Wednesday, March 30, 2011

Disclosure v. Non-Disclosure
In my last post I discussed Healthcare Trust of America's failure to disclose restrictive covenants in an 8-K filing announcing a new line of credit.   As a comparison, I direct you to Wells Real Estate Investment Trust II, which recently announced a short-term bridge credit facility in an 8-K filing.  Like the HTA line of credit, the Wells REIT II credit facility has restrictive covenants regarding paying more in distributions than generated in Funds from Operations (FFO).  The restrictions are clearly disclosed in Wells REIT II's 8-K, and here is the language:
The JPMorgan Chase Bridge Facility agreement also stipulates that the Registrant's net distributions, which equal total dividends and other distributions less the amount reinvested through the Registrant's dividend reinvestment plan, may not exceed the greater of (i) 90% of the Registrant's Funds from Operations through the date of payment or 100% of the Registrant's Funds from Operations for the two most recently completed fiscal quarters; or (ii) the minimum amount required in order for the Registrant to maintain its status as a REIT. Funds from Operations, as defined by the agreement, means net income (loss), minus (or plus) gains (or losses) from debt restructuring, mark-to-market adjustments on interest rate swaps, and sales of property during such period, plus depreciation on real estate assets and amortization (other than amortization of deferred financing costs) for such period, all after adjustments for unconsolidated partnerships and joint ventures. With limited exceptions, the Registrant may not make net distributions if a default or an event of default has occurred and is continuing or would result from the payment of net distributions.
The covenants like those in the Wells REIT II and HTA credit agreements are not uncommon.  My point is not the restrictions, it is that HTA should have disclosed the restrictions in its 8-K.

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