Attached files
| file | filename |
|---|---|
| EX-31.1 - EXHIBIT 31.1 - Healthcare Trust, Inc. | ex311hti03312017.htm |
| EX-32 - EXHIBIT 32 - Healthcare Trust, Inc. | ex32hti03312017.htm |
| EX-31.2 - EXHIBIT 31.2 - Healthcare Trust, Inc. | ex312hti03312017.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2017
OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to __________
Commission file number: 000-55201
Healthcare Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland | 38-3888962 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
405 Park Ave., 4th Floor, New York, NY | 10022 | |
(Address of principal executive offices) | (Zip Code) | |
(212) 415-6500 | ||
(Registrant's telephone number, including area code) | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer x | (Do not check if a smaller reporting company) | Smaller reporting company o |
Emerging growth company o | ||
If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of April 30, 2017, the registrant had 89,123,206 shares of common stock outstanding.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | |
2
Item 1. Financial Statements.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
March 31, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Real estate investments, at cost: | ||||||||
Land | $ | 184,737 | $ | 187,868 | ||||
Buildings, fixtures and improvements | 1,835,067 | 1,872,590 | ||||||
Construction in progress | 62,899 | 60,055 | ||||||
Acquired intangible assets | 233,059 | 234,749 | ||||||
Total real estate investments, at cost | 2,315,762 | 2,355,262 | ||||||
Less: accumulated depreciation and amortization | (256,189 | ) | (241,027 | ) | ||||
Total real estate investments, net | 2,059,573 | 2,114,235 | ||||||
Cash and cash equivalents | 91,678 | 29,225 | ||||||
Restricted cash | 4,388 | 3,962 | ||||||
Assets held for sale | 37,822 | — | ||||||
Non-designated derivative assets, at fair value | 64 | 61 | ||||||
Straight-line rent receivable, net | 13,111 | 12,026 | ||||||
Prepaid expenses and other assets (including $0 and $163 due from related party as of March 31, 2017 and December 31, 2016, respectively) | 20,086 | 22,073 | ||||||
Deferred costs, net | 14,089 | 12,123 | ||||||
Total assets | $ | 2,240,811 | $ | 2,193,705 | ||||
LIABILITIES AND EQUITY | ||||||||
Mortgage notes payable, net of deferred financing costs | $ | 141,921 | $ | 142,288 | ||||
Mortgage premiums and discounts, net | 26 | 466 | ||||||
Credit facilities | 580,939 | 481,500 | ||||||
Market lease intangible liabilities, net | 19,498 | 20,187 | ||||||
Accounts payable and accrued expenses (including $1,212 and $1,025 due to related parties as of March 31, 2017 and December 31, 2016, respectively) | 28,973 | 27,080 | ||||||
Deferred rent | 6,311 | 4,986 | ||||||
Distributions payable | 12,919 | 12,872 | ||||||
Total liabilities | 790,587 | 689,379 | ||||||
Preferred stock, $0.01 par value, 50,000,000 authorized, none issued and outstanding as of March 31, 2017 and December 31, 2016 | — | — | ||||||
Common stock, $0.01 par value, 300,000,000 shares authorized, 88,873,482 and 89,368,899 shares of common stock issued and outstanding as of March 31, 2017 and December 31, 2016, respectively | 889 | 894 | ||||||
Additional paid-in capital | 1,970,958 | 1,981,136 | ||||||
Accumulated deficit | (530,296 | ) | (486,574 | ) | ||||
Total stockholders' equity | 1,441,551 | 1,495,456 | ||||||
Non-controlling interests | 8,673 | 8,870 | ||||||
Total equity | 1,450,224 | 1,504,326 | ||||||
Total liabilities and equity | $ | 2,240,811 | $ | 2,193,705 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Revenues: | ||||||||
Rental income | $ | 24,022 | $ | 26,592 | ||||
Operating expense reimbursements | 4,104 | 3,709 | ||||||
Resident services and fee income | 46,489 | 45,202 | ||||||
Contingent purchase price consideration | — | 6 | ||||||
Total revenues | 74,615 | 75,509 | ||||||
Expenses: | ||||||||
Property operating and maintenance | 42,611 | 38,792 | ||||||
Impairment charges | 35 | — | ||||||
Operating fees to related parties | 5,301 | 5,155 | ||||||
Acquisition and transaction related | 2,845 | 42 | ||||||
General and administrative | 4,157 | 3,987 | ||||||
Depreciation and amortization | 20,483 | 24,615 | ||||||
Total expenses | 75,432 | 72,591 | ||||||
Operating income (expense) | (817 | ) | 2,918 | |||||
Other income (expense): | ||||||||
Interest expense | (5,482 | ) | (4,984 | ) | ||||
Interest and other income | 1 | 22 | ||||||
Loss on non-designated derivative instruments | (64 | ) | — | |||||
Total other expenses | (5,545 | ) | (4,962 | ) | ||||
Loss before income taxes | (6,362 | ) | (2,044 | ) | ||||
Income tax benefit | 195 | 483 | ||||||
Net loss | (6,167 | ) | (1,561 | ) | ||||
Net loss attributable to non-controlling interests | 28 | 6 | ||||||
Net loss attributable to stockholders | (6,139 | ) | (1,555 | ) | ||||
Other comprehensive loss: | ||||||||
Unrealized loss on investment securities, net | — | (7 | ) | |||||
Comprehensive loss attributable to stockholders | $ | (6,139 | ) | $ | (1,562 | ) | ||
Basic and diluted weighted-average shares outstanding | 89,639,676 | 86,658,678 | ||||||
Basic and diluted net loss per share | $ | (0.07 | ) | $ | (0.02 | ) | ||
Distributions declared per share | $ | 0.42 | $ | 0.42 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Three Months Ended March 31, 2017
(In thousands, except share data)
(Unaudited)
Common Stock | ||||||||||||||||||||||||||
Number of Shares | Par Value | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||
Balance, December 31, 2016 | 89,368,899 | $ | 894 | $ | 1,981,136 | $ | (486,574 | ) | $ | 1,495,456 | $ | 8,870 | $ | 1,504,326 | ||||||||||||
Common stock issued through distribution reinvestment plan | 777,762 | 8 | 17,313 | — | 17,321 | — | 17,321 | |||||||||||||||||||
Common stock repurchases | (1,273,179 | ) | (13 | ) | (27,505 | ) | — | (27,518 | ) | — | (27,518 | ) | ||||||||||||||
Share-based compensation | — | — | 14 | — | 14 | — | 14 | |||||||||||||||||||
Distributions declared | — | — | — | (37,583 | ) | (37,583 | ) | — | (37,583 | ) | ||||||||||||||||
Distributions to non-controlling interest holders | — | — | — | — | — | (169 | ) | (169 | ) | |||||||||||||||||
Net loss | — | — | — | (6,139 | ) | (6,139 | ) | (28 | ) | (6,167 | ) | |||||||||||||||
Balance, March 31, 2017 | 88,873,482 | $ | 889 | $ | 1,970,958 | $ | (530,296 | ) | $ | 1,441,551 | $ | 8,673 | $ | 1,450,224 | ||||||||||||
The accompanying notes are an integral part of this unaudited consolidated financial statement.
5
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (6,167 | ) | $ | (1,561 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 20,483 | 24,615 | ||||||
Amortization of deferred financing costs | 1,277 | 1,139 | ||||||
Amortization of mortgage premiums and discounts, net | (440 | ) | (514 | ) | ||||
Amortization of market lease and other intangibles, net | 118 | 27 | ||||||
Bad debt expense | 3,510 | 386 | ||||||
Share-based compensation | 14 | 15 | ||||||
Loss on non-designated derivative instruments | 64 | — | ||||||
Impairment charges | 35 | — | ||||||
Changes in assets and liabilities: | ||||||||
Straight-line rent receivable | (1,419 | ) | (3,161 | ) | ||||
Prepaid expenses and other assets | (1,634 | ) | 1,699 | |||||
Accounts payable, accrued expenses and other liabilities | 1,893 | 2,707 | ||||||
Deferred rent | 1,325 | 384 | ||||||
Restricted cash | (426 | ) | 348 | |||||
Net cash provided by operating activities | 18,633 | 26,084 | ||||||
Cash flows from investing activities: | ||||||||
Investments in real estate | (2,844 | ) | (5,872 | ) | ||||
Deposits paid for real estate acquisitions | (600 | ) | (2,000 | ) | ||||
Capital expenditures | (1,141 | ) | (1,813 | ) | ||||
Net cash used in investing activities | (4,585 | ) | (9,685 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from credit facilities | 99,439 | 30,000 | ||||||
Payments on mortgage notes payable | (590 | ) | (4,664 | ) | ||||
Payments for undesignated derivative instruments | (67 | ) | — | |||||
Payments of deferred financing costs | (2,475 | ) | (3 | ) | ||||
Common stock repurchases | (27,518 | ) | (12,015 | ) | ||||
Distributions paid | (20,215 | ) | (17,510 | ) | ||||
Distributions to non-controlling interest holders | (169 | ) | (172 | ) | ||||
Net cash provided by (used in) financing activities | 48,405 | (4,364 | ) | |||||
Net change in cash and cash equivalents | 62,453 | 12,035 | ||||||
Cash and cash equivalents, beginning of period | 29,225 | 24,474 | ||||||
Cash and cash equivalents, end of period | $ | 91,678 | $ | 36,509 | ||||
6
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 4,977 | $ | 4,543 | ||||
Non-cash investing and financing activities: | ||||||||
Accrued repurchases included in accounts payable and accrued expenses | $ | — | $ | 163 | ||||
Common stock issued through distribution reinvestment plan | 17,321 | 19,120 | ||||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
Note 1 — Organization
Healthcare Trust, Inc. (including, as required by context, Healthcare Trust Operating Partnership, LP (the "OP") and its subsidiaries, the "Company") invests in healthcare real estate, focusing on seniors housing and medical office buildings ("MOB"), located in the United States for investment purposes. As of March 31, 2017, the Company owned 163 properties located in 29 states and comprised of 8.4 million rentable square feet.
The Company, which was incorporated on October 15, 2012, is a Maryland corporation that elected and qualified to be taxed as a real estate investment trust for U.S. federal income tax purposes ("REIT") beginning with its taxable year ended December 31, 2013. Substantially all of the Company's business is conducted through the OP.
In February 2013, the Company commenced its initial public offering (the "IPO") on a "reasonable best efforts" basis of up to $1.7 billion of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts. The Company closed its IPO in November 2014. As of March 31, 2017, the Company had 88.9 million shares of common stock outstanding, including unvested restricted shares and shares issued pursuant to the Company's distribution reinvestment plan (the "DRIP"), and had received total proceeds from the IPO and DRIP of $2.2 billion, net of share repurchases.
The Company has no employees. Healthcare Trust Advisors, LLC (the "Advisor") has been retained by the Company to manage the Company's affairs on a day-to-day basis. The Company has retained Healthcare Trust Properties, LLC (the "Property Manager") to serve as the Company's property manager. The Advisor and Property Manager are under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"), the parent of the Company's sponsor, American Realty Capital VII, LLC (the "Sponsor"), as a result of which they are related parties, and each have received or will receive compensation, fees and expense reimbursements from the Company for services related to managing its business. The Advisor, Healthcare Trust Special Limited Partnership, LLC (the "Special Limited Partner") and Property Manager also have received or will receive compensation, fees and expense reimbursements related to the investment and management of the Company's assets.
Note 2 — Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results for the entire year or any subsequent interim period.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2016, which are included in the Company's Annual Report on Form 10-K filed with the SEC on March 20, 2017. There have been no significant changes to the Company's significant accounting policies during the three months ended March 31, 2017 other than the updates described below.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity ("VIE") for which the Company is the primary beneficiary. The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company's assets and liabilities are held by the OP.
8
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance was to become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. In July 2015, the FASB deferred the effective date of the revised guidance by one year to annual reporting periods beginning after December 15, 2017, although entities will be allowed to early adopt the guidance as of the original effective date. The Company is evaluating the impact of the implementation of this guidance, including performing a preliminary review of all revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition. The Company is continuing to evaluate the allowable methods of adoption.
In January 2016, the FASB issued an update that amends the recognition and measurement of financial instruments. The new guidance revises an entity’s accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update. The Company is currently evaluating the impact of this new guidance.
In February 2016, the FASB issued an update that sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The revised guidance supersedes previous leasing standards and is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company has begun developing an inventory of all leases as well as identifying any non-lease components in our lease arrangements. The Company is continuing to evaluate the impact of this new guidance.
In March 2016, the FASB issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
In August 2016, the FASB issued guidance on how certain transactions should be classified and presented in the statement of cash flows as either operating, investing or financing activities. Among other things, the update provides specific guidance on where to classify debt prepayment and extinguishment costs, payments for contingent consideration made after a business combination and distributions received from equity method investments. The revised guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
In November 2016, the FASB issued guidance on the classification of restricted cash in the statement of cash flows. The amendment requires restricted cash to be included in the beginning-of-period and end-of-period total cash amounts. Therefore, transfers between cash and restricted cash will no longer be shown on the statement of cash flows. The guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance.
9
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
In February 2017, the FASB issued guidance on other income, specifically gains and losses from the derecognition of nonfinancial assets. The guidance clarifies the definition of ‘in substance non-financial assets’, unifies guidance related to partial sales of non-financial assets, eliminates rules specifically addressing the sales of real estate, removes exception to the financial asset derecognition model and clarifies the accounting for contributions of non-financial assets to joint ventures. The revised guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently evaluating the impact of this new guidance.
Recently Adopted Accounting Pronouncements
In October 2016, the FASB issued guidance where a reporting entity will need to evaluate if it should consolidate a VIE. The amendments change the evaluation of whether a reporting entity is the primary beneficiary of a VIE by changing how a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company has adopted the provisions of this guidance beginning January 1, 2017 and determined that there is no impact to our consolidated financial position, results of operations and cash flows.
In January 2017, the FASB issued guidance that revises the definition of a business. This new guidance is applicable when evaluating whether an acquisition should be treated as either a business acquisition or an asset acquisition. Under the revised guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset or group of similar assets, the assets acquired would not be considered a business. The revised guidance is effective for reporting periods beginning after December 15, 2017, and the amendments will be applied prospectively. Early application is permitted only for transactions that have not previously been reported in issued financial statements. The Company has assessed this revised guidance and expects, based on historical acquisitions, that, in most cases, a future property acquisition would be treated as an asset acquisition rather than a business acquisition, which would result in the capitalization of related transaction costs. The Company has adopted the provisions of this guidance beginning January 1, 2017.
Note 3 — Real Estate Investments
The Company owned 163 properties as of March 31, 2017. The Company invests in medical office buildings ("MOB"), seniors housing communities and other healthcare-related facilities primarily to expand and diversify its portfolio and revenue base. The following table presents the capitalized construction in progress during the three months ended March 31, 2017 and 2016:
Three Months Ended March 31, | ||||||||
(Dollar amounts in thousands) | 2017 | 2016 | ||||||
Real estate investments, at cost: | ||||||||
Construction in progress | $ | 2,844 | $ | 5,872 | ||||
Cash paid for real estate investments | $ | 2,844 | $ | 5,872 | ||||
The following table presents future minimum base rental cash payments due to the Company over the next five years and thereafter as of March 31, 2017. These amounts exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes, among other items.
(In thousands) | Future Minimum Base Rent Payments | |||
April 1, 2017 — December 31, 2017 | $ | 62,382 | ||
2018 | 79,400 | |||
2019 | 73,069 | |||
2020 | 67,579 | |||
2021 | 62,348 | |||
Thereafter | 329,016 | |||
Total | $ | 673,794 | ||
10
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
As of March 31, 2017 and 2016, the Company did not have any tenants (including for this purpose, all affiliates of such tenants) whose annualized rental income on a straight-line basis represented 10% or greater of total annualized rental income for the portfolio on a straight-line basis.
The following table lists the states where the Company had concentrations of properties where annualized rental income on a straight-line basis represented 10% or more of consolidated annualized rental income on a straight-line basis for all properties as of March 31, 2017 and 2016:
March 31, | ||||
State | 2017 | 2016 | ||
Florida | 19.4% | 18.7% | ||
Georgia | 10.2% | * | ||
Iowa | 10.5% | 10.1% | ||
Pennsylvania | 12.0% | 11.7% | ||
_______________
* | State's annualized rental income on a straight-line basis was not greater than 10% of total annualized rental income for all portfolio properties as of the date specified. |
Intangible Assets and Liabilities
Acquired intangible assets and liabilities consisted of the following as of the periods presented:
March 31, 2017 | December 31, 2016 | |||||||||||||||||||||||
(In thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||
Intangible assets: | ||||||||||||||||||||||||
In-place leases | $ | 194,249 | $ | 119,420 | $ | 74,829 | $ | 195,940 | $ | 115,641 | $ | 80,299 | ||||||||||||
Intangible market lease assets | 28,221 | 6,377 | 21,844 | 28,220 | 5,798 | 22,422 | ||||||||||||||||||
Other intangible assets | 10,589 | 640 | 9,949 | 10,589 | 574 | 10,015 | ||||||||||||||||||
Total acquired intangible assets | $ | 233,059 | $ | 126,437 | $ | 106,622 | $ | 234,749 | $ | 122,013 | $ | 112,736 | ||||||||||||
Intangible market lease liabilities | $ | 25,614 | $ | 6,116 | $ | 19,498 | $ | 25,614 | $ | 5,427 | $ | 20,187 | ||||||||||||
The following table discloses amounts recognized within the consolidated statements of operations and comprehensive loss related to amortization of in-place leases and other intangible assets, amortization and accretion of above- and below-market lease assets and liabilities, net and the accretion of above-market ground leases, for the periods presented:
Three Months Ended March 31, | ||||||||
(In thousands) | 2017 | 2016 | ||||||
Amortization of in-place leases and other intangible assets(1) | $ | 5,536 | $ | 9,545 | ||||
Amortization and (accretion) of above- and below-market leases, net(2) | $ | (153 | ) | $ | (62 | ) | ||
Accretion of above-market ground leases(3) | $ | 43 | $ | 43 | ||||
_______________
(1) | Reflected within depreciation and amortization expense |
(2) | Reflected within rental income |
(3) | Reflected within property operating and maintenance expense |
11
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
The following table provides the projected amortization expense and adjustments to revenues for the next five years:
(In thousands) | April 1, 2017 — December 31, 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||
In-place lease assets | $ | 11,366 | $ | 13,162 | $ | 10,614 | $ | 8,683 | $ | 7,141 | ||||||||||
Other intangible assets | 199 | 265 | 265 | 265 | 265 | |||||||||||||||
Total to be added to amortization expense | $ | 11,565 | $ | 13,427 | $ | 10,879 | $ | 8,948 | $ | 7,406 | ||||||||||
Above-market lease assets | $ | (1,352 | ) | $ | (1,357 | ) | $ | (1,068 | ) | $ | (742 | ) | $ | (532 | ) | |||||
Below-market lease liabilities | 1,526 | 1,851 | 1,571 | 1,414 | 1,265 | |||||||||||||||
Total to be added to rental income | $ | 174 | $ | 494 | $ | 503 | $ | 672 | $ | 733 | ||||||||||
Below-market ground lease assets | $ | 159 | $ | 212 | $ | 212 | $ | 212 | $ | 212 | ||||||||||
Above-market ground lease liabilities | (30 | ) | (40 | ) | (40 | ) | (40 | ) | (40 | ) | ||||||||||
Total to be added to property operating and maintenance expense | $ | 129 | $ | 172 | $ | 172 | $ | 172 | $ | 172 | ||||||||||
Assets Held For Sale
When assets are identified by management as held for sale, the Company stops recognizing depreciation and amortization expense on the identified assets and estimates the sales price, net of costs to sell, of those assets. If the carrying amount of the assets classified as held for sale exceeds the estimated net sales price, the Company records an impairment charge equal to the amount by which the carrying amount of the assets exceeds the Company's estimate of the net sales price of the assets.
In January 2017, the Company entered into an agreement to sell eight of its skilled nursing facility properties (the "SNF Properties") for an aggregate contract purchase price of $42.0 million if closing occurs in 2017, and $44.1 million if closing occurs in 2018 (including any amendments thereto, the "SNF PSA"). Subsequently, in February 2017, the due diligence period of the SNF PSA expired and, concurrently with the expiration of the due diligence period, the Company stopped recognizing depreciation and amortization expense and reclassified the SNF Properties as held for sale on the consolidated balance sheet. The SNF PSA provides for an extended closing period to include seven closing adjournment periods, each requiring a non-refundable deposit through the final closing adjournment date, September 28, 2018. The Company does not have a material relationship with the potential buyer, and the disposition will not be an affiliated transaction. Although the Company believes the disposition of the SNF Properties is probable, there can be no assurance that the disposition will be consummated. The Company expects the disposition to be consummated before December 31, 2017. In connection with the SNF Properties being classified as held for sale, the Company recognized an impairment charge of approximately $35,000 on one of the eight SNF Properties.
In February 2017, the Company's then-existing operator entered into an agreement to transfer the operations of the SNF Properties to a new operator (the "SNF OTA"). The SNF OTA permanently transferred all aspects of operations to the new operator effective February 15, 2017 and is not dependent on closing on the sale of the SNF Properties as outlined in the SNF PSA. On March 1, 2017, in connection with the new operator assuming the leases of the SNF Properties from the old operator pursuant to the SNF OTA, the Company paid its third-party broker a leasing commission of $0.4 million. The Company capitalized this cost to deferred costs, net on the consolidated balance sheet as of March 31, 2017 and is amortizing the cost through December 31, 2017, the expected disposition date of the SNF Properties.
Additionally, on March 1, 2017, in connection with the SNF PSA and SNF OTA, the Company reached an agreement with the prior tenants of the SNF Properties to provide a one-time payment of $2.8 million to a creditor of the prior tenants in order to close on the transfer of operations of the SNF Properties. This payment was made in March 2017 and is included in the Company's acquisition and transaction related expenses in the consolidated statements of operations and comprehensive loss for the three months ended March 31, 2017.
12
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
The following table details the major classes of assets associated with the properties that have been classified as held for sale as of March 31, 2017:
(In thousands) | March 31, 2017 | |||
Real estate held for sale, at cost: | ||||
Land | $ | 3,131 | ||
Buildings, fixtures and improvements | 38,596 | |||
Total real estate held for sale, at cost | 41,727 | |||
Less accumulated depreciation and amortization | (3,870 | ) | ||
Real estate assets held for sale, net | 37,857 | |||
Impairment charges related to properties reclassified as held for sale | (35 | ) | ||
Assets held for sale | $ | 37,822 | ||
Note 4 — Investment Securities
As of March 31, 2017 and December 31, 2016, the Company had no investment securities. Investment securities previously owned were sold during the third quarter 2016. During the three months ended March 31, 2016, the Company had unrealized loss on investment securities, net of approximately $7,000, which is reflected in the consolidated statements of operations and comprehensive loss.
Note 5 — Credit Facilities
The Company has the following credit facilities outstanding as of March 31, 2017 and December 31, 2016:
Outstanding Facility Amount as of | Effective Interest Rate | |||||||||||||||||
Credit Facility | Encumbered Properties | March 31, 2017 | December 31, 2016 | March 31, 2017 | December 31, 2016 | Maturity | ||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||
Revolving Credit Facility | 69 | (1) | $ | 467,500 | $ | 421,500 | 2.19 | % | 2.00 | % | Mar. 2019 | |||||||
Master Credit Facilities: | ||||||||||||||||||
Capital One Facility | 2 | (2) | 83,439 | 30,000 | 3.32 | % | 3.24 | % | Nov. 2026 | |||||||||
KeyBank Facility | 4 | (3) | 30,000 | 30,000 | 3.32 | % | 3.24 | % | Nov. 2026 | |||||||||
Total Master Credit Facilities | 113,439 | 60,000 | ||||||||||||||||
Total Credit Facilities | 75 | $ | 580,939 | $ | 481,500 | 2.41 | % | (4) | 2.15 | % | (4) | |||||||
_______________
(1) | The Revolving Credit Facility is secured by a pledged pool of eligible unencumbered real estate assets. |
(2) | The Capital One Facility is secured by first-priority mortgages on two of the Company’s seniors housing properties located in Florida as of March 31, 2017. |
(3) | The KeyBank Facility is secured by first-priority mortgages on four of the Company’s seniors housing properties located in Michigan, Missouri and Kansas as of March 31, 2017. |
(4) | Calculated on a weighted average basis for all credit facilities outstanding as of March 31, 2017 and December 31, 2016. |
Revolving Credit Facility
On March 21, 2014, the Company entered into a senior secured revolving credit facility in the amount of $50.0 million (the "Revolving Credit Facility"). The Company amended the Revolving Credit Facility in 2014 and 2015, which, among other things, allowed for borrowings of up to $565.0 million. The Revolving Credit Facility also contains a sub-facility for letters of credit of up to $25.0 million and an "accordion" feature to allow the Company, under certain circumstances, to increase the aggregate borrowings under the Revolving Credit Facility to a maximum of $750.0 million. On February 24, 2017, the Company further amended its Revolving Credit Facility, which, among other things, amended the method and inputs used in the calculation of certain financial covenants contained within the Revolving Credit Facility.
13
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
The Company has the option, based upon its leverage, to have the Revolving Credit Facility priced at either: (a) LIBOR, plus an applicable margin that ranges from 1.60% to 2.20%; or (b) the Base Rate, plus an applicable margin that ranges from 0.35% to 0.95%. The Base Rate is defined in the Revolving Credit Facility as the greater of (i) the fluctuating annual rate of interest announced from time to time by the lender as its “prime rate,” (ii) 0.5% above the federal funds effective rate or (iii) the applicable one-month LIBOR plus 1.0%.
The Revolving Credit Facility provides for monthly interest payments for each Base Rate loan and periodic payments for each LIBOR loan, based upon the applicable LIBOR loan period, with all principal outstanding being due on the maturity date of March 21, 2019. The Revolving Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty (subject to standard breakage costs). In the event of a default, the lender has the right to terminate its obligations under the Revolving Credit Facility and to accelerate the payment on any unpaid principal amount of all outstanding loans.
The Company's unused borrowing capacity was $29.8 million, based on assets assigned to the Revolving Credit Facility as of March 31, 2017. The Revolving Credit Facility requires the Company to meet certain financial covenants. As of March 31, 2017, the Company was in compliance with the financial covenants under the Revolving Credit Facility.
Master Credit Facilities
On October 31, 2016, the Company, through wholly-owned subsidiaries of the OP, entered into a master credit facility agreement (the “KeyBank Credit Agreement”) relating to a secured credit facility with KeyBank National Association (“KeyBank”) and a master credit facility agreement (the “Capital One Credit Agreement” and, together with the KeyBank Credit Agreement, the “Master Credit Agreements”) relating to a secured credit facility with Capital One Multifamily Finance, LLC (“Capital One”). The Master Credit Agreements and related loan documents were issued through Fannie Mae’s (“Lender”) Multifamily MBS program and assigned by Capital One and KeyBank to the Lender at closing.
The secured master credit facility with KeyBank (the “KeyBank Facility”) and the secured master credit facility with Capital One (the “Capital One Facility”, and together with the KeyBank Facility, the “Master Credit Facilities”) each provided for an initial $30.0 million of advances. The Master Credit Facilities are secured by six unencumbered properties, in aggregate. The Company may request future advances under the Master Credit Facilities by borrowing against the value of the initial mortgaged properties, as described below, or by adding eligible properties to the collateral pool, subject to customary conditions, including satisfaction of minimum debt service coverage and maximum loan-to-value tests. The initial advances under the Master Credit Facilities will mature on November 1, 2026. Beginning December 1, 2016, the annual interest rates under the Master Credit Facilities changed to vary on a monthly basis and are equal to the sum of the current One Month LIBOR and 2.62%, with a floor of 2.62%. “One Month LIBOR” means the London Inter-Bank Offered Rate for one month U.S. dollar-denominated deposits. Prior to December 1, 2016, borrowings under the KeyBank Facility and the Capital One Facility had initial interest rates of 3.15% and 3.156%, respectively, per annum. Effective October 31, 2016, in conjunction with the execution of the Master Credit Facilities, the OP entered into two interest rate cap agreements (the "IR Caps") with an unrelated third party, which cap interest paid on amounts outstanding under the Master Credit Facilities to a maximum of 3.5%. The IR Caps terminate on November 1, 2019. The Master Credit Agreements require the Company to enter into replacement interest rate cap or swap agreements upon termination of the IR Caps, to the extent any variable rate loans are outstanding on the date of termination.
The KeyBank Facility was initially secured by first-priority mortgages on four of the Company’s seniors housing properties located in Michigan, Missouri and Kansas. The Capital One Facility was initially secured by first-priority mortgages on two of the Company’s seniors housing properties located in Florida. Each of the security agreements securing the Master Credit Facilities are cross-defaulted and cross-collateralized with the other security agreements securing the Master Credit Facilities. The Master Credit Facilities are non-recourse, subject to standard carve-outs and environmental indemnities, which obligations are guaranteed by the OP on an unsecured basis.
The initial advances under the Master Credit Facilities may not be prepaid until November 1, 2017, after which they may be prepaid in full or in part through July 31, 2026 with payment of a 1% prepayment premium, and may be freely prepaid in full or in part thereafter. The Master Credit Agreements provide for optional acceleration by the Lender upon an event of default. The Master Credit Agreements contain customary events of default, including the breach of transfer prohibitions, principal or interest payment defaults and bankruptcy-related defaults.
14
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
On March 30, 2017, the Company increased its advances under the Capital One Facility by $53.4 million (the "2017 Capital One Advance"). The 2017 Capital One Advance was secured by borrowing against the value of the initial mortgaged properties subject to the Capital One Facility. Effective March 30, 2017, in conjunction with the 2017 Capital One Advance, the OP entered into an additional interest rate cap agreement (the "2017 IR Cap") with an unrelated third party, which cap interest paid on amounts outstanding on the 2017 Capital One Advance under the Capital One Facility to a maximum of 3.5%. The 2017 IR Cap terminates on April 1, 2020.
Upon an event of default under the Master Credit Agreements, payment of any unpaid amounts under the applicable Master Credit Facility may be accelerated by Lender and Lender may exercise its rights with respect to the applicable pool of seniors housing properties securing the Master Credit Facilities.
Note 6 — Mortgage Notes Payable
The following table reflects the Company's mortgage notes payable as of March 31, 2017 and December 31, 2016:
Outstanding Loan Amount as of | Effective Interest Rate as of | ||||||||||||||||
Portfolio | Encumbered Properties | March 31, 2017 | December 31, 2016 | March 31, 2017 | (1) | Interest Rate | Maturity | ||||||||||
(In thousands) | (In thousands) | ||||||||||||||||
Medical Center of New Windsor - New Windsor, NY | 1 | $ | 8,569 | $ | 8,602 | 6.39 | % | Fixed | Sep. 2017 | ||||||||
Plank Medical Center - Clifton Park, NY | 1 | 3,401 | 3,414 | 6.39 | % | Fixed | Sep. 2017 | ||||||||||
Countryside Medical Arts - Safety Harbor, FL | 1 | 5,880 | 5,904 | 6.07 | % | Fixed | (2) | Apr. 2019 | |||||||||
St. Andrews Medical Park - Venice, FL | 3 | 6,499 | 6,526 | 6.07 | % | Fixed | (2) | Apr. 2019 | |||||||||
Slingerlands Crossing Phase I - Bethlehem, NY | 1 | 6,564 | 6,589 | 6.39 | % | Fixed | Sep. 2017 | ||||||||||
Slingerlands Crossing Phase II - Bethlehem, NY | 1 | 7,642 | 7,671 | 6.39 | % | Fixed | Sep. 2017 | ||||||||||
Benedictine Cancer Center - Kingston, NY | 1 | 6,693 | 6,719 | 6.39 | % | Fixed | Sep. 2017 | ||||||||||
Aurora Healthcare Center Portfolio - WI | 6 | 30,746 | 30,858 | 6.55 | % | Fixed | Jan. 2018 | ||||||||||
Palm Valley Medical Plaza - Goodyear, AZ | 1 | 3,403 | 3,428 | 4.15 | % | Fixed | Jun. 2023 | ||||||||||
Medical Center V - Peoria, AZ | 1 | 3,130 | 3,151 | 4.75 | % | Fixed | Sep. 2023 | ||||||||||
Courtyard Fountains - Gresham, OR | 1 | 24,706 | 24,820 | 3.87 | % | Fixed | Jan. 2020 | ||||||||||
Fox Ridge Bryant - Bryant, AR | 1 | 7,665 | 7,698 | 3.98 | % | Fixed | May 2047 | ||||||||||
Fox Ridge Chenal - Little Rock, AR | 1 | 17,474 | 17,540 | 3.98 | % | Fixed | May 2049 | ||||||||||
Fox Ridge North Little Rock - North Little Rock, AR | 1 | 10,842 | 10,884 | 3.98 | % | Fixed | May 2049 | ||||||||||
Gross mortgage notes payable | 21 | 143,214 | 143,804 | 5.27 | % | (3) | |||||||||||
Deferred financing costs, net of accumulated amortization | (1,293 | ) | (1,516 | ) | |||||||||||||
Mortgage notes payable, net of deferred financing costs | $ | 141,921 | $ | 142,288 | |||||||||||||
_______________
(1) Effective interest rate as of March 31, 2017 and December 31, 2016.
(2) Fixed interest rate through May 2017. Interest rate changes to variable rate starting in June 2017.
(3) Calculated on a weighted average basis for all mortgages outstanding as of March 31, 2017.
As of March 31, 2017, the Company had pledged $264.1 million in real estate as collateral for these mortgage notes payable. This real estate is not available to satisfy other debts and obligations unless first satisfying the mortgage notes payable on the properties. Except as noted above, the Company makes payments of principal and interest on all of its mortgage notes payable on a monthly basis.
15
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
The following table summarizes the scheduled aggregate principal payments on mortgage notes payable for the five years subsequent to March 31, 2017 and thereafter:
(In thousands) | Future Principal Payments | |||
April 1, 2017 — December 31, 2017 | $ | 34,243 | ||
2018 | 31,893 | |||
2019 | 13,324 | |||
2020 | 24,279 | |||
2021 | 892 | |||
Thereafter | 38,583 | |||
Total | $ | 143,214 | ||
Some of the Company's mortgage note agreements require the compliance with certain property-level financial covenants including debt service coverage ratios. As of March 31, 2017, the Company was in compliance with the financial covenants under its mortgage note payable agreements.
Note 7 — Fair Value of Financial Instruments
GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair value. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs. The three levels of the hierarchy are described below:
Level 1 — Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.
Level 3 — Unobservable inputs that reflect the entity's own assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.
The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures each quarter and depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter. However, the Company expects that changes in classifications between levels will be rare.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with those derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. However, as of March 31, 2017, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Company's derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The valuation of derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves and implied volatilities. In addition, credit valuation adjustments, are incorporated into the fair values to account for the Company's potential nonperformance risk and the performance risk of the counterparties.
16
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
The Company had impaired real estate investments held for sale, which were carried at fair value on the consolidated balance sheet as of March 31, 2017. Impaired real estate investments held for sale were valued using the sale price from the SNF PSA less costs to sell, which is an observable input. As a result, the Company's impaired real estate investments held for sale are classified in Level 2 of the fair value hierarchy. There were no impaired real estate investments held for sale as of December 31, 2016.
The following table presents information about the Company's assets measured at fair value as of March 31, 2017 and December 31, 2016, aggregated by the level in the fair value hierarchy within which those instruments fall.
(In thousands) | Basis of Measurement | Quoted Prices in Active Markets Level 1 | Significant Other Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | Total | |||||||||||||
March 31, 2017 | ||||||||||||||||||
Interest rate caps | Recurring | $ | — | $ | 64 | $ | — | $ | 64 | |||||||||
Impaired assets held for sale | Non-recurring | — | 1,323 | — | — | |||||||||||||
Total | $ | — | $ | 1,387 | $ | — | $ | 64 | ||||||||||
December 31, 2016 | ||||||||||||||||||
Interest rate caps | Recurring | $ | — | $ | 61 | $ | — | $ | 61 | |||||||||
A review of the fair value hierarchy classification is conducted on a quarterly basis. Changes in the type of inputs may result in a reclassification for certain assets. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2017.
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair values of short-term financial instruments such as cash and cash equivalents, restricted cash, straight-line rent receivable, net, prepaid expenses and other assets, deferred costs, net, accounts payable and accrued expenses, deferred rent and distributions payable approximate their carrying value on the consolidated balance sheets due to their short-term nature. The fair values of the Company's remaining financial instruments that are not reported at fair value on the consolidated balance sheets are reported below:
Carrying Amount(1) at | Fair Value at | Carrying Amount(1) at | Fair Value at | |||||||||||||||
(In thousands) | Level | March 31, 2017 | March 31, 2017 | December 31, 2016 | December 31, 2016 | |||||||||||||
Gross mortgage notes payable and mortgage premium, net | 3 | $ | 143,240 | $ | 143,468 | $ | 144,270 | $ | 144,261 | |||||||||
Revolving Credit Facility | 3 | $ | 467,500 | $ | 467,500 | $ | 421,500 | $ | 421,500 | |||||||||
Master Credit Facilities | 3 | $ | 113,439 | $ | 113,439 | $ | 60,000 | $ | 60,000 | |||||||||
_______________________________
(1) | Carrying value includes gross mortgage notes payable of $143.2 million and $143.8 million and mortgage premiums and discounts, net of approximately $26,000 and $0.5 million as of March 31, 2017 and December 31, 2016, respectively. |
The fair value of the mortgage notes payable is estimated using a discounted cash flow analysis, based on the Advisor's experience with similar types of borrowing arrangements. Advances under the Revolving Credit Facility and the Master Credit Facilities are considered to be reported at fair value, because their interest rates vary with changes in LIBOR.
17
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
Note 8 — Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, caps, collars, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company's operating and financial structure. Additionally, in using interest rate derivatives, the Company aims to add stability to interest expense and to manage its exposure to interest rate movements. The Company does not intend to utilize derivatives for speculative purposes or purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company, and its affiliates, may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.
Derivatives Not Designated as Hedges
These derivatives are used to manage the Company's exposure to interest rate movements, but do not meet the strict hedge accounting requirements to be classified as hedging instruments. Changes in the fair value of derivatives not designated as hedges under a qualifying hedging relationship are recorded directly to net loss.
Changes in the fair value of derivatives not designated as a hedge in qualified hedging relationships are recorded directly in earnings, which resulted in an expense of $0.1 million for the three months ended March 31, 2017. The Company did not have any derivatives outstanding as of March 31, 2016.
As of March 31, 2017 and December 31, 2016, the Company had the following outstanding interest rate derivatives that were not designated as a hedge in qualified hedging relationships.
March 31, 2017 | December 31, 2016 | |||||||||||||
Interest Rate Derivative | Number of Instruments | Notional Amount | Number of Instruments | Notional Amount | ||||||||||
(In thousands) | (In thousands) | |||||||||||||
Interest rate caps | 3 | $ | 113,439 | 2 | $ | 60,000 | ||||||||
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2017 and December 31, 2016:
(In thousands) | Balance Sheet Location | March 31, 2017 | December 31, 2016 | |||||||
Derivatives not designated as hedging instruments: | ||||||||||
Interest rate caps | Non-designated derivatives assets, at fair value | $ | 64 | $ | 61 | |||||
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.
As of March 31, 2017, the Company had no derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements. As of March 31, 2017, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value.
Note 9 — Common Stock
As of March 31, 2017 and December 31, 2016, the Company had 88.9 million and 89.4 million shares of common stock outstanding, respectively, including unvested restricted shares and shares issued pursuant to the DRIP, net of shares repurchases. As of March 31, 2017 and December 31, 2016, the Company had received total proceeds from the IPO and DRIP, net of shares repurchases, of $2.2 billion.
18
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
In April 2013, the Board authorized, and the Company declared, a distribution payable on a monthly basis to stockholders of record at a rate equal to $1.70 per annum, per share of common stock, which began in May 2013. In March 2017, the Board authorized a decrease in the rate at which the Company pays monthly distributions to stockholders, effective as of April 1, 2017, equivalent to $1.45 per annum, per share of common stock. Distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month. Distribution payments are dependent on the availability of funds. The Board may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.
On March 30, 2017, the Board approved an updated estimate of per-share net asset value ("Estimated Per-Share NAV") as of December 31, 2016. The Company intends to publish Estimated Per-Share NAV periodically at the discretion of the Company's board of directors, provided that such valuations will be made at least once annually.
Distribution Reinvestment Plan
Pursuant to the DRIP, stockholders may elect to reinvest distributions by purchasing shares of common stock in lieu of receiving cash. No dealer manager fees or selling commissions are paid with respect to shares purchased under the DRIP. The shares purchased pursuant to the DRIP have the same rights and are treated in the same manner as the shares issued pursuant to the IPO. The Board may designate that certain cash or other distributions be excluded from reinvestment pursuant to the DRIP. The Company has the right to amend any aspect of the DRIP or terminate the DRIP with ten days' notice to participants. Shares issued under the DRIP are recorded as equity in the accompanying consolidated balance sheet in the period distributions are declared. During the three months ended March 31, 2017, the Company issued 0.8 million shares of common stock pursuant to the DRIP, generating aggregate proceeds of $17.3 million.
Until April 7, 2016 (the "Original NAV Pricing Date"), the Company offered shares pursuant to the DRIP at $23.75, which was 95.0% of the initial offering price of shares of common stock in the IPO. Effective April 7, 2016, the Company began offering shares pursuant to the DRIP at the then-current Estimated Per-Share NAV approved by the Board. Effective March 30, 2017, the Company began offering shares pursuant to the DRIP at the Estimated Per-Share NAV as of December 31, 2016.
Share Repurchase Program
The Board has adopted the share repurchase program (as amended and restated, the "SRP"), which enables stockholders to sell their shares to the Company in limited circumstances. The SRP permits investors to sell their shares back to the Company after they have held them for at least one year, subject to the significant conditions and limitations described below.
Prior to the Original NAV Pricing Date, the repurchase price per share was as follows (in each case, as adjusted for any stock distributions, combinations, splits and recapitalizations):
• | the lower of $23.13 or 92.5% of the price paid to acquire the shares, for stockholders who had continuously held their shares for a period greater than one year and less than two years; |
• | the lower of $23.75 or 95.0% of the price paid to acquire the shares, for stockholders who had continuously held their shares for greater than two years and less than three years; |
• | the lower of $24.38 or 97.5% of the price paid to acquire the shares, for stockholders who had continuously held their shares for greater than three years and less than four years; and |
• | the lower of $25.00 or 100.0% of the price paid to acquire the shares, for stockholders who had continuously held their shares for greater than four years. |
In cases of requests for death and disability, the repurchase price was equal to the price paid to acquire the shares.
Beginning with the Original NAV Pricing Date, the price per share that the Company pays to repurchase its shares is as follows (in each case, as adjusted for any stock distributions, combinations, splits and recapitalizations):
• | 92.5% of the then-current (at the time of repurchase) Estimated Per-Share NAV for stockholders who had continuously held their shares for a period greater than one year and less than two years; |
• | 95.0% of the then-current Estimated Per-Share NAV for stockholders who had continuously held their shares for a period greater than two years and less than three years; |
• | 97.5% of the then-current Estimated Per-Share NAV for stockholders who had continuously held their shares for a period greater than three years and less than four years; and |
19
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
• | 100.0% of the then-current Estimated Per-Share NAV for stockholders who had continuously held their shares for a period greater than four years. |
In cases of requests for death and disability, the repurchase price is equal to then-current Estimated Per-Share NAV at the time of repurchase.
Under the SRP, repurchases of shares of the Company's common stock, when requested, are at the sole discretion of the Board and generally are made semiannually (each six-month period ending June 30 or December 31, a “fiscal semester”). Repurchases for any fiscal semester are limited to a maximum of 2.5% of the weighted average number of shares of common stock outstanding during the previous fiscal year (the "Prior Year Outstanding Shares"), with a maximum for any fiscal year of 5.0% of the Prior Year Outstanding Shares. In addition, the Company is only authorized to repurchase shares in a given fiscal semester up to the amount of proceeds received from its DRIP in that same fiscal semester.
On June 28, 2016, the Board amended the Company’s SRP (the "Special 2016 SRP Amendment") to provide for one twelve-month repurchase period for calendar year 2016 (the “2016 Repurchase Period”) instead of two semi-annual periods ending June 30 and December 31. The annual limit on repurchases under the SRP remained unchanged and continued to be limited to a maximum of 5.0% of the Prior Year Outstanding Shares and was subject to the terms and limitations set forth in the SRP. Accordingly, the 2016 Repurchase Period was limited to a maximum of 5.0% of the Prior Year Outstanding Shares and continues to be subject to the terms and conditions set forth in the SRP, as amended. Following calendar year 2016, the repurchase periods return to two semi-annual periods and applicable limitations set forth in the SRP. On January 25, 2017, the Board further amended the Company’s SRP for calendar year 2016, changing the date on which any repurchases were to be made in respect of requests made during the calendar year 2016 to no later than March 15, 2017, rather than on or before the 31st day following December 31, 2016. All other terms of the SRP remained in effect, including that repurchases pursuant to the SRP are at the sole discretion of the Board.
When a stockholder requests repurchases and the repurchases are approved, the Company reclassifies such an obligation from equity to a liability based on the settlement value of the obligation. Shares repurchased have the status of authorized but unissued shares. The following table reflects the number of shares repurchased cumulatively through March 31, 2017:
Number of Shares Repurchased | Weighted-Average Price per Share | ||||||
Cumulative repurchases as of December 31, 2016 | 975,030 | $ | 23.73 | ||||
Three months ended March 31, 2017 (1) | 1,273,179 | 21.61 | |||||
Cumulative repurchases as of March 31, 2017 (1) | 2,248,209 | $ | 22.53 | ||||
_____________________________
(1) | Excludes rejected repurchases of 2.3 million shares for $48.7 million at a weighted average price per share of $21.27, which were unfulfilled as of March 31, 2017. |
Note 10 — Related Party Transactions and Arrangements
As of March 31, 2017 and December 31, 2016, the Special Limited Partner owned 8,888 shares of the Company's outstanding common stock. The Advisor and its affiliates may incur and pay costs and fees on behalf of the Company. As of March 31, 2017 and December 31, 2016, the Advisor held 90 units of limited partner interests in the OP ("OP Units").
Realty Capital Securities, LLC (the "Former Dealer Manager") served as the dealer manager of the IPO. American National Stock Transfer, LLC ("ANST"), a subsidiary of the parent company of the Former Dealer Manager, provided other general professional services through January 2016. RCS Capital Corporation ("RCAP"), the parent company of the Former Dealer Manager and certain of its affiliates that provided the Company with services, filed for Chapter 11 bankruptcy protection in January 2016, prior to which it was also under common control with AR Global, the parent of the Sponsor. In May 2016, RCAP and its affiliated debtors emerged from bankruptcy under the new name Aretec Group, Inc. On March 8, 2017, the creditor trust established in connection with the RCAP bankruptcy filed suit against AR Global, the Advisor, advisors of other entities sponsored by AR Global, and AR Global’s principals (including Mr. Weil, a member of the board of directors). The suit alleges, among other things, certain breaches of duties to RCAP. The Company is not named in the suit, nor are there any allegations related to the services the Advisor provides to the Company. The Advisor has informed the Company that it believes that the suit is without merit and intends to defend against it vigorously.
20
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
The limited partnership agreement of the OP provides for a special allocation, solely for tax purposes, of excess depreciation deductions of up to $10.0 million to the Company's Advisor, a limited partner of the OP. In connection with this special allocation, the Company's Advisor has agreed to restore a deficit balance in its capital account in the event of a liquidation of the OP and has agreed to provide a guaranty or indemnity of indebtedness of the OP.
Fees Incurred in Connection With the Operations of the Company
On February 17, 2017, the members of a special committee of the Board unanimously approved certain amendments to the Amended and Restated Advisory Agreement, as amended (the "Original A&R Advisory Agreement"), by and among the Company, the OP and the Advisor (the "Second A&R Advisory Agreement"). The Second A&R Advisory Agreement, which superseded the Original A&R Advisory Agreement, took effect on February 17, 2017. The initial term of the Second A&R Advisory Agreement is ten years beginning on February 17, 2017, and is automatically renewable for another ten-year term upon each ten-year anniversary unless the agreement is terminated (i) with notice of an election not to renew at least 365 days prior to the applicable tenth anniversary, (ii) in accordance with a change in control or a transition to self-management (see the section titled "Termination Fees" included within this footnote), (iii) by 67% of the independent directors of the board of directors for with cause, without penalty, with 45 days notice or (iv) with 60 days prior written notice by the Advisor for (a) a failure to obtain a satisfactory agreement for any successor to the Company to assume and agree to perform obligations under the Second A&R Advisory Agreement or (b) any material breach of the Second A&R Advisory Agreement of any nature whatsoever by the Company.
Acquisition Fees
The Advisor was paid an acquisition fee equal to 1.0% of the contract purchase price of each acquired property and 1.0% of the amount advanced for a loan or other investment. The Advisor was also reimbursed for services provided for which it incurs investment-related expenses, or insourced expenses. The amount reimbursed for insourced expenses may not exceed 0.5% of the contract purchase price of each acquired property or 0.5% of the amount advanced for a loan or other investment. Additionally, the Company reimbursed the Advisor for third party acquisition expenses. The aggregate amount of acquisition fees and financing coordination fees (as described below) may not exceed 1.5% of the contract purchase price and the amount advanced for a loan or other investment for all the assets acquired. As of March 31, 2017, aggregate acquisition fees and financing fees did not exceed the 1.5% threshold. In no event will the total of all acquisition fees, acquisition expenses and any financing coordination fees payable with respect to the Company's portfolio of investments or reinvestments exceed 4.5% of the contract purchase price of the Company's portfolio to be measured at the close of the acquisition phase or 4.5% of the amount advanced for all loans or other investments. As of March 31, 2017, the total of all cumulative acquisition fees, acquisition expenses and financing coordination fees did not exceed the 4.5% threshold.
With the execution of the Second A&R Advisory Agreement, the acquisition fee was terminated, however the Advisor may continue to be reimbursed for services provided for which it incurs investment-related expenses, or insourced expenses. The amount reimbursed for insourced expenses may not exceed 0.5% of the contract purchase price of each acquired property or 0.5% of the amount advanced for a loan or other investment. Additionally, the Company reimburses the Advisor for third party acquisition expenses.
Financing Coordination Fees
If the Advisor provided services in connection with the origination or refinancing of any debt that the Company obtained and used to acquire properties or to make other permitted investments, or that was assumed, directly or indirectly, in connection with the acquisition of properties, the Company paid the Advisor a financing coordination fee equal to 0.75% of the amount available and/or outstanding under such financing, subject to certain limitations.
The Second A&R Advisory Agreement terminated the financing coordination fee.
21
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
Asset Management Fees and Variable Management/Incentive Fees
Until March 31, 2015, for its asset management services, the Company issued the Advisor an asset management subordinated participation by causing the OP to issue (subject to periodic approval by the Board) to the Advisor performance-based restricted, forfeitable partnership units of the OP designated as "Class B Units." The Class B Units were intended to be profit interests and vest, and are no longer subject to forfeiture, at such time as: (x) the value of the OP's assets plus all distributions made equals or exceeds the total amount of capital contributed by investors plus a 6.0% cumulative, pre-tax, non-compounded annual return thereon (the "economic hurdle"); (y) any one of the following occurs: (1) a listing; (2) an other liquidity event or (3) the termination of the advisory agreement by an affirmative vote of a majority of the Company's independent directors without cause; and (z) the Advisor is still providing advisory services to the Company (the "performance condition"). Unvested Class B Units will be forfeited immediately if: (a) the advisory agreement is terminated for any reason other than a termination without cause; or (b) the advisory agreement is terminated by an affirmative vote of a majority of the Company's independent directors without cause before the economic hurdle has been met.
When approved by the Board, the Class B Units were issued to the Advisor quarterly in arrears pursuant to the terms of the limited partnership agreement of the OP. The number of Class B Units issued in any quarter was equal to: (i) the excess of (A) the product of (y) the cost of assets multiplied by (z) 0.1875% over (B) any amounts payable as an oversight fee (as described below) for such calendar quarter; divided by (ii) the value of one share of common stock as of the last day of such calendar quarter, which is equal initially to $22.50 (the IPO price minus the selling commissions and dealer manager fees). The value of issued Class B Units will be determined and expensed when the Company deems the achievement of the performance condition to be probable. As of March 31, 2017, the Company cannot determine the probability of achieving the performance condition. The Advisor receives distributions on issued Class B Units equal to the distribution rate received on the Company's common stock. Such distributions on Class B Units are included in general and administrative expenses in the consolidated statement of operations and comprehensive loss until the performance condition is considered probable to occur. As of March 31, 2017, the Board had approved the issuance of 359,250 Class B Units to the Advisor in connection with this arrangement.
On May 12, 2015, the Company, the OP and the Advisor entered into an amendment (the “Amendment”) to the advisory agreement, which, among other things, provided that the Company would cease causing the OP to issue Class B Units in the OP to the Advisor or its assignees related to any period ending after March 31, 2015. Effective April 1, 2015, the Company began paying an asset management fee to the Advisor or its assignees as compensation for services rendered in connection with the management of the Company’s assets. The asset management fee was payable on the first business day of each month in the amount of 0.0625% multiplied by the lesser of (a) cost of assets or (b) fair value of assets for the preceding monthly period. The asset management fee was payable to the Advisor or its assignees in cash, in shares, or a combination of both, the form of payment to be determined in the sole discretion of the Advisor. For the purposes of the payment of any fees in shares (a) prior to the Original NAV Pricing Date, each share was valued at $22.50, (b) after the Original NAV Pricing Date and prior to any listing on a national securities exchange, if it occurs, each share will be valued at the then-current Estimated Per-Share NAV per share and (c) at all other times, each share shall be valued by the Board in good faith at the fair market value.
Effective February 17, 2017, the Second A&R Advisory Agreement requires the Company to pay the Advisor a base management fee, which is payable on the first business day of each month. The fixed portion of the base management fee is equal to $1.625 million per month, while the variable portion of the base management fee is equal to one-twelfth of 1.25% of the cumulative net proceeds of any equity (including convertible debt) raised subsequent to February 17, 2017 per month. The base management fee is payable to the Advisor or its assignees in cash, OP Units or shares, or a combination thereof, the form of payment to be determined at the discretion of the Advisor.
22
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
In addition, the Second A&R Advisory Agreement requires the Company to pay the Advisor a variable management/incentive fee quarterly in arrears equal to (x) 15.0% of the applicable prior quarter's Core Earnings (as defined below) per share in excess of $0.375 per share plus (y) 10.0% of the applicable prior quarter's Core Earnings per share in excess of $0.47 per share. Core Earnings is defined as, for the applicable period, net income or loss, computed in accordance with GAAP, excluding non-cash equity compensation expense, the variable management/incentive fee, acquisition and transaction related fees and expenses, financing related fees and expenses, depreciation and amortization, realized gains and losses on the sale of assets, any unrealized gains or losses or other non-cash items recorded in net income or loss for the applicable period, regardless of whether such items are included in other comprehensive income or loss, or in net income, one-time events pursuant to changes in GAAP and certain non-cash charges, impairment losses on real estate related investments and other than temporary impairments of securities, amortization of deferred financing costs, amortization of tenant inducements, amortization of straight-line rent and any associated bad debt reserves, amortization of market lease intangibles, provision for loss loans, and other non-recurring revenue and expenses. The variable management/incentive fee is payable to the Advisor or its assignees in cash or shares, or a combination of both, the form of payment to be determined in the sole discretion of the Advisor.
Property Management Fees
Unless the Company contracts with a third party, the Company pays the Property Manager a property management fee of 1.5% of gross revenues from the Company's stand-alone single-tenant net leased properties and 2.5% of gross revenues from all other types of properties, respectively. The Company also reimburses the Property Manager for property level expenses incurred by the Property Manager. If the Company contracts directly with third parties for such services, the Company will pay them customary market fees and will pay the Property Manager an oversight fee of up to 1.0% of the gross revenues of the property managed. In no event will the Company pay the Property Manager or any affiliate of the Property Manager both a property management fee and an oversight fee with respect to any particular property.
On February 17, 2017, the Company entered into the Amended and Restated Property Management and Leasing Agreement (the “A&R Property Management Agreement”) with the OP and the Property Manager. The A&R Property Management Agreement was entered into to reflect amendments to the original agreement between the parties and further amends the original agreement by extending the term of the agreement from one to two years, until February 17, 2019. The A&R Property Management Agreement will automatically renew for successive one-year terms unless any party provides written notice of its intention to terminate the A&R Property Management Agreement at least ninety days prior to the end of the term. The Property Manager may assign the A&R Property Management Agreement to any party with expertise in commercial real estate which has, together with its affiliates, over $100.0 million in assets under management.
Professional Fees and Other Reimbursements
The Company reimburses the Advisor's costs of providing administrative services. Until June 2015, reimbursement of these expenses was subject to the limitation that the Company did not reimburse the Advisor for any amount by which the Company's operating expenses at the end of the four preceding fiscal quarters exceeded the greater of (a) 2.0% of average invested assets and (b) 25.0% of net income other than any additions to reserves for depreciation, bad debt or other similar non-cash expenses and excluding any gain from the sale of assets for that period (the "2%/25% Limitation"), unless the Company's independent directors determined that such excess was justified based on unusual and nonrecurring factors which they deemed sufficient, in which case the excess amount could be reimbursed to the Advisor in subsequent periods. This limitation ceased to exist after June 2015. Additionally, the Company reimburses the Advisor for personnel costs; however, the Company may not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives acquisition fees, reimbursement of acquisition expenses or real estate commissions. During the three months ended March 31, 2017 and 2016, the Company incurred $1.3 million and $0.9 million, respectively, of reimbursement expenses from the Advisor for providing administrative services.
In order to improve operating cash flows and the ability to pay distributions from operating cash flows, the Advisor may elect to forgive and absorb certain fees. Because the Advisor may forgive or absorb certain fees, cash flow from operations that would have been paid to the Advisor may be available to pay distributions to stockholders. The fees that are forgiven are not deferrals and, accordingly, will not be paid to the Advisor in the future. There were no such fees forgiven during the three months ended March 31, 2017 or 2016. In certain instances, to improve the Company's working capital, the Advisor may elect to absorb a portion of the Company's property operating and general and administrative costs, which the Company will not repay. No such fees were absorbed during the three months ended March 31, 2017 or 2016.
23
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
The following table details amounts incurred, forgiven and payable in connection with the Company's operations-related services described above as of and for the periods presented:
Three Months Ended March 31, | Payable (Receivable) as of | |||||||||||||||||||||||
2017 | 2016 | March 31, | December 31, | |||||||||||||||||||||
(In thousands) | Incurred | Forgiven | Incurred | Forgiven | 2017 | 2016 | ||||||||||||||||||
Ongoing fees and reimbursements: | ||||||||||||||||||||||||
Asset management fees | $ | 4,564 | $ | — | $ | 4,384 | $ | — | $ | — | $ | — | ||||||||||||
Property management fees | 737 | — | 771 | — | 29 | (163 | ) | |||||||||||||||||
Professional fees and other reimbursements | 1,442 | — | 1,003 | — | 1,183 | 1,025 | ||||||||||||||||||
Distributions on Class B Units | 151 | — | 152 | — | — | — | ||||||||||||||||||
Total related party operation fees and reimbursements | $ | 6,894 | $ | — | $ | 6,310 | $ | — | $ | 1,212 | $ | 862 | ||||||||||||
The predecessor to AR Global was a party to a services agreement with RCS Advisory Services, LLC, a subsidiary of RCAP (“RCS Advisory”), pursuant to which RCS Advisory and its affiliates provided the Company and certain other companies sponsored by AR Global with services (including, without limitation, transaction management, compliance, due diligence, event coordination and marketing services, among others) on a time and expenses incurred basis or at a flat rate based on services performed. The predecessor to AR Global instructed RCS Advisory to stop providing such services in November 2015 and no services have since been provided by RCS Advisory.
The Company was also party to a transfer agency agreement with ANST, a subsidiary of RCAP, pursuant to which ANST provided the Company with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services), and supervisory services overseeing the transfer agency services performed by DST Systems, Inc., a third-party transfer agent ("DST"). AR Global received written notice from ANST on February 10, 2016 that it would wind down operations by the end of the month and would withdraw as the transfer agent effective February 29, 2016. On February 26, 2016, the Company entered into a definitive agreement with DST to provide the Company directly with transfer agency services (including broker and stockholder servicing, transaction processing, year-end IRS reporting and other services).
Fees and Participations Incurred in Connection with a Listing or the Liquidation of the Company's Real Estate Assets
Fees Incurred in Connection with a Listing
If the common stock of the Company is listed on a national exchange, the Special Limited Partner will be entitled to receive a subordinated incentive listing distribution from the OP equal to 15.0% of the amount by which the market value of all issued and outstanding shares of common stock plus distributions exceeds the aggregate capital contributed by investors plus an amount equal to a 6.0% cumulative, pre-tax non-compounded annual return to investors. The Special Limited Partner will not be entitled to the subordinated incentive listing distribution unless investors have received a 6.0% cumulative, pre-tax non-compounded annual return on their capital contributions. No such distribution was incurred during the three months ended March 31, 2017 or 2016. Neither the Special Limited Partner nor any of its affiliates can earn both the subordinated participation in net sales proceeds and the subordinated incentive listing distribution.
Annual Subordinated Performance Fees and Brokerage Commissions
The Advisor was entitled to an annual subordinated performance fee calculated on the basis of the Company's total return to stockholders, payable annually in arrears, such that for any year in which the Company's total return on stockholders' capital exceeded 6.0% per annum, the Advisor was entitled to 15.0% of the excess total return but not to exceed 10.0% of the aggregate total return for such year. This fee would have been payable only upon the sale of assets, distributions or another event which resulted in the return on stockholders' capital exceeding 6.0% per annum. No subordinated performance fees were incurred during the three months ended March 31, 2017 or 2016.
The Advisor was entitled to a brokerage commission on the sale of property, not to exceed the lesser of (a) 2.0% of the contract sale price of the property and (b) 50.0% of the total brokerage commission paid if a third party broker was also involved; provided, however, that in no event could the real estate commissions paid to the Advisor, its affiliates and unaffiliated third parties exceed the lesser of (a) 6.0% of the contract sales price and (b) a reasonable, customary and competitive real estate commission. The brokerage commission payable to the Advisor was subject to approval by a majority of the independent directors upon a finding that the Advisor provided a substantial amount of services in connection with the sale. No such fees were incurred during the three months ended March 31, 2017 or 2016.
24
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
The Second A&R Advisory Agreement terminated the annual subordinated performance fee and brokerage commissions payable to the Advisor, (all as defined in the Original A&R Advisory Agreement) effective February 17, 2017.
Subordinated Participation in Real Estate Sales
The Special Limited Partner is entitled to receive a subordinated participation in the net sales proceeds of the sale of real estate assets from the OP equal to 15.0% of remaining net sale proceeds after return of capital contributions to investors plus payment to investors of a 6.0% cumulative, pre-tax non-compounded annual return on the capital contributed by investors. The Special Limited Partner is not entitled to the subordinated participation in net sale proceeds unless the Company's investors have received their capital contributions, plus a 6.0% cumulative, pre-tax non-compounded annual return on their capital contributions. No such participation in net sales proceeds became due and payable during the three months ended March 31, 2017 or 2016.
Termination Fees
Upon termination or non-renewal of the advisory agreement with the Advisor, with or without cause, the Special Limited Partner was entitled to receive distributions from the OP equal to 15.0% of the amount by which the sum of the Company's market value plus distributions exceeds the sum of the aggregate capital contributed by investors plus an amount equal to an annual 6.0% cumulative, pre-tax, non-compounded annual return to investors. The Special Limited Partner was able to elect to defer its right to receive a subordinated distribution upon termination until either a listing on a national securities exchange or other liquidity event occurred.
Under the Second A&R Advisory Agreement, upon the termination or non-renewal of the advisory agreement, as amended, the Advisor will be entitled to receive from the Company all amounts due to the Advisor, including any change in control fee and transition fee (both described below), as well as the then-present fair market value of the Advisor's interest in the Company. All fees will be due within 30 days after the effective date of the termination of the advisory agreement, as amended.
Upon a change in control, the Company would pay a change in control fee equal to the product of (a) four (4) and (b) the "Subject Fees". The Subject Fees are equal to (i) the product of four (4) multiplied by the actual base management fee plus (ii) the product of four (4) multiplied by the actual variable management/incentive fee, in each of clauses (i) and (ii), payable for the fiscal quarter immediately prior to the fiscal quarter in which the change in control occurs or the transition is consummated (see below), plus (iii) without duplication, the annual increase in the base management fee resulting from the cumulative net proceeds of any equity raised in respect to the fiscal quarter immediately prior to the fiscal quarter in which the change in control occurs.
Upon a transition to self-management, the Company would pay a transition fee equal to (i) $15.0 million plus (ii) the product of (a) four (4) multiplied by (b) subject fees (as defined above), provided that the transition fee shall not exceed an amount equal (i) 4.5 multiplied by (ii) subject fees.
Termination of the advisory agreement, as amended, due to a change in control or transition to self-management is subject to a lockout period that ends on February 14, 2019.
Note 11 — Economic Dependency
Under various agreements, the Company has engaged or will engage the Advisor, its affiliates and entities under common control with the Advisor to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company and asset acquisition and disposition decisions, as well as other administrative responsibilities for the Company including accounting and legal services, human resources and information technology.
As a result of these relationships, the Company is dependent upon the Advisor and its affiliates. In the event that the Advisor and its affiliates are unable to provide the Company with the respective services, the Company will be required to find alternative providers of these services.
25
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
Note 12 — Share-Based Compensation
Restricted Share Plan
The Company has an employee and director incentive restricted share plan (the "RSP"), which provides for the automatic grant of 1,333 restricted shares of common stock to each of the independent directors, without any further approval by the Board or the stockholders, after initial election to the Board and after each annual stockholder meeting, with such shares vesting annually beginning with the one year anniversary of initial election to the Board and the date of the next annual meeting, respectively. Restricted stock issued to independent directors will vest over a five-year period in increments of 20.0% per annum. The RSP provides the Company with the ability to grant awards of restricted shares to the Company's directors, officers and employees (if the Company ever has employees), employees of the Advisor and its affiliates, employees of entities that provide services to the Company, directors of the Advisor or of entities that provide services to the Company, certain consultants to the Company and the Advisor and its affiliates or to entities that provide services to the Company. The total number of common shares granted under the RSP may not exceed 5.0% of the Company's outstanding shares of common stock on a fully diluted basis at any time and in any event will not exceed 3.4 million shares (as such number may be adjusted for stock splits, stock dividends, combinations and similar events).
Restricted share awards entitle the recipient to receive shares of common stock from the Company under terms that provide for vesting over a specified period of time. For restricted share awards granted prior to July 1, 2015, such awards would typically be forfeited with respect to the unvested shares upon the termination of the recipient's employment or other relationship with the Company. For restricted share awards granted on or after July 1, 2015, such awards provide for accelerated vesting of the portion of the unvested shares scheduled to vest in the year of the recipient's voluntary termination or the failure to be re-elected to the Board. Restricted shares may not, in general, be sold or otherwise transferred until restrictions are removed and the shares have vested. Holders of restricted shares may receive cash distributions prior to the time that the restrictions on the restricted shares have lapsed. Any distributions payable in shares of common stock shall be subject to the same restrictions as the underlying restricted shares. The following table reflects restricted share award activity for the period presented:
Number of Shares of Common Stock | Weighted Average Issue Price | ||||||
Unvested, December 31, 2016 | 9,921 | $ | 22.42 | ||||
Granted | — | — | |||||
Vested | (267 | ) | 22.50 | ||||
Forfeitures | — | — | |||||
Unvested, March 31, 2017 | 9,654 | $ | 22.42 | ||||
As of March 31, 2017, the Company had $0.1 million of unrecognized compensation cost related to unvested restricted share awards granted under the Company's RSP. That cost is expected to be recognized over a weighted-average period of 3.8 years.
Compensation expense related to restricted stock was approximately $14,000 and $15,000 during the three months ended March 31, 2017 and 2016, respectively. Compensation expense related to restricted stock is recorded as general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss.
Other Share-Based Compensation
The Company may issue common stock in lieu of cash to pay fees earned by the Company's directors at the respective director's election. There are no restrictions on the shares issued since these payments in lieu of cash relate to fees earned for services performed. No such shares were issued during the three months ended March 31, 2017 or 2016.
Note 13 — Non-controlling Interests
The Company is the sole general partner and holds substantially all of the OP Units. As of March 31, 2017 and December 31, 2016, the Advisor held 90 OP Units, which represents a nominal percentage of the aggregate OP ownership.
In November 2014, the Company partially funded the purchase of an MOB from an unaffiliated third party by causing the OP to issue 405,908 OP Units, with a value of $10.1 million, or $25.00 per unit, to the unaffiliated third party.
26
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
A holder of OP Units has the right to distributions. After holding the OP Units for a period of one year or upon liquidation of the OP or sale of substantially all of the assets of the OP, a holder of OP Units has the right, at the option of the OP, to redeem OP Units for the cash value of a corresponding number of shares of the Company's common stock or a corresponding number of shares of the Company's common stock. The remaining rights of the limited partners in the OP are limited, however, and do not include the ability to replace the general partner or to approve the sale, purchase or refinancing of the OP's assets. During the three months ended March 31, 2017, OP Unit non-controlling interest holders were paid distributions of $0.2 million.
The Company has investment arrangements with an unaffiliated third party whereby such investor receives an ownership interest in certain of the Company's property-owning subsidiaries and is entitled to receive a proportionate share of the net operating cash flow derived from the subsidiaries' property. Upon disposition of a property subject to non-controlling interest, the investor will receive a proportionate share of the net proceeds from the sale of the property. The investor has no recourse to any other assets of the Company. Due to the nature of the Company's involvement with these arrangements and the significance of its investment in relation to the investment of the third party, the Company has determined that it controls each entity in these arrangements and therefore the entities related to these arrangements are consolidated within the Company's financial statements. A non-controlling interest is recorded for the investor's ownership interest in the properties.
The following table summarizes the activity related to investment arrangements with the unaffiliated third party. No distributions of net cash flow from operations were made related to these investment arrangements during the three months ended March 31, 2017 or 2016.
As of March 31, 2017 | As of December 31, 2016 | ||||||||||||||||||||||||
Property Name (Dollar amounts in thousands) | Investment Date | Third Party Net Investment Amount as of March 31, 2017 | Non-Controlling Ownership Percentage as of March 31, 2017 | Net Real Estate Assets Subject to Investment Arrangement | Mortgage Notes Payable Subject to Investment Arrangement | Net Real Estate Assets Subject to Investment Arrangement | Mortgage Notes Payable Subject to Investment Arrangement | ||||||||||||||||||
Plaza Del Rio Medical Office Campus Portfolio - Peoria, AZ | May 2015 | $ | 443 | 4.1 | % | $ | 10,361 | $ | — | $ | 10,429 | $ | — | ||||||||||||
Note 14 — Net Loss Per Share
The following is a summary of the basic and diluted net loss per share computation for the three months ended March 31, 2017 and 2016:
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Net loss attributable to stockholders (in thousands) | $ | (6,139 | ) | $ | (1,555 | ) | ||
Basic and diluted weighted-average shares outstanding | 89,639,676 | 86,658,678 | ||||||
Basic and diluted net loss per share | $ | (0.07 | ) | $ | (0.02 | ) | ||
27
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
Diluted net loss per share assumes the conversion of all common stock equivalents into an equivalent number of common shares, unless the effect is antidilutive. The Company considers unvested restricted stock, OP Units and Class B Units to be common share equivalents. The Company had the following common share equivalents on a weighted-average basis that were excluded from the calculation of diluted net loss per share attributable to stockholders as their effect would have been antidilutive for the period presented:
Three Months Ended March 31, | ||||||
2017 | 2016 | |||||
Unvested restricted stock | 9,785 | 11,338 | ||||
OP Units | 405,998 | 405,998 | ||||
Class B Units | 359,250 | 359,250 | ||||
Total weighted average antidilutive common stock equivalents | 775,033 | 776,586 | ||||
(1) | Weighted average number of antidilutive shares of unvested restricted stock outstanding for the periods presented. There were 9,654 and 10,931 shares of unvested restricted stock outstanding as of March 31, 2017 and 2016, respectively. |
(2) | Weighted average number of antidilutive OP Units outstanding for the periods presented. There were 405,998 OP Units outstanding as of March 31, 2017 and 2016. |
(3) | Weighted average number of antidilutive Class B Units outstanding for the periods presented. There were 359,250 Class B Units outstanding as of March 31, 2017 and 2016. |
Note 15 — Segment Reporting
During the three months ended March 31, 2017 and 2016, the Company operated in three reportable business segments for management and internal financial reporting purposes: medical office buildings, triple-net leased healthcare facilities, and seniors housing — operating properties ("SHOP").
The Company evaluates performance and makes resource allocations based on its three business segments. The medical office building segment primarily consists of MOBs leased to healthcare-related tenants under long-term leases, which may require such tenants to pay a pro rata share of property-related expenses. The triple-net leased healthcare facilities segment primarily consists of investments in seniors housing communities, hospitals, inpatient rehabilitation facilities and skilled nursing facilities under long-term leases, under which tenants are generally responsible to directly pay property-related expenses. The SHOP segment consists of direct investments in seniors housing communities, primarily providing assisted living, independent living and memory care services, which are operated through engaging independent third-party managers. There were no intersegment sales or transfers during the periods presented.
The Company evaluates the performance of the combined properties in each segment based on net operating income ("NOI"). NOI is defined as total revenues, excluding contingent purchase price consideration, less property operating and maintenance expense. NOI excludes all other items of expense and income included in the financial statements in calculating net loss. The Company uses NOI to assess and compare property level performance and to make decisions concerning the operation of the properties. The Company believes that NOI is useful as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating expenses and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from net loss.
NOI excludes certain components from net loss in order to provide results that are more closely related to a property's results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI presented by the Company may not be comparable to NOI reported by other REITs that define NOI differently. The Company believes that in order to facilitate a clear understanding of the Company's operating results, NOI should be examined in conjunction with net loss as presented in the Company's consolidated financial statements. NOI should not be considered as an alternative to net loss as an indication of the Company's performance or to cash flows as a measure of the Company's liquidity or ability to make distributions.
28
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
The following tables reconcile the segment activity to consolidated net loss for the three months ended March 31, 2017 and 2016:
Three Months Ended March 31, 2017 | ||||||||||||||||
(In thousands) | Medical Office Buildings | Triple-Net Leased Healthcare Facilities | Seniors Housing — Operating Properties | Consolidated | ||||||||||||
Revenues: | ||||||||||||||||
Rental income | $ | 16,348 | $ | 7,671 | $ | 3 | $ | 24,022 | ||||||||
Operating expense reimbursements | 3,785 | 319 | — | 4,104 | ||||||||||||
Resident services and fee income | — | — | 46,489 | 46,489 | ||||||||||||
Total revenues | 20,133 | 7,990 | 46,492 | 74,615 | ||||||||||||
Property operating and maintenance | 5,735 | 4,766 | 32,110 | 42,611 | ||||||||||||
NOI | $ | 14,398 | $ | 3,224 | $ | 14,382 | 32,004 | |||||||||
Impairment charges | (35 | ) | ||||||||||||||
Operating fees to related parties | (5,301 | ) | ||||||||||||||
Acquisition and transaction related | (2,845 | ) | ||||||||||||||
General and administrative | (4,157 | ) | ||||||||||||||
Depreciation and amortization | (20,483 | ) | ||||||||||||||
Interest expense | (5,482 | ) | ||||||||||||||
Interest and other income | 1 | |||||||||||||||
Loss on non-designated derivative instruments | (64 | ) | ||||||||||||||
Net loss attributable to non-controlling interests | 28 | |||||||||||||||
Net loss attributable to stockholders | $ | (6,139 | ) | |||||||||||||
Three Months Ended March 31, 2016 | ||||||||||||||||
(In thousands) | Medical Office Buildings | Triple-Net Leased Healthcare Facilities | Seniors Housing — Operating Properties | Consolidated | ||||||||||||
Revenues: | ||||||||||||||||
Rental income | $ | 16,603 | $ | 9,989 | $ | — | $ | 26,592 | ||||||||
Operating expense reimbursements | 3,677 | 32 | — | 3,709 | ||||||||||||
Resident services and fee income | — | — | 45,202 | 45,202 | ||||||||||||
Total revenues | 20,280 | 10,021 | 45,202 | 75,503 | ||||||||||||
Property operating and maintenance | 5,771 | 636 | 32,385 | 38,792 | ||||||||||||
NOI | $ | 14,509 | $ | 9,385 | $ | 12,817 | 36,711 | |||||||||
Contingent purchase price consideration | 6 | |||||||||||||||
Operating fees to related parties | (5,155 | ) | ||||||||||||||
Acquisition and transaction related | (42 | ) | ||||||||||||||
General and administrative | (3,987 | ) | ||||||||||||||
Depreciation and amortization | (24,615 | ) | ||||||||||||||
Interest expense | (4,984 | ) | ||||||||||||||
Interest and other income | 22 | |||||||||||||||
Income tax benefit | 483 | |||||||||||||||
Net loss attributable to non-controlling interests | 6 | |||||||||||||||
Net loss attributable to stockholders | $ | (1,555 | ) | |||||||||||||
29
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
The following table reconciles the segment activity to consolidated total assets as of the periods presented:
March 31, | December 31, | |||||||
(In thousands) | 2017 | 2016 | ||||||
ASSETS | ||||||||
Investments in real estate, net: | ||||||||
Medical office buildings | $ | 779,514 | $ | 788,023 | ||||
Triple-net leased healthcare facilities | 375,910 | 418,819 | ||||||
Construction in progress | 72,899 | 70,055 | ||||||
Seniors housing — operating properties | 831,250 | 837,338 | ||||||
Total investments in real estate, net | 2,059,573 | 2,114,235 | ||||||
Cash and cash equivalents | 91,678 | 29,225 | ||||||
Restricted cash | 4,388 | 3,962 | ||||||
Assets held for sale | 37,822 | — | ||||||
Non-designated derivative assets, at fair value | 64 | 61 | ||||||
Straight-line rent receivable, net | 13,111 | 12,026 | ||||||
Prepaid expenses and other assets | 20,086 | 22,073 | ||||||
Deferred costs, net | 14,089 | 12,123 | ||||||
Total assets | $ | 2,240,811 | $ | 2,193,705 | ||||
The following table reconciles capital expenditures by reportable business segment, excluding corporate non-real estate expenditures, for the periods presented:
Three Months Ended March 31, | ||||||||
(In thousands) | 2017 | 2016 | ||||||
Medical office buildings | $ | 553 | $ | 664 | ||||
Triple-net leased healthcare facilities | — | 99 | ||||||
Seniors housing — operating properties | 588 | 1,050 | ||||||
Total capital expenditures | $ | 1,141 | $ | 1,813 | ||||
Note 16 — Commitments and Contingencies
The Company has entered into operating and capital lease agreements related to certain acquisitions under leasehold interests arrangements. The following table reflects the minimum base cash rental payments due from the Company over the next five years and thereafter under these arrangements, including the present value of the net minimum payment due under capital leases. These amounts exclude contingent rent payments, as applicable, that may be payable based on provisions related to increases in annual rent based on exceeding certain economic indexes among other items.
Future Minimum Base Rent Payments | ||||||||
(In thousands) | Operating Leases | Capital Leases | ||||||
April 1, 2017 — December 31, 2017 | $ | 513 | $ | 57 | ||||
2018 | 668 | 78 | ||||||
2019 | 673 | 80 | ||||||
2020 | 671 | 82 | ||||||
2021 | 658 | 84 | ||||||
Thereafter | 32,570 | 7,764 | ||||||
Total minimum lease payments | $ | 35,753 | 8,145 | |||||
Less: amounts representing interest | (3,329 | ) | ||||||
Total present value of minimum lease payments | $ | 4,816 | ||||||
30
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)
Total rental expense from operating leases was $0.2 million during the three months ended March 31, 2017 and 2016. During the three months ended March 31, 2017 and 2016, interest expense related to capital leases was approximately $21,000.
Litigation and Regulatory Matters
In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory proceedings pending or known to be contemplated against the Company or its properties.
Environmental Matters
In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. As of March 31, 2017, the Company had not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the results of operations.
Development Project Funding
In August 2015, the Company entered into an asset purchase agreement and development agreement to acquire land and construction in progress, and subsequently fund the remaining construction, of a skilled nursing facility in Jupiter, Florida for $82.0 million. As of March 31, 2017, the Company had funded $10.0 million and $62.9 million for the land and construction in progress, respectively. Concurrent with the acquisition, the Company entered into a loan agreement and lease agreement with an affiliate of the project developer. The loan agreement is intended to provide working capital to the tenant during the initial operating period of the facility and allows for borrowings of up to $2.7 million from the Company on a non-revolving basis. Any outstanding principal balances under the loan will bear interest at 7.0% per year, payable on the first day of each fiscal quarter. As of March 31, 2017, there were no amounts outstanding due to the Company pursuant to the loan agreement.
Note 17 — Subsequent Events
The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have not been any events that have occurred that would require adjustments to disclosures in the consolidated financial statements except the following disclosures:
On April 7, 2017, the Company closed on a $12.5 million acquisition of an MOB in Lancaster, CA. The property comprises 0.1 million rentable square feet and is subject to a single tenant, triple-net lease, which expires in February 2026 and includes two, five-year renewal options.
On April 26, 2017, the Company increased its advances under the KeyBank Facility by $28.7 million.
31
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Healthcare Trust, Inc. and the notes thereto. As used herein, the terms the "Company," "we," "our" and "us" refer to Healthcare Trust, Inc., a Maryland corporation, including, as required by context, Healthcare Trust Operating Partnership, LP (our "OP"), a Delaware limited partnership, and its subsidiaries. The Company is externally managed by Healthcare Trust Advisors, LLC (our "Advisor"), a Delaware limited liability company. Capitalized terms used herein, but not otherwise defined, have the meaning ascribed to those terms in "Part I — Financial Information" included in the notes to the consolidated financial statements and contained herein.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of the Company and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans," "intends," "should" or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
• | Certain of our executive officers and directors are also officers, managers or holders of a direct or indirect controlling interest in our Advisor and other entities affiliated with AR Global Investments, LLC (the successor business to AR Capital, LLC, "AR Global"), the parent of our sponsor, American Realty Capital VII, LLC (the "Sponsor"). As a result, certain of our executive officers and directors, our Advisor and its affiliates face conflicts of interest, including significant conflicts created by our Advisor's compensation arrangements with us and other investment programs advised by affiliates of AR Global and conflicts in allocating time among these investment programs and us. These conflicts could result in unanticipated actions that adversely affect us. |
• | Because investment opportunities that are suitable for us may also be suitable for other investment programs advised by affiliates of AR Global, our Advisor and its affiliates face conflicts of interest relating to the purchase of properties and other investments and such conflicts may not be resolved in our favor, meaning that we could invest in less attractive assets, which could reduce the investment return to our stockholders. |
• | Although we intend to seek a listing of our shares of common stock on a national stock exchange when we believe market conditions are favorable to do so, there is no assurance that our shares of common stock will be listed. No public market currently exists, or may ever exist, for shares of our common stock and our shares are, and may continue to be, illiquid. |
• | We focus on acquiring and owning a diversified portfolio of healthcare-related assets located in the United States and are subject to risks inherent in concentrating investments in the healthcare industry. |
• | If our Advisor loses or is unable to obtain qualified personnel, our ability to continue to achieve our investment strategies could be delayed or hindered. |
• | The healthcare industry is heavily regulated, and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of tenants to make lease payments to us. |
• | We are depending on our Advisor to select investments and conduct our operations. Adverse changes in the financial condition of our Advisor and its affiliates or our relationship with our Advisor could adversely affect us. |
• | We may be unable to fund distributions from cash flows from operations, or maintain cash distributions or increase distributions over time. |
• | We are obligated to pay fees, which may be substantial, to our Advisor and its affiliates. |
• | We depend on tenants for our revenue and, accordingly, our revenue is dependent upon the success and economic viability of our tenants. |
• | We may not be able to achieve our rental rate objectives on new and renewal leases and our expenses could be greater, which may impact our results of operations. |
• | Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions. |
32
• | Any distributions, especially those not covered by our cash flows from operations, may reduce the amount of capital available for other purposes included investment in properties and other permitted investments and may negatively impact the value of our stockholders' investment. |
• | We have not and may not in the future generate cash flows sufficient to pay our distributions to stockholders and, as such, we may be required to fund distributions from borrowings, which may be at unfavorable rates and could restrict the amount we can borrow for investments and other purposes, or depend on our Advisor or our property manager, Healthcare Trust Properties, LLC (the "Property Manager") to waive fees or reimbursement of certain expenses and fees to fund our operations. There is no assurance these entities will waive such amounts or that we will be able to borrow funds at all. |
• | We are subject to risks associated with any dislocations or liquidity disruptions that may exist or occur in the credit markets of the United States from time to time. |
• | We are subject to risks associated with changes in general economic, business and political conditions including the possibility of intensified international hostilities, acts of terrorism, and changes in conditions of United States or international lending, capital and financing markets. |
• | We may fail to continue to qualify to be treated as a real estate investment trust for U.S. federal income tax purposes ("REIT"), which would result in higher taxes, may adversely affect our operations and would reduce the value of an investment in our common stock and the cash available for distributions. |
• | We may be deemed to be an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act"), and thus subject to regulation under the Investment Company Act. |
• | The offering price and repurchase price for our shares, including shares sold pursuant to our distribution reinvestment plan ("DRIP") may not, among other things, accurately reflect the value of our assets and may not represent what a stockholder may receive on a sale of the shares, what they may receive upon a liquidation of our assets and distribution of the net proceeds or what a third party may pay to acquire the Company. |
Overview
We invest in healthcare real estate, focusing on seniors housing and medical office buildings ("MOB"), located in the United States for investment purposes. As of March 31, 2017, we owned 163 properties located in 29 states and comprised of 8.4 million rentable square feet.
We were incorporated on October 15, 2012 as a Maryland corporation that elected and qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2013. Substantially all of our business is conducted through our OP.
In February 2013, we commenced our initial public offering ("IPO") on a "reasonable best efforts" basis of up to $1.7 billion of common stock, $0.01 par value per share, at a price of $25.00 per share, subject to certain volume and other discounts. We closed our IPO in November 2014 and as of such date we had received cumulative proceeds of $2.0 billion from our IPO. As of March 31, 2017, we have received total proceeds of $2.2 billion, net of shares repurchased under our share repurchase program (as amended, the "SRP") and including $212.4 million in proceeds received under the DRIP.
On March 30, 2017, the Board approved a new estimate of per share net asset value ("Estimated Per-Share NAV") equal to $21.45 as of December 31, 2016. We intend to publish Estimated Per-Share NAV periodically at the discretion of our board of directors, provided that such valuations will be made at least once annually.
We have no employees. The Advisor has been retained by us to manage our affairs on a day-to-day basis. We have retained the Property Manager to serve as our property manager. The Advisor and Property Manager are under common control with AR Global, the parent of our Sponsor, as a result of which they are related parties, and each have received or will receive compensation, fees and expense reimbursements for services related to managing of our business. The Advisor, Healthcare Trust Special Limited Partnership, LLC (the "Special Limited Partner") and Property Manager also have received or will receive compensation, fees and expense reimbursements from us related to the investment and management of our assets.
Significant Accounting Estimates and Critical Accounting Policies
Set forth below is a summary of the significant accounting estimates and critical accounting policies that management believes are important to the preparation of our financial statements. Certain of our accounting estimates are particularly important for an understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these estimates are subject to a degree of uncertainty. These significant accounting estimates and critical accounting policies include:
33
Revenue Recognition
Our rental income is primarily related to rent received from tenants in our medical office buildings ("MOB") and triple-net leased healthcare facilities. Rent from tenants in our MOB and triple-net leased healthcare facilities operating segments is recorded in accordance with the terms of each lease on a straight-line basis over the initial term of the lease. Because many of the leases provide for rental increases at specified intervals, accounting principles generally accepted in the United States ("GAAP") require us to record a receivable, and include in revenues on a straight-line basis, unbilled rent receivables that we will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When we acquire a property, the acquisition date is considered to be the commencement date for purposes of this calculation. For new leases after acquisition, the commencement date is considered to be the date the tenant takes control of the space. For lease modifications, the commencement date is considered to be the date the lease is executed. We defer the revenue related to lease payments received from tenants in advance of their due dates.
Cost recoveries from tenants are included in operating expense reimbursement in the period the related costs are incurred, as applicable.
Resident services and fee income primarily relates to rent and fees for ancillary services performed for residents in our seniors housing — operating properties ("SHOP") held using a structure permitted by the REIT Investment Diversification and Empowerment Act of 2007 ("RIDEA"). Rental income from residents of our SHOP operating segment is recognized as earned. Residents pay monthly rent that covers occupancy of their unit and basic services, including utilities, meals and some housekeeping services. The terms of the rent are short term in nature, primarily month-to-month. Fees for ancillary services are recorded in the period in which the services are performed.
We defer the revenue related to lease payments received from tenants and residents in advance of their due dates.
We continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is in doubt, we record an increase in the allowance for uncollectible accounts on the consolidated balance sheets or record a direct write-off of the receivable in the consolidated statements of operations and comprehensive loss.
Real Estate Investments
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life or improve the productive capacity of the asset. Costs of repairs and maintenance are expensed as incurred.
We evaluate the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive loss. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets.
In business combinations, we allocate the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements. Intangible assets may include the value of in-place leases and above- and below-market leases. In addition, any assumed mortgages receivable or payable and any assumed or issued non-controlling interests are recorded at their estimated fair values.
We generally determine the value of construction in progress based upon the replacement cost. During the construction period, we capitalize interest, insurance and real estate taxes until the development has reached substantial completion.
The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases. The fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining term of the lease including any below-market fixed rate renewal options for below-market leases.
In making estimates of fair values for purposes of allocating purchase price, we utilize a number of sources, including real estate valuations prepared by independent valuation firms. We also consider information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real estate, i.e. location, size, demographics, value and comparative rental rates, tenant credit profile and the importance of the location of the real estate to the operations of the tenant’s business.
34
In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above- or below-market interest rates.
In allocating the fair value to non-controlling interests, amounts are recorded based on the fair value of units issued at the date of acquisition, as determined by the terms of the applicable agreement.
Real estate investments that are intended to be sold are designated as "held for sale" on the consolidated balance sheets at the lesser of the carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale. Real estate investments are no longer depreciated when they are classified as held for sale. If the disposal, or intended disposal, of certain real estate investments represents a strategic shift that has had or will have a major effect on our operations and financial results, the operations of such real estate investments would be presented as discontinued operations in the consolidated statements of operations and comprehensive loss for all periods presented.
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, five years for fixtures and improvements, and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
Construction in progress, including capitalized interest, insurance and real estate taxes, is not depreciated until the development has reached substantial completion.
Capitalized above-market lease values are amortized or accreted as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-market lease values are accreted as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods.
Capitalized above-market ground lease values are accreted as a reduction of property operating expense over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods.
The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases.
The assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining term of the respective mortgages.
Impairment of Long Lived Assets
If circumstances indicate that the carrying value of a property may not be recoverable, we review the asset for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net income.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued revised guidance relating to revenue recognition. Under the revised guidance, an entity is required to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised guidance was to become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption was not permitted under GAAP. The revised guidance allows entities to apply the full retrospective or modified retrospective transition method upon adoption. In July 2015, the FASB deferred the effective date of the revised guidance by one year to annual reporting periods beginning after December 15, 2017, although entities will be allowed to early adopt the guidance as of the original effective date. We are evaluating the impact of the implementation of this guidance, including performing a preliminary review of all revenue streams to identify any differences in the timing, measurement or presentation of revenue recognition. We are continuing to evaluate the allowable methods of adoption
35
In January 2016, the FASB issued an update that amends the recognition and measurement of financial instruments. The new guidance revises an entity’s accounting related to equity investments and the presentation of certain fair value changes for financial liabilities measured at fair value. Among other things, it also amends the presentation and disclosure requirements associated with the fair value of financial instruments. The revised guidance is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is not permitted for most of the amendments in the update. We have begun developing an inventory of all leases as well as identifying any non-lease components in our lease arrangements. We are continuing to evaluate the impact of this new guidance.
In February 2016, the FASB issued an update that sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. The revised guidance is effective on January 1, 2019. Early adoption is permitted. We are currently evaluating the impact of this new guidance.
In March 2016, the FASB issued guidance which requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.
In August 2016, the FASB issued guidance on how certain transactions should be classified and presented in the statement of cash flows as either operating, investing or financing activities. Among other things, the update provides specific guidance on where to classify debt prepayment and extinguishment costs, payments for contingent consideration made after a business combination and distributions received from equity method investments. The revised guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.
In November 2016, the FASB issued guidance on the classification of restricted cash in the statement of cash flows. The amendment requires restricted cash to be included in the beginning-of-period and end-of-period total cash amounts. Therefore, transfers between cash and restricted cash will no longer be shown on the statement of cash flows. The guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of this new guidance.
In February 2017, the FASB issued guidance on other income, specifically gains and losses from the derecognition of nonfinancial assets. The guidance clarifies the definition of ‘in substance non-financial assets’, unifies guidance related to partial sales of non-financial assets, eliminates rules specifically addressing the sales of real estate, removes exception to the financial asset derecognition model and clarifies the accounting for contributions of non-financial assets to joint ventures. The revised guidance is effective for reporting periods beginning after December 15, 2017. Early adoption is permitted but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are currently evaluating the impact of this new guidance.
Recently Adopted Accounting Pronouncements
In October 2016, the FASB issued guidance where a reporting entity will need to evaluate if it should consolidate a VIE. The amendments change the evaluation of whether a reporting entity is the primary beneficiary of a VIE by changing how a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The revised guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. We have adopted the provisions of this guidance beginning January 1, 2017 and determined that there is no impact to our consolidated financial position, results of operations and cash flows.
In January 2017, the FASB issued guidance that revises the definition of a business. This new guidance is applicable when evaluating whether an acquisition should be treated as either a business acquisition or an asset acquisition. Under the revised guidance, when substantially all of the fair value of gross assets acquired is concentrated in a single asset or group of similar assets, the assets acquired would not be considered a business. The revised guidance is effective for reporting periods beginning after December 15, 2017, and the amendments will be applied prospectively. Early application is permitted only for transactions that have not previously been reported in issued financial statements. We have assessed this revised guidance and expect, based on historical acquisitions, that, in most cases, a future property acquisition would be treated as an asset acquisition rather than a business acquisition, which would result in the capitalization of related transaction costs. We have adopted the provisions of this guidance beginning January 1, 2017.
36
Properties
The following table presents certain additional information about the properties we owned as of March 31, 2017:
Portfolio | Number of Properties | Rentable Square Feet | Occupancy | Weighted Average Remaining Lease Term in Years | Gross Asset Value | ||||||||
(In thousands) | |||||||||||||
Medical Office Buildings | 80 | 3,133,798 | 92.2% | 5.5 | $ | 871,858 | |||||||
Triple-Net Leased Healthcare Facilities (1): | |||||||||||||
Seniors Housing — Triple Net Leased | 20 | 646,532 | 100.0% | 6.9 | 159,687 | ||||||||
Hospitals | 4 | 428,620 | 77.6% | 9.1 | 87,630 | ||||||||
Post Acute / Skilled Nursing | 18 | 777,071 | 68.7% | 12.4 | 200,242 | ||||||||
Seniors Housing — Operating Properties | 38 | 3,397,658 | 89.3% | N/A | 958,653 | ||||||||
Land | 2 | N/A | N/A | N/A | 3,665 | ||||||||
Construction in Progress | 1 | N/A | N/A | N/A | 72,899 | ||||||||
Portfolio, March 31, 2017 | 163 | 8,383,679 | $ | 2,354,634 | |||||||||
_______________
(1) | Revenues for our triple-net leased healthcare facilities generally consist of fixed rental amounts (subject to annual contractual escalations) received from our tenants in accordance with the applicable lease terms and do not vary based on the underlying operating performance of the properties. |
N/A | Not applicable. |
37
Results of Operations
As of March 31, 2017, we operated in three reportable business segments for management and internal financial reporting purposes: MOBs, triple-net leased healthcare facilities, and SHOPs. In our MOB operating segment, we own, manage and lease, either directly or through third party property managers, single and multi-tenant MOBs where tenants are required to pay their pro rata share of property operating expenses, which may be subject to expense exclusions and floors, in addition to base rent. In our triple-net leased healthcare facilities operating segment, we own, manage and lease seniors housing communities, hospitals, post acute care and skilled nursing facilities throughout the United States under long-term triple-net leases, which tenants are generally directly responsible for all operating costs of the respective properties. In our SHOP operating segment, we invest in seniors housing communities under a structure permitted by RIDEA. Under RIDEA, a REIT may lease qualified healthcare properties on an arm's length basis to a taxable REIT subsidiary ("TRS") if the property is operated on behalf of such subsidiary by an entity who qualifies as an eligible independent contractor. As of March 31, 2017, we had 11 eligible independent contractors operating 38 SHOP properties. All of our properties across all three business segments are located throughout the United States.
Net operating income ("NOI") is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate portfolio. NOI is equal to total revenues, excluding contingent purchase price consideration, less property operating and maintenance expense. NOI excludes all other financial statement amounts included in net loss. We believe NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unlevered basis. See “Non-GAAP Financial Measures” included elsewhere in this Quarterly Report on Form 10-Q for additional disclosures regarding NOI and a reconciliation to our net loss attributable to stockholders, as computed in accordance with GAAP.
38
Comparison of the Three Months Ended March 31, 2017 to the Three Months Ended March 31, 2016
As of March 31, 2017, owned 163 properties, which we owned for the entire period from January 1, 2016 to March 31, 2017 (our "Same Store" properties), including two vacant land parcels and one property under development. We disposed of three properties during the period from January 1, 2016 through March 31, 2017, including one MOB and two triple-net leased healthcare facilities (our "Dispositions"). Information based on Same Store and Dispositions allows us to evaluate the performance of our portfolio based on a consistent population of properties. Net loss attributable to stockholders was $6.1 million and $1.6 million for the three months ended March 31, 2017 and 2016, respectively. The following table shows our results of operations for the three months ended March 31, 2017 and 2016 and the period to period change by line item of the consolidated statements of operations:
Three Months Ended March 31, | Increase (Decrease) | ||||||||||||||
2017 | 2016 | $ | % | ||||||||||||
Revenues: | |||||||||||||||
Rental income | $ | 24,022 | $ | 26,592 | $ | (2,570 | ) | (9.7 | )% | ||||||
Operating expense reimbursements | 4,104 | 3,709 | 395 | 10.6 | % | ||||||||||
Resident services and fee income | 46,489 | 45,202 | 1,287 | 2.8 | % | ||||||||||
Contingent purchase price consideration | — | 6 | (6 | ) | NM | ||||||||||
Total revenues | 74,615 | 75,509 | (894 | ) | (1.2 | )% | |||||||||
Expenses: | |||||||||||||||
Property operating and maintenance | 42,611 | 38,792 | 3,819 | 9.8 | % | ||||||||||
Impairment charges | 35 | — | 35 | NM | |||||||||||
Operating fees to related parties | 5,301 | 5,155 | 146 | 2.8 | % | ||||||||||
Acquisition and transaction related | 2,845 | 42 | 2,803 | 6,673.8 | % | ||||||||||
General and administrative | 4,157 | 3,987 | 170 | 4.3 | % | ||||||||||
Depreciation and amortization | 20,483 | 24,615 | (4,132 | ) | (16.8 | )% | |||||||||
Total expenses | 75,432 | 72,591 | 2,841 | 3.9 | % | ||||||||||
Operating income (expense) | (817 | ) | 2,918 | (3,735 | ) | (128.0 | )% | ||||||||
Other income (expense): | |||||||||||||||
Interest expense | (5,482 | ) | (4,984 | ) | |||||||||||
Interest and other income | 1 | 22 | |||||||||||||
Loss on non-designated derivative instruments | (64 | ) | — | ||||||||||||
Total other expenses | (5,545 | ) | (4,962 | ) | (583 | ) | (11.7 | )% | |||||||
Loss before income taxes | (6,362 | ) | (2,044 | ) | (4,318 | ) | (211.3 | )% | |||||||
Income tax benefit | 195 | 483 | |||||||||||||
Net loss | (6,167 | ) | (1,561 | ) | (4,606 | ) | (295.1 | )% | |||||||
Net loss attributable to non-controlling interests | 28 | 6 | |||||||||||||
Net loss attributable to stockholders | $ | (6,139 | ) | $ | (1,555 | ) | $ | (4,584 | ) | (294.8 | )% | ||||
_______________
NM — Not Meaningful
39
Segment Results — Medical Office Buildings
The following table presents the revenue and property operating and maintenance expense and the period to period change within our MOB segment for the three months ended March 31, 2017 and 2016:
Same Store(1) | Disposition(2) | Segment Total(3) | |||||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, | Increase (Decrease) | Three Months Ended March 31, | Increase (Decrease) | Three Months Ended March 31, | Increase (Decrease) | ||||||||||||||||||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | $ | % | 2017 | 2016 | $ | % | 2017 | 2016 | $ | % | |||||||||||||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||||||||||||||||||||||||
Rental income | $ | 16,348 | $ | 16,302 | $ | 46 | 0.3 | % | $ | — | $ | 300 | $ | (300 | ) | NM | $ | 16,348 | $ | 16,602 | $ | (254 | ) | (1.5 | )% | ||||||||||||||||||||
Operating expense reimbursements | 3,783 | 3,627 | 156 | 4.3 | % | 2 | 51 | (49 | ) | (96.1 | )% | 3,785 | 3,678 | 107 | 2.9 | % | |||||||||||||||||||||||||||||
Total revenues | 20,131 | 19,929 | 202 | 1.0 | % | 2 | 351 | (349 | ) | (99.4 | )% | 20,133 | 20,280 | (147 | ) | (0.7 | )% | ||||||||||||||||||||||||||||
Property operating and maintenance | 5,735 | 5,592 | 143 | 2.6 | % | — | 179 | (179 | ) | NM | 5,735 | 5,771 | (36 | ) | (0.6 | )% | |||||||||||||||||||||||||||||
NOI | $ | 14,396 | $ | 14,337 | $ | 59 | 0.4 | % | $ | 2 | $ | 172 | $ | (170 | ) | (98.8 | )% | $ | 14,398 | $ | 14,509 | $ | (111 | ) | (0.8 | )% | |||||||||||||||||||
_______________
(1) | Our MOB segment included 80 Same Store properties. |
(2) | Our MOB segment included one Disposition property. |
(3) | Our MOB segment included 81 properties as of March 31, 2017. |
NM — Not Meaningful
The following table presents the number of Same Store MOBs, average occupancy and annualized straight line rental income per rented square foot for single- and multi-tenant MOBs in our MOB segment for the periods presented:
Number of Same Store Properties | Average Occupancy for the Three Months Ended March 31, | Annualized Straight-Line Rental Income Per Rented Square Foot as of March 31, | |||||||||||||||
Type of Same Store MOB | 2017 | 2016 | 2017 | 2016 | |||||||||||||
Single-tenant MOBs | 27 | 100.0 | % | 100.0 | % | $ | 22.07 | $ | 22.07 | ||||||||
Multi-tenant MOBs | 53 | 88.9 | % | 87.2 | % | 23.35 | 23.02 | ||||||||||
Total/Weighted-Average | 80 | 92.4 | % | 91.2 | % | $ | 22.91 | $ | 22.69 | ||||||||
Rental income is primarily related to contractual rent received from tenants in our MOBs. Generally, operating expense reimbursements increase in proportion with the increase in property operating expenses in our MOB segment. Pursuant to many of our lease agreements in our MOBs, tenants are required to pay their pro rata share of property operating expenses, which may be subject to expense exclusions and floors, in addition to base rent. Property operating and maintenance relates to the costs associated with our properties, including real estate taxes, utilities, repairs, maintenance, bad debt expense and unaffiliated third party property management fees.
During the three months ended March 31, 2017, total revenues were primarily flat in our MOB segment as compared to the three months ended March 31, 2016. Our Same Store properties provided a $0.2 million increase in revenues, offset by a decrease in revenues due to our Disposition of $0.3 million.
During the three months ended March 31, 2017, property operating and maintenance expense increased at the Same Store properties in our MOB segment as compared to the three months ended March 31, 2016, primarily due to an increase in real estate taxes.
40
Segment Results — Triple Net Leased Healthcare Facilities
The following table presents the revenue and property operating and maintenance expense and the period to period change within our triple net leased healthcare facilities segment for the three months ended March 31, 2017 and 2016:
Same Store(1) | Dispositions(2) | Segment Total(3) | ||||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, | Increase (Decrease) | Three Months Ended March 31, | Increase (Decrease) | Three Months Ended March 31, | Increase (Decrease) | |||||||||||||||||||||||||||||||||||||||
(In thousands) | 2017 | 2016 | $ | % | 2017 | 2016 | $ | % | 2017 | 2016 | $ | % | ||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||||||||
Rental income | $ | 7,671 | $ | 9,989 | $ | (2,318 | ) | (23.2 | )% | $ | — | $ | 245 | $ | (245 | ) | NM | $ | 7,671 | $ | 10,234 | $ | (2,563 | ) | (25.0 | )% | ||||||||||||||||||
Operating expense reimbursements | 319 | 32 | 287 | 896.9 | % | — | — | — | NM | 319 | 32 | 287 | 896.9 | % | ||||||||||||||||||||||||||||||
Total revenues | 7,990 | 10,021 | (2,031 | ) | (20.3 | )% | — | 245 | (245 | ) | NM | 7,990 | 10,266 | (2,276 | ) | (22.2 | )% | |||||||||||||||||||||||||||
Property operating and maintenance | 4,766 | 636 | 4,130 | 649.4 | % | — | (52 | ) | (4) | 52 | NM | 4,766 | 584 | 4,182 | 716.1 | % | ||||||||||||||||||||||||||||
NOI | $ | 3,224 | $ | 9,385 | $ | (6,161 | ) | (65.6 | )% | $ | — | $ | 297 | $ | (297 | ) | NM | $ | 3,224 | $ | 9,682 | $ | (6,458 | ) | (66.7 | )% | ||||||||||||||||||
_______________
(1) | Our triple-net leased healthcare facilities segment included 42 Same Store properties. |
(2) | Our triple-net leased healthcare facilities segment included two Dispositions properties. |
(3) | Our triple-net leased healthcare facilities segment included 44 properties as of March 31, 2017. |
(4) | Amount represents a reversal of a bad debt reserve from 2015, which was subsequently collected in 2016. |
NM — Not Meaningful
Rental income is primarily related to contractual rent received from tenants in our triple-net leased healthcare facilities. Operating expense reimbursements in our triple net leased healthcare facilities segment generally includes reimbursement for property operating expenses that we pay on behalf of tenants in this segment. Pursuant to many of our lease agreements in our triple net leased healthcare facilities, tenants are generally directly responsible for all operating costs of the respective properties in addition to base rent. Property operating and maintenance should typically include minimal activity in our triple-net leased healthcare facilities segment, as such expenses are typically paid directly by the tenants; however, real estate taxes and insurance may be included. Such expenses are typically reimbursed by the tenants in this segment.
During the three months ended March 31, 2017, rental income in our triple net leased healthcare facilities segment total decreased $2.3 million, of which our Same Store provided $2.0 million of the decrease. Higher than normal property operating and maintenance expenses of $4.1 million were incurred in our Same Store properties as compared to the three months ended March 31, 2016, primarily due to collection issues with several of our triple net leased healthcare facility tenants, which have resulted from financial and operational challenges faced by them that have had, and could continue to have, an impact on rent payments that we receive from them. Of the decrease in rental income, $1.5 million was due to the early termination, in September 2016 of leases with one of our tenants that had occupied six of our triple net leased healthcare facilities. In November 2016, a receiver was appointed by a court to manage and conserve these properties (the "Receiver"). The Receiver, acting through an affiliate management company, currently operates and will continue to operate the properties on our behalf until the order appointing the Receiver terminates. According to the terms of the receivership order, in the event the Receiver produces excess cash flow from the operations of the properties, the Receiver may provide such excess cash flow to us, in the form of rental payments. In an instance where the Receiver provides excess cash flow that exceeds the monthly rental amounts due under the terminated leases, we would apply such excess amounts to outstanding rents of the previous tenant. No such rents were received during the three months ended March 31, 2017. Conversely, in the event that the Receiver does not produce sufficient cash flows to operate the properties, we will fund such operating shortfalls to maintain the ongoing operations of the properties. In exchange for services provided, the Receiver is paid $450 an hour. The manager is paid 5.25% of actual net revenue, as well as reimbursement for other approved administrative and ancillary expenses. Further, with respect to the $2.3 million decrease in rental income, $0.3 million of the decrease is related to one tenant that leased and operated twelve triple-net leased healthcare facilities located in Michigan. Early termination notices were delivered to the tenant in March 2017 due to tenant default. Lastly, $0.1 million of the decrease in rental income was a result of the early termination in February 2017 of the leases with one of our tenants who leased and operated eight healthcare facilities in Missouri. This tenant was immediately replaced by a new tenant who assumed the lease terms and obligations of the terminated lease, but under lower rental rates.
Operating expense reimbursements for the three months ended March 31, 2017 increased $0.3 million as a result of higher real estate taxes incurred during the three months ended March 31, 2017 at three of our triple-net leased healthcare facilities located in Texas.
41
Our property operating and maintenance increased $4.1 million in our Same Store for the three months ended March 31, 2017, compared to the three months ended March 31, 2016, $3.2 million of the increase was a result of adjustments to bad debt expense that were previously reserved in the prior year. We also incurred $0.3 million for management fees and expenses funded as part of the operating shortfalls in connection with our Transitional Operator. Lastly, $0.4 million of the increase to property operating expenses was a result of higher real estate taxes incurred during the three months ended March 31, 2017 at three of our triple-net leased healthcare facilities located in Texas.
Segment Results — Seniors Housing Operating Properties ("SHOPs")
The following table presents the revenue and property operating and maintenance expense and the period to period change within our SHOP segment for the three months ended March 31, 2017 and 2016:
Segment Total(3) | |||||||||||||||
Three Months Ended March 31, | Increase (Decrease) | ||||||||||||||
(In thousands) | 2017 | 2016 | $ | % | |||||||||||
Revenues: | |||||||||||||||
Resident services and fee income | $ | 46,489 | $ | 45,202 | $ | 1,287 | 2.8 | % | |||||||
Rental income | $ | 3 | $ | — | $ | 3 | NM | ||||||||
Total revenues | 46,492 | 45,202 | 1,290 | 2.9 | % | ||||||||||
Property operating and maintenance | 32,110 | 32,385 | (275 | ) | (0.8 | )% | |||||||||
NOI | $ | 14,382 | $ | 12,817 | $ | 1,565 | 12.2 | % | |||||||
_______________
(1) | Our SHOP segment included 38 properties. |
NM — Not Meaningful
Resident services and fee income is generated in connection with rent and services offered to residents in our SHOPs depending on the level of care required, as well as fees associated with other ancillary services. Property operating and maintenance relates to the costs associated with staffing to provide care for the residents in our SHOPs, as well as food, marketing, real estate taxes, management fees paid to our third party operators and costs associated with maintaining the physical site.
During the three months ended March 31, 2017, resident services and fee income and rental income increased by $1.3 million in our SHOP segment as compared to the three months ended March 31, 2016. The majority of this increase was attributable to three operators who increased their average occupancy and resident services rates since the first quarter 2016.
Impairment Charges
Impairment loss on sale of real estate investments for the three months ended March 31, 2017 of approximately $35,000 related to one real estate investment classified as held for sale as of March 31, 2017 with an accepted sale price less than the carrying value. We had no impairment of real estate investments during the three months ended March 31, 2016.
Operating Fees to Related Parties
Operating fees to related parties increased $0.1 million to $5.3 million for the three months ended March 31, 2017 from $5.2 million for the three months ended March 31, 2016. Our Advisor and Property Manager are paid for asset management and property management services for managing our properties on a day-to-day basis. The asset management fee is based on a percentage of the lesser of (a) cost of assets and (b) fair value of assets. Asset management fees increased $0.2 million to $4.6 million for the three months ended March 31, 2017 from $4.4 million for the three months ended March 31, 2016. The increase in the asset management fee is due to an increase in the cost of assets for the three months ended March 31, 2017, which was primarily related to our capital expenditures during the period from January 1, 2016 through March 31, 2017. During the three months ended March 31, 2017, we approved certain changes to our operating fees to related parties, which may decrease overall fees incurred in certain instances. Note 10 — Related Party Transactions and Arrangements to our consolidated financial statements provides detail on the changes to our fees.
We incurred $0.7 million in property management fees during the three months ended March 31, 2017, a $0.1 million decrease from the $0.8 million in property management fees incurred during the three months ended March 31, 2016. Property management fees decrease in direct correlation with gross revenues.
42
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses of $2.8 million for the three months ended March 31, 2017 primarily related to costs associated with our agreement to sell eight of our skilled nursing facility properties. See Note 3 — Real Estate Investments to our consolidated financial statements for further discussion of the agreement. Acquisition and transaction related expenses generally increase in direct correlation with the number and contract purchase price of properties acquired or sold during the period and the level of activity surrounding any contemplated transaction. Acquisition and transaction related expenses of approximately $42,000 for the three months ended March 31, 2016, related to costs associated with acquisitions that were not completed.
General and Administrative Expenses
General and administrative expenses were $4.2 million for the three months ended March 31, 2017 and 2016. Expenses incurred during the three months ended March 31, 2017 primarily relate to professional fees for audit, transfer agent and legal services as well as expenses reimbursed to related parties.
Depreciation and Amortization Expenses
Depreciation and amortization expense decreased $4.1 million to $20.5 million for the three months ended March 31, 2017 from $24.6 million for the three months ended March 31, 2016. Same Store depreciation and amortization decreased $3.8 million primarily due to the expiration of the estimated useful lives of in-place leases recorded at acquisition. Our dispositions contributed $0.3 million to the decrease. The purchase price of acquired properties is allocated to tangible and identifiable intangible assets and depreciated or amortized over the estimated useful lives of the properties.
Interest Expense
Interest expense increased $0.5 million to $5.5 million for the three months ended March 31, 2017 from $5.0 million for the three months ended March 31, 2016. The increase in interest expense is primarily related to higher outstanding balances on our Revolving Credit Facility and Master Credit Facilities, which had combined ending outstanding balances of $580.9 million for the three months ended March 31, 2017, compare to $481.5 million for the three months ended March 31, 2016. The increase is also attributable to the associated increases in amortization of deferred financing costs, partially offset by increased amortization of mortgage premiums.
We view a mix of secured and unsecured financing sources as an efficient and accretive means to acquire properties and manage working capital. Our interest expense in future periods will vary based on our level of future borrowings, the cost of borrowings and the opportunity to acquire real estate assets which meet our investment objectives.
Interest and Other Income
Interest and other income decreased to approximately $1,000 for the three months ended March 31, 2017 from $22,000 for the three months ended March 31, 2016. Interest and other income includes income earned on cash and cash equivalents held during the period. During the year ended December 31, 2016, we sold all of our positions in real estate income funds and an investment in a senior note, which resulted in a decrease in dividend and interest income from our investment portfolio during the three months ended March 31, 2017.
Loss on Non-Designated Derivative Instruments
Loss on non-designated derivative instruments for the three months ended March 31, 2017 related to interest rate caps that are designed to protect us from adverse interest rate changes in connection with the Master Credit Facilities, which have floating interest rates. The loss of $0.1 million reflects mark-to-market fair value adjustments for the interest rate caps, which have not been designated as cash flow hedges.
Income Tax Benefit
Income tax benefit of $0.2 million and $0.5 million for the three months ended March 31, 2017 and 2016 primarily related to deferred tax assets generated by temporary differences and current period net operating losses associated with our TRS. These deferred tax assets are partially offset by other income tax expenses incurred during the same period. Income taxes generally relate to our SHOPs, which are leased by our TRS.
Net Loss Attributable to Non-Controlling Interests
Net loss attributable to non-controlling interests was approximately $28,000 and approximately $6,000 for the three months ended March 31, 2017 and 2016, respectively, which represents the portion or our net income or net loss that is related to OP Unit and non-controlling interest holders.
43
Cash Flows for the Three Months Ended March 31, 2017
During the three months ended March 31, 2017, net cash provided by operating activities was $18.6 million. The level of cash flows provided by operating activities is affected by, among other things, the number of properties owned, the performance of those properties, the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments and the level of operating expenses. The decrease in net cash provided by operating activities for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 was primarily attributable to lower revenues and higher operating expense at our triple net leased healthcare facilities. Also, acquisition and transaction expenses incurred during the three months ended March 31, 2017 contributed a significant amount to the decrease in net cash provided by operating activities. Cash inflows related to a net loss adjusted for non-cash items of $18.9 million (net loss of $6.2 million adjusted for non-cash items including depreciation and amortization of tangible and identifiable intangible real estate assets, deferred financing costs and mortgage premiums and discounts, share based compensation, bad debt expense, loss on non-designated derivative instruments and impairment charges of $25.1 million), an increase in accounts payable and accrued expenses of $1.9 million primarily related to an increase in tenant deposits, accrued professional fees, real estate taxes and property operating expenses for our MOBs and SHOPs, as well as accrued related party fees and reimbursements and an increase of $1.3 million in deferred rent. These cash inflows were partially offset by a net increase in prepaid and other assets of $1.6 million due to rent, other receivables and prepaid real estate taxes and insurance, a net increase in unbilled receivables recorded in accordance with straight-line basis accounting of $1.4 million and a $0.4 million decrease in restricted cash related to tenant deposits, real estate tax and insurance escrows on mortgaged properties.
Net cash used in investing activities during the three months ended March 31, 2017 was $4.6 million. The cash used in investing activities included $2.8 million to fund the ongoing development of a skilled nursing facility in Jupiter, Florida as well as $1.1 million of capital expenditures and a deposit for a real estate acquisition of $0.6 million.
Net cash provided by financing activities of $48.4 million during the three months ended March 31, 2017 related to common stock repurchases of $27.5 million, distributions to stockholders of $20.2 million, payments of deferred financing costs of $2.5 million, mortgage principal repayments of $0.6 million, distributions to non-controlling interest holders of $0.2 million and payments for non-designated derivative instruments of $0.1 million. These cash outflows were partially offset by proceeds from the Revolving Credit Facility and Master Credit Facilities of $99.4 million.
Cash Flows for the Three Months Ended March 31, 2016
During the three months ended March 31, 2016, net cash provided by operating activities was $26.1 million. The level of cash flows provided by operating activities is affected by the number of properties owned, the performance of those properties, the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments and the level of operating expenses. Cash flows provided by operating activities during the three months ended March 31, 2016 included approximately $42,000 of acquisition and transaction costs. Cash inflows related to a net loss adjusted for non-cash items of $24.1 million (net loss of $1.6 million adjusted for non-cash items including depreciation and amortization of tangible and identifiable intangible real estate assets, deferred financing costs and mortgage premiums and discount, equity based compensation, bad debt expense and gain on sale of investments of $25.7 million), an increase in accounts payable and accrued expenses of $2.7 million primarily related to accrued professional fees, real estate taxes and property operating expenses for our MOBs and SHOPs, as well as accrued related party property management fees and reimbursements and interest expense, an increase of $0.4 million in deferred rent, a $0.3 million decrease in restricted cash related to tenant deposits, real estate tax and insurance escrows on mortgaged properties and a net decrease in prepaid and other assets of $1.7 million due to rent, other receivables and prepaid real estate taxes and insurance. These cash inflows were partially offset by a net increase in unbilled receivables recorded in accordance with straight-line basis accounting of approximately $3.2 million.
Net cash used in investing activities during the three months ended March 31, 2016 was $9.7 million. The cash used in investing activities primarily included $5.9 million to fund the ongoing development of a skilled nursing facility in Jupiter, Florida. Net cash used in investing activities also included $1.8 million of capital expenditures and $2.0 million in deposits on pending real estate acquisitions.
Net cash used in financing activities of $4.4 million during the three months ended March 31, 2016 related to distributions to stockholders of $17.5 million, common stock repurchases of $12.0 million, mortgage principal repayments of $4.7 million and distributions to non-controlling interest holders of $0.2 million. These cash outflows were partially offset by proceeds from the Credit Facility of $30.0 million.
44
Liquidity and Capital Resources
As of March 31, 2017, we had $91.7 million of cash and cash equivalents. Our principal demands for cash will be for acquisition costs, including the purchase price of any properties we acquire, funding our ongoing development project, capital expenditures, the payment of our operating and administrative expenses, debt service obligations, share repurchases and distributions to our stockholders.
We expect to fund our future short-term operating liquidity requirements through a combination of cash on hand, net cash provided by our property operations and proceeds from the Revolving Credit Facility, the Master Credit Facilities and other secured financings. As of March 31, 2017, our secured debt leverage ratio (total secured debt divided by total assets) was approximately 32.3%, we had total secured borrowings of $724.2 million and we had no unsecured borrowings.
We expect to increase our leverage and utilize proceeds from our Revolving Credit Facility, the Master Credit Facilities and other secured financings to complete future property acquisitions. Specifically, we may incur mortgage debt and pledge all or some of our properties as security for that debt to obtain funds to acquire additional properties. Other potential future sources of capital include proceeds from secured and unsecured financings from banks or other lenders, proceeds from public and private offerings, proceeds from the sale of properties and undistributed funds from operations, if any. We may borrow if we need funds to satisfy the REIT tax qualifications requirement that we generally distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP, determined without regard to the deduction for dividends paid and excluding net capital gain). We also may borrow if we otherwise deem it necessary or advisable to assure that we maintain our qualification as a REIT.
For the three months ended March 31, 2017 we increased our borrowings $46.0 million on our Revolving Credit Facility and as of March 31, 2017, the balance outstanding was $467.5 million. Our unused borrowing capacity was $29.8 million, based on assets assigned to the Revolving Credit Facility as of March 31, 2017. Availability of borrowings is based on a pool of eligible otherwise unencumbered real estate assets. The Revolving Credit Facility also contains a subfacility for letters of credit of up to $25.0 million and contains an "accordion" feature to allow the Company, under certain circumstances, to increase the aggregate borrowings under the Revolving Credit Facility to a maximum of $750.0 million. The Revolving Credit Facility matures on March 21, 2019. The Revolving Credit Facility requires us to meet certain financial covenants. As of March 31, 2017, we were in compliance with the financial covenants under the Revolving Credit Facility.
On October 31, 2016, we, through wholly-owned subsidiaries of our OP, entered into the Master Credit Facilities that provide for initial aggregate borrowings of $60.0 million. For the three months ended March 31, 2017 we increased our borrowings under the Master Credit Facilities by $53.4 million and as of March 31, 2017, the balance outstanding was $113.4 million. The Master Credit Facilities are secured by first-priority mortgages on six of our seniors housing properties. We may request future advances under the Master Credit Facilities by further borrowing against the value of the initial mortgaged properties or by adding eligible properties to the collateral pool, subject to customary conditions, including satisfaction of minimum debt service coverage and maximum loan-to-value tests. The initial advances under the Master Credit Facilities will mature on November 1, 2026.
Our Board has adopted the SRP, which enables our stockholders to sell their shares to us under limited circumstances. At the time a stockholder requests a repurchase, we may, subject to certain conditions, repurchase the shares presented for repurchase for cash. There are limits on the number of shares we may repurchase under this program during any calendar year. We are only authorized to repurchase shares using the proceeds secured from our DRIP in any given period. The following table reflects the number of shares repurchased cumulatively through March 31, 2017:
Number of Shares Repurchased | Weighted-Average Price per Share | ||||||
Cumulative repurchases as of December 31, 2016 | 975,030 | $ | 23.73 | ||||
Three months ended March 31, 2017 (1) | 1,273,179 | 21.61 | |||||
Cumulative repurchases as of March 31, 2017 (1) | 2,248,209 | $ | 22.53 | ||||
_____________________________
(1) | Excludes rejected repurchases of 2.3 million shares for $48.7 million at an average price per share of $21.27, which were unfulfilled as of March 31, 2017. |
Non-GAAP Financial Measures
This section includes non-GAAP financial measures including Funds from Operations, Modified Funds from Operations and Net Operating Income. A description of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure, which is net income, are provided below:
45
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time. We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.
Because of these factors, the National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has published a standardized measure of performance known as funds from operations ("FFO"), which is used in the REIT industry as a supplemental performance measure. We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT's operating performance. FFO is not equivalent to our net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards set forth in the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the "White Paper"). The White Paper defines FFO as net income or loss computed in accordance with GAAP, but excluding gains or losses from sales of property and real estate related impairments, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures, if any, are calculated to reflect FFO on the same basis.
We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT's definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries. These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.
Because of these factors, the Investment Program Association ("IPA"), an industry trade group, has published a standardized measure of performance known as modified funds from operations ("MFFO"), which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs. MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP. We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year-over-year, both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. MFFO is not equivalent to our net income or loss as determined under GAAP.
We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (the "Practice Guideline") issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for acquisition fees and expenses and other items. In calculating MFFO, we follow the Practice Guideline and exclude acquisition fees and expenses, amortization of above and below market and other intangible lease assets and liabilities, amounts relating to straight-line rent adjustments (in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the lease and rental payments), contingent purchase price consideration, accretion of discounts and amortization of premiums on debt investments, mark-to-market adjustments included in net income, gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and adjustments for unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. We also exclude other non-operating items in calculating MFFO, such as transaction-related fees and expenses (which include costs associated with the Strategic Review) and capitalized interest.
46
We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance once our portfolio is stabilized. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO and MFFO the same way. Accordingly, comparisons with other REITs, including publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO and MFFO are not indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as determined under GAAP as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with GAAP measurements as an indication of our performance. The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade group has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the White Paper or the Practice Guideline or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO accordingly.
The table below reflects the items deducted from or added to net loss attributable to stockholders in our calculation of FFO and MFFO for the periods indicated. In calculating our FFO and MFFO, we exclude the impact of amounts attributable to our non-controlling interests.
Three Months Ended | ||||
(In thousands) | March 31, 2017 | |||
Net loss attributable to stockholders (in accordance with GAAP) | $ | (6,139 | ) | |
Depreciation and amortization | 20,240 | |||
Impairment charges | 35 | |||
Adjustments for non-controlling interests (1) | (99 | ) | ||
FFO attributable to stockholders | 14,037 | |||
Acquisition and transaction related | 2,845 | |||
Amortization of market lease and other intangibles, net | 119 | |||
Straight-line rent adjustments | (1,052 | ) | ||
Amortization of mortgage premiums and discounts, net | (440 | ) | ||
Loss on non-designated derivative instruments | 64 | |||
Capitalized construction interest costs | (418 | ) | ||
Adjustments for non-controlling interests (1) | (5 | ) | ||
MFFO attributable to stockholders | $ | 15,150 | ||
_______________
(1) | Represents the portion of the adjustments allocable to non-controlling interests. |
Net Operating Income
NOI is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate. NOI is equal to total revenues, excluding contingent purchase price consideration, less property operating and maintenance expense. NOI excludes all other items of expense and income included in the financial statements in calculating net income (loss).
We believe NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unlevered basis. We use NOI to assess and compare property level performance and to make decisions concerning the operation of the properties. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating expenses and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from net income (loss).
47
NOI excludes certain components from net loss in order to provide results that are more closely related to a property's results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) as presented in our consolidated financial statements. NOI should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity or ability to make distributions.
The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of Same Store and Dispositions NOI for the three months ended March 31, 2017:
(In thousands) | Same Store | Dispositions | Non-Property Specific | Total | ||||||||||||
Net income (loss) attributable to stockholders (in accordance with GAAP) | $ | 7,835 | $ | 2 | $ | (13,976 | ) | $ | (6,139 | ) | ||||||
Impairment charges | — | — | 35 | 35 | ||||||||||||
Operating fees to related parties | — | — | 5,301 | 5,301 | ||||||||||||
Acquisition and transaction related | 2,801 | — | 44 | 2,845 | ||||||||||||
General and administrative | 1 | — | 4,156 | 4,157 | ||||||||||||
Depreciation and amortization | 20,350 | — | 133 | 20,483 | ||||||||||||
Interest expense | 1,255 | — | 4,227 | 5,482 | ||||||||||||
Interest and other income | (1 | ) | — | — | (1 | ) | ||||||||||
Loss on non-designated derivative instruments | — | — | 64 | 64 | ||||||||||||
Income tax benefit (expense) | (242 | ) | 47 | (195 | ) | |||||||||||
Net income (loss) attributable to non-controlling interests | 3 | — | (31 | ) | (28 | ) | ||||||||||
NOI | $ | 32,002 | $ | 2 | $ | — | $ | 32,004 | ||||||||
The following table reflects the items deducted from or added to net income (loss) attributable to stockholders in our calculation of Same Store and Dispositions NOI for the three months ended March 31, 2016:
(In thousands) | Same Store | Dispositions | Non-Property Specific | Total | ||||||||||||
Net income (loss) attributable to stockholders (in accordance with GAAP) | $ | 10,851 | $ | 201 | $ | (12,607 | ) | $ | (1,555 | ) | ||||||
Contingent purchase price consideration | (6 | ) | — | — | (6 | ) | ||||||||||
Operating fees to related parties | — | — | 5,155 | 5,155 | ||||||||||||
Acquisition and transaction related | 6 | — | 36 | 42 | ||||||||||||
General and administrative | — | — | 3,987 | 3,987 | ||||||||||||
Depreciation and amortization | 24,213 | 269 | 133 | 24,615 | ||||||||||||
Interest expense | 1,680 | — | 3,304 | 4,984 | ||||||||||||
Interest and other income | (3 | ) | — | (19 | ) | (22 | ) | |||||||||
Income tax benefit (expense) | (501 | ) | — | 18 | (483 | ) | ||||||||||
Net income (loss) attributable to non-controlling interests | 1 | — | (7 | ) | (6 | ) | ||||||||||
NOI | $ | 36,241 | $ | 470 | $ | — | $ | 36,711 | ||||||||
Refer to Note 15 — Segment Reporting for a reconciliation of NOI to net loss attributable to stockholders by reportable segment.
48
Distributions
In May 2013, we began paying distributions on a monthly basis at a rate equivalent to $1.70 per annum, per share of common stock. In March 2017, the Board authorized a decrease in the rate at which we pay monthly distributions to stockholders, effective as of April 1, 2017, equivalent to $1.45 per annum, per share of common stock. Distributions are payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month.
The amount of distributions payable to our stockholders is determined by the Board and is dependent on a number of factors, including funds available for distribution, our financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"). Distribution payments are dependent on the availability of funds. The Board may reduce the amount of distributions paid or suspend distribution payments at any time and therefore distribution payments are not assured.
During the three months ended March 31, 2017, distributions paid to common stockholders and OP Unit holders totaled $37.7 million, including $17.3 million, which was reinvested into additional shares of common stock through our DRIP.
The following table shows the sources for the payment of distributions to common stockholders, including distributions on unvested restricted stock and OP Units, but excluding distributions related to Class B Units as these distributions are recorded as an expense in our consolidated statements of operations and comprehensive loss, for the period indicated:
Three Months Ended | |||||||
March 31, 2017 | |||||||
(In thousands) | Percentage of Distributions | ||||||
Distributions: | |||||||
Distributions to stockholders | $ | 37,536 | |||||
Distributions on OP Units | 169 | ||||||
Total distributions | $ | 37,705 | |||||
Source of distribution coverage: | |||||||
Cash flows provided by operations | $ | 18,633 | 49.4 | % | |||
Available cash on hand (1) | 19,072 | 50.6 | % | ||||
Total source of distribution coverage | $ | 37,705 | 100.0 | % | |||
Cash flows provided by operations (in accordance with GAAP) | $ | 18,633 | |||||
Net loss attributable to stockholders (in accordance with GAAP) | $ | (6,139 | ) | ||||
(1) | Includes any remaining proceeds from the IPO and distributions reinvested pursuant to the DRIP. |
For the three months ended March 31, 2017, cash flows provided by operations were $18.6 million. As shown in the table above, we funded distributions with cash flows provided by operations as well as available cash on hand. To the extent we pay distributions in excess of cash flows provided by operations, our stockholders' investment may be adversely impacted. Distributions paid from sources other than our cash flows from operations will result in us having fewer funds available for other needs such as property acquisitions and other real estate-related investments.
We may not generate sufficient cash flow from operations in 2017 to pay distributions at our current level and we may not generate sufficient cash flows from operations to pay future distributions. The amount of cash available for distributions is affected by many factors, such as rental income from acquired properties and our operating expense levels, as well as many other variables. Actual cash available for distributions may vary substantially from estimates. We cannot give any assurance that future acquisitions of real properties, if any, will increase our cash available for distributions to stockholders. Our actual results may differ significantly from the assumptions used by the Board in establishing a distribution rate to stockholders.
If we do not generate sufficient cash flows from our operations, we expect to use a portion of our cash on hand and the proceeds from our DRIP to pay distributions. A decrease in the level of stockholder participation in our DRIP could have an adverse impact on our ability to meet these expectations. If these sources are insufficient, we may use other sources, such as from borrowings, advances from our Advisor, and our Advisor's deferral, suspension or waiver of its fees and expense reimbursements, as to which it has no obligation, to fund distributions.
49
Loan Obligations
The payment terms of our mortgage notes payable generally require principal and interest amounts payable monthly with all unpaid principal and interest due at maturity. The payment terms of our Revolving Credit Facility require interest only amounts payable monthly with all unpaid principal and interest due at maturity. The payment terms of our Master Credit Facilities require interest only payments through November 2021 and principal and interest payments thereafter. Our loan agreements require us to comply with specific reporting covenants. As of March 31, 2017, we were in compliance with the financial and reporting covenants under our loan agreements.
Contractual Obligations
The following table reflects contractual debt obligations under our mortgage notes payable, Revolving Credit Facility, Master Credit Facilities and minimum base rental cash payments due for leasehold interests over the next five years and thereafter as of March 31, 2017. The minimum base rental cash payments due for leasehold interests amounts exclude contingent rent payments, as applicable, that may be payable based on provisions related to increases in annual rent based on exceeding certain economic indexes, among other items. As of March 31, 2017, the outstanding mortgage notes payable and loans under the Revolving Credit Facility and Master Credit Facilities had weighted-average effective interest rates per annum of 5.3%, 2.2% and 3.3%, respectively.
Years Ended December 31, | ||||||||||||||||||||
(In thousands) | Total | April 1, 2017 — December 31, 2017 | 2018 — 2019 | 2020 — 2021 | Thereafter | |||||||||||||||
Principal on mortgage notes payable | $ | 143,214 | $ | 34,243 | $ | 45,217 | $ | 25,171 | $ | 38,583 | ||||||||||
Interest on mortgage notes payable | 36,052 | 5,129 | 6,353 | 3,275 | 21,295 | |||||||||||||||
Revolving Credit Facility | 467,500 | — | 467,500 | — | — | |||||||||||||||
Interest on Revolving Credit Facility | 24,086 | 9,200 | 14,886 | — | — | |||||||||||||||
Master Credit Facilities | 113,439 | — | — | 96 | 113,343 | |||||||||||||||
Interest on Master Credit Facilities | 32,531 | 2,610 | 6,929 | 6,939 | 16,053 | |||||||||||||||
Lease rental payments due (1) | 43,898 | 570 | 1,499 | 1,495 | 40,334 | |||||||||||||||
Development project funding commitment (2) | 9,101 | 9,101 | — | — | — | |||||||||||||||
Total | $ | 869,821 | $ | 60,853 | $ | 542,384 | $ | 36,976 | $ | 229,608 | ||||||||||
_______________________________
(1) | Lease rental payments due includes $3.3 million of imputed interest related to our capital lease obligations. |
(2) | In August 2015, the Company entered into an asset purchase agreement and development agreement to acquire and subsequently fund the remaining construction of a skilled nursing facility in Jupiter, Florida for $82.0 million. |
Election as a REIT
We elected and qualified to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year ended December 31, 2013. Commencing with such taxable year, we were organized and operated in a manner so that we qualify for taxation as a REIT under the Code. We intend to continue to operate in such a manner but no assurance can be given that we will operate in a manner so as to remain qualified for taxation as a REIT. In order to continue to qualify for taxation as a REIT, we must, among other things, distribute annually at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP) determined without regard to the deduction for dividends paid and excluding net capital gains, and must comply with a number of other organizational and operational requirements. If we continue to qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax on that portion of our REIT taxable income that we distribute to our stockholders. Even if we continue to qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and properties as well as federal income and excise taxes on our undistributed income.
50
Inflation
We may be adversely impacted by inflation on any leases that do not contain indexed escalation provisions. In addition, we may be required to pay costs for maintenance and operation of properties, which may adversely impact our results of operations due to potential increases in costs and operating expenses resulting from inflation.
Related-Party Transactions and Agreements
Please see Note 10 — Related Party Transactions and Arrangements of the accompanying consolidated financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. Our long-term debt, which consists of secured financings, our Revolving Credit Facility and the Master Credit Facilities, bears interest at fixed rates and variable rates. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, from time to time, we may enter into interest rate hedge contracts such as swaps, collars, and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We will not hold or issue these derivative contracts for trading or speculative purposes. As of March 31, 2017, we had entered into three non-designated interest rate caps with a notional amount of $113.4 million and a fair value of $0.1 million (see Note 7 — Fair Value of Financial Instruments and Note 8 — Derivatives and Hedging Activities). We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.
As of March 31, 2017, our debt consisted of both fixed and variable-rate debt. We had fixed-rate secured mortgage financings with an aggregate carrying value of $143.2 million and a fair value of $143.5 million. Changes in market interest rates on our fixed-rate debt impact the fair value of the mortgage notes, but it has no impact on interest due on the mortgage notes. For instance, if interest rates rise 100 basis points and our fixed rate debt balance remains constant, we expect the fair value of our obligation to decrease, the same way the price of a bond declines as interest rates rise. The sensitivity analysis related to our fixed–rate debt assumes an immediate 100 basis point move in interest rates from their March 31, 2017 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt by $5.1 million. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our fixed-rate debt by $5.9 million.
At March 31, 2017, our variable-rate Revolving Credit Facility and Master Credit Facilities had an aggregate carrying and fair value of $580.9 million. Interest rate volatility associated with these variable-rate borrowings affects interest expense incurred and cash flow. The sensitivity analysis related to all other variable-rate debt assumes an immediate 100 basis point move in interest rates from their March 31, 2017 levels, with all other variables held constant. A 100 basis point increase or decrease in variable interest rates on our variable-rate Revolving Credit Facility and Master Credit Facilities would increase and decrease our interest expense by $4.7 million and 5.8 million, respectively.
These amounts were determined by considering the impact of hypothetical interest rate changes on our borrowing costs, and assuming no other changes in our capital structure. The information presented above includes only those exposures that existed as of March 31, 2017 and does not consider exposures or positions arising after that date. The information represented herein has limited predictive value. Future actual realized gains or losses with respect to interest rate fluctuations will depend on cumulative exposures, hedging strategies employed and the magnitude of the fluctuations.
51
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
52
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to, and none of our properties are subject to, any material pending legal proceedings.
Item 1A. Risk Factors.
There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.
Item 2. Unregistered Sales of Equity Securities.
Issuer Purchases of Equity Securities
The following table reflects the number of shares repurchased under the SRP cumulatively through March 31, 2017:
Number of Shares Repurchased | Weighted-Average Price per Share | ||||||
Cumulative repurchases as of December 31, 2016 | 975,030 | $ | 23.73 | ||||
Three months ended March 31, 2017 (1) | 1,273,179 | 21.61 | |||||
Cumulative repurchases as of March 31, 2017 (1) | 2,248,209 | $ | 22.53 | ||||
_____________________________
(1) | Excludes rejected repurchases of 2.3 million shares for $48.7 million at an average price per share of $21.27, which were unfulfilled as of March 31, 2017. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.
53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HEALTHCARE TRUST, INC. | ||
By: | /s/ W. Todd Jensen | |
W. Todd Jensen | ||
Interim Chief Executive Officer and President (Principal Executive Officer) | ||
By: | /s/ Katie P. Kurtz | |
Katie P. Kurtz | ||
Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and Principal Accounting Officer) | ||
Dated: May 12, 2017
54
EXHIBITS INDEX
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 (and are numbered in accordance with Item 601 of Regulation S-K):
Exhibit No. | Description | |
10.1 (1) | Second Amended and Restated Advisory Agreement, dated as of February 17, 2017, by and among the Company, Healthcare Trust Operating Partnership, L.P. and Healthcare Trust Advisors, LLC. | |
10.2 (1) | Amended and Restated Property Management and Leasing Agreement, dated as of February 17, 2017, by and among the Company, Healthcare Trust Operating Partnership, L.P. and Healthcare Trust Properties, LLC. | |
10.32 (2) | Fifth Amendment to Senior Secured Revolving Credit Agreement, dated as of February 24, 2017, by and among Healthcare Trust Operating Partnership, L.P., Healthcare Trust, Inc., KeyBank National Association, individually and as agent for itself and the other lenders party from time to time to the Senior Secured Revolving Credit Agreement by and among the same parties, dated as of March 21, 2014. | |
31.1 * | Certification of the Principal Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 * | Certification of the Principal Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 * | Written statements of the Principal Executive Officer and Principal Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 * | XBRL (eXtensible Business Reporting Language). The following materials from Healthcare Trust, Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations and Comprehensive Loss, (iii) the Consolidated Statements of Changes in Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements. | |
____________________
* | Filed herewith. |
(1) | Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2017. |
(2) | Filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 2, 2017. |
55