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. We lease space to tenants primarily consisting of health systems, research and academic institutions, and various sized physician practices. Through our full-service operating platform, we provide leasing, asset management, acquisitions, development and other related services for our properties.
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.
Reclassifications
Certain prior year amounts related to the presentation of interest expense on the accompanying condensed consolidated statements of operations have been reclassified to conform to the current year presentation.
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 2018 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 noncontrolling interests on the accompanying condensed consolidated balance sheets and statements of operations, condensed consolidated statements of comprehensive income, and condensed consolidated statements of equity and changes in partners’ capital. 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 September 30, 2019 and December 31, 2018, there were approximately 3.8 million and 3.9 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.
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: (i) reserve accounts for property taxes, insurance, capital and tenant improvements; (ii) collateral accounts for debt and interest rate swaps; and (iii) deposits for future investments.
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):
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2019
|
|
2018
|
Cash and cash equivalents
|
$
|
12,748
|
|
|
$
|
225,518
|
|
Restricted cash
|
5,068
|
|
|
14,639
|
|
Total cash, cash equivalents and restricted cash
|
$
|
17,816
|
|
|
$
|
240,157
|
|
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 reimbursements, 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.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The revenue recognition process is based on a five-step model to account for revenue arising from contracts with customers as outlined in Topic 606. We 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 is governed and evaluated with the adoption of Topic 842.
Investments in Real Estate
Depreciation expense of buildings and improvements for the three months ended September 30, 2019 and 2018 was $54.9 million and $50.2 million, respectively. Depreciation expense of buildings and improvements for the nine months ended September 30, 2019 and 2018 was $158.9 million and $151.5 million, respectively.
Leases
As a lessor, we lease space in our MOBs primarily to medical enterprises for terms ranging from three to seven years in length. The assets underlying these leases consist of buildings and associated land which are included as real estate investments on our accompanying condensed consolidated balance sheets. All of our leases for which we are the lessor are classified as operating leases under Topic 842.
Leases, for which we are the lessee, are classified as separate components on our accompanying condensed consolidated balance sheets. Operating leases are included as right-of-use (“ROU”) assets, net, with a corresponding lease liability. A lease liability is recognized for our obligation related to the lease and an ROU asset represents our right to use the underlying asset over the lease term. Refer to Note 7 - Leases in the accompanying notes to the condensed consolidated financial statements for more detail relating to our leases.
Redeemable Noncontrolling Interests
We account for redeemable equity securities in accordance with ASU 2009-04 Liabilities (Topic 480): Accounting for Redeemable Equity Instruments, which requires that equity securities redeemable at the option of the holder, not solely within our control, be classified outside permanent stockholders’ equity. We classify redeemable equity securities as redeemable noncontrolling interests on the accompanying condensed consolidated balances sheets. Accordingly, we record the carrying amount at the greater of the initial carrying amount (increased or decreased for the noncontrolling interest’s share of net income or loss and distributions) or the redemption value. We measure the redemption value and record an adjustment to the carrying value of the equity securities as a component of redeemable noncontrolling interest. As of September 30, 2019, all redeemable noncontrolling interests have either converted their interest to OP Units or received cash proceeds due to the last exercisable put option that lapsed on June 30, 2019. As of December 31, 2018, we had redeemable noncontrolling interests of $6.5 million. Refer to Note 11 - Redeemable Noncontrolling Interests in the accompanying notes to the condensed consolidated financial statements for more detail relating to our redeemable noncontrolling interests.
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 and any distributions from the joint venture. As of September 30, 2019 and December 31, 2018, we had a 50% interest in one such investment with a carrying value and maximum exposure to risk of $66.3 million and $67.2 million, respectively, which is recorded in investment in unconsolidated joint venture on the accompanying condensed consolidated balance sheets. We record our share of net income in income from unconsolidated joint venture on the accompanying condensed consolidated statements of operations. For the three months ended September 30, 2019 and 2018, we recognized income of $0.4 million and $0.4 million, respectively. For the nine months ended September 30, 2019 and 2018, we recognized income of $1.5 million and $1.4 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
Recently Adopted Accounting Pronouncements
Topic 842, Leases
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02, codified as ASC 842 - Leases (Topic 842). This new standard superseded ASC Topic 840 and states that companies will be required to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. Topic 842 requires qualitative and quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand the nature of the entity’s leasing activities, including significant judgments and changes in judgments.
We adopted Topic 842 as of January 1, 2019 and elected to use the optional transition method, which allows us to recognize a cumulative-effect adjustment to the opening balance of retained earnings at January 1, 2019. Using the optional transition method, the cumulative effect adjustment was immaterial and as such no adjustment was made to beginning retained earnings. In addition, it was determined in our analysis that finance leases which we are the lessee were immaterial and as such were excluded from our disclosures.
In addition to electing the optional transition method above, we also elected the following practical expedients offered by the FASB which will allow us:
|
|
•
|
to not reassess: (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;
|
|
|
•
|
to not separate, as the lessor, certain non-lease components, such as common area maintenance from lease revenue if the (i) timing and pattern of revenue recognition are the same for the non-lease component, and (ii) related lease component and the combined single lease component would be classified as an operating lease;
|
|
|
•
|
to exclude land easements from assessment in determining whether they meet the definition of a lease up to the time of adoption; and
|
|
|
•
|
to not record on our accompanying condensed consolidated balance sheets, lease liabilities and ROU assets with lease terms of 12 months or less.
|
Lessee Impact
Leases for which we are the lessee, including ground leases and corporate leases, which are primarily for office space, have been recorded on our accompanying condensed consolidated balance sheets as either finance or operating leases with lease liability obligations and corresponding ROU assets based on the present value of the minimum rental payments remaining as of the initial adoption date of January 1, 2019.
Lessor Impact
Topic 842 modifies the treatment of initial direct costs, which historically under Topic 840 have been capitalized upon meeting criteria provided for in that applicable guidance. These initial direct costs now under ASC 842 are eligible for capitalization only if they are incremental in nature, (i.e., would only be incurred if we enter into a new lease arrangement). Under this guidance, only commissions paid and other incurred costs incremental to our leasing activity qualify as initial direct costs. These costs, which were previously capitalized, have been classified as general and administrative expenses on our accompanying condensed consolidated statements of operations. For the three and nine months ended September 30, 2018, we capitalized approximately $1.5 million and $3.7 million, respectively, of initial direct costs.
Additionally, as part of Topic 842, ASU 2018-20 states that (i) a lessor must analyze sales (and other similar) tax laws on a jurisdiction-by-jurisdiction basis to determine whether those taxes are lessor costs or lessee costs and (ii) a lessor shall exclude from variable payments, lessor costs (i.e., property taxes, insurance) paid by a lessee directly to a third party. However, costs that are paid by a lessor directly to a third party and are reimbursed by a lessee are considered lessor costs that shall be accounted for by the lessor as variable payments. As a result of the adoption of Topic 842, we no longer record income or expense when the lessee pays the property taxes directly to a third party. For the three and nine months ended September 30, 2018, we recognized approximately $3.5 million and $10.5 million, respectively, of tenant paid property taxes.
Except where stated above, the adoption of Topic 842 did not have a substantive impact on our results of operations and cash flows and no significant impact on any of our debt covenants.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
ASU 2018-07, Compensation - Stock Compensation; Improvements to Nonemployee Share-Based Payment Accounting
In June 2018, the FASB issued ASU 2018-07, which expands the scope of Topic 718. The amendments specify that ASU 2018-07 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. ASU 2018-07 also clarifies that it 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. We adopted ASU 2018-07 on January 1, 2019 (the effective date) and did not have any reclassifications or material impacts on our consolidated financial statements as a result of this adoption.
Recently Issued Accounting Pronouncements
ASU 2016-13, Financial Instruments Credit Losses; Measurement of Credit Losses on Financial Instruments and ASU 2018-19, 2019-04 and 2019-05, Improvements to Topic 326, Financial Instruments-Credit Losses
In June 2016, the FASB issued ASU 2016-13, which 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 2018-19 also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of these receivables should be accounted for in accordance with Topic 842, Leases. ASU 2019-04 provides clarification on the measurement, presentation and disclosure of credit losses on financial assets. ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis for comparability to any new financial assets that elect the fair value option. We will adopt ASU 2016-13, ASU 2018-19, ASU 2019-04 and ASU 2019-05 collectively as of January 1, 2020 (the effective date) and do not anticipate there to be a material impact to our consolidated financial statements and related notes based on our ongoing evaluation.
ASU 2018-13, Fair Value Measurement; Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, which modifies the disclosure requirements on fair value measurements in Topic 820 as follows: (a) disclosure removals: (i) the amount of and reasons for transfers between Level 1 and Level 2; (ii) the policy for timing of transfers between levels; and (iii) the valuation process for Level 3 fair value measurements; (b) disclosure modifications: (i) no requirement to disclose the timing of liquidation unless the investee has communicated the timing to the reporting entity or announced the timing publicly; and (ii) for Level 3 fair value measurements, a narrative description of measurement uncertainty at the reporting date, not the sensitivity to future changes; and (c) disclosure additions: (i) for recurring Level 3 measurements, disclose the changes in unrealized gains and losses for the period included in OCI and the statement of comprehensive income; and (ii) for Level 3 fair value measurements in the table of significant input, disclose the range and weighted average of the significant unobservable inputs and the way it is calculated. We will adopt ASU 2018-13 as of January 1, 2020 (the effective date) and will consider all level inputs but we do not anticipate there to be a material impact to our consolidated financial statements and related notes based on our ongoing evaluation.
3. Investments in Real Estate
For the nine months ended September 30, 2019, our investments had an aggregate purchase price of $229.9 million. As part of these investments, we incurred approximately $1.5 million of capitalized costs. As part of one of our acquisitions in the third quarter of 2019, we issued to our sellers 72,294 OP Units with a market value at the time of issuance of $2.0 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, 2019 and 2018, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
Land
|
$
|
33,408
|
|
|
$
|
1,895
|
|
Building and improvements
|
174,708
|
|
|
14,458
|
|
In place leases
|
18,532
|
|
|
1,237
|
|
Below market leases
|
(3,386
|
)
|
|
(201
|
)
|
Above market leases
|
2,046
|
|
|
—
|
|
Net real estate assets acquired
|
225,308
|
|
|
17,389
|
|
Other, net
|
4,543
|
|
|
447
|
|
Aggregate purchase price
|
$
|
229,851
|
|
|
$
|
17,836
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The acquired intangible assets and liabilities referenced above had weighted average lives of the following terms for the nine months ended September 30, 2019 and 2018, respectively (in years):
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
Acquired intangible assets
|
5.6
|
|
5.8
|
Acquired intangible liabilities
|
7.7
|
|
6.5
|
4. Impairment
During the nine months ended September 30, 2019, we recorded no impairment charges. During the nine months ended September 30, 2018, we recorded an impairment charge of $8.9 million on six MOBs located in Tennessee, Texas and South Carolina.
5. Intangible Assets and Liabilities
Intangible assets and liabilities consisted of the following as of September 30, 2019 and December 31, 2018, respectively (in thousands, except weighted average remaining amortization terms):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Balance
|
|
Weighted Average Remaining
Amortization in Years
|
|
Balance
|
|
Weighted Average Remaining
Amortization in Years
|
Assets:
|
|
|
|
|
|
|
|
In place leases
|
$
|
459,307
|
|
|
9.4
|
|
$
|
449,424
|
|
|
9.8
|
Tenant relationships
|
147,639
|
|
|
9.6
|
|
150,440
|
|
|
9.4
|
Above market leases
|
37,988
|
|
|
6.2
|
|
36,862
|
|
|
6.1
|
Below market leasehold interests (1)
|
—
|
|
|
|
|
91,759
|
|
|
64.3
|
|
644,934
|
|
|
|
|
728,485
|
|
|
|
Accumulated amortization
|
(384,996
|
)
|
|
|
|
(355,576
|
)
|
|
|
Total
|
$
|
259,938
|
|
|
9.2
|
|
$
|
372,909
|
|
|
22.1
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Below market leases
|
$
|
64,409
|
|
|
13.4
|
|
$
|
61,395
|
|
|
14.6
|
Above market leasehold interests (1)
|
—
|
|
|
|
|
20,610
|
|
|
49.2
|
|
64,409
|
|
|
|
|
82,005
|
|
|
|
Accumulated amortization
|
(24,643
|
)
|
|
|
|
(20,859
|
)
|
|
|
Total
|
$
|
39,766
|
|
|
13.4
|
|
$
|
61,146
|
|
|
25.3
|
|
|
|
|
|
|
|
|
(1) As a result of the adoption of Topic 842 on January 1, 2019, the presentation of below and above market leasehold interests as of September 30, 2019 does not conform to the prior year presentation.
|
The following is a summary of the net intangible amortization for the three and nine months ended September 30, 2019 and 2018, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Amortization recorded against rental income related to above and (below) market leases
|
$
|
(1,658
|
)
|
|
$
|
(352
|
)
|
|
$
|
(2,678
|
)
|
|
$
|
(660
|
)
|
Rental expense related to above and (below) market leasehold interests (1)
|
—
|
|
|
287
|
|
|
—
|
|
|
850
|
|
Amortization expense related to in place leases and tenant relationships
|
16,149
|
|
|
18,475
|
|
|
44,906
|
|
|
52,800
|
|
|
|
|
|
|
|
|
|
(1) As a result of the adoption of Topic 842 on January 1, 2019, the presentation of rental expense related to above and below market leasehold interests for the three and nine months ended September 30, 2019 does not conform to the prior year presentation.
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6. Receivables and Other Assets
Receivables and other assets consisted of the following as of September 30, 2019 and December 31, 2018, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Tenant receivables, net
|
$
|
16,596
|
|
|
$
|
14,588
|
|
Other receivables, net
|
17,218
|
|
|
16,078
|
|
Deferred financing costs, net
|
4,756
|
|
|
6,049
|
|
Deferred leasing costs, net
|
34,811
|
|
|
30,731
|
|
Straight-line rent receivables, net
|
104,794
|
|
|
92,973
|
|
Prepaid expenses, deposits, equipment and other, net
|
50,695
|
|
|
61,885
|
|
Derivative financial instruments - interest rate swaps
|
1,293
|
|
|
1,111
|
|
Total
|
$
|
230,163
|
|
|
$
|
223,415
|
|
The following is a summary of the amortization of deferred leasing costs and financing costs for the three and nine months ended September 30, 2019 and 2018, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Amortization expense related to deferred leasing costs
|
$
|
1,949
|
|
|
$
|
1,357
|
|
|
$
|
5,978
|
|
|
$
|
4,166
|
|
Interest expense related to deferred financing costs
|
431
|
|
|
431
|
|
|
1,293
|
|
|
1,293
|
|
7. Leases
The majority of our lease expenses are derived from our ground leases and a few corporate leases, which are primarily for office space. We recognize lease expense for these leases on a straight-line basis over the lease term. Many of our leases contain renewal options that can extend the lease term from one to ten years, or in certain cases, longer durations. The exercise of lease renewal options is at our sole discretion. Certain of our ground leases have the option to purchase the land at the end of the initial term. Our leases have one of the following payment options: (i) fixed payment throughout the term; (ii) fixed payments with periodic escalations; (iii) variable lease payments based on the Consumer Price Index (“CPI”) or another similar index; and (iv) a combination of the aforementioned. Our leases do not contain any material residual value guarantees or material restrictive covenants other than certain prohibitions as to the nature of business that can be conducted within the buildings which we own in order to limit activities that may be deemed competitive in nature to the ground lessor’s activities.
As part of the adoption of Topic 842, a lease liability and a corresponding ROU asset was recorded on our accompanying condensed consolidated balance sheets effective January 1, 2019. The lease liability was calculated as the present value of the remaining lease payments using the lease term at lease commencement and an incremental borrowing rate. In determining this calculation, we made the following assumptions and judgments:
|
|
•
|
only material ground leases and corporate leases exceeding one year in duration were included in our lease population. Office equipment and other non-essential leases were excluded from this population due to immateriality; and
|
|
|
•
|
a series of incremental borrowing rates were determined based on observed prices and credit spreads of our unsecured senior debt as of December 31, 2018 after applying treasury or other similar index rates as of January 1, 2019 to leases that correspond to the remaining lease terms, adjusted for the effects of collateral.
|
At adoption, the ROU asset was calculated as the sum of the lease liability, deferred rent of approximately ($19.0) million, and the above and below market leasehold interest balances as of December 31, 2018 of approximately $66.5 million, which were previously recorded as other intangibles and intangible liabilities on our accompanying condensed consolidated balance sheets.
As of September 30, 2019, we have an executed ground lease that has not commenced in accordance with Topic 842. The date of commencement is anticipated to be in the fourth quarter of 2019 when substantive rights and economic control of the underlying asset transfers to us, at which time we will commence construction of a new MOB located in Bakersfield, CA. On that date, we will book a ROU asset and a corresponding lease liability of approximately $3.3 million. As of September 30, 2019, we have no new corporate leases that have not yet commenced.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Lessee - Lease Costs
Lease costs consisted of the following for the three and nine months ended September 30, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2019
|
|
September 30, 2019
|
Operating lease cost
|
|
$
|
3,221
|
|
|
$
|
9,342
|
|
Variable lease cost
|
|
517
|
|
|
1,231
|
|
Total lease cost
|
|
$
|
3,738
|
|
|
$
|
10,573
|
|
Lessee - Lease Term and Discount Rates
The following is the weighted average remaining lease term and the weighted average discount rate for our operating leases as of September 30, 2019 (weighted average remaining lease term in years):
|
|
|
|
|
|
|
September 30, 2019
|
Weighted-average remaining lease term
|
|
47.7
|
|
Weighted-average discount rate
|
|
5.3
|
%
|
Lessee - Maturity of Lease Liabilities
The following table summarizes the future minimum lease obligations of our operating leases as of September 30, 2019 under Topic 842 (in thousands):
|
|
|
|
|
|
Year
|
|
Amount
|
2019
|
|
$
|
2,507
|
|
2020
|
|
10,160
|
|
2021
|
|
10,283
|
|
2022
|
|
10,440
|
|
2023
|
|
10,600
|
|
2024
|
|
10,263
|
|
Thereafter
|
|
624,145
|
|
Total undiscounted lease payments
|
|
$
|
678,398
|
|
Less: Interest
|
|
(477,453
|
)
|
Present value of lease liabilities
|
|
$
|
200,945
|
|
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, Topic 840, the following table summarizes the future minimum lease obligations of our operating leases as of December 31, 2018 (in thousands):
|
|
|
|
|
|
Year
|
|
Amount
|
2019
|
|
$
|
10,309
|
|
2020
|
|
10,408
|
|
2021
|
|
9,877
|
|
2022
|
|
10,031
|
|
2023
|
|
10,132
|
|
Thereafter
|
|
639,234
|
|
Total
|
|
$
|
689,991
|
|
Lessor - Lease Revenues and Maturity of Future Minimum Rents
For the three and nine months ended September 30, 2019, we recognized $173.1 million and $511.5 million, respectively, of rental and other lease-related income related to our operating leases of which $39.1 million and $115.2 million, respectively, were variable lease payments.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table summarizes the future minimum rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of September 30, 2019 under Topic 842 (in thousands):
|
|
|
|
|
|
Year
|
|
Amount
|
2019
|
|
$
|
122,688
|
|
2020
|
|
493,571
|
|
2021
|
|
444,676
|
|
2022
|
|
391,467
|
|
2023
|
|
340,671
|
|
2024
|
|
295,613
|
|
Thereafter
|
|
1,144,912
|
|
Total
|
|
$
|
3,233,598
|
|
As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, Topic 840, the following table summarizes the future minimum rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of December 31, 2018 (in thousands):
|
|
|
|
|
|
Year
|
|
Amount
|
2019
|
|
$
|
497,083
|
|
2020
|
|
448,956
|
|
2021
|
|
401,871
|
|
2022
|
|
341,889
|
|
2023
|
|
294,451
|
|
Thereafter
|
|
1,244,246
|
|
Total
|
|
$
|
3,228,496
|
|
8. Debt
Debt consisted of the following as of September 30, 2019 and December 31, 2018, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Unsecured revolving credit facility
|
$
|
15,000
|
|
|
$
|
—
|
|
Unsecured term loans
|
500,000
|
|
|
500,000
|
|
Unsecured senior notes
|
2,050,000
|
|
|
1,850,000
|
|
Fixed rate mortgages
|
114,657
|
|
|
211,421
|
|
|
2,679,657
|
|
|
2,561,421
|
|
Deferred financing costs, net
|
(16,088
|
)
|
|
(13,741
|
)
|
Discount, net
|
2,122
|
|
|
(6,448
|
)
|
Total
|
$
|
2,665,691
|
|
|
$
|
2,541,232
|
|
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 to 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, 2019, HTALP had $15.0 million under this unsecured revolving credit facility outstanding and an interest rate of 3.24% per annum. The margin associated with our borrowings was 1.00% per annum and the facility fee was 0.20% per annum.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Unsecured Term Loan due 2023
In 2017, we entered into the Unsecured Credit Agreement as noted above. As part of this agreement, we obtained a $300.0 million unsecured term loan that was guaranteed by HTA 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, 2019 was 1.10% per annum. Including the impact of the interest rate swaps associated with our unsecured term loan, the interest rate was 2.52% per annum, based on our current credit rating. As of September 30, 2019, HTALP had $300.0 million under this unsecured term loan outstanding.
$200.0 Million Unsecured Term Loan due 2024
In 2018, HTALP entered into a modification of our $200.0 million unsecured term loan with a maturity date of January 15, 2024. Borrowings under the unsecured term loan accrue interest at a rate equal to LIBOR, plus a margin ranging from 0.75% to 1.65% per annum based on our credit rating. The margin associated with our borrowings as of September 30, 2019 was 1.00% per annum. HTALP had interest rate swaps on a portion of the balance, which resulted in a fixed interest rate at 2.32% per annum, based on our current credit rating. As of September 30, 2019, HTALP had $200.0 million under this unsecured term loan outstanding.
$300.0 Million Unsecured Senior Notes due 2021
In September 2019, in connection with HTALP’s issuance of $900.0 million of unsecured senior notes, all of the $300.0 million outstanding 2021 unsecured senior notes originally due to mature on July 15, 2021, including any accrued and unpaid interest and a make-whole provision, were redeemed in full, with net proceeds from the offering. The make-whole fee of $7.4 million is recorded in loss on extinguishment of debt in the accompanying condensed consolidated statements of operations.
$400.0 Million Unsecured Senior Notes due 2022
In September 2019, in connection with HTALP’s issuance of $900.0 million of unsecured senior notes, all of the $400.0 million outstanding 2022 unsecured senior notes originally due to mature on July 1, 2022, including any accrued and unpaid interest and a make-whole provision, were redeemed in full, with net proceeds from the offering. The make-whole fee of $10.9 million is recorded in loss on extinguishment of debt in the accompanying condensed consolidated statements of operations.
$300.0 Million Unsecured Senior Notes due 2023
As of September 30, 2019, HTALP had $300.0 million of unsecured senior notes outstanding that are guaranteed by HTA. These unsecured senior notes are registered under the Securities Act of 1933, as amended (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, 2019, HTALP had $300.0 million of these unsecured senior notes outstanding that mature on April 15, 2023.
$600.0 Million Unsecured Senior Notes due 2026
In September 2019, in connection with the $650.0 million unsecured senior notes due 2030 referenced below, HTALP issued $250.0 million as additional unsecured senior notes to the $350.0 million aggregate principal of senior notes issued on July 12, 2016, all of which are guaranteed by HTA. 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 103.66% and 99.72%, respectively, of the principal amount thereof, with an effective yield to maturity of 2.89% and 3.53%, respectively, per annum. As of September 30, 2019, HTALP had $600.0 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 HTA. 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, 2019, HTALP had $500.0 million of these unsecured senior notes outstanding that mature on July 1, 2027.
$650.0 Million Unsecured Senior Notes due 2030
In September 2019, in connection with the $250.0 million additional unsecured senior notes due 2026 referenced above, HTALP issued $650.0 million of unsecured senior notes that are guaranteed by HTA. These unsecured senior notes are registered under the Securities Act, bear interest at 3.10% per annum and are payable semi-annually. Additionally, these unsecured senior notes were offered at 99.66% of the principal amount thereof, with an effective yield to maturity of 3.14% per annum. As of September 30, 2019, HTALP had $650.0 million of these unsecured senior notes outstanding that mature on February 15, 2030.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Fixed Rate Mortgages
As of September 30, 2019, HTALP and its subsidiaries had fixed rate mortgages with interest rates ranging from 2.85% to 4.00% per annum and a weighted average interest rate of 3.93% per annum. During the nine months ended September 30, 2019, we repaid $96.8 million of our fixed rate mortgages. As of September 30, 2019, we had $114.7 million of fixed rate mortgages outstanding.
Future Debt Maturities
The following table summarizes the debt maturities and scheduled principal repayments of our indebtedness as of September 30, 2019 (in thousands):
|
|
|
|
|
|
Year
|
|
Amount
|
2019
|
|
$
|
598
|
|
2020
|
|
97,429
|
|
2021
|
|
2,504
|
|
2022
|
|
17,005
|
|
2023
|
|
612,121
|
|
Thereafter
|
|
1,950,000
|
|
Total
|
|
$
|
2,679,657
|
|
Deferred Financing Costs
As of September 30, 2019, the future amortization of our deferred financing costs is as follows (in thousands):
|
|
|
|
|
|
Year
|
|
Amount
|
2019
|
|
$
|
858
|
|
2020
|
|
2,555
|
|
2021
|
|
2,560
|
|
2022
|
|
2,561
|
|
2023
|
|
1,842
|
|
Thereafter
|
|
5,712
|
|
Total
|
|
$
|
16,088
|
|
Debt Covenants
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 September 30, 2019, 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, the fair value of derivative financial instruments designated as cash flow hedges are 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.
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 $1.2 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, 2019, 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, 2019
|
Number of instruments
|
|
7
|
|
Notional amount
|
|
$
|
500,000
|
|
The table below presents the fair value of our derivative financial instruments designated as cash flow hedges as well as the classification in the accompanying condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
Fair Value at:
|
|
|
|
Fair Value at:
|
Derivatives Designated as Hedging Instruments:
|
|
Balance Sheet
Location
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Balance Sheet
Location
|
|
September 30, 2019
|
|
December 31, 2018
|
Interest rate swaps
|
|
Receivables and other assets
|
|
$
|
1,293
|
|
|
$
|
1,111
|
|
|
Derivative financial instruments
|
|
$
|
1,152
|
|
|
$
|
—
|
|
The table below presents the gain or loss recognized on our derivative financial instruments designated as cash flow hedges as well as the classification in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in OCI on Derivative
|
|
|
|
Gain (Loss) Reclassified from Accumulated OCI into Income
|
|
|
Three Months Ended September 30,
|
|
|
|
Three Months Ended September 30,
|
Derivatives Cash Flow Hedging Relationships:
|
|
2019
|
|
2018
|
|
Statement of Operations Location
|
|
2019
|
|
2018
|
Interest rate swaps
|
|
$
|
2,559
|
|
|
$
|
96
|
|
|
Interest expense
|
|
$
|
269
|
|
|
$
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in OCI on Derivative
|
|
|
|
Gain (Loss) Reclassified from Accumulated OCI into Income
|
|
|
Nine Months Ended September 30,
|
|
|
|
Nine Months Ended September 30,
|
Derivatives Cash Flow Hedging Relationships:
|
|
2019
|
|
2018
|
|
Statement of Operations Location
|
|
2019
|
|
2018
|
Interest rate swaps
|
|
$
|
2,508
|
|
|
$
|
1,437
|
|
|
Interest expense
|
|
$
|
989
|
|
|
$
|
450
|
|
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, 2019 and December 31, 2018, respectively (in thousands). The net amounts of derivative assets can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets are presented in the accompanying condensed consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of Derivative Assets
|
|
|
Gross Amounts of Recognized Assets
|
|
Gross Amounts Offset in the Balance Sheets
|
|
Net Amounts of Assets Presented in the Balance Sheets
|
|
Financial Instruments
|
|
Cash Collateral Received
|
|
Net Amount
|
September 30, 2019
|
|
$
|
571
|
|
|
$
|
722
|
|
|
$
|
1,293
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,293
|
|
December 31, 2018
|
|
1,111
|
|
|
—
|
|
|
1,111
|
|
|
—
|
|
|
—
|
|
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of Derivative Liabilities
|
|
|
Gross Amounts of Recognized Liabilities
|
|
Gross Amounts Offset in the Balance Sheets
|
|
Net Amounts of Liabilities Presented in the Balance Sheets
|
|
Financial Instruments
|
|
Cash Collateral Received
|
|
Net Amount
|
September 30, 2019
|
|
$
|
430
|
|
|
$
|
722
|
|
|
$
|
1,152
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,152
|
|
December 31, 2018
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
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, 2019, 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 $0.4 million. As of September 30, 2019, 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 $0.4 million at September 30, 2019.
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 adverse 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 adverse effect on our condensed consolidated financial position, results of operations or cash flows.
11. Redeemable Noncontrolling Interests
As discussed in Note 2 - Summary of Significant Accounting Policies, redeemable noncontrolling interests on the accompanying condensed consolidated balance sheets represent the noncontrolling interest in a joint venture in which we own
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
the majority interest. The noncontrolling interest holders in the joint venture have the option to redeem their noncontrolling interest through the exercise of put options that were issued at the initial formation of the joint venture. The last exercisable put option lapsed on June 30, 2019. The redemption price was based on the fair value of their interest at the time of option exercise. As of September 30, 2019, all redeemable noncontrolling interests have either converted their interest to OP Units or received cash proceeds.
The following is a summary of the activity of our redeemable noncontrolling interests as of September 30, 2019 and December 31, 2018, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
Beginning balance
|
$
|
6,544
|
|
|
$
|
6,737
|
|
Net income attributable to noncontrolling interests
|
66
|
|
|
89
|
|
Distributions
|
(141
|
)
|
|
(282
|
)
|
Fair value adjustment
|
(425
|
)
|
|
—
|
|
Redemptions
|
(3,441
|
)
|
|
—
|
|
Issuance of OP Units
|
(2,603
|
)
|
|
—
|
|
Ending balance
|
$
|
—
|
|
|
$
|
6,544
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
12. 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 HTA, HTALP issues or redeems a corresponding number of OP Units.
Common Stock Offerings
In December 2018, we entered into new equity distribution agreements with 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. In September 2019, we settled a forward sale arrangement pursuant to a forward equity agreement that was entered into in June 2019, which included the sale of approximately 1.8 million shares of our common stock for net proceeds of approximately $51.8 million, adjusted for costs to borrow equating to a net price to us of $28.13 per share of common stock. As of September 30, 2019, $448.2 million remained available for issuance by us under the ATM.
In October 2019, we entered into a forward sale arrangement pursuant to a forward equity agreement, with anticipated net proceeds of $172.7 million with a maturity date of October 2020, subject to adjustments as provided in the forward equity agreement. Refer to Note 14 - Per Share Data of HTA to these condensed consolidated financial statements for a more detailed discussion related to our forward equity agreements.
Stock Repurchase Plan
During the nine months ended September 30, 2019, we repurchased 345,786 shares of our common stock, at an average price of $24.65 per share, for an aggregate amount of approximately $8.5 million, pursuant to our stock repurchase plan. As of September 30, 2019, the remaining amount of common stock available for repurchase under our stock repurchase plan was approximately $224.3 million.
Common Stock Dividends
See our accompanying condensed consolidated statements of equity and condensed statements of changes in partners’ capital for the dividends declared during the three and nine months ended September 30, 2019 and 2018. On October 28, 2019, our Board of Directors announced a quarterly cash dividend of $0.315 per share of common stock and per OP Unit to be paid on January 9, 2020 to stockholders of record of our common stock and holders of our OP Units on January 2, 2020.
Incentive Plan
Our Incentive Plan permits the grant of incentive awards to our employees, officers, non-employee directors and consultants as selected by our Board of Directors. This 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, 2019, there were 1,065,132 awards available for grant under the Plan.
Restricted Common Stock
For the three and nine months ended September 30, 2019, we recognized compensation expense of $2.3 million and $7.8 million, respectively. For the three and nine months ended September 30, 2018, we recognized compensation expense of $2.1 million and $7.8 million, respectively. Substantially all compensation expense was recorded in general and administrative expenses in the accompanying condensed consolidated statements of operations.
As of September 30, 2019, we had $7.3 million of unrecognized compensation expense, net of estimated forfeitures, which we will recognize over a remaining weighted average period of 1.4 years.
The following is a summary of our restricted common stock activity as of September 30, 2019 and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
Restricted Common Stock
|
|
Weighted
Average Grant
Date Fair Value
|
|
Restricted Common Stock
|
|
Weighted
Average Grant
Date Fair Value
|
Beginning balance
|
624,349
|
|
|
$
|
29.35
|
|
|
589,606
|
|
|
$
|
29.38
|
|
Granted
|
333,820
|
|
|
26.06
|
|
|
360,700
|
|
|
28.70
|
|
Vested
|
(338,540
|
)
|
|
28.53
|
|
|
(255,946
|
)
|
|
28.68
|
|
Forfeited
|
(13,951
|
)
|
|
28.22
|
|
|
(38,882
|
)
|
|
28.97
|
|
Ending balance
|
605,678
|
|
|
$
|
28.05
|
|
|
655,478
|
|
|
$
|
29.30
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13. Fair Value of Financial Instruments
Financial Instruments Reported at Fair Value - Recurring
The table below presents the carrying amounts and fair values of our financial instruments on a recurring basis as of September 30, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
Level 2 - Assets:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
1,293
|
|
|
$
|
1,293
|
|
|
$
|
1,111
|
|
|
$
|
1,111
|
|
Level 2 - Liabilities:
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
1,152
|
|
|
$
|
1,152
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Debt
|
|
2,665,691
|
|
|
2,734,978
|
|
|
2,541,232
|
|
|
2,508,599
|
|
The carrying amounts of cash and cash equivalents, tenant and other receivables, restricted cash, accounts payable, and accrued liabilities approximate fair value. 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 cash flow hedges 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 cash flow hedge positions and have determined that the credit valuation adjustments are not significant to their overall valuation. As a result, we have determined that our cash flow hedge valuations in their entirety are classified in Level 2 of the fair value hierarchy. For further discussion of the assumptions considered, refer to Note 2 - Summary of Significant Accounting Policies.
Financial Instruments Reported at Fair Value - Non-Recurring
We also have assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. This generally includes assets subject to impairment.
14. Per Share Data of HTA
In September 2019, we settled a forward sale arrangement pursuant to a forward equity agreement that was entered into in June 2019, to sell approximately 1.8 million shares of common stock through our ATM at a price of $28.13 per share, for net proceeds of $51.8 million. 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.
In addition, we considered the potential dilution resulting from the forward equity agreement mentioned above on our earnings per common share calculations. We use the treasury method to determine the dilution resulting from the forward equity agreement during the period of time prior to settlement. The impact to our weighted-average shares - diluted was anti-dilutive in nature and thus approximately 24,000 and 9,000, respectively, were excluded from the calculation for the three and nine months ended September 30, 2019.
In October 2019, we entered into a forward sale arrangement pursuant to a forward equity agreement to sell approximately 6.0 million shares of common stock through our ATM at a price of $28.64 per share, for anticipated net proceeds of approximately $172.7 million with a maturity date of October 2020, subject to adjustments as provided in the forward equity agreement. We anticipate using these net proceeds to fund purchases of additional MOBs and for general corporate purposes.
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 nine months ended September 30, 2019 and 2018, all of our earnings were distributed and the calculated earnings per share amount would be the same for all classes.
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
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, 2019 and 2018, respectively (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(8,577
|
)
|
|
$
|
176,348
|
|
|
$
|
21,722
|
|
|
$
|
202,021
|
|
Net income attributable to noncontrolling interests
|
114
|
|
|
(3,362
|
)
|
|
(486
|
)
|
|
(3,887
|
)
|
Net income attributable to common stockholders
|
$
|
(8,463
|
)
|
|
$
|
172,986
|
|
|
$
|
21,236
|
|
|
$
|
198,134
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
205,277
|
|
|
207,513
|
|
|
205,156
|
|
|
205,950
|
|
Dilutive shares - OP Units convertible into common stock
|
—
|
|
|
3,931
|
|
|
3,870
|
|
|
4,018
|
|
Adjusted weighted average shares outstanding - diluted
|
205,277
|
|
|
211,444
|
|
|
209,026
|
|
|
209,968
|
|
Earnings per common share - basic
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
$
|
(0.04
|
)
|
|
$
|
0.83
|
|
|
$
|
0.10
|
|
|
$
|
0.96
|
|
Earnings per common share - diluted
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders
|
$
|
(0.04
|
)
|
|
$
|
0.82
|
|
|
$
|
0.10
|
|
|
$
|
0.94
|
|
15. Per Unit Data of HTALP
In September 2019, we settled a forward sale arrangement pursuant to a forward equity agreement, that was entered into in June 2019, to sell 1.8 million shares of common stock through our ATM. In October 2019, we entered into a forward sale arrangement pursuant to a forward equity agreement to sell 6.0 million shares of common stock through our ATM. Refer to Note 14 - Per Share Data of HTA to these condensed consolidated financial statements for a more detailed discussion related to our forward equity agreements executed in June 2019 and October 2019.
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, 2019, and 2018, respectively (in thousands, except per unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
|
Net (loss) income
|
$
|
(8,577
|
)
|
|
$
|
176,348
|
|
|
$
|
21,722
|
|
|
$
|
202,021
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
(18
|
)
|
|
(66
|
)
|
|
(65
|
)
|
Net (loss) income attributable to common unitholders
|
$
|
(8,577
|
)
|
|
$
|
176,330
|
|
|
$
|
21,656
|
|
|
$
|
201,956
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average OP Units outstanding - basic
|
209,164
|
|
|
211,444
|
|
|
209,056
|
|
|
209,968
|
|
Dilutive units - OP Units convertible into common units
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted weighted average units outstanding - diluted
|
209,164
|
|
|
211,444
|
|
|
209,056
|
|
|
209,968
|
|
Earnings per common unit - basic:
|
|
|
|
|
|
|
|
Net (loss) income attributable to common unitholders
|
$
|
(0.04
|
)
|
|
$
|
0.83
|
|
|
$
|
0.10
|
|
|
$
|
0.96
|
|
Earnings per common unit - diluted:
|
|
|
|
|
|
|
|
Net (loss) income attributable to common unitholders
|
$
|
(0.04
|
)
|
|
$
|
0.83
|
|
|
$
|
0.10
|
|
|
$
|
0.96
|
|
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
16. Supplemental Cash Flow Information
The following is the supplemental cash flow information for the nine months ended September 30, 2019 and 2018, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2019
|
|
2018
|
Supplemental Disclosure of Cash Flow Information:
|
|
|
|
Interest paid
|
$
|
84,155
|
|
|
$
|
87,303
|
|
Income taxes paid
|
1,846
|
|
|
1,656
|
|
Cash paid for operating leases
|
9,277
|
|
|
—
|
|
|
|
|
|
Supplemental Disclosure of Noncash Investing and Financing Activities:
|
|
|
|
Accrued capital expenditures
|
$
|
3,922
|
|
|
$
|
243
|
|
Dividend distributions declared, but not paid
|
66,397
|
|
|
65,544
|
|
Issuance of OP Units in HTALP
|
2,603
|
|
|
—
|
|
Issuance of OP Units in HTALP in connection with an acquisition
|
2,000
|
|
|
—
|
|
Redemption of noncontrolling interest
|
7,263
|
|
|
5,195
|
|
Redemption of redeemable noncontrolling interest
|
3,441
|
|
|
—
|
|
ROU assets obtained in exchange for lease obligations
|
200,879
|
|
|
—
|
|