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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-07 · 192 added, 90 removed, 292 unchanged (49% 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 32 states, with no state having more than 20% of our total GLA as of March 31, 2021.

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 March 31, 2021, 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, Boston, Houston, Miami and Indianapolis being our largest markets by annualized base rent.

Our portfolio is diversified geographically across 32 states, with no state having more than 20% of our total GLA as of June 30, 2021.

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

As of June 30, 2021, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 95% of our portfolio, based on GLA, is located in the top 75 Metropolitan Statistical Area ("MSAs"), with Dallas, Boston, Houston, Miami and Indianapolis being our largest markets by annualized base rent.

Company Highlights

Portfolio Operating Performance

• For the three months ended March 31, 2021, our total revenue was $191.5 million, compared to $185.8 million for the three months ended March 31, 2020.

• For the three months ended March 31, 2021, our net income was $22.4 million, compared to $18.2 million, for the three months ended March 31, 2020.

• For the three months ended March 31, 2021, our net income attributable to common stockholders was $0.10 per diluted share, or $22.0 million, compared to $0.08 per diluted share, or $17.9 million for the three months ended March 31, 2020.

• For the three months ended March 31, 2021, HTA’s FFO, as defined by NAREIT, was $97.8 million, or $0.44 per diluted share, compared to $0.42 per diluted share, or $93.1 million, for the three months ended March 31, 2020.

• For the three months ended March 31, 2021, HTALP’s FFO was $98.2 million, or $0.44 per diluted OP Unit, compared to $0.42 per diluted OP unit, or $93.4 million, for the three months ended March 31, 2020.

• For the three months ended March 31, 2021, HTA’s and HTALP’s Normalized FFO was $0.44 per diluted share and OP Unit, or $98.3 million, compared to $0.42 per diluted share and OP Unit, or $93.6 million for the three months ended March 31, 2020.

• For the three months ended June 30, 2021, our total revenue was $188.6 million, compared to $178.8 million for the three months ended June 30, 2020.

For the six months ended June 30, 2021, our total revenue was $380.1 million, compared to $364.6 million for the six months ended June 30, 2020.

• For the three months ended June 30, 2021, our net income was $38.7 million, compared to $13.7 million, for the three months ended June 30, 2020.

For the six months ended June 30, 2021, our net income was $61.1 million, compared to $31.9 million for the six months ended June 30, 2020.

• For the three months ended June 30, 2021, our net income attributable to common stockholders was $0.17 per diluted share, or $38.0 million, compared to $0.06 per diluted share, or $13.5 million, for the three months ended June 30, 2020.

For the six months ended June 30, 2021, our net income attributable to common stockholders was $0.27 per diluted share, or $60.0 million, compared to $0.14 per diluted share, or $31.4 million, for the six months ended June 30, 2020.

• For the three months ended June 30, 2021, HTA’s FFO, as defined by NAREIT, was $96.8 million, or $0.44 per diluted share, compared to $0.40 per diluted share, or $87.8 million, for the three months ended June 30, 2020.

For the six months ended June 30, 2021, HTA’s FFO was $194.6 million, or $0.88 per diluted share, compared to $0.82 per diluted share, or $180.9 million, for the six months ended June 30, 2020.

• For the three months ended June 30, 2021, HTALP’s FFO was $97.5 million, or $0.44 per diluted OP Unit, compared to $0.40 per diluted OP Unit, or $88.0 million, for the three months ended June 30, 2020.

For the six months ended June 30, 2021, HTALP’s FFO was $195.7 million, or $0.88 per diluted OP Unit, compared to $0.82 per diluted OP Unit, or $181.4 million, for the six months ended June 30, 2020.

• For the three months ended June 30, 2021, HTA’s and HTALP’s Normalized FFO was $0.44 per diluted share and OP Unit, or $97.6 million, compared to $0.42 per diluted share and OP Unit, or $93.0 million for the three months ended June 30, 2020.

For the six months ended June 30, 2021, HTA’s and HTALP’s Normalized FFO was $0.88 per diluted share and OP Unit, or $195.9 million, compared to $0.84 per diluted share and OP Unit, or $186.6 million for the six months ended June 30, 2020.

• 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 March 31, 2021, our NOI was $131.9 million, compared to $128.9 million for the three months ended March 31, 2020.

• For the three months ended March 31, 2021, our Same-Property Cash NOI increased 1.6%, or $1.9 million, to $123.0 million, compared to $121.1 million for the three months ended March 31, 2020.

• For the three months ended June 30, 2021, our NOI was $131.2 million, compared to $122.6 million for the three months ended June 30, 2020.

For the six months ended June 30, 2021, our NOI was $263.1 million, compared to $251.6 million for the six months ended June 30, 2020.

• For the three months ended June 30, 2021, our Same-Property Cash NOI increased 2.1%, or $2.5 million, to $122.5 million, compared to $120.1 million for the three months ended June 30, 2020.

For the six months ended June 30, 2021, our Same-Property Cash NOI increased 2.0%, or $4.7 million, to $244.4 million, compared to $239.7 million for the six months ended June 30, 2020.

• 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

We believe we have been one of the most active investors in the medical office sector over the last decade.

Over the last decade, we have been an active investor in the medical office sector.

This has enabled us to create a high quality portfolio focused on MOBs serving the future of healthcare with scale and significance in 20 to 25 key markets.

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markets from an economic and demographic perspective.

As of March 31, 2021, approximately 93% of our portfolio’s GLA is located in the top 75 MSAs.

As of June 30, 2021, approximately 95% 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 March 31, 2021, 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 three months ended March 31, 2021, we closed on $32.5 million worth of investments, primarily located in our existing key markets, totaling approximately 117,000 square feet of GLA.

As of June 30, 2021, 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, 2021, we closed on $52.5 million worth of medical office investments totaling approximately 157,000 square feet of GLA.

In addition, we funded $48.5 million of investments in real estate notes receivable.

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.

We believe we have one of the largest full-service operating platforms 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 for us.

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 March 31, 2021, our in-house asset management and leasing platform operated approximately 24.7 million square feet of GLA, or 97% of our total portfolio.

• As of March 31, 2021, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 89.2% by GLA and our occupancy rate was 87.9% by GLA.

• We entered into new and renewal leases on approximately 0.7 million square feet of GLA, or approximately 2.8% of the GLA of our total portfolio, during the three months ended March 31, 2021.

• During the three months ended March 31, 2021, tenant retention for the Same-Property portfolio was 66%.

• As of June 30, 2021, our in-house asset management and leasing platform operated approximately 24.5 million square feet of GLA, or 97% of our total portfolio.

• As of June 30, 2021, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 89.3% by GLA and our occupancy rate was 87.9% by GLA.

• We entered into new and renewal leases on approximately 0.6 million and 1.4 million square feet of GLA, or approximately 2.6% and 5.3% of the GLA of our total portfolio, during the three and six months ended June 30, 2021, respectively.

• During the three and six months ended June 30, 2021, tenant retention for the Same-Property portfolio was 80% and 73%, respectively.

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 March 31, 2021, we had total leverage, measured by debt less cash and cash equivalents to total capitalization, of 32.8%.

Total liquidity was approximately $1.3 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 $30.0 million as of March 31, 2021.

• As of March 31, 2021, the weighted average remaining term of our debt portfolio was 6.9 years.

• As of June 30, 2021, we had total leverage, measured by debt less cash and cash equivalents to total capitalization, of 33.5%.

Total liquidity was approximately $1.3 billion, inclusive of $955.0 million available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, $65.0 million of restricted cash for funds held in a 1031 exchange account , and cash and cash equivalents of $19.8 million as of June 30, 2021.

• As of June 30, 2021, the weighted average remaining term of our debt portfolio was 6.6 years.

Critical Accounting Policies

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We evaluated each such request on a case by case basis.

In 2020, which is the period that we believe constituted the majority of our COVID-related deferral requests, we approved deferral plans totaling approximately $11.1 million, of which approximately $9.2 million of these deferrals have been repaid through March 31, 2021.

In 2020, which is the period that we believe constituted the majority of our COVID-related deferral requests, we approved deferral plans totaling approximately $11.1 million, of which approximately $10.2 million of these deferrals have been repaid through June 30, 2021.

There are no substantial outstanding requests for assistance from tenants.

Payments of rent deferrals are generally expected to be repaid within the next 3 to 6 months.

As of March 31, 2021, 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.

As of June 30, 2021, 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.

In addition, in 2020 we entered into certain lease modifications in the form of early renewals where we provide concessions in the form of free rent, which averaged three months at the inception of the lease, in exchange for additional term, which, averaged approximately three years.

During the three months ended March 31, 2021, we have not entered into any material deferral arrangements or early renewal leases with substantive amounts of free rent or other forms of concession at the onset of the lease as a result of COVID-19.

Although we did not experience significant disruptions from the COVID-19 pandemic during the three months ended March 31, 2021, should current and planned measures, including further development and delivery of vaccines and other measures intended to reduce or eliminate the spread of COVID-19, past and/or proposed economic stimulus, and other laws, acts and orders proposed or enacted by federal, state and local agencies or foreign governments, ultimately not be successful or limited in their efficacy, our business and the broader real estate industry may experience significant adverse consequences.

During the six months ended June 30, 2021, we have not entered into any material deferral arrangements or early renewal leases with substantive amounts of free rent or other forms of concession at the onset of the lease as a result of COVID-19.

Although we did not experience significant disruptions from the COVID-19 pandemic during the six months ended June 30, 2021, should current and planned measures, including further development and delivery of vaccines and other measures intended to reduce or eliminate the spread of COVID-19, past and/or proposed economic stimulus, and other laws, acts and orders proposed or enacted by federal, state and local agencies or foreign governments, ultimately not be successful or limited in their efficacy, our business and the broader real estate industry may experience significant adverse consequences.

These consequences include loss of revenues, increased expenses, increased costs of materials, difficulty in maintaining an active workforce, and constraints on our ability to secure capital or financing, among other factors.

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Investment Activity

During the three months ended March 31, 2021, we had investments with an aggregate gross purchase price of $32.9 million.

During the three months ended March 31, 2020, we had investments with an aggregate gross purchase price of $41.7 million.

During the six months ended June 30, 2021, we had investments with an aggregate gross purchase price of $53.0 million.

During the six months ended June 30, 2020, we had investments with an aggregate gross purchase price of $41.7 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 Months Ended March 31, 2021 and 2020

As of March 31, 2021 and 2020, we owned and operated approximately 25.6 million and 24.9 million square feet of GLA, respectively, with a leased rate of 89.2% and 90.8%, respectively (including leases which have been executed, but which have not yet commenced), and an occupancy rate of 87.9% and 89.9%, respectively.

Comparison of the Three and Six Months Ended June 30, 2021 and 2020

As of June 30, 2021 and 2020, we owned and operated approximately 25.3 million and 24.9 million square feet of GLA, respectively, with a leased rate of 89.3% and 90.4%, respectively (including leases which have been executed, but which have not yet commenced), and an occupancy rate of 87.9% and 89.7%, respectively.

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

Comparison of the three months ended March 31, 2021 and 2020, respectively, is set forth below (in thousands):

Three Months Ended March 31,

Comparison of the three months ended June 30, 2021 and 2020, respectively, is set forth below (in thousands):

Three Months Ended June 30,

2021 2020 Change % Change

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Interest expense 23,133 24,277 (1,144) (4.7)

Impairment 16,825 — 16,825 NM

Total expenses 183,339 165,596 17,743 10.7

Gain on sale of real estate, net — 1,991 (1,991) (100.0)

Gain on sale of real estate, net 32,753 — 32,753 NM

Income from unconsolidated joint venture 406 379 27 7.1

Other income 304 97 207 NM

Net income $ 38,739 $ 13,725 $ 25,014 NM

NOI $ 131,206 $ 122,645 $ 8,561 7.0 %

Same-Property Cash NOI $ 122,529 $ 120,065 $ 2,464 2.1 %

Comparison of the six months ended June 30, 2021 and 2020, respectively, is set forth below (in thousands):

Six Months Ended June 30,

2021 2020 Change % Change

Rental income $ 379,844 $ 364,201 $ 15,643 4.3 %

Interest and other operating income 264 420 (156) (37.1)

Total revenues 380,108 364,621 15,487 4.2

Rental 116,988 113,062 3,926 3.5

General and administrative 21,489 21,678 (189) (0.9)

Transaction 162 172 (10) (5.8)

Depreciation and amortization 151,251 152,592 (1,341) (0.9)

Interest expense 46,119 48,149 (2,030) (4.2)

Impairment 16,825 — 16,825 NM

Total expenses 352,834 335,653 17,181 5.1

Gain on sale of real estate, net 32,753 1,991 30,762 NM

Income from unconsolidated joint venture 798 801 (3) (0.4)

Other income 307 173 134 77.5

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Same-Property Cash NOI $ 244,394 $ 239,685 $ 4,709 2.0 %

* NM- not meaningful.

Rental Income

For the three months ended March 31, 2021 and 2020, respectively, rental income was comprised of the following (in thousands):

Three Months Ended March 31,

For the three and six months ended June 30, 2021 and 2020, respectively, rental income was comprised of the following (in thousands):

Three Months Ended June 30,

2021 2020 Change % Change

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Total rental income $ 188,494 $ 178,670 $ 9,824 5.5 %

Contractual rental income, which includes expense reimbursements, increased $6.7 million for the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

The increase was primarily due to additional contractual rental income of $4.3 million from our 2020 and 2021 acquisitions, and contractual rent increases for the three months ended March 31, 2021.

Average starting and expiring base rents for new and renewal leases consisted of the following for the three months ended March 31, 2021 and 2020, respectively (in thousands, except in average base rents per square foot of GLA):

Three Months Ended March 31,

Six Months Ended June 30,

2021 2020 Change % Change

Contractual rental income $ 362,293 $ 344,467 $ 17,826 5.2 %

Straight-line rent and amortization of above and (below) market leases

10,374 12,112 (1,738) (14.3)

Other rental revenue 7,177 7,622 (445) (5.8)

Total rental income $ 379,844 $ 364,201 $ 15,643 4.3 %

Contractual rental income, which includes expense reimbursements, increased $11.2 million and $17.8 million for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 2020.

The increases were primarily due to additional contractual rental income of $4.8 million and $9.0 million from our 2020 and 2021 acquisitions, and contractual rent increases for the three and six months ended June 30, 2021, partially offset by $1.3 million and $1.7 million of reduced NOI as a result of the buildings we sold during 2020 and 2021 for the three and six months ended June 30, 2021, respectively.

In addition, during the three and six months ended June 30, 2020, we recorded a non-recurring charge of $4.7 million of bad debt as a reduction in revenue.

Average starting and expiring base rents for new and renewal leases consisted of the following for the three and six months ended June 30, 2021 and 2020, respectively (in thousands, except in average base rents per square foot of GLA):

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

2021 2020 2021 2020

New an d renewal leases:

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In general, leasing concessions vary depending on lease type, term, geography, and supply/demand dynamics.

Tenant improvements, leasing commissions and tenant concessions for new and renewal leases consisted of the following for the three months ended March 31, 2021 and 2020, respectively (in per square foot of GLA):

Three Months Ended March 31,

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, 2021 and 2020, respectively (in per square foot of GLA):

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

2021 2020 2021 2020

Tenant improvements $ 36.63 $ 60.95 $ 28.40 $ 45.64

Leasing commissions

4.31 4.33 3.91 3.21

Tenant concessions 7.00 2.71 6.85 4.20

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Leasing commissions

2.06 3.10 2.13 3.31

Tenant concessions 0.16 3.64 0.16 1.74

The average term for new and renewal leases executed consisted of the following for the three months ended March 31, 2021 and 2020, respectively (in years):

Three Months Ended March 31,

The average term for new and renewal leases executed consisted of the following for the three and six months ended June 30, 2021 and 2020, respectively (in years):

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

2021 2020 2021 2020

New leases 7.3 8.8 5.6 9.5

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Rental Expenses

For the three months ended March 31, 2021 and 2020, rental expenses attributable to our properties were $59.6 million and $56.9 million, respectively.

The increase in rental expenses was primarily due to $1.3 million of additional rental expenses associated with our 2020 and 2021 acquisitions for the three months ended March 31, 2021, with the remainder of the increase primarily due to increased expenses from weather-related events experienced during the quarter.

For the three months ended June 30, 2021 and 2020, rental expenses attributable to our properties were $57.4 million and $56.2 million, respectively.

For the six months ended June 30, 2021 and 2020, rental expenses attributable to our properties were $117.0 million and $113.1 million, respectively.

These increases in rental expenses were primarily due to $1.3 million and $2.7 million of additional rental expenses associated with our 2020 and 2021 acquisitions for the three and six months ended June 30, 2021, respectively.

General and Administrative Expenses

For the three months ended March 31, 2021 and 2020, general and administrative expenses were $10.6 million and $11.5 million, respectively.

The decrease was primarily due to a reduction in corporate overhead expenses.

For the three months ended June 30, 2021 and 2020, general and administrative expenses were $10.9 million and $10.2 million, respectively.

For the six months ended June 30, 2021 and 2020, general and administrative expenses were $21.5 million and $21.7 million, respectively.

The increase in general and administrative expenses for the three months ended June 30, 2021 was primarily a result of increased costs for general corporate matters.

For the six months ended June 30, 2021, general and administrative expenses were relatively consistent.

Depreciation and Amortization Expense

For the three months ended March 31, 2021 and 2020, depreciation and amortization expense was $76.3 million and $77.7 million, respectively.

This increase was associated with our 2020 and 2021 acquisitions, partially offset by buildings we disposed of during 2020.

For the three months ended June 30, 2021 and 2020, depreciation and amortization expense was $75.0 million and $74.9 million, respectively.

For the six months ended June 30, 2021 and 2020, depreciation and amortization expense was $151.3 million and $152.6 million, respectively.

These increases were associated with our 2020 and 2021 acquisitions, partially offset by buildings we disposed of during 2020 and 2021.

Interest Expense

For the three months ended March 31, 2021 and 2020, interest expense was $23.0 million and $23.9 million, respectively.

The decrease in interest expense is primarily due to lower average interest rates as compared to the same period in 2020.

For the three months ended June 30, 2021 and 2020, interest expense was $23.1 million and $24.3 million, respectively.

For the six months ended June 30, 2021 and 2020, interest expense was $46.1 million and $48.1 million, respectively.

The decreases in interest expense is primarily due to lower average interest rates as compared to the same period in 2020.

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

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We do not enter into derivative or interest rate transactions for speculative purposes.

For the six months ended June 30, 2021, we recorded impairment charges of $16.8 million on two properties related to:

(i) a purchase option included in a lease agreement that was exercised subsequent to June 30, 2021 for a contractual sale price less than its carrying value;

and (ii) a pending sales agreement executed subsequent to June 30, 2021 for a sale price less than its carrying value.

We recorded no impairment charges during the six months ended June 30, 2020.

Gain on Sale of Real Estate, net

We had no sales of real estate assets during the three months ended March 31, 2021.

For the three months ended March 31, 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 three months ended March 31, 2021 and 2020, net income was $22.4 million and $18.2 million, respectively.

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

For the six months ended June 30, 2021, we realized a net gain of approximately $32.8 million on the sale of a 13 property portfolio with locations in Tennessee and Virginia.

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 three months ended June 30, 2021 and 2020, net income was $38.7 million and $13.7 million, respectively.

For the six months ended June 30, 2021 and 2020, net income was $61.1 million and $31.9 million, respectively.

The increases are primarily the result of gains associated with disposition of assets in non-key markets, as well as continued growth in our operations due to accretive acquisitions and improved operating efficiencies.

NOI and Same-Property Cash NOI

For the three months ended March 31, 2021 and 2020, NOI was $131.9 million and $128.9 million, respectively.

The increase in NOI was primarily due to additional NOI from our 2020 and 2021 acquisitions of $3.2 million for the three months ended March 31, 2021, partially offset by $0.2 million of reduced NOI as a result of the buildings we sold during 2020 for the three months ended March 31, 2021, and a reduction in straight-line rent from properties we owned for more than a year.

Same-Property Cash NOI increased 1.6% to $123.0 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

The increases were primarily the result of rent escalations, improved operating efficiencies, and offset by a slight decrease in average occupancy.

For the three months ended June 30, 2021 and 2020, NOI was $131.2 million and $122.6 million, respectively.

For the six months ended June 30, 2021 and 2020, NOI was $263.1 million and $251.6 million, respectively.

The increases in NOI was primarily due to additional NOI from our 2020 and 2021 acquisitions of $4.1 million and $7.4 million for the three and six months ended June 30, 2021, respectively, partially offset by $0.7 million and $1.1 million of reduced NOI as a result of the buildings we sold during 2020 and 2021 for the three and six months ended June 30, 2021, respectively, and a reduction in straight-line rent from properties we owned for more than a year.

Same-Property Cash NOI increased 2.1% to $122.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Same-Property Cash NOI increased 2.0% to $244.4 million for the six months ended June 30, 2021 compared to six months ended June 30, 2020.

The increases were primarily the result of rent escalations and improved operating efficiencies, offset by a slight decrease in average occupancy.

Non-GAAP Financial Measures

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(ii) gain or loss on extinguishment of debt;

(iii) noncontrolling income or loss from OP Units included in diluted shares (only applicable to the Company);

(iii) non-controlling income or loss from OP Units included in diluted shares (only applicable to the Company);

and (iv) other normalizing adjustments, which include items that are unusual and infrequent in nature.

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FFO and Normalized FFO should be reviewed in connection with other GAAP measurements.

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 months ended March 31, 2021 and 2020, respectively (in thousands, except per share data):

Three Months Ended March 31,

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, non-controlling 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, 2021 and 2020, respectively (in thousands, except per share data):

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

2021 2020 2021 2020

Net income attributable to common stockholders $ 38,011 $ 13,489 $ 60,041 $ 31,390

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Gain on sale of real estate, net (32,753) — (32,753) (1,991)

16,825 — 16,825 —

Proportionate share of joint venture depreciation and amortization

487 508 975 975

FFO attributable to common stockholders $ 96,789 $ 87,766 $ 194,638 $ 180,880

Transaction expenses 66 32 162 172

Noncontrolling income from OP Units included in diluted shares 363 307

Non-controlling income from OP Units included in diluted shares 728 236 1,091 543

Other normalizing adjustments (1)

— 4,959 — 5,031

Normalized FFO attributable to common stockholders $ 97,583 $ 92,993 $ 195,891 $ 186,626

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FFO adjustments per diluted share, net

0.27 0.34 0.61 0.68

FFO attributable to common stockholders per diluted share

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Normalized FFO adjustments per diluted share, net

0.00 0.02 0.00 0.02

Normalized FFO attributable to common stockholders per diluted share

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222,326 222,088 222,297 221,228

The following is the reconciliation of HTALP’s FFO and Normalized FFO to net income attributable to common unitholders for the three months ended March 31, 2021 and 2020, respectively (in thousands, except per unit data):

Three Months Ended March 31,

(1) For the three months ended June 30, 2020, 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 six months ended June 30, 2020, other normalizing adjustments includes the following:

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.

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, 2021 and 2020, respectively (in thousands, except per unit data):

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

2021 2020 2021 2020

Net income attributable to common unitholders $ 38,739 $ 13,725 $ 61,132 $ 31,933

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Gain on sale of real estate, net (32,753) — (32,753) (1,991)

16,825 — 16,825 —

Proportionate share of joint venture depreciation and amortization

487 508 975 975

FFO attributable to common unitholders $ 97,517 $ 88,002 $ 195,729 $ 181,423

Transaction expenses 66 32 162 172

Other normalizing adjustments (1)

— 4,959 — 5,031

Normalized FFO attributable to common unitholders $ 97,583 $ 92,993 $ 195,891 $ 186,626

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Weighted average diluted common OP Units outstanding 222,326 222,088 222,297 221,228

(1) For the three months ended June 30, 2020, 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 six months ended June 30, 2020, other normalizing adjustments includes the following:

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.

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 months ended March 31, 2021 and 2020, respectively (in thousands):

Three Months Ended March 31,

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, 2021 and 2020, respectively (in thousands):

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

2021 2020 2021 2020

Net income $ 38,739 $ 13,725 $ 61,132 $ 31,933

3 unchanged sentences

74,977 74,927 151,251 152,592

16,825 — 16,825 —

Interest expense

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Notes receivable interest income

(3) (3) (9) (141)

Other normalizing adjustments (1)

— 4,959 — 5,031

Cash NOI $ 127,181 $ 123,540 $ 254,840 $ 247,444

5 unchanged sentences

$ 122,529 $ 120,065 $ 244,394 $ 239,685

(1) Same-Property includes 429 buildings for the three months ended March 31, 2021 and 2020, respectively.

(1) For the three months ended June 30, 2020, 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 six months ended June 30, 2020, other normalizing adjustments includes the following:

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.

(2) Same-Property includes 432 and 425 buildings for the three and six months ended June 30, 2021 and 2020, respectively.

Liquidity and Capital Resources

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Investments and maturing indebtedness may require funds from borrowings under our unsecured revolving credit facility, the issuance of debt and/or equity securities or proceeds from sales of real estate.

As of March 31, 2021, we had total liquidity of $1.3 billion, inclusive of $1.0 billion available on our unsecured revolving credit facility, $277.5 million of unsettled forward equity agreements, and cash and cash equivalents of $30.0 million.

As of June 30, 2021, we had total liquidity of $1.3 billion, inclusive of $955.0 million available on our unsecured revolving credit facility, $277.5 million of unsettled forward equity agreements, $65.0 million of restricted cash for funds held in a 1031 exchange account , and cash and cash equivalents of $19.8 million.

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

As of March 31, 2021, we had unencumbered assets with a gross book value of $8.0 billion.

As of June 30, 2021, we had unencumbered assets with a gross book value of $8.0 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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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 three months ended March 31, 2021 and 2020, respectively (in thousands):

Three Months Ended March 31,

The following is a summary of our cash flows for the six months ended June 30, 2021 and 2020, respectively (in thousands):

Six Months Ended June 30,

2021 2020 Change

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Net cash used in investing activities (118,348) (114,688) (3,660)

Net cash (used in) provided by financing activities (74,733) 185,058 (259,791)

Net cash used in financing activities (101,006) (25,111) (75,895)

Cash, cash equivalents and restricted cash - end of period $ 90,338 $ 80,000 $ 10,338

Net cash provided by operating activities decreased in 2021 primarily due to the impact of our 2020 and 2021 acquisitions and contractual rent increases offset by our 2020 dispositions.

Net cash provided by operating activities increased in 2021 primarily due to the impact of our 2020 and 2021 acquisitions and contractual rent increases, partially offset by our 2020 and 2021 dispositions.

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 three months ended March 31, 2021, net cash used in investing activities primarily related to investments in real estate of $30.5 million, capital expenditures of $28.9 million, and development of real estate of $17.1 million.

For the three months ended March 31, 2020, net cash used in investing activities primarily related to investments in real estate of $41.3 million, capital expenditures of $23.8 million, development of real estate of $12.1 million, and 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 three months ended March 31, 2021, net cash used in financing activities primarily related to dividends paid to holders of our common stock of $70.0 million and the repurchase and cancellation of common stock of $3.2 million.

For the three months ended March 31, 2020, net cash provided by financing activities primarily related to net borrowings on our unsecured credit facility of $305.0 million and proceeds from issuance of common stock of $50.0 million, offset by payments on our secured mortgage loans of $95.6 million, dividends paid to holders of our common stock of $68.2 million, and the repurchase and cancellation of common stock of $4.6 million.

For the six months ended June 30, 2021, net cash used in investing activities primarily related to advances on real estate notes receivable of $61.0 million, capital expenditures of $53.5 million, investments in real estate of $50.6 million, and development of real estate of $34.0 million, partially offset by proceeds from the sale of real estate of $65.3 million and collection of real estate notes receivable of $15.4 million.

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, and 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, 2021, net cash used in financing activities primarily related to dividends paid to holders of our common stock of $140.0 million and the repurchase and cancellation of common stock of $3.4 million, partially offset by net borrowings under our revolving credit facility of $45.0 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 credit facility of $164.0 million and proceeds from issuance of common stock of $50.0 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 three months ended March 31, 2021, we paid cash dividends of $70.0 million on our common stock.

In April 2021 for the quarter ended March 31, 2021, we paid cash dividends on our common stock of $70.0 million.

For the six months ended June 30, 2021, we paid cash dividends of $140.0 million on our common stock.

In July 2021 for the quarter ended June 30, 2021, we paid cash dividends on our common stock of $70.0 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 March 31, 2021, our leverage ratio, measured by debt less cash and cash equivalents to total capitalization, was 32.8%.

As of March 31, 2021, 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.

As of June 30, 2021, our leverage ratio, measured by debt less cash and cash equivalents to total capitalization, was 33.5%.

As of June 30, 2021, we had debt outstanding of $3.1 billion and the weighted average interest rate therein was 2.86% per annum, inclusive of the impact of our cash flow hedges.

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

1 unchanged sentence

Unsecured Revolving Credit Facility

As of March 31, 2021, the full $1.0 billion was available on our $1.0 billion unsecured revolving credit facility.

As of June 30, 2021, $955.0 million 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 March 31, 2021, 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 June 30, 2021, 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 March 31, 2021, 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.

As of June 30, 2021, 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.

Commitments and Contingencies

There have been no material changes from the commitments and contingencies previously disclosed in our 2020 Annual Report on Form 10-K.

As of June 30, 2021, we had unfunded loan commitments totaling $20.6 million.

See Note 10 - Commitments and Contingencies in the accompanying condensed consolidated financial statements for a further discussion of our commitments and contingencies.

Debt Service Requirements

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 March 31, 2021, 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 June 30, 2021, 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 three months ended March 31, 2021, 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 six months ended June 30, 2021, 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.

2 unchanged sentences

However, due to the long-term nature of our leases, among other factors, the leases may not reset frequently enough to cover inflation.

Subsequent Events

The Board of Directors of the Company named Peter N.

Foss as Interim President and Chief Executive Officer of the Company, effective as of August 2, 2021.

Peters resigned on July 29, 2021, effective August 2, 2021, as a director and Chairman of the Board, President and Chief Executive Officer of the Company.

Effective August 2, 2021, the Lead Independent Director of the Board, W.

Bradley Blair, II, was elected to be Chairman of the Board.

The Company, with the assistance of outside legal counsel, and the Audit Committee, with the assistance of independent legal counsel, recently began an internal investigation into circumstances relating to reports pursuant to the Company’s whistleblower policy.

The investigation is in its early stages, no conclusions have been reached, and the Company cannot predict its duration or outcome.

At this time, the Company does not believe that the matters that are the subject of the ongoing investigation will have a material adverse impact on the Company’s financial condition or results of operations.

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