Wednesday, May 26, 2010

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.


DebbieER said...

Do you have anything good to say about this reit and it's ability to make money for it's investors?

Rational Realist said...

When it makes money for investors by covering its distribution from operating cash flow, I will say so. Or when it sells properites for a profit, I will note it. And I hope it does, I am not looking for a failure.

This blog pointed out that the REIT's management is giving itself a nice pay increase. At the same time the REIT is not covering is distribution from operations. If you're an investor and are OK with those facts, that's OK with me.

Anonymous said...

The reps and BD community that continue to sell HTA need to wake up and review the public filings. The board of this REIT and all of Sr. Mgt should be removed immediately and replaced. To continue to reward mgt with big compensation packages for bad performance does not make any sense.

I was an investor in Golf Trust of America and lost all my money, of which Brad Blair (Board member) and Scott Peters were involved. I cannot believe that these two criminals are allowed to continue to take peoples money. If you are reading this and an investor – all I can say is fill out the Share Repurchase Program and fast!

Anonymous said...

Any updates on HTA REIT and Scott Peters? My financial advisor is trying to pursue me to invest big bucks in the HTA REIT that he said will be closed in three days. Are the advisors/brokers getting 6% commission for this (I read it somewhere)?


Rational Realist said...

I have not seen anything new. You should always check the total fees of any investment. HTA's fees and the amounts paid to brokers are in HTA's prospectus, which you should read before investing.

The Optimist said...

Healthcare Trust of America: The Goose That Laid the Golden Parachute


I received today, like many that follow Healthcare Trust of America’s (HTA) SEC releases, a notice of an 8-K filing. There were actually two filings. The first was an explanation of amendments made to the Amended and Restated 2006 Plan (The Plan), and the second was a copy of the modified plan. I’m not a financial statement expert or a lawyer; so making sense of all the legalese in these filings is beyond the purpose of my writing and capabilities.

However, if I read the filing correctly, another 8,000,000 shares have been added to the compensation plan as defined by the Plan. They state that 300% more shares were added, ”to increase the number of shares authorized to be issued pursuant to the Plan and for other purposes.” That’s another $80,000,000 in compensation to a very small group of executives in addition to the already 2,000,000 shares in place. The kicker is that this was voted on by a Compensation Board comprised of at least one of Mr. Peters' former associates, a Mr. Brad Blair of the famed and failed Golf Trust of America, as noted by Anonymous.

I suppose that these additions to the shares would be OK if this was some other REIT (maybe), a better performing one, but this isn’t some other REIT. This is HTA, a REIT where they already have one of the most exorbitant compensation packages in place to begin with as you have documented.

All that’s needed for this cash cow to come home and roost is a “change of control” as defined by the Plan; whereby, Scott Peters and his execs can “resign for good reason” and collect their payday. Couple this filing with the fact that the REIT just closed it’s offering period not but days ago and the 8-K was filed within days of noted healthcare mergers, needless to say, I’m a little suspicious.

Up to this point the REITs performance has been mediocre at best, as they have begun to cover their paid distribution. However, they have a substantial amount of debt do this year and I have tried like hell to get my wholesaler in here to explain to me what they intend to do, i.e. extend the loans, refinance, etc.
Bottom line, I’m wondering if you’re seeing what I’m seeing—somethin’ fishy going on at HTA.

Anonymous said...

Scott Peters, Kelly Pruitt and the entire HTA crew (aside from a select few) are a despicable group of con artists that should be thoroughly investigated by the NYSE and by the EEOC. Scott is a wolf in sheep's clothing. Do not trust them. Thinking about investing - THINK TWICE.