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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
|
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2023 | | | | | |
| OR |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to __________
Commission file number: 001-39153
Healthcare Trust, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | | | | |
Maryland | | 38-3888962 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | | | | | |
222 Bellevue Ave., Newport, RI | | 02840 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (212) 415-6500
| | |
650 Fifth Ave., 30th Floor, New York, NY |
Former name, former address and former fiscal year, if changed since last report |
| | | | | | | | | | | | | | |
Securities registered pursuant to section 12(b) of the Act: |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
7.375% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share | | HTIA | | The Nasdaq Global Market |
7.125% Series B Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share | | HTIBP | | The Nasdaq Global Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ☐ | | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of November 6, 2023, the registrant had 111,545,038 shares of common stock outstanding.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data) | | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
ASSETS | | (Unaudited) | | (Unaudited) |
Real estate investments, at cost: | | | | |
Land | | $ | 208,594 | | | $ | 206,454 | |
Buildings, fixtures and improvements | | 2,119,797 | | | 2,089,133 | |
Acquired intangible assets | | 293,295 | | | 292,034 | |
Total real estate investments, at cost | | 2,621,686 | | | 2,587,621 | |
Less: accumulated depreciation and amortization | | (663,534) | | | (609,324) | |
Total real estate investments, net | | 1,958,152 | | | 1,978,297 | |
| | | | |
Cash and cash equivalents | | 51,041 | | | 53,654 | |
Restricted cash | | 40,245 | | | 22,884 | |
Derivative assets, at fair value | | 37,547 | | | 40,647 | |
Straight-line rent receivable, net | | 26,214 | | | 25,276 | |
Operating lease right-of-use assets | | 7,739 | | | 7,814 | |
Prepaid expenses and other assets | | 36,019 | | | 34,554 | |
| | | | |
Deferred costs, net | | 15,300 | | | 17,223 | |
Total assets | | $ | 2,172,257 | | | $ | 2,180,349 | |
| | | | |
LIABILITIES AND EQUITY | | | | |
Mortgage notes payable, net | | $ | 808,752 | | | $ | 578,700 | |
Credit facilities, net | | 347,720 | | | 530,297 | |
Market lease intangible liabilities, net | | 8,519 | | | 9,407 | |
| | | | |
Accounts payable and accrued expenses (including $665 and $47, respectively, due to related parties as of September 30, 2023 and December 31, 2022) | | 48,234 | | | 45,247 | |
Operating lease liabilities | | 8,051 | | | 8,087 | |
Deferred rent | | 6,904 | | | 5,925 | |
Distributions payable | | 3,496 | | | 3,496 | |
Total liabilities | | 1,231,676 | | | 1,181,159 | |
Stockholders’ Equity | | | | |
7.375% Series A cumulative redeemable perpetual preferred stock, $0.01 par value, 4,740,000 authorized; 3,977,144 issued and outstanding as of September 30, 2023 and December 31, 2022 | | 40 | | | 40 | |
7.125% Series B cumulative redeemable perpetual preferred stock, $0.01 par value, 3,680,000 authorized; 3,630,000 issued and outstanding as of September 30, 2023 and December 31, 2022 | | 36 | | | 36 | |
Common stock, $0.01 par value, 300,000,000 shares authorized, 109,877,212 shares and 105,080,531 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | | 1,098 | | | 1,051 | |
Additional paid-in capital | | 2,485,745 | | | 2,417,059 | |
Accumulated other comprehensive income | | 35,340 | | | 36,910 | |
Distributions in excess of accumulated earnings | | (1,588,261) | | | (1,462,457) | |
Total stockholders’ equity | | 933,998 | | | 992,639 | |
Non-controlling interests | | 6,583 | | | 6,551 | |
Total equity | | 940,581 | | | 999,190 | |
Total liabilities and equity | | $ | 2,172,257 | | | $ | 2,180,349 | |
The accompanying notes are an integral part of these consolidated financial statements.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Revenue from tenants | | $ | 85,686 | | | $ | 83,460 | | | $ | 259,145 | | | $ | 250,936 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Property operating and maintenance | | 54,326 | | | 51,198 | | | 161,778 | | | 156,880 | |
Impairment charges | | — | | | 8,949 | | | — | | | 25,786 | |
Operating fees to related parties | | 6,397 | | | 6,333 | | | 19,153 | | | 19,003 | |
Acquisition and transaction related | | 173 | | | 199 | | | 384 | | | 1,153 | |
General and administrative | | 4,753 | | | 4,471 | | | 14,105 | | | 13,369 | |
Depreciation and amortization | | 20,776 | | | 20,854 | | | 61,520 | | | 61,525 | |
Total expenses | | 86,425 | | | 92,004 | | | 256,940 | | | 277,716 | |
Operating (loss) income before loss (gain) on sale of real estate investments | | (739) | | | (8,544) | | | 2,205 | | | (26,780) | |
(Loss) gain on sale of real estate investments | | (173) | | | 194 | | | (364) | | | (109) | |
Operating (loss) income | | (912) | | | (8,350) | | | 1,841 | | | (26,889) | |
Other income (expense): | | | | | | | | |
Interest expense | | (15,720) | | | (13,284) | | | (50,208) | | | (37,098) | |
Interest and other income | | 258 | | | 10 | | | 576 | | | 24 | |
Gain on non-designated derivatives | | 406 | | | 1,826 | | | 510 | | | 3,212 | |
Total other expenses | | (15,056) | | | (11,448) | | | (49,122) | | | (33,862) | |
Loss before income taxes | | (15,968) | | | (19,798) | | | (47,281) | | | (60,751) | |
Income tax expense | | (157) | | | (77) | | | (244) | | | (159) | |
Net loss | | (16,125) | | | (19,875) | | | (47,525) | | | (60,910) | |
Net loss attributable to non-controlling interests | | 14 | | | 22 | | | 45 | | | 100 | |
Allocation for preferred stock | | (3,450) | | | (3,450) | | | (10,349) | | | (10,349) | |
Net loss attributable to common stockholders | | (19,561) | | | (23,303) | | | (57,829) | | | (71,159) | |
| | | | | | | | |
Other comprehensive income (loss): | | | | | | | | |
Unrealized gain (loss) on designated derivatives | | 395 | | | 16,948 | | | (1,570) | | | 53,384 | |
Comprehensive loss attributable to common stockholders | | $ | (19,166) | | | $ | (6,355) | | | $ | (59,399) | | | $ | (17,775) | |
| | | | | | | | |
Weighted-average shares outstanding — Basic and Diluted (1) | | 111,426,241 | | | 111,365,461 | | | 111,404,655 | | | 111,333,801 | |
Net loss per common share attributable to common stockholders — Basic and Diluted (1) | | $ | (0.18) | | | $ | (0.21) | | | $ | (0.52) | | | $ | (0.64) | |
_____
(1)Retroactively adjusted for the effects of the stock dividends (see Note 1).
The accompanying notes are an integral part of these unaudited consolidated financial statements.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Series A Preferred Stock | | Series B Preferred Stock | | Common Stock | | | | Accumulated Other Comprehensive Income | | | | | | | | |
| Number of Shares | | Par Value | | Number of Shares | | Par Value | | Number of Shares | | Par Value | | Additional Paid-in Capital | | | Distributions in excess of accumulated earnings | | Total Stockholders Equity | | Non-controlling Interests | | Total Equity |
Balance, December 31, 2022 | 3,977,144 | | | 40 | | | 3,630,000 | | | $ | 36 | | | 105,080,531 | | | $ | 1,051 | | | $ | 2,417,059 | | | $ | 36,910 | | | $ | (1,462,457) | | | $ | 992,639 | | | $ | 6,551 | | | $ | 999,190 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Share-based compensation, net | — | | | — | | | — | | | — | | | — | | | — | | | 689 | | | — | | | — | | | 689 | | | — | | | 689 | |
Distributions declared in common stock, $0.42 per share | — | | | — | | | — | | | — | | | 4,796,681 | | | 47 | | | 67,928 | | | — | | | (67,975) | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Distributions declared on Series A Preferred Stock, $0.92 per share | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,500) | | | (5,500) | | | — | | | (5,500) | |
Distributions declared on Series B Preferred Stock, $0.90 per share | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,849) | | | (4,849) | | | — | | | (4,849) | |
Distributions to non-controlling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (138) | | | (138) | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (47,480) | | | (47,480) | | | (45) | | | (47,525) | |
Unrealized loss on designated derivatives | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,570) | | | — | | | (1,570) | | | — | | | (1,570) | |
Contributions from minority interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 284 | | | 284 | |
Rebalancing of ownership percentage | — | | | — | | | — | | | — | | | — | | | — | | | 69 | | | — | | | — | | | 69 | | | (69) | | | — | |
Balance, September 30, 2023 | 3,977,144 | | | $ | 40 | | | 3,630,000 | | | $ | 36 | | | 109,877,212 | | | $ | 1,098 | | | $ | 2,485,745 | | | $ | 35,340 | | | $ | (1,588,261) | | | $ | 933,998 | | | $ | 6,583 | | | $ | 940,581 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| Series A Preferred Stock | | Series B Preferred Stock | | Common Stock | | | | Accumulated Other Comprehensive Income | | | | | | | | |
| Number of Shares | | Par Value | | Number of Shares | | Par Value | | Number of Shares | | Par Value | | Additional Paid-in Capital | | | Distributions in excess of accumulated earnings | | Total Stockholders Equity | | Non-controlling Interests | | Total Equity |
Balance, June 30, 2023 | 3,977,144 | | | $ | 40 | | | 3,630,000 | | | $ | 36 | | | 108,284,434 | | | $ | 1,082 | | | $ | 2,462,523 | | | $ | 34,945 | | | $ | (1,545,708) | | | $ | 952,918 | | | $ | 6,660 | | | $ | 959,578 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Share-based compensation, net | — | | | — | | | — | | | — | | | — | | | — | | | 229 | | | — | | | — | | | 229 | | | — | | | 229 | |
Distributions declared in common stock, $0.21 per share | — | | | — | | | — | | | — | | | 1,592,778 | | | 16 | | | 22,976 | | | — | | | (22,992) | | | — | | | — | | | — | |
Distributions declared on Series A Preferred Stock, $0.46 per share | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,834) | | | (1,834) | | | — | | | (1,834) | |
Distributions declared on Series B Preferred Stock, $0.45 per share | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,616) | | | (1,616) | | | — | | | (1,616) | |
Distributions to non-controlling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (46) | | | (46) | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (16,111) | | | (16,111) | | | (14) | | | (16,125) | |
Unrealized gain on designated derivatives | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 395 | | | — | | | 395 | | | — | | | 395 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Rebalancing of ownership percentage | — | | | — | | | — | | | — | | | — | | | — | | | 17 | | | — | | | — | | | 17 | | | (17) | | | — | |
Balance, September 30, 2023 | 3,977,144 | | | $ | 40 | | | 3,630,000 | | | $ | 36 | | | 109,877,212 | | | $ | 1,098 | | | $ | 2,485,745 | | | $ | 35,340 | | | $ | (1,588,261) | | | $ | 933,998 | | | $ | 6,583 | | | $ | 940,581 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Nine Months Ended September 30, 2022 |
| Series A Preferred Stock | | Series B Preferred Stock | | Common Stock | | | | Accumulated Other Comprehensive (Loss) Income | | | | | | | | |
| Number of Shares | | Par Value | | Number of Shares | | Par Value | | Number of Shares | | Par Value | | Additional Paid-in Capital | | | Distributions in Excess of Accumulated Earnings | | Total Stockholders Equity | | Non-controlling Interests | | Total Equity |
Balance, December 31, 2021 | 3,977,144 | | | $ | 40 | | | 3,630,000 | | | $ | 36 | | | 99,281,754 | | | $ | 993 | | | $ | 2,329,839 | | | $ | (14,341) | | | $ | (1,282,871) | | | $ | 1,033,696 | | | $ | 6,704 | | | $ | 1,040,400 | |
Issuance of Preferred Stock, net | — | | | — | | | — | | | — | | | — | | | — | | | (39) | | | — | | | — | | | (39) | | | — | | | (39) | |
Share-based compensation, net | — | | | — | | | — | | | — | | | — | | | — | | | 955 | | | — | | | — | | | 955 | | | — | | | 955 | |
Distributions declared in common stock, $0.42 per share | — | | | — | | | — | | | — | | | 4,330,590 | | | 43 | | | 64,237 | | | — | | | (64,280) | | | — | | | — | | | — | |
Distributions declared on Series A Preferred Stock, $0.92 per share | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,500) | | | (5,500) | | | — | | | (5,500) | |
Distributions declared on Series B Preferred Stock, $0.90 per share | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (4,850) | | | (4,850) | | | — | | | (4,850) | |
Distributions to non-controlling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (138) | | | (138) | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (60,810) | | | (60,810) | | | (100) | | | (60,910) | |
Unrealized gain on designated derivatives | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 53,384 | | | — | | | 53,384 | | | — | | | 53,384 | |
Rebalancing of ownership percentage | — | | | — | | | — | | | — | | | — | | | — | | | (202) | | | — | | | — | | | (202) | | | 202 | | | — | |
Balance, September 30, 2022 | 3,977,144 | | | $ | 40 | | | 3,630,000 | | | $ | 36 | | | 103,612,344 | | | $ | 1,036 | | | $ | 2,394,790 | | | $ | 39,043 | | | $ | (1,418,311) | | | $ | 1,016,634 | | | $ | 6,668 | | | $ | 1,023,302 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended September 30, 2022 |
| Series A Preferred Stock | | Series B Preferred Stock | | Common Stock | | | | Accumulated Other Comprehensive Income | | | | | | | | |
| Number of Shares | | Par Value | | Number of Shares | | Par Value | | Number of Shares | | Par Value | | Additional Paid-in Capital | | | Distributions in Excess of Accumulated Earnings | | Total Stockholders Equity | | Non-controlling Interests | | Total Equity |
Balance, June 30, 2022 | 3,977,144 | | | $ | 40 | | | 3,630,000 | | | $ | 36 | | | 102,164,671 | | | $ | 1,022 | | | $ | 2,372,889 | | | $ | 22,095 | | | $ | (1,373,296) | | | $ | 1,022,786 | | | $ | 6,677 | | | $ | 1,029,463 | |
Issuance of Preferred Stock, net | — | | | — | | | — | | | — | | | — | | | — | | | (28) | | | — | | | — | | | (28) | | | — | | | (28) | |
Share-based compensation, net | — | | | — | | | — | | | — | | | — | | | — | | | 291 | | | — | | | — | | | 291 | | | — | | | 291 | |
Distributions declared in common stock, $0.21 per share | — | | | — | | | — | | | — | | | 1,447,673 | | | 14 | | | 21,697 | | | — | | | (21,711) | | | — | | | — | | | — | |
Distributions declared on Series A Preferred Stock, $0.46 per share | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,834) | | | (1,834) | | | — | | | (1,834) | |
Distributions declared on Series B Preferred Stock, $0.45 per share | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,617) | | | (1,617) | | | — | | | (1,617) | |
Distributions to non-controlling interest holders | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (46) | | | (46) | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (19,853) | | | (19,853) | | | (22) | | | (19,875) | |
Unrealized gain on designated derivatives | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 16,948 | | | — | | | 16,948 | | | — | | | 16,948 | |
Rebalancing of ownership percentage | — | | | — | | | — | | | — | | | — | | | — | | | (59) | | | — | | | — | | | (59) | | | 59 | | | — | |
Balance, September 30, 2022 | 3,977,144 | | | $ | 40 | | | 3,630,000 | | | $ | 36 | | | 103,612,344 | | | $ | 1,036 | | | $ | 2,394,790 | | | $ | 39,043 | | | $ | (1,418,311) | | | $ | 1,016,634 | | | $ | 6,668 | | | $ | 1,023,302 | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2023 | | 2022 |
Cash flows from operating activities: | | | | |
Net loss | | $ | (47,525) | | | $ | (60,910) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 61,520 | | | 61,525 | |
Amortization of deferred financing costs | | 5,954 | | | 3,542 | |
(Accretion) amortization of terminated swap | | (2,660) | | | 423 | |
Amortization of mortgage premiums and discounts, net | | 69 | | | 28 | |
Accretion of market lease and other intangibles, net | | (675) | | | (421) | |
Bad debt expense | | 909 | | | 2,559 | |
Equity-based compensation | | 689 | | | 955 | |
Loss on sale of real estate investments, net | | 364 | | | 109 | |
Cash received from non-designated derivative instruments | | 3,866 | | | — | |
Gain on non-designated derivative instruments | | (510) | | | (3,212) | |
Impairment charges | | — | | | 25,786 | |
Changes in assets and liabilities: | | | | |
Straight-line rent receivable | | (938) | | | (1,236) | |
Prepaid expenses and other assets | | (4,180) | | | (986) | |
Accounts payable, accrued expenses and other liabilities | | (1,504) | | | (4,855) | |
Deferred rent | | 979 | | | (2,212) | |
Net cash provided by operating activities | | 16,358 | | | 21,095 | |
Cash flows from investing activities: | | | | |
Property acquisitions | | (35,261) | | | (17,799) | |
Capital expenditures | | (13,998) | | | (16,707) | |
Investments in non-designated interest rate caps | | (4,580) | | | — | |
Proceeds from sales of real estate investments | | 4,803 | | | 11,759 | |
Net cash used in investing activities | | (49,036) | | | (22,747) | |
Cash flows from financing activities: | | | | |
Payments on credit facilities | | (199,160) | | | — | |
Proceeds from credit facilities | | 20,000 | | | — | |
Proceeds from mortgage notes payable | | 240,000 | | | — | |
Payments on mortgage notes payable | | (850) | | | (8,329) | |
Proceeds from termination of derivative instruments | | 5,413 | | | — | |
Payments of deferred financing costs | | (7,774) | | | (858) | |
Payments for derivative instruments | | — | | | (39) | |
Preferred stock issuance costs | | — | | | (39) | |
Contributions from non-controlling interests | | 284 | | | — | |
Dividends paid on Series A Preferred stock | | (5,500) | | | (5,500) | |
Dividends paid on Series B Preferred stock | | (4,849) | | | (4,849) | |
Distributions to non-controlling interest holders | | (138) | | | (138) | |
Net cash provided by (used in) financing activities | | 47,426 | | | (19,752) | |
Net change in cash, cash equivalents and restricted cash | | 14,748 | | | (21,404) | |
Cash, cash equivalents and restricted cash, beginning of period | | 76,538 | | | 85,382 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 91,286 | | | $ | 63,978 | |
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2023 | | 2022 |
Cash and cash equivalents, end of period | | $ | 51,041 | | | $ | 40,120 | |
Restricted cash, end of period | | 40,245 | | | 23,858 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 91,286 | | | $ | 63,978 | |
| | | | |
Supplemental disclosures of cash flow information: | | | | |
Cash paid for interest | | $ | 46,905 | | | $ | 32,448 | |
Cash paid for income and franchise taxes | | 416 | | | 566 | |
| | | | |
Non-cash investing and financing activities: | | | | |
Common stock issued through stock dividends | | $ | 67,975 | | | $ | 64,280 | |
Proceeds from real estate sales used to repay mortgage notes payable | | $ | 2,663 | | | $ | — | |
Mortgage notes payable repaid with proceeds from real estate sales | | $ | (2,663) | | | $ | — | |
Proceeds from real estate sales used to repay amounts outstanding under the Prior Credit Facility | | $ | 5,167 | | | $ | — | |
Amounts outstanding under the Prior Credit Facility repaid with proceeds from real estate sales | | $ | (5,167) | | | $ | — | |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
Note 1 — Organization
Healthcare Trust, Inc. (including, as required by context, Healthcare Trust Operating Partnership, L.P. (the “OP”) and its subsidiaries, the “Company”), is an externally managed entity that for U.S. federal income tax purposes has qualified as a real estate investment trust (“REIT”). The Company acquires, owns and manages a diversified portfolio of healthcare-related real estate, focused on medical office and other healthcare-related buildings (“MOBs”) and senior housing operating properties (“SHOPs”).
As of September 30, 2023, the Company owned 204 properties located in 33 states and comprised of 9.0 million rentable square feet.
Substantially all of the Company’s business is conducted through the OP and its wholly-owned subsidiaries including taxable REIT subsidiaries. The Company’s advisor, Healthcare Trust Advisors, LLC (the “Advisor”) manages its day-to-day business with the assistance of its property manager, Healthcare Trust Properties, LLC (the “Property Manager”). The Company’s Advisor and Property Manager are under common control with AR Global Investments, LLC (“AR Global”), and these related parties receive compensation and fees for providing services to the Company. The Company also reimburses these entities for certain expenses they incur in providing these services to the Company. Healthcare Trust Special Limited Partnership, LLC (the “Special Limited Partner”), which is also under common control with AR Global, also has an interest in the Company through ownership of interests in the OP. As of September 30, 2023, the Company owned 46 seniors housing properties using the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”) structure in its SHOP segment. Under RIDEA, a REIT may lease qualified healthcare properties on an arm’s length basis to a taxable REIT subsidiary (“TRS”) if the property is operated on behalf of such subsidiary by a person who qualifies as an eligible independent contractor.
The Company operates in two reportable business segments for management and internal financial reporting purposes: MOBs and SHOPs. All of the Company’s properties across both business segments are located throughout the United States. In its MOB operating segment, the Company owns, manages, and leases single- and multi-tenant MOBs where tenants are required to pay their pro rata share of property operating expenses, which may be subject to expense exclusions and floors, in addition to base rent. The Property Manager or third-party managers manage the Company’s MOBs. In its SHOP segment, the Company invests in seniors housing properties through the RIDEA structure. As of September 30, 2023, the Company had four eligible independent contractors operating 46 SHOPs, although effective on September 30, 2023, the Company terminated its contract with one independent contractor which managed 20 SHOPs. The Company is in the process of transferring the management of these 20 SHOPs to a new independent contractor, which the Company expects to be completed before December 31, 2023. The Company incurred $0.3 million of costs directly related to the termination in the three and nine months ended September 30, 2023.
The Company has declared quarterly dividends entirely in shares of its common stock since October 2020. Dividends payable entirely in shares of common stock are treated in a fashion similar to a stock split for accounting purposes specifically related to per-share calculations for the current and prior periods. Since October 2020, the Company has issued an aggregate of approximately 17.3 million shares as stock dividends. No other additional shares of common stock have been issued since October 2020. References made to weighted-average shares and per-share amounts in the accompanying consolidated statements of operations and comprehensive income have been retroactively adjusted to reflect the cumulative increase in shares outstanding resulting from the stock dividends since October 2020 and through October 2023, and are noted as such throughout the accompanying financial statements and notes. Any future issuances of stock dividends will also result in retroactive adjustments. Please see Note 8 — Stockholder’s Equity for additional information on the stock dividends. On March 31, 2023, the Company published a new estimate of per-share net asset value (“Estimated Per-Share NAV”) as of December 31, 2022. The Estimated Per-Share NAV published on March 31, 2023 has not been adjusted since publication and will not be adjusted until the Company’s board of directors (the “Board”) determines a new Estimated Per-Share NAV. Issuing dividends in additional shares of common stock will, all things equal, cause the value of each share to decline because the number of shares outstanding increases when shares of common stock are issued in respect of a stock dividend; however, because each stockholder will receive the same number of new shares, the total value of a common stockholder’s investment, all things equal, will not change assuming no sales or other transfers. The Company intends to publish Estimated Per-Share NAV periodically at the discretion of the Board, provided that such estimates will be made at least once annually unless the Company lists its common stock.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
Note 2 — Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to this Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair statement of results for the interim periods. The results of operations for the nine months ended September 30, 2023 and 2022 are not necessarily indicative of the results for the entire year or any subsequent interim periods.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”) on March 17, 2023. Except for those required by new accounting pronouncements discussed below, there have been no significant changes to the Company’s significant accounting policies during the nine months ended September 30, 2023.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity (“VIE”) for which the Company is the primary beneficiary. The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company’s assets and liabilities are held by the OP.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding revenue recognition, purchase price allocations to record investments in real estate, impairments, fair value measurements and income taxes, as applicable.
Continuing Impacts of the COVID-19 Pandemic
During the first quarter of 2020, the global COVID-19 pandemic commenced. The pandemic and its aftermath has had, and could continue to have, adverse impacts on economic and market conditions. The Company’s tenants and SHOP properties operate businesses that require in-person interactions with their patients and residents, and concern regarding the transmission of COVID-19 impacted, and may continue to impact, the willingness of persons to, among other things, live in or use facilities at the Company’s properties, and impact the revenues generated by the Company’s tenants which may further impact the ability of the Company’s tenants to pay their rent obligations to the Company when due.
The Company’s ability to lease space and negotiate and maintain favorable rents and the results of operations at its SHOPs could also continue to be negatively impacted by a prolonged recession in the U.S. economy as could the rates charged to residents at its SHOPs. Moreover, the demand for leasing space at the Company’s MOB properties could decline, negatively impacting occupancy percentage, revenue and earnings. Additionally, downturns or stagnation in the U.S. housing market as a result of an economic downturn could adversely affect the ability, or perceived ability, of seniors to afford the resident fees and services at the Company’s SHOPs.
Further, recent and continuing increases in inflation brought about by labor shortages, supply chain disruptions and increases in interest rates have had, and may continue to have, adverse impacts on the Company’s results of operations. Moreover, these increases in the rate of inflation, the ongoing wars in Ukraine, Israel and related sanctions, supply chain disruptions and increases in interest rates may also impact the ability of the Company’s tenants to pay rent and hence the Company’s results of operations and liquidity.
Beginning in March 2020, the COVID-19 pandemic and measures to prevent its spread began to affect the Company in a number of ways that vary by operating segment:
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
COVID-19 Impact — MOB Segment
The financial stability and overall health of the Company’s tenants is critical to its business. The Company took a proactive approach to achieve mutually agreeable solutions with its tenants and in some cases, during the year ended December 31, 2020, the Company executed lease amendments providing for deferral of rent. Since the year ended December 31, 2020, the Company has not entered into any rent deferral agreements with any of its tenants in this segment, and all amounts previously deferred under prior rent deferral agreements have been collected.
For accounting purposes, in accordance with ASC 842: Leases, normally a company would be required to assess a lease modification to determine if the lease modification should be treated as a separate lease and if not, modification accounting would be applied which would require a company to reassess the classification of the lease (including leases for which the prior classification under ASC 840 was retained as part of the election to apply the package of practical expedients allowed upon the adoption of ASC 842, which doesn’t apply to leases subsequently modified). However, in light of the COVID-19 pandemic in which many leases were modified, the Financial Accounting Standards Board (“FASB”) and SEC provided relief that allowed companies to elect whether they treated COVID-19 related lease amendments as provisions included in the pre-concession arrangements, and therefore, not lease modifications, or to treat lease amendments as modifications. In order to be considered COVID-19 related, cash flows had to be substantially the same or less than those prior to the concessions. For COVID-19 relief qualified changes, there were two methods to potentially account for such rent deferrals or abatements under the relief: (i) as if the changes were originally contemplated in the lease contract or (ii) as if the deferred payments are variable lease payments contained in the lease contract.
For all other lease changes that did not qualify for FASB relief, the Company was required to apply modification accounting including assessing classification under ASC 842. Some, but not all of the Company’s lease modifications qualified for the FASB relief. In accordance with the relief provisions, instead of treating these qualifying leases as modifications, the Company elected to treat the modifications as if previously contained in the lease and recast rents receivable prospectively (if necessary). Under that accounting, for modifications that were deferrals only, there was no impact on overall rental revenue and for any abatement amounts that reduced total rent to be received, the impact was recognized ratably over the remaining life of the leases. For leases not qualifying for this relief, the Company applied modification accounting and determined that there were no changes in the current classification of its leases impacted by negotiations with its tenants.
COVID-19 Impact — SHOP Segment
In the Company’s SHOP segment, occupancy trended downward from March 2020 until June 2021 and then stabilized until June 2022. Since then, SHOP occupancy has trended downward. The Company also experienced lower inquiry volumes and reduced in-person tours during the COVID-19 pandemic compared to pre-pandemic periods. In addition, beginning in March 2020, operating costs began to rise materially, including for services, labor and personal protective equipment and other supplies, as the Company’s operators took appropriate actions to protect residents and caregivers. At the SHOPs, the Company generally bears these cost increases, which were partially offset by funds received under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and to a lesser extent, cost recoveries for personal protective equipment from residents. See “CARES Act Grants” below for additional information on the CARES Act.
During the year ended December 31, 2022, the Company relied more on the use of temporary contract labor and agencies than it had historically. The Company has since reduced its reliance on this labor source in the nine months ended September 30, 2023. However, the wage expenses (including overtime, training and bonus wages) incurred by the Company from employees of its third party operators has increased due to, among other things, inflation raising the cost of labor generally, a lack of qualified personnel that the Company’s third party operators are able to employ on a permanent basis and training hours and other onboarding costs for permanent staff which replaced previously utilized contract and agency labor.
The persistence of high inflation, labor shortages and supply chain disruptions have caused adverse impacts to the Company’s occupancy and cost levels, and these trends may continue to impact the Company and have a material adverse effect on its operations in future periods.
The adverse financial impacts of the COVID-19 pandemic on the Company were partially offset by funds received by the Company under the CARES Act. The Company received $4.5 million, $5.1 million and $3.6 million under the CARES Act during the years ended December 31, 2022, 2021, and 2020, respectively. The Company did not receive any such funds during the three and nine months ended September 30, 2023 and it received $4.3 million and $4.5 million, respectively, in funding from the CARES Act during the three and nine months ended September 30, 2022. For accounting purposes, the Company treated these funds as grant contributions from the government. The full amounts received were recognized as reductions of property operating and maintenance expenses in the Company’s consolidated statements of operations and comprehensive loss
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
for the periods in which the funds were received, to partially offset the incurred COVID-19 expenses. The Company does not anticipate that any further funds under the CARES Act will be received, and there can be no assurance that the program will be extended or any further amounts received under currently effective or potential future government programs.
Revenue Recognition
The Company’s revenues, which are derived primarily from lease contracts, include rent received from tenants in its MOB segment. As of September 30, 2023, these leases had a weighted average remaining lease term of 4.8 years. Rent from tenants in the Company’s MOB operating segment (as discussed below) is recorded in accordance with the terms of each lease on a straight-line basis over the initial term of the lease. Because many of the leases provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable for, and include in revenue from tenants on a straight-line basis, unbilled rent receivables that the Company will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When the Company acquires a property, the acquisition date is considered to be the commencement date for purposes of this calculation. For new leases after acquisition, the commencement date is considered to be the date the tenant takes control of the space. For lease modifications, the commencement date is considered to be the date the lease modification is executed. The Company defers the revenue related to lease payments received from tenants in advance of their due dates. Tenant revenue also includes operating expense reimbursements which generally increase with any increase in property operating and maintenance expenses in our MOB segment. In addition to base rent, dependent on the specific lease, tenants are generally required to pay either (i) their pro rata share of property operating and maintenance expenses, which may be subject to expense exclusions and floors or (ii) their share of increases in property operating and maintenance expenses to the extent they exceed the properties’ expenses for the base year of the respective leases. Under ASC 842, the Company has elected to report combined lease and non-lease components in a single line “Revenue from tenants.” For expenses paid directly by the tenant, under both ASC 842 and 840, the Company has reflected them on a net basis.
The Company’s revenues also include resident services and fee income primarily related to rent derived from lease contracts with residents in the Company’s SHOP segment, held using a structure permitted under RIDEA. Rental income from residents in the Company’s SHOP segment is recognized as earned when services are provided. Residents pay monthly rent that covers occupancy of their unit and basic services, including utilities, meals and some housekeeping services. The terms of the leases are short term in nature, primarily month-to-month.
The Company defers the revenue related to lease payments received from tenants and residents in advance of their due dates. Pursuant to certain of the Company’s lease agreements, tenants are required to reimburse the Company for certain property operating and maintenance expenses related to non-SHOP assets (recorded in revenue from tenants), in addition to paying base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating and maintenance costs of the respective properties.
The following table presents future base rent payments on a cash basis due to the Company over the next five years and thereafter. These amounts exclude tenant reimbursements and contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes, among other items. These amounts also exclude SHOP leases which are short term in nature.
As of September 30, 2023:
| | | | | | | | |
(In thousands) | | Future Base Rent Payments |
2023 (remainder) | | $ | 27,566 | |
2024 | | 108,291 | |
2025 | | 98,378 | |
2026 | | 90,299 | |
2027 | | 71,439 | |
Thereafter | | 240,452 | |
Total | | $ | 636,425 | |
The Company continually reviews receivables related to rent and unbilled rent and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Under the leasing standards, the Company is required to assess, based on credit risk only, if it is probable that the Company will collect virtually all of the lease payments
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
at lease commencement date and it must continue to reassess collectability periodically thereafter based on new facts and circumstances affecting the credit risk of the tenant. Partial reserves, or the ability to assume partial recovery are no longer permitted. If the Company determines that it is probable it will collect virtually all of the lease payments (rent and common area maintenance), the lease will continue to be accounted for on an accrual basis (i.e., straight-line). However, if the Company determines it is not probable that it will collect virtually all of the lease payments, the lease will be accounted for on a cash basis and a full reserve would be recorded on previously accrued amounts in cases where it was subsequently concluded that collection was not probable. Cost recoveries from tenants are included in operating revenue from tenants in accordance with new accounting rules, on the accompanying consolidated statements of operations and comprehensive loss in the period the related costs are incurred, as applicable.
The Company recorded reductions in revenue of $0.2 million and $0.9 million, respectively, for uncollectable amounts during the three and nine months ended September 30, 2023, and $1.7 million and $2.6 million, respectively, during the three and nine months ended September 30, 2022.
Investments in Real Estate
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life or improve the productive capacity of the asset. Costs of repairs and maintenance are expensed as incurred.
At the time an asset is acquired, the Company evaluates the inputs, processes and outputs of the asset acquired to determine if the transaction is a business combination or asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive loss. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets. See the “Purchase Price Allocation” section in this Note for a discussion of the initial accounting for investments in real estate.
Disposal of real estate investments that represent a strategic shift in operations that will have a major effect on the Company's operations and financial results are required to be presented as discontinued operations in the consolidated statements of operations. No properties were presented as discontinued operations during the three months ended September 30, 2023 and 2022. Properties that are intended to be sold are to be designated as “held for sale” on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale, most significantly that the sale is probable within one year. The Company evaluates probability of sale based on specific facts including whether a sales agreement is in place and the buyer has made significant non-refundable deposits. Properties are no longer depreciated when they are classified as held for sale. There were no real estate investments held for sale as of September 30, 2023 or December 31, 2022.
Purchase Price Allocation
In both a business combination and an asset acquisition, the Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. Intangible assets may include the value of in-place leases and above- and below-market leases and other identifiable assets or liabilities based on lease or property specific characteristics. In addition, any assumed mortgages receivable or payable and any assumed or issued non-controlling interests (in a business combination) are recorded at their estimated fair values. In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above or below-market interest rates. In allocating the fair value to any assumed or issued non-controlling interests, amounts are recorded at their fair value at the close of business on the acquisition date. In a business combination, the difference between the purchase price and the fair value of identifiable net assets acquired is either recorded as goodwill or as a bargain purchase gain. In an asset acquisition, the difference between the acquisition price (including capitalized transaction costs) and the fair value of identifiable net assets acquired is allocated to the non-current assets. All acquisitions during the nine months ended September 30, 2023 were asset acquisitions. The Company acquired seven properties during the nine months ended September 30, 2023.
For acquired properties with leases classified as operating leases, the Company allocates the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed, based on their respective fair values. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information obtained about each property as a result of the Company’s pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. The Company estimates the fair value using data from appraisals, comparable sales, discounted cash flow analysis and other methods. Fair value estimates are also made using significant assumptions such as capitalization rates, fair market lease rates, discount rates and land values per square foot.
Identifiable intangible assets include amounts allocated to acquired leases for above- and below-market lease rates and the value of in-place leases. Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period, which typically ranges from six to 24 months. The Company also estimates costs to execute similar leases including leasing commissions, legal and other related expenses.
Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases.
The aggregate value of intangible assets related to customer relationships, as applicable, is measured based on the Company’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the tenant. Characteristics considered by the Company in determining these values include the nature and extent of its existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors. The Company did not record any intangible asset amounts related to customer relationships during the nine months ended September 30, 2023 or 2022.
Accounting for Leases
Lessor Accounting
In accordance with the lease accounting standard, all of the Company’s leases as lessor prior to adoption were accounted for as operating leases. The Company evaluates new leases originated after the adoption date (by the Company or by a predecessor lessor/owner) pursuant to the new guidance where a lease for some or all of a building is classified by a lessor as a sales-type lease if the significant risks and rewards of ownership reside with the tenant. This situation is met if, among other things, there is an automatic transfer of title during the lease, a bargain purchase option, the non-cancelable lease term is for more than a major part of the remaining economic useful life of the asset (e.g., equal to or greater than 75%), the present value of the minimum lease payments represents substantially all (e.g., equal to or greater than 90%) of the leased property’s fair value at lease inception, or the asset is so specialized in nature that it provides no alternative use to the lessor (and therefore would not provide any future value to the lessor) after the lease term. Further, such new leases would be evaluated to consider whether they would be failed sale-leaseback transactions and accounted for as financing transactions by the lessor. As of September 30, 2023 and December 31, 2022, the Company had no leases as a lessor that would be considered as sales-type leases or financings under sale-leaseback rules.
As a lessor of real estate, the Company has elected, by class of underlying assets, to account for lease and non-lease components (such as tenant reimbursements of property operating and maintenance expenses) as a single lease component as an operating lease because (i) the non-lease components have the same timing and pattern of transfer as the associated lease component; and (ii) the lease component, if accounted for separately, would be classified as an operating lease. Additionally, only incremental direct leasing costs may be capitalized under the accounting guidance. Indirect leasing costs in connection with new or extended tenant leases, if any, are being expensed.
Lessee Accounting
The Company is also the lessee under certain land leases which will continue to be classified as operating leases under transition elections unless subsequently modified. These leases are reflected on the balance sheets as of September 30, 2023 and December 31, 2022, and the rent expense is reflected on a straight-line basis over the lease term in the consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2023 and 2022.
For lessees, the accounting standard requires the application of a dual lease classification approach, classifying leases as either operating or finance leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. Lease expense for operating leases is recognized on a straight-line basis over the term of the lease, while lease expense for finance leases is recognized based on an effective interest method over the term of the lease. Also, lessees must recognize a
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
right-of-use asset (“ROU”) and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Further, certain transactions where at inception of the lease the buyer-lessor accounted for the transaction as a purchase of real estate and a new lease, may now be required to have symmetrical accounting to the seller-lessee if the transaction was not a qualified sale-leaseback and accounted for as a financing transaction. For additional information and disclosures related to the Company’s operating leases, see Note 16 — Commitments and Contingencies. Impairment of Long-Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the property for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If an impairment exists, due to the inability to recover the carrying value of a property, the Company would recognize an impairment loss in the consolidated statements of operations and comprehensive income to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held for use. For properties held for sale, the impairment loss recorded would equal the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net earnings.
Reportable Segments
The Company has determined that it has two reportable segments, with activities related to investing in MOBs and SHOPs. Management evaluates the operating performance of the Company’s investments in real estate and seniors housing properties on an individual property level. For additional information see Note 15 — Segment Reporting. Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years for land improvements, 7 to 10 years for fixtures and improvements, and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
Construction in progress is not depreciated until the project has reached substantial completion. The value of certain other intangibles such as certificates of need in certain jurisdictions are amortized over the expected period of benefit (generally the life of the related building).
The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases.
The value of customer relationship intangibles, if any, is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.
Assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
Income Taxes
The Company elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the taxable year ended December 31, 2013. If the Company continues to qualify for taxation as a REIT, it generally will not be subject to U.S. federal corporate income tax to the extent it distributes all of its REIT taxable income (which does not equal net income as calculated in accordance with GAAP) to its stockholders. REITs are subject to a number of organizational and operational requirements, including a requirement that the Company distribute annually at least 90% of the Company’s REIT taxable income to the Company’s stockholders.
If the Company fails to continue to qualify as a REIT in any taxable year and does not qualify for certain statutory relief provisions, the Company will be subject to U.S. federal, state and local income taxes at regular corporate rates beginning with the year in which it fails to qualify and may be precluded from being able to elect to be treated as a REIT for the Company’s four subsequent taxable years. The Company distributed to its stockholders 100% of its REIT taxable income for each of the years ended December 31, 2022, 2021 and 2020. Accordingly, no provision for U.S. federal or state income taxes related to such REIT taxable income was recorded in the Company’s financial statements. Even if the Company continues to qualify as a REIT, it may be subject to certain state and local taxes on its income and property, and U.S. federal income and excise taxes on its undistributed income.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
Certain limitations are imposed on REITs with respect to the ownership and operation of seniors housing properties. Generally, to qualify as a REIT, the Company cannot directly or indirectly operate seniors housing properties. Instead, such facilities may be either leased to a third-party operator or leased to a TRS and operated by a third party on behalf of the TRS. Accordingly, the Company has formed a TRS that is wholly-owned by the OP to lease its SHOPs and the TRS has entered into management contracts with unaffiliated third-party operators to operate the facilities on its behalf.
As of September 30, 2023, the Company owned 46 seniors housing properties which are leased and operated through its TRS. The TRS is a wholly-owned subsidiary of the OP. A TRS is subject to U.S. federal, state and local income taxes. The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies (including modifying intercompany leases with the TRS) and recent financial operations. In the event the Company determines that it would not be able to realize the deferred income tax assets in the future in excess of the net recorded amount, the Company establishes a valuation allowance which offsets the previously recognized income tax asset. Deferred income taxes result from temporary differences between the carrying amounts of the TRS’s assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes as well as net operating loss carryforwards. Significant components of the deferred tax assets and liabilities as of September 30, 2023 and December 31, 2022 consisted of deferred rent and net operating loss carryforwards. During the year ended December 31, 2020, the Company modified 25 intercompany leases with the TRS which abated intercompany rent due to the COVID-19 pandemic. During the three months ended September 30, 2023, the Company modified 26 intercompany leases with the TRS which reduced intercompany rent.
Because of the TRS's recent operating history of losses and the impact of the COVID-19 pandemic on the results of operations of the Company’s SHOP assets, the Company is not able to conclude that it is more likely than not it will realize the future benefit of its deferred tax assets; thus the Company has provided a 100% valuation allowance of $7.6 million as of September 30, 2023. If and when the Company believes it is more likely than not that it will recover its deferred tax assets, the Company will reverse the valuation allowance as an income tax benefit in its consolidated statements of comprehensive loss. As of December 31, 2022, the Company had a deferred tax asset of $6.9 million with a full valuation allowance.
CARES Act Grants
On March 27, 2020, the CARES Act was signed into law and provides funding to Medicare providers in order to provide financial relief during the COVID-19 pandemic. Funds provided under the program were to be used for the preparation, prevention, and medical response to COVID-19, and were designed to reimburse providers for healthcare related expenses and lost revenues attributable to COVID-19. The Company did not receive any funding from the CARES Act during the three and nine months ended September 30, 2023 and the Company received $4.3 million and $4.5 million, respectively, in funding from the CARES Act during the three and nine months ended September 30, 2022. For accounting purposes, the CARES Act funds are treated as a grant contribution from the government. Any funding that the Company would receive is recognized as a reduction of property operating and maintenance expenses in the Company’s consolidated statements of operations to offset the negative impacts of COVID-19. There can be no assurance that the program will be extended or any further amounts received under currently effective or potential future government programs.
Recently Issued Accounting Pronouncements
Adopted as of January 1, 2022:
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Topic 470) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Topic 815). The new standard reduces the number of accounting models for convertible debt instruments and convertible preferred stock, and amends the guidance for the derivatives scope exception for contracts in an entity's own equity. The standard also amends and makes targeted improvements to the related earnings per share guidance. The ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption was permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The standard allows for either modified or full retrospective transition methods. The Company adopted the new guidance on January 1, 2022 and determined it did not have a material impact on its consolidated financial statements.
Not yet Fully Adopted as of September 30, 2023:
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). Topic 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in Topic 848 is optional and may be elected over the period from March 12, 2020 through June 30, 2023 as reference rate reform
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
activities occur. During the year ended December 31, 2020, the Company elected to apply the hedge accounting expedients related to (i) the assertion that the Company’s hedged forecasted transactions remain probable and (ii) the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of the Company’s derivatives, which will be consistent with the Company’s past presentation. The Company will continue to evaluate the impact of the guidance and may apply other elections, as applicable, as additional changes in the market occur.
Note 3 — Real Estate Investments, Net
Property Acquisitions
The Company invests in healthcare-related facilities, primarily MOBs and seniors housing properties which expand and diversify its portfolio and revenue base. The Company owned 204 properties as of September 30, 2023. During the nine months ended September 30, 2023 and 2022, the Company acquired seven and three properties, respectively. All acquisitions in the nine months ended September 30, 2023 and 2022 were considered asset acquisitions for accounting purposes.
The following table presents the allocation of real estate assets acquired and liabilities assumed during the nine months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
(In thousands) | | 2023 | | 2022 |
Real estate investments, at cost: | | | | |
Land | | $ | 3,373 | | | $ | 4,199 | |
Buildings, fixtures and improvements | | 27,069 | | | 10,662 | |
| | | | |
Total tangible assets | | 30,442 | | | 14,861 | |
Acquired intangibles: | | | | |
In-place leases and other intangible assets | | 5,057 | | | 2,670 | |
Market lease and other intangible assets | | 33 | | | 268 | |
Market lease liabilities | | (271) | | | — | |
Total intangible assets and liabilities | | 4,819 | | | 2,938 | |
| | | | |
| | | | |
| | | | |
Cash paid for real estate investments, including acquisitions | | $ | 35,261 | | | $ | 17,799 | |
Number of properties purchased | | 7 | | | 3 | |
Significant Tenants
As of September 30, 2023 and 2022, the Company did not have any tenants (including for this purpose, all affiliates of such tenants) whose annualized rental income on a straight-line basis represented 10% or greater of total annualized rental income for the portfolio on a straight-line basis. The following table lists the states where the Company had concentrations of properties where annualized rental income on a straight-line basis represented 10% or more of consolidated annualized rental income on a straight-line basis for all properties as of September 30, 2023 and 2022:
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| | September 30, |
State | | 2023 | | 2022 |
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Florida | | 19.8% | | 19.0% |
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Pennsylvania | | 10.6% | | * |
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| | | | |
_________
* The annualized rental income on a straight-line basis was not greater than 10% of total annualized rental income on a straight-line basis for all portfolio properties as of the date specified.
HEALTHCARE TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
Intangible Assets and Liabilities
The following table discloses amounts recognized within the consolidated statements of operations and comprehensive loss related to amortization of in-place leases and other intangible assets, amortization and accretion of above- and below-market lease assets and liabilities, net and the amortization and accretion of above- and below-market ground leases, net, for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
(In thousands) | | 2023 | | 2022 | | 2023 | | 2022 |
Amortization of in-place leases and other intangible assets (1) | | $ | 3,455 | | | $ | 3,815 | | | $ | 10,414 | | | $ | 11,502 | |
Accretion of above -and below-market leases, net (2) | | $ | (244) | | | $ | (219) | | | $ | (795) | | | $ | (549) | |
Amortization of above -and below-market ground leases, net (3) | | $ | |