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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
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(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended: | September 30, 2024 |
OR |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to
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Commission File Number: 001-35568 (Healthcare Realty Trust Incorporated)
HEALTHCARE REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter)
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| Maryland | | 20-4738467 |
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| (State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |
3310 West End Avenue, Suite 700
Nashville, Tennessee 37203
(Address of principal executive offices)
(615) 269-8175
(Registrant's telephone number, including area code)
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www.healthcarerealty.com |
| (Internet address) |
Securities Registered Pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered |
| Class A Common Stock, $0.01 par value per share | | HR | | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| ☒ | Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer |
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| ☐ | Smaller reporting company | ☐ | Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of October 25, 2024, the Registrant had 354,388,216 shares of Common Stock outstanding.
HEALTHCARE REALTY TRUST INCORPORATED
FORM 10-Q
September 30, 2024
Table of Contents
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| PART I - FINANCIAL INFORMATION | |
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| PART II - OTHER INFORMATION | |
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| Item 5 | Other Information | |
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| SIGNATURE | | |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Healthcare Realty Trust Incorporated
Condensed Consolidated Balance Sheets
Amounts in thousands, except per share data
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| ASSETS | | |
| Unaudited SEPTEMBER 30, 2024 | DECEMBER 31, 2023 |
| Real estate properties | | |
| Land | $ | 1,195,116 | | $ | 1,343,265 | |
| Buildings and improvements | 10,074,504 | | 10,881,373 | |
| Lease intangibles | 718,343 | | 836,302 | |
| Personal property | 9,246 | | 12,718 | |
| Investment in financing receivable, net | 123,045 | | 122,602 | |
| Financing lease right-of-use assets | 77,728 | | 82,209 | |
| Construction in progress | 125,944 | | 60,727 | |
| Land held for development | 52,408 | | 59,871 | |
| Total real estate properties | 12,376,334 | | 13,399,067 | |
| Less accumulated depreciation and amortization | (2,478,544) | | (2,226,853) | |
| Total real estate properties, net | 9,897,790 | | 11,172,214 | |
| Cash and cash equivalents | 22,801 | | 25,699 | |
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| Assets held for sale, net | 156,218 | | 8,834 | |
| Operating lease right-of-use assets | 259,013 | | 275,975 | |
| Investments in unconsolidated joint ventures | 417,084 | | 311,511 | |
| Goodwill | — | | 250,530 | |
| Other assets, net | 491,679 | | 592,368 | |
| Total assets | $ | 11,244,585 | | $ | 12,637,131 | |
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| LIABILITIES AND STOCKHOLDERS' EQUITY | | |
| Liabilities | | |
| Notes and bonds payable | $ | 4,957,796 | | $ | 4,994,859 | |
| Accounts payable and accrued liabilities | 197,428 | | 211,994 | |
| Liabilities of assets held for sale | 7,919 | | 295 | |
| Operating lease liabilities | 229,925 | | 229,714 | |
| Financing lease liabilities | 71,887 | | 74,503 | |
| Other liabilities | 180,283 | | 202,984 | |
| Total liabilities | 5,645,238 | | 5,714,349 | |
| Commitments and contingencies | | |
| Redeemable non-controlling interests | 3,875 | | 3,868 | |
| Stockholders' equity | | |
Preferred stock, $.01 par value per share; 200,000 shares authorized; none issued and outstanding | — | | — | |
Class A Common stock, $.01 par value per share; 1,000,000 shares authorized; 355,834 and 380,964 shares issued and outstanding at September 30, 2024, and December 31, 2023, respectively | 3,558 | | 3,810 | |
| Additional paid-in capital | 9,198,004 | | 9,602,592 | |
| Accumulated other comprehensive loss | (16,963) | | (10,741) | |
| Cumulative net income attributable to common stockholders | 481,155 | | 1,028,794 | |
| Cumulative dividends | (4,150,328) | | (3,801,793) | |
| Total stockholders' equity | 5,515,426 | | 6,822,662 | |
| Non-controlling interest | 80,046 | | 96,252 | |
| Total equity | 5,595,472 | | 6,918,914 | |
| Total liabilities and equity | $ | 11,244,585 | | $ | 12,637,131 | |
The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, are an integral part of these financial statements.
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2024 and 2023
Amounts in thousands, except per share data
Unaudited
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| THREE MONTHS ENDED
September 30, | NINE MONTHS ENDED
September 30, |
| 2024 | 2023 | 2024 | 2023 |
| Revenues | | | | |
| Rental income | $ | 306,499 | | $ | 333,335 | | $ | 932,710 | | $ | 987,109 | |
| Interest income | 3,904 | | 4,264 | | 12,307 | | 12,711 | |
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| Other operating | 5,020 | | 4,661 | | 13,533 | | 13,508 | |
| 315,423 | | 342,260 | | 958,550 | | 1,013,328 | |
| Expenses | | | | |
| Property operating | 120,232 | | 131,639 | | 359,030 | | 379,074 | |
| General and administrative | 20,124 | | 13,396 | | 48,913 | | 43,796 | |
| Transaction costs | 719 | | 769 | | 1,545 | | 1,725 | |
| Merger-related costs | — | | 7,450 | | — | | (3,366) | |
| Depreciation and amortization | 163,226 | | 182,989 | | 514,821 | | 550,661 | |
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| 304,301 | | 336,243 | | 924,309 | | 971,890 | |
| Other income (expense) | | | | |
| Gain on sales of real estate properties and other assets | 39,310 | | 48,811 | | 77,670 | | 56,974 | |
| Interest expense | (60,649) | | (66,304) | | (184,159) | | (195,397) | |
| Gain on extinguishment of debt | — | | 62 | | — | | 62 | |
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| Impairment of real estate properties and credit loss reserves | (84,394) | | (56,873) | | (232,450) | | (143,510) | |
| Impairment of goodwill | — | | — | | (250,530) | | — | |
| Equity income (loss) from unconsolidated joint ventures | 208 | | (456) | | (360) | | (1,253) | |
| Interest and other (expense) income, net | (132) | | 139 | | (104) | | 1,278 | |
| (105,657) | | (74,621) | | (589,933) | | (281,846) | |
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| Net loss | $ | (94,535) | | $ | (68,604) | | $ | (555,692) | | $ | (240,408) | |
| Net loss attributable to non-controlling interests | 1,512 | | 760 | | 8,053 | | 2,680 | |
| Net loss attributable to common stockholders | $ | (93,023) | | $ | (67,844) | | $ | (547,639) | | $ | (237,728) | |
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| Basic earnings per common share | $ | (0.26) | | $ | (0.18) | | $ | (1.49) | | $ | (0.63) | |
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| Diluted earnings per common share | $ | (0.26) | | $ | (0.18) | | $ | (1.49) | | $ | (0.63) | |
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| Weighted average common shares outstanding - basic | 358,960 | | 378,925 | | 370,254 | | 378,886 | |
| Weighted average common shares outstanding - diluted | 358,960 | | 378,925 | | 370,254 | | 378,886 | |
The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, are an integral part of these financial statements.
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Comprehensive Loss
For the Three and Nine Months Ended September 30, 2024 and 2023
Amounts in thousands
Unaudited
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| THREE MONTHS ENDED
September 30, | NINE MONTHS ENDED
September 30, |
| 2024 | 2023 | 2024 | 2023 |
| Net loss | $ | (94,535) | | $ | (68,604) | | $ | (555,692) | | $ | (240,408) | |
| Other comprehensive income (loss) | | | | |
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| Interest rate derivatives | | | | |
| Reclassification adjustments for gains included in interest expense | (3,641) | | (4,168) | | (11,169) | | (9,874) | |
| (Losses) gains arising during the period on interest rate swaps | (20,662) | | 12,016 | | 4,839 | | 24,999 | |
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| (24,303) | | 7,848 | | (6,330) | | 15,125 | |
| Comprehensive loss | (118,838) | | (60,756) | | (562,022) | | (225,283) | |
| Less: comprehensive loss attributable to non-controlling interests | 1,866 | | 663 | | 8,161 | | 2,494 | |
| Comprehensive loss attributable to common stockholders | $ | (116,972) | | $ | (60,093) | | $ | (553,861) | | $ | (222,789) | |
The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, are an integral part of these financial statements.
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Equity and Redeemable Non-Controlling Interests
For the Three Months Ended September 30, 2024 and 2023
Amounts in thousands, except per share data
Unaudited
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
Stock | Additional
Paid-In
Capital | Accumulated
Other
Comprehensive
Income (Loss) | Cumulative
Net Income | Cumulative
Dividends | Total
Stockholders’
Equity | Non-controlling Interests | Total
Equity | Redeemable Non-controlling Interests |
| Balance at June 30, 2024 | $ | 3,643 | | $ | 9,340,028 | | $ | 6,986 | | $ | 574,178 | | $ | (4,037,693) | | $ | 5,887,142 | | $ | 83,675 | | $ | 5,970,817 | | $ | 3,875 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Share-based compensation | — | | 7,908 | | — | | — | | — | | 7,908 | | — | | 7,908 | | — | |
| Common stock repurchases | (85) | | (149,932) | | — | | — | | — | | (150,017) | | — | | (150,017) | | — | |
| Redemption of non-controlling interest | — | | — | | — | | — | | — | | — | | (625) | | (625) | | — | |
| Net loss | — | | — | | — | | (93,023) | | — | | (93,023) | | (1,512) | | (94,535) | | — | |
Reclassification adjustments for gains included in net income (interest expense)
| — | | — | | (3,588) | | — | | — | | (3,588) | | (53) | | (3,641) | | — | |
Losses arising during the period on interest rate swaps
| — | | — | | (20,361) | | — | | — | | (20,361) | | (301) | | (20,662) | | — | |
| | | | | | | | | |
| | | | | | | | | |
Dividends to common stockholders and distributions to non-controlling interest holders ($0.31 per share) | — | | — | | — | | — | | (112,635) | | (112,635) | | (1,138) | | (113,773) | | — | |
| Balance at September 30, 2024 | $ | 3,558 | | $ | 9,198,004 | | $ | (16,963) | | $ | 481,155 | | $ | (4,150,328) | | $ | 5,515,426 | | $ | 80,046 | | $ | 5,595,472 | | $ | 3,875 | |
| | | | | | | | | |
| Common
Stock | Additional
Paid-In
Capital | Accumulated
Other
Comprehensive
Income (Loss) | Cumulative
Net Income | Cumulative
Dividends | Total
Stockholders’
Equity | Non-controlling Interests | Total
Equity | Redeemable Non-controlling Interests |
| Balance at June 30, 2023 | $ | 3,808 | | $ | 9,595,033 | | $ | 9,328 | | $ | 1,137,171 | | $ | (3,565,941) | | $ | 7,179,399 | | $ | 104,018 | | $ | 7,283,417 | | $ | 2,487 | |
| Issuance of common stock, net of issuance costs | — | | 33 | | — | | — | | — | | 33 | | — | | 33 | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Common stock redemptions | — | | 8 | | — | | — | | — | | 8 | | — | | 8 | | — | |
| Share-based compensation | 1 | | 2,555 | | — | | — | | — | | 2,556 | | — | | 2,556 | | — | |
| | | | | | | | | |
| Net loss | — | | — | | — | | (67,844) | | — | | (67,844) | | (760) | | (68,604) | | — | |
Reclassification adjustments for gains included in net income (interest expense)
| — | | — | | (4,118) | | — | | — | | (4,118) | | (50) | | (4,168) | | — | |
Gains arising during the period on interest rate swaps
| — | | — | | 11,869 | | — | | — | | 11,869 | | 147 | | 12,016 | | — | |
| Contributions from redeemable non-controlling interests | — | | — | | — | | — | | — | | — | | — | | — | | 710 | |
| Adjustments to redemption value of redeemable non-controlling interests | — | | — | | — | | — | | — | | — | | — | | — | | (2) | |
Dividends to common stockholders and distributions to non-controlling interest holders ($0.31 per share) | — | | — | | — | | — | | (118,203) | | (118,203) | | (1,467) | | (119,670) | | — | |
| Balance at September 30, 2023 | $ | 3,809 | | $ | 9,597,629 | | $ | 17,079 | | $ | 1,069,327 | | $ | (3,684,144) | | $ | 7,003,700 | | $ | 101,888 | | $ | 7,105,588 | | $ | 3,195 | |
The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, are an integral part of these financial statements.
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Equity and Redeemable Non-Controlling Interests
For the Nine Months Ended September 30, 2024 and 2023
Amounts in thousands, except per share data
Unaudited
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
Stock | Additional
Paid-In
Capital | Accumulated
Other
Comprehensive
Income (Loss) | Cumulative
Net Income | Cumulative
Dividends | Total
Stockholders’
Equity | Non-controlling Interests | Total
Equity | Redeemable Non-controlling Interests |
| Balance at December 31, 2023 | $ | 3,810 | | $ | 9,602,592 | | $ | (10,741) | | $ | 1,028,794 | | $ | (3,801,793) | | $ | 6,822,662 | | $ | 96,252 | | $ | 6,918,914 | | $ | 3,868 | |
| Issuance of common stock, net of issuance costs | — | | 104 | | — | | — | | — | | 104 | | — | | 104 | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Common stock redemptions | — | | (138) | | — | | — | | — | | (138) | | — | | (138) | | — | |
| Conversion of OP Units to common stock | 2 | | 3,410 | | — | | — | | — | | 3,412 | | (3,412) | | — | | — | |
| Share-based compensation | 3 | | 14,849 | | — | | — | | — | | 14,852 | | — | | 14,852 | | — | |
| Common stock repurchases | (257) | | (422,813) | | — | | — | | — | | (423,070) | | — | | (423,070) | | — | |
| Redemption of non-controlling interest | — | | — | | — | | — | | — | | — | | (625) | | (625) | | — | |
| Net loss | — | | — | | — | | (547,639) | | — | | (547,639) | | (8,053) | | (555,692) | | — | |
Reclassification adjustments for gains included in net income (interest expense)
| — | | — | | (11,012) | | — | | — | | (11,012) | | (157) | | (11,169) | | — | |
Gains arising during the period on interest rate swaps
| — | | — | | 4,790 | | — | | — | | 4,790 | | 49 | | 4,839 | | — | |
| Contributions from redeemable non-controlling interests | — | | — | | — | | — | | — | | — | | — | | — | | 13 | |
| Adjustments to redemption value of redeemable non-controlling interests | — | | — | | — | | — | | — | | — | | — | | — | | (6) | |
Dividends to common stockholders and distributions to non-controlling interest holders (0.93 per share) | — | | — | | — | | — | | (348,535) | | (348,535) | | (4,008) | | (352,543) | | — | |
| Balance at September 30, 2024 | $ | 3,558 | | $ | 9,198,004 | | $ | (16,963) | | $ | 481,155 | | $ | (4,150,328) | | $ | 5,515,426 | | $ | 80,046 | | $ | 5,595,472 | | $ | 3,875 | |
| | | | | | | | | |
| Common
Stock | Additional
Paid-In
Capital | Accumulated
Other
Comprehensive
Income (Loss) | Cumulative
Net Income | Cumulative
Dividends | Total
Stockholders’
Equity | Non-controlling Interests | Total
Equity | Redeemable Non-controlling Interests |
| Balance at December 31, 2022 | $ | 3,806 | | $ | 9,587,637 | | $ | 2,140 | | $ | 1,307,055 | | $ | (3,329,562) | | $ | 7,571,076 | | $ | 108,742 | | $ | 7,679,818 | | $ | 2,014 | |
| Issuance of common stock, net of issuance costs | — | | 112 | | — | | — | | — | | 112 | | — | | 112 | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Common stock redemptions | — | | (1,587) | | — | | — | | — | | (1,587) | | — | | (1,587) | | — | |
| Share-based compensation | 3 | | 11,467 | | — | | — | | — | | 11,470 | | — | | 11,470 | | — | |
| | | | | | | | | |
| Net loss | — | | — | | — | | (237,728) | | — | | (237,728) | | (2,680) | | (240,408) | | — | |
Reclassification adjustments for gains included in net income (interest expense)
| — | | — | | (9,757) | | — | | — | | (9,757) | | (117) | | (9,874) | | — | |
Gains arising during the period on interest rate swaps
| — | | — | | 24,696 | | — | | — | | 24,696 | | 303 | | 24,999 | | — | |
| Contributions from redeemable non-controlling interests | — | | — | | — | | — | | — | | — | | — | | — | | 1,210 | |
| Adjustments to redemption value of redeemable non-controlling interests | — | | — | | — | | — | | — | | — | | — | | — | | (29) | |
Dividends to common stockholders and distributions to non-controlling interest holders (0.93 per share) | — | | — | | — | | — | | (354,582) | | (354,582) | | (4,360) | | (358,942) | | — | |
| Balance at September 30, 2023 | $ | 3,809 | | $ | 9,597,629 | | $ | 17,079 | | $ | 1,069,327 | | $ | (3,684,144) | | $ | 7,003,700 | | $ | 101,888 | | $ | 7,105,588 | | $ | 3,195 | |
The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, are an integral part of these financial statements.
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2024 and 2023
Amounts in thousands
Unaudited
| | | | | | | | |
| OPERATING ACTIVITIES | | |
| NINE MONTHS ENDED
September 30, |
| 2024 | 2023 |
| Net loss | $ | (555,692) | | $ | (240,408) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | |
| Depreciation and amortization | 514,821 | | 550,661 | |
| Other amortization | 35,051 | | 33,822 | |
| Share-based compensation | 14,852 | | 11,470 | |
| Amortization of straight-line rent receivable (lessor) | (20,935) | | (29,320) | |
| Amortization of straight-line rent on operating leases (lessee) | 2,963 | | 4,600 | |
| Gain on sales of real estate properties and other assets | (77,670) | | (56,974) | |
| Gain on extinguishment of debt | — | | (62) | |
| Impairment of real estate properties and credit loss reserves | 232,450 | | 143,510 | |
| Impairment of goodwill | 250,530 | | — | |
| Equity loss from unconsolidated joint ventures | 360 | | 1,253 | |
| Distributions from unconsolidated joint ventures | 4,946 | | 4,366 | |
| | |
| Non-cash interest from financing and notes receivable | (1,610) | | (1,067) | |
| Changes in operating assets and liabilities: | | |
| Other assets, including right-of-use-assets | (5,758) | | (34,632) | |
| Accounts payable and accrued liabilities | (27,925) | | (32,060) | |
| Other liabilities | (2,778) | | 17,345 | |
| Net cash provided by operating activities | 363,605 | | 372,504 | |
| | |
| INVESTING ACTIVITIES | | |
| Acquisitions of real estate | — | | (48,106) | |
| Development of real estate | (51,336) | | (31,318) | |
| Additional long-lived assets | (186,742) | | (156,871) | |
| Funding of mortgages and notes receivable | (3,565) | | (14,597) | |
| Investments in unconsolidated joint ventures | — | | (3,824) | |
| Investment in financing receivable | (22) | | (310) | |
| Contributions from redeemable non-controlling interests | 13 | | 710 | |
| Proceeds from sales of real estate properties and additional long-lived assets | 722,940 | | 366,779 | |
| Proceeds from notes receivable repayments | 861 | | — | |
| | |
| | |
| Net cash provided by investing activities | 482,149 | | 112,463 | |
| | |
| FINANCING ACTIVITIES | | |
| Net borrowings (repayments) on unsecured credit facility | 206,000 | | (149,000) | |
| | |
| Repayment on term loan | (250,000) | | — | |
| | |
| Repayments of notes and bonds payable | (25,130) | | (11,988) | |
| | |
| | |
| Dividends paid | (348,064) | | (354,171) | |
| | |
| Net proceeds from issuance of common stock | 104 | | 110 | |
| Common stock redemptions | (321) | | (1,834) | |
| Common stock repurchases | (423,070) | | — | |
| Distributions to non-controlling interest holders | (3,612) | | (3,836) | |
| Redemption of non-controlling interest | (625) | | — | |
| | |
| Debt issuance and assumption costs | (563) | | (529) | |
| Payments made on finance leases | (13) | | (12) | |
| Net cash used in financing activities | (845,294) | | (521,260) | |
| | |
| Increase (decrease) in cash and cash equivalents | 460 | | (36,293) | |
| Cash and cash equivalents at beginning of period | 25,699 | | 60,961 | |
| Cash and cash equivalents at end of period, including assets held for sale | 26,159 | | 24,668 | |
| Cash and cash equivalents held for sale | (3,358) | | — | |
| Cash and cash equivalents at end of period | $ | 22,801 | | $ | 24,668 | |
| | |
| | |
| | | | | | | | |
| Supplemental Cash Flow Information | NINE MONTHS ENDED
September 30, |
| 2024 | 2023 |
| Interest paid | $ | 177,507 | | $ | 185,402 | |
| Mortgage notes receivable taken in connection with sale of real estate | $ | — | | $ | 45,000 | |
| Invoices accrued for construction, tenant improvements and other capitalized costs | $ | 49,886 | | $ | 32,590 | |
| Mortgage note payable assumed in connection with acquisition of real estate, net | $ | — | | $ | 5,284 | |
| Capitalized interest | $ | 3,211 | | $ | 2,077 | |
| | |
| Contribution of real estate properties into unconsolidated joint venture | $ | 110,879 | | $ | — | |
| | |
The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, are an integral part of these financial statements.
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Business Overview
Healthcare Realty Trust Incorporated (the "Company") is a real estate investment trust ("REIT") that owns, leases, manages, acquires, finances, develops and redevelops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. As of September 30, 2024, the Company had gross investments of approximately $12.4 billion in 605 consolidated real estate properties, construction in progress, redevelopments, financing receivables, financing lease right-of-use assets, land held for development and corporate property, excluding held for sale assets. In addition, as of September 30, 2024, the Company had a weighted average ownership interest of approximately 33% in 55 real estate properties held in unconsolidated joint ventures. See Note 2 below for more details regarding the Company's unconsolidated joint ventures. The Company's consolidated real estate properties are located in 34 states and total approximately 35.4 million square feet. The Company provided leasing and property management services to 92% of its portfolio nationwide as of September 30, 2024.
On July 20, 2022, pursuant to that certain Agreement and Plan of Merger dated as of February 28, 2022, by and among Healthcare Realty Trust Incorporated, a Maryland corporation (now known as HRTI, LLC, a Maryland limited liability company) (“Legacy HR”), Healthcare Trust of America, Inc., a Maryland corporation (now known as Healthcare Realty Trust Incorporated) (“Legacy HTA”), Healthcare Trust of America Holdings, LP, a Delaware limited partnership (now known as Healthcare Realty Holdings, L.P.) (the “OP”), and HR Acquisition 2, LLC, a Maryland limited liability company (“Merger Sub”), Merger Sub merged with and into Legacy HR, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA (the “Merger”). The combined company operates under the name “Healthcare Realty Trust Incorporated” and its shares of class A common stock, $0.01 par value per share, trade on the New York Stock Exchange under the ticker symbol “HR”.
The Company is structured as an umbrella partnership REIT under which substantially all of its business is conducted through the OP, the day-to-day management of which is exclusively controlled by the Company. As of September 30, 2024, the Company owned 98.5% of the issued and outstanding units of the OP (“OP Units”), with other investors owning the remaining 1.5% of the OP's issued and outstanding units.
Any references to square footage or occupancy percentage, and any amounts derived from these values in these notes to the Company's Condensed Consolidated Financial Statements, are outside the scope of our independent registered public accounting firm’s review.
Basis of Presentation
The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. All material intercompany transactions and balances have been eliminated in consolidation.
This interim financial information should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. In addition, the interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2024 for many reasons including, but not limited to, acquisitions, dispositions, capital financing transactions, changes in interest rates and the effects of other trends, risks and uncertainties.
Principles of Consolidation
The Company’s Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, and joint ventures and partnerships where the Company controls the operating activities. GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). Accounting Standards Codification (“ASC”) Topic 810, Consolidation broadly defines a VIE as an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is the VIE’s primary beneficiary, with any minority interests reflected as non-controlling interests or redeemable non-controlling interests in the accompanying Condensed Consolidated Financial Statements.
The Company may change its original assessment of a VIE upon subsequent events, such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk, the disposition of all or a portion of an interest held by the primary beneficiary, or changes in facts and circumstances that impact the power to direct activities of the VIE that most significantly impacts economic performance. The Company performs this analysis on an ongoing basis.
For property holding entities not determined to be VIEs, the Company consolidates such entities in which it owns 100% of the equity or has a controlling financial interest evidenced by ownership of a majority voting interest. All intercompany balances and transactions are eliminated in consolidation. For entities in which the Company owns less than 100% of the equity interest, the Company consolidates the entity if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements.
The OP is 98.5% owned by the Company. Other holders of OP Units are considered to be non-controlling interest holders in the OP and their ownership interests are reflected as equity in the accompanying Condensed Consolidated Balance Sheets. Further, a portion of the earnings and losses of the OP are allocated to non-controlling interest holders based on their respective ownership percentages. Upon conversion of OP Units to common stock, any difference between the fair value of the common stock issued and the carrying value of the OP Units converted to common stock is recorded as a component of equity. As of September 30, 2024, there were approximately 5.3 million OP Units, or 1.5% of OP Units issued and outstanding, held by non-controlling interest holders. Additionally, the Company is the primary beneficiary of this VIE. Accordingly, the Company consolidates its interests in the OP.
As of September 30, 2024, the Company had four consolidated VIEs (including one held for sale), in addition to the OP, consisting of joint venture investments in which the Company is the primary beneficiary of the VIE based on the combination of operational control and the rights to receive residual returns or the obligation to absorb losses arising from the joint ventures. Accordingly, such joint ventures have been consolidated, and the table below summarizes the balance sheets of consolidated VIEs, excluding the OP, in the aggregate:
| | | | | |
| (dollars in thousands) | September 30, 2024 |
| Assets: | |
Total real estate properties, net | $ | 99,946 | |
| Cash and cash equivalents | 162 | |
Other assets, net | 806 | |
Assets held for sale, net | 32,264 | |
Total assets | $ | 133,178 | |
Liabilities: | |
Accrued expenses and other liabilities | $ | 9,217 | |
Liabilities held for sale, net | 509 | |
Total liabilities | $ | 9,726 | |
As of September 30, 2024, the Company had three unconsolidated VIEs consisting of two notes receivable and one joint venture. The Company does not have the power or economic interests to direct the activities of these VIEs on a stand-alone basis, and therefore it was determined that the Company was not the primary beneficiary. As a result, the Company accounts for the two notes receivable as amortized cost and a joint venture arrangement under the equity method.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
See below for additional information regarding the Company's unconsolidated VIEs.
| | | | | | | | | | | | | | |
| (dollars in thousands) ORIGINATION DATE | LOCATION | SOURCE | CARRYING AMOUNT | MAXIMUM EXPOSURE TO LOSS |
| 2021 | Houston, TX 1 | Notes receivable | $ | 20,500 | | $ | 20,500 | |
| 2021 | Charlotte, NC 1 | Notes receivable | 7,285 | | 7,332 | |
| 2022 | Texas 2 | Joint venture | 57,955 | | 57,955 | |
1Assumed mortgage notes receivable in connection with the Merger.
2Includes investments in seven properties.
As of September 30, 2024, the Company's unconsolidated joint venture arrangements were accounted for using the equity method of accounting as the Company exercised significant influence over but did not control these entities. See Note 2 below for more details regarding the Company's unconsolidated joint ventures.
Use of Estimates in the Condensed Consolidated Financial Statements
Preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates.
Redeemable Non-Controlling Interests
The Company accounts for redeemable equity securities in accordance with ASC Topic 480: Accounting for Redeemable Equity Instruments, which requires that equity securities redeemable at the option of the holder, not solely within our control, be classified outside permanent stockholders’ equity. The Company classifies redeemable equity securities as redeemable non-controlling interests in the accompanying Condensed Consolidated Balance Sheets. Accordingly, the Company records the carrying amount at the greater of the initial carrying amount (increased or decreased for the non-controlling interest’s share of net income or loss and distributions) or the redemption value. The Company measures the redemption value and records an adjustment to the carrying value of the equity securities as a component of redeemable non-controlling interest. As of September 30, 2024, the Company had redeemable non-controlling interests of $3.9 million.
Asset Impairment
The Company assesses the potential for impairment of identifiable, definite-lived, intangible assets and long-lived assets, including real estate properties, whenever the occurrence of an event or a change in circumstances indicates that the carrying value might not be fully recoverable. Indicators of impairment may include significant underperformance of an asset relative to historical or expected operating results; significant changes in the Company’s use of assets or the strategy for its overall business; plans to sell an asset before its depreciable life has ended; the expiration of a significant portion of leases in a property; or significant negative economic trends or negative industry trends for the Company or its tenants. During the three and nine months ended September 30, 2024, the Company recognized real estate impairments totaling $37.6 million and $174.5 million, respectively, as a result of completed and planned disposition activity.
As of September 30, 2024, 11 real estate properties totaling $52.6 million were measured at fair value using level 3 fair value hierarchy. The level 3 fair value techniques included brokerage estimates, letters of intent, and unexecuted purchase and sale agreements, less estimated closing costs.
Goodwill Impairment
During the first quarter of 2024, the Company experienced a sustained decline in the price per share of its common stock, which was identified as an indicator of goodwill impairment. As a result, a goodwill evaluation was performed. As of the measurement date, the Company's current operations are carried out through a single reporting unit that had a carrying value of approximately $12.0 billion. The Company determined that the carrying value exceeded estimated fair value and therefore an impairment of goodwill was recorded. The Company recorded a $250.5 million full impairment of its goodwill, which is recorded as a non-cash charge in “Impairment of goodwill” in the Condensed Consolidated Statements of Operations.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
Investments in Leases - Financing Receivables, Net
In accordance with ASC Topic 842: Leases, for transactions in which the Company enters into a contract to acquire an asset and leases it back to the seller (i.e., a sale leaseback transaction), control of the asset is not considered to have transferred when the seller-lessee has a purchase option. As a result, the Company does not recognize the underlying real estate asset but instead recognizes a financial asset in accordance with ASC Topic 310: Receivables. See below for additional information regarding the Company's financing receivables.
| | | | | | | | | | | |
| (dollars in thousands) ORIGINATION DATE | LOCATION | INTEREST RATE | CARRYING VALUE as of SEPTEMBER 30, 2024 |
| May 2021 | Poway, CA | 5.71% | $ | 115,683 | |
| November 2021 | Columbus, OH | 6.48% | 7,362 | |
| | | $ | 123,045 | |
Real Estate Notes Receivable
Real estate notes receivable consists of mezzanine and other real estate loans, which are generally collateralized by a pledge of the borrower’s ownership interest in the respective real estate owner, a mortgage or deed of trust, and/or corporate guarantees. Real estate notes receivable are intended to be held to maturity and are recorded at amortized cost, net of unamortized loan origination costs and fees and allowance for credit losses. As of September 30, 2024, real estate notes receivable, net, which are included in Other assets on the Company's Condensed Consolidated Balance Sheets, totaled $121.7 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in thousands) | ORIGINATION | MATURITY | STATED INTEREST RATE | MAXIMUM LOAN COMMITMENT | OUTSTANDING as of
SEPTEMBER 30, 2024 | INTEREST RECEIVABLE (OTHER ASSETS) | ALLOWANCE FOR CREDIT LOSSES | FAIR VALUE DISCOUNT AND FEES | CARRYING VALUE as of SEPTEMBER 30, 2024 |
| Mezzanine loans | | | | | | | | |
| Texas | 6/24/2021 | 6/24/2024 | 8.00 | % | $ | 54,119 | | $ | 54,119 | | $ | 906 | | $ | (51,958) | | $ | (3,067) | | $ | — | |
| Arizona | 12/21/2023 | 12/20/2026 | 9.00 | % | 6,000 | | 6,000 | | 36 | | — | | — | | 6,036 | |
| | | | 60,119 | | 60,119 | | 942 | | (51,958) | | (3,067) | | 6,036 | |
| Mortgage loans | | | | | | | | |
Texas 1 | 6/30/2021 | 12/02/2024 | 7.00 | % | 31,150 | | 31,150 | | 551 | | (11,201) | | — | | 20,500 | |
North Carolina 2 | 12/22/2021 | 12/22/2024 | 8.00 | % | 6,000 | | 6,000 | | 1,332 | | — | | (47) | | 7,285 | |
| Florida | 5/17/2022 | 2/27/2026 | 6.00 | % | 65,000 | | 35,721 | | 179 | | — | | (29) | | 35,871 | |
| California | 3/30/2023 | 3/29/2026 | 6.00 | % | 45,000 | | 45,000 | | 177 | | — | | — | | 45,177 | |
| Florida | 12/28/2023 | 12/28/2026 | 9.00 | % | 7,700 | | 6,839 | | — | | — | | — | | 6,839 | |
| | | | 154,850 | | 124,710 | | 2,239 | | (11,201) | | (76) | | 115,672 | |
| | | | | | | | | |
| | | | $ | 214,969 | | $ | 184,829 | | $ | 3,181 | | $ | (63,159) | | $ | (3,143) | | $ | 121,708 | |
1During the second quarter of 2024, the Company determined that an allowance for credit loss of $11.2 million was needed on this mortgage loan. The reserve amount consists of approximately $10.7 million of principal and approximately $0.5 million of interest. Additionally, the maturity date on this mortgage loan was extended to December 2, 2024.
2Outstanding principal and interest due upon maturity.
Allowance for Credit Losses
Pursuant to ASC Topic 326: Financial Instruments - Credit Losses, the Company adopted a policy to evaluate current expected credit losses at the inception of loans qualifying for treatment under ASC Topic 326. The Company utilizes a probability of default method approach for estimating current expected credit losses and evaluates the liquidity and creditworthiness of its borrowers on a quarterly basis to determine whether any updates to the future expected losses recognized upon inception are necessary. The Company’s evaluation considers industry and economic conditions, credit enhancements, liquidity, and other factors. The determination of the credit allowance is based on a quarterly evaluation of all outstanding loans, including general economic conditions and estimated collectability of loan payments. The Company evaluates the collectability of loan receivables based on a combination of credit quality indicators, including, but not limited to, payment status, historical loan charge-offs, financial strength of the borrower and guarantors, and nature, extent, and value of the underlying collateral. A loan is considered to have deteriorated credit quality when, based on current information and events, it is probable that the Company will be
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
unable to collect all amounts due as scheduled according to the contractual terms of the loan agreement. For those loans identified as having deteriorated credit quality, the amount of credit loss is determined on an individual basis. Placement on non-accrual status may be required. Consistent with this definition, all loans on non-accrual status are deemed to have deteriorated credit quality. To the extent circumstances improve and the risk of collectability is diminished, the loan may return to income accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance.
During the first quarter of 2023, the Company determined that the risk of credit loss on two of its mezzanine loans was no longer remote and recorded a credit loss reserve of $5.2 million. During the nine months ended September 30, 2024, the Company determined that an additional allowance of $46.8 million was needed on these two mezzanine loans. Additionally, during the nine months ended September 30, 2024 the Company determined the risk of credit loss on one of its mortgage notes receivable was no longer remote and recorded a credit loss reserve of $11.2 million, for a total of $58.0 million in total credit loss reserves year-to-date. The Company utilized the level 3 fair value hierarchy, which included a brokerage estimate on the underlying collateral of the mortgage loan, to determine the amount of credit loss reserve.
The following table summarizes the Company's allowance for credit losses on real estate notes receivable:
| | | | | | | | | | | |
| Dollars in thousands | NINE MONTHS ENDED SEPTEMBER 30, 2024 | TWELVE MONTHS ENDED DECEMBER 31, 2023 | | | |
| Allowance for credit losses, beginning of period | $ | 5,196 | | $ | — | | | | |
| Credit loss reserves | 57,963 | | 5,196 | | | | |
| Allowance for credit losses, end of period | $ | 63,159 | | $ | 5,196 | | | | |
Interest Income
Income from Lease Financing Receivables
The Company recognized the related income from two financing receivables totaling $2.1 million and $6.3 million, respectively, for the three and nine months ended September 30, 2024, and $2.0 million and $6.2 million, respectively, for the three and nine months ended September 30, 2023, based on an imputed interest rate over the terms of the applicable lease. As a result, the interest recognized from the financing receivable in any particular period will not equal the cash payments from the lease agreement in that period.
Acquisition costs incurred in connection with entering into the financing receivable are treated as loan origination fees. These costs are classified with the financing receivable and are included in the balance of the net investment. Amortization of these amounts will be recognized as a reduction to Interest income over the life of the lease.
Income from Real Estate Notes Receivable
The Company recognized interest income related to real estate notes receivable of $1.8 million and $6.0 million, respectively, for the three and nine months ended September 30, 2024, and $2.3 million and $6.5 million, respectively, for the three and nine months ended September 30, 2023. The Company recognizes interest income on an accrual basis unless the Company has determined that collectability of contractual amounts is not reasonably assured, at which point the note is placed on non-accrual status and interest income is recognized on a cash basis. In 2023, the Company placed two of its real estate notes receivable on non-accrual status and accordingly did not recognize any interest income for the three and nine month periods ended September 30, 2024. In the second quarter of 2024, the Company placed one of its real estate notes receivable with a principal balance, net of credit loss, of $20.5 million on non-accrual status.
Revenue from Contracts with Customers (ASC Topic 606)
The Company recognizes certain revenue under the core principle of ASC Topic 606. This topic requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Lease revenue is not within the scope of ASC Topic 606. To achieve the core principle, the Company applies the five-step model specified in the guidance.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
Revenue that is accounted for under ASC Topic 606 is segregated on the Company’s Condensed Consolidated Statements of Operations in the Other operating line item. This line item includes parking income, management fee income and other miscellaneous income. Below is a detail of the amounts by category:
| | | | | | | | | | | | | | |
| THREE MONTHS ENDED
September 30, | NINE MONTHS ENDED
September 30, |
| in thousands | 2024 | 2023 | 2024 | 2023 |
| Type of Revenue | | | | |
| Parking income | $ | 2,363 | | $ | 2,751 | | $ | 7,372 | | $ | 7,511 | |
Management fee income/other 1 | 2,657 | | 1,910 | | 6,161 | | 5,997 | |
| $ | 5,020 | | $ | 4,661 | | $ | 13,533 | | $ | 13,508 | |
1 Includes the recovery of certain expenses under the financing receivable as outlined in the management agreement.
The Company’s major types of revenue that are accounted for under Topic 606 that are listed above are all accounted for as the performance obligation is satisfied. The performance obligations that are identified for each of these items are satisfied over time, and the Company recognizes revenue monthly based on this principle.
New Accounting Pronouncements
On November 27, 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280). Some of the main provisions of this update to segment reporting include; (i) a requirement to disclose significant segment expenses, on an annual and interim basis, that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss; (ii) a requirement to disclose the title and position of the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources, and (iii) a requirement that an entity that has a single reportable segment provide all the disclosures required by the amendments in this update.
The update is effective for annual reporting periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024. Early adoption is permitted. At this time, the Company does not expect that the adoption of this ASU will have a material impact on its consolidated financial statements other than compliance with these new disclosure requirements, which will begin with the Company's Annual Report on Form 10-K for the year ending December 31, 2024.
Note 2. Real Estate Investments
2024 Acquisition Activity
The Company had no real estate acquisition activity for the nine months ended September 30, 2024.
Unconsolidated Joint Ventures
The Company's investment in and income (losses) recognized for the three and nine months ended September 30, 2024 and 2023 related to its unconsolidated joint ventures accounted for under the equity method are shown in the table below:
| | | | | | | | | | | | | | |
| THREE MONTHS ENDED
September 30, | NINE MONTHS ENDED
September 30, |
| Dollars in thousands | 2024 | 2023 | 2024 | 2023 |
| | | | |
| Investments in unconsolidated joint ventures, beginning of period | $ | 374,841 | | $ | 327,245 | | $ | 311,511 | | $ | 327,248 | |
New investment during the period 1 | 44,332 | | — | | 110,879 | | 3,824 | |
| Equity income (loss) recognized during the period | 208 | | (456) | | (360) | | (1,253) | |
| Owner distributions | (2,297) | | (1,336) | | (4,946) | | (4,366) | |
| Investments in unconsolidated joint ventures, end of period | $ | 417,084 | | $ | 325,453 | | $ | 417,084 | | $ | 325,453 | |
1In the third quarter of 2024, the Company contributed seven properties into a new joint venture in which it retained a 20% ownership interest. The Company also contributed four properties into a joint venture entered into in the second quarter of 2024, for a total of 15 properties, in which it
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
retained a 20% ownership interest. See 2024 "Real Estate Asset Dispositions" below for additional information. In 2023, there was an additional investment in an existing joint venture in which the Company retained a 40% ownership interest. The investment consisted of the Company's contribution of a property in Dallas, TX to the joint venture.
2024 Real Estate Asset Dispositions
The following table details the Company's dispositions and joint venture contributions for the nine months ended September 30, 2024.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dollars in thousands | DATE DISPOSED | SALE PRICE | CLOSING ADJUSTMENTS | | NET PROCEEDS | NET REAL ESTATE INVESTMENT | OTHER (INCLUDING RECEIVABLES) | GAIN/(IMPAIRMENT) | SQUARE FOOTAGE |
| Albany, NY | 4/1/24 | $ | 725 | | $ | (60) | | | $ | 665 | | $ | 765 | | $ | (82) | | $ | (18) | | 14,800 | |
| San Angelo, TX | 4/12/24 | 5,085 | | (128) | | | 4,957 | | 4,917 | | 66 | | (26) | | 24,580 | |
| Houston, TX | 5/20/24 | 250 | | (9) | | | 241 | | 713 | | (520) | | 48 | | 37,040 | |
Multiple 1 | 5/23/24 | 284,348 | | (14,270) | | | 270,078 | | 254,176 | | 25,836 | | (9,934) | | 556,274 | |
| Denver, CO | 5/30/24 | 19,000 | | (628) | | | 18,372 | | 18,522 | | 165 | | (315) | | 37,130 | |
Austin, TX 1 | 6/6/24 | 54,858 | | (1,575) | | | 53,283 | | 27,964 | | 623 | | 24,696 | | 129,879 | |
| Minneapolis, MN | 6/21/24 | 1,082 | | (144) | | | 938 | | 303 | | 43 | | 592 | | 50,291 | |
Greensboro/Raleigh, NC 2 | 6/28/24 | 99,518 | | (2,835) | | | 96,683 | | 86,810 | | 906 | | 8,967 | | 309,424 | |
| Albany, NY | 8/2/24 | 6,300 | | (847) | | | 5,453 | | 5,528 | | 486 | | (561) | | 180,000 | |
| Charlotte, NC | 8/6/24 | 26,670 | | (395) | | | 26,275 | | 14,853 | | 613 | | 10,809 | | 90,633 | |
| Charleston, SC | 8/13/24 | 14,500 | | (589) | | | 13,911 | | 11,488 | | 1 | | 2,422 | | 46,711 | |
Multiple 1 | 8/23/24 | 118,000 | | (8,615) | | | 109,385 | | 113,956 | | 548 | | (5,119) | | 266,782 | |
Multiple 3 | 8/27/24 | 177,250 | | (7,085) | | | 170,165 | | 169,545 | | 5,363 | | (4,743) | | 473,003 | |
| Austin, TX | 9/13/24 | 42,281 | | (1,257) | | | 41,024 | | 14,561 | | 425 | | 26,038 | | 76,246 | |
| Raleigh, NC | 9/26/24 | 1,813 | | (27) | | | 1,786 | | 1,694 | | 50 | | 42 | | 5,934 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total dispositions | | $ | 851,680 | | $ | (38,464) | | | $ | 813,216 | | $ | 725,795 | | $ | 34,523 | | $ | 52,898 | | 2,298,727 | |
1The Company contributed the following medical outpatient properties to a joint venture in which the Company retained 20% ownership: one in each of Raleigh, NC, New York, NY, Philadelphia, PA, Atlanta, GA, Austin, TX, Houston, TX, Miami, FL, and Denver, CO; two medical outpatient properties in Los Angeles, CA and five in Seattle, WA. Sale price and square footage reflect the total sale price paid by the joint venture and total square footage of the property. The net proceeds to the Company related to these dispositions totaled $343.1 million.
2The Company sold seven medical outpatient properties in Greensboro, NC and two medical outpatient properties in Raleigh, NC to a single buyer in a single transaction.
3The Company contributed the following medical outpatient properties to a joint venture in which the Company retained 20% ownership: two in each of Nashville, TN and Denver, CO; one in each of Dallas, TX, San Antonio, TX and Atlanta, GA. Sale price and square footage reflect the total sale price paid by the joint venture and total square footage of the property. The net proceeds to the Company related to these dispositions totaled $148.9 million.
Subsequent to September 30, 2024, the Company disposed of the following properties, which were classified as held for sale as of September 30, 2024:
| | | | | | | | | | | |
| Dollars in thousands | Date Disposed | Sale Price | Square Footage |
Houston, TX 1 | 10/3/24 | $ | 12,000 | | 140,012 | |
| Greensboro, NC | 10/9/24 | 12,514 | | 35,373 | |
| Des Moines, IA | 10/15/24 | 31,750 | | 95,486 | |
| Albany, NY | 10/15/24 | 9,500 | | 80,676 | |
Salt Lake City, UT 2 | 10/24/24 | 30,712 | | 112,192 | |
| Miami, FL | 10/25/24 | 36,789 | | 102,186 | |
| Miami, FL | 10/25/24 | 17,767 | | 60,761 | |
| | | |
| | | |
| | | |
| Total | | $ | 151,032 | | $ | 626,686 | |
1.The Company provided seller financing of approximately $9.6 million in connection with this sale.
2.The Company sold a medical outpatient property that was included in a consolidated joint venture in which the Company held a 63% ownership interest.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
Assets Held for Sale
The Company had 10 properties classified as assets held for sale as of September 30, 2024, and one property classified as assets held for sale as of December 31, 2023. The table below reflects the assets and liabilities classified as held for sale as of September 30, 2024, and December 31, 2023:
| | | | | | | | | | | | | | |
| Dollars in thousands | | September 30, 2024 | | December 31, 2023 |
| Balance Sheet data: | | | | |
| Land | | $ | 38,469 | | | $ | 1,850 | |
| Building and improvements | | 117,241 | | | 6,779 | |
| Lease intangibles | | 16,716 | | | 1,017 | |
| Personal property | | 65 | | | — | |
| | | | |
| | | | |
| Land held for development | | 5,000 | | | — | |
| | 177,491 | | | 9,646 | |
| Accumulated depreciation | | (33,997) | | | (913) | |
Real estate assets held for sale, net 1 | | 143,494 | | | 8,733 | |
| Cash and cash equivalents | | 3,358 | | | — | |
| Operating lease right-of-use assets | | 3,160 | | | — | |
| Other assets, net | | 6,206 | | | 101 | |
| Assets held for sale, net | | $ | 156,218 | | | $ | 8,834 | |
| | | | |
| Accounts payable and accrued liabilities | | $ | 3,494 | | | $ | 23 | |
| Operating lease liabilities | | 2,741 | | | — | |
| | | | |
| Other liabilities | | 1,684 | | | 272 | |
| Liabilities of assets held for sale | | $ | 7,919 | | | $ | 295 | |
| Non-controlling interest held for sale | | $ | 11,147 | | | $ | — | |
1Net real estate assets held for sale include the impact of $34.6 million of impairment charges for the nine months ended September 30, 2024.
Note 3. Leases
Lessor Accounting
The Company’s properties generally are leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2052. Some leases provide tenants with fixed rent renewal terms while others have market rent renewal terms. Some leases provide the lessee, during the term of the lease, with an option or right of first refusal to purchase the leased property. The Company’s single-tenant net leases generally require the lessee to pay minimum rent and all taxes (including property tax), insurance, maintenance and other operating costs associated with the leased property.
The Company's leases typically have escalators that are either based on a stated percentage or an index such as the Consumer Price Index ("CPI"). In addition, most of the Company's leases include non-lease components, such as reimbursement of operating expenses as additional rent, or include the reimbursement of expected operating expenses as part of the lease payment. The Company adopted an accounting policy to combine lease and non-lease components. Rent escalators based on indices and reimbursements of operating expenses that are not included in the lease rate are considered variable lease payments. Variable payments are recognized in the period earned. Lease income for the Company's operating leases, recognized for the three and nine months ended September 30, 2024 was $306.5 million and $932.7 million, respectively. Lease income for the Company's operating leases, recognized for the three and nine months ended September 30, 2023 was $333.3 million and $987.1 million, respectively.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
Future lease payments under the non-cancelable operating leases, excluding any reimbursements and one sales-type lease, as of September 30, 2024, were as follows:
| | | | | | | | |
| Dollars in thousands | OPERATING | |
| 2024 | $ | 218,129 | | |
| 2025 | 836,208 | | |
| 2026 | 748,331 | | |
| 2027 | 629,408 | | |
| 2028 | 513,690 | | |
| 2029 and thereafter | 1,683,468 | | |
| $ | 4,629,234 | | |
Lessee Accounting
The Company is obligated, as the lessee, under operating lease agreements consisting primarily of the Company’s ground leases. As of September 30, 2024, the Company had 217 properties totaling 16.3 million square feet that were held under ground leases. Some of the Company's ground lease renewal terms are based on fixed rent renewal terms, and others have market rent renewal terms. These ground leases typically have initial terms of 40 to 99 years with expiration dates through 2119. Any rental increases related to the Company’s ground leases are generally stated in the lease or based on CPI. The Company had 73 prepaid ground leases as of September 30, 2024. The amortization of the prepaid rent, included in the operating lease right-of-use asset, represented approximately $0.3 million and $0.3 million of the Company's rental expense for the three months ended September 30, 2024 and 2023, respectively, and $1.0 million and $1.0 million for the nine months ended September 30, 2024 and 2023, respectively.
The Company’s future lease payments (primarily for its 144 non-prepaid ground leases) as of September 30, 2024, were as follows:
| | | | | | | | |
| Dollars in thousands | OPERATING | FINANCING |
| 2024 | $ | 2,930 | | $ | 816 | |
| 2025 | 12,769 | | 2,070 | |
| 2026 | 12,900 | | 2,106 | |
| 2027 | 13,103 | | 2,145 | |
| 2028 | 13,239 | | 2,177 | |
| 2029 and thereafter | 688,868 | | 385,382 | |
| Total undiscounted lease payments | 743,809 | | 394,696 | |
| Discount | (513,884) | | (322,809) | |
| Lease liabilities | $ | 229,925 | | $ | 71,887 | |
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
The following table provides details of the Company's total lease expense for the three and nine months ended September 30, 2024 and 2023:
| | | | | | | | | | | | | | |
| THREE MONTHS ENDED
September 30, | NINE MONTHS ENDED
September 30, |
| Dollars in thousands | 2024 | 2023 | 2024 | 2023 |
| Operating lease cost | | | | |
| Operating lease expense | $ | 4,484 | | $ | 5,312 | | $ | 13,549 | | $ | 15,748 | |
| Variable lease expense | 1,240 | | 2,417 | | 3,782 | | 6,788 | |
| | | | |
| Finance lease cost | | | | |
| Amortization of right-of-use assets | 383 | | 387 | | 1,162 | | 1,161 | |
| Interest on lease liabilities | 934 | | 928 | | 2,814 | | 2,770 | |
| Total lease expense | $ | 7,041 | | $ | 9,044 | | $ | 21,307 | | $ | 26,467 | |
| | | | |
| Other information | | | | |
| Operating cash flows outflows related to operating leases | $ | 3,513 | | $ | 5,281 | | $ | 12,441 | | $ | 16,475 | |
| Operating cash flows outflows related to financing leases | $ | 504 | | $ | 524 | | $ | 1,658 | | $ | 1,592 | |
| Financing cash flows outflows related to financing leases | $ | 4 | | $ | 7 | | $ | 13 | | $ | 12 | |
| | | | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 1,294 | | $ | — | | $ | 3,855 | | $ | — | |
| | | | |
| Weighted-average years remaining lease term (excluding renewal options) - operating leases | 44.5 | 47.5 | | |
| Weighted-average years remaining lease term (excluding renewal options) - finance leases | 58.0 | 58.2 | | |
| Weighted-average discount rate - operating leases | 5.7 | % | 5.8 | % | | |
| Weighted-average discount rate - finance leases | 5.0 | % | 5.0 | % | | |
Note 4. Notes and Bonds Payable
The table below details the Company’s notes and bonds payable as of September 30, 2024, and December 31, 2023.
| | | | | | | | | | | | | | |
| | MATURITY DATE | BALANCE 1 AS OF | EFFECTIVE INTEREST RATE
as of 9/30/2024 |
| Dollars in thousands | 9/30/2024 | 12/31/2023 |
$1.5 billion Unsecured Credit Facility 2 | 10/25 | $ | 206,000 | | $ | — | | 5.79 | % |
| | | | |
| | | | |
$200 million Unsecured Term Loan 3 | 5/25 | 199,833 | | 199,903 | | 6.24 | % |
$350 million Unsecured Term Loan 4,5 | 7/25 | 99,740 | | 349,798 | | 6.24 | % |
$300 million Unsecured Term Loan | 10/25 | 299,975 | | 299,958 | | 6.24 | % |
$150 million Unsecured Term Loan | 6/26 | 149,753 | | 149,643 | | 6.24 | % |
$200 million Unsecured Term Loan | 7/27 | 199,606 | | 199,502 | | 6.24 | % |
$300 million Unsecured Term Loan | 1/28 | 298,603 | | 298,288 | | 6.24 | % |
| Senior Notes due 2025 | 5/25 | 249,771 | | 249,484 | | 4.12 | % |
Senior Notes due 2026 | 8/26 | 584,836 | | 579,017 | | 4.94 | % |
| Senior Notes due 2027 | 7/27 | 486,990 | | 483,727 | | 4.76 | % |
| Senior Notes due 2028 | 1/28 | 297,877 | | 297,429 | | 3.85 | % |
| Senior Notes due 2030 | 2/30 | 583,330 | | 575,443 | | 5.30 | % |
| Senior Notes due 2030 | 3/30 | 297,0 |