Business Context and Reporting Period
Company: Healthcare Trust of America, Inc. (formerly Grubb & Ellis Healthcare REIT, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: A Maryland corporation operating as a Real Estate Investment Trust (REIT) focused on medical office buildings and healthcare-related facilities. As of the reporting date, the company had completed a transition to self-management, terminating its advisory agreement with Grubb & Ellis Healthcare REIT Advisor, LLC. The company is in the midst of a best-efforts initial public offering (IPO) scheduled to expire in March 2010.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2009 | Nine Months Ended Sept 30, 2009 | Balance Sheet (Sept 30, 2009) |
|---|---|---|---|
| Total Revenues | $31.75 million | $92.04 million | N/A |
| Net Loss | $(10.07) million | $(20.41) million | N/A |
| Net Loss Attributable to Controlling Interest | $(10.14) million | $(20.65) million | N/A |
| Funds From Operations (FFO) | $3.09 million | $18.50 million | N/A |
| Modified FFO (MFFO) | $11.82 million | $31.90 million | N/A |
| Net Operating Income (NOI) | $21.25 million | $59.19 million | N/A |
| Cash and Cash Equivalents | N/A | N/A | $321.79 million |
| Total Assets | N/A | N/A | $1.53 billion |
| Total Liabilities | N/A | N/A | $509.05 million |
| Mortgage Loans Payable (Net) | N/A | N/A | $452.04 million |
| Stockholders' Equity | N/A | N/A | $1.02 billion |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased significantly from $23.92 million to $31.75 million (Q3) and from $53.31 million to $92.04 million (YTD) compared to 2008, driven by the acquisition of 154 buildings and one real estate-related asset as of September 30, 2009, compared to 129 buildings in the prior year.
- Expense Increases: General and administrative expenses rose sharply to $11.10 million (Q3) and $21.96 million (YTD) from $2.76 million and $6.80 million in 2008. This increase is primarily due to the expensing of acquisition-related costs ($5.92 million Q3; $9.10 million YTD) under new accounting standards (ASC 805), increased salaries for the self-management team, and professional fees related to the transition.
- Net Loss Expansion: Net loss attributable to controlling interest widened to $(10.14) million (Q3) and $(20.65) million (YTD) from $(5.69) million and $(11.97) million in 2008. Despite higher revenues, the loss was exacerbated by the expensing of acquisition costs and higher interest expenses due to increased debt levels.
- Liquidity Position: Cash and cash equivalents increased from $128.33 million at year-end 2008 to $321.79 million at September 30, 2009, fueled by $533.30 million in proceeds from the issuance of common stock during the nine-month period.
Guidance, Outlook, and Risks
- Self-Management Transition: The company has completed its transition to self-management, eliminating external advisor fees (asset management, acquisition fees) effective September 20, 2009. Management expects this to reduce long-term costs significantly.
- Offering Status: The initial public offering remains active. As of September 30, 2009, the company had accepted subscriptions for 127.1 million shares totaling approximately $1.27 billion. A follow-on offering registration was filed but not yet effective.
- Acquisition Pipeline: Subsequent to the reporting period, the company entered into agreements to acquire approximately $153.1 million in medical office buildings (Arizona, Colorado, South Carolina, Maryland) and secured $72 million in long-term mortgage financing.
- Distribution Policy: The company pays monthly distributions of $0.725 per share (7.25% annualized). For the nine months ended September 30, 2009, distributions of $54.16 million exceeded cash flow from operations ($15.97 million) and FFO ($18.50 million); the excess was funded by offering proceeds.
- Risks:
- Liquidity Risk: Dependence on the continued success of the IPO to fund distributions and acquisitions. If offering proceeds slow, the company may need to borrow or sell assets to maintain distributions.
- Interest Rate Risk: Approximately 70.9% of mortgage debt is variable rate, though the company utilizes interest rate swaps to effectively fix rates on this portion.
- Concentration Risk: Geographic concentration exists in Texas (16.3% of rental income) and Indiana (13.9% of rental income) for the nine months ended September 30, 2009.
Investor Verification Checklist
- Offering Proceeds Utilization: Verify the rate at which the $1.27 billion in raised capital is being deployed into income-producing assets versus held in cash equivalents.
- FFO vs. Distributions: Confirm the sustainability of the 7.25% distribution rate given that FFO ($18.50 million YTD) covers only a portion of total distributions ($54.16 million YTD).
- Acquisition Cost Accounting: Review the impact of ASC 805 on future earnings, as acquisition costs are now expensed immediately rather than capitalized, which will continue to suppress GAAP net income during active acquisition periods.
- Debt Maturities: Assess the refinancing risk for $122.7 million of debt maturing in 2010 and $201.7 million maturing in 2011, noting the availability of extension options.
- Self-Management Cost Savings: Monitor future quarters to confirm that the elimination of advisor fees results in the projected reduction in general and administrative expenses.