Business Context and Reporting Period
Company: Grubb & Ellis Healthcare REIT, Inc. (Note: Input metadata references "Healthcare Realty Trust Inc," but the filing text identifies the registrant as Grubb & Ellis Healthcare REIT, Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: April 3, 2009
Event: Entry into a Material Definitive Agreement (Item 1.01). The company entered into a Services Agreement with American Realty Capital II, LLC (ARC II) to support its transition to a self-management program.
Key Financial Metrics
This filing is a Current Report regarding a material agreement and does not contain periodic financial statements. Consequently, the filing text does not provide clear values for revenue, profit, cash flow, margins, debt, or liquidity.
Material Changes and Agreement Terms
The primary material change is the execution of a three-year Services Agreement with ARC II to provide consulting and backup support services as the company moves toward self-management. Key terms include:
- Scope: ARC II will provide consulting services and make backup support services available (acquisition, disposition, property management, leasing, asset accounting) on an as-needed basis.
- Fee Structure for Backup Services:
- Property Management: 2.73% of gross income.
- Acquisition: 0.45% of purchase price (non-sourced) or 1.125% (sourced by ARC II).
- Disposition: 1.0% of sales price (capped at 50% of competitive commission).
- Asset Accounting: 0.22% of average invested assets.
- Incentive Payments: Subject to stockholder return thresholds, ARC II may receive subordinated incentive payments up to 1.5% of net sales proceeds or appreciation on assets acquired via a follow-on offering, after stockholders receive their capital plus an 8.0% cumulative annual return.
- Exclusivity: ARC II agreed not to provide similar services to other healthcare REITs and granted the company a right of first opportunity on certain identified properties.
- Termination: Either party may terminate without cause after the first year with 90 days' notice. The company may terminate for "Cause" at any time.
Outlook, Risks, and Management Commentary
Strategic Plan: The company intends to perform most services in-house under its self-management program. ARC II's role is to provide backup support if the company determines a third party is necessary for specific services.
Contingencies: Incentive payments to ARC II are contingent upon the company meeting specific stockholder return thresholds (return of capital plus 8.0% annual return) and are subordinate to stockholder distributions.
Risks: The agreement includes indemnification clauses for both parties. The company retains the right to terminate if key ARC II personnel (William Kahane or Nicholas Schorsch) are unavailable.
Investor Verification Checklist
- Verify the exact terms of the "Cause" and "Good Reason" termination definitions in the full Services Agreement (Exhibit 10.1).
- Confirm the status of the existing Advisory Agreement with Grubb & Ellis Healthcare REIT Advisor, LLC, which expires September 20, 2009.
- Assess the financial impact of the potential 1.5% subordinated incentive payments on future capital raises or asset sales.
- Monitor the company's progress in transitioning specific functions (acquisition, property management) to in-house teams versus utilizing ARC II's backup services.