Healthcare Trust of America (HTA) filed an 8-K this afternoon. It's a doozy. HTA's President and Chief Executive Officer, Scott Peters, has received a 50% jump in his base salary. His salary went to $750,000 a year from $500,000. If you remember, last year his base salary was increased to $500,000 from around $160,000. The reason for the raise listed in the 8-K is here:
• the successful completion of the Company’s transition to self-management;
• the recent commencement of the Company’s follow-on offering;
• the substantial level and quality of new acquisitions completed by the Company over the past nine months;
• the Company’s increasing distribution coverage;
• the gross cost savings of $10.8 million in 2009 and $5.5 million in the first quarter of 2010 resulting from the Company’s self-management program; and
• the overall financial strength and growth of the Company
If you review HTA's 10-K, you will find many of the the same reasons above as justification for giving Mr. Peters his massive bonus that brought his 2009 total pay to $2.8 million. I am no compensation expert but this looks like double-dipping to me.
In addition to the increase in base pay, Mr. Peters and other executives were awarded equity grants. Mr. Peters' equity grant is 100,000 shares per year for the next three years (which at $10 per share is valued at $1,000,000 per year), and he gets interest on those shares at HTA's 7.25% distribution rate, or $72,500 per year the first year, $145,000 the second year, and $217,500 thereafter. WTF!
HTA also instituted an Employee Retention Plan - you knew it was going to get better - that granted Mr. Peters an additional 100,000 HTA shares. Mr. Peters elected to take 50,000 shares in cash, which is $500,000. This will be paid in thirds on the anniversary of the grant date. Come on, is an Employee Retention Plan necessary for a guy getting this much compensation? Where the heck is he going to go?
This compensation increase is outrageous. This REIT increased its dividend coverage in the first quarter, but operating cash flow only covered 48% of the dividend without any adjustments. News flash - this is not stellar performance for a REIT over three years old. HTA board of directors - DO YOUR JOB!
Read HTA's 10-K and most recent 10-Q. HTA has $300 million of low interest rate variable debt that matures before end of 2011. Then read the blog post below on refinance scenarios. It is my opinion that with a current 48% dividend coverage and $300 million of low interest rate debt maturing over the next eighteen months, this REIT has its work cut out to generate sufficient operating cash to cover its distribution.