UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

Commission File Number: 000-53206

 

 

Healthcare Trust of America, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

(480) 998-3478
(Registrant’s telephone number, including area code)

 

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.

  þ Yes o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).

o Yes o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		o				Accelerated filer		o
Non-accelerated filer		þ		(Do not check if a smaller reporting company)		Smaller reporting company		o

 

 

As of November 11, 2010, there were 191,483,220 shares of common stock of Healthcare Trust of America, Inc. outstanding.

 

 

Healthcare Trust of America, Inc.
(A Maryland Corporation)
TABLE OF CONTENTS

 

 

 

 

Healthcare Trust of America, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2010 and December 31, 2009
(Unaudited)

 

 

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

Healthcare Trust of America, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2010 and 2009
(Unaudited)

 

 

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

Healthcare Trust of America, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Nine Months Ended September 30, 2010 and 2009
(Unaudited)

 

 

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

Healthcare Trust of America, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2010 and 2009
(Unaudited)

 

 

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

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

As of and for the Three and Nine Months Ended September 30, 2010 and 2009

 

The use of the words “we,” “us” or “our” refers to Healthcare Trust of America, Inc. and its subsidiaries, including Healthcare Trust of America Holdings, LP, except where the context otherwise requires.

 

 

Healthcare Trust of America, Inc., a Maryland corporation, was incorporated on April 20, 2006. We were initially capitalized on April 28, 2006 and consider that our date of inception.

 

We are a self-managed, self-advised real estate investment trust, or REIT. Accordingly, our internal management team manages our day-to-day operations and oversees and supervises our employees and outside service providers. Acquisitions and asset management services are performed in-house by our employees, with certain monitored services provided by third parties at market rates. We do not pay acquisition, disposition or asset management fees to an external advisor, and we have not and will not pay any internalization fees.

 

We provide stockholders the potential for income and growth through investment in a diversified portfolio of real estate properties. We focus primarily on medical office buildings and healthcare-related facilities. We also invest to a limited extent in other real estate related assets. However, we do not presently intend to invest more than 15.0% of our total assets in such other real estate related assets. We focus primarily on investments that produce recurring income. We have qualified and elected to be taxed as a REIT, for federal income tax purposes and we intend to continue to be taxed as a REIT. We conduct substantially all of our operations through Healthcare Trust of America Holdings, LP, or our operating partnership.

 

As of September 30, 2010, we had made 70 acquisitions comprising approximately 8,943,000 square feet of gross leasable area, or GLA, which includes 208 buildings and two real estate related assets. Additionally, we purchased the remaining 20% interest that we previously did not own in HTA-Duke Chesterfield Rehab, LLC, or the JV Company that owns the Chesterfield Rehabilitation Center. The aggregate purchase price of these acquisitions was $1,803,056,000. As of September 30, 2010, the average occupancy of these properties was approximately 91%.

 

On September 20, 2006, we commenced a best efforts initial public offering, or our initial offering, in which we offered up to 200,000,000 shares of our common stock for $10.00 per share and up to 21,052,632 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP, at $9.50 per share, aggregating up to $2,200,000,000. As of March 19, 2010, the date upon which our initial offering terminated, we had received and accepted subscriptions in our initial offering for 147,562,354 shares of our common stock, or $1,474,062,000, excluding shares of our common stock issued under the DRIP.

 

On March 19, 2010, we commenced a best efforts public offering, or our follow-on offering, in which we are offering up to 200,000,000 shares of our common stock for $10.00 per share in our primary offering and up to 21,052,632 shares of our common stock offered for sale pursuant to the DRIP at $9.50 per share, aggregating up to $2,200,000,000. As of September 30, 2010, we have received and accepted subscriptions in our follow-on offering for 28,283,902 shares of our common stock, or $282,635,000, excluding shares of our common stock issued under the DRIP.

 

On August 16, 2010, we announced our intention to close our follow-on offering early, subject to market conditions, on or before April 30, 2011 but not earlier than November 30, 2010, with 30-day prior notice. Our follow-on offering is currently scheduled to expire on March 19, 2012, unless extended. We will not terminate our follow-on offering early unless and until we determine that an early termination is in the best interests of our stockholders and market conditions are favorable.

 

Realty Capital Securities, LLC, or RCS, an unaffiliated third party, serves as the dealer manager for our follow-on offering. RCS is registered with the Securities and Exchange Commission, or the SEC, and with all

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

50 states and is a member of the Financial Industry Regulatory Authority, or FINRA. RCS offers our shares of common stock for sale through a network of broker-dealers and their licensed registered representatives.

 

 

The summary of significant accounting policies presented below is designed to assist in understanding our interim condensed consolidated financial statements. Such interim condensed consolidated financial statements and the accompanying notes thereto are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying interim condensed consolidated financial statements.

 

Basis of Presentation

 

Our accompanying interim condensed consolidated financial statements include our accounts and those of our operating partnership, the wholly-owned subsidiaries of our operating partnership and any variable interest entities, or VIEs, as defined in the Financial Accounting Standards Board, or the FASB, Accounting Standard Codification, or ASC, 810, Consolidation, or ASC 810. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. We operate in an umbrella partnership REIT, or UPREIT, structure in which wholly-owned subsidiaries of our operating partnership own all of the properties acquired on our behalf. We are the sole general partner of our operating partnership and as of September 30, 2010 and December 31, 2009, we owned an approximately 99.89% and an approximately 99.99%, respectively, general partner interest in our operating partnership. Grubb & Ellis Healthcare REIT Advisor, LLC, or our former advisor, was a limited partner of our operating partnership as of September 30, 2010, and as of September 30, 2010 and December 31, 2009, owned an approximately 0.01% limited partner interest in our operating partnership. See Note 19, Subsequent Events, for information regarding redemption of this limited partner interest held by our former advisor. Additionally, as of September 30, 2010, approximately 0.10% of our operating partnership is owned by certain physician investors who obtained limited partner interests in connection with the Fannin acquisition (see Note 13).

 

Because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our operating partnership), the accounts of our operating partnership are consolidated in our consolidated financial statements.

 

Certain amounts presented in the interim condensed consolidated statements of operations for the three and nine months ended September 30, 2009 have been reclassified to conform to the presentation for the three and nine months ended September 30, 2010. In our previously issued statement of operations for the three months ended September 30, 2009, asset management fees of $1,196,000 and acquisition-related expenses of $5,920,000 were included within general and administrative expenses of $11,095,000. For the nine months ended September 30, 2009, asset management fees of $3,783,000 and acquisition-related expenses of $9,100,000 were included within general and administrative expenses of $21,955,000.

 

Our interim condensed consolidated statement of operations for the nine months ended September 30, 2010 depicts a reclassification of approximately $1,010,000 from Rental Expenses into General and Administrative Expenses, the entirety of which pertains to the six months ended June 30, 2010. This reclassification was done to conform with the presentation depicted within our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC on March 16, 2010 (the 2009 Annual Report).

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

Interim Unaudited Financial Data

 

Our accompanying interim 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 interim condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying interim 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 period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such results may be less favorable. Our accompanying interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in the 2009 Annual Report.

 

Cash and Cash Equivalents

 

Cash and cash equivalents consist of highly liquid investments with a maturity of three months or less when purchased.

 

Segment Disclosure

 

ASC 280, Segment Reporting, or ASC 280, establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. We have determined that we have one reportable segment, with activities related to investing in medical office buildings, healthcare-related facilities, healthcare-related office properties and other real estate related assets. Our investments in real estate and other real estate related assets are geographically diversified and our chief operating decision maker evaluates operating performance on an individual asset level. As each of our assets has similar economic characteristics, tenants, and products and services, our assets have been aggregated into one reportable segment.

 

Recently Issued Accounting Pronouncements

 

Below are the recently issued accounting pronouncements and our evaluation of the impact of such pronouncements.

 

Consolidation Pronouncements

 

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) codified primarily in ASC 810-10, Consolidation — Overall, or ASC 810-10, which modifies how a company determines when an entity that is a VIE should be consolidated. This guidance clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. It also requires an ongoing reassessment of whether a company is the primary beneficiary of a VIE, and it requires additional disclosures about a company’s involvement in VIEs and any significant changes in risk exposure due to that involvement. This guidance became effective for us on January 1, 2010. The adoption of ASC 810-10 did not have a material impact on our consolidated financial statements.

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

Fair Value Pronouncements

 

In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820), or ASU 2010-06, which provides amendments to Subtopic 820-10 that require new disclosures and that clarify existing disclosures in order to increase transparency in financial reporting with regard to recurring and nonrecurring fair value measurements. ASU 2010-06 requires new disclosures with respect to the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for those transfers, as well as separate presentation about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). In addition, ASU 2010-06 provides amendments that clarify existing disclosures, requiring a reporting entity to provide fair value measurement disclosures for each class of assets and liabilities as well as disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3. Finally, ASU 2010-06 amends guidance on employers’ disclosures about postretirement benefit plan assets under ASC 715 to require that disclosures be provided by classes of assets instead of by major categories of assets. ASU 2010-06 is effective for the interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. Accordingly, ASU 2010-06 became effective for us on January 1, 2010 (except for the Level 3 activity disclosures, which will become effective for us on January 1, 2011). The adoption of ASU 2010-06 has not had a material impact on our consolidated financial statements.

 

Equity Pronouncements

 

In January 2010, the FASB issued Accounting Standards Update 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash, or ASU 2010-01, the objective of which was to address the diversity in practice related to the accounting for a distribution to shareholders that offers them the ability to elect to receive their entire distribution in cash or shares of equivalent value with a potential limitation on the total amount of cash that shareholders can elect to receive in the aggregate. ASU 2010-01 clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or shares with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share (EPS) prospectively. ASU 2010-01 became effective for us January 1, 2010. The adoption of ASU 2010-01 did not have a material impact on our consolidated financial statements.

 

Credit Risk Pronouncements

 

In July 2010, the FASB issued Accounting Standards Update 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, or ASU 2010-20, which requires disclosures about the nature of the credit risk in an entity’s financing receivables, how that risk is incorporated into the allowance for credit losses, and the reasons for any changes in the allowance. Disclosure is required to be disaggregated, primarily at the level at which an entity calculates its allowance for credit losses. The specific required disclosures are a rollforward schedule of the allowance for credit losses for the reporting period, the related investment in financing receivables, the nonaccrual status of financing receivables, impaired financing receivables, credit quality indicators, the aging of past due financing receivables, any troubled debt restructurings and their effect on the allowance for credit losses, the extent of any financing receivables modified by troubled debt restructuring that have defaulted and their impact on the allowance for credit losses, and significant sales or purchases of financing receivables. The ASU 2010-20 disclosure requirements primarily pertain to our mortgage notes receivables and are effective for interim and annual reporting periods ending on or after December 15, 2010.

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

 

Our investments in our consolidated properties consisted of the following as of September 30, 2010 and December 31, 2009:

 

 

Depreciation expense for the three months ended September 30, 2010 and 2009 was $12,552,000 and $8,186,000, respectively, and depreciation expense for the nine months ended September 30, 2010 and 2009 was $34,985,000 and $23,407,000, respectively.

 

During the nine months ended September 30, 2010, we completed 17 new acquisitions as well as purchased three additional medical office buildings within existing portfolios. Additionally, we purchased the remaining 20.0% interest that we previously did not own in HTA-Duke Chesterfield Rehab, LLC, the JV Company that owns Chesterfield Rehabilitation Center. The aggregate purchase price of these assets was $342,745,000. Acquisitions completed during the nine months ended September 30, 2010 are set forth below:

 

 

 

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

 

 

 

Real estate notes receivable, net consisted of the following as of September 30, 2010 and December 31, 2009:

 

 

 

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

 

Identified intangible assets consisted of the following as of September 30, 2010 and December 31, 2009:

 

 

Amortization expense recorded on the identified intangible assets for the three months ended September 30, 2010 and 2009 was $7,915,000 and $5,477,000, respectively, which included $735,000 and $497,000, respectively, of amortization recorded against rental income for above market leases and $73,000 and $15,000, respectively, of amortization charged to rental expenses for leasehold interests in our accompanying interim condensed consolidated statements of operations. Amortization expense recorded on the identified intangible assets for the nine months ended September 30, 2010 and 2009 was $22,547,000 and $17,080,000, respectively, which included $2,054,000 and $1,459,000, respectively, of amortization recorded against rental income for above market leases and $220,000 and $43,000, respectively, of amortization recorded against rental expenses for leasehold interests in our accompanying interim condensed consolidated statements of operations.

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

 

Other assets, net, consisted of the following as of September 30, 2010 and December 31, 2009:

 

 

Amortization and depreciation expense recorded on deferred financing costs, lease commissions, lease inducements and other assets for the three months ended September 30, 2010 and 2009 was $679,000 and $642,000, respectively, of which $424,000 and $469,000, respectively, of amortization was recorded against interest expense for deferred financing costs and $60,000 and $36,000, respectively, of amortization was recorded against rental income for lease inducements in our accompanying interim condensed consolidated statements of operations. Amortization and depreciation expense recorded on deferred financing costs, lease commissions, lease inducements and other assets for the nine months ended September 30, 2010 and 2009 was $2,063,000 and $1,733,000, respectively, of which $1,366,000 and $1,402,000, respectively, of amortization was recorded against interest expense for deferred financing costs and $188,000 and $85,000, respectively, of amortization was recorded against rental income for lease inducements in our accompanying interim condensed consolidated statements of operations.

 

 

Mortgage loans payable were $592,344,000 ($594,428,000, including premium) and $542,462,000 ($540,028,000, net of discount) as of September 30, 2010 and December 31, 2009, respectively. As of September 30, 2010, we had fixed and variable rate mortgage loans with effective interest rates ranging from 1.66% to 12.75% per annum and a weighted average effective interest rate of 4.50% per annum. As of September 30, 2010, we had $328,532,000 ($330,616,000, including premium) of fixed rate debt, or 55.5% of mortgage loans payable, at a weighted average interest rate of 6.05% per annum, and $263,812,000 of variable rate debt, or 44.5% of mortgage loans payable, at a weighted average interest rate of 2.57% per annum. As of December 31, 2009, we had fixed and variable rate mortgage loans with effective interest rates ranging from 1.58% to 12.75% per annum and a weighted average effective interest rate of 3.94% per annum. As of December 31, 2009, we had $209,858,000 ($207,424,000 net of discount) of fixed rate debt, or 38.7% of mortgage loans payable, at a weighted average interest rate of 5.99% per annum, and $332,604,000 of variable rate debt, or 61.3% of mortgage loans payable, at a weighted average interest rate of 2.65% per annum. All of our mortgage loans payable were collateralized by their associated investment properties at September 30, 2010 and December 31, 2009.

 

We are required by the terms of the applicable loan documents to meet certain financial covenants, such as debt service coverage ratios, rent coverage ratios and reporting requirements. As of December 31, 2009, we were in compliance with all such covenants and requirements on $457,262,000 of our mortgage loans payable and were making appropriate adjustments to comply with such covenants on $85,200,000 of our mortgage loans payable by depositing $22,676,000 into a restricted collateral account. As of September 30, 2010, we believe that we were in compliance with all such covenants and requirements on $534,344,000 of our mortgage loans payable. We have reduced the amount deposited within our restricted collateral account to $12,036,000 as of September 30, 2010, and we are currently working with lenders in order to comply with certain covenants on the remaining $58,000,000 balance of our mortgage loans payable.

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

Mortgage loans payable consisted of the following as of September 30, 2010 and December 31, 2009:

 

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

 

 

The principal payments due on our mortgage loans payable as of September 30, 2010 for the three months ending December 31, 2010 and for each of the next four years ending December 31 and thereafter, is as follows:

 

 

The table above does not reflect all available extension options. Of the amounts maturing in 2010, $39,153,000 have two one-year extensions available and $29,101,000 have a one-year extension available. Of the amounts maturing in 2011, $153,310,000 have two one-year extensions available.

 

See Note 19, Subsequent Events, for information concerning our $135,000,000 secured term loan financing commitment, subject to certain customary conditions to closing, with Wells Fargo Bank, N.A. We obtained this commitment, which serves to refinance $17,200,000 of debt maturing in 2010 and approximately $82,000,000 of debt maturing in 2011, on November 3, 2010. Additionally, see Note 19, Subsequent Events, for information regarding $29,101,000 of debt that was paid off upon its reaching maturity on October 1, 2010 as well as our receipt of a one-year extension on $22,000,000 of our debt that was originally scheduled to mature on December 30, 2010.

 

 

ASC 815, Derivatives and Hedging, or ASC 815, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. We utilize derivatives such as fixed interest rate swaps and interest rate caps to add stability to interest expense and to manage our exposure to interest rate movements. Consistent with ASC 815, we record derivative financial instruments on our accompanying consolidated balance sheets as either an asset or a liability measured at fair value. ASC 815 permits special hedge accounting if certain requirements are met. Hedge accounting allows for gains and losses on derivatives designated as hedges to be offset by the change in value of the hedged item(s) or to be deferred in other comprehensive income. As of September 30, 2010 and December 31, 2009, no derivatives

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

were designated as fair value hedges or cash flow hedges. Derivatives not designated as hedges are not speculative and are used to manage our exposure to interest rate movements, but do not meet the strict hedge accounting requirements of ASC 815. Changes in the fair value of derivative financial instruments and payments/receipts on such instruments are recorded in gain on derivative financial instruments in our accompanying interim condensed consolidated statements of operations.

 

During the nine months ended September 30, 2010, six of our interest rate swap derivative instruments with an aggregate notional amount of $167,783,000 reached maturity and two of our interest rate swap derivative instruments with an aggregate notional amount of $27,200,000 were terminated early in conjunction with our prepayment of certain loan balances.

 

The following table lists the derivative financial instruments held by us as of September 30, 2010:

 

 

The following table lists the derivative financial instruments held by us as of December 31, 2009:

 

 

 

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

 

As of September 30, 2010 and December 31, 2009, the fair value of our derivative financial instruments was as follows:

 

 

For the three and nine months ended September 30, 2010 and 2009, our derivative financial instruments had the following effect on our condensed consolidated statements of operations:

 

 

We have agreements with each of our interest rate swap derivative counterparties that contain a provision whereby if we default on certain of our unsecured indebtedness, then we could also be declared in default on our interest rate swap derivative obligations resulting in an acceleration of payment. In addition, we are exposed to credit risk in the event of non-performance by our derivative counterparties. We believe we mitigate our credit risk by entering into agreements with credit-worthy counterparties. We record counterparty credit risk valuation adjustments on interest rate swap derivative assets in order to properly reflect the credit quality of the counterparty. In addition, our fair value of interest rate swap derivative liabilities is adjusted to reflect the impact of our credit quality. As of September 30, 2010 and December 31, 2009, there have been no termination events or events of default related to the interest rate swaps.

 

 

On September 10, 2007, we entered into a loan agreement, or the Loan Agreement, in which we had a secured revolving credit facility in an aggregate maximum principal amount of $50,000,000. A modification to this agreement executed December 12, 2007, increased the aggregate maximum principal amount to $80,000,000. We voluntarily closed this credit facility on August 19, 2010. We did not borrow on this credit facility during 2009 or during the nine months ended September 30, 2010. See Note 19, Subsequent Events, for discussion of our new $200,000,000 unsecured credit facility obtained on October 13, 2010.

 

The Loan Agreement contained various affirmative and negative covenants, which are customary for facilities and transactions of this type. Such covenants included limitations on the incurrence of debt by us and our subsidiaries, which own properties that serve as collateral for the Loan Agreement, limitations on the nature of our business, and limitations on our subsidiaries that own properties that serve as collateral for the Loan Agreement. The Loan Agreement also imposed the following financial covenants on us and our operating partnership, as applicable: (1) a minimum ratio of operating cash flow to interest expense, (2) a maximum ratio of liabilities to asset value, (3) a maximum distribution covenant and (4) a minimum net worth covenant, all of which were defined in the Loan Agreement. In addition, the Loan Agreement included events of default that are customary for facilities and transactions of this type. As of August 19, 2010, the date of this credit facility’s closure, and December 31, 2009, we were in compliance with all such covenants and requirements.

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

 

Identified intangible liabilities consisted of the following as of September 30, 2010 and December 31, 2009:

 

 

Amortization recorded on the identified intangible liabilities for the three months ended September 30, 2010 and 2009 was $409,000 and $437,000, respectively. Amortization recorded on the identified intangible liabilities for the nine months ended September 30, 2010 and 2009 was $1,276,000 and $1,380,000, respectively. Amortization on the identified intangible liabilities is recorded in rental income in our accompanying interim condensed consolidated statements of operations.

 

 

Litigation

 

We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our consolidated financial statements.

 

Environmental Matters

 

We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our consolidated financial position, results of operations or cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

 

Other Organizational and Offering Expenses

 

As a self-managed company, we are responsible for all of our current and future organizational and offering expenses, including those incurred in connection with our follow-on offering. These other organization and offering expenses include all expenses (other than selling commissions and dealer manager fees, which generally represent 7.0% and 3.0% of our gross offering proceeds, respectively) to be paid by us in connection with our follow-on offering.

 

Other

 

Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In our opinion, these matters are not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

 

Transition: Self-Management

 

Upon the effectiveness of our initial offering on September 20, 2006, we entered into the Advisory Agreement with our former advisor, and Grubb & Ellis Realty Investors, LLC, or GERI, and a dealer manager agreement with Grubb & Ellis Securities, Inc., our former dealer manager. These agreements entitled our former advisor, our former dealer manager and their affiliates to specified compensation for certain services as well as reimbursement of certain expenses.

 

In 2008, we announced that we were going to transition to become a self-managed company. As part of our transition to self management, on November 14, 2008, we amended and restated the Advisory Agreement effective as of October 24, 2008, to reduce acquisition and asset management fees, eliminate the need to pay disposition or internalization fees, to set the framework for our transition to self-management and to create an enterprise value for our company. On November 14, 2008, we also amended the partnership agreement for our operating partnership. Pursuant to the terms of the partnership agreement as amended, our former advisor had the ability to elect to defer its right, if applicable, to receive a subordinated distribution from our operating partnership after the termination or expiration of the advisory agreement upon certain liquidity events if specified stockholder return thresholds were met. This right was subject to a number of conditions and had been the subject of dispute between the parties, as well as monetary and other claims.

 

On May 21, 2009, we provided notice to Grubb & Ellis Securities that we would proceed with a dealer manager transition pursuant to which Grubb & Ellis Securities ceased to serve as our dealer manager for our initial offering at the end of the day on August 28, 2009. Commencing August 29, 2009, RCS, an unaffiliated third party, assumed the role of dealer manager for the remainder of the offering period. The Advisory Agreement expired in accordance with its terms on September 20, 2009.

 

Recently, on October 18, 2010, we and our former advisor and certain of its affiliates entered into a redemption, termination and release agreement, or the Redemption Agreement. Pursuant to the Redemption Agreement, we purchased the limited partner interest, including all rights with respect to a subordinated distribution upon the occurrence of specified liquidity events and other rights held by our former advisor in our operating partnership, for $8,000,000. In addition, pursuant to the Redemption Agreement the parties resolved all monetary claims and other matters between them, and entered into certain mutual and other releases of the parties. We believe that the execution of the Redemption Agreement represents the final stage of our successful transition from Grubb & Ellis and that the Redemption Agreement further positions us to take advantage of potential strategic opportunities in the future.

 

Former Executive Officers

 

Two of our former executive officers, Andrea Biller and Danny Prosky, were also executive officers and employees and/or holders of a direct or indirect interest in our former advisor and GERI, which managed our former advisor, or their affiliated entities. GERI owns a 75.0% managing member interest in our former advisor, and Grubb & Ellis Healthcare Management, LLC owns a 25.0% equity interest. As of June 30, 2010, Ms. Biller owned an equity interest of 18.0% of Grubb & Ellis Healthcare Management, LLC. Mr. Prosky and Ms. Biller resigned as officers of our company on June 30, 2009 and July 10, 2009, respectively.

 

Fees and Expenses Paid to Former Affiliates

 

In the aggregate, for the three months ended September 30, 2010 and 2009, we incurred fees to our former advisor and its affiliates of $0 and $17,531,000, respectively, and for the nine months ended September 30, 2010 and 2009, we incurred fees to our former advisor and its affiliates of $0 and $66,011,000, respectively.

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

Offering Stage

 

Selling Commissions

 

Prior to the transition of the dealer manager function to RCS, our former dealer manager received selling commissions of up to 7.0% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. Our former dealer manager re-allowed all or a portion of these fees to participating broker-dealers. For the three months ended September 30, 2010 and 2009, we incurred $0 and $7,644,000, respectively, and for the nine months ended September 30, 2010 and 2009, we incurred $0 and $35,337,000, respectively, in selling commissions to our former dealer manager. Such selling commissions are charged to stockholders’ equity as such amounts were reimbursed to our former dealer manager from the gross proceeds of our initial offering.

 

Marketing Support Fees and Due Diligence Expense Reimbursements

 

Our former dealer manager received non-accountable marketing support fees of up to 2.5% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. Our former dealer manager re-allowed a portion up to 1.5% of the gross offering proceeds for non-accountable marketing fees to participating broker-dealers. In addition, in our initial offering, we reimbursed our former dealer manager or its affiliates an additional 0.5% of the gross offering proceeds for accountable bona fide due diligence expenses, all or a portion of which could be re-allowed to participating broker-dealers. For the three months ended September 30, 2010 and 2009, we incurred $0 and $2,757,000, respectively, and for the nine months ended September 30, 2010 and 2009, we incurred $0 and $12,786,000, respectively, in marketing support fees and due diligence expense reimbursements to our former dealer manager. Such fees and reimbursements are charged to stockholders’ equity as such amounts are reimbursed to our former dealer manager or its affiliates from the gross proceeds of our initial offering.

 

Other Organizational and Offering Expenses

 

Our other organizational and offering expenses were paid by our former advisor or its affiliates, who we generally refer to as our former advisor, on our behalf. Our former advisor was reimbursed for actual expenses incurred up to 1.5% of the gross offering proceeds from the sale of shares of our common stock in our initial offering other than shares of our common stock sold pursuant to the DRIP. For the three months ended September 30, 2010 and 2009, we incurred $0 and $290,000, respectively and for the nine months ended September 30, 2010 and 2009, we incurred $0 and $2,557,000, respectively, in offering expenses to our former advisor. Other organizational expenses are expensed as incurred, and offering expenses are charged to stockholders’ equity as such amounts are reimbursed to our former advisor from the gross proceeds of our initial offering.

 

Acquisition and Development Stage

 

Acquisition Fee

 

For the period from September 20, 2006 through October 24, 2008, our former advisor received, as compensation for services rendered in connection with the investigation, selection and acquisition of properties, an acquisition fee of up to 3.0% of the contract purchase price for each property acquired or up to 4.0% of the total development cost of any development property acquired, as applicable. As we moved toward self-management, we

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

entered into an amendment to the Advisory Agreement, effective as of October 24, 2008, which reduced the acquisition fee payable to our former advisor from up to 3.0% to a lower fee determined as follows:

 

 

The Advisory Agreement also provided that we would pay an acquisition fee in connection with the acquisition of real estate related assets in an amount equal to 1.5% of the amount funded to acquire or originate each such real estate related asset.

 

We paid our former advisor acquisition fees for properties and other real estate related assets acquired with funds raised in our initial offering by our former dealer manager for such acquisitions completed after the expiration of the Advisory Agreement. We are no longer required to pay such fees to our former advisor.

 

For the three months ended September 30, 2010 and 2009, we incurred $0 and $4,071,000, respectively, and for the nine months ended September 30, 2010 and 2009, we incurred $0 and $6,008,000, respectively, in acquisition fees to our former advisor. Acquisition fees are included in acquisition-related expenses in our accompanying condensed consolidated statements of operations.

 

Operational Stage

 

Asset Management Fee

 

For the period from September 20, 2006 through October 24, 2008, our former advisor was paid a monthly fee for services rendered in connection with the management of our assets in an amount equal to one-twelfth of 1.0% of the average invested assets calculated as of the close of business on the last day of each month, subject to our stockholders receiving annualized distributions in an amount equal to at least 5.0% per annum on average invested capital. The asset management fee was calculated and payable monthly in cash or shares of our common stock at the option of our former advisor.

 

In connection with the amendment to the Advisory Agreement, effective as of October 24, 2008, we reduced the monthly asset management fee to one-twelfth of 0.5% of our average invested assets. As part of our transition to self-management, this fee to our former advisor was eliminated in connection with the expiration of the Advisory Agreement.

 

For the three months ended September 30, 2010 and 2009, we incurred $0 and $1,196,000, respectively, and for the nine months ended September 30, 2010 and 2009, we incurred $0 and $3,783,000, respectively, in asset management fees to our former advisor.

 

Property Management Fee

 

Our former advisor was paid a monthly property management fee equal to 4.0% of the gross cash receipts of our properties through August 31, 2009. For properties managed by other third parties besides our former advisor, our former advisor was paid up to 1.0% of the gross cash receipts from the property as a monthly oversight fee.

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

For the three months ended September 30, 2010 and 2009, we incurred $0 and $507,000, respectively, and for the nine months ended September 30, 2010 and 2009, we incurred $0 and $2,289,000, respectively, in property management fees and oversight fees to our former advisor, which is included in rental expenses in our accompanying condensed consolidated statements of operations. As part of our transition to self-management, this fee to our former advisor was eliminated in connection with the expiration of the Advisory Agreement. Under self-management, we pay property management fees to third parties at market rates.

 

Lease Fee

 

Our former advisor, as the property manager, was paid a separate fee for leasing activities in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties, as determined by a survey of brokers and agents in such area ranging between 3.0% and 8.0% of gross revenues generated from the initial term of the lease. For the three months ended September 30, 2010 and 2009, we incurred $0 and $496,000, respectively, and for the nine months ended September 30, 2010 and 2009, we incurred $0 and $1,173,000, respectively, to Triple Net Properties Realty, Inc., or Realty and its affiliates in lease fees, which are capitalized and included in other assets, net, in our accompanying condensed consolidated balance sheets.

 

On-site Personnel and Engineering Payroll

 

For the three months ended September 30, 2010 and 2009, GERI incurred payroll for on-site personnel and engineering on our behalf of $0 and $509,000, respectively, and for the nine months ended September 30, 2010 and 2009, GERI incurred $0 and $1,865,000, respectively, which is included in rental expenses in our accompanying condensed consolidated statements of operations.

 

Operating Expenses

 

We reimbursed our former advisor for operating expenses incurred in rendering its services to us, subject to certain limitations on our operating expenses. We did not reimburse our former advisor for operating expenses that exceeded the greater of: (1) 2.0% of our average invested assets, as defined in the Advisory Agreement, or (2) 25.0% of our net income, as defined in the Advisory Agreement, unless a majority of our independent directors determined that such excess expenses were justified based on unusual and non-recurring factors. Our operating expenses did not exceed this limitation during the term of the Advisory Agreement.

 

For the three months ended September 30, 2010 and 2009, GERI incurred on our behalf $0 and $4,000, respectively, and for the nine months ended September 30, 2010 and 2009, GERI incurred on our behalf $0 and $35,000, respectively, in operating expenses which is included in general and administrative expenses in our accompanying condensed consolidated statements of operations.

 

Related Party Services Agreement

 

We entered into a services agreement, effective January 1, 2008, with GERI for subscription agreement processing and investor services. The services agreement had an initial one year term and was subject to successive one year renewals. On March 17, 2009, GERI provided notice of its termination of the services agreement. The termination was to be effective September 20, 2009; however as part of our transition to self-management, we transitioned to DST Systems, Inc., our transfer agent and provider of subscription processing and investor relations services, as of August 10, 2009. Accordingly, the services agreement with GERI terminated on August 9, 2009.

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

For the three months ended September 30, 2010 and 2009, we incurred $0 and $57,000, respectively, and for the nine months ended September 30, 2010 and 2009, we incurred $0 and $177,000, respectively, for investor services that GERI provided to us, which is included in general and administrative expenses in our accompanying condensed consolidated statements of operations.

 

For the three months ended September 30, 2010 and 2009, our former advisor incurred $0 and $23,000, respectively, and for the nine months ended September 30, 2010 and 2009, our former advisor incurred $0 and $173,000, respectively, in subscription agreement processing that GERI provided to us.

 

Compensation for Additional Services

 

In periods preceding our transition to self-management during the third quarter of 2009, our former advisor was paid for services performed for us other than those required to be rendered by our former advisor under the Advisory Agreement. The rate of compensation for these services was required to be approved by a majority of our board of directors, including a majority of our independent directors, and could not exceed an amount that would be paid to unaffiliated third parties for similar services.

 

Liquidity Stage

 

Disposition Fee

 

We paid no disposition fees to our former advisor under the terms of the Advisory Agreement. In addition, we have no obligation to pay any disposition fees to our former advisor in the future.

 

Subordinated Participation Interest

 

Pursuant to the terms of the partnership agreement for our operating partnership, as amended on November 14, 2008, our former advisor had the right to receive a subordinated distribution upon the occurrence of certain liquidity events based on the value of our assets owned at the time the Advisory Agreement was terminated plus any assets acquired after such termination for which our former advisor received an acquisition fee. This right was purchased along with our former advisor’s partnership units in our operating partnership pursuant to the Redemption Agreement as discussed above and in Note 19, Subsequent Events. For more information on the subordinated participation interest, see Note 12, Related Party Transactions, to our consolidated financial statements included in our 2009 Annual Report.

 

Accounts Payable Due to Former Affiliates, Net

 

The following amounts were outstanding to former affiliates as of September 30, 2010 and December 31, 2009:

 

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

See Note 19, Subsequent Events, for additional information regarding the status of this balance as of September 30, 2010 pursuant to our entry into a Redemption, Termination, and Release Agreement with our former affiliates.

 

 

As of September 30, 2010 and December 31, 2009, we owned an approximately 99.89% and an approximately 99.99%, respectively, general partner interest in our operating partnership. Our former advisor was a limited partner of our operating partnership as of September 30, 2010 and as of September 30, 2010 and December 31, 2009, owned an approximately 0.01% limited partner interest in our operating partnership. See Note 12, Related Party Transactions, and Note 19, Subsequent Events, for information regarding redemption of the limited partner interest held by our former advisor. Additionally, approximately 0.10% of our operating partnership is owned by individual physician investors that elected to exchange their partnership interests in the partnership that owns the 7900 Fannin medical office building for limited partner units of our operating partnership. We acquired the majority interest in the Fannin partnership on September 30, 2010. In aggregate, approximately 0.11% of the earnings of our operating partnership are allocated to redeemable noncontrolling interest of limited partners.

 

As of December 31, 2009, we owned an 80.0% interest in the JV Company that owns the Chesterfield Rehabilitation Center, which was originally purchased on December 20, 2007. The redeemable noncontrolling interest balance related to this arrangement at December 31, 2009 was comprised of the noncontrolling interest’s initial contribution, 20.0% of the earnings at the Chesterfield Rehabilitation Center, and accretion of the change in the redemption value over the period from the purchase date to January 1, 2011, the earliest redemption date. On March 24, 2010, our subsidiary exercised its call option to buy, for $3,900,000, 100% of the interest owned by its joint venture partner, BD St. Louis, in the JV Company. As a result of the closing of the purchase on March 24, 2010, we own a 100% interest in the Chesterfield Rehabilitation Center, and the associated redeemable noncontrolling interest balance related to this entity was reduced to zero.

 

On June 30, 2010, we completed the acquisition of the majority interest in the Fannin partnership, which owns the 7900 Fannin medical office building located in Houston, Texas on the Texas Medical Center campus. At closing, we acquired the general partner interest and the majority of the limited partner interests in the Fannin partnership. The original physician investors were provided the right to remain in the Fannin partnership, receive limited partner units in our operating partnership, and/or receive cash. Some of the original physician investors elected to remain in the Fannin partnership post-closing as limited partners.

 

Redeemable noncontrolling interests are accounted for in accordance with ASC 480, Distinguishing Liabilities From Equity, or ASC 480, at the greater of their carrying amount or redemption value at the end of each reporting period. Changes in the redemption value from the purchase date to the earliest redemption date are accreted using the straight-line method. The redemption value as of December 31, 2009 was $3,549,000. As of September 30,

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

2010 and 2009, redeemable noncontrolling interest of limited partners was $4,049,000 and $2,468,000, respectively. Below is a table reflecting the activity of the redeemable noncontrolling interests.

 

 

The ($60,000) in net loss attributable to noncontrolling interest shown on our September 30, 2010 condensed consolidated statement of operations reflects $64,000 in net income earned by the noncontrolling interest in the JV Company prior to our purchase of this noncontrolling interest on March 24, 2010 and $7,000 in net income attributable to our operating partnership unit holders during the nine months ended September 30, 2010, offset by a net loss of ($131,000) attributable to the Fannin partnership following our purchase of this partnership on June 30, 2010.

 

There will be no additional net income attributable to the Chesterfield noncontrolling interest going forward in the current year beyond the $64,000 earned prior to our purchase of this noncontrolling interest. The net impact to our equity as a result of this purchase was $275,000.

 

 

Common Stock

 

In April 2006, our former advisor purchased 200 shares of our common stock for total cash consideration of $2,000 and was admitted as our initial stockholder. Through September 30, 2010, we granted an aggregate of 400,200 shares of restricted common stock to our independent directors, Chief Executive Officer, Chief Financial Officer and Executive Vice President — Acquisitions pursuant to the terms and conditions of our 2006 Incentive Plan and Employment Agreements described below. Through September 30, 2010, we issued 175,562,607 shares of our common stock in connection with our initial offering and follow-on offering and 9,988,254 shares of our common stock under the DRIP, and repurchased 5,177,343 shares of our common stock under our share repurchase plan. As of September 30, 2010 and December 31, 2009, we had 180,683,141 and 140,590,686 shares of our common stock outstanding, respectively.

 

Pursuant to our follow-on offering, we are offering and selling to the public up to 200,000,000 shares of our $0.01 par value common stock for $10.00 per share and up to 21,052,632 shares of our $0.01 par value common stock to be issued pursuant to the DRIP at $9.50 per share. Our charter authorizes us to issue 1,000,000,000 shares of our common stock.

 

On August 16, 2010, we announced our intention to close our follow-on offering early, subject to market conditions, on or before April 30, 2011 but not earlier than November 30, 2010, with 30-day prior notice. Our follow-on offering is currently scheduled to expire on March 19, 2012, unless extended. We will not terminate our

Healthcare Trust of America, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)–(Continued)

 

follow-on offering early unless and until we determine that an early termination is in the best interests of our stockholders and market conditions are favorable.

 

Preferred Stock

 

Our charter authorizes us to issue 200,000,000 shares of our $0.01 par value preferred stock. As of September 30, 2010 and December 31, 2009, no shares of preferred stock were issued and outstanding.

 

Distribution Reinvestment Plan

 

The DRIP allows stockholders to purchase additional shares of our common stock through the reinvestment of distributions, subject to certain conditions. We registered and reserved 21,052,632 shares of our common stock for sale pursuant to the DRIP in each of our initial and follow-on offerings. For the three months ended September 30, 2010 and 2009, $14,490,000 and $10,884,000, respectively, in distributions were reinvested and 1,525,248 and 1,145,699 shares of our common stock, respectively, were issued under the DRIP. For the nine months ended September 30, 2010 and 2009, $40,556,000 and $26,666,000, respectively, in distributions were reinvested and 4,269,072 and 2,807,028 shares of our common stock, respectively, were issued under the DRIP. As of September 30, 2010 and December 31, 2009, a total of $94,888,000 and $54,331,000, respectively, in distributions were reinvested and 9,988,254 and 5,719,182 shares of our common stock, respectively, were issued under the DRIP.

 

Share Repurchase Plan

 

Our board of directors has approved a share repurchase plan. On August 24, 2006, we received SEC exemptive relief from rules restricting issuer purchases during distributions. The share repurchase plan allows for share repurchases by us upon request by stockholders when certain criteria are met by the requesting stockholders. Share repurchases will be made at the sole discretion of our board of directors. Funds for the repurchase of shares will come exclusively from the proceeds we receive from the sale of shares under the DRIP.

 

For the three months ended September 30, 2010 and 2009, we repurchased 1,257,752 shares of our common stock, for an aggregate amount of $12,015,000, and 384,727 shares of our common stock, for $3,676,000, respectively. For the nine months ended September 30, 2010 and 2009, we repurchased 3,277,584 shares of our common stock, for an aggregate amount of $31,173,000 and 791,112 shares of our common stock, for an aggregate amount of $7,528,000, respectively. As of September 30, 2010 and December 31, 2009, we had repurchased a total of 5,117,343 shares of our common stock, for an aggregate amount of $48,516,000, and 1,839,759 shares of our common stock, for an aggregate amount of $17,343,000, respectively.

 

2006 Incentive Plan and 2006 Independent Directors Compensation Plan

 

Under the terms of our 2006 Incentive Plan, the aggregate number of shares of our common stock subject to options, shares of restricted common stock, restricted stock units, stock purchase rights, stock appreciation rights or other awards, including those issuable under its sub-plan, the 2006 Independent Directors Compensation Plan, will be no more than 2,000,000 shares.