheet
Location
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Balance Sheet
Location
|
|
September 30, 2017
|
|
December 31, 2016
|
Interest rate swaps
|
|
Receivables and other assets
|
|
$
|
—
|
|
|
$
|
541
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
1,920
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Tabular Disclosure of Offsetting Derivatives
The table below sets forth the net effects of offsetting and net presentation of our derivatives as of
September 30, 2017
and
December 31, 2016
, 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
|
September 30, 2017
|
|
$
|
952
|
|
|
$
|
—
|
|
|
$
|
952
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
952
|
|
December 31, 2016
|
|
541
|
|
|
—
|
|
|
541
|
|
|
—
|
|
|
—
|
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
September 30, 2017
|
|
$
|
1,441
|
|
|
$
|
—
|
|
|
$
|
1,441
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,441
|
|
December 31, 2016
|
|
1,920
|
|
|
—
|
|
|
1,920
|
|
|
—
|
|
|
—
|
|
|
1,920
|
|
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
September 30, 2017
, the fair value of derivatives in a net liability position, including accrued interest, but excluding any adjustment for nonperformance risk related to these agreements, was
$1.5 million
. As of
September 30, 2017
, 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 these provisions of these agreements, we could have been required to settle our obligations under these agreements at an aggregate termination value of
$1.5 million
at
September 30, 2017
.
9. 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.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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.
10. Stockholders’ Equity and Partners’ Capital
HTALP
’s operating partnership agreement provides that it will distribute cash flow from operations and net sale proceeds to its partners in accordance with their overall ownership interests at such times and in such amounts as the general partner determines. Dividend distributions are made such that a holder of
one
OP Unit in
HTALP
will receive distributions from
HTALP
in an amount equal to the dividend distributions paid to the holder of one share of our common stock. In addition, for each share of common stock issued or redeemed by us,
HTALP
issues or redeems a corresponding number of OP Units.
During the
nine months ended September 30, 2017
, we issued
$1.7 billion
of equity at an average price of
$28.70
per share.
Common Stock Offerings
In September 2017, we entered into new equity distribution agreements with our various sales agents with respect to our at-the-market (“ATM”) offering program of common stock with an aggregate sales amount of up to
$500.0 million
. We contemporaneously terminated our prior ATM equity distribution agreements. During the
nine months ended September 30, 2017
, and under the previous ATM, we issued and sold
3,998,000
shares of our common stock for
$125.7 million
of gross proceeds at an average price of
$31.45
per share. As of
September 30, 2017
,
$500.0 million
remained available for issuance by us under the September 2017 ATM.
During the
nine months ended September 30, 2017
, we, in connection with the Duke Acquisition, completed an underwritten public offering of
54,625,000
shares of our common stock for
$1.6 billion
of gross proceeds at a price of
$28.50
per share.
Subsequent to
September 30, 2017
, we issued
$200.0 million
of common stock under the ATM, including
$75.0 million
on a forward basis which will be issued over the next six months.
Common Unit Offerings
During the
nine months ended September 30, 2017
, we issued
20,687
OP Units in
HTALP
for approximately
$0.6 million
in connection with an acquisition transaction.
Subsequent to
September 30, 2017
, as part of an acquisition, we issued to the seller as a part of the acquisition consideration
16,972
OP Units in
HTALP
for approximately
$0.5 million
.
Common Stock Dividends
See our accompanying condensed consolidated statements of operations for the dividends declared during the
three and nine months ended September 30, 2017
and
2016
. On
October 24, 2017
, our Board of Directors announced a quarterly dividend of
$0.305
per share of common stock. The dividends are to be paid on
January 9, 2018
to stockholders of record of our common stock on
January 2, 2018
.
Incentive Plan
Our Amended and Restated 2006 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
September 30, 2017
, there were
1,689,585
awards available for grant under the Plan.
LTIP Units
Awards under the LTIP consist of Series C units in
HTALP
and were subject to the achievement of certain performance and market conditions in order to vest. O
nce vested, the Series C units were converted into common units of
HTALP
, which may be converted into shares of our common stock. The LTIP awards were fully expensed or forfeited in 2015.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Restricted Common Stock
For the
three and nine months ended September 30, 2017
, we recognized compensation expense of
$1.7 million
and
$5.5 million
, respectively. For the
three and nine months ended September 30, 2016
, we recognized compensation expense of
$2.1 million
and
$5.1 million
, respectively. Compensation expense for the
three and nine months ended September 30, 2017
and
2016
were recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations.
As of
September 30, 2017
, we had
$9.1 million
of unrecognized compensation expense, net of estimated forfeitures, which we will recognize over a remaining weighted average period of
1.8
years.
The following is a summary of our restricted common stock activity as of
September 30, 2017
and
2016
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
September 30, 2016
|
|
Restricted Common Stock
|
|
Weighted
Average Grant
Date Fair Value
|
|
Restricted Common Stock
|
|
Weighted
Average Grant
Date Fair Value
|
Beginning balance
|
640,870
|
|
|
$
|
27.36
|
|
|
487,850
|
|
|
$
|
23.13
|
|
Granted
|
292,109
|
|
|
29.75
|
|
|
417,110
|
|
|
29.82
|
|
Vested
|
(278,821
|
)
|
|
25.31
|
|
|
(236,749
|
)
|
|
23.27
|
|
Forfeited
|
(58,384
|
)
|
|
28.86
|
|
|
(24,391
|
)
|
|
25.93
|
|
Ending balance
|
595,774
|
|
|
$
|
29.39
|
|
|
643,820
|
|
|
$
|
27.35
|
|
11. Fair Value of Financial Instruments
Financial Instruments Reported at Fair Value - Recurring
The table below presents our assets and liabilities measured at fair value on a recurring basis as of
September 30, 2017
, aggregated by the applicable level in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
952
|
|
|
$
|
—
|
|
|
$
|
952
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
1,441
|
|
|
$
|
—
|
|
|
$
|
1,441
|
|
The table below presents our assets and liabilities measured at fair value on a recurring basis as of
December 31, 2016
, aggregated by the applicable level in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
541
|
|
|
$
|
—
|
|
|
$
|
541
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
—
|
|
|
$
|
1,920
|
|
|
$
|
—
|
|
|
$
|
1,920
|
|
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
September 30, 2017
, aggregated by the applicable level in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
MOB
(1)
|
|
$
|
—
|
|
|
$
|
1,423
|
|
|
$
|
—
|
|
|
$
|
1,423
|
|
|
|
|
|
|
|
|
|
|
(1) During the nine months ended September 30, 2017, we recognized a $5.1 million impairment charge to one MOB. The estimated fair value as of September 30, 2017 for this MOB was based upon real estate market comparables.
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The table below presents our assets measured at fair value on a non-recurring basis as of
December 31, 2016
, aggregated by the applicable level in the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
MOB
(1)
|
|
$
|
—
|
|
|
$
|
8,191
|
|
|
$
|
—
|
|
|
$
|
8,191
|
|
|
|
|
|
|
|
|
|
|
(1) During the year ended December 31, 2016, we recognized impairment charges of $1.3 million and $1.8 million to the carrying value of two MOBs. The estimated fair value as of December 31, 2016 for these two MOBs was based upon a pending sales agreement and real estate market comparables.
|
There have been no transfers of assets or liabilities between levels. We will record any such transfers at the 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 escrow deposits 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 September 30, 2017
, the fair value of the debt was
$2,913.3 million
compared to the carrying value of
$2,856.8 million
.
As of December 31, 2016
, the fair value of the debt was
$1,784.0 million
compared to the carrying value of
$1,768.9 million
.
12. Per Share Data of HTA
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. For the
three and nine months ended September 30, 2017
and
2016
, all of our earnings were distributed and the calculated earnings per share amount would be the same for all classes.
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per share of HTA for the
three and nine months ended September 30, 2017
and
2016
, respectively (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
13,957
|
|
|
$
|
6,639
|
|
|
$
|
22,105
|
|
|
$
|
30,191
|
|
Net income attributable to noncontrolling interests
|
(194
|
)
|
|
(212
|
)
|
|
(715
|
)
|
|
(830
|
)
|
Net income attributable to common stockholders
|
$
|
13,763
|
|
|
$
|
6,427
|
|
|
$
|
21,390
|
|
|
$
|
29,361
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
200,674
|
|
|
138,807
|
|
|
173,189
|
|
|
134,905
|
|
Dilutive shares
|
4,121
|
|
|
4,331
|
|
|
4,221
|
|
|
3,409
|
|
Weighted average shares outstanding - diluted
|
204,795
|
|
|
143,138
|
|
|
177,410
|
|
|
138,314
|
|
Earnings per common share - basic
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
$
|
0.07
|
|
|
$
|
0.05
|
|
|
$
|
0.12
|
|
|
$
|
0.22
|
|
Earnings per common share - diluted
|
|
|
|
|
|
|
|
Net income attributable to common stockholders
|
$
|
0.07
|
|
|
$
|
0.04
|
|
|
$
|
0.12
|
|
|
$
|
0.21
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13. Per Unit Data of
HTALP
The following is the reconciliation of the numerator and denominator used in basic and diluted earnings per unit of
HTALP
for the
three and nine months ended September 30, 2017
and
2016
, respectively (in thousands, except per unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
|
Net income
|
$
|
13,957
|
|
|
$
|
6,639
|
|
|
$
|
22,105
|
|
|
$
|
30,191
|
|
Net income attributable to noncontrolling interests
|
(28
|
)
|
|
(1
|
)
|
|
(80
|
)
|
|
(28
|
)
|
Net income attributable to common unitholders
|
$
|
13,929
|
|
|
$
|
6,638
|
|
|
$
|
22,025
|
|
|
$
|
30,163
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average units outstanding - basic
|
204,795
|
|
|
143,137
|
|
|
177,410
|
|
|
138,314
|
|
Dilutive units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Weighted average units outstanding - diluted
|
204,795
|
|
|
143,137
|
|
|
177,410
|
|
|
138,314
|
|
Earnings per common unit - basic:
|
|
|
|
|
|
|
|
Net income attributable to common unitholders
|
$
|
0.07
|
|
|
$
|
0.05
|
|
|
$
|
0.12
|
|
|
$
|
0.22
|
|
Earnings per common unit - diluted:
|
|
|
|
|
|
|
|
Net income attributable to common unitholders
|
$
|
0.07
|
|
|
$
|
0.05
|
|
|
$
|
0.12
|
|
|
$
|
0.22
|
|
14. Supplemental Cash Flow Information
The following is the supplemental cash flow information for the
nine months ended September 30, 2017
and
2016
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
Interest paid
|
$
|
51,066
|
|
|
$
|
39,321
|
|
Income taxes paid
|
997
|
|
|
934
|
|
|
|
|
|
Supplemental Disclosure of Noncash Investing and Financing Activities:
|
|
|
|
Accrued capital expenditures
|
$
|
4,185
|
|
|
$
|
2,868
|
|
Debt and interest rate swaps assumed and entered into in connection with an acquisition
|
286,000
|
|
|
21,156
|
|
Dividend distributions declared, but not paid
|
62,494
|
|
|
43,530
|
|
Issuance of operating partnership units in connection with an acquisition
|
610
|
|
|
71,754
|
|
Note receivable included in the consideration of a disposition
|
—
|
|
|
3,000
|
|
Note receivable retired in connection with an acquisition
|
2,494
|
|
|
—
|
|
Redeemable noncontrolling interest assumed in connection with an acquisition
|
—
|
|
|
5,449
|
|
Redemption of noncontrolling interest
|
5,694
|
|
|
5,709
|
|