Healthcare Trust of America, Inc. 3rd quarter: $160.7 million investments, 314,000 sq.ft. of GLA; 99% of it leased

November 3, 2017

Healthcare Trust of America, Inc. (“HTA”) announced results for the three and nine months ended September 30, 2017. Third-quarter 2017 highlights include:

Operating

Net Income Attributable to Common Stockholders: Increased 114.1% to $13.8 million, compared to Q3 2016. Earnings per diluted share increased 75.0% to $0.07 per diluted share, compared to Q3 2016.
Funds From Operations (“FFO”): As defined by the National Association of Real Estate Investment Trusts (“NAREIT”), increased 56.1%, to $84.2 million, compared to Q3 2016. FFO per diluted share increased 7.9%, to $0.41 per diluted share, compared to Q3 2016.
Normalized FFO: Increased 49.6%, to $85.4 million, compared to Q3 2016. Normalized FFO per diluted share increased 5.0%, to $0.42 per diluted share, compared to Q3 2016.
Normalized Funds Available for Distribution (“FAD”): Increased 51.9%, to $74.8 million, compared to Q3 2016.
Same-Property Cash Net Operating Income (“NOI”): Increased $2.2 million, or 2.9%, to $80.3 million, compared to Q3 2016.

Portfolio

Investments: During the quarter, HTA had investments of $160.7 million, totaling approximately 314,000 square feet of GLA and which were 99% leased as of the date of acquisition, bringing year-to-date investments to $2.7 billion, net of development credits received at the closing of the Duke acquisition. These investments included the properties in the final closing associated with the Duke Realty healthcare business (“Duke Assets”) and completion of the portfolio acquisition from a Tampa developer, which were announced in Q2 2017. HTA’s investments for the quarter consisted of the following:
- Duke Assets: HTA acquired three additional properties in July for an aggregate purchase price of $131.7 million. These properties total approximately 245,000 square feet of GLA and were 100% leased as of the date of acquisition.
- Tampa Developer: HTA acquired two additional properties in July and August for an aggregate purchase price of $29.0 million. These properties total approximately 68,000 square feet of GLA and were 98% leased as of the date of acquisition.
Leasing: HTA entered into new and renewal leases on approximately 745,000 square feet of GLA, or 3.1%, of its portfolio. Tenant retention for the Same-Property portfolio was 75% by GLA for the quarter, which included approximately 289,000 square feet of GLA of expiring leases. Renewal leases included tenant improvements of $1.56 per square foot per year of the lease term and less than three days of free rent per year of the lease term.

2017 Investments – Q3 Performance

Investments: During 2017, HTA completed and closed $2.7 billion of investments, totaling approximately 6.6 million square feet of GLA, including projects under development. These acquisitions included 93 in-service properties and seven development properties, including four recently developed properties and three properties under development, but which were 100% pre-leased and expected to be completed by Q2 2018. Approximately 89% of the GLA for these investments are located in HTA’s existing key markets, allowing HTA to manage and service these properties with its existing property management, building services, and leasing platform, thereby generating additional cash flow opportunities.
Cash NOI: During the quarter, HTA generated $32.9 million of Cash NOI on its 2017 investments, including a partial period impact for acquisitions that closed and developments that were completed during the period. As of September 30, 2017, HTA’s run rate yield on its 2017 investments was approximately 5.1%, which included the full quarter impact of acquisitions and developments closed and completed in the period, and new leases that were signed but not yet occupied.
Leasing: HTA entered into new leases on approximately 26,000 square feet of GLA for its 2017 investments, or 0.4% of the total acquired GLA. HTA also entered into renewal leases totaling approximately 108,000 square feet of GLA. HTA executed these leases utilizing its existing in-house leasing representatives which would have resulted in capitalized leasing commissions totaling $0.5 million, or 1.5% of third quarter Cash NOI, if third party brokers had been used by HTA.
Property Management & Building Services: As of the end of the period, HTA provided property management services to 91% of its 2017 investments as measured by GLA. During the quarter, HTA earned over $1.0 million of property management fees related to these properties which were included in total Cash NOI. On an annual basis, these properties generated a total of over $5.0 million in property management fees. As of the end of the period, HTA provided building engineering services to approximately 64% of the multi-tenanted properties included in its 2017 investments. In addition, during the quarter, HTA earned over $250,000 in expense recoveries from building services which were included in total Cash NOI.
Development: During the third quarter, HTA-Development completed two development projects located in Oxford, Mississippi and Dallas, TX, with a total construction cost of $33.8 million. As such, four of the seven development properties acquired by HTA as a part of the Duke acquisition have been completed, but are not all fully leased at this time. As of the end of the quarter, these four properties were 77% leased and generated $0.6 million of Cash NOI. HTA is currently in the late stages of lease negotiations for an additional 38,000 square feet of GLA that would bring the leased rate on these properties to 90% if completed. The remaining three properties under development are 100% pre-leased and are projected to be completed by Q2 2018. In total, the seven development properties are projected to generate between $2.50 million and $2.75 million in quarterly Cash NOI upon completion and stabilization.

Capital Markets

Equity: In September 2017, HTA entered into new equity distribution agreements with its various sales agents with respect to its at-the-market (“ATM”) offering program of common stock with an aggregate sales amount of up to $500.0 million.
Debt: In July 2017, HTA, as guarantor, and Healthcare Trust of America Holdings, LP (“HTALP”), as borrower, entered into an amended and restated $1.3 billion unsecured credit agreement which increased the amount available under the unsecured revolving credit facility to $1.0 billion and extended the maturities of the unsecured revolving credit facility to June 30, 2022 and for the $300.0 million unsecured term loan until February 1, 2023. The interest rate on the unsecured revolving credit facility is adjusted LIBOR plus a margin ranging from 0.83% to 1.55% per annum based on HTA’s credit rating.

Year-to-Date 2017 Highlights

Operating

Net Income Attributable to Common Stockholders: Decreased 27.1% to $21.4 million, compared to year-to-date 2016. Earnings per diluted share decreased 42.9% to $0.12 per diluted share, compared to year-to-date 2016. Total revenues increased $101.3 million due to the continued growth in HTA’s operations, however, the increase in revenues was primarily offset as a result of the Duke acquisition by the increase in transaction expenses and loss on extinguishment of debt related to bridge facility fees paid.
FFO: As defined by NAREIT, increased 28.5%, to $198.7 million, compared to year-to-date 2016. FFO per diluted share remained stable at $1.12 per diluted share, compared to year-to-date 2016.
Normalized FFO: Increased 29.9%, to $215.2 million, compared to year-to-date 2016. Normalized FFO per diluted share increased 0.8% to $1.21 per diluted share, compared to year-to-date 2016.
Normalized FAD: Increased 27.3%, to $188.3 million, compared to year-to-date 2016.
Same-Property Cash NOI: Increased $6.6 million, or 3.1%, to $217.8 million, compared to year-to-date 2016. Same-Property rental revenue increased $4.1 million, or 1.7%, to $243.4 million, compared to year-to-date 2016.

Portfolio

Investments: HTA completed investments of $2.7 billion, net of development credits received at the closing of the Duke acquisition, totaling approximately 6.6 million square feet of GLA, including projects under development, and which were 92% leased as of the date of acquisition and consisted of the following:
- As of September 30, 2017, HTA closed on Duke Assets of approximately $2.24 billion for 71 properties and a parcel of land, including a 50% ownership interest in an unconsolidated joint venture, totaling approximately 5.2 million square feet of GLA, including projects under development, and were 94% leased as of the date of acquisition. HTA’s only remaining obligations related to the Duke acquisition are the potential acquisition of a land parcel in Miami, FL and a single property in Texas that are each currently excluded from HTA’s purchase obligations due to current outstanding physical condition issues.
- In addition, HTA completed investments of $458.3 million, totaling approximately 1.5 million square feet of GLA that were 93% leased as of the date of acquisition and which were located substantially in certain of HTA’s 20 to 25 key markets.
Development Platform Acquisition: During the nine months ended September 30, 2017, HTA completed its acquisition of Duke’s development and construction platform as part of the Duke acquisition. Prior to HTA’s acquisition, this best-in-class development platform, renamed HTA-Development by HTA, had developed over $1.0 billion in medical real estate assets over the last 10 years.
Dispositions: HTA completed the disposition of a medical office building located in Texas for a gross sales price of $5.0 million and which totaled approximately 48,000 square feet of GLA.
Leasing: HTA entered into new and renewal leases on approximately 2.0 million square feet of GLA, or 8.4%, of its portfolio. Tenant retention for the Same-Property portfolio was 78% by GLA year-to-date, which included approximately 1.3 million square feet of expiring leases. Renewal leases included tenant improvements of $1.51 per square foot of GLA per year of the lease term and less than five days of free rent per year of the lease term.
Leased Rate: As of September 30, 2017, HTA had a leased rate for its portfolio of 91.7% by GLA and 91.4% for its Same-Property portfolio.

Balance Sheet and Capital Markets

Balance Sheet: As of September 30, 2017, HTA had total leverage of 31.9% measured as debt to total capitalization, and 6.2x measured as debt to Adjusted Earnings before Interest, Taxes, Depreciation and Amortization for real estate (“Adjusted EBITDAre“). Total liquidity at the end of the quarter was $928.9 million, including $919.5 million of availability under HTA’s unsecured revolving credit facility and $9.4 million of cash and cash equivalents.
Equity: During the nine months ended September 30, 2017, HTA issued and sold approximately $1.7 billion of equity at an average price of $28.70 per share. Additionally, in September 2017, HTA entered into new equity distribution agreements with its various sales agents with respect to its ATM offering program of common stock with an aggregate sales amount of up to $500.0 million.
Debt: During the nine months ended September 30, 2017, HTA issued in a public offering approximately $1.2 billionin debt, which consisted of $900.0 million in senior unsecured notes at an average interest rate of 3.4% per annum and an average duration of 7.7 years. HTA also executed, as borrower, a $286.0 million promissory note with a 4.0% per annum interest rate with the seller in the Duke acquisition. Additionally, in July 2017, HTA, as guarantor, and HTALP, as borrower, entered into an amended and restated $1.3 billion unsecured credit agreement which increased the amount available under the unsecured revolving credit facility to $1.0 billion and extended the maturity date to June 30, 2022, and extended the maturity date until February 1, 2023 under the $300.0 millionunsecured term loan. These transactions were used to substantially finance HTA’s 2017 investments and position its investment grade balance sheet for future growth.

Subsequent Events

Investments: In October 2017, HTA completed an investment with a purchase price of $8.3 million. As part of the acquisition, HTA issued to the seller as a part of the acquisition consideration a total of 16,972 operating partnership units in HTALP with a market value at the time of issuance of $0.5 million.
Equity: Subsequent to September 30, 2017, HTA issued approximately $200.0 million of common stock under the ATM, including $75.0 million on a forward basis which will be issued over the next six months.
Dividends: On October 24, 2017, HTA’s Board of Directors announced a quarterly dividend of $0.305 per share of common stock. The dividends are to be paid on January 9, 2018 to stockholders of record of our common stock on January 2, 2018.