What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-05 · 131 added, 147 removed, 337 unchanged (45% 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 June 30, 2021.

Our portfolio is diversified geographically across 32 states, with no state having more than 21% of our total GLA as of September 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.

As of September 30, 2021, we had approximately 1 million square feet of GLA in ten of our top 20 markets and approximately 94% of our portfolio, based on GLA, is located in the top 75 Metropolitan Statistical Area ("MSAs"), with Dallas, Houston, Boston, Miami and Indianapolis being our largest markets by annualized base rent.

Company Highlights

Portfolio Operating Performance

• 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 the three months ended September 30, 2021, our total revenue was $191.3 million, compared to $187.3 million for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, our total revenue was $571.4 million, compared to $551.9 million for the nine months ended September 30, 2020.

• For the three months ended September 30, 2021, our net income was $22.0 million, compared to $(6.9) million, for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, our net income was $83.2 million, compared to $25.0 million for the nine months ended September 30, 2020.

• For the three months ended September 30, 2021, our net income attributable to common stockholders was $0.10 per diluted share, or $21.7 million, compared to $(0.03) per diluted share, or $(6.8) million, for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, our net income attributable to common stockholders was $0.37 per diluted share, or $81.7 million, compared to $0.11 per diluted share, or $24.6 million, for the nine months ended September 30, 2020.

• For the three months ended September 30, 2021, HTA’s FFO, as defined by NAREIT, was $97.3 million, or $0.44 per diluted share, compared to $0.31 per diluted share, or $68.5 million, for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, HTA’s FFO was $291.9 million, or $1.31 per diluted share, compared to $1.13 per diluted share, or $249.4 million, for the nine months ended September 30, 2020.

• For the three months ended September 30, 2021, HTALP’s FFO was $97.7 million, or $0.44 per diluted OP Unit, compared to $0.31 per diluted OP Unit, or $68.4 million, for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, HTALP’s FFO was $293.4 million, or $1.32 per diluted OP Unit, compared to $1.13 per diluted OP Unit, or $249.8 million, for the nine months ended September 30, 2020.

• For the three months ended September 30, 2021, HTA’s and HTALP’s Normalized FFO was $0.44 per diluted share and OP Unit, or $97.8 million, compared to $0.43 per diluted share and OP Unit, or $96.2 million for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, HTA’s and HTALP’s Normalized FFO was $1.32 per diluted share and OP Unit, or $293.7 million, compared to $1.28 per diluted share and OP Unit, or $282.9 million for the nine months ended September 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 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 the three months ended September 30, 2021, our Net Operating Income (“NOI”) was $131.7 million, compared to $130.1 million for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, our NOI was $394.8 million, compared to $381.6 million for the nine months ended September 30, 2020.

• For the three months ended September 30, 2021, our Same-Property Cash NOI increased 2.5%, or $2.8 million, to $115.2 million, compared to $112.3 million for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, our Same-Property Cash NOI increased 2.1%, or $6.9 million, to $345.2 million, compared to $338.2 million for the nine months ended September 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.

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markets from an economic and demographic perspective.

As of June 30, 2021, approximately 95% of our portfolio’s GLA is located in the top 75 MSAs.

As of September 30, 2021, approximately 94% 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, 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.

As of September 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 nine months ended September 30, 2021, we closed on $187.5 million worth of medical office investments totaling approximately 626,000 square feet of GLA.

In addition, we funded $54.0 million of investments in real estate notes receivable.

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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, 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.

• As of September 30, 2021, our in-house asset management and leasing platform operated approximately 24.8 million square feet of GLA, or 96% of our total portfolio.

• As of September 30, 2021, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 89.7% by GLA and our occupancy rate was 88.0% by GLA.

• We entered into new and renewal leases on approximately 0.7 million and 2.0 million square feet of GLA, or approximately 2.6% and 7.9% of the GLA of our total portfolio, during the three and nine months ended September 30, 2021, respectively.

• During the three and nine months ended September 30, 2021, tenant retention for the Same-Property portfolio was 83% and 76%, 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 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.

• As of September 30, 2021, we had total leverage, measured by debt less cash and cash equivalents to total capitalization, of 31.4%.

Total liquidity was approximately $1.2 billion, inclusive of $950.0 million available on our unsecured revolving credit facility, $218.8 million of forward equity agreements, cash and cash equivalents of $12.8 million and $1.7 million of restricted cash for funds held in a 1031 exchange account as of September 30, 2021.

• As of September 30, 2021, the weighted average remaining term of our debt portfolio was 6.4 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 $10.2 million of these deferrals have been repaid through June 30, 2021.

There are no substantial outstanding requests for assistance from tenants.

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 $10.8 million of these deferrals have been repaid through September 30, 2021.

There are no material 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 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.

As of September 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 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.

During the nine months ended September 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 applicable lease as a result of COVID-19.

Although we did not experience significant disruptions from the COVID-19 pandemic during the nine months ended September 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.

Other than the above, we are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally and the risk factors previously discussed in Part I, Item 1A - Risk Factors, in our 2020 Annual Report on Form 10-K, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the investment, management and operation of our properties.

Other than the above, we are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally and the risk factors previously discussed in Part I, Item 1A - Risk Factors, in our 2020 Annual Report on Form 10-K, and this Quarterly Report on Form 10-Q under Item 1A.

Risk Factors below, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the investment, management and operation of our properties.

Rental Income

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Investment Activity

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.

During the nine months ended September 30, 2021, we had investments with an aggregate gross purchase price of $189.2 million.

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

Subsequent to 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, 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.

Comparison of the Three and Nine Months Ended September 30, 2021 and 2020

As of September 30, 2021 and 2020, we owned and operated approximately 25.8 million and 25.1 million square feet of GLA, respectively, with a leased rate of 89.7% and 90.1%, respectively (including leases which have been executed, but which have not yet commenced), and an occupancy rate of 88.0% and 89.5%, respectively.

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

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

Three Months Ended June 30,

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

Three Months Ended September 30,

2021 2020 Change % Change

Rental income $ 189,832 $ 187,258 $ 2,574 1.4 %

Interest and other operating income 121 175 (54) (30.9)

Interest and other operating income 1,430 68 1,362 NM

Total revenues 191,262 187,326 3,936 2.1

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Interest expense 23,331 23,136 195 0.8

Impairment 16,825 — 16,825 NM

Total expenses 169,857 167,071 2,786 1.7

Gain on sale of real estate, net 143 — 143 NM

Loss on extinguishment of debt, net — (27,726) 27,726 100.0

Income from unconsolidated joint venture 400 422 (22) (5.2)

Other income 304 97 207 NM

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

Other income 94 117 (23) (19.7)

Net income (loss) $ 22,042 $ (6,932) $ 28,974 NM

NOI $ 131,694 $ 130,078 $ 1,616 1.2 %

Same-Property Cash NOI $ 115,158 $ 112,316 $ 2,842 2.5 %

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

Six Months Ended June 30,

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

Nine Months Ended September 30,

2021 2020 Change % Change

Rental income $ 569,676 $ 551,459 $ 18,217 3.3 %

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

Interest and other operating income 1,694 488 1,206 NM

Total revenues 571,370 551,947 19,423 3.5

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Gain on sale of real estate, net 32,896 1,991 30,905 NM

Loss on extinguishment of debt, net — (27,726) 27,726 NM

Income from unconsolidated joint venture 1,198 1,223 (25) (2.0)

Other income 401 290 111 38.3

Net income $ 61,132 $ 31,933 $ 29,199 91.4 %

Net income $ 83,174 $ 25,001 $ 58,173 NM

NOI $ 394,814 $ 381,637 $ 13,177 3.5 %

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Rental Income

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,

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

Three Months Ended September 30,

2021 2020 Change % Change

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Total rental income $ 189,832 $ 187,258 $ 2,574 1.4 %

Six Months Ended June 30,

Nine Months Ended September 30,

2021 2020 Change % Change

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Total rental income $ 569,676 $ 551,459 $ 18,217 3.3 %

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,

Contractual rental income, which includes expense reimbursements, increased $4.6 million and $22.4 million for the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020.

The increases were primarily due to additional contractual rental income of $6.5 million and $15.6 million from our 2020 and 2021 acquisitions, and contractual rent increases for the three and nine months ended September 30, 2021, partially offset by $2.8 million and $4.8 million of reduced contractual rental income as a result of the buildings we sold during 2020 and 2021 for the three and nine months ended September 30, 2021, respectively.

In addition, during 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.

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

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

2021 2020 2021 2020

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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 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,

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

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

2021 2020 2021 2020

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Tenant concessions 0.14 0.94 0.15 1.99

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,

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

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

2021 2020 2021 2020

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Rental Expenses

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.

For the three months ended September 30, 2021 and 2020, rental expenses attributable to our properties were $59.6 million and $57.2 million, respectively.

For the nine months ended September 30, 2021 and 2020, rental expenses attributable to our properties were $176.6 million and $170.3 million, respectively.

These increases in rental expenses were primarily due to $2.4 million and $5.1 million of additional rental expenses associated with our 2020 and 2021 acquisitions for the three and nine months ended September 30, 2021, respectively.

General and Administrative 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.

For the three months ended September 30, 2021 and 2020, general and administrative expenses were $10.8 million and $10.7 million, respectively.

For each of the nine months ended September 30, 2021 and 2020, general and administrative expenses were $32.3 million.

For the three months ended September 30, 2021, general and administrative expenses included a reduction of approximately $(2.1) million in stock compensation expense principally related to the resignation of our former CEO net of new award activity with the appointments of our interim CEO and new board chairman, offset by approximately $0.5 million of incremental legal costs related to the whistleblower investigation, and increased costs related to our leasing efforts, travel-related expenses, professional services and other administrative costs.

Depreciation and Amortization Expense

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.

For the three months ended September 30, 2021 and 2020, depreciation and amortization expense was $76.1 million and $75.9 million, respectively.

For the nine months ended September 30, 2021 and 2020, depreciation and amortization expense was $227.3 million and $228.5 million, respectively.

The slight variances were associated with our 2020 and 2021 acquisitions, offset by buildings we disposed of during 2020 and 2021.

Interest Expense

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.

For the three months ended September 30, 2021 and 2020, interest expense was $23.3 million and $23.1 million, respectively.

For the nine months ended September 30, 2021 and 2020, interest expense was $69.5 million and $71.3 million, respectively.

The decreases in year-to-date 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.

For the nine months ended September 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 for a contractual sale price less than its carrying value;

and (ii) an executed sales agreement for a sale price less than its carrying value.

We recorded no impairment charges during the nine months ended September 30, 2020.

Gain on Sale of Real Estate, net

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.

For the nine months ended September 30, 2021, we realized a net gain of approximately $32.9 million, primarily as a result of the sale of a 13 property portfolio located in one or more of Tennessee and Virginia.

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 three months ended September 30, 2021 and 2020, net income was $22.0 million and $(6.9) million, respectively.

For the nine months ended September 30, 2021 and 2020, net income was $83.2 million and $25.0 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.

Additionally, during the three and nine months ended September 30, 2020, we recorded a net loss on extinguishment of debt of approximately $27.7 million.

NOI and Same-Property Cash NOI

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.

For the three months ended September 30, 2021 and 2020, NOI was $131.7 million and $130.1 million, respectively.

For the nine months ended September 30, 2021 and 2020, NOI was $394.8 million and $381.6 million, respectively.

The increases in NOI was primarily due to additional NOI from our 2020 and 2021 acquisitions of $5.0 million and $12.4 million for the three and nine months ended September 30, 2021, respectively, partially offset by $1.5 million and $2.7 million of reduced NOI as a result of the buildings we sold during 2020 and 2021 for the three and nine months ended September 30, 2021, respectively, and a reduction in straight-line rent from properties we owned for more than a year.

Same-Property Cash NOI increased 2.5% to $115.2 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Same-Property Cash NOI increased 2.1% to $345.2 million for the nine months ended September 30, 2021 compared to nine months ended September 30, 2020.

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

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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, 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,

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

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

2021 2020 2021 2020

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

Net income (loss) attributable to common stockholders $ 21,672 $ (6,827) $ 81,713 $ 24,563

Depreciation and amortization expense related to investments in real estate

1 unchanged sentence

Gain on sale of real estate, net (143) — (32,896) (1,991)

16,825 — 16,825 —

Proportionate share of joint venture depreciation and amortization

2 unchanged sentences

Transaction expenses 137 125 299 297

Loss on extinguishment of debt, net — 27,726 — 27,726

Non-controlling income from OP Units included in diluted shares 370 (105) 1,461 438

Other normalizing adjustments (1)

— 4,959 — 5,031

Normalized FFO attributable to common stockholders $ 97,787 $ 96,235 $ 293,678 $ 282,861

Net income attributable to common stockholders per diluted share $ 0.17 $ 0.06 $ 0.27 $ 0.14

Net income (loss) attributable to common stockholders per diluted share $ 0.10 $ (0.03) $ 0.37 $ 0.11

FFO adjustments per diluted share, net

8 unchanged sentences

222,811 222,101 222,470 221,521

(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:

(1) For the nine months ended September 30, 2020, other normalizing adjustments includes the following:

non-recurring bad debt of $4,672 thousand;

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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,

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

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

2021 2020 2021 2020

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

Net income (loss) attributable to common unitholders $ 22,042 $ (6,932) $ 83,174 $ 25,001

Depreciation and amortization expense related to investments in real estate

1 unchanged sentence

Gain on sale of real estate, net (143) — (32,896) (1,991)

16,825 — 16,825 —

Proportionate share of joint venture depreciation and amortization

2 unchanged sentences

Transaction expenses 137 125 299 297

Loss on extinguishment of debt, net — 27,726 — 27,726

Other normalizing adjustments (1)

— 4,959 — 5,031

Normalized FFO attributable to common unitholders $ 97,787 $ 96,235 $ 293,678 $ 282,861

Net income attributable to common unitholders per diluted share $ 0.17 $ 0.06 $ 0.28 $ 0.14

Net income (loss) attributable to common unitholders per diluted share $ 0.10 $ (0.03) $ 0.37 $ 0.11

FFO adjustments per diluted OP Unit, net 0.34 0.34 0.95 1.02

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Weighted average diluted common OP Units outstanding 222,811 222,101 222,470 221,521

(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:

(1) For the nine months ended September 30, 2020, other normalizing adjustments includes the following:

non-recurring bad debt of $4,672 thousand;

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Same-Property Cash NOI excludes (i) properties which have not been owned and operated by us during the entire span of all periods presented and disposed properties, (ii) our share of unconsolidated joint ventures, (iii) development, redevelopment and land parcels, (iv) properties intended for disposition in the near term which have (a) been approved by the Board of Directors, (b) is actively marketed for sale, and (c) an offer has been received at prices we would transact and the sales process is ongoing, and (v) certain non-routine items.

Same-Property Cash NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance.

Same-Property Cash

NOI should not be considered as an alternative to net income or loss (computed in accordance with GAAP) as an indicator of our financial performance.

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, 2021 and 2020, 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, 2021 and 2020, respectively (in thousands):

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

2021 2020 2021 2020

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

Net income (loss) $ 22,042 $ (6,932) $ 83,174 $ 25,001

General and administrative expenses 10,765 10,670 32,254 32,348

2 unchanged sentences

76,056 75,892 227,307 228,484

16,825 — 16,825 —

Interest expense

1 unchanged sentence

Gain on sale of real estate, net (143) — (32,896) (1,991)

Loss on extinguishment of debt, net

— 27,726 — 27,726

Income from unconsolidated joint venture (400) (422) (1,198) (1,223)

6 unchanged sentences

Other normalizing adjustments (1)

— 4,959 — 5,031

Cash NOI $ 126,880 $ 124,243 $ 381,720 $ 371,640

5 unchanged sentences

$ 115,158 $ 112,316 $ 345,158 $ 338,209

(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:

(1) For the nine months ended September 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.

(2) Same-Property includes 421 and 414 buildings for the three and nine months ended September 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 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.

As of September 30, 2021, we had total liquidity of $1.2 billion, inclusive of $950.0 million available on our unsecured revolving credit facility, $218.8 million of unsettled forward equity agreements, cash and cash equivalents of $12.8 million and $1.7 million of restricted cash for funds held in a 1031 exchange account.

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 June 30, 2021, we had unencumbered assets with a gross book value of $8.0 billion.

On October 6, 2021, we entered into a third amended and restated revolving credit and term loan agreement (the “Credit Agreement”), which includes an unsecured revolving credit facility in an aggregate maximum principal amount of $1.0 billion (the “Revolver”) and a term loan facility in an aggregate maximum principal amount of $300.0 million (the “Term Loan”).

The Credit Agreement amends and restates, in its entirety, the unsecured credit agreement referenced above, reduces our overall borrowing costs, and extends the maturities of the existing unsecured revolving credit facility to October 31, 2025.

As of September 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 six months ended June 30, 2021 and 2020, respectively (in thousands):

Six Months Ended June 30,

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

Nine Months Ended September 30,

2021 2020 Change

6 unchanged sentences

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, 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.

For the nine months ended September 30, 2021, net cash used in investing activities primarily related to investments in real estate of $147.3 million, capital expenditures of $78.0 million, advances on real estate notes receivable of $66.5 million, and development of real estate of $48.5 million, partially offset by proceeds from the sale of real estate of $67.6 million and collection of real estate notes receivable of $15.4 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, 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 nine months ended September 30, 2021, net cash used in financing activities primarily related to dividends paid to holders of our common stock of $210.0 million, distributions paid to non-controlling interest of limited partners of $3.9 million, and the repurchase and cancellation of common stock of $3.4 million, partially offset by proceeds from issuance of common stock of $53.7 million, and by net borrowings under our revolving credit facility of $50.0 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.

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, 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.

For the nine months ended September 30, 2021, we paid cash dividends of $210.0 million on our common stock.

In October 2021 for the quarter ended September 30, 2021, we paid cash dividends on our common stock of $71.8 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, 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.

As of September 30, 2021, our leverage ratio, measured by debt less cash and cash equivalents to total capitalization, was 31.4%.

As of September 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 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.

As of September 30, 2021, $950.0 million was available on our $1.0 billion unsecured revolving credit facility originally maturing in June 2022.

Subsequent to September 30, 2021, the unsecured revolving credit facility was amended and restated, extending maturity to October 2025.

Unsecured Term Loans

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.

As of September 30, 2021, we had $500.0 million of unsecured term loans outstanding, comprised of $300.0 million under our Unsecured Credit Agreement originally maturing in 2023 and extended to 2025 subsequent to September 30, 2021, and $200.0 million under our unsecured term loan maturing in 2024.

Unsecured Senior Notes

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.

As of September 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

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

As of September 30, 2021, we had unfunded loan commitments totaling $15.4 million.

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

1 unchanged sentence

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, 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 September 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 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.

As of and during the nine months ended September 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