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 2021 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.
Forward-looking statements regarding HR and HTA, include, but are not limited
to, statements related to the Merger, including the anticipated timing, benefits
and financial and operational impact thereof; HR's expected financing for the
transaction; other statements of management's belief, intentions or goals; and
other statements that are not historical facts. These forward-looking statements
are based on each of the companies' current plans, objectives, estimates,
expectations and intentions and inherently involve significant risks and
uncertainties. Actual results and the timing of events could differ materially
from those anticipated in such forward-looking statements as a result of these
risks and uncertainties, which include, without limitation, risks and
uncertainties associated with: HR's and HTA's ability to complete the Merger on
the proposed terms or on the anticipated timeline, or at all, including risks
and uncertainties related to securing the necessary shareholder approvals and
satisfaction of other closing conditions to consummate the Merger; the
occurrence of any event, change or other circumstance that could give rise to
the termination of the definitive transaction agreement relating to the Merger;
risks related to diverting the attention of HR and HTA management from ongoing
business operations; failure to realize the expected benefits of the Merger;
significant transaction costs and/or unknown or inestimable liabilities; the
risk of shareholder litigation in connection with the Merger, including
resulting expense or delay; the risk that HTA's business will not be integrated
successfully or that such integration may be more difficult, time-consuming or
costly than expected; the ability to obtain the expected financing to consummate
the Merger; risks related to future opportunities and plans for the Company,
including the
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uncertainty of expected future financial performance and results of the Company following completion of the Merger; effects relating to the announcement of the Merger or any further announcements or the consummation of the Merger on the market price of HR's or HTA's common stock; the possibility that, if HR does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial analysts or investors, the market price of HR's common stock could decline; general adverse economic and local real estate conditions; the inability of significant tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business; increases in interest rates; increases in operating expenses and real estate taxes; changes in the dividend policy for HR's common stock or its ability to pay dividends; impairment charges; pandemics or other health crises, such as COVID-19; and other risks and uncertainties affecting HR and HTA, including those described from time to time under the caption "Risk Factors" and elsewhere in HR's and HTA'sSEC filings and reports, including HR's Annual Report on Form 10-K for the year endedDecember 31, 2021 , HTA's Annual Report on Form 10-K for the year endedDecember 31, 2021 , and other filings and reports by either company. Moreover, other risks and uncertainties of which HR or HTA are not currently aware may also affect each of the companies' forward-looking statements and may cause actual results and the timing of events to differ materially from those anticipated. The forward-looking statements made in this communication are made only as of the date hereof or as of the dates indicated in the forward-looking statements, even if they are subsequently made available by HR or HTA on their respective websites or otherwise. Neither HR nor HTA undertakes any obligation to update or supplement any forward-looking statements to reflect actual results, new information, future events, changes in its expectations or other circumstances that exist after the date as of which the forward-looking statements were made, except as required by law. Any such forward-looking statements reflect our current views about future events, are subject to unknown risks, uncertainties, and other factors, and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide dividends to stockholders and maintain the value of our real estate properties, may be significantly hindered. Factors that might impair our ability to meet such forward-looking statements include, without limitation, those discussed in Part I, Item 1A - Risk Factors in our 2021 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. 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 theSEC .
Executive Summary
We are the largest publicly-traded REIT focused on MOBs in theU.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. 31
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Since 2006, we have invested$7.8 billion primarily in MOBs, development projects, land and other healthcare real estate assets consisting of approximately 26.0 million square feet of GLA throughout theU.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 ofMarch 31, 2022 . 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 ofMarch 31, 2022 , we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 95% of our portfolio, based on GLA, is located in the top 75 Metropolitan Statistical Area ("MSAs"), withDallas ,Houston ,Boston ,Miami andIndianapolis being our largest markets by annualized base rent.
Merger with Healthcare Realty Trust Incorporated
OnFebruary 28, 2022 , the Company, the Company OP and Merger Sub entered into a Merger Agreement with HR whereby Merger Sub will merge with and into HR, with HR continuing as the surviving corporation. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, each outstanding share of Common Stock,$0.01 par value per share, of HR Common Stock will be converted into the right to receive 1.0 share of Class A Common Stock,$0.01 par value per share, of the Company Common Stock. The Merger Agreement contains customary representations, warranties and covenants by each party. The Merger is subject to certain conditions which are set forth in the Merger Agreement, including the approval of both companies' stockholders. The boards of directors of the Company and HR have unanimously approved the Merger Agreement. The Merger is expected to close during the third quarter of 2022. Additionally, onMay 2, 2022 , HTA and HR filed a Form S-4 Registration Statement with theSEC in connection with the contemplated Merger. Please review this Form S-4 for more information about the contemplated Merger.
Company Highlights
Portfolio Operating Performance
•For the three months ended
•For the three months ended
•For the three months endedMarch 31, 2022 , our net income attributable to common stockholders was$0.08 per diluted share, or$18.3 million , compared to$0.10 per diluted share, or$22.0 million , for the three months endedMarch 31, 2021 . •For the three months endedMarch 31, 2022 , HTA's FFO, as defined by NAREIT, was$93.6 million , or$0.40 per diluted share, compared to$0.44 per diluted share, or$97.8 million , for the three months endedMarch 31, 2021 .
•For the three months ended
•For the three months endedMarch 31, 2022 , HTA's and HTALP's Normalized FFO was$0.44 per diluted share and OP Unit, or$101.5 million , compared to$0.44 per diluted share and OP Unit, or$98.3 million for the three months endedMarch 31, 2021 . •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 endedMarch 31, 2022 , our Net Operating Income ("NOI") was$136.1 million , compared to$131.9 million for the three months endedMarch 31, 2021 . •For the three months endedMarch 31, 2022 , our Same-Property Cash NOI increased 0.8%, or$0.9 million , to$117.4 million , compared to$116.5 million for the three months endedMarch 31, 2021 . •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.
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•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 broaderU.S. markets from an economic and demographic perspective. As ofMarch 31, 2022 , approximately 95% of our portfolio's GLA is located in the top 75 MSAs. Our key markets represent top MSAs with strong growth metrics in jobs, household income and population, as well as low unemployment and mature healthcare infrastructures. Many of our key markets are also supported by strong university systems. •Our key market focus has enabled us to establish scale 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 ofMarch 31, 2022 , 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 three months endedMarch 31, 2022 , we closed on$19.0 million worth of medical office building investments totaling approximately 44,000 square feet of GLA. In addition, we funded$2.3 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
•As ofMarch 31, 2022 , our leased rate (which includes leases which have been executed, but which have not yet commenced) was 89.3% by GLA and our occupancy rate was 87.3% by GLA.
•We entered into new and renewal leases on approximately 0.7 million square feet
of GLA, or approximately 2.7% of the GLA of our total portfolio, during the
three months ended
•During the three months ended
Financial Strategy and Balance Sheet Flexibility
•As of
•As of
Critical Accounting Policies The complete list of our critical accounting policies was disclosed in our 2021 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
We are not aware of material trends or uncertainties other than the risk factors
previously discussed in Part I, Item 1A - Risk Factors, in our 2021 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.
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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 three months endedMarch 31, 2022 , we had investments with an aggregate gross purchase price of$19.1 million . During the three months endedMarch 31, 2021 , we had investments with an aggregate gross purchase price of$32.9 million . The amount of any future acquisitions or dispositions could have a significant impact on our results of operations in future periods.
Results of Operations
Comparison of the Three Months Ended
As ofMarch 31, 2022 and 2021, we owned and operated approximately 26.0 million and 25.6 million square feet of GLA, respectively, with a leased rate of 89.3% and 89.2%, respectively (including leases which have been executed, but which have not yet commenced), and an occupancy rate of 87.3% and 87.9%, respectively. All explanations are applicable to both HTA and HTALP unless otherwise noted.
Comparison of the three months ended
Three Months Ended March 31,
2022 2021 Change % Change
Revenues:
Rental income $ 200,243 $ 191,350 $ 8,893 4.6 %
Interest and other operating income 1,759 143 1,616 NM
Total revenues 202,002 191,493 10,509 5.5
Expenses:
Rental 65,884 59,579 6,305 10.6
General and administrative 12,448 10,560 1,888 17.9
Merger-related costs 6,018 - 6,018 NM
Transaction 144 96 48 50.0
Depreciation and amortization 75,386 76,274 (888) (1.2)
Interest expense 23,940 22,986 954 4.2
Total expenses 183,820 169,495 14,325 8.5
Loss on sale of real estate, net (4) - (4) NM
Income from unconsolidated joint venture 400 392 8 2.0
Other income 88 3 85 NM
Net income $ 18,666 $ 22,393 $ (3,727) (16.6) %
NOI $ 136,118 $ 131,914 $ 4,204 3.2 %
Same-Property Cash NOI $ 117,430 $ 116,549 $ 881 0.8 %
*NM- not meaningful.
Rental Income
For the three months ended March 31, 2022 and 2021, respectively, rental income
was comprised of the following (in thousands):
Three Months Ended March 31,
2022 2021 Change % Change
Contractual rental income $ 191,165 $ 182,512 $ 8,653 4.7 %
Straight-line rent and amortization of above and
(below) market leases 4,244 5,247 (1,003) (19.1)
Other rental revenue 4,834 3,591 1,243 34.6
Total rental income $ 200,243 $ 191,350 $ 8,893 4.6 %
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Contractual rental income, which includes expense reimbursements, increased$8.7 million for the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 . The increase was primarily due to additional contractual rental income of$8.2 million from our 2021 and 2022 acquisitions, and contractual rent increases for the three months endedMarch 31, 2022 , partially offset by$2.8 million of reduced contractual rental income as a result of the buildings we sold during 2021 and 2022 for the three months endedMarch 31, 2022 , respectively. Average starting and expiring base rents for new and renewal leases consisted of the following for the three months endedMarch 31, 2022 and 2021, respectively (in thousands, except in average base rents per square foot of GLA): Three Months Ended March 31, 2022 2021 New and renewal leases: Average starting base rents$ 28.92 $ 24.75 Average expiring base rents 25.99 22.99 Square feet of GLA 713 705 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 2022 had rents that we believed were at market rates. In general, leasing concessions vary depending on lease type, term, geography, and supply/demand dynamics.
Tenant improvements, leasing commissions and tenant concessions for new and
renewal leases consisted of the following for the three months ended
Three Months Ended March 31,
2022 2021
New leases:
Tenant improvements $ 35.09 $ 22.34
Leasing commissions 5.11 3.63
Tenant concessions 0.41 7.14
Renewal leases:
Tenant improvements $ 7.01 $ 5.03
Leasing commissions 4.12 2.21
Tenant concessions 0.00 0.16
The average term for new and renewal leases executed consisted of the following
for the three months ended March 31, 2022 and 2021, respectively (in years):
Three Months Ended March 31,
2022 2021
New leases 6.5 4.4
Renewal leases 4.3 4.2
Rental Expenses
For the three months ended March 31, 2022 and 2021, rental expenses attributable
to our properties were $65.9 million and $59.6 million , respectively. The
increase in rental expenses was primarily due to $3.8 million of additional
rental expenses associated with our 2021 and 2022 acquisitions for the three
months ended March 31, 2022 , respectively.
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General and Administrative Expenses
For the three months endedMarch 31, 2022 and 2021, general and administrative expenses were$12.4 million and$10.6 million , respectively. The increase was driven primarily by the following: (i) increased board expenses of$0.4 million , which includes additional board meeting fees of$0.2 million incurred primarily as a result of the Merger Agreement and the process related thereto, and$0.2 million of board member retainer fees for the board chairman and new board members; (ii) increased legal and professional fees of$0.4 million , primarily driven by costs incurred as a result of the previously disclosed whistleblower investigation, employee retention and strategic review matters; and (iii) increased costs for general corporate matters.
Merger-related costs
For the three months endedMarch 31, 2022 , merger-related costs as a result of the contemplated Merger with HR were$6.0 million and included the following: (i) financial advisor fees of$3.8 million ; (ii) legal fees of$1.8 million ; (iii) merger and integration consulting fees of$0.3 million ; and (iv) travel costs of$0.1 million . No such costs were incurred for the three months endedMarch 31, 2021 .
Depreciation and Amortization Expense
For the three months ended
Interest Expense
For the three months endedMarch 31, 2022 and 2021, interest expense was$23.9 million and$23.0 million , respectively. The increase in interest expense is primarily related to amortization of commitment fees on the$1.7 billion bridge loan financing commitment secured in connection with the contemplated Merger with HR. 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.
Loss on Sale of Real Estate, net
For the three months endedMarch 31, 2022 , we realized a net loss of approximately$4 thousand , as a result of the sale of a tenant purchase option on 1 of our MOBs located inGeorgia . For the three months endedMarch 31, 2021 , we had no property dispositions.
Net Income
For the three months endedMarch 31, 2022 and 2021, net income was$18.7 million and$22.4 million , respectively. The decrease is primarily the result of the merger-related costs incurred as a result of the contemplated Merger with HR.
NOI and Same-Property Cash NOI
For the three months endedMarch 31, 2022 and 2021, NOI was$136.1 million and$131.9 million , respectively. The increases in NOI was primarily due to additional NOI from our 2021 and 2022 acquisitions of$5.6 million for the three months endedMarch 31, 2022 , respectively, partially offset by$1.6 million of reduced NOI as a result of the buildings we sold during 2021 and 2022 for the three months endedMarch 31, 2022 , respectively, and a reduction in straight-line rent from properties we owned for more than a year.
Same-Property Cash NOI increased 0.8% to
Non-GAAP Financial Measures
FFO and Normalized FFO
We compute FFO in accordance with the current standards established by NAREIT.
FFO is defined as net income or loss attributable to common
stockholders/unitholders (computed in accordance with GAAP), excluding gains or
losses from sales of real estate property and impairment write-downs of
depreciable assets, plus depreciation and amortization related to investments in
real estate, and after adjustments for unconsolidated partnerships and joint
ventures. Additionally, with respect to gains and losses on the sale of assets
incidental to the main business of a REIT, the REIT has the option to include or
exclude such gains and losses in the calculation of FFO. Since FFO excludes
depreciation and amortization unique to real estate, among other items, it
provides a perspective not immediately apparent from net income or loss
attributable to common stockholders/unitholders.
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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.
The following is the reconciliation of HTA's FFO and Normalized FFO to net
income attributable to common stockholders for the three months ended
Three Months Ended
2022 2021
Net income attributable to common stockholders $
18,315
74,799 75,331
Loss on sale of real estate, net 4 -
Proportionate share of joint venture depreciation and amortization
488 488
FFO attributable to common stockholders $ 93,606 $ 97,849
Transaction expenses 144 96
Merger-related costs (1) 6,018 -
Commitment fee amortization (2) 892 -
Non-controlling income from OP Units included in diluted shares 351 363
Other normalizing adjustments (3) 514 -
Normalized FFO attributable to common stockholders $
101,525
Net income attributable to common stockholders per diluted share $
0.08 $ 0.10
FFO adjustments per diluted share, net 0.32 0.34
FFO attributable to common stockholders per diluted share $ 0.40 $ 0.44
Normalized FFO adjustments per diluted share, net 0.04 0.00
Normalized FFO attributable to common stockholders per diluted share $
0.44
Weighted average diluted common shares outstanding 233,046 222,268 (1) For the three months endedMarch 31, 2022 , merger-related costs include the following: (i) financial advisor fees of$3.8 million ; (ii) legal fees of$1.8 million ; (iii) merger and integration consulting fees of$0.3 million ; and (iv) travel costs of$0.1 million .
(2) For the three months ended
(3) For the three months endedMarch 31, 2022 , other normalizing adjustments include the following: (i) additional board meeting fees of$159,000 ; (ii) legal and professional fees related to the whistleblower investigation of$143,000 ; (iii) legal fees related to employee retention matters of$131,000 ; and (iv) professional fees related to strategic review matters of$81,000 . 37
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The following is the reconciliation of HTALP's FFO and Normalized FFO to net income attributable to common unitholders for the three months endedMarch 31, 2022 and 2021, respectively (in thousands, except per unit data):
Three Months Ended
2022 2021
Net income attributable to common unitholders $
18,666
74,799 75,331
Loss on sale of real estate, net 4 -
Proportionate share of joint venture depreciation and amortization
488 488
FFO attributable to common unitholders $ 93,957 $ 98,212
Transaction expenses 144 96
Merger-related costs (1) 6,018 -
Commitment fee amortization (2) 892 -
Other normalizing adjustments (3) 514 -
Normalized FFO attributable to common unitholders $
101,525
Net income attributable to common unitholders per diluted share $
0.08 $ 0.10
FFO adjustments per diluted OP Unit, net 0.32 0.34
FFO attributable to common unitholders per diluted OP Unit $
0.40 $ 0.44
Normalized FFO adjustments per diluted OP Unit, net 0.04 0.00
Normalized FFO attributable to common unitholders per diluted OP Unit
$
0.44
Weighted average diluted common OP Units outstanding 233,046 222,268 (1) For the three months endedMarch 31, 2022 , merger-related costs include the following: (i) financial advisor fees of$3.8 million ; (ii) legal fees of$1.8 million ; (iii) merger and integration consulting fees of$0.3 million ; and (iv) travel costs of$0.1 million .
(2) For the three months ended
(3) For the three months endedMarch 31, 2022 , other normalizing adjustments include the following: (i) additional board meeting fees of$159,000 ; (ii) legal and professional fees related to the whistleblower investigation of$143,000 ; (iii) legal fees related to employee retention matters of$131,000 ; and (iv) professional fees related to strategic review matters of$81,000 .
NOI, Cash NOI and Same-Property Cash NOI
NOI is a non-GAAP financial measure that is defined as net income or loss
(computed in accordance with GAAP) before: (i) general and administrative
expenses; (ii) transaction expenses; (iii) depreciation and amortization
expense; (iv) impairment; (v) interest expense; (vi) gain or loss on sales of
real estate and corporate assets; (vii) gain or loss on extinguishment of debt;
(viii) income or loss from unconsolidated joint venture; and (ix) other income
or expense. We believe that NOI provides an accurate measure of the operating
performance of our operating assets because NOI excludes certain items that are
not associated with the management of our properties. Additionally, we believe
that NOI is a widely accepted measure of comparative operating performance of
REITs. However, our use of the term NOI may not be comparable to that of other
REITs as they may have different methodologies for computing this amount. NOI
should not be considered as an alternative to net income or loss (computed in
accordance with GAAP) as an indicator of our financial performance. NOI should
be reviewed in connection with other GAAP measurements.
Cash NOI is a non-GAAP financial measure which excludes from NOI: (i)
straight-line rent adjustments; (ii) amortization of below and above market
leases/leasehold interests 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
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received at prices we would transact and the sales process is ongoing, and (v) certain non-routine items. Same-Property Cash NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance. Same-Property Cash NOI should be reviewed in connection with other GAAP measurements. The following is the reconciliation of HTA's and HTALP's NOI, Cash NOI and Same-Property Cash NOI to net income for the three months endedMarch 31, 2022 and 2021, respectively (in thousands): Three Months Ended March 31, 2022 2021 Net income$ 18,666 $ 22,393 General and administrative expenses 12,448 10,560 Merger-related costs 6,018 - Transaction expenses 144 96 Depreciation and amortization expense 75,386 76,274 Interest expense 23,940 22,986 Loss on sale of real estate, net 4 - Income from unconsolidated joint venture (400) (392) Other income (88) (3) NOI$ 136,118 $ 131,914 Straight-line rent adjustments, net (2,828) (3,774)
Amortization of (below) and above market leases/leasehold interests, net and other GAAP adjustments
(407) (475)
Notes receivable interest income (1,660) (6)
Cash NOI $
131,223
(6,280) (2,180)
Redevelopment Cash NOI (2,105) (2,650)
Intended for sale Cash NOI (5,408) (6,280)
Same-Property Cash NOI (1) $
117,430
(1) Same-Property includes 424 buildings for the three months ended
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 of
As ofMarch 31, 2022 , we had unencumbered assets with a gross book value of$7.9 billion . The unencumbered properties may be used as collateral to secure additional financings in future periods or refinance our current debt as it becomes due. Our ability to raise funds from future debt and equity issuances is dependent on our investment grade credit ratings, general economic and market conditions, and our operating performance. 39
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When we acquire a property, we prepare a capital plan that contemplates the estimated capital needs of that investment. In addition to operating expenses, capital needs may also include costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs. As ofMarch 31, 2022 , we estimate that our expenditures for capital improvements including lease commissions for the remainder of the year will range from approximately$75 million to$100 million depending on leasing activity. In addition, we have approximately$150 million inclusive of costs to complete active development projects and incremental tenant improvements as part of our recently completed development projects. Although we cannot provide assurance that we will not exceed these estimated expenditure levels, we believe our liquidity of$1.0 billion allows us the flexibility to fund such capital expenditures. If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewal leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized, we may have a cash flow deficit in subsequent periods. Our estimate of net cash available is based on various assumptions which are difficult to predict, including the levels of our leasing activity and related leasing costs. Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs.
Cash Flows
The following is a summary of our cash flows for the three months ended
Three
Months Ended
2022 2021 Change
Cash, cash equivalents and restricted cash -
beginning of period $ 57,069 $ 118,765 $ (61,696)
Net cash provided by operating activities 49,308 65,353 (16,045)
Net cash used in investing activities (33,180) (76,299) 43,119
Net cash used in financing activities (57,775) (74,733) 16,958
Cash, cash equivalents and restricted cash - end
of period $ 15,422 $
33,086
Net cash provided by operating activities decreased in 2022 primarily due to the impact of our 2021 and 2022 dispositions, partially offset by our 2021 and 2022 acquisitions and contractual rent increases. 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 three months endedMarch 31, 2022 , net cash used in investing activities primarily related to capital expenditures of$28.6 million , investments in real estate of$19.1 million , development of real estate of$10.4 million , and advances on real estate notes receivable of$2.3 million , partially offset by proceeds from the sale of real estate of$26.8 million . For the three months endedMarch 31, 2021 , net cash used in investing activities primarily related to investments in real estate of$30.5 million , capital expenditures of$28.9 million and development of real estate of$17.1 million . For the three months endedMarch 31, 2022 , net cash used in financing activities primarily related to dividends paid to holders of our common stock of$74.4 million , and deferred financing costs of$5.4 million , partially offset by net borrowings under our revolving credit facility of$25.0 million . For the three months endedMarch 31, 2021 , net cash used in financing activities primarily related to dividends paid to holders of our common stock of$70.0 million , and the repurchase and cancellation of common stock of$3.2 million .
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. 40
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For the three months ended
Financing
We have historically maintained a low leveraged balance sheet and intend to
continue to maintain this structure in the long term. However, our total
leverage may fluctuate on a short-term basis as we execute our business
strategy. As of
As ofMarch 31, 2022 , 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 of
Unsecured Term Loans
As ofMarch 31, 2022 , we had$500.0 million of unsecured term loans outstanding, comprised of$300.0 million under our Unsecured Credit Agreement maturing in 2025, and$200.0 million under our unsecured term loan maturing in 2024.
Unsecured Senior Notes
As of
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 ofMarch 31, 2022 , 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 three months ended
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.
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