IPF -- I hope you'll excuse my delayed response. I have been washing ever since I read your post, but there is not enough soap in the world to wash the stink off this latest maneuver. According to HTA's hypocritical Letter to Stockholders dated January 27, 2011
, the Healthcare Trust of America "model places our company and shareholders first," but given Peters's new, even more lucrative compensation plan, I don't see how this could possibly be the case.
On the housekeeping front, when you said that you had "tried like hell to get my wholesaler in here to explain," I'm assuming you called your wholesaler at Realty Capital Securities? As you know, as part of the 2009 management internalization, HTA transitioned to RCS as dealer manager, so if you're calling someone at Grubb & Ellis (nee NNN), they're probably not going to return your calls.
No matter who you talk to, I'd love to hear your translation of how they justify this. Absent the management internalization, which looked good on its surface, this new compensation plan is just the latest in a long line of self-serving decisions by Peters and his board cronies. As you know, never in its lifetime has Healthcare Trust of America covered its 7.25% dividend -- either from cash flow OR Funds From Operations
. In fact, over its lifetime, HTA has paid dividends that were almost double
the cash flow produced by its portfolio.
How did HTA achieve this financial alchemy? Simple -- they paid it using borrowed money, and a lot of shareholder cash that was meant to be invested in real estate
. Through the first 9 months of 2010 alone, 41% of the dividend was funded with DEBT, not earnings
. In essence, the board allowed management to use shareholder cash as a sales tool -- go ahead Scott, just cut a few thousand checks, call it a dividend, and use that 7.25% "return" to sell more of your silly stock. Of course, it also helps to have no transparent market for the shares, no independent analysts covering the company, and a bunch of regulators who will blindly bless the whole pile of turd.
As I have said over and over again in various comments on this forum, to the extent that dividends are paid in excess of cash flow, it results in immediate and irreparable harm to shareholders. To the extent that this is done as a matter of policy over a long period of time, shareholders are simply screwed.
In the sorry case of HTA, this reckless dividend policy contributed to an almost .75/share decline in book value over the course of just twelve months (from $7.71 in Q3 2009 to $6.98 as of Q3 2010), despite the fact that FFO increased by over 200% during the same period. In other words, HTA bought a lot of fancy looking real estate, but they weren't too careful about how much they paid for it, and it didn't even come close to being accretive.
In the warped world of non-traded REITs, the common excuse for this ridiculously poor performance is that the REIT needs time to "ramp up" and that after the "acquisition phase" a mature REIT will eventually cover its dividend. However, almost without exception, this is hardly ever true. HTA, which is now more than four years old, is a pathetic case in point.
Which brings me back to your original question: do I see what you see -- somethin' fishy going on at HTA?
Of course I do. At this point, the management internalization looks like nothing more than a change in control from one group of greedy insiders (Grubb, Andrea Biller, who indirectly owned 5% of the advisor, and Danny Prosky) to another group of greedy insiders (Peters and his obsequious board of directors). How else to explain the jump in Peters's base salary from $160,000/year to $500,000, and then one year later from $500,000/year to $750,000/year, almost immediately after the "internalization" occurred?
This is an increase in base salary of more than 300% within eighteen months --- and this doesn't even include the stock grants. Almost simultaneously, Peters was awarded an additional $1,000,000 per year in equity grants (for three years), which also entitled him to dividend income on the shares (totaling $217,500/year after the third year). Separately, Peters was awarded another $1 million worth of shares as part of a "retention" package, followed by the $11 million award contingent on the company's lack of proximity to the financial capital of Scottsdale, Arizona. And now comes this new, even more more lucrative stock grant. Eight million shares? Good grief!
The whole sham would be completely laughable if there weren't so many shareholders being fleeced in the process. Amazingly, among the reasons cited by the board for Peters's compensation largesse were the "quality of new acquisitions completed by the Company," the Company's "increasing distribution coverage," and "the overall financial strength and growth of the Company." Whose financial statements could the board have been reading, do you think?
They certainly couldn't have been looking at HTA's flimsy income statement and balance sheet. If so, how is it possible to miss the fact that almost 50% of HTA's dividend is being funded with debt, the fact that HTA had $178MM in short-term, variable rate debt maturing in 2011 (only $82MM of which had been addressed as of Q3 2010), and the fact that the Company's book value is heading south like a flock of warblers in December?
So,...getting closer to your "fishy" question - the noted healthcare merger you refer to is the Ventas's acquisition of Nationwide Health Properties ("NHP") in an all stock deal worth $7.4 billion. This was only the most recent in a number of large Health care REIT
deals this year and last. The Ventas/NHP deal, which was surely the largest, was announced on February 28th, and JP Morgan acted as NHP's financial advisor. Most significantly, in August of 2010, JP Morgan was also engaged as HTA's "lead strategic advisor in exploring actions to maximize shareholder value, including the assessment of various liquidity options." In English, this means JP Morgan was hired to sell the company, either through an IPO or an M&A transaction.
Thus, given JP Morgan's involvement in the sale of both NHP and
HTA, I would be very surprised if Peters and the HTA board were not extremely well tuned in to the possibility that HTA could be purchased by a more shareholder-friendly outfit, complete with a board that actually took its fiduciary duty to shareholders seriously. My guess is that this obscenely large stock grant was simply one more way to ensure that Peters got another swipe at the HTA honey pot if that happened. My further guess is that Ventas and others took a good look at HTA via JP Morgan, and Peters and the board knew it.
BTW, here's how that math would work, assuming all 10 million shares vest at $10/share upon a change in control. Assuming further that the 191,483,220 shares that HTA reported outstanding as of 11/11/2010 remains the same, the $100 million would be a land grab equal to .52/share by Peters and the board, yet they have absolutely no cash invested in the REIT and therefore no risk - unlike the real shareholders whom Peters happens to work for (but he obviously thinks it's the other way around). Bottom line: this obscenely large stock grant looks just like that hugely dilutive internalization fee that was supposed
to have been eliminated when Peters kicked out the crew from Grubb & Ellis....talk about smoke and mirrors!