What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-04 compared with 2020-08-07 · 141 added, 148 removed, 342 unchanged (46% of the section changed)

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Approximately 67% of our portfolio is located on the campuses of, or adjacent to, nationally and regionally recognized healthcare systems.

Our portfolio is diversified geographically across 33 states, with no state having more than 20% of our total GLA as of June 30, 2020.

Our portfolio is diversified geographically across 33 states, with no state having more than 20% of our total GLA as of September 30, 2020.

We are concentrated in 20 to 25 key markets that are experiencing higher economic and demographic trends than other markets, on average, that we expect will drive demand for MOBs.

As of June 30, 2020, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 93% of our portfolio, based on GLA, is located in the top 75 Metropolitan Statistical Area ("MSAs"), with Dallas, Houston, Boston, Tampa and Hartford/New Haven being our largest markets by investment.

As of September 30, 2020, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 93% of our portfolio, based on GLA, is located in the top 75 Metropolitan Statistical Area ("MSAs"), with Dallas, Houston, Boston, Tampa and Hartford/New Haven being our largest markets by investment.

Company Highlights

Portfolio Operating Performance

• For the three months ended June 30, 2020, total revenue was $178.8 million, compared to $171.8 million for the three months ended June 30, 2019.

For the six months ended June 30, 2020, total revenue was $364.6 million, compared to $340.7 million for the six months ended June 30, 2019.

• For the three months ended June 30, 2020, net income was $13.7 million, compared to $16.6 million, for the three months ended June 30, 2019.

For the six months ended June 30, 2020, net income was $31.9 million, compared to $30.3 million for the six months ended June 30, 2019.

• For the three months ended June 30, 2020, net income attributable to common stockholders was $0.06 per diluted share, or $13.5 million, compared to $0.08 per diluted share, or $16.3 million for the three months ended June 30, 2019.

For the six months ended June 30, 2020, net income attributable to common stockholders was $0.14 per diluted share, or $31.4 million, compared to $0.14 per diluted share, or $29.7 million for the six months ended June 30, 2019.

• For the three months ended June 30, 2020, HTA’s FFO, as defined by NAREIT, was $87.8 million, or $0.40 per diluted share, compared to $0.40 per diluted share, or $84.6 million, for the three months ended June 30, 2019.

For the six months ended June 30, 2020, HTA’s FFO was $180.9 million, or $0.82 per diluted share, compared to $0.80 per diluted share, or $167.4 million, for the six months ended June 30, 2019.

• For the three months ended June 30, 2020, HTALP’s FFO was $88.0 million, or $0.40 per diluted OP Unit, compared to $0.41 per diluted OP unit, or $84.9 million, for the three months ended June 30, 2019.

For the six months ended June 30, 2020, HTALP’s FFO was $181.4 million, or $0.82 per diluted OP Unit, compared to $0.80 per diluted OP Unit, or $168.0 million, for the six months ended June 30, 2019.

• For the three months ended June 30, 2020, HTA’s and HTALP’s Normalized FFO was $0.42 per diluted share and OP Unit, or $93.0 million, compared to $0.41 per diluted share and OP Unit, or $85.2 million for the three months ended June 30, 2019.

For the six months ended June 30, 2020, HTA’s and HTALP’s Normalized FFO was $0.84 per diluted share and OP Unit, or $186.6 million, compared to $0.81 per diluted share and OP Unit, or $168.3 million for the six months ended June 30, 2019.

• For the three months ended September 30, 2020, our total revenue was $187.3 million, compared to $175.0 million for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, our total revenue was $551.9 million, compared to $515.7 million for the nine months ended September 30, 2019.

• For the three months ended September 30, 2020, our net income was $(6.9) million, compared to $(8.6) million, for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, our net income was $25.0 million, compared to $21.7 million for the nine months ended September 30, 2019.

• For the three months ended September 30, 2020, our net income attributable to common stockholders was $(0.03) per diluted share, or $(6.8) million, compared to $(0.04) per diluted share, or $(8.5) million for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, our net income attributable to common stockholders was $0.11 per diluted share, or $24.6 million, compared to $0.10 per diluted share, or $21.2 million for the nine months ended September 30, 2019.

• For the three months ended September 30, 2020, HTA’s FFO, as defined by NAREIT, was $68.5 million, or $0.31 per diluted share, compared to $0.31 per diluted share, or $65.0 million, for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, HTA’s FFO was $249.4 million, or $1.13 per diluted share, compared to $1.11 per diluted share, or $232.5 million, for the nine months ended September 30, 2019.

• For the three months ended September 30, 2020, HTALP’s FFO was $68.4 million, or $0.31 per diluted OP Unit, compared to $0.31 per diluted OP unit, or $64.9 million, for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, HTALP’s FFO was $249.8 million, or $1.13 per diluted OP Unit, compared to $1.11 per diluted OP Unit, or $232.9 million, for the nine months ended September 30, 2019.

• For the three months ended September 30, 2020, HTA’s and HTALP’s Normalized FFO was $0.43 per diluted share and OP Unit, or $96.2 million, compared to $0.42 per diluted share and OP Unit, or $87.1 million for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, HTA’s and HTALP’s Normalized FFO was $1.28 per diluted share and OP Unit, or $282.9 million, compared to $1.22 per diluted share and OP Unit, or $255.4 million for the nine months ended September 30, 2019.

• For additional information on FFO and Normalized FFO, see “FFO and Normalized FFO” below, which includes a reconciliation to net income attributable to common stockholders/unitholders and an explanation of why we present this non-GAAP financial measure.

• For the three months ended June 30, 2020, NOI was $122.6 million, compared to $118.8 million for the three months ended June 30, 2019.

For the six months ended June 30, 2020, NOI was $251.6 million, compared to $236.3 million for the six months ended June 30, 2019.

• For the three months ended June 30, 2020, Same-Property Cash NOI increased 0.6%, or $0.7 million, to $115.0 million, compared to $114.3 million for the three months ended June 30, 2019.

For the six months ended June 30, 2020, Same-Property Cash NOI increased 1.6%, or $3.7 million, to $230.1 million, compared to $226.4 million for the six months ended June 30, 2019.

• For additional information on NOI and Same-Property Cash NOI, see “NOI, Cash NOI and Same-Property Cash NOI” below, which includes a reconciliation from net income and an explanation of why we present these non-GAAP financial measures.

• For the three months ended September 30, 2020, our NOI was $130.1 million, compared to $121.2 million for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, our NOI was $381.6 million, compared to $357.5 million for the nine months ended September 30, 2019.

• For the three months ended September 30, 2020, our Same-Property Cash NOI increased 0.5%, or $0.5 million, to $116.2 million, compared to $115.6 million for the three months ended September 30, 2019.

For the nine months ended September 30, 2020, our Same-Property Cash NOI increased 1.3%, or $4.4 million, to $345.3 million, compared to $340.9 million for the nine months ended September 30, 2019.

• For additional information on our NOI and Same-Property Cash NOI, see “NOI, Cash NOI and Same-Property Cash NOI” below, which includes a reconciliation from net income and an explanation of why we present these non-GAAP financial measures.

Key Market Focused Strategy and Investments

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markets from an economic and demographic perspective.

As of June 30, 2020, approximately 93% of our portfolio’s GLA is located in the top 75 MSAs.

As of September 30, 2020, approximately 93% of our portfolio’s GLA is located in the top 75 MSAs.

Our key markets represent top MSAs with strong growth metrics in jobs, household income and population, as well as low unemployment and mature healthcare infrastructures.

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• Our key market focus has enabled us to establish scale across 20 to 25 key markets and effectively utilize our asset management and leasing platform to deliver consistent same store growth and additional yield on investments, as well as cost effective service to tenants.

As of June 30, 2020, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 0.5 million square feet of GLA in 17 of our top 20 markets.

• During the six months ended June 30, 2020, we closed on $41.7 million worth of investments primarily located in our existing key markets totaling approximately 167,000 square feet of GLA.

As of September 30, 2020, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 0.5 million square feet of GLA in 17 of our top 20 markets.

• During the nine months ended September 30, 2020, we closed on $52.6 million worth of investments primarily located in our existing key markets totaling approximately 214,000 square feet of GLA.

Internal Growth through Proactive In-House Property Management and Leasing

We believe we have the largest full-service operating platform in the medical office sector that consists of our in-house asset management and leasing platform which allows us to better manage and service our existing portfolio.

In each of these markets, we have established a strong in-house asset management and leasing platform that has allowed us to develop valuable relationships with health systems, physician practices, universities, and regional development firms that have led to investment and leasing opportunities.

Our full-service operating platform has also enabled us to focus on generating cost efficiencies as we gain scale across individual markets and regions.

• As of June 30, 2020, our in-house asset management and leasing platform operated approximately 24.4 million square feet of GLA, or 98% of our total portfolio.

• As of June 30, 2020, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 90.4% by GLA and our occupancy rate was 89.7% by GLA.

• We entered into new and renewal leases on approximately 1.3 million and 2.2 million square feet of GLA, or approximately 5.2% and 8.8%, respectively, of the GLA of our total portfolio, during the three and six months ended June 30, 2020.

• During the three and six months ended June 30, 2020, tenant retention for the Same-Property portfolio was 89% and 88%, respectively, which included approximately 1.5 million and 2.2 million square feet of GLA of expiring leases, respectively, which we believe is indicative of our commitment to maintaining buildings in desirable locations and fostering strong tenant relationships.

• As of September 30, 2020, our in-house asset management and leasing platform operated approximately 24.3 million square feet of GLA, or 97% of our total portfolio.

• As of September 30, 2020, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 90.1% by GLA and our occupancy rate was 89.5% by GLA.

• We entered into new and renewal leases on approximately 1.1 million and 3.3 million square feet of GLA, or approximately 4.4% and 13.1%, respectively, of the GLA of our total portfolio, during the three and nine months ended September 30, 2020.

• During the three and nine months ended September 30, 2020, tenant retention for the Same-Property portfolio was 89% and 88%, respectively, which included approximately 1.0 million and 3.3 million square feet of GLA of expiring leases, respectively, which we believe is indicative of our commitment to maintaining buildings in desirable locations and fostering strong tenant relationships.

Tenant retention is defined as the sum of the total leased GLA of tenants that renewed a lease during the period over the total GLA of leases that renewed or expired during the period.

Financial Strategy and Balance Sheet Flexibility

• As of June 30, 2020, we had total leverage, measured by debt less cash and cash equivalents to total capitalization, of 31.8%.

Total liquidity was approximately $1.1 billion, inclusive of $0.7 billion available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, and cash and cash equivalents of $75.2 million as of June 30, 2020.

• As of June 30, 2020, the weighted average remaining term of our debt portfolio was 5.8 years.

• During the six months ended June 30, 2020, we entered into two new forward starting interest rate swaps for a total notional amount of $225 million.

• During the six months ended June 30, 2020, we settled a forward sale arrangement pursuant to a forward equity agreement that was entered into in 2019, which included the sale of approximately 1.7 million shares of our common stock for net proceeds of approximately $50.0 million, adjusted for costs to borrow equating to a net price to us of $29.86 per share of common stock.

• As of September 30, 2020, we had total leverage, measured by debt less cash and cash equivalents to total capitalization, of 32.6%.

Total liquidity was approximately $1.5 billion, inclusive of $1.0 billion available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, and cash and cash equivalents of $227.1 million as of September 30, 2020.

• As of September 30, 2020, the weighted average remaining term of our debt portfolio was 7.4 years.

• During the nine months ended September 30, 2020, we settled a forward sale arrangement pursuant to a forward equity agreement that was entered into in 2019, which included the sale of approximately 1.7 million shares of our common stock for net proceeds of approximately $50.0 million, adjusted for costs to borrow equating to a net price to us of $29.86 per share of common stock.

Critical Accounting Policies

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The current novel coronavirus, or COVID-19 pandemic, and measures taken to slow the spread and lessen its impacts, are having a significant impact on economies and markets worldwide.

All our buildings remain in operation, however, some tenants, typically the more elective healthcare services, have temporarily suspended operations as a result of precautionary measures or national/local government imposed “stay-at-home” or “shelter-in-place” orders.

All our buildings remain in operation, however, some tenants, typically those engaged in the more elective healthcare services, have temporarily suspended operations as a result of precautionary measures or national/local government imposed “stay-at-home” or “shelter-in-place” orders.

We have taken steps to enhance our liquidity, in the form of draws against our line of credit, should cash flows become volatile throughout the remainder of the year.

As healthcare providers have seen their near-term profitability and liquidity levels decline, we have addressed requests from many of our tenants about their ability to defer payment of a portion of their rents for a limited duration.

While many of these requests have been incoming, we have proactively worked with key health system tenants to seek to help them work through this period of time.

While many of these requests have been in-bound from tenants, in the interest of strengthening our tenant relations, we have also proactively worked with key health system tenants to seek to help them work through their challenges during this period of time.

Each request is evaluated on a case by case basis.

To date, we have approved deferral plans that total approximately $9.6 million, which includes approximately $6.6 million of rent that was deferred in the three months ended June 30, 2020.

In total, we have approved deferral plans that total approximately $11.0 million, of which approximately $3.7 million have been repaid through October 28, 2020.

There are no substantial outstanding requests for assistance from tenants.

Payments of rent deferrals are generally expected to be repaid over the next 3 to 12 months (starting in the third quarter of 2020), depending on tenant size.

As of July 31, 2020, we have not granted unilateral rent forgiveness in connection with our deferral program, however, we may do so in the future if conditions and the specific economics warrant the use of such measures.

For the three months ended June 30, 2020, we collected or deferred approximately 98% of our total monthly rents that are contractually due and owed, with cash collection totaling approximately 95% of monthly rent.

For the month of July 2020, we collected or deferred approximately 98% of our total monthly rents that are contractually due and owed, with cash collection totaling approximately 94% of monthly rent.

In addition, we have entered into certain lease modifications in the form of early renewals where we provide concessions in the form of free rent, averaging three (3) months at the inception of the lease, in exchange for additional term, on average approximately three (3) years.

The total amount of free rent granted during the three months ended June 30, 2020 as concessions to early renewals was approximately $3.6 million, with $1.2 million taken in the three months ended June 30, 2020 with the $2.4 million remainder expected to primarily impact the third quarter 2020.

Although we did not experience a significant deceleration of cash collections for the three and six months ended June 30, 2020, because of the evolving situation surrounding the COVID-19 pandemic, our results of operations in Q3 2020 and beyond may be materially impacted as the complete effects of the pandemic, including the decrease in commerce and the slowdown and uncertainty in the broader economy, and the corresponding impacts to our buildings and tenants, come to light.

Payments of rent deferrals are generally expected to be repaid within the next 6 to 12 months.

As of October 31, 2020, we have not granted unilateral rent forgiveness in connection with our deferral program, however, we may do so in the future if conditions and the specific economics warrant the use of such measures.

For the three months ended September 30, 2020, we collected or deferred approximately 99% of our total monthly rents that are contractually due and owed, with cash collection totaling approximately 97% of monthly rents.

Our October collections continue to be consistent with Q3.

The total amount of free rent granted during the nine months ended September 30, 2020 as concessions to early renewals, was approximately $3.6 million, with $2.4 million taken in the three months ended September 30, 2020.

Although we did not experience a significant deceleration of cash collections for the three and nine months ended September 30, 2020, because of the evolving situation surrounding the COVID-19 pandemic, our results of operations in Q4 2020 and beyond may be materially impacted as the complete effects of the pandemic, including the decrease in commerce and the slowdown and uncertainty in the broader economy, and the corresponding impacts to our buildings and tenants, come to light.

In addition to those noted above, other impacts may take the form of an overall continued decrease in our results of operations, stemming from various factors, including, but not limited to:

(a) the inability for us to collect a portion of our rents timely or at all, (b) potential slowdown of

new lease leads and signings, (c) decreases in occupancy either from non-renewals or from tenant defaults, (d) potential increases in expenses for vendors, critical supplies or materials, or costs of maintenance activities, (e) delays in construction projects to ready spaces for tenants, (f) delays in development projects and potential for increased material costs, (g) increased labor costs should we be required to increase salaries for hazardous working conditions, (h) potential impairments should we see a more than temporary reduction in cash flows, (i) potential delays in accretive acquisitions, and (j) increased costs due to borrowings as we look to maintain balance sheet flexibility.

Refer to "Results of Operations - Comparison of the Three and Six Months Ended June 30, 2020 and 2019" for additional details on certain current period impacts from the COVID-19 pandemic.

(a) the inability for us to collect a portion of our rents timely or at all, (b) potential slowdown of new lease leads and signings, (c) decreases in occupancy either from non-renewals or from tenant defaults, (d) potential increases in expenses for vendors, critical supplies or materials, or costs of maintenance activities, (e) delays in construction projects to ready spaces for tenants, (f) delays in development projects and the potential for increased material costs, (g) increased labor costs should we be required to increase salaries for hazardous working conditions,

(h) potential impairments should we see a more than temporary reduction in cash flows, (i) potential delays in accretive acquisitions, and (j) increased costs due to borrowings as we look to maintain balance sheet flexibility.

Refer to "Results of Operations - Comparison of the Three and Nine Months Ended September 30, 2020 and 2019" for additional details on certain current period impacts from the COVID-19 pandemic.

Other than the above, we are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally, the risk factors previously discussed in Part I, Item 1A - Risk Factors, in our 2019 Annual Report on Form 10-K, and this Quarterly Report on Form 10-Q under Item 1A.

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Investment Activity

During the six months ended June 30, 2020, we had investments with an aggregate gross purchase price of $41.7 million.

During the six months ended June 30, 2019, we had investments with an aggregate gross purchase price of $94.1 million.

During the nine months ended September 30, 2020, we had investments with an aggregate gross purchase price of $52.9 million.

During the nine months ended September 30, 2019, we had investments with an aggregate gross purchase price of $229.9 million.

The amount of any future acquisitions or dispositions could have a significant impact on our results of operations in future periods.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2020 and 2019

As of June 30, 2020 and 2019, we owned and operated approximately 24.9 million and 23.3 million square feet of GLA, respectively, with a leased rate of 90.4% and 91.6%, respectively (including leases which have been executed, but which have not yet commenced), and an occupancy rate of 89.7% and 90.6%, respectively.

Comparison of the Three and Nine Months Ended September 30, 2020 and 2019

As of September 30, 2020 and 2019, we owned and operated approximately 25.1 million and 23.7 million square feet of GLA, respectively, with a leased rate of 90.1% and 90.6%, respectively (including leases which have been executed, but which have not yet commenced), and an occupancy rate of 89.5% and 89.7%, respectively.

All explanations are applicable to both HTA and HTALP unless otherwise noted.

Comparison of the three months ended June 30, 2020 and 2019, respectively, is set forth below (in thousands):

Three Months Ended June 30,

Comparison of the three months ended September 30, 2020 and 2019, respectively, is set forth below (in thousands):

Three Months Ended September 30,

2020 2019 Change % Change

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Total expenses 167,071 162,562 4,509 2.8

Loss on extinguishment of debt, net (27,726) (21,646) (6,080) (28.1)

Income from unconsolidated joint venture 422 422 — —

Other income 97 41 56 NM

Net income $ 13,725 $ 16,598 $ (2,873) (17.3) %

Other income 117 205 (88) (42.9)

Net (loss) income $ (6,932) $ (8,577) $ 1,645 (19.2) %

NOI $ 130,078 $ 121,197 $ 8,881 7.3 %

Same-Property Cash NOI $ 116,180 $ 115,636 $ 544 0.5 %

Comparison of the six months ended June 30, 2020 and 2019, respectively, is set forth below (in thousands):

Six Months Ended June 30,

Comparison of the nine months ended September 30, 2020 and 2019, respectively, is set forth below (in thousands):

Nine Months Ended September 30,

2020 2019 Change % Change

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Gain (loss) on sale of real estate, net 1,991 (37) 2,028 NM

Loss on extinguishment of debt, net (27,726) (21,646) (6,080) (28.1)

Income from unconsolidated joint venture 1,223 1,456 (233) (16.0)

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Rental Income

For the three and six months ended June 30, 2020 and 2019, respectively, rental income was comprised of the following (in thousands):

Three Months Ended June 30,

For the three and nine months ended September 30, 2020 and 2019, respectively, rental income was comprised of the following (in thousands):

Three Months Ended September 30,

2020 2019 Change % Change

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Total rental income $ 187,258 $ 174,844 $ 12,414 7.1 %

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 Change % Change

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Total rental income $ 551,459 $ 515,328 $ 36,131 7.0 %

Contractual rental income, which includes expense reimbursements, increased $4.6 million and $19.7 million for the three and six months ended June 30, 2020, compared to the three and six months ended June 30, 2019, respectively.

The increases were primarily due to additional contractual rental income of $11.5 million and $23.2 million from our 2019 and 2020 acquisitions, and contractual rent increases for the three and six months ended June 30, 2020, respectively, partially offset by an incremental $951 thousand of bad debt recognized as a reduction of revenue in our results for the three and six months ended June 30, 2020 for tenants that are either in occupancy but are not timely in making contractual rental payments, or for tenants who have ceased occupancy due to a tenant default and have vacated, and $(0.2) million and $(0.4) million of reduced contractual rent as a result of buildings we sold during 2019 for the three and six months ended June 30, 2020, respectively.

In addition, we recorded a non-recurring charge of $4.7 million of bad debt as a reduction in revenue related to three (3) former tenants currently in litigation and for which we evaluated collectability on an individual basis to determine whether collections continued to be deemed probable.

Contractual rental income, which includes expense reimbursements, increased $10.4 million and $30.0 million for the three and nine months ended September 30, 2020, compared to the three and nine months ended September 30, 2019, respectively.

The increases were primarily due to additional contractual rental income of $9.9 million and $33.1 million from our 2019 and 2020 acquisitions, and contractual rent increases for the three and nine months ended September 30, 2020, respectively.

In addition, for the nine months ended September 30, 2020, we recorded a non-recurring charge of $4.7 million of bad debt as a reduction in revenue related to three (3) former tenants currently in litigation and for which we evaluated collectability on an individual basis to determine whether collections continued to be deemed probable.

While we fully intend to continue to pursue such collection efforts on amounts owed to us, we recorded this charge due to the recent prevailing economic conditions and resulting uncertainty of the timing and collections of such amounts previously supported by litigation affirmed in our favor and/or the defendant's former credit, which we now believe have recently eroded.

Due to the non-routine nature and anticipated non-recurrence of this charge, we have normalized this amount from both Cash NOI and Normalized FFO results as presented in the section entitled "Non-GAAP Financial Measures" below and elsewhere in this document.

This can be contrasted with periodic, recurring bad debt that is recorded for tenants either still in occupancy or those having vacated as a result of a tenant default, for which we also ordinarily record a reduction to revenues to account for uncollectible accounts receivable, as represented by the $951 thousand incremental bad debt charge described in the preceding paragraph which was not subject to a normalizing adjustment in our Non-GAAP Financial Measures.

This can be contrasted with periodic, recurring bad debt that is recorded for tenants either still in occupancy or those having vacated as a result of a tenant default, for which we also ordinarily record a reduction to revenues to account for uncollectible accounts receivable which are not subject to a normalizing adjustment in our Non-GAAP Financial Measures.

We believe this latter amount carries similar characteristics of those charges in our results of operations that have a propensity of recurrence as an ongoing reduction of revenue either in the form of uncollectible accounts or as reduced occupancy due to tenant defaults and corresponding vacancy.

Average starting and expiring base rents for new and renewal leases consisted of the following for the three and six months ended June 30, 2020 and 2019, respectively (in thousands, except in average base rents per square foot of GLA):

Three Months Ended June 30, Six Months Ended June 30,

Average starting and expiring base rents for new and renewal leases consisted of the following for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands, except in average base rents per square foot of GLA):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Leases that expired in 2020 had rents that we believed were at market rates.

In general, leasing concessions vary depending on lease type and term.

Tenant improvements, leasing commissions and tenant concessions for new and renewal leases consisted of the following for the three and six months ended June 30, 2020 and 2019, respectively (in per square foot of GLA):

Three Months Ended June 30, Six Months Ended June 30,

In general, leasing concessions vary depending on lease type, term and geography.

Tenant improvements, leasing commissions and tenant concessions for new and renewal leases consisted of the following for the three and nine months ended September 30, 2020 and 2019, respectively (in per square foot of GLA):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Tenant concessions 0.94 0.39 1.99 3.79

The average term for new and renewal leases executed consisted of the following for the three and six months ended June 30, 2020 and 2019, respectively (in years):

Three Months Ended June 30, Six Months Ended June 30,

The average term for new and renewal leases executed consisted of the following for the three and nine months ended September 30, 2020 and 2019, respectively (in years):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Rental Expenses

For the three months ended June 30, 2020 and 2019, rental expenses attributable to our properties were $56.2 million and $52.9 million, respectively.

For the six months ended June 30, 2020 and 2019, rental expenses attributable to our properties were $113.1 million and $104.4 million, respectively.

These increases in rental expenses were primarily due to $4.5 million and $8.8 million of additional rental expenses associated with our 2019 and 2020 acquisitions for the three and six months ended June 30, 2020, respectively, partially offset by $0.0 million and $(0.1) million of reduced rental expenses as a result of buildings we sold during 2019, and improved operating efficiencies for the three and six months ended June 30, 2020, respectively.

Furthermore, we recorded an incremental $0.3 million related to hazard pay and increased personal protective equipment costs directly related to COVID-19 for the three and six months ended June 30, 2020.

For the three months ended September 30, 2020 and 2019, rental expenses attributable to our properties were $57.2 million and $53.8 million, respectively.

For the nine months ended September 30, 2020 and 2019, rental expenses attributable to our properties were $170.3 million and $158.2 million, respectively.

These increases in rental expenses were primarily due to $3.5 million and $12.3 million of additional rental expenses associated with our 2019 and 2020 acquisitions for the three and nine months ended September 30, 2020, respectively.

Furthermore, we recorded an incremental $0.3 million related to hazard pay and increased personal protective equipment costs directly related to COVID-19 for the nine months ended September 30, 2020.

Due to the incremental nature related to COVID-19, this amount was normalized out of both NOI and Normalized FFO results as presented below.

There was not a substantive amount of incremental costs directly related to COVID-19 for the three months ended September 30, 2020.

General and Administrative Expenses

For the three months ended June 30, 2020 and 2019, general and administrative expenses were $10.2 million and $10.1 million, respectively.

For the six months ended June 30, 2020 and 2019, general and administrative expenses were $21.7 million and $21.4 million, respectively.

For the three months ended September 30, 2020 and 2019, general and administrative expenses were $10.7 million and $9.8 million, respectively.

For the nine months ended September 30, 2020 and 2019, general and administrative expenses were $32.3 million and $31.2 million, respectively.

These increases were primarily due to an increase in the overall head count due to the continued growth of the Company and stock based compensation expense.

Depreciation and Amortization Expense

For the three months ended June 30, 2020 and 2019, depreciation and amortization expense was $74.9 million and $68.4 million, respectively.

For the six months ended June 30, 2020 and 2019, depreciation and amortization expense was $152.6 million and $137.9 million, respectively.

This increase was associated with our 2019 and 2020 acquisitions, partially offset by buildings we disposed during 2019.

For the three months ended September 30, 2020 and 2019, depreciation and amortization expense was $75.9 million and $73.8 million, respectively.

For the nine months ended September 30, 2020 and 2019, depreciation and amortization expense was $228.5 million and $211.7 million, respectively.

This increase was associated with our 2019 and 2020 acquisitions, partially offset by buildings we disposed of during 2019.

Interest Expense

For the three months ended June 30, 2020 and 2019, interest expense was $24.3 million and $24.0 million, respectively.

For the six months ended June 30, 2020 and 2019, interest expense was $48.1 million and $48.0 million, respectively.

The increases in interest expense is primarily due to a higher overall average debt compared to the same period in 2019, partially offset by lower average interest rates on our variable rate debt.

For the three months ended September 30, 2020 and 2019, interest expense was $23.1 million and $24.6 million, respectively.

For the nine months ended September 30, 2020 and 2019, interest expense was $71.3 million and $72.6 million, respectively.

The decrease in interest expense is primarily due to lower average interest rates on our variable rate debt as compared to the same period in 2019.

To achieve our objectives, we borrow at both fixed and variable rates.

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Gain (Loss) on Sale of Real Estate, net

For the six months ended June 30, 2020, we realized a net gain of approximately $2.0 million on the sale of part of our interest in undeveloped land in Miami, Florida.

For the six months ended June 30, 2019, we realized a net loss of $37 thousand on the disposition of three MOB's in Hilton Head, South Carolina.

For the three months ended June 30, 2020 and 2019, net income was $13.7 million and $16.6 million, respectively.

the six months ended June 30, 2020 and 2019, net income was $31.9 million and $30.3 million, respectively.

For the nine months ended September 30, 2020, we realized a net gain of approximately $2.0 million on the sale of part of our interest in undeveloped land in Miami, Florida.

For the nine months ended September 30, 2019, we realized a net loss of $37 thousand on the disposition of three MOB's in Hilton Head, South Carolina.

For the three months ended September 30, 2020 and 2019, net income was $(6.9) million and $(8.6) million, respectively.

For the nine months ended September 30, 2020 and 2019, net income was $25.0 million and $21.7 million, respectively.

The increase is primarily the result of continued growth in our operations due to accretive acquisitions and improved operating efficiencies.

NOI and Same-Property Cash NOI

For the three months ended June 30, 2020 and 2019, NOI was $122.6 million and $118.8 million, respectively.

For the six months ended June 30, 2020 and 2019, NOI was $251.6 million and $236.3 million, respectively.

The increase in NOI was primarily due to additional NOI from our 2019 and 2020 acquisitions of $8.1 million and $16.5 million for the three and six months ended June 30, 2020, respectively, partially offset by $(0.1) million and $(0.3) million of reduced NOI as a result of the buildings we sold during 2019 for the three and six months ended June 30, 2020, respectively, and a reduction in straight-line rent from properties we owned for more than a year.

Same-Property Cash NOI increased 0.6% to $115.0 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019.

Same-Property Cash NOI increased 1.6% to $230.1 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

The increases were primarily the result of rent escalations, improved operating efficiencies, offset by a slight decrease in average occupancy, and the $1.2 million of incremental free rent provided related to early renewals of leases and bad debt charges of $951 thousand as described in "Results of Operations - Rental Income" above.

For the three months ended September 30, 2020 and 2019, NOI was $130.1 million and $121.2 million, respectively.

For the nine months ended September 30, 2020 and 2019, NOI was $381.6 million and $357.5 million, respectively.

The increase in NOI was primarily due to additional NOI from our 2019 and 2020 acquisitions of $7.1 million and $23.6 million for the three and nine months ended September 30, 2020, respectively, partially offset by $0.1 million and $0.4 million of reduced NOI as a result of the buildings we sold during 2019 for the three and nine months ended September 30, 2020, respectively, and a reduction in straight-line rent from properties we owned for more than a year.

Same-Property Cash NOI increased 0.5% to $116.2 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

Same-Property Cash NOI increased 1.3% to $345.3 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

The increases were primarily the result of rent escalations, improved operating efficiencies, offset by a slight decrease in average occupancy, and the $2.4 million and $3.6 million of incremental free rent provided related to early renewals of leases for the three months and nine months ended September 30, 2020, respectively.

Non-GAAP Financial Measures

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In addition, the amounts included in the calculation of FFO and Normalized FFO are generally the same for HTALP and HTA, except for net income or loss attributable to common stockholders/unitholders, noncontrolling income or loss from OP Units included in diluted shares (only applicable to the Company) and the weighted average shares of our common stock or HTALP OP Units outstanding.

The following is the reconciliation of HTA’s FFO and Normalized FFO to net income attributable to common stockholders for the three and six months ended June 30, 2020 and 2019, respectively (in thousands, except per share data):

Three Months Ended June 30, Six Months Ended June 30,

The following is the reconciliation of HTA’s FFO and Normalized FFO to net income attributable to common stockholders for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands, except per share data):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net income attributable to common stockholders $ 13,489 $ 16,259 $ 31,390 $ 29,699

Net (loss) income attributable to common stockholders $ (6,827) $ (8,463) $ 24,563 $ 21,236

Depreciation and amortization expense related to investments in real estate

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Transaction expenses 125 522 297 858

Noncontrolling income from OP Units included in diluted shares

236 301 543 534

Loss on extinguishment of debt, net 27,726 21,646 27,726 21,646

Noncontrolling (loss) income from OP Units included in diluted shares (105) (114) 438 420

Other normalizing adjustments (1)

4,959 — 5,031 —

Normalized FFO attributable to common stockholders $ 96,235 $ 87,101 $ 282,861 $ 255,401

Net income attributable to common stockholders per diluted share

$ 0.06 $ 0.08 $ 0.14 $ 0.14

Net (loss) income attributable to common stockholders per diluted share $ (0.03) $ (0.04) $ 0.11 $ 0.10

FFO adjustments per diluted share, net

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(1) Other normalizing adjustments includes the following:

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Non-recurring bad debt $ 4,672 $ — $ 4,672 $ —

Incremental hazard pay to facilities employees 242 — 314 —

Incremental personal protective equipment 45 — 45 —

Total normalizing adjustments $ 4,959 $ — $ 5,031 $ —

The following is the reconciliation of HTALP’s FFO and Normalized FFO to net income attributable to common unitholders for the three and six months ended June 30, 2020 and 2019, respectively (in thousands, except per unit data):

Three Months Ended June 30, Six Months Ended June 30,

Non-recurring bad debt of $4,672 thousand, incremental hazard pay to facilities employees of $314 thousand, and incremental personal protective equipment of $45 thousand for the nine months ended September 30, 2020.

There were no other normalizing adjustments for the three months ended September 30, 2020.

The following is the reconciliation of HTALP’s FFO and Normalized FFO to net income attributable to common unitholders for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands, except per unit data):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net income attributable to common unitholders $ 13,725 $ 16,560 $ 31,933 $ 30,233

Net (loss) income attributable to common unitholders $ (6,932) $ (8,577) $ 25,001 $ 21,656

Depreciation and amortization expense related to investments in real estate

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Transaction expenses 125 522 297 858

Loss on extinguishment of debt, net 27,726 21,646 27,726 21,646

Other normalizing adjustments (1)

4,959 — 5,031 —

Normalized FFO attributable to common unitholders $ 96,235 $ 87,101 $ 282,861 $ 255,401

Net income attributable to common unitholders per diluted share

$ 0.06 $ 0.08 $ 0.14 $ 0.14

FFO adjustments per diluted unit, net

0.34 0.33 0.68 0.66

FFO attributable to common unitholders per diluted unit

$ 0.40 $ 0.41 $ 0.82 $ 0.80

Normalized FFO adjustments per diluted unit, net

0.02 0.00 0.02 0.01

Normalized FFO attributable to common unitholders per diluted unit

$ 0.42 $ 0.41 $ 0.84 $ 0.81

Weighted average diluted common units outstanding

222,088 209,005 221,228 209,002

Net (loss) income attributable to common unitholders per diluted share $ (0.03) $ (0.04) $ 0.11 $ 0.10

FFO adjustments per diluted OP Unit, net 0.34 0.35 1.02 1.01

FFO attributable to common unitholders per diluted OP Unit $ 0.31 $ 0.31 $ 1.13 $ 1.11

Normalized FFO adjustments per diluted OP Unit, net 0.12 0.11 0.15 0.11

Normalized FFO attributable to common unitholders per diluted OP Unit $ 0.43 $ 0.42 $ 1.28 $ 1.22

Weighted average diluted common OP Units outstanding 222,101 209,164 221,521 209,056

(1) Other normalizing adjustments includes the following:

non-recurring bad debt of $4,672 thousand, incremental hazard pay to facilities employees of $242 thousand, and incremental personal protective equipment of $45 thousand for the three months ended June 30, 2020 and non-recurring bad debt of $4,672 thousand, incremental hazard pay to facilities employees of $314 thousand, and incremental personal protective equipment of $45 thousand for the six months ended June 30, 2020.

There were no other normalizing adjustments for the three months ended September 30, 2020.

NOI, Cash NOI and Same-Property Cash NOI

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Same-Property Cash NOI should be reviewed in connection with other GAAP measurements.

The following is the reconciliation of HTA’s and HTALP’s NOI, Cash NOI and Same-Property Cash NOI to net income for the three and six months ended June 30, 2020 and 2019, respectively (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

The following is the reconciliation of HTA’s and HTALP’s NOI, Cash NOI and Same-Property Cash NOI to net income for the three and nine months ended September 30, 2020 and 2019, respectively (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net income $ 13,725 $ 16,598 $ 31,933 $ 30,299

Net (loss) income $ (6,932) $ (8,577) $ 25,001 $ 21,722

General and administrative expenses 10,670 9,788 32,348 31,157

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— — (1,991) 37

Loss on extinguishment of debt, net

27,726 21,646 27,726 21,646

Income from unconsolidated joint venture (422) (422) (1,223) (1,456)

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Other normalizing adjustments (2)

4,959 — 5,031 —

Cash NOI $ 124,243 $ 117,245 $ 371,640 $ 347,306

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(2) Other normalizing adjustments includes the following:

(3) Same-Property includes 413 and 412 buildings for the three and six months ended June 30, 2020 and 2019, respectively.

There were no other normalizing adjustments for the three months ended September 30, 2020.

(3) Same-Property includes 417 and 412 buildings for the three and nine months ended September 30, 2020 and 2019, respectively.

Liquidity and Capital Resources

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In addition, due to the recent volatility in capital markets, our access to such capital may be temporarily delayed, and/or we may not be able to raise debt or equity financing on terms that are favorable to us.

As of June 30, 2020, we had total liquidity of $1.1 billion, inclusive of $0.7 billion available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, and cash and cash equivalents of $75.2 million.

As of September 30, 2020, we had total liquidity of $1.5 billion, inclusive of $1.0 billion available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, and cash and cash equivalents of $227.1 million.

We believe that we have sufficient liquidity and options at our disposal to sustain operations for the foreseeable future.

As the COVID-19 pandemic continues to unfold, we will assess cash flow requirements and deploy various strategies to preserve liquidity, including, but not limited to, continued utilization of our credit facility, settlement of equity raised on a forward basis, or if circumstances warrant, changes to the manner in which our dividends are paid and/or corresponding amounts distributed.

As of June 30, 2020, we had unencumbered assets with a gross book value of $7.6 billion.

As of September 30, 2020, we had unencumbered assets with a gross book value of $7.7 billion.

The unencumbered properties may be used as collateral to secure additional financings in future periods or refinance our current debt as it becomes due.

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Currently these expenditures are estimated at approximately $10 million to $20 million per quarter, but may fluctuate materially depending on the ongoing impacts from COVID-19.

Although we cannot provide assurance that we will not exceed these estimated expenditure levels, we believe our liquidity of $1.1 billion allows us the flexibility to fund such capital expenditures.

Although we cannot provide assurance that we will not exceed these estimated expenditure levels, we believe our liquidity of $1.5 billion allows us the flexibility to fund such capital expenditures as may be necessary or advisable.

If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, or increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewal leases, the effect would be a reduction of net cash provided by operating activities.

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Any changes in these assumptions could impact our financial results and our ability to fund working capital and unanticipated cash needs.

The following is a summary of our cash flows for the six months ended June 30, 2020 and 2019, respectively (in thousands):

Six Months Ended June 30,

The following is a summary of our cash flows for the nine months ended September 30, 2020 and 2019, respectively (in thousands):

Nine Months Ended September 30,

2020 2019 Change

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Net cash used in investing activities (159,919) (295,210) 135,291

Net cash used in financing activities (25,111) (118,436) 93,325

Net cash provided by (used in) financing activities 83,881 (58,886) 142,767

Cash, cash equivalents and restricted cash - end of period $ 231,246 $ 17,816 $ 213,430

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We anticipate cash flows from operating activities to increase as a result of the growth in our portfolio through new acquisitions and continued leasing activity in our existing portfolio.

For the six months ended June 30, 2020, net cash used in investing activities primarily related to capital expenditures of $43.9 million, investments in real estate of $41.3 million, development of real estate of $30.4 million, funding of a real estate loan of $6.0 million, partially offset by proceeds from the sale of real estate of $6.4 million.

For the six months ended June 30, 2019, net cash used in investing activities primarily related to investments in real estate of $93.9 million and capital expenditures of $37.8 million.

For the six months ended June 30, 2020, net cash used in financing activities primarily related to dividends paid to holders of our common stock of $137.1 million, and payments on our secured mortgage loans of $96.2 million, partially offset by net borrowings on our unsecured revolving credit facility of $164.0 million, and proceeds from issuance of common stock of $50.0 million.

For the six months ended June 30, 2019, net cash used in financing activities primarily related to dividends paid to holders of our common stock of $127.4 million, payments on our secured mortgage loans of $96.2 million, and the repurchase and cancellation of common stock of $12.1 million, which was partially offset by net borrowings on our unsecured revolving credit facility of $120.0 million.

For the nine months ended September 30, 2020, net cash used in investing activities primarily related to capital expenditures of $59.0 million, investments in real estate of $52.6 million, development of real estate of $49.5 million, funding of a real estate loan of $6.0 million, partially offset by proceeds from the sale of real estate of $6.4 million.

For the nine months ended September 30, 2019, net cash used in investing activities primarily related to investments in real estate of $223.2 million and capital expenditures of $59.5 million.

For the nine months ended September 30, 2020, net cash provided by financing activities primarily related to proceeds from unsecured senior notes of $793.6 million and proceeds from issuance of common stock of $50.0 million, partially offset by payments on unsecured senior notes of $300.0 million, dividends paid to holders of our common stock of $205.9 million, payments on our secured mortgage loans of $114.1 million, and net payments on our unsecured revolving credit facility of $100.0 million.

For the nine months ended September 30, 2019, net cash used in financing activities primarily related to payments on our unsecured senior notes of $700.0 million, dividends paid to holders of our common stock of $190.9 million, payments on our secured mortgage loans of $96.8 million, and the repurchase and cancellation of common stock of $12.2 million, which was partially offset by proceeds from the issuance of unsecured senior notes of $906.9 million, proceeds from issuance of common stock of $51.8 million and net borrowings on our unsecured revolving credit facility of $15.0 million.

The amount of dividends we pay to our stockholders is determined by our Board of Directors, in their sole discretion, and is dependent on a number of factors, including funds available, our financial condition, capital expenditure requirements and annual dividend distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended.

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However, our Board of Directors may reduce our dividend rate and we cannot guarantee the timing and amount of dividends that we may pay in the future, if any.

For the six months ended June 30, 2020, we paid cash dividends of $137.1 million on our common stock.

In July 2020 for the quarter ended June 30, 2020, we paid cash dividends on our common stock of $68.8 million.

For the nine months ended September 30, 2020, we paid cash dividends of $205.9 million on our common stock.

In October 2020 for the quarter ended September 30, 2020, we paid cash dividends on our common stock of $69.9 million.

We have historically maintained a low leveraged balance sheet and intend to continue to maintain this structure in the long term.

However, our total leverage may fluctuate on a short-term basis as we execute our business strategy.

As of June 30, 2020, our leverage ratio, measured by debt less cash and cash equivalents to total capitalization, was 31.8%.

As of June 30, 2020, we had debt outstanding of $2.8 billion and the weighted average interest rate therein was 3.07% per annum, inclusive of the impact of our cash flow hedges.

As of September 30, 2020, our leverage ratio, measured by debt less cash and cash equivalents to total capitalization, was 32.6%.

As of September 30, 2020, we had debt outstanding of $3.0 billion and the weighted average interest rate therein was 2.89% per annum, inclusive of the impact of our cash flow hedges.

The following is a summary of our unsecured and secured debt.

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Unsecured Revolving Credit Facility

As of June 30, 2020, $736.0 million was available on our $1.0 billion unsecured revolving credit facility.

As of September 30, 2020, the full $1.0 billion was available on our $1.0 billion unsecured revolving credit facility.

Our unsecured revolving credit facility matures in June 2022.

Unsecured Term Loans

As of June 30, 2020, we had $500.0 million of unsecured term loans outstanding, comprised of $300.0 million under our Unsecured Credit Agreement maturing in 2023, and $200.0 million under our unsecured term loan maturing in 2024.

As of September 30, 2020, we had $500.0 million of unsecured term loans outstanding, comprised of $300.0 million under our Unsecured Credit Agreement maturing in 2023, and $200.0 million under our unsecured term loan maturing in 2024.

Unsecured Senior Notes

As of June 30, 2020, we had $2.05 billion of unsecured senior notes outstanding, comprised of $300.0 million of senior notes maturing in 2023, $600.0 million of senior notes maturing in 2026, $500.0 million of senior notes maturing in 2027, and $650.0 million of senior notes maturing in 2030.

As of September 30, 2020, we had $2.55 billion of unsecured senior notes outstanding, comprised of $600.0 million of senior notes maturing in 2026, $500.0 million of senior notes maturing in 2027, $650.0 million of senior notes maturing in 2030 and $800.0 million of senior notes maturing in 2031.

Fixed Rate Mortgages

During the six months ended June 30, 2020, we made payments on our fixed rate mortgages of $96.2 million and have $1.2 million of principal payments due during the remainder of 2020.

During the nine months ended September 30, 2020, we made payments on our fixed rate mortgages of $114.1 million and as of September 30, 2020, we had no fixed rate mortgages outstanding.

Commitments and Contingencies

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We are required by the terms of our applicable loan agreements to meet certain financial covenants, such as minimum net worth and liquidity, and reporting requirements, among others.

As of June 30, 2020, we believe that we were in compliance with all such covenants and we are not aware of any covenants that it is reasonably likely that we would not be able to meet in accordance with our loan agreements.

As of September 30, 2020, we believe that we were in compliance with all such covenants and we are not aware of any covenants that it is reasonably likely that we would not be able to meet in accordance with our loan agreements.

Off-Balance Sheet Arrangements

As of and during the six months ended June 30, 2020, we had no material off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

As of and during the nine months ended September 30, 2020, we had no material off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We are exposed to inflation risk as income from future long-term leases is the primary source of our cash flows from operations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis