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Edited Transcript of HTA earnings conference call or presentation 26-Apr-19 4:00pm GMT

Q1 2019 Healthcare Trust Of America Inc Earnings Call

Scottsdale May 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Healthcare Trust Of America Inc earnings conference call or presentation Friday, April 26, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Amanda L. Houghton

Healthcare Trust of America, Inc. - EVP of Asset Management

* Caroline E. Chiodo

Healthcare Trust of America, Inc. - SVP of Finance

* Robert A. Milligan

Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer

* Scott D. Peters

Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO

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Conference Call Participants

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* Austin P. Caito

Jefferies LLC, Research Division - Equity Associate

* Chad Christopher Vanacore

Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst

* Daniel Marc Bernstein

Capital One Securities, Inc., Research Division - Research Analyst

* Jonathan Hughes

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Karin Ann Ford

MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst

* Lukas Michael Hartwich

Green Street Advisors, LLC, Research Division - Senior Analyst

* Piljung Kim

BMO Capital Markets Equity Research - Senior Real Estate Analyst

* Richard Anderson

* Todd Jakobsen Stender

Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst

* Vikram Malhotra

Morgan Stanley, Research Division - VP

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Healthcare Trust of America First Quarter 2019 Earnings Results Conference Call. (Operator Instructions) And please note that today's event is being recorded. And I would now like to turn the conference over to Caroline Chiodo. Please go ahead with your presentation.

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Caroline E. Chiodo, Healthcare Trust of America, Inc. - SVP of Finance [2]

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Thank you, and welcome to Healthcare Trust of America's First Quarter 2019 Earnings Call. Yesterday after the market closed, we filed our earnings release and our financial supplement. These documents can be found on the Investor Relations section of our website or with the SEC.

Please note, this call is being webcast and will be available for replay for the next 90 days. We will be happy to take your questions at the conclusion of our prepared remarks.

During the course of the call, we will make forward-looking statements. These forward-looking statements are based on the current beliefs of management and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or our ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance. Therefore, our actual future results could materially differ from our current expectations. For a detailed description on the potential risks, please refer to our SEC filings which can be found on the Investor Relations section of our website.

I will now turn the call over to Scott Peters, Chairman and CEO of Healthcare Trust of America. Scott?

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [3]

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Good morning and thank you for joining us today for Healthcare Trust of America's First Quarter 2019 Earnings Conference Call. Joining me on the call today are Robert Milligan, our Chief Financial Officer; and Amanda Houghton, our Executive Vice President of Asset Management.

HTA begins 2019 as the largest dedicated owner and operator of medical office buildings, one of the most attractive real estate asset classes for the next 5 years to 10 years. Our philosophy in 2019 continues to be focused on key principles of being disciplined, pragmatic and focused on delivering and growing shareholder value over the long term. We are extremely proud of our track record since we became public in June of 2012, generating over 95% total returns since that time through the end of the first quarter.

As a company, we have a best-in-class portfolio of over 23 million square feet, invested in assets both on-campus where we have the largest on-campus portfolio in the country, and off-campus in core critical locations where health care is positioned to grow over the next decade.

We are concentrated in 20 to 25 key growth markets and now have 9 markets of approximately 1 million or more square feet and 15 markets with 500,000 square feet or more. Given this concentration and scale, HTA can continue to leverage our unmatched full-service asset management platform that provides property management, building services, leasing, construction and development services to our tenants.

We have multiple avenues for external growth through both acquisitions in our key markets and our recent entrance into development where we are gaining traction with a number of opportunities. In addition, we also have strong and stable cash flows. We are diversified by market where our top 10 markets make up less than 55%, and by tenant where no single tenant makes up more than 4.4%. We also have limited near term lease expirations with an average of less than 10% per year through 2023.

We continue to maintain a fortress balance sheet with low leverage at 5.6x net debt-to-EBITDA and significant liquidity of almost $1.1 billion at quarter end. And finally, a track record of bottom line growth where our consistent same-store growth and investment activities have allowed us to generate total shareholder returns of over 95% since we became public in June of 2012.

From a strategic perspective, in 2019, we are intently focused on ensuring that our same-store growth and capital allocation decisions translate to bottom line growth for investors in 2019 and in future years. During the first 3 months of the year, we once again have presented strong performance which was highlighted by: one, same-store growth of 2.7% year-over-year driven by 2% rental revenue growth and a 70 basis points expansion in our rental margins; two, solid leasing performance with total leasing of over 1.1 million square feet in the quarter, our largest quarter of leasing in our history, including over 207,000 square feet of new leasing. Our cash re-leasing spreads for renewals increased to 5.9% while retention remained high at 86%; three, we have closed or entered into exclusive agreements on over $100 million of opportunities with a going-in yield of approximately 5.7% which does not include the 25 to 50 basis points of incremental yield we believe our property management platform can add over the next 12 months to 18 months. This keeps us on track with our $250 million of acquisitions we provided in our initial guidance for the year.

We're also pleased to see HTA announce the opening of their Medical City Heart Hospital and Medical City Spine Hospital this fall on the former Forest Park Dallas campus. These hospitals are attracting many of the top doctors in the area and bringing a lot of activity to the campus. As a result, we are announcing demand for our MOB space exceeds our available vacancies and we are evaluating our options for potential expansion and new development on the site. We believe this is proof that our investment thesis of investing in good buildings and great markets is paying off even as health systems continue to consolidate over time.

From an operating perspective, we are seeing healthcare providers take definitive action on their space requirements as they focus on moving to a model that is focused on outpatient delivery of care that is more convenient and cost-effective. This is translating into strong leasing activity both on- and off-campus. It has also led to significant number of requests for early renewals as tenants are seeking to invest in their spaces and lock in their location for the foreseeable future. This dynamic has allowed us to continue to push rents in many of our markets and resulted in our higher renewal spreads.

A significant amount of this outperformance was a result of a 500,000 square-foot renewal with a single health system that was originally supposed to expire in 2021. This lease has been flat for the last 7 years and this renewal provided the opportunity to move rates higher, add annual rental escalators and lock them in place for an additional 12 years, while providing the tenant with the capital to refresh their space and move forward with their strategic plans.

As I mentioned, we are seeing this strong performance both on- and off-campus where health care is increasingly moving. This quarter, we published the breakdown of our tenant specialties, including the breakdown by campus. Despite the common perceptions that are out there, the breakdown of specialist in our buildings is very consistent between on-campus and community core outpatient locations.

From a capital allocation perspective, we remain very active and disciplined, focused on identifying opportunities that meet our acquisition criteria of: one, located within our key gateway markets; two, quality real estate that will generate same-store growth of 2% to 3% consistently over the long-term; and three, being accretive to our cost of capital.

In 2017 and 2018, we have seen large portfolio of transactions dominate the medical office marketplace. 2019, we have seen the smaller one-off opportunities return. These are the types of transactions on which we established and grew our company and we are happy to see them return. These one-off transactions allow us to be targeted and to fill-in on our key markets.

They are also available without the portfolio of premiums we have been seeing, allowing for them to be accretive to our cost of capital day 1 while also allowing us to add the incremental 25 to 50 basis points of yield that we can achieve when we layer on our platform capacities.

We have made significant strides from our development perspective deals and are in advanced discussions on several opportunities which we expect to announce in the near term. In addition, we continue to add key pieces to our team with the recent addition of David Chung, a former health system real estate executive; Kim Brubeck, a Bliss business development leader; and Caroline Chiodo, who is adding investments and acquisitions to her role. This team complements our local operating teams and in place construction and development teams and should help us reach our targets of being the leader in the medical office building space.

The recent ebbs and flows in the public markets have allowed HTA to demonstrate our disciplined capital allocation and capital markets execution strategy, focusing on patient pragmatic decision-making, reflecting a long-term disciplined accretive growth strategy. We remain on track to hit $250 million that we targeted in our 2019 guidance that we have provided to the marketplace earlier this year. Although we do not need additional capital to close on our acquisition targets, we always evaluate our balance sheet from a long-term perspective and we will act accordingly as we go forward.

With that, I will turn the call over to Amanda.

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Amanda L. Houghton, Healthcare Trust of America, Inc. - EVP of Asset Management [4]

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Thank you, Scott. In 2019, our team continues to focus on delivering high-quality operating and leasing performance that bring value to tenants and shareholders alike. Our scale and our key markets have enabled us to build our team of over 180 property management and leasing professionals spread across 23 offices. This allows us to bring the power of a national company to a very local healthcare provider community. It has also helped us generate strong local knowledge, relationships and capabilities that have resulted in high levels of same-store growth, sector-leading operating efficiencies, strong leasing and retention and also great opportunities for acquisition and, now, development.

Turning to our Q2 results. We had a very good quarter operationally. Our same-store growth came in at 2.7% driven by a 2% base revenue growth and 70 basis points of rental margin expansion. Our quarter-ending same-store leased rate was flat year-over-year at 91.9% while our occupancy increased 10 basis points to 90.8%. In the period, we signed almost 1.1 million square feet of leases. This includes 207,000 square feet of new leases and almost 900,000 square feet of renewals. Our total tenant retention was 86% while our re-leasing spreads increased to 5.9%, our highest spread in our reported history. These leasing results included the early renewal of over 500,000 square feet of leases with a single tenant that was originally scheduled to expire in 2021. This lease had been flat for over 7 years and we were able to renew this rent up more than 10% while also establishing annual escalators and keeping TI at $2 per square foot per year of new term. Excluding these leases, our re-leasing spreads were up over 1.5%.

Our annual escalators on all leases signed was 2.7%, increasing our average escalator in our portfolio to over 2.4%, up from the low 2% range 3 years ago for the 92% of our portfolio that's leased. This movement is key to our continuous and consistently strong rental growth.

Our TIs increased slightly to $1.62 per square foot per year of term on renewals and $2.09 per square foot per year of term overall. As we look to the remainder of 2019 expirations, we still have more than 11% of our leased square feet expiring, including month-to-month tenants, and expect our current leasing momentum to continue. Across these leases, we expect to achieve 75% to 85% retention with re-leasing spreads of between 1.5% to 4% and annual escalators of approximately 3%.

On the expense front, we continue to show the benefit of our economies of scale and ability to perform services using our internal engineering platform. We continue to see an increase in our property taxes on our portfolio, primarily in Texas. However, excluding property taxes, our total expenses were down approximately 0.5%, primarily as the result of lower utilities costs. This has been a significant focus of our operating platform and we continue to see the benefit as we bring all of our properties up to HTA standards.

I will now turn it over to Robert to discuss financials.

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [5]

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Thanks, Amanda. From a financial position, we end the quarter in great shape with low leverage, limited near-term debt maturities and cash on the balance sheet. This positions us with significant flexibility to deploy capital strategically as we have seen our investment opportunities improve.

Turning to the specific financial results. First quarter normalized FFO per diluted share was $0.40, flat on a sequential basis from Q4 and down from the prior year. Note that this includes the impact of Topic 842 in which $1.3 million of direct leasing cost were capitalized in the year ago period. Eliminating this impact and holding leverage constant, we would have been flat to up on a year-over-year basis.

Funds from distribution decreased to $73.2 million reflecting our dispositions over the prior year. Same-store cash NOI was 2.7% compared to the first quarter of 2018. This growth was driven by rental revenue growth of 2% and margin expansion of 70 basis points. This continues to reflect our ability to grow revenues while also growing our efficiency long term.

G&A for the quarter was $11.3 million with the increase driven primarily by the expensing of internal leasing cost. Our recurring capital expenditures in the period were just under $12 million or approximately 10% of cash NOI. Note that we expect this to range between 10% to 15% per quarter before any potential impact from earlier -- the early renewals that Amanda noted previously.

From an accounting rule change perspective, this was the first period utilizing the new Topic 842 lease rule changes. The impact is largely related to the expensing of direct leasing cost in 2019 as well as the addition of certain right-to-use assets and liabilities related to our ground lease obligations on the balance sheet. In addition, there were 2 other changes that impacted the comparability of the statements between the periods but had no impact on total earnings.

The most significant of this was related in the accounting for single tenant buildings in which tenants directly pay property taxes. Under 842, we will no longer recognize either the revenue or expense related to these payments. In the first quarter of 2018, we recognized approximately $3.4 million of both revenue and expense related to these. In addition, the rule change now also requires bad debt to move from expense to a reduction in revenue. In Q1 2018, this amount was immaterial.

From a capital allocation perspective, we saw an increase in investment opportunities in Q1 that fit both our market and quality criteria and are accretive to our cost of capital. These transactions are the type of one-off acquisitions that we have historically executed to grow our company. They are focused on our key markets and allow us to add an incremental 25 to 50 basis points of platform synergies.

In Q1, we acquired an MOB in Westport, Connecticut for $18 million. We also have an incremental $70 million of acquisitions under exclusive contracts or have already closed in Q2. These opportunities are located in our key markets, are roughly 70% on-campus with great health system anchors and should perform over the long term. Given their one-off nature, year 1 yields are expected to be over 5.7% before any incremental synergies. As a result, we remain confident in our previously stated guidance of $250 million of acquisitions with an incremental $75 million of dispositions. As a result of these activities, we're reiterating our 2019 guidance and we continue to expect same-store cash NOI growth of 2% to 3% for the year and slightly lower than that on a GAAP basis given the impacts of straight line rent. We expect our normalized FFO to range between $1.62 to $1.67 per share with the main driver being the timing and amount of our acquisitions. Regardless, we expect momentum and earnings building in the second half.

I will now turn it back over to Scott.

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [6]

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Thank you, Robert. We'll open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question or 2 will be Chad Vanacore with Stifel.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [2]

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Robert, you had mentioned CapEx expectations 10% to 15% for the year. Would it be fair to assume that first quarter is pretty low and that should tick up through the year as it goes sort of back-end weighted than in the past?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [3]

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Yes. We typically see a first quarter is typically the lowest from a capital expenditure basis just given some of the seasonality out there and we would expect that trend to continue this year.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [4]

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All right. And then just on the acquisitions. You've lined up some acquisitions. How do those cap rates compare to what you have under contract compared to what you've been seeing in the market recently? And then is there any view that maybe cap rates may be expanding or contracting from here?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [5]

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I think from our perspective, we're really focused on really the one-off acquisitions that we're seeing in the market. I think we're seeing more of those opportunities now. They're in our key markets. They don't necessarily have a portfolio premium associated with them, so we're being able to pursue them in the 5.5% to 6% range. I think there certainly are a number of deals that are getting done much lower than that. But for us, that's where we're focused right now.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [6]

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So fair to think portfolio deals are sub 5.5% cap rate, but one-offs are 5.5% to 6% for what you'd be looking at?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [7]

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Yes. I think that still continues to be our expectation or at least what we've seen so far.

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Chad Christopher Vanacore, Stifel, Nicolaus & Company, Incorporated, Research Division - Senior Analyst [8]

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All right. And then how should we think about best uses of capital right now? You made some advantageous share repurchase early in the year. Anything material left to do there? And how would you allocate cash to acquisitions, debt repayment, development and share repurchase?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [9]

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Well, I think as we look at it really across the spectrum, we do have multiple uses of cash for capital as we look at it. I think first and foremost priority now probably is acquisitions, our key markets as well as increasingly development. We continue to make some traction on some projects and look forward to announcing those. The share repurchases tends more to be when there's a dislocation in the capital markets and we see the implied cap rate on that being in excess of where we're able to buy really in our markets today. But it does continue to be an option. And the very first couple of weeks of the year, we certainly saw an opportunity to buy back our shares at a very attractive rate and so we took advantage of that.

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Operator [10]

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And our next question or 2 will be John Kim with BMO Capital Markets.

Our next question or 2 will be Jonathan Hughes with Raymond James.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [11]

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Amanda, thanks for the color earlier on the leasing spreads. I think I heard they were up 1.5%, excluding that big 500,000 square-foot early renewal lease from the healthcare system. That's kind of below the 3% to 4% from the prior 2 quarters. Can we expect that to rebound kind of back to that low mid-single digit range throughout the year?

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Amanda L. Houghton, Healthcare Trust of America, Inc. - EVP of Asset Management [12]

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Yes. I think each quarter is going to be a little bit different. But generally anywhere between 1% and 4% I think would be something you would expect to see on an ongoing basis.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [13]

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Okay. And maybe why was it 1.5% outside of that? Were they just maybe older buildings or more saturated markets? Just kind of curious there as it was down a good bit.

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Amanda L. Houghton, Healthcare Trust of America, Inc. - EVP of Asset Management [14]

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Yes. It really is market-specific and lease-specific. So no true trend indication, but it's just going to vary depending on the particular lease and the particular market that we're in.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [15]

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Okay. That's helpful. And then just one more for me, for Robert. Last quarter, you emphasized a desire to return to the historical 4% to 6% annual FFO growth. That just seems very difficult to achieve, to me at least, given your much larger size than, say, 5 years ago. I guess maybe how much annual external growth activity is baked into that longer-term growth outlook?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [16]

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I think as we look at our growth profile of how we should operate, we view it as 2% to 3% same-store growth. You get towards the high end of that, you should be able to see that translate down to earnings growth, just give you an operating leverage between 3% to 4% holding leverage neutral. And then getting a level of acquisitions development on top of that from an accretive basis is really where you see that ability to go above that level which is what we've done historically. So I think as we're looking at 2019, this is a year where we're now at a lower leverage profile going into the year using some of the disposition proceeds we had at the end of last year from Greenville -- allocating that. So it's really getting back towards those level, towards the end of the year and heading into 2020 that we look forward to.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [17]

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Okay. So maybe talking like $250 million or so of annual external growth or even $500 million?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [18]

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Well, I think, as we look at that, it's going to be dependent on the capital markets and the ability to find accretive deals in our market. But our expectation is we'll get to $100 million, $200 million plus of development and then take advantage of the acquisitions on top of that. But certainly, $200 million to $500 million has been historically what we've been able to do most years.

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Operator [19]

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The next question or 2 will be John Kim with BMO Capital Markets.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [20]

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Sorry about that earlier. On your acquisition pipeline, how much of it is off-campus versus on?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [21]

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We actually look at our full pipeline that we talked about. About 70% of it is actually on-campus with what we're looking at -- pretty well-located buildings. And then when we're looking at the off-campus opportunities, those tend to be more in kind of higher demographic areas with great access from a traffic flow. But I think the characteristics we're looking at from an acquisition pipeline are 70% on-campus within our key markets.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [22]

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Can you remind also if -- why is the core market for you, the market -- you have less than 1 million square feet of MOB space. And now there's a bill to introduce a withholding tax for the space?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [23]

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Well, I think that's always been -- as we look at each of our locations, we do have a couple of buildings in Hawaii. It's certainly a constrained area that offers a lot of potential for rent growth and opportunity over time. But when we look at our markets, I think we're focused -- it's not one of our top 15, 20 markets at this time, but I think we always evaluate our markets for the long-term opportunities as we go along.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [24]

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But are you sticking to your plan that if you can't get 1 million square feet or so in scale then it becomes a noncore?

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [25]

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Well -- Scott. I think Hawaii is a little bit different. We've got a couple of good assets. We've got some opportunities that we continue to look for. One of our peers are there, too. It's just a very solid market, and it's a market that has produced good returns for us. The buildings are full, and they have healthcare needs there that I think are changing over time. So while we may not get 1 million square feet, I think that you can certainly think that a location like that can become a key location with maybe 500,000 square feet or something of that nature.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [26]

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Okay. And then finally, on your cash flow statement, the operating cash flow this quarter was down about $12 million year-over-year. And it looks like it was mostly due to changes in working capital. Can you just maybe discuss that dynamic?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [27]

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Yes. In the first quarter of every year, there's a bit of seasonality in our cash flows, and it's really related to 2 things. First of all, it's actually property tax timing-related. In the first quarter of the year, we pay out between 40% and 50% of actually all of our property taxes for the year. Most of these are annual payments. And just given the locations that we're in, that's the bulk of the timing on that. The rest of the use really relates mostly to kind of our debt service, just given the timing of our unsecured bonds that pay interest semiannually. They line up within that. So from year-over-year, there's not -- there's just some kind of inter-period movement between fourth quarter and first quarter associated with a handful of those things.

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Piljung Kim, BMO Capital Markets Equity Research - Senior Real Estate Analyst [28]

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Do you expect that payable and receivable dynamic to reverse next quarter?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [29]

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Yes. Yes. You do see that kind of normalize throughout the rest of the year. Certainly from an expense perspective, the property tax payments are accrued for on a monthly basis because they're an annual expense. But they are heavily paid out in the first quarter. So yes, you would see the typical cash flow timing return in second, third and fourth quarter.

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Operator [30]

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And the next question or 2 will be Todd Stender with Wells Fargo.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [31]

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Amanda, I guess back to the leasing activity. This is a lot to get through in one quarter but maybe some pretty good data to read into. Any trends that emerged? Your retention was very good but any nuances around length of renewed leases or size requirements? Anything there?

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Amanda L. Houghton, Healthcare Trust of America, Inc. - EVP of Asset Management [32]

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Yes. I think that our trend for larger leases and longer-term request is definitely continuing. We're seeing many health systems reach out as the particular tenant that we described on the call did multiple years ahead of their expiration, wanting to lock in longer-term. And it really seems as if the health systems, physician groups are wanting to secure space and at least get that part of their business plan set so that they can focus on other things.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [33]

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And then what proved most important to you in these leases? Was it holding rate or not giving up the TI that you have in the past? Any nuances there as well?

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Amanda L. Houghton, Healthcare Trust of America, Inc. - EVP of Asset Management [34]

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I mean we really look at a lease holistically. We don't particularly focus on one aspect of the lease. We look at it on a net effective rate which captures the rental rate, the escalators, the tenant improvement, even leasing commissions that we're paying out and free rent. So I think all of those components factor into our overall return and we continue to focus on all of them, not one particular area.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [35]

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All right. And then when it comes to acquisitions, looks like that's been ticking up. Obviously, you've got what I will consider an above-market cap rate, I guess that blended rate of 5.7%. Can you speak to maybe some of the assumptions in these properties? Are they slower growing, different markets? Maybe just talk about acquisitions and then some of the cap rates you're seeing.

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [36]

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Well, I think as we're looking at the acquisitions, I think we're looking not just at the initial cap rate but certainly the ability for us to grow the properties long term. I think the biggest difference really as we look at it is these are opportunities again that are a little bit more like what we used to buy really from 2012 to 2016 before some of the larger portfolios came on where they're one-off acquisitions, they're in the markets, we understand the dynamics of what -- really what we're looking at and what we're getting into. And that just provides a little bit more opportunity for initial going-in yield. But certainly we don't see these as sacrificing any of the long-term growth. They just happen to be smaller and a little more one-off in locations that we know very well.

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Operator [37]

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And our next question or 2 will be Tayo Okusanya with Jefferies.

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Austin P. Caito, Jefferies LLC, Research Division - Equity Associate [38]

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This is Austin Caito on for Tayo. Just 2 quick questions. The first one is just around the lease rate. I saw it tick down slightly in the quarter. Just any reasoning behind that?

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Amanda L. Houghton, Healthcare Trust of America, Inc. - EVP of Asset Management [39]

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Overall, I think that we really look at the year-over-year changes and I think our occupancy trend up 10 basis points is ultimately what's driving that revenue growth. So I think if you look at a sequential quarter basis, we were down slightly. The last quarter of last year, we did have a disproportionate amount of roll. And any time that happens, you're going to get a little bit of a dip. But again, on a year-over-year basis, we continue to see that positive trend and that's what's driving our revenue growth.

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Austin P. Caito, Jefferies LLC, Research Division - Equity Associate [40]

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Okay. And then I guess the next one is for Robert. Earlier, you mentioned $100 million to $200 million of development potential. Is that different from the $75 million that you were seeing on an annual basis from the development pipeline? And how is that trending for the rest of 2019?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [41]

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Really what we're looking to get is get $100 million of announcements per year. I think we've got a couple of different projects and opportunities that we're having very good discussions with and it's just a matter of getting to a point where we can announce the deal. So it's -- we really have invested heavily in our development platform. We brought on some key players and we see that as the opportunity to take off from here. So we are excited to announce some new projects but we're having good dialogue right now and it's getting those to the point where we can announce them.

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Operator [42]

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And the next question or 2 will be Daniel Bernstein with Capital One.

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Daniel Marc Bernstein, Capital One Securities, Inc., Research Division - Research Analyst [43]

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I guess the one question I had revolved -- you guys really didn't talk about -- nobody asked about the joint ventures and private equity opportunities that you might have. And so your stock is trading still below NAV. So are you thinking about or considering any -- raising equity indirectly through JV -- selling assets into a JV with institutional private equity?

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [44]

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Well, we continue to look at all options as all companies do. One of the things that we feel is we've got some very key markets and some best-in-class assets. And so for us to go in and put together a joint venture that makes sense for our shareholders, it seems to be a little more difficult than in other cases where folks are trying to put maybe secondary assets or groups of assets that may not be critical to their long-term success or may not even be involved in their platform growth. So we look at it. But frankly, we haven't seen something yet that has been compelling to us on a short-term position or either more importantly, this is a long-term opportunity that somehow generates value attributable -- comparable to value that we're finding in even the one-offs that we just announced here. I think those assets will perform 100% very well for shareholders and we'll just continue to move down that path unless we found something that could equal it.

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Daniel Marc Bernstein, Capital One Securities, Inc., Research Division - Research Analyst [45]

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I guess a related question would be do you see any opportunities to scale your management platform into something that's more third-party, whether that's again for maybe an institutional investor or for the hospitals themselves?

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [46]

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I think the more logical answer to that would be probably if we assisted some healthcare systems in their desire to perhaps either modify what they do from a real estate perspective or to assist in their "back office". We do some of that up in Boston. We've had some overtures from some of the healthcare systems on the East Coast. There's not a lot of margin to be made on a third-party fee basis. Where we generate our platform is we own the asset, we're able to push through the services and get them through a market and do them at a little better pricing so that we can get those -- our margins and drop them to the bottom line. I don't necessarily want to give away that type of expertise and that type of profit to third parties for just a small fee. So we're very -- I'm very particular in how we want to utilize that. But if there was an opportunity to "partner" and partner means we own some assets and then we help use our assets and help some of their assets and that may be something that would work for both parties.

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Daniel Marc Bernstein, Capital One Securities, Inc., Research Division - Research Analyst [47]

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Okay. Okay. And then one more quick question. Just in terms of the pipeline, would you -- when you say it's a little bit more one-off, does that imply that maybe there's more triple net in the pipeline than multi-tenant? Or am I not thinking about that correctly?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [48]

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No. I think everything that we've done in our pipeline is actually multi-tenanted in nature. I don't think they're more single tenant or anything like that. They're very much the characteristics that we would typically be buying.

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Operator [49]

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And the next question or 2 will be Karin Ford with MUFG Securities.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [50]

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I was just looking at your 2.7% first quarter same-store NOI print versus the 2% to 3% guidance range. Was any of the first quarter expense decline timing-related and going to reverse later this year? And how much do you think Forest Park commencements are going to boost same-store NOI growth in the second half?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [51]

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Karin, on your first point from an expense perspective, I don't think anything is necessarily timing-related on anything. I think there's always a sense of seasonality just given the changes in seasons but there is nothing inherently that we would expect to see us come back.

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Amanda L. Houghton, Healthcare Trust of America, Inc. - EVP of Asset Management [52]

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Yes. I would say the biggest driver of the 0.5% decline in expenses, once you net out taxes, was utilities. And if you kind of dive into what was driving that, it's really been where we focused on reducing our utilities. We've been doing LED light conversions. We've been pretty aggressive on our setpoint controls, separate metering and billing for tenants who are using above-standard usage. So those are just best practices that we're implementing and it drove almost a 6% decline in utilities that we expect to see continue throughout the year.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [53]

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Great. And can you just comment about how much you think Forest Park is going to boost same-store NOI later this year and maybe into 2020 as well?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [54]

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Karin, I think Forest Park coming on, it's -- when we were talking about it before is on a much smaller same-store pool basis. So the positive impact coming in is probably 20 basis points as we're looking at it. But we feel -- we still continue to view the 2% to 3% as a good range for us as we go throughout the year.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [55]

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Got it. And staying on Forest Park, can you talk a little more about the development opportunity there and how much excess leasing demand you're seeing at that property?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [56]

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I think from an overall basis, it's -- with the announcement, we're essentially full from an MOB perspective. And so any time you see that dynamic of a lot of energy on the campus and -- of full MOBs, they're -- you start to look at the opportunities for expansion and potential ongoing needs there. So I think that's more of a natural extension of being on a good campus and a good market and having a fee-simple interest.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [57]

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And do you have any excess land available there?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [58]

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I think we've got some -- certainly have ability to expand within the footprint that we own.

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Karin Ann Ford, MUFG Securities Americas Inc., Research Division - Senior Real Estate Analyst [59]

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Got it. And my last question, just on the G&A front. You did $11 million this quarter. It's running a little bit ahead of the pace that you talked about on the last call. Should we still expect $40 million to $42 million for the year?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [60]

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Yes. I think as we look at it, the first quarter is always a little bit heavier from a G&A just perspective. There are certain kind of year-end activities that fall into that, but that's certainly in the range that we'd expect to be at for the year.

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Operator [61]

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Our next question or 2 will be Rich Anderson with SMBC Nikko.

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Richard Anderson, [62]

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So I want to get back to the cap rate question because I think it's kind of like being danced around a little bit by not you but -- not just you but everybody. The question was, Robert, you said, well, we're focused on one-offs which are 5.5% to 6%. But how does that compare, one-off -- so apples-to-apples to a couple of years ago or a year ago, would that number have been 5% to 5.5%? Are we seeing cap rates when comparing one-offs to one-offs go up, same question for portfolios? Just curious if you could just sort of hit that one on the nose for me.

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [63]

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Yes. I think as we've looked at the acquisition, really, the acquisition environment, I'll echo an answer that we had heard earlier today. As you saw interest rates moving up, the logical thought process was that you would see the cap rates go up on a corresponding basis. So I think the evidence has shown that there's been -- not been a lot of movement on the cap rates. I think what you have seen, though, is a change in the opportunities that are out there. So while apples-to-apples, you haven't seen a lot of cap rate movement necessarily, I think the opportunities that are there are no longer being dominated just by larger portfolios.

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Richard Anderson, [64]

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Okay. And so what happened in 2018 that's different in 2019 from your standpoint of investing? You purchased practically nothing last year and sold 300, if memory serves. And now you're flipping that strategy this year. What changed in the marketplace to cause sort of that mirror image of 2018?

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [65]

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Well, we put our balance sheet back in order. I think if you remember 2017 was a big year for us. And 2018, we were able to integrate the acquisitions. We were able to move the yields on Duke portfolio and those accompanying it up 40 basis points that we were focused on and then use some of the proceeds to move our debt down to levels where we were comfortable that we could ebb and flow with the marketplace without putting ourselves in any significant jeopardy if markets would tail off or if cap rates stayed stubborn and stayed very low. I think we are a buyer of discipline. And when we can find these types of acquisitions that add that 6-plus yield to it over a 10-month period and have good same-store growth and fill in our markets, we are in a position right now, as we wanted to be in 2019, to start growing and moving forward and not standing still.

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Richard Anderson, [66]

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Okay. Fair enough. And Amanda, a question to you. For 2018, how much of your leasing activity was early? That is, not expiring in '18 but in future years? And how do you see that changing in 2019? Do you think they'll be an increasing percentage of your leasing activity versus 2018 that will be early renewals?

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Amanda L. Houghton, Healthcare Trust of America, Inc. - EVP of Asset Management [67]

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So many of the requests to renew early are for the larger health systems and we've seen a lot of those, probably seen most of those that we will be seeing for 2019. I mean half of our renewals done in the first quarter were an early renewal with one particular tenant. So I hate keep giving the same response but I think it's going to vary by quarter. As I look out to the next few years in the large spaces that we have rolling, I will say that many of those health systems have already reached out to us and we're engaging in those conversations already. So whether we get those signed year or it rolls into next year, I -- time will tell. But those conversations are definitely being had right now.

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Richard Anderson, [68]

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Okay. Last for me, perhaps to Scott. Forest Park started off a pain in the neck and now it's turning into an opportunity for you. That -- hindsight, physician-owned facilities perhaps made them a little bit -- made those hospitals a little bit different than the status quo. I'm curious, if you look around your portfolio, have you been kind of on the lookout for sort of unique situations like that? And if you are sort of looking to act early before something perhaps goes wrong or if there's just nothing in the portfolio that stands out as sort of "different"?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [69]

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I think that's an interesting question. I think our -- from an underwriting perspective, we continue to monitor our portfolio from a hospital campus, from an activity perspective. And I think one trend continues to be the case in healthcare is that there continues to be consolidation and changeover. And in our view, if you're in a good location and a good market with good facilities, there might be some change in ownership and operator but that campus is going to be dynamic. And importantly for us, that medical office building is going to continue to be full. We saw that play and we're seeing that play out here with the Forest Park assets, all 3 of them that we've had, maybe not as smoothly as we -- you necessarily would underwrite or want to see happen, but I think the long-term value continues to be there. So we continue to see that. We continue to see ownership change on the hospitals. And almost all the time that's happened, there's new energy, there's new capital and we do see that as new opportunities to move rate and occupancy.

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Richard Anderson, [70]

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Okay. I'm sorry, one more quick question. Thanks for that. Any difference between cash re-leasing spreads off-campus versus on-campus? And if you answered that, I apologize but I'm just curious if there's any differential that you're seeing.

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [71]

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No. We really haven't seen a big difference in the leasing dynamics on- or off-campus. If you're well located in great locations off-campus, you have just as much ability to move rent as if you're in a good on-campus location.

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [72]

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I think that's got a little bit to do also with the tenant mix. We just put out some information on the tenant mix between on-campus and off-campus. And if you look at the type of tenants, they're similar. And so similar tenants are going to be able to have the same type of profitability, same type of synergies. And you would expect that they should get the same type of escalators.

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Operator [73]

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The next question or 2 will be Vikram Malhotra with Morgan Stanley.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [74]

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Just on the Forest Park asset, just curious. So I think you said rates or rents are probably higher than what you had previously. Obviously, the credit is better. Just curious sort of if you had those 2 assets sitting side-by-side with 2 different tenants, sort of what's the cap rate differential if we're sort of thinking NAV creation? Or is there no difference?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [75]

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I think if you looked at the same assets today, one with an HCA campus, one with a one-off campus, probably 50, 100 basis points, I think when you're looking at that, potentially, it depends on the situation. But I think when we look at that, we've certainly seen a 50, 100 basis point kind of cap rate value creation, especially given that we own those fee-simple.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [76]

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Okay. That's helpful. Just maybe a bigger picture question. I know you've talked about being very focused on the one-off. There have obviously been several portfolios that have created arguably varying degree of quality. Assuming you sort of had a similar cost of capital as you did in 2Q '17 or early '17, can you compare and contrast these bigger portfolios that have created the Duke and what would -- have made you pull the trigger on say the higher quality stuff, call it like a Landmark or the Hammes portfolio?

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [77]

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Well, if you look at the 2 or 3 portfolios that are out there and if you did say, in theory, that we were back in 2017 and you saw cap rates and activity like they were then, I think the Duke portfolio has always been for 5, 6, 7 years, considered to be the primary highest quality portfolio and it was even considered at times by a number of pundits that it was the highest-quality portfolio public or even private because they were -- obviously they were Duke but it was -- it's a subsection of who they were. So I think that portfolio continues and has acted and continues to perform as the best portfolio that's been out there in the last 2, 3, 4 years.

The other 2 are sort of very interesting. They each have attributes that are different. They don't fit into our markets like the Duke portfolio did. They don't have the same type of multi-tenanted rent escalators as some of the Duke portfolio. And they don't have the ability for us to really move our platform under them. So then you put on top of that these cap rates that are being paid for these portfolios are really, if you looked just 12 months later, they were equivalent to a Duke portfolio that was a couple -- it was 100 basis points better probably. I don't think we would be chasing those. I think we would -- again we like to fill in to our markets, we like to get acquisitions that are targeted for our platform, relationship-driven in the marketplace and we are -- still continue to be leery of secondary markets where there's one-off healthcare systems and one-off MOBs. And we're also consistently hesitant about areas where population growth is not something that you see coming down the road. I always go back to academic university concentrations, go back to where the highest and brightest technology individuals are moving their companies. Healthcare is still a private pay -- majority private pay. That's where most of the physicians get their fees from and they want insurance and that means that folks need to be paying their insurance and having jobs. So we like the 15 to 25 markets we're in. I don't think you would have seen us even if the cost of capital would've been appropriate, we would not have been after those 2 other portfolios.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [78]

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Okay. That's helpful. And just last one. One of your peers has been pretty active on what they call maybe research and innovation, sort of mix between life science and MOB, all academic-oriented. Just curious, I know -- obviously you have the pure play MOB focus. But is that something of interest maybe longer term? Would you consider sort of having a sort of two-pronged approach to the broader call it bucket of MOBs?

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [79]

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Well, I think academic university by definition is going to have that bucket that you just talked about. We have an asset in Boston, 670, that has Boston University and hospital and it's got 6 or 7 floors and those floors are truly made up of each type of service. It's not one floor, it's teaching, it's clinical, it's research. And so -- but the combination of the building is critical to the hospital, critical to the research that's going on there. And in that particular case, we'd like to have 25 more of them. Now we don't want just a one-off biochemical building where you got 1 user, whether it's a high-quality user or not. I think the technology that we see today in these types of firms change so quick that the infrastructure that's needed when the lease comes up is very expensive. And so I think we like where we are, which is in that fringe, in that area where the academic university combines with the research, clinical and teaching.

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Vikram Malhotra, Morgan Stanley, Research Division - VP [80]

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Great. I'm sorry, just one clarification, Robert. I think you mentioned to a prior question sort of no specific situations that you may be monitoring in terms of similar to what happened at Forest Park. But just more broadly, anything on the watch list that you're monitoring we should be aware by system? You talked about consolidation. Just is there any specific location or asset that you may be monitoring?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [81]

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I think as we look across our portfolio, we're on a number of different hospital campuses. I think that's one of the benefits of our size and diversification is that we're very broadly diversified. So there's always different campuses that are at various stages. But I think as we look across it, we're very comfortable that there's not anything material that stands out as necessarily a good -- big one-off issue.

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Operator [82]

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(Operator Instructions) The next question or 2 will be Lukas Hartwich with Green Street Advisors.

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Lukas Michael Hartwich, Green Street Advisors, LLC, Research Division - Senior Analyst [83]

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What was the cap rate for the Westport Center acquisition?

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [84]

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That was around that 5.7% cap rate as we looked at it. And I think that's pretty consistent again. We're going to blend out with 5.7% area for kind of all that we've announced there.

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Lukas Michael Hartwich, Green Street Advisors, LLC, Research Division - Senior Analyst [85]

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Okay. And that's 5.7% on -- because the occupancy was like 82% or is that a stabilized...

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [86]

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No. That's correct. That's on, in place. So we would expect that to certainly have the opportunity to increase given the potential for occupancy gains, rent improvement. And it's also before our ability to add incremental synergies from our property management platform.

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Lukas Michael Hartwich, Green Street Advisors, LLC, Research Division - Senior Analyst [87]

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Great. And then I know there's been a bunch of questions on this. I got one more in terms of the acquisitions under contract. Can you give us a sense of the quality relative to kind of your existing portfolio? Does it stack up like on par, is it slightly above, slightly below? Just trying to put some context in that 5.7% cap rate versus the existing portfolio.

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Robert A. Milligan, Healthcare Trust of America, Inc. - CFO, Secretary & Treasurer [88]

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Well, I think as we're looking to buy, we're looking to buy assets that fit in with the quality of our portfolio. They fit in with our markets and we can add them just to the existing portfolio and not see any real differential there.

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [89]

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I think as a philosophy, we've been thinking through how we as a company want to go forward and how to grow and obviously, the challenge is to find the right assets. But there's also a challenge out there that there's a differentiation of assets. And even in our peers, there's a differentiation. And I think that our view is that if you put together the best quality portfolio and that portfolio represents performance and that's the important part of a quality portfolio, location, tenant mix, quality of asset and then you combine that with your geographic location, I don't think that's something you want to dissipate. I think that that's, in fact, something that you continue to pound the table on and that's something that investors continue to look at, not over months or a couple of months, but years over years where they say, this is a portfolio that has performed and it's performing in locations and those locations are getting more valuable. And what they didn't do during a period of a pause or a period of difficulty is go out and somehow infuse a bunch of inferior assets into that portfolio. So we are very cognizant of the investment guidance that we get from our investment committee that we want to keep the quality of this portfolio within that range where we feel it is today.

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Operator [90]

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And this will conclude our question-and-answer session. I would now like to turn the conference back over to Scott Peters for any closing remarks.

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Scott D. Peters, Healthcare Trust of America, Inc. - Founder, Chairman, President & CEO [91]

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Well, thank you, everybody, for joining us and we look forward to moving forward and talking again in the next earnings call. Thank you.

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Operator [92]

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The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.