8-K: Healthcare Trust Announces Definitive Agreement to Internalize Management

Healthcare Trust, Inc. has entered into an agreement to internalize its management functions, transitioning away from external advisors.

Summary

• Healthcare Trust, Inc. (HTI) has agreed to internalize its management by merging with its external advisor, Healthcare Trust Advisors, LLC.
• The merger will also terminate HTI's property management agreement with Healthcare Trust Properties, LLC.
• All necessary assets, contracts, and employees will be transferred to the advisor before the merger.
• The merger consideration is $98.244 million, plus an asset management fee of $10.916 million and a property management fee of $3.92 million.
• HTI will pay at least $60 million in cash at closing, with the remainder potentially funded by a promissory note.
• The company intends to fund the cash portion through a combination of cash on hand and strategic dispositions.
• The internalization is expected to close no later than the fourth quarter of 2024.
• The agreement includes customary representations, warranties, and indemnification provisions.

Sentiment

Score: 7

Explanation: The document conveys a positive outlook on the internalization, highlighting its strategic benefits and potential for shareholder value creation. However, it also acknowledges risks and uncertainties, which tempers the overall sentiment.

Positives

• The internalization of management is expected to streamline operations and reduce external management fees.
• The company believes this move will maximize value for its stockholders.
• The transaction is seen as a critical step towards achieving a public listing for HTI's common stock.
• All necessary assets and employees will be transferred to the company, ensuring business continuity.

Negatives

• The company will incur significant costs related to the internalization, including the merger consideration and fees.
• The closing is subject to certain conditions, and there is no guarantee it will be completed.
• The company may need to issue a promissory note if it does not have sufficient cash on hand.
• The company is relying on strategic dispositions to fund part of the cash consideration.

Risks

• The closing of the internalization is subject to customary conditions and may not occur as planned.
• The company's ability to list its common stock on a national securities exchange is not guaranteed.
• Geopolitical instability and economic conditions could adversely affect the company's performance.
• The company faces risks related to the ongoing military conflicts and inflationary pressures.
• Potential future acquisitions are subject to market conditions and capital availability.

Future Outlook

The company expects the internalization to close no later than the fourth quarter of 2024, subject to the satisfaction or waiver of certain conditions. The company also aims to achieve a public listing for its common stock.

Management Comments

• The HTI management team is very excited about transitioning HTI to an internally managed company.
• We believe an internally managed structure best positions the Company to execute its strategy and maximize value for its stockholders, said Michael Anderson, Chief Executive Officer of HTI.
• This transaction is yet another exciting milestone for the Company and we believe it is a critical step towards growing shareholder value and achieving a public listing for HTIs common stock.

Industry Context

The move towards internalizing management is a trend in the REIT sector, as it can lead to lower costs and better alignment of interests between management and shareholders. This is a strategic move to enhance shareholder value and gain more control over operations.

Comparison to Industry Standards

• Internalizing management is a common strategy for REITs seeking to reduce costs and improve alignment with shareholders, similar to moves made by companies like American Campus Communities (ACC) and Apartment Investment and Management Company (AIV).
• The transaction structure, involving a merger with the advisor and the transfer of assets and employees, is a typical approach for internalization, comparable to transactions seen in the sector.
• The payment of a termination fee, structured as an asset management fee and property management fee, is a standard practice in these types of transactions, similar to what was seen in the internalization of management at companies like Colony Capital (now DigitalBridge).
• The use of a promissory note to cover part of the consideration is not uncommon, especially when companies are managing cash flow and asset dispositions, similar to strategies used by other REITs during transitions.

Stakeholder Impact

• Shareholders are expected to benefit from the internalization through increased value and potential for a public listing.
• Employees of the advisor and property manager will transition to employment with HTI.
• Customers and tenants are not expected to be significantly impacted by the internalization.
• Creditors may be impacted by the issuance of a promissory note.

Next Steps

• The company will work to satisfy the closing conditions of the merger agreement.
• The company will proceed with strategic dispositions to fund the cash portion of the merger consideration.
• The company will prepare for the transition to self-management and the integration of the advisor's assets and employees.
• The company will continue to pursue a public listing for its common stock.

Key Dates

Keywords

internalization, management, merger, advisory agreement, property management, healthcare trust, HTI, AR Global, real estate, REIT