Spruce Point Capital Releases A Strong Sell Forensic Research Opinion On Healthcare Trust of America, Inc. (NYSE: HTA)
Real estate investment trust (REIT) has multiple red flags including statistically unlikely same-property NOI growth results, and a management team with a questionable history
NEW YORK, June 7, 2018 /PRNewswire/ -- Report entitled "Broken Medical Trust" outlines how Healthcare Trust of America ("HTA" or "the Company") faces approximately 20%-40% downside risk to $15.00 to $20.00 per share. Spruce Point finds evidence to suggest manipulation of HTA's reported Same-Property Cash NOI ("SPNOI") results, which exhibit virtually no volatility – a statistically unlikely outcome. We have written a letter to HTA's Audit Committee recommending it hire an independent third party to validate SPNOI reporting.
- HTA Management's History of Shareholder Destruction And Ties To Bad Industry Players: CEO Scott Peters has been linked to failures at Grub & Ellis, NNN Realty Advisors, G REIT, T REIT, and Golf Trust of America. We question if two directors that have followed Peters are truly "independent"; one is the head of the Audit Committee. Peters has ties to Tony Thompson, a FINRA-barred industry participant, and Nick Schorsch from scandal-ridden American Realty Capital Partners (now VEREIT (NYSE: VER)).
- Evidence To Suggest Potential Manipulation of A Key Performance Metric: HTA's Same-Property Cash NOI metric exhibits virtually no volatility, and its definition has become open to greater management discretion over time. It seems unlikely that HTA can report SPNOI with such consistency, absent the potential of either outright manipulation, or uneconomic decision-making. We also note that despite rising same-property revenues, and same property expenses falling, HTA's margins are not increasing.
- Worries About The Finance and Accounting Function: Spruce Point is unable to independently verify the biography of HTA's CFO, who claims to have worked at Bofa/ML from 2007-2012, but does not have a FINRA record, a general industry prerequisite for a VP in a corporate banking role. The CFO also claims to be the Principal Accounting Officer (he is an MBA, not a CPA), despite HTA having a named Chief Accounting Officer with a CPA. SEC rules state the accounting officer must sign the 10-K, but he has not. Therefore, it appears that HTA may be in violation of SEC rules.
- Industry Outlook For Medical Office Building (MOB) REITS Is Not Favorable: HTA currently trades at a discount to the market's estimated NAV, which makes acquisitions increasingly difficult, especially since HTA has shown a willingness to issue more equity in recent years. Rising interest rates also increase its cost of capital. Private capital investors are flowing into the MOB space, competing for growth opportunities with HTA. These private investors seemingly have a lower cost of capital given their lower return threshold which in turn create a more competitive property acquisition market. We believe this backdrop may have caused management to panic into overbidding for the Duke Portfolio at an original cap-rate below 5%.
- 20%-40% Downside Risk Upon An Audit Committee Investigation And Restatement: The similarities between HTR and the Brixmor Property (BRX) accounting scandal involving manipulating same-property NOI are striking; both companies exhibit identical low standard deviation of results. Brixmor's shares declined 20% the day it admitted issues. Furthermore, American Realty Capital Partners (VEREIT) fell 40% when it admitted manipulating key non-GAAP figures.
- The research report can be found on our website at https://www.sprucepointcap.com/ and updates will be posted on twitter @sprucepointcap.
Spruce Point Capital has a short position in Healthcare Trust of America, Inc. (HTA) and stands to benefit if its share price falls.
About Spruce Point Capital
Spruce Point Capital Management, LLC is an activist short-seller and investment manager with a forensic, fundamentally-oriented research and investment approach
