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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
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: 001-35568 (Healthcare Trust of America, Inc.)
Commission File Number: 333-190916 (Healthcare Trust of America Holdings, LP)
_________________________ 
HEALTHCARE TRUST OF AMERICA, INC.
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
(Exact name of registrant as specified in its charter)
Maryland (Healthcare Trust of America, Inc.)
20-4738467
Delaware (Healthcare Trust of America Holdings, LP)
20-4738347
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
16435 N. Scottsdale Road, Suite 320, Scottsdale, Arizona
85254
(Address of principal executive offices)
(Zip Code)
 
 
(480) 998-3478
http://www.htareit.com
Registrant’s telephone number, including area code
Internet address
N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 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.    
Healthcare Trust of America, Inc.
x Yes
¨ No
 
Healthcare Trust of America Holdings, LP
x Yes
¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    
Healthcare Trust of America, Inc.
x Yes
¨ No
 
Healthcare Trust of America Holdings, LP
x 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.
Healthcare Trust of America, Inc.
Large-accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ¨
Emerging growth company ¨
 
 
 
(Do not check if a smaller reporting company)
 
 
Healthcare Trust of America Holdings, LP
Large-accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
Smaller reporting company ¨
Emerging growth company ¨
 
 
 
(Do not check if a smaller reporting 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.
Healthcare Trust of America, Inc.
¨
 
 
Healthcare Trust of America Holdings, LP
¨
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Healthcare Trust of America, Inc.
¨ Yes
x No
 
Healthcare Trust of America Holdings, LP
¨ Yes
x No
 
As of April 22, 2019, there were 205,097,423 shares of Class A common stock of Healthcare Trust of America, Inc. outstanding.
 



Explanatory Note
This quarterly report combines the Quarterly Reports on Form 10-Q (“Quarterly Report”) for the quarter ended March 31, 2019, of Healthcare Trust of America, Inc. (“HTA”), a Maryland corporation, and Healthcare Trust of America Holdings, LP (“HTALP”), a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this Quarterly Report to “we,” “us,” “our,” “the Company” or “our Company” refer to HTA and HTALP, collectively, and all references to “common stock” shall refer to the Class A common stock of HTA.
HTA operates as a real estate investment trust (“REIT”) and is the general partner of HTALP. As of March 31, 2019, HTA owned a 98.1% partnership interest in HTALP, and other limited partners, including some of HTA’s directors, executive officers and their affiliates, owned the remaining partnership interest (including the long-term incentive plan (“LTIP” Units)) in HTALP. As the sole general partner of HTALP, HTA has the full, exclusive and complete responsibility for HTALP’s day-to-day management and control, including its compliance with the Securities and Exchange Commission (“SEC”) filing requirements.
We believe it is important to understand the few differences between HTA and HTALP in the context of how we operate as an integrated consolidated company. HTA operates as an umbrella partnership REIT structure in which HTALP and its subsidiaries hold substantially all of the assets. HTA’s only material asset is its ownership of partnership interests of HTALP. As a result, HTA does not conduct business itself, other than acting as the sole general partner of HTALP, issuing public equity from time to time and guaranteeing certain debts of HTALP. HTALP conducts the operations of the business and issues publicly-traded debt, but has no publicly-traded equity. Except for net proceeds from public equity issuances by HTA, which are generally contributed to HTALP in exchange for partnership units of HTALP, HTALP generates the capital required for the business through its operations and by direct or indirect incurrence of indebtedness or through the issuance of its partnership units (“OP Units”).
Noncontrolling interests, stockholders’ equity and partners’ capital are the primary areas of difference between the condensed consolidated financial statements of HTA and HTALP. Limited partnership units in HTALP are accounted for as partners’ capital in HTALP’s condensed consolidated balance sheets and as a noncontrolling interest reflected within equity in HTA’s condensed consolidated balance sheets. The differences between HTA’s stockholders’ equity and HTALP’s partners’ capital are due to the differences in the equity issued by HTA and HTALP, respectively.
We believe combining the Quarterly Reports of HTA and HTALP, including the notes to the condensed consolidated financial statements, into this single Quarterly Report results in the following benefits:
enhances stockholders’ understanding of HTA and HTALP by enabling stockholders to view the business as a whole in the same manner that management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure in this Quarterly Report applies to both HTA and HTALP; and
creates time and cost efficiencies through the preparation of a single combined Quarterly Report instead of two separate Quarterly Reports.
In order to highlight the material differences between HTA and HTALP, this Quarterly Report includes sections that separately present and discuss areas that are materially different between HTA and HTALP, including:
the condensed consolidated financial statements;
certain accompanying notes to the condensed consolidated financial statements, including Note 8 - Debt, Note 12 - Stockholders’ Equity and Partners’ Capital, Note 14 - Per Share Data of HTA, and Note 15 - Per Unit Data of HTALP;
as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), the Funds From Operations (“FFO”) and Normalized FFO in Part 1, Item 2 of this Quarterly Report;
the Controls and Procedures in Part 1, Item 4 of this Quarterly Report; and
the Certifications of the Chief Executive Officer and the Chief Financial Officer included as Exhibits 31 and 32 to this Quarterly Report.
In the sections of this Quarterly Report that combine disclosure for HTA and HTALP, this Quarterly Report refers to actions or holdings as being actions or holdings of the Company. Although HTALP (directly or indirectly through one of its subsidiaries) is generally the entity that enters into contracts, holds assets and issues or incurs debt, management believes this presentation is appropriate for the reasons set forth above and because the business of the Company is a single integrated enterprise operated through HTALP.

2



HEALTHCARE TRUST OF AMERICA, INC. AND
HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
TABLE OF CONTENTS
 
 
 
Page
Healthcare Trust of America, Inc.
 
 
 
 
 
 
Healthcare Trust of America Holdings, LP
 
 
 
 
 
 
Notes for Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP
 
 
 
 
 
 
 
 
 






3


Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
(Unaudited)
 
 
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
 
Real estate investments:
 
 
 
 
Land
 
$
483,848

 
$
481,871

Building and improvements
 
5,807,582

 
5,787,152

Lease intangibles
 
596,568

 
599,864

Construction in progress
 
6,541

 
4,903

 
 
6,894,539

 
6,873,790

Accumulated depreciation and amortization
 
(1,264,637
)
 
(1,208,169
)
Real estate investments, net
 
5,629,902

 
5,665,621

Investment in unconsolidated joint venture
 
67,072

 
67,172

Cash and cash equivalents
 
61,073

 
126,221

Restricted cash
 
7,402

 
7,309

Receivables and other assets, net
 
221,202

 
223,415

Right-of-use assets, net
 
243,446

 

Other intangibles, net
 
12,457

 
98,738

Total assets
 
$
6,242,554

 
$
6,188,476

LIABILITIES AND EQUITY
 
 
 
 
Liabilities:
 
 
 
 
Debt
 
$
2,541,619

 
$
2,541,232

Accounts payable and accrued liabilities
 
139,462

 
185,073

Security deposits, prepaid rent and other liabilities
 
42,044

 
59,567

Lease liabilities
 
197,313

 

Intangible liabilities, net
 
40,820

 
61,146

Total liabilities
 
2,961,258

 
2,847,018

Commitments and contingencies
 

 

Redeemable noncontrolling interests
 
6,520

 
6,544

Equity:
 
 
 
 
Preferred stock, $0.01 par value; 200,000,000 shares authorized; none issued and outstanding
 

 

Class A common stock, $0.01 par value; 1,000,000,000 shares authorized; 205,099,708 and 205,267,349 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
 
2,051

 
2,053

Additional paid-in capital
 
4,517,961

 
4,525,969

Accumulated other comprehensive (loss) income
 
(75
)
 
307

Cumulative dividends in excess of earnings
 
(1,322,443
)
 
(1,272,305
)
Total stockholders’ equity
 
3,197,494

 
3,256,024

Noncontrolling interests
 
77,282

 
78,890

Total equity
 
3,274,776

 
3,334,914

Total liabilities and equity
 
$
6,242,554

 
$
6,188,476

 
 
 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4


Table of Contents

HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Revenues:
 
 
 
Rental income
$
168,875

 
$
175,567

Interest and other operating income
91

 
94

Total revenues
168,966

 
175,661

Expenses:
 
 
 
Rental
51,468

 
56,022

General and administrative
11,290

 
8,786

Transaction
40

 
191

Depreciation and amortization
69,481

 
70,392

Interest expense
23,970

 
26,253

Impairment

 
4,606

Total expenses
156,249

 
166,250

Loss on sale of real estate, net
(37
)
 

Income from unconsolidated joint venture
486

 
570

Other income
535

 
35

Net income
$
13,701

 
$
10,016

Net income attributable to noncontrolling interests (1) 
(261
)
 
(214
)
Net income attributable to common stockholders
$
13,440

 
$
9,802

Earnings per common share - basic:
 
 
 
Net income attributable to common stockholders
$
0.07

 
$
0.05

Earnings per common share - diluted:
 
 
 
Net income attributable to common stockholders
$
0.06

 
$
0.05

Weighted average common shares outstanding:
 
 
 
Basic
205,080

 
205,069

Diluted
208,999

 
209,177

 
 
 
 
(1) Includes amounts attributable to redeemable noncontrolling interests.
The accompanying notes are an integral part of these condensed consolidated financial statements.

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HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
Net income
$
13,701

 
$
10,016

 
 
 
 
Other comprehensive (loss) income
 
 
 
Change in unrealized (losses) gains on cash flow hedges
(390
)
 
900

Total other (loss) comprehensive income
(390
)
 
900

 
 
 
 
Total comprehensive income
13,311

 
10,916

Comprehensive income attributable to noncontrolling interests
(225
)
 
(198
)
Total comprehensive income attributable to common stockholders
$
13,086

 
$
10,718

The accompanying notes are an integral part of these condensed consolidated financial statements.


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HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
(Unaudited)
 
Class A Common Stock
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Income (Loss)
 
Cumulative Dividends in Excess of Earnings
 
Total Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
Shares
 
Amount
Balance as of December 31, 2017
204,892

 
$
2,049

 
$
4,508,528

 
$
274

 
$
(1,232,069
)
 
$
3,278,782

 
$
84,666

 
$
3,363,448

Share-based award transactions, net
289

 
3

 
3,504

 

 

 
3,507

 

 
3,507

Repurchase and cancellation of common stock
(92
)
 
(1
)
 
(2,708
)
 

 

 
(2,709
)
 

 
(2,709
)
Redemption of noncontrolling interest and other
91

 
1

 
2,412

 

 

 
2,413

 
(2,413
)
 

Dividends declared ($0.305 per common share)

 

 

 

 
(62,559
)
 
(62,559
)
 
(1,307
)
 
(63,866
)
Net income

 

 

 

 
9,802

 
9,802

 
181

 
9,983

Other comprehensive income

 

 

 
883

 

 
883

 
17

 
900

Balance as of March 31, 2018
205,180

 
$
2,052

 
$
4,511,736

 
$
1,157

 
$
(1,284,826
)
 
$
3,230,119

 
$
81,144

 
$
3,311,263

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
205,267

 
$
2,053

 
$
4,525,969

 
$
307

 
$
(1,272,305
)
 
$
3,256,024

 
$
78,890

 
$
3,334,914

Share-based award transactions, net
293

 
3

 
3,386

 

 

 
3,389

 

 
3,389

Repurchase and cancellation of common stock
(478
)
 
(5
)
 
(11,921
)
 

 

 
(11,926
)
 

 
(11,926
)
Redemption of noncontrolling interest and other
18

 

 
527

 

 

 
527

 
(527
)
 

Dividends declared ($0.310 per common share)

 

 

 

 
(63,578
)
 
(63,578
)
 
(1,306
)
 
(64,884
)
Net income

 

 

 

 
13,440

 
13,440

 
233

 
13,673

Other comprehensive loss

 

 

 
(382
)
 

 
(382
)
 
(8
)
 
(390
)
Balance as of March 31, 2019
205,100

 
$
2,051

 
$
4,517,961

 
$
(75
)
 
$
(1,322,443
)
 
$
3,197,494

 
$
77,282

 
$
3,274,776

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HEALTHCARE TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
13,701

 
$
10,016

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
66,528

 
68,303

Share-based compensation expense
3,389

 
3,507

Impairment

 
4,606

Income from unconsolidated joint venture
(486
)
 
(570
)
Distributions from unconsolidated joint venture
750

 

Loss on sale of real estate, net
37

 

Changes in operating assets and liabilities:
 
 
 
Receivables and other assets, net
2,546

 
9,277

Accounts payable and accrued liabilities
(40,402
)
 
(30,780
)
Prepaid rent and other liabilities
2,492

 
(3,479
)
Net cash provided by operating activities
48,555

 
60,880

Cash flows from investing activities:
 
 
 
Investments in real estate
(18,592
)
 
(11,887
)
Development of real estate
(2,014
)
 
(13,235
)
Proceeds from the sale of real estate
1,193

 

Capital expenditures
(16,815
)
 
(17,417
)
Collection of real estate notes receivable
181

 
172

Net cash used in investing activities
(36,047
)
 
(42,367
)
Cash flows from financing activities:
 
 
 
Payments on secured mortgage loans
(587
)
 
(1,598
)
Security deposits

 
52

Repurchase and cancellation of common stock
(11,926
)
 
(2,709
)
Dividends paid
(63,686
)
 
(62,546
)
Distributions paid to noncontrolling interest of limited partners
(1,364
)
 
(1,334
)
Net cash used in financing activities
(77,563
)
 
(68,135
)
Net change in cash, cash equivalents and restricted cash
(65,055
)
 
(49,622
)
Cash, cash equivalents and restricted cash - beginning of period
133,530

 
118,560

Cash, cash equivalents and restricted cash - end of period
$
68,475

 
$
68,938

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data)
(Unaudited)
 
 
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
 
Real estate investments:
 
 
 
 
Land
 
$
483,848

 
$
481,871

Building and improvements
 
5,807,582

 
5,787,152

Lease intangibles
 
596,568

 
599,864

Construction in progress
 
6,541

 
4,903

 
 
6,894,539

 
6,873,790

Accumulated depreciation and amortization
 
(1,264,637
)
 
(1,208,169
)
Real estate investments, net
 
5,629,902

 
5,665,621

Investment in unconsolidated joint venture
 
67,072

 
67,172

Cash and cash equivalents
 
61,073

 
126,221

Restricted cash
 
7,402

 
7,309

Receivables and other assets, net
 
221,202

 
223,415

Right-of-use assets, net
 
243,446

 

Other intangibles, net
 
12,457

 
98,738

Total assets
 
$
6,242,554

 
$
6,188,476

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
 
Liabilities:
 
 
 
 
Debt
 
$
2,541,619

 
$
2,541,232

Accounts payable and accrued liabilities
 
139,462

 
185,073

Security deposits, prepaid rent and other liabilities
 
42,044

 
59,567

Lease liabilities
 
197,313

 

Intangible liabilities, net
 
40,820

 
61,146

Total liabilities
 
2,961,258

 
2,847,018

Commitments and contingencies
 


 


Redeemable noncontrolling interests
 
6,520

 
6,544

Partners’ Capital:
 
 
 
 
Limited partners’ capital, 3,910,767 and 3,929,083 units issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
 
77,012

 
78,620

General partners’ capital, 205,099,708 and 205,267,349 units issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
 
3,197,764

 
3,256,294

Total partners’ capital
 
3,274,776

 
3,334,914

Total liabilities and partners’ capital
 
$
6,242,554

 
$
6,188,476

The accompanying notes are an integral part of these condensed consolidated financial statements.


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HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Revenues:
 
 
 
Rental income
$
168,875

 
$
175,567

Interest and other operating income
91

 
94

Total revenues
168,966

 
175,661

Expenses:
 
 
 
Rental
51,468

 
56,022

General and administrative
11,290

 
8,786

Transaction
40

 
191

Depreciation and amortization
69,481

 
70,392

Interest expense
23,970

 
26,253

Impairment

 
4,606

Total expenses
156,249

 
166,250

Loss on sale of real estate, net
(37
)
 

Income from unconsolidated joint venture
486

 
570

Other income
535

 
35

Net income
$
13,701

 
$
10,016

Net income attributable to noncontrolling interests
(28
)
 
(33
)
Net income attributable to common unitholders
$
13,673

 
$
9,983

Earnings per common unit - basic:
 
 
 
Net income attributable to common unitholders
$
0.07

 
$
0.05

Earnings per common unit - diluted:
 
 
 
Net income attributable to common unitholders
$
0.07

 
$
0.05

Weighted average common units outstanding: 
 
 
 
Basic
208,999

 
209,177

Diluted
208,999

 
209,177

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
Net income
$
13,701

 
$
10,016

 
 
 
 
Other comprehensive (loss) income
 
 
 
Change in unrealized (losses) gains on cash flow hedges
(390
)
 
900

Total other comprehensive (loss) income
(390
)
 
900

 
 
 
 
Total comprehensive income
13,311

 
10,916

Comprehensive income attributable to noncontrolling interests
(28
)
 
(33
)
Total comprehensive income attributable to common unitholders
$
13,283

 
$
10,883

The accompanying notes are an integral part of these condensed consolidated financial statements.


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HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS CAPITAL
(In thousands)
(Unaudited)
 
General Partners’ Capital
 
Limited Partners’ Capital
 
Total Partners’ Capital
 
Units
 
Amount
 
Units
 
Amount
 
Balance as of December 31, 2017
204,892

 
$
3,279,052

 
4,124

 
$
84,396

 
$
3,363,448

Share-based award transactions, net
289

 
3,507

 

 

 
3,507

Redemption and cancellation of general partner units
(92
)
 
(2,709
)
 

 

 
(2,709
)
Redemption of limited partner units and other
91

 
2,413

 
(91
)
 
(2,413
)
 

Distributions declared ($0.305 per common unit)

 
(62,559
)
 

 
(1,307
)
 
(63,866
)
Net income

 
9,802

 

 
181

 
9,983

Other comprehensive income

 
883

 

 
17

 
900

Balance as of March 31, 2018
205,180

 
$
3,230,389

 
4,033

 
$
80,874

 
$
3,311,263

 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
205,267

 
$
3,256,294

 
3,929

 
$
78,620

 
$
3,334,914

Share-based award transactions, net
293

 
3,389

 

 

 
3,389

Redemption and cancellation of general partner units
(478
)
 
(11,926
)
 

 

 
(11,926
)
Redemption of limited partner units and other
18

 
527

 
(18
)
 
(527
)
 

Distributions declared ($0.310 per common unit)

 
(63,578
)
 

 
(1,306
)
 
(64,884
)
Net income

 
13,440

 

 
233

 
13,673

Other comprehensive loss

 
(382
)
 

 
(8
)
 
(390
)
Balance as of March 31, 2019
205,100

 
$
3,197,764

 
3,911

 
$
77,012

 
$
3,274,776

The accompanying notes are an integral part of these condensed consolidated financial statements.


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HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
13,701

 
$
10,016

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
66,528

 
68,303

Share-based compensation expense
3,389

 
3,507

Impairment

 
4,606

Income from unconsolidated joint venture
(486
)
 
(570
)
Distributions from unconsolidated joint venture
750

 

Loss on sale of real estate, net
37

 

Changes in operating assets and liabilities:
 
 
 
Receivables and other assets, net
2,546

 
9,277

Accounts payable and accrued liabilities
(40,402
)
 
(30,780
)
Prepaid rent and other liabilities
2,492

 
(3,479
)
Net cash provided by operating activities
48,555

 
60,880

Cash flows from investing activities:
 
 
 
Investments in real estate
(18,592
)
 
(11,887
)
Development of real estate
(2,014
)
 
(13,235
)
Proceeds from the sale of real estate
1,193

 

Capital expenditures
(16,815
)
 
(17,417
)
Collection of real estate notes receivable
181

 
172

Net cash used in investing activities
(36,047
)
 
(42,367
)
Cash flows from financing activities:
 
 
 
Payments on secured mortgage loans
(587
)
 
(1,598
)
Security deposits

 
52

Repurchase and cancellation of general partner units
(11,926
)
 
(2,709
)
Distributions paid to general partner
(63,686
)
 
(62,546
)
Distributions paid to limited partners and redeemable noncontrolling interests
(1,364
)
 
(1,334
)
Net cash used in financing activities
(77,563
)
 
(68,135
)
Net change in cash, cash equivalents and restricted cash
(65,055
)
 
(49,622
)
Cash, cash equivalents and restricted cash - beginning of period
133,530

 
118,560

Cash, cash equivalents and restricted cash - end of period
$
68,475

 
$
68,938

The accompanying notes are an integral part of these condensed consolidated financial statements.

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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unless otherwise indicated or unless the context requires otherwise the use of the words “we,” “us” or “our” refers to Healthcare Trust of America, Inc. and Healthcare Trust of America Holdings, LP, collectively.
1. Organization and Description of Business
HTA, a Maryland corporation, and HTALP, a Delaware limited partnership, were incorporated or formed, as applicable, on April 20, 2006. HTA operates as a REIT and is the general partner of HTALP, which is the operating partnership, in an umbrella partnership, or “UPREIT” structure. HTA has qualified and intends to continue to be taxed as a REIT for federal income tax purposes under the applicable sections of the Internal Revenue Code.
We own real estate primarily consisting of medical office buildings (“MOBs”) located on or adjacent to hospital campuses or in off-campus, community core outpatient locations across 32 states within the United States, and we lease space to tenants primarily consisting of health systems, research and academic institutions, and various sized physician practices.  Through our full-service operating platform we provide leasing, asset management, acquisitions, development and other related services for our properties.
Our primary objective is to maximize stockholder value with growth through strategic investments that provide an attractive risk-adjusted return for our stockholders by consistently increasing our cash flow. In pursuing this objective, we: (i) seek internal growth through proactive asset management, leasing, building services and property management oversight; (ii) target accretive acquisitions and developments of MOBs in markets with attractive demographics that complement our existing portfolio; and (iii) actively manage our balance sheet to maintain flexibility with conservative leverage. Additionally, from time to time we consider, on an opportunistic basis, significant portfolio acquisitions that we believe fit our core business and we expect to enhance our existing portfolio.
2. Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding our condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the U.S. (“GAAP”) in all material respects and have been consistently applied in preparing our accompanying condensed consolidated financial statements.
Basis of Presentation
Our accompanying condensed consolidated financial statements include our accounts and those of our subsidiaries and any consolidated variable interest entities (“VIEs”). All inter-company balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments, which are, in our opinion, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such results may be less favorable for the full year. Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2018 Annual Report on Form 10-K.

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Table of Contents
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Principles of Consolidation
The condensed consolidated financial statements include the accounts of our subsidiaries and consolidated joint venture arrangements. The portions of the HTALP operating partnership not owned by us are presented as noncontrolling interests in our consolidated balance sheets and statements of operations, consolidated statements of comprehensive income, consolidated statements of equity, and consolidated statements of changes in partners’ capital. The portions of other joint venture arrangements not owned by us are presented as redeemable noncontrolling interests on the accompanying condensed consolidated balance sheets. Holders of OP Units are considered to be noncontrolling interest holders in HTALP and their ownership interests are reflected as equity on the accompanying condensed consolidated balance sheets. Further, a portion of the earnings and losses of HTALP are allocated to noncontrolling interest holders based on their respective ownership percentages. Upon conversion of OP Units to common stock, any difference between the fair value of the common stock issued and the carrying value of the OP Units converted to common stock is recorded as a component of equity. As of March 31, 2019 and December 31, 2018, there were approximately 3.9 million of OP Units issued and outstanding.
VIEs are entities where investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or where equity investors, as a group, lack one of the following: (i) the power to direct the activities that most significantly impact the entity’s economic performance; (ii) the obligation to absorb the expected losses of the entity; and (iii) the right to receive the expected returns of the entity. We consolidate our investment in VIEs when we determine that we are the primary beneficiary. A primary beneficiary is one that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. The HTALP operating partnership and our other joint venture arrangements are VIEs because the limited partners in those partnerships, although entitled to vote on certain matters, do not possess kick-out rights or substantive participating rights. Additionally, we determined that we are the primary beneficiary of our VIEs. Accordingly, we consolidate our interests in the HTALP operating partnership and in our other joint venture arrangements. However, because we hold what is deemed a majority voting interest in the HTALP operating partnership and our other joint venture arrangements, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs. We will evaluate on an ongoing basis the need to consolidate entities based on the standards set forth in GAAP as described above.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased. Restricted cash is comprised of (i) reserve accounts for property taxes, insurance, capital improvements and tenant improvements; (ii) collateral accounts for debt and interest rate swaps; and (iii) deposits for future investments.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying consolidated balance sheets to the combined amounts shown on the accompanying consolidated statements of cash flows (in thousands):
 
March 31,
 
2019
 
2018
Cash and cash equivalents
$
61,073

 
$
56,243

Restricted cash
7,402

 
12,695

Total cash, cash equivalents and restricted cash
$
68,475

 
$
68,938


Revenue Recognition
Minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Differences between rental income recognized and amounts contractually due under the lease agreements are recorded as straight-line rent receivables. Tenant reimbursements, which is comprised of additional amounts recoverable from tenants for real estate taxes, common area maintenance and other certain operating expenses are recognized as revenue on a gross basis in the period in which the related recoverable expenses are incurred.  We accrue revenue corresponding to these expenses on a quarterly basis to adjust recorded amounts to our best estimate of the final annual amounts to be billed. Subsequent to year-end, on a calendar year basis, we perform reconciliations on a lease-by-lease basis and bill or credit each tenant for any differences between the estimated expenses we billed and the actual expenses that were incurred. We recognize lease termination fees when there is a signed termination letter agreement, all of the conditions of the agreement have been met, and the tenant is no longer occupying the property. Rental income is reported net of amortization of inducements.

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Table of Contents
HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The revenue recognition process is based on a five-step model to account for revenue arising from contracts with customers as outlined in Topic 606. We recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We have identified all of our revenue streams and we have concluded that rental income from leasing arrangements represents a substantial portion of our revenue and is governed and evaluated with the adoption of Topic 842.
Investments in Real Estate
Depreciation expense of buildings and improvements for the three months ended March 31, 2019 and 2018 was $52.1 million and $50.7 million, respectively.
Leases
As lessor we lease space in our MOBs primarily to medical enterprises for terms ranging from three to seven years in length. The assets underlying these leases consist of buildings and associated land which are included as real estate investments on our condensed consolidated balance sheets. All of our leases for which we are the lessor are classified as operating leases under Topic 842.
Leases, for which we are the lessee, are classified as separate components on our condensed consolidated balance sheets. Operating leases are included as right-of-use (“ROU”) assets, net, with a corresponding lease liability. A lease liability is recognized for our obligation related to the lease and an ROU asset represents our right to use the underlying asset over the lease term. Refer to Note 7 - Leases in the accompanying notes to the condensed consolidated financial statements for more detail relating to our leases.
Redeemable Noncontrolling Interests
We account for redeemable equity securities in accordance with ASU 2009-04 Liabilities (Topic 480): Accounting for Redeemable Equity Instruments, which requires that equity securities redeemable at the option of the holder, not solely within our control, be classified outside permanent stockholders’ equity. We classify redeemable equity securities as redeemable noncontrolling interests in the accompanying consolidated balances sheets. Accordingly, we record the carrying amount at the greater of the initial carrying amount (increased or decreased for the noncontrolling interest’s share of net income or loss and distributions) or the redemption value. We measure the redemption value and record an adjustment to the carrying value of the equity securities as a component of redeemable noncontrolling interest. As of March 31, 2019 and December 31, 2018, we had redeemable noncontrolling interests of $6.5 million. Refer to Note 11 - Redeemable Noncontrolling Interests in the accompanying notes to the condensed consolidated financial statements for more detail relating to our redeemable noncontrolling interests.
Unconsolidated Joint Ventures
We account for our investments in unconsolidated joint ventures using the equity method of accounting because we have the ability to exercise significant influence, but not control, over the financial and operational policy decisions of the investments. Using the equity method of accounting, the initial investment is recognized at cost and subsequently adjusted for our share of the net income and any distributions from the joint venture. As of March 31, 2019 and December 31, 2018, we had a 50% interest in one such investment with a carrying value and maximum exposure to risk of $67.1 million and $67.2 million, respectively, which is recorded in investment in unconsolidated joint venture in the accompanying condensed consolidated balance sheets. We record our share of net income in income from unconsolidated joint venture in the accompanying condensed consolidated statements of operations. For the three months ended March 31, 2019 and 2018, we recognized income of $0.5 million and $0.6 million, respectively.

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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Recently Issued or Adopted Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Topic 842, Leases
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02, codified as ASC 842 - Leases (Topic 842). This new standard superseded ASC Topic 840 and states that companies will be required to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. Topic 842 requires qualitative and quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand the nature of the entity’s leasing activities, including significant judgments and changes in judgments.
We adopted Topic 842 as of January 1, 2019 and elected the practical expedient to use the optional transition method, which allows us to recognize a cumulative-effect adjustment to the opening balance of retained earnings at January 1, 2019. Using the optional transition method, the cumulative effect adjustment was immaterial and as such no adjustment was made to beginning retained earnings. In addition, it was determined in our analysis that finance leases which we are the lessee were immaterial and as such were excluded from our disclosures.
In addition to electing the optional transition method above, we also elected the following practical expedients offered by the FASB which will allow us:
to not reassess (i) whether an expired or existing contract contains a lease arrangement, (ii) lease classification related to expired or existing lease arrangements, or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs;
to not separate, as the lessor, certain non-lease components, such as common area maintenance from lease revenue if the (i) timing and pattern of revenue recognition are the same for the non-lease component, and (ii) related lease component and the combined single lease component would be classified as an operating lease;
to exclude land easements from assessment in determining whether they meet the definition of a lease up to the time of adoption; and
to not record on our condensed consolidated balance sheets, lease liabilities and right of use (“ROU”) assets with lease terms of 12 months or less.
Lessee Impact
Leases for which we are the lessee, including ground leases and corporate leases primarily for office space, have been recorded on our condensed consolidated balance sheets as either finance or operating leases with lease liability obligations and corresponding ROU assets based on the present value of the minimum rental payments remaining as of the initial adoption date of January 1, 2019.
Lessor Impact
Topic 842 modifies the treatment of initial direct costs, which historically under Topic 840 have been capitalized upon meeting criteria provided for in that applicable guidance. These initial direct costs now under ASC 842 are eligible for capitalization only if they are incremental in nature, (i.e., would only be incurred if we enter into a new lease arrangement). Under this guidance, only commissions paid and other incurred costs incremental to our leasing activity qualify as initial direct costs. These costs, which were previously capitalized, have been classified as general and administrative expenses on our condensed consolidated statements of operations. For the three months ended March 31, 2018, we capitalized approximately $1.3 million of initial direct costs.
Additionally, as part of Topic 842, ASU 2018-20 states that (i) a lessor must analyze sales (and other similar) tax laws on a jurisdiction-by-jurisdiction basis to determine whether those taxes are lessor costs or lessee costs and (ii) a lessor shall exclude from variable payments, lessor costs (i.e., property taxes, insurance) paid by a lessee directly to a third party. However, costs that are paid by a lessor directly to a third party and are reimbursed by a lessee are considered lessor costs that shall be accounted for by the lessor as variable payments. As a result of the adoption of Topic 842, we no longer record income or expense when the lessee pays the property taxes directly to a third party. For the three months ended March 31, 2018, this amount was approximately $3.6 million.
Except where stated above, the adoption of Topic 842 did not have a substantive impact on our results of operations and cash flows and no significant impact on any of our debt covenants.

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ASU 2018-07, Compensation - Stock Compensation; Improvements to Nonemployee Share-Based Payment Accounting
In June 2018, the FASB issued ASU 2018-07, which expands the scope of Topic 718. The amendments specify that ASU 2018-07 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that it does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606. We adopted ASU 2018-07 on January 1, 2019 (the effective date) and did not have any reclassifications or material impacts on our consolidated financial statements as a result of this adoption.
Recently Issued Accounting Pronouncements
ASU 2016-13, Financial Instruments Credit Losses; Measurement of Credit Losses on Financial Instruments and ASU 2018-19, Improvements to Topic 326, Financial Instruments-Credit Losses
In June 2016, the FASB issued ASU 2016-13, which is intended to improve financial reporting by requiring more timely recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. ASU 2016-13 requires that financial statement assets measured at an amortized cost be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis. ASU 2018-19 also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of these receivables should be accounted for in accordance with Topic 842, Leases. We will adopt ASU 2016-13 and ASU 2018-19 as of January 1, 2020 (the effective date) and do not anticipate there to be a material impact to our consolidated financial statements and related notes based on our ongoing evaluation.
ASU 2018-13, Fair Value Measurement; Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, which modifies the disclosure requirements on fair value measurements in Topic 820 as follows: (a) disclosure removals: (i) the amount of and reasons for transfers between Level 1 and Level 2; (ii) the policy for timing of transfers between levels; and (iii) the valuation process for Level 3 fair value measurements; (b) disclosure modifications: (i) no requirement to disclose the timing of liquidation unless the investee has communicated the timing to the reporting entity or announced the timing publicly; and (ii) for Level 3 fair value measurements, a narrative description of measurement uncertainty at the reporting date, not the sensitivity to future changes; and (c) disclosure additions: (i) for recurring Level 3 measurements, disclose the changes in unrealized gains and losses for the period included in OCI and the statement of comprehensive income; and (ii) for Level 3 fair value measurements in the table of significant input, disclose the range and weighted average of the significant unobservable inputs and the way it is calculated. We will adopt ASU 2018-13 as of January 1, 2020 (the effective date) and will consider all level inputs but do not we do not anticipate there to be a material impact to our consolidated financial statements and related notes based on our ongoing evaluation.
3. Investments in Real Estate     
For the three months ended March 31, 2019, our investments had a purchase price of $18.8 million. As part of this investment, we incurred approximately $76,000 of capitalized costs. The allocations for these investments, in which we own a controlling financial interest, are set forth below in the aggregate for the three months ended March 31, 2019 and 2018, respectively (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Land
$
3,311

 
$
1,084

Building and improvements
13,449

 
10,280

In place leases
1,927

 
662

Below market leases
(95
)
 
(139
)
Above market leases
160

 

Net assets acquired
18,752

 
11,887

Other, net
74

 
447

Aggregate purchase price
$
18,826

 
$
12,334



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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The acquired intangible assets and liabilities referenced above had weighted average lives of the following terms for the three months ended March 31, 2019 and 2018, respectively (in years):
 
Three Months Ended March 31,
 
2019
 
2018
Acquired intangible assets
9.1
 
8.4
Acquired intangible liabilities
9.1
 
8.4

4. Impairment
During the three months ended March 31, 2019, we recorded no impairment charges. During the three months ended March 31, 2018, we recorded an impairment charge of $4.6 million on two MOBs located in Texas and South Carolina.
5. Intangible Assets and Liabilities
Intangible assets and liabilities consisted of the following as of March 31, 2019 and December 31, 2018, respectively (in thousands, except weighted average remaining amortization terms):
 
March 31, 2019
 
December 31, 2018
 
Balance
 
Weighted Average Remaining
Amortization in Years
 
Balance
 
Weighted Average Remaining
Amortization in Years
Assets:
 
 
 
 
 
 
 
In place leases
$
447,922

 
9.8
 
$
449,424

 
9.8
Tenant relationships
148,646

 
9.4
 
150,440

 
9.4
Above market leases
36,860

 
6.2
 
36,862

 
6.1
Below market leasehold interests (1)

 

 
91,759

 
64.3
 
633,428

 
 
 
728,485

 
 
Accumulated amortization
(359,593
)
 
 
 
(355,576
)
 
 
Total
$
273,835

 
9.6
 
$
372,909

 
22.1
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Below market leases
$
61,135

 
14.6
 
$
61,395

 
14.6
Above market leasehold interests (1)

 

 
20,610

 
49.2
 
61,135

 
 
 
82,005

 
 
Accumulated amortization
(20,315
)
 
 
 
(20,859
)
 
 
Total
$
40,820

 
14.6
 
$
61,146

 
25.3
 
 
 
 
 
 
 
 
(1) As a result of the adoption of Topic 842 on January 1, 2019, the presentation of below and above market leasehold interests as of March 31, 2019 does not conform to the prior year presentation.

The following is a summary of the net intangible amortization for the three months ended March 31, 2019 and 2018, respectively (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Amortization recorded against rental income related to above and (below) market leases
$
(491
)
 
$
(62
)
Rental expense related to above and (below) market leasehold interests (1)

 
277

Amortization expense related to in place leases and tenant relationships
14,665

 
17,648

 
 
 
 
(1) As a result of the adoption of Topic 842 on January 1, 2019, the presentation of rental expense related to above and (below) market leasehold interests as of March 31, 2019 does not conform to the prior year presentation.



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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

6. Receivables and Other Assets
Receivables and other assets consisted of the following as of March 31, 2019 and December 31, 2018, respectively (in thousands):
 
March 31, 2019
 
December 31, 2018
Tenant receivables, net
$
16,038

 
$
14,588

Other receivables, net
20,280

 
16,078

Deferred financing costs, net
5,618

 
6,049

Deferred leasing costs, net
30,815

 
30,731

Straight-line rent receivables, net
97,362

 
92,973

Prepaid expenses, deposits, equipment and other, net
50,495

 
61,885

Derivative financial instruments - interest rate swaps
594

 
1,111

Total
$
221,202

 
$
223,415


The following is a summary of the amortization of deferred leasing costs and financing costs for the three months ended March 31, 2019, and 2018, respectively (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Amortization expense related to deferred leasing costs
$
2,154

 
$
1,506

Interest expense related to deferred financing costs
431

 
431


7. Leases
The majority of our lease expenses are derived from our ground leases and a few corporate leases, primarily for office space. We recognize lease expense for these leases on a straight-line basis over the lease term. Many of our leases contain renewal options that can extend the lease term from one to ten years, or in certain cases, more. The exercise of lease renewal options is at our sole discretion. Certain of our ground leases have the option to purchase the land at the end of the initial term. Our leases have one of the following payment options (i) fixed payment throughout the term, (ii) fixed payments with periodic escalations, (iii) variable lease payments based on the Consumer Price Index (“CPI”) or other similar index, and (iv) a combination of the aforementioned. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants other than certain prohibitions as to the nature of business that can be conducted within the buildings which we own to limit activities that may be deemed competitive in nature to the ground lessor's activities. As of March 31, 2019, we have no new ground leases or corporate leases that have not yet commenced.
As part of the adoption of Topic 842, a lease liability and a corresponding ROU asset was recorded on our condensed consolidated balance sheets effective January 1, 2019. The lease liability was calculated as the present value of the remaining lease payments using the lease term at lease commencement and an incremental borrowing rate. In determining this calculation, we made the following assumptions and judgments:
only material ground leases and corporate leases exceeding one year in length, were included in our lease population. Office equipment and other non-essential leases were excluded from the population due to immateriality; and
a series of incremental borrowing rates were determined based on observed prices and credit spreads of our unsecured senior debt as of December 31, 2018 after applying treasury or other similar index rates as of January 1, 2019 to leases that correspond to the remaining lease terms, adjusted for the effects of collateral.
The ROU asset was calculated as the sum of the lease liability, deferred rent of approximately ($19.0) million, and the above and below market leasehold interest balances as of December 31, 2018 of approximately $66.5 million, which were previously recorded as other intangibles and intangible liabilities on our condensed consolidated balance sheets.

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HEALTHCARE TRUST OF AMERICA, INC. AND HEALTHCARE TRUST OF AMERICA HOLDINGS, LP NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Lessee - Lease Costs
Lease costs consisted of the following for the three months ended March 31, 2019 (in thousands):
 
 
March 31, 2019
Operating lease cost
 
$
3,055

Variable lease cost
 
381

Total lease cost
 
$
3,436


Lessee - Lease Term and Discount Rates
The following is the weighted average remaining lease term and the weighted average discount rate for our operating leases as of March 31, 2019 (weighted average remaining lease term in years):
 
 
March 31, 2019
Weighted-average remaining lease term
 
 
    Operating leases
 
48.7

Weighted-average discount rate
 
 
    Operating leases
 
5.3
%

Lessee - Maturity of Lease Liabilities
The following table summarizes the future minimum lease obligations of our operating leases as of March 31, 2019 under Topic 842 (in thousands):
Year
 
March 31, 2019
2019
 
$
7,751

2020
 
10,408

2021
 
9,877

2022
 
10,031

2023
 
10,132

Thereafter
 
639,234

Total undiscounted lease payments
 
$
687,433