HEALTHCARE TRUST AMERICA
The use of the words "we," "us," or "our" refers to HTA and HTALP, collectively.
The following discussion should be read in conjunction with our condensed
consolidated financial statements and notes appearing elsewhere in this
Quarterly Report, as well as with the audited consolidated financial statements,
accompanying notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations included in our 2020 Annual Report on Form
10-K.
The information set forth below is intended to provide readers with an
understanding of our financial condition, changes in financial condition and
results of operations.
•Forward-Looking Statements;
•Executive Summary;
•Company Highlights;
•Critical Accounting Policies;
•Recently Issued or Adopted Accounting Pronouncements;
•Factors Which May Influence Results of Operations;
•Results of Operations;
•Non-GAAP Financial Measures;
•Liquidity and Capital Resources;
•Commitments and Contingencies;
•Debt Service Requirements;
•Off-Balance Sheet Arrangements; and
•Inflation.
Forward-Looking Statements
Certain statements contained in this Quarterly Report constitute forward-looking
statements within the meaning of the safe harbor from civil liability provided
for such statements by the Private Securities Litigation Reform Act of 1995 (set
forth in Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended ("Exchange Act")). Such statements include, in
particular, statements about our plans, strategies, prospects and estimates
regarding future MOB market performance. Additionally, such statements are
subject to certain risks and uncertainties, as well as known and unknown risks,
which could cause actual results to differ materially and in adverse ways from
those projected or anticipated. Therefore, such statements are not intended to
be a guarantee of our performance in future periods. Forward-looking statements
are generally identifiable by the use of such terms as "expect," "project,"
"may," "should," "could," "would," "intend," "plan," "anticipate," "estimate,"
"believe," "continue," "opinion," "predict," "potential," "pro forma" or the
negative of such terms and other comparable terminology. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date this Quarterly Report is filed with the SEC . We cannot
guarantee the accuracy of any such forward-looking statements contained in this
Quarterly Report, and we do not intend to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise, except as required by law.
Any such forward-looking statements reflect our current views about future
events, are subject to unknown risks, uncertainties, and other factors, and are
based on a number of assumptions involving judgments with respect to, among
other things, future economic, competitive and market conditions, all of which
are difficult or impossible to predict accurately. To the extent that our
assumptions differ from actual results, our ability to meet such forward-looking
statements, including our ability to generate positive cash flow from
operations, provide dividends to stockholders and maintain the value of our real
estate properties, may be significantly hindered. Factors that might impair our
ability to meet such forward-looking statements include, without limitation,
those discussed in Part I, Item 1A - Risk Factors in our 2020 Annual Report on
Form 10-K, which is incorporated herein and those discussed in Part II, Item 1A.
Risk Factors in this Quarterly Report on Form 10-Q.
Forward -looking statements express expectations of future events. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties that could cause actual
events or results to differ materially from those projected. Due to these
inherent uncertainties, our stockholders are urged not to place undue reliance
on forward-looking statements. Forward-looking statements speak only as of the
date made. In addition, we undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to projections over time, except as required by
law.
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These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
Additional information concerning us and our business, including additional
factors that could materially affect our financial results, is included herein
and in our other filings with the SEC .
Executive Summary
We are the largest publicly-traded REIT focused on MOBs in the U.S. as measured
by the gross leasable area ("GLA") of our MOBs. We conduct substantially all of
our operations through HTALP. We invest in MOBs that we believe will serve the
future of healthcare delivery and MOBs that are primarily located on health
system campuses, near university medical centers, or in core community
outpatient locations. We also focus on key markets that have certain demographic
and macro-economic trends and where we can utilize our institutional
full-service operating platform to generate strong tenant and health system
relationships and operating cost efficiencies. Our primary objective is to
maximize stockholder value with disciplined growth through strategic investments
that provide an attractive risk-adjusted return for our stockholders by
consistently increasing our cash flow. In pursuing this objective, we: (i) seek
internal growth through proactive asset management, leasing, building services
and property management oversight; (ii) target accretive acquisitions and
developments of MOBs in markets with attractive demographics that complement our
existing portfolio; and (iii) actively manage our balance sheet to maintain
flexibility with conservative leverage. Additionally, from time to time we
consider, on an opportunistic basis, significant portfolio acquisitions that we
believe fit our core business and could enhance our existing portfolio.
Since 2006, we have invested $7.7 billion primarily in MOBs, development
projects, land and other healthcare real estate assets consisting of
approximately 25.8 million square feet of GLA throughout the U.S. Approximately
67% of our portfolio is located on the campuses of, or adjacent to, nationally
and regionally recognized healthcare systems. Our portfolio is diversified
geographically across 32 states, with no state having more than 21% of our total
GLA as of September 30, 2021 . We are concentrated in 20 to 25 key markets that
are generally experiencing higher economic and demographic trends than other
markets that we expect will drive demand for MOBs. As of September 30, 2021 , we
had approximately 1 million square feet of GLA in ten of our top 20 markets and
approximately 94% of our portfolio, based on GLA, is located in the top 75
Metropolitan Statistical Area ("MSAs"), with Dallas , Houston , Boston , Miami and
Indianapolis being our largest markets by annualized base rent.
Company Highlights
Portfolio Operating Performance
•For the three months ended September 30, 2021 , our total revenue was $191.3
million , compared to $187.3 million for the three months ended September 30,
2020 . For the nine months ended September 30, 2021 , our total revenue was $571.4
million , compared to $551.9 million for the nine months ended September 30,
2020 .
•For the three months ended September 30, 2021 , our net income was $22.0
million , compared to $(6.9) million , for the three months ended September 30,
2020 . For the nine months ended September 30, 2021 , our net income was $83.2
million , compared to $25.0 million for the nine months ended September 30, 2020 .
•For the three months ended September 30, 2021 , our net income attributable to
common stockholders was $0.10 per diluted share, or $21.7 million , compared to
$(0.03) per diluted share, or $(6.8) million , for the three months ended
September 30, 2020 . For the nine months ended September 30, 2021 , our net income
attributable to common stockholders was $0.37 per diluted share, or $81.7
million , compared to $0.11 per diluted share, or $24.6 million , for the nine
months ended September 30, 2020 .
•For the three months ended September 30, 2021 , HTA's FFO, as defined by NAREIT,
was $97.3 million , or $0.44 per diluted share, compared to $0.31 per diluted
share, or $68.5 million , for the three months ended September 30, 2020 . For the
nine months ended September 30, 2021 , HTA's FFO was $291.9 million , or $1.31 per
diluted share, compared to $1.13 per diluted share, or $249.4 million , for the
nine months ended September 30, 2020 .
•For the three months ended September 30, 2021 , HTALP's FFO was $97.7 million ,
or $0.44 per diluted OP Unit, compared to $0.31 per diluted OP Unit, or $68.4
million , for the three months ended September 30, 2020 . For the nine months
ended September 30, 2021 , HTALP's FFO was $293.4 million , or $1.32 per diluted
OP Unit, compared to $1.13 per diluted OP Unit, or $249.8 million , for the nine
months ended September 30, 2020 .
•For the three months ended September 30, 2021 , HTA's and HTALP's Normalized FFO
was $0.44 per diluted share and OP Unit, or $97.8 million , compared to $0.43 per
diluted share and OP Unit, or $96.2 million for the three months ended September
30, 2020 . For the nine months ended September 30, 2021 , HTA's and HTALP's
Normalized FFO was $1.32 per diluted share and OP Unit, or $293.7 million ,
compared to $1.28 per diluted share and OP Unit, or $282.9 million for the nine
months ended September 30, 2020 .
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•For additional information on FFO and Normalized FFO, see "FFO and Normalized
FFO" below, which includes a reconciliation to net income attributable to common
stockholders/unitholders and an explanation of why we present this non-GAAP
financial measure.
•For the three months ended September 30, 2021 , our Net Operating Income ("NOI")
was $131.7 million , compared to $130.1 million for the three months ended
September 30, 2020 . For the nine months ended September 30, 2021 , our NOI was
$394.8 million , compared to $381.6 million for the nine months ended September
30, 2020 .
•For the three months ended September 30, 2021 , our Same-Property Cash NOI
increased 2.5%, or $2.8 million , to $115.2 million , compared to $112.3 million
for the three months ended September 30, 2020 . For the nine months ended
September 30, 2021 , our Same-Property Cash NOI increased 2.1%, or $6.9 million ,
to $345.2 million , compared to $338.2 million for the nine months ended
September 30, 2020 .
•For additional information on our NOI and Same-Property Cash NOI, see "NOI,
Cash NOI and Same-Property Cash NOI" below, which includes a reconciliation from
net income and an explanation of why we present these non-GAAP financial
measures.
Key Market Focused Strategy and Investments
Over the last decade, we have been an active investor in the medical office
sector. This has enabled us to create a high quality portfolio focused on MOBs
serving the future of healthcare with scale and significance in 20 to 25 key
markets.
•Our investment strategy includes alignment with key healthcare systems,
hospitals, and leading academic medical universities. We are the largest owner
of on-campus or adjacent MOBs in the country, with approximately 17.4 million
square feet of GLA, or 67%, of our portfolio located in these locations. The
remaining 33% of our portfolio is located in core community outpatient locations
where healthcare is increasingly being delivered.
•Over the past decade, our investments have been focused in our 20 to 25 key
markets which we believe will outperform the broader U.S. markets from an
economic and demographic perspective. As of September 30, 2021 , approximately
94% of our portfolio's GLA is located in the top 75 MSAs. Our key markets
represent top MSAs with strong growth metrics in jobs, household income and
population, as well as low unemployment and mature healthcare infrastructures.
Many of our key markets are also supported by strong university systems.
•Our key market focus has enabled us to establish scale across 20 to 25 key
markets and effectively utilize our asset management and leasing platform to
deliver consistent same store growth and additional yield on investments, as
well as cost effective service to tenants. As of September 30, 2021 , we had
approximately 1 million square feet of GLA in ten of our top 20 markets and
approximately 0.5 million square feet of GLA in 17 of our top 20 markets.
•During the nine months ended September 30, 2021 , we closed on $187.5 million
worth of medical office investments totaling approximately 626,000 square feet
of GLA. In addition, we funded $54.0 million of investments in real estate notes
receivable.
Internal Growth through Proactive In-House Property Management and Leasing
We believe we have one of the largest full-service operating platforms in the
medical office sector that consists of our in-house asset management and leasing
platform which allows us to better manage and service our existing portfolio. In
each of these markets, we have established a strong in-house asset management
and leasing platform that has allowed us to develop valuable relationships with
health systems, physician practices, universities, and regional development
firms that have led to investment and leasing opportunities for us. Our
full-service operating platform has also enabled us to focus on generating cost
efficiencies as we gain scale across individual markets and regions.
•As of September 30, 2021 , our in-house asset management and leasing platform
operated approximately 24.8 million square feet of GLA, or 96% of our total
portfolio.
•As of September 30, 2021 , our leased rate (which includes leases which have
been executed, but which have not yet commenced) was 89.7% by GLA and our
occupancy rate was 88.0% by GLA.
•We entered into new and renewal leases on approximately 0.7 million and 2.0
million square feet of GLA, or approximately 2.6% and 7.9% of the GLA of our
total portfolio, during the three and nine months ended September 30, 2021 ,
respectively.
•During the three and nine months ended September 30, 2021 , tenant retention for
the Same-Property portfolio was 83% and 76%, respectively. Tenant retention is
defined as the sum of the total leased GLA of tenants that renewed a lease
during the period over the total GLA of leases that renewed or expired during
the period.
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Financial Strategy and Balance Sheet Flexibility
•As of September 30, 2021 , we had total leverage, measured by debt less cash and
cash equivalents to total capitalization, of 31.4%. Total liquidity was
approximately $1.2 billion , inclusive of $950.0 million available on our
unsecured revolving credit facility, $218.8 million of forward equity
agreements, cash and cash equivalents of $12.8 million and $1.7 million of
restricted cash for funds held in a 1031 exchange account as of September 30,
2021 .
•As of September 30, 2021 , the weighted average remaining term of our debt
portfolio was 6.4 years.
Critical Accounting Policies
The complete list of our critical accounting policies was disclosed in our 2020
Annual Report on Form 10-K. Additionally, in light of the COVID-19 pandemic, we
believe we have included all relevant information when determining our
management estimates and that these estimates are in line with our established
policies. For further information on other significant accounting policies that
impact us, see Note 2 - Summary of Significant Accounting Policies in the
accompanying condensed consolidated financial statements.
Recently Issued or Adopted Accounting Pronouncements
For detail on recently issued accounting pronouncements see Note 2 - Summary of
Significant Accounting Policies in the accompanying condensed consolidated
financial statements.
Factors Which May Influence Results of Operations
The novel coronavirus, or COVID-19 pandemic, continues to impact economies and
markets worldwide. All our buildings have remained in operation throughout the
course of the pandemic. However, we addressed periodic requests from a number of
our tenants about their ability to defer payment of a portion of their rents for
a limited duration. We evaluated each such request on a case by case basis. In
2020, which is the period that we believe constituted the majority of our
COVID-related deferral requests, we approved deferral plans totaling
approximately $11.1 million , of which approximately $10.8 million of these
deferrals have been repaid through September 30, 2021 . There are no material
outstanding requests for assistance from tenants. Payments of rent deferrals are
generally expected to be repaid within the next 3 to 6 months. As of September
30, 2021 , we have not granted unilateral rent forgiveness in connection with our
deferral program, however, we may do so in the future if conditions and the
specific economics warrant the use of such measures.
In addition, in 2020 we entered into certain lease modifications in the form of
early renewals where we provide concessions in the form of free rent, which
averaged three months at the inception of the lease, in exchange for additional
term, which, averaged approximately three years. During the nine months ended
September 30, 2021 , we have not entered into any material deferral arrangements
or early renewal leases with substantive amounts of free rent or other forms of
concession at the onset of the applicable lease as a result of COVID-19.
Although we did not experience significant disruptions from the COVID-19
pandemic during the nine months ended September 30, 2021 , should current and
planned measures, including further development and delivery of vaccines and
other measures intended to reduce or eliminate the spread of COVID-19, past
and/or proposed economic stimulus, and other laws, acts and orders proposed or
enacted by federal, state and local agencies or foreign governments, ultimately
not be successful or limited in their efficacy, our business and the broader
real estate industry may experience significant adverse consequences. These
consequences include loss of revenues, increased expenses, increased costs of
materials, difficulty in maintaining an active workforce, and constraints on our
ability to secure capital or financing, among other factors.
Other than the above, we are not aware of any material trends or uncertainties,
other than national economic conditions affecting real estate generally and the
risk factors previously discussed in Part I, Item 1A - Risk Factors, in our 2020
Annual Report on Form 10-K, and this Quarterly Report on Form 10-Q under Item
1A. Risk Factors below, that may reasonably be expected to have a material
impact, favorable or unfavorable, on revenues or income from the investment,
management and operation of our properties.
Rental Income
The amount of rental income generated by our properties depends principally on
our ability to maintain the occupancy rates of currently leased space and to
lease currently available space and space that will become available from
unscheduled lease terminations at the then applicable rental rates. Negative
trends in one or more of these factors, including the ultimate collections of
such rents, could adversely affect our rental income in future periods.
Investment Activity
During the nine months ended September 30, 2021 , we had investments with an
aggregate gross purchase price of $189.2 million . During the nine months ended
September 30, 2020 , we had investments with an aggregate gross purchase price of
$52.9 million . Subsequent to The amount of any future acquisitions or
dispositions could have a significant impact on our results of operations in
future periods.
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Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2021 and 2020
As of September 30, 2021 and 2020, we owned and operated approximately 25.8
million and 25.1 million square feet of GLA, respectively, with a leased rate of
89.7% and 90.1%, respectively (including leases which have been executed, but
which have not yet commenced), and an occupancy rate of 88.0% and 89.5%,
respectively. All explanations are applicable to both HTA and HTALP unless
otherwise noted.
Comparison of the three months ended September 30, 2021 and 2020, respectively,
is set forth below (in thousands):
Three Months Ended
2021 2020 Change % Change
Revenues:
Rental income $ 189,832 $ 187,258 $ 2,574 1.4 %
Interest and other operating income 1,430 68 1,362 NM
Total revenues 191,262 187,326 3,936 2.1
Expenses:
Rental 59,568 57,248 2,320 4.1
General and administrative 10,765 10,670 95 0.9
Transaction 137 125 12 9.6
Depreciation and amortization 76,056 75,892 164 0.2
Interest expense 23,331 23,136 195 0.8
Total expenses 169,857 167,071 2,786 1.7
Gain on sale of real estate, net 143 - 143 NM
Loss on extinguishment of debt, net - (27,726) 27,726 100.0
Income from unconsolidated joint venture 400 422 (22) (5.2)
Other income 94 117 (23) (19.7)
Net income (loss) $ 22,042 $ (6,932) $ 28,974 NM
NOI $ 131,694 $ 130,078 $ 1,616 1.2 %
Same-Property Cash NOI $ 115,158 $ 112,316 $ 2,842 2.5 %
Comparison of the nine months ended
Nine Months Ended
2021 2020 Change % Change
Revenues:
Rental income $ 569,676 $ 551,459 $ 18,217 3.3 %
Interest and other operating income 1,694 488 1,206 NM
Total revenues 571,370 551,947 19,423 3.5
Expenses:
Rental 176,556 170,310 6,246 3.7
General and administrative 32,254 32,348 (94) (0.3)
Transaction 299 297 2 0.7
Depreciation and amortization 227,307 228,484 (1,177) (0.5)
Interest expense 69,450 71,285 (1,835) (2.6)
Impairment 16,825 - 16,825 NM
Total expenses 522,691 502,724 19,967 4.0
Gain on sale of real estate, net 32,896 1,991 30,905 NM
Loss on extinguishment of debt, net - (27,726) 27,726 NM
Income from unconsolidated joint venture 1,198 1,223 (25) (2.0)
Other income 401 290 111 38.3
Net income $ 83,174 $ 25,001 $ 58,173 NM
NOI $ 394,814 $ 381,637 $ 13,177 3.5 %
Same-Property Cash NOI $ 345,158 $ 338,209 $ 6,949 2.1 %
*NM- not meaningful.
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-------------------------------------------------------------------------------- Table of Contents Rental Income For the three and nine months endedSeptember 30, 2021 and 2020, respectively, rental income was comprised of the following (in thousands):
Three Months Ended
2021 2020 Change % Change
Contractual rental income $ 181,275 $ 176,708 $ 4,567 2.6 %
Straight-line rent and amortization of above and
(below) market leases 4,545 7,298 (2,753) (37.7)
Other rental revenue 4,012 3,252 760 23.4
Total rental income $ 189,832 $ 187,258 $ 2,574 1.4 %
Nine Months Ended September 30,
2021 2020 Change % Change
Contractual rental income $ 543,568 $ 521,175 $ 22,393 4.3 %
Straight-line rent and amortization of
above and (below) market leases 14,919 19,410 (4,491) (23.1)
Other rental revenue 11,189 10,874 315 2.9
Total rental income $ 569,676 $ 551,459 $ 18,217 3.3 %
Contractual rental income, which includes expense reimbursements, increased $4.6
million and $22.4 million for the three and nine months ended September 30,
2021 , compared to the three and nine months ended September 30, 2020 . The
increases were primarily due to additional contractual rental income of $6.5
million and $15.6 million from our 2020 and 2021 acquisitions, and contractual
rent increases for the three and nine months ended September 30, 2021 , partially
offset by $2.8 million and $4.8 million of reduced contractual rental income as
a result of the buildings we sold during 2020 and 2021 for the three and nine
months ended September 30, 2021 , respectively. In addition, during the nine
months ended September 30, 2020 , we recorded a non-recurring charge of $4.7
million of bad debt as a reduction in revenue.
Average starting and expiring base rents for new and renewal leases consisted of
the following for the three and nine months ended September 30, 2021 and 2020,
respectively (in thousands, except in average base rents per square foot of
GLA):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
New and renewal leases:
Average starting base rents $ 23.89 $ 26.45 $ 24.50 $ 27.04
Average expiring base rents 20.35 24.70 21.74 25.84
Square feet of GLA 670 1,101 2,022 3,287
Lease rates can vary across markets, and lease rates that are considered above
or below current market rent may change over time. Leases that expired in 2021
had rents that we believed were at market rates. In general, leasing concessions
vary depending on lease type, term, geography, and supply/demand dynamics.
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Tenant improvements, leasing commissions and tenant concessions for new and
renewal leases consisted of the following for the three and nine months ended
September 30, 2021 and 2020, respectively (in per square foot of GLA):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
New leases:
Tenant improvements $ 43.87 $ 21.02 $ 34.35 $ 38.16
Leasing commissions 6.47 2.05 4.90 2.86
Tenant concessions 6.61 2.59 6.67 3.70
Renewal leases:
Tenant improvements $ 11.04 $ 4.43 $ 6.99 $ 5.58
Leasing commissions 2.27 2.07 2.17 2.87
Tenant concessions 0.14 0.94 0.15 1.99
The average term for new and renewal leases executed consisted of the following
for the three and nine months ended September 30, 2021 and 2020, respectively
(in years):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
New leases 7.1 4.4 6.2 7.9
Renewal leases 4.5 7.7 4.1 5.4
Rental Expenses
For the three months ended September 30, 2021 and 2020, rental expenses
attributable to our properties were $59.6 million and $57.2 million ,
respectively. For the nine months ended September 30, 2021 and 2020, rental
expenses attributable to our properties were $176.6 million and $170.3 million ,
respectively. These increases in rental expenses were primarily due to $2.4
million and $5.1 million of additional rental expenses associated with our 2020
and 2021 acquisitions for the three and nine months ended September 30, 2021 ,
respectively.
General and Administrative Expenses
For the three months ended September 30, 2021 and 2020, general and
administrative expenses were $10.8 million and $10.7 million , respectively. For
each of the nine months ended September 30, 2021 and 2020, general and
administrative expenses were $32.3 million . For the three months ended September
30, 2021 , general and administrative expenses included a reduction of
approximately $(2.1) million in stock compensation expense principally related
to the resignation of our former CEO net of new award activity with the
appointments of our interim CEO and new board chairman, offset by approximately
$0.5 million of incremental legal costs related to the whistleblower
investigation, and increased costs related to our leasing efforts,
travel-related expenses, professional services and other administrative costs.
Depreciation and Amortization Expense
For the three months ended September 30, 2021 and 2020, depreciation and
amortization expense was $76.1 million and $75.9 million , respectively. For the
nine months ended September 30, 2021 and 2020, depreciation and amortization
expense was $227.3 million and $228.5 million , respectively. The slight
variances were associated with our 2020 and 2021 acquisitions, offset by
buildings we disposed of during 2020 and 2021.
Interest Expense
For the three months ended September 30, 2021 and 2020, interest expense was
$23.3 million and $23.1 million , respectively. For the nine months ended
September 30, 2021 and 2020, interest expense was $69.5 million and $71.3
million , respectively. The decreases in year-to-date interest expense is
primarily due to lower average interest rates as compared to the same period in
2020.
To achieve our objectives, we borrow at both fixed and variable rates. From time
to time, we also enter into derivative financial instruments, such as interest
rate swaps, in order to mitigate our interest rate risk on a related financial
instrument. We do not enter into derivative or interest rate transactions for
speculative purposes.
Impairment
For the nine months ended September 30, 2021 , we recorded impairment charges of
$16.8 million on two properties related to: (i) a purchase option included in a
lease agreement that was exercised for a contractual sale price less than its
carrying value; and (ii) an executed sales agreement for a sale price less than
its carrying value. We recorded no impairment charges during the nine months
ended September 30, 2020 .
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Gain on Sale of Real Estate, net
For the nine months ended September 30, 2021 , we realized a net gain of
approximately $32.9 million , primarily as a result of the sale of a 13 property
portfolio located in one or more of Tennessee and Virginia . For the nine months
ended September 30, 2020 , we realized a net gain of approximately $2.0 million
on the sale of part of our interest in undeveloped land in Miami, Florida .
Net Income
For the three months ended September 30, 2021 and 2020, net income was $22.0
million and $(6.9) million , respectively. For the nine months ended September
30, 2021 and 2020, net income was $83.2 million and $25.0 million , respectively.
The increases are primarily the result of gains associated with disposition of
assets in non-key markets, as well as continued growth in our operations due to
accretive acquisitions and improved operating efficiencies. Additionally, during
the three and nine months ended September 30, 2020 , we recorded a net loss on
extinguishment of debt of approximately $27.7 million .
NOI and Same-Property Cash NOI
For the three months ended September 30, 2021 and 2020, NOI was $131.7 million
and $130.1 million , respectively. For the nine months ended September 30, 2021
and 2020, NOI was $394.8 million and $381.6 million , respectively. The increases
in NOI was primarily due to additional NOI from our 2020 and 2021 acquisitions
of $5.0 million and $12.4 million for the three and nine months ended September
30, 2021 , respectively, partially offset by $1.5 million and $2.7 million of
reduced NOI as a result of the buildings we sold during 2020 and 2021 for the
three and nine months ended September 30, 2021 , respectively, and a reduction in
straight-line rent from properties we owned for more than a year.
Same-Property Cash NOI increased 2.5% to $115.2 million for the three months
ended September 30, 2021 compared to the three months ended September 30, 2020 .
Same-Property Cash NOI increased 2.1% to $345.2 million for the nine months
ended September 30, 2021 compared to nine months ended September 30, 2020 . The
increases were primarily the result of rent escalations and improved operating
efficiencies, offset by a slight decrease in average occupancy.
Non-GAAP Financial Measures
FFO and Normalized FFO
We compute FFO in accordance with the current standards established by NAREIT.
NAREIT defines FFO as net income or loss attributable to common
stockholders/unitholders (computed in accordance with GAAP), excluding gains or
losses from sales of real estate property and impairment write-downs of
depreciable assets, plus depreciation and amortization related to investments in
real estate, and after adjustments for unconsolidated partnerships and joint
ventures. Since FFO excludes depreciation and amortization unique to real
estate, among other items, it provides a perspective not immediately apparent
from net income or loss attributable to common stockholders/unitholders.
We also compute Normalized FFO, which excludes from FFO: (i) transaction
expenses; (ii) gain or loss on extinguishment of debt; (iii) non-controlling
income or loss from OP Units included in diluted shares (only applicable to the
Company); and (iv) other normalizing adjustments, which include items that are
unusual and infrequent in nature. Our methodology for calculating Normalized FFO
may be different from the methods utilized by other REITs and, accordingly, may
not be comparable to other REITs.
We present FFO and Normalized FFO because we consider them important
supplemental measures of our operating performance and believe they are
frequently used by securities analysts, investors and other interested parties
in the evaluation of REITs. Historical cost accounting assumes that the value of
real estate assets diminishes ratably over time. Since real estate values have
historically risen or fallen based on market conditions, many industry investors
have considered the presentation of operating results for real estate companies
that use historical cost accounting to be insufficient by themselves. FFO and
Normalized FFO should not be considered as alternatives to net income or loss
attributable to common stockholders/unitholders (computed in accordance with
GAAP) as indicators of our financial performance, nor are they indicative of
cash available to fund cash needs. FFO and Normalized FFO should be reviewed in
connection with other GAAP measurements.
In addition, the amounts included in the calculation of FFO and Normalized FFO
are generally the same for HTALP and HTA, except for net income or loss
attributable to common stockholders/unitholders, non-controlling income or loss
from OP Units included in diluted shares (only applicable to the Company) and
the weighted average shares of our common stock or HTALP OP Units outstanding.
40
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The following is the reconciliation of HTA's FFO and Normalized FFO to net
income attributable to common stockholders for the three and nine months ended
September 30, 2021 and 2020, respectively (in thousands, except per share data):
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Net income (loss) attributable to common stockholders $ 21,672 $ (6,827) $ 81,713 $ 24,563
Depreciation and amortization expense related to
investments in real estate 75,264 74,848 224,814 225,354
Gain on sale of real estate, net (143) - (32,896) (1,991)
Impairment - - 16,825 -
Proportionate share of joint venture depreciation and amortization
487 468 1,462 1,443
FFO attributable to common stockholders $ 97,280 $ 68,489 $ 291,918 $ 249,369
Transaction expenses 137 125 299 297
Loss on extinguishment of debt, net - 27,726 - 27,726
Non-controlling income from OP Units included in
diluted shares 370 (105) 1,461 438
Other normalizing adjustments (1) - - - 5,031
Normalized FFO attributable to common stockholders
Net income (loss) attributable to common stockholders per diluted share
$ 0.10 $ (0.03) $ 0.37 $ 0.11 FFO adjustments per diluted share, net 0.34 0.34 0.94 1.02
FFO attributable to common stockholders per diluted share
$ 0.44 $ 0.31 $ 1.31 $ 1.13 Normalized FFO adjustments per diluted share, net 0.00 0.12 0.01 0.15
Normalized FFO attributable to common stockholders per diluted share
$ 0.44
Weighted average diluted common shares outstanding 222,811
222,101 222,470 221,521 (1) For the nine months endedSeptember 30, 2020 , other normalizing adjustments includes the following: non-recurring bad debt of$4,672 thousand ; incremental hazard pay to facilities employees of$314 thousand ; and incremental personal protective equipment of$45 thousand . 41 -------------------------------------------------------------------------------- Table of Contents The following is the reconciliation of HTALP's FFO and Normalized FFO to net income attributable to common unitholders for the three and nine months endedSeptember 30, 2021 and 2020, respectively (in thousands, except per unit data): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income (loss) attributable to common unitholders$ 22,042 $ (6,932) $ 83,174 $ 25,001 Depreciation and amortization expense related to investments in real estate 75,264 74,848 224,814 225,354 Gain on sale of real estate, net (143) - (32,896) (1,991) Impairment - - 16,825 - Proportionate share of joint venture depreciation and amortization 487 468 1,462 1,443 FFO attributable to common unitholders$ 97,650 $ 68,384 $ 293,379 $ 249,807 Transaction expenses 137 125 299 297 Loss on extinguishment of debt, net - 27,726 - 27,726 Other normalizing adjustments (1) - - - 5,031 Normalized FFO attributable to common unitholders$ 97,787 $
96,235
Net income (loss) attributable to common unitholders per diluted share$ 0.10 $ (0.03) $ 0.37 $ 0.11 FFO adjustments per diluted OP Unit, net 0.34 0.34 0.95 1.02 FFO attributable to common unitholders per diluted OP Unit$ 0.44 $ 0.31 $ 1.32 $ 1.13 Normalized FFO adjustments per diluted OP Unit, net 0.00 0.12 0.00 0.15 Normalized FFO attributable to common unitholders per diluted OP Unit$ 0.44 $
0.43
Weighted average diluted common OP Units outstanding 222,811 222,101 222,470 221,521 (1) For the nine months endedSeptember 30, 2020 , other normalizing adjustments includes the following: non-recurring bad debt of$4,672 thousand ; incremental hazard pay to facilities employees of$314 thousand ; and incremental personal protective equipment of$45 thousand . NOI, Cash NOI and Same-Property CashNOI NOI is a non-GAAP financial measure that is defined as net income or loss (computed in accordance with GAAP) before: (i) general and administrative expenses; (ii) transaction expenses; (iii) depreciation and amortization expense; (iv) impairment; (v) interest expense; (vi) gain or loss on sales of real estate; (vii) gain or loss on extinguishment of debt; (viii) income or loss from unconsolidated joint venture; and (ix) other income or expense. We believe that NOI provides an accurate measure of the operating performance of our operating assets because NOI excludes certain items that are not associated with the management of our properties. Additionally, we believe that NOI is a widely accepted measure of comparative operating performance of REITs. However, our use of the term NOI may not be comparable to that of other REITs as they may have different methodologies for computing this amount. NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. NOI should be reviewed in connection with other GAAP measurements. Cash NOI is a non-GAAP financial measure which excludes from NOI: (i) straight-line rent adjustments; (ii) amortization of below and above market leases/leasehold interests and other GAAP adjustments; (iii) notes receivable interest income; and (iv) other normalizing adjustments. Contractual base rent, contractual rent increases, contractual rent concessions and changes in occupancy or lease rates upon commencement and expiration of leases are a primary driver of our revenue performance. We believe that Cash NOI, which removes the impact of straight-line rent adjustments, provides another measurement of the operating performance of our operating assets. Additionally, we believe that Cash NOI is a widely accepted measure of comparative operating performance of REITs. However, our use of the term Cash NOI may not be comparable to that of other REITs as they may have different methodologies for computing this amount. Cash NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. Cash NOI should be reviewed in connection with other GAAP measurements. To facilitate the comparison of Cash NOI between periods, we calculate comparable amounts for a subset of our owned and operational properties referred to as "Same-Property". Same-Property Cash NOI excludes (i) properties which have not been owned and operated by us during the entire span of all periods presented and disposed properties, (ii) our share of unconsolidated joint ventures, (iii) development, redevelopment and land parcels, (iv) properties intended for disposition in the near term which have (a) been approved by the Board of Directors, (b) is actively marketed for sale, and (c) an offer has been received at prices we would transact and the sales process is ongoing, and (v) certain non-routine items. Same-Property Cash 42 -------------------------------------------------------------------------------- Table of Contents NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. Same-Property Cash NOI should be reviewed in connection with other GAAP measurements. The following is the reconciliation of HTA's and HTALP's NOI, Cash NOI and Same-Property Cash NOI to net income for the three and nine months endedSeptember 30, 2021 and 2020, respectively (in thousands): Three Months Ended
2021 2020 2021 2020
Net income (loss) $ 22,042 $ (6,932) $ 83,174 $ 25,001
General and administrative expenses 10,765 10,670 32,254 32,348
Transaction expenses 137 125 299 297
Depreciation and amortization expense 76,056 75,892 227,307 228,484
Impairment - - 16,825 -
Interest expense 23,331 23,136 69,450 71,285
Gain on sale of real estate, net (143) - (32,896) (1,991)
Loss on extinguishment of debt, net - 27,726 - 27,726
Income from unconsolidated joint venture (400) (422) (1,198) (1,223)
Other income (94) (117) (401) (290)
NOI $ 131,694 $ 130,078 $ 394,814 $ 381,637
Straight-line rent adjustments, net (3,012) (5,711) (10,408) (12,673)
Amortization of (below) and above market
leases/leasehold interests, net and other GAAP
adjustments (538) (113) (1,413) (2,203)
Notes receivable interest income (1,264) (11) (1,273) (152)
Other normalizing adjustments (1) - - - 5,031
Cash NOI $ 126,880 $ 124,243 $ 381,720 $ 371,640
Acquisitions not owned/operated for all periods
presented and disposed properties Cash NOI (5,245) (2,245) (15,775) (8,158)
Redevelopment Cash NOI (116) (1,043) (803) (3,612)
Intended for sale Cash NOI (6,361) (8,639) (19,984) (21,661)
Same-Property Cash NOI (2) $ 115,158 $
112,316
(1) For the nine months endedSeptember 30, 2020 , other normalizing adjustments includes the following: non-recurring bad debt of$4,672 thousand , incremental hazard pay to facilities employees of$314 thousand , and incremental personal protective equipment of$45 thousand . (2) Same-Property includes 421 and 414 buildings for the three and nine months endedSeptember 30, 2021 and 2020, respectively. Liquidity and Capital Resources Our primary sources of cash include: (i) cash flow from operations; (ii) borrowings under our unsecured revolving credit facility; (iii) net proceeds from the issuances of debt and equity securities; and (iv) proceeds from our dispositions. During the next 12 months our primary uses of cash are expected to include: (a) the funding of acquisitions of MOBs, development properties and other facilities that serve the healthcare industry; (b) capital expenditures; (c) the payment of operating expenses; (d) debt service payments, including principal payments; and (e) the payment of dividends to our stockholders. We anticipate cash flow from operations, restricted cash and reserve accounts and our unsecured revolving credit facility, if needed, will be sufficient to fund our operating expenses, capital expenditures and dividends to stockholders. Investments and maturing indebtedness may require funds from borrowings under our unsecured revolving credit facility, the issuance of debt and/or equity securities or proceeds from sales of real estate. As ofSeptember 30, 2021 , we had total liquidity of$1.2 billion , inclusive of$950.0 million available on our unsecured revolving credit facility,$218.8 million of unsettled forward equity agreements, cash and cash equivalents of$12.8 million and$1.7 million of restricted cash for funds held in a 1031 exchange account. We believe that we have sufficient liquidity and opportunities to obtain additional liquidity at our disposal to sustain operations for the foreseeable future. OnOctober 6, 2021 , we entered into a third amended and restated revolving credit and term loan agreement (the "Credit Agreement"), which includes an unsecured revolving credit facility in an aggregate maximum principal amount of$1.0 billion (the "Revolver") and a term loan facility in an aggregate maximum principal amount of$300.0 million (the "Term Loan"). The Credit Agreement amends and restates, in its entirety, the unsecured credit agreement referenced above, reduces our overall borrowing costs, and extends the maturities of the existing unsecured revolving credit facility toOctober 31, 2025 . 43 -------------------------------------------------------------------------------- Table of Contents As ofSeptember 30, 2021 , we had unencumbered assets with a gross book value of$8.0 billion . The unencumbered properties may be used as collateral to secure additional financings in future periods or refinance our current debt as it becomes due. Our ability to raise funds from future debt and equity issuances is dependent on our investment grade credit ratings, general economic and market conditions, and our operating performance. When we acquire a property, we prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs. Capital expenditures for the remainder of the year will be primarily targeted towards planned maintenance activities and other capital improvements that are either of an immediate need to preserve liquidity, or strategically necessary for revenue generation purposes. Currently these expenditures are estimated at approximately$20 million to$25 million per quarter. Although we cannot provide assurance that we will not exceed these estimated expenditure levels, we believe our liquidity of$1.2 billion allows us the flexibility to fund such capital expenditures as may be necessary or advisable. If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewal leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of our leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs. Cash Flows The following is a summary of our cash flows for the nine months endedSeptember 30, 2021 and 2020, respectively (in thousands): Nine Months
Ended
2021 2020 Change
Cash, cash equivalents and restricted cash -
beginning of period $ 118,765 $ 37,616 $ 81,149
Net cash provided by operating activities 271,618 269,668 1,950
Net cash used in investing activities (257,332) (159,919) (97,413)
Net cash used in financing activities (113,587) 83,881 (197,468)
Cash, cash equivalents and restricted cash - end
of period $ 19,464 $
231,246
Net cash provided by operating activities increased in 2021 primarily due to the impact of our 2020 and 2021 acquisitions and contractual rent increases, partially offset by our 2020 and 2021 dispositions. We anticipate cash flows from operating activities to increase as a result of the growth in our portfolio through new acquisitions and continued leasing activity in our existing portfolio. For the nine months endedSeptember 30, 2021 , net cash used in investing activities primarily related to investments in real estate of$147.3 million , capital expenditures of$78.0 million , advances on real estate notes receivable of$66.5 million , and development of real estate of$48.5 million , partially offset by proceeds from the sale of real estate of$67.6 million and collection of real estate notes receivable of$15.4 million . For the nine months endedSeptember 30, 2020 , net cash used in investing activities primarily related to capital expenditures of$59.0 million , investments in real estate of$52.6 million , development of real estate of$49.5 million , and funding of a real estate loan of$6.0 million , partially offset by proceeds from the sale of real estate of$6.4 million . For the nine months endedSeptember 30, 2021 , net cash used in financing activities primarily related to dividends paid to holders of our common stock of$210.0 million , distributions paid to non-controlling interest of limited partners of$3.9 million , and the repurchase and cancellation of common stock of$3.4 million , partially offset by proceeds from issuance of common stock of$53.7 million , and by net borrowings under our revolving credit facility of$50.0 million . For the nine months endedSeptember 30, 2020 , net cash provided by financing activities primarily related to proceeds from unsecured senior notes of$793.6 million and proceeds from issuance of common stock of$50.0 million partially offset by payments on unsecured senior notes of$300.0 million , dividends paid to holders of our common stock of$205.9 million , payments on our secured mortgage loans of$114.1 million , and net payments on our unsecured revolving credit facility of$100.0 million . 44 -------------------------------------------------------------------------------- Table of Contents Dividends The amount of dividends we pay to our stockholders is determined by our Board of Directors, in their sole discretion, and is dependent on a number of factors, including funds available, our financial condition, capital expenditure requirements and annual dividend distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended. We have paid monthly or quarterly dividends sinceFebruary 2007 , and if our investments produce sufficient cash flow, we expect to continue to pay dividends to our stockholders. Because our cash available for dividend distributions in any year may be less than 90% of our taxable income for the year, we may obtain the necessary funds through borrowings, issuing new securities or selling assets to pay out enough of our taxable income to satisfy our dividend distribution requirement. Our organizational documents do not establish a limit on dividends that may constitute a return of capital for federal income tax purposes. The dividend we pay to our stockholders is equal to the distributions received from HTALP in accordance with the terms of the HTALP partnership agreement. It is our intention to continue to pay dividends. However, our Board of Directors may reduce our dividend rate and we cannot guarantee the timing and amount of dividends that we may pay in the future, if any. For the nine months endedSeptember 30, 2021 , we paid cash dividends of$210.0 million on our common stock. InOctober 2021 for the quarter endedSeptember 30, 2021 , we paid cash dividends on our common stock of$71.8 million . Financing We have historically maintained a low leveraged balance sheet and intend to continue to maintain this structure in the long term. However, our total leverage may fluctuate on a short-term basis as we execute our business strategy. As ofSeptember 30, 2021 , our leverage ratio, measured by debt less cash and cash equivalents to total capitalization, was 31.4%. As ofSeptember 30, 2021 , we had debt outstanding of$3.1 billion and the weighted average interest rate therein was 2.86% per annum, inclusive of the impact of our cash flow hedges. The following is a summary of our unsecured and secured debt. See Note 8 - Debt in the accompanying condensed consolidated financial statements for a further discussion of our debt. Unsecured Revolving Credit Facility As ofSeptember 30, 2021 ,$950.0 million was available on our$1.0 billion unsecured revolving credit facility originally maturing inJune 2022 . Subsequent toSeptember 30, 2021 , the unsecured revolving credit facility was amended and restated, extending maturity toOctober 2025 . Unsecured Term Loans As ofSeptember 30, 2021 , we had$500.0 million of unsecured term loans outstanding, comprised of$300.0 million under our Unsecured Credit Agreement originally maturing in 2023 and extended to 2025 subsequent toSeptember 30, 2021 , and$200.0 million under our unsecured term loan maturing in 2024. Unsecured Senior Notes As ofSeptember 30, 2021 , we had$2.55 billion of unsecured senior notes outstanding, comprised of$600.0 million of senior notes maturing in 2026,$500.0 million of senior notes maturing in 2027,$650.0 million of senior notes maturing in 2030 and$800.0 million of senior notes maturing in 2031. Commitments and Contingencies As ofSeptember 30, 2021 , we had unfunded loan commitments totaling$15.4 million . See Note 10 - Commitments and Contingencies in the accompanying condensed consolidated financial statements for a further discussion of our commitments and contingencies. Debt Service Requirements We are required by the terms of our applicable loan agreements to meet certain financial covenants, such as minimum net worth and liquidity, and reporting requirements, among others. As ofSeptember 30, 2021 , we believe that we were in compliance with all such covenants and we are not aware of any covenants that it is reasonably likely that we would not be able to meet in accordance with our loan agreements. Off-Balance Sheet Arrangements As of and during the nine months endedSeptember 30, 2021 , we had no material off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Inflation We are exposed to inflation risk as income from future long-term leases is the primary source of our cash flows from operations. There are provisions in the majority of our tenant leases that protect us from the impact of normal inflation. These provisions include rent escalations, reimbursement billings for operating expense pass-through charges and real estate tax and insurance reimbursements on a per square foot allowance. However, due to the long-term nature of our leases, among other factors, the leases may not reset frequently enough to cover inflation. 45
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