Business Context and Reporting Period
Company: Healthcare Trust of America, Inc. (formerly Grubb & Ellis Healthcare REIT, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: The Company is a non-traded Real Estate Investment Trust (REIT) focused on acquiring and operating medical office buildings and healthcare-related facilities. As of December 31, 2009, the portfolio consisted of 53 acquisitions comprising 179 buildings with 7,407,000 square feet of gross leasable area across 21 states.
Key Strategic Shift: In the third quarter of 2009, the Company successfully transitioned from a fee-based sponsored REIT to a self-managed REIT. This involved terminating the advisory agreement with Grubb & Ellis Healthcare REIT Advisor, LLC, and replacing external property management with nationally recognized third-party groups, resulting in significant cost reductions.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenues | $129,486,000 | $80,418,000 |
| Net Loss (GAAP) | $(24,773,000) | $(28,409,000) |
| Funds From Operations (FFO) | $28,314,000 | $8,745,000 |
| Modified FFO (MFFO) | $48,029,000 | $8,757,000 |
| Net Operating Income (NOI) | $84,462,000 | $52,244,000 |
| Cash Flows from Operating Activities | $21,001,000 | $20,677,000 |
| Total Assets | $1,673,535,000 | $1,113,923,000 |
| Mortgage Loans Payable (Net) | $540,028,000 | $460,762,000 |
| Cash and Cash Equivalents | $219,001,000 | $128,331,000 |
| Stockholders' Equity | $1,071,317,000 | $599,320,000 |
Liquidity & Leverage: The Company maintained a leverage ratio of 32% (debt to total assets) and 38.5% (debt to fair market value of assets). Cash on hand was approximately $219 million as of year-end.
Distributions: Total distributions declared were $82,221,000 ($0.73 per share). Approximately 96.4% of distributions were classified as a return of capital for tax purposes.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 61% to $129.5 million, driven primarily by 13 new property acquisitions in 2009 totaling approximately $457 million in purchase price.
- Net Loss Improvement: GAAP net loss decreased to $24.8 million from $28.4 million in 2008. This improvement was partially offset by a new accounting standard (ASC 805) requiring the expensing of acquisition costs ($16.0 million in 2009 vs. $0.1 million capitalized in 2008).
- FFO and MFFO Expansion: FFO increased 224% to $28.3 million, and MFFO increased 449% to $48.0 million, reflecting the impact of new assets and the elimination of external advisor fees.
- Cost Structure: General and administrative expenses increased to $12.3 million (from $3.3 million) due to the transition to self-management, including new salaries and legal fees. However, asset management fees decreased to $3.8 million (from $6.2 million) following the termination of the advisory agreement.
- Interest Expense: Total interest expense decreased to $23.8 million from $34.2 million, largely due to a $5.5 million non-cash gain on mark-to-market adjustments of interest rate swaps.
Guidance, Outlook, and Risks
Outlook and Strategy: Management intends to utilize its $219 million cash position to acquire additional medical office buildings at favorable pricing during the current economic downturn. The Company is conducting a "best efforts" initial public offering (IPO) with a target of up to $2.2 billion, which is scheduled to expire no later than March 19, 2010. As of December 31, 2009, subscriptions totaled approximately $1.37 billion.
Management Commentary: The transition to self-management is complete, resulting in gross savings of approximately $10.8 million in 2009. Management believes the self-managed model will significantly reduce the cost structure compared to the previous externally managed model.
Risks and Contingencies:
- Liquidity of Stock: There is no established public trading market for the Company's common stock. Shares are illiquid, and stockholders may only sell them at a discount through a limited share repurchase plan.
- Return of Capital: Distributions paid in excess of taxable income are treated as a return of capital, reducing the stockholder's tax basis. In 2009, 96.4% of distributions were a return of capital.
- Market Conditions: Continued volatility in credit and real estate markets could impact property values, tenant ability to pay rent, and the availability of financing.
- REIT Qualification: Failure to qualify as a REIT would subject the Company to federal income taxes, materially reducing cash available for distribution.
- Disputes: The Company has notified its former advisor and dealer manager of claims regarding non-compliance with agreements, though management does not anticipate a material impact on future financial results.
Key Facts for Investor Verification
- Illiquidity: Verify the terms of the share repurchase plan and the lack of a public secondary market for shares.
- Accounting Changes: Confirm the impact of ASC 805 on the 2009 net loss due to the expensing of $16 million in acquisition costs, which were previously capitalized.
- Distribution Coverage: Note that cash flows from operations ($21.0 million) and FFO ($28.3 million) did not cover total distributions ($82.2 million); the shortfall was funded by offering proceeds.
- Self-Management Transition: Verify the realized cost savings from the transition to self-management and the elimination of the advisory agreement.
- Offering Status: Confirm the current status of the IPO and the amount of capital raised versus the $2.2 billion target.