Business Context and Reporting Period
Company: Healthcare Trust of America, Inc. (Healthcare Realty Trust Inc)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: The Company is a self-managed, self-advised Real Estate Investment Trust (REIT) focused on medical office buildings and healthcare-related facilities. As of June 30, 2010, the portfolio consisted of 65 acquisitions comprising 200 buildings and approximately 8.6 million square feet of gross leasable area (GLA) with an average occupancy rate of over 91%. The Company transitioned to self-management in late 2009, eliminating external advisor fees.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2010 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenues | $93,081,000 | $60,294,000 |
| Net Income (Loss) | $(237,000) | $(10,335,000) |
| Net Income (Loss) Attributable to Controlling Interest | $(302,000) | $(10,507,000) |
| Funds from Operations (FFO) | $35,560,000 | $15,335,000 |
| Modified Funds from Operations (MFFO) | $42,392,000 | $19,376,000 |
| Net Operating Income (NOI) | $62,321,000 | $37,933,000 |
| Cash Flow from Operating Activities | $31,776,000 | $14,250,000 |
| Cash Flow from Investing Activities | $(226,422,000) | $(83,478,000) |
| Cash Flow from Financing Activities | $152,531,000 | $331,376,000 |
| Total Assets | $1,881,514,000 | $1,673,535,000 |
| Total Liabilities | $668,503,000 | $598,669,000 |
| Mortgage Loans Payable | $598,567,000 | $540,028,000 |
| Cash and Cash Equivalents | $176,886,000 | $219,001,000 |
| Stockholders' Equity | $1,208,808,000 | $1,071,317,000 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 54% year-over-year, driven primarily by a 50% increase in rental income due to significant portfolio expansion (200 buildings in 2010 vs. 138 in 2009).
- Profitability Improvement: Net loss attributable to controlling interest narrowed significantly from $(10.5) million to $(0.3) million. This improvement is largely attributed to the elimination of asset management fees paid to the former advisor and increased rental income.
- Acquisition Activity: The Company completed 12 new acquisitions and purchased additional buildings within existing portfolios for an aggregate price of approximately $252.1 million during the six months ended June 30, 2010, compared to $77.5 million in the prior year period.
- Debt Structure: Mortgage loans payable increased by approximately $58.5 million. The weighted average interest rate on outstanding debt was 4.32% as of June 30, 2010. The Company secured approximately $45.9 million in new long-term financing during the period.
- Cost Savings: Transitioning to self-management resulted in cost savings of approximately $13.8 million for the six months ended June 30, 2010, compared to the fees that would have been paid under the former advisory agreement.
Guidance, Outlook, and Risks
- Offering Status: The Company is in the midst of a follow-on public offering. As of August 11, 2010, it had raised approximately $1.64 billion in aggregate subscriptions. Management announced an intention to close the follow-on offering early, subject to market conditions, on or before April 30, 2011.
- Financing Outlook: The Company is working to replace its existing secured revolving credit facility with a new $200 million unsecured revolving credit facility, with JPMorgan Chase committed to $75 million.
- Distribution Coverage: For the six months ended June 30, 2010, FFO of $35.6 million fully covered the cash portion of distributions ($27.2 million). MFFO represented 80% of total distributions paid.
- Risk Factors:
- Liquidity: Distributions paid in excess of cash flow from operations were funded by debt financing. Continued reliance on offering proceeds and debt is necessary to fund distributions and acquisitions.
- Interest Rate Risk: Approximately 51.3% of mortgage debt is variable rate, though the Company utilizes interest rate swaps to mitigate exposure.
- Concentration: Geographic concentration exists in South Carolina (16.1% of rental income), Texas (15.5%), Indiana (12.2%), and Arizona (11.8%).
- Lease Expirations: Leases representing 7.7% of occupied GLA are scheduled to expire within the next 12 months.
Key Investor Verification Points
- Offering Proceeds: Verify the pace of capital raising in the follow-on offering to ensure sufficient funds for planned acquisitions and distribution coverage.
- Debt Covenants: Monitor compliance with debt covenants, specifically regarding the $93.1 million of mortgage loans where the Company is working with lenders to ensure compliance (including restricted cash deposits).
- Self-Management Efficiency: Assess whether the cost savings from self-management are sustainable as the Company scales its internal operations.
- Acquisition Integration: Review the performance of the 12 new acquisitions completed in the first half of 2010 to ensure they meet projected occupancy and yield targets.
- Refinancing Needs: Track the maturity schedule of variable rate debt and the status of the new $200 million unsecured credit facility.