Business Context and Reporting Period
This Form 8-K Current Report is filed by Grubb & Ellis Healthcare REIT, Inc. (the "Registrant") on June 26, 2008. The filing reports the completion of a significant asset acquisition and the creation of new direct financial obligations to finance the transaction.
Key Financial Metrics and Transaction Details
- Acquisition: The Registrant acquired "Medical Portfolio 3," consisting of 10 general office buildings and 10 medical office buildings in Indianapolis, Indiana, from HCP, Inc. and HCPI/Indiana, LLC.
- Purchase Price: $90,100,000, plus closing costs.
- Acquisition Fee: $2,703,000 (3.0% of the purchase price) paid to the advisor and its affiliate.
- Financing Structure:
- Secured Loan from Fifth Third Bank: $58,000,000.
- Borrowings under LaSalle/KeyBank Revolving Line of Credit: $32,735,000.
- Remaining balance funded by proceeds from the initial public offering.
- Debt Terms (Fifth Third Loan):
- Maturity: June 26, 2011 (extendable for two consecutive 12-month periods subject to conditions).
- Interest Rate: Adjusted Base Rate (Prime or Fed Funds + 0.50%) or Adjusted LIBOR (LIBOR + 2.25%).
- Guaranty: The Registrant guarantees $14,500,000 of the principal.
- Covenants: Minimum debt service coverage ratio of 1.30 to 1.0 required for extension.
Material Changes
The primary material change is the addition of 20 properties to the Registrant's portfolio and the assumption of $90,735,000 in new debt obligations ($58,000,000 term loan and $32,735,000 revolver drawdown). The filing does not provide comparative financial metrics (revenue, profit, or cash flow) for the prior period as this is a transaction-specific report rather than a periodic financial statement.
Outlook, Risks, and Contingencies
- Financial Statements: The Registrant stated it is not practical to provide required financial statements at this time; they will be filed as an amendment within 71 days of the filing deadline.
- Extension Risks: The Fifth Third loan extension is contingent upon satisfying specific conditions, including payment of a 0.25% extension fee and maintaining a debt service coverage ratio of 1.30 to 1.0.
- Default Provisions: The loan agreement includes a late charge of 4.0% on missed payments and a default interest rate of 4.0% plus the Adjusted Base Rate.
- Environmental Indemnity: An Environmental Indemnity Agreement was executed as part of the loan documentation.
Investor Verification Checklist
- Verify the pro forma financial impact of the $90.1 million acquisition once the amendment with financial statements is filed.
- Confirm the current debt service coverage ratio to assess the ability to meet the 1.30:1.0 covenant required for loan extension.
- Review the specific terms of the LaSalle/KeyBank revolving line of credit to understand remaining availability and interest rate resets.
- Monitor the status of the $14.5 million guaranty obligation held by the parent company.
- Check for any subsequent amendments regarding the environmental indemnity or property valuations.