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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to

Commission File Number: 001-35568 (Healthcare Realty Trust Incorporated)

HEALTHCARE REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter) 
Maryland20-4738467
(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)
www.healthcarerealty.com
(Internet address)

Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Class A Common Stock, $0.01 par value per shareHRNew 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.  

YesNo

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).    

YesNo

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.

Large accelerated filer Accelerated filer Non-accelerated filer
Smaller reporting company Emerging growth company

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).

YesNo






As of November 4, 2022, the Registrant had 380,572,290 shares of Common Stock outstanding.



Explanatory Note

On July 20, 2022, pursuant to that certain Agreement and Plan of Merger dated as of February 28, 2022 (the “Merger Agreement”), 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”). Immediately following the Merger, Legacy HR converted to a Maryland limited liability company and changed its name to “HRTI, LLC” and Legacy HTA changed its name to “Healthcare Realty Trust Incorporated”. In addition, the equity interests of Legacy HR were contributed by means of a contribution and assignment agreement to the OP such that Legacy HR became a wholly-owned subsidiary of the OP. As a result, Legacy HR became a part of an umbrella partnership REIT (“UPREIT”) structure, which is intended to align the corporate structure of the combined company after giving effect to the Merger and the UPREIT reorganization and to provide a platform for the combined company to more efficiently acquire properties in a tax-deferred manner. 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 (the “NYSE”) under the ticker symbol “HR”.
For accounting purposes, the Merger was treated as a “reverse acquisition” in which Legacy HR was considered the accounting acquirer. As a result, the historical financial statements of the accounting acquirer, Legacy HR, became the historical financial statements of the Company, as defined below. Future periodic reports for periods ending following the Merger will reflect financial and other information of the Company. The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations (“ASC 805”), which requires, among other things, the assets acquired and the liabilities assumed to be recognized at their acquisition date fair value.
For purposes of this Quarterly Report on Form 10-Q, references to the “Company” are to Legacy HR for periods prior to the closing of the Merger and thereafter to Legacy HR and Legacy HTA after giving effect to the Merger.
In addition, the OP has issued unsecured notes described in Note 6 to our Condensed Consolidated Financial Statements included in this report. All unsecured notes are fully and unconditionally guaranteed by the Company, and the OP is 98.9% owned by the Company. Effective January 4, 2021, the SEC adopted amendments to the financial disclosure requirements which permit subsidiary issuers of obligations guaranteed by the parent to omit separate financial statements if the consolidated financial statements of the parent company have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent. Accordingly, separate consolidated financial statements of the OP have not been presented.



HEALTHCARE REALTY TRUST INCORPORATED
FORM 10-Q
September 30, 2022


    Table of Contents
     


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Healthcare Realty Trust Incorporated
Condensed Consolidated Balance Sheets
Amounts in thousands, except per share data
ASSETS
Unaudited
SEPTEMBER 30, 2022
DECEMBER 31, 2021
Real estate properties
Land$1,449,550 $387,918 
Buildings and improvements11,439,797 4,337,641 
Lease intangibles968,914 120,478 
Personal property11,680 11,761 
Investment in financing receivable, net118,919 186,745 
Financing lease right-of-use assets79,950 31,576 
Construction in progress43,148 3,974 
Land held for development73,321 24,849 
Total real estate properties14,185,279 5,104,942 
Less accumulated depreciation and amortization(1,468,736)(1,338,743)
Total real estate properties, net12,716,543 3,766,199 
Cash and cash equivalents57,583 13,175 
Assets held for sale, net185,074 57 
Operating lease right-of-use assets321,365 128,386 
Investments in unconsolidated joint ventures327,752 161,942 
Goodwill148,891 3,487 
Other assets, net438,235 185,673 
Total assets$14,195,443 $4,258,919 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes and bonds payable$5,570,139 $1,801,325 
Accounts payable and accrued liabilities231,018 86,108 
Liabilities of assets held for sale10,644 294 
Operating lease liabilities268,840 96,138 
Financing lease liabilities72,378 22,551 
Other liabilities203,398 67,387 
Total liabilities6,356,417 2,073,803 
Commitments and contingencies
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; 380,572 and 150,457 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
3,806 1,505 
Additional paid-in capital9,586,556 3,972,917 
Accumulated other comprehensive income (loss)5,524 (9,981)
Cumulative net income attributable to common stockholders1,342,819 1,266,158 
Cumulative dividends(3,211,492)(3,045,483)
Total stockholders' equity7,727,213 2,185,116 
Non-controlling interest111,813  
Total equity7,839,026 2,185,116 
Total liabilities and equity$14,195,443 $4,258,919 
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, 2021, are an integral part of these financial statements.


1


Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2022 and 2021
Amounts in thousands, except per share data
Unaudited
THREE MONTHS ENDED
September 30,
NINE MONTHS ENDED
September 30,
2022202120222021
Revenues
Rental income$298,931 $131,746 $578,052 $388,620 
Interest income3,366 1,917 7,253 2,426 
Other operating4,057 2,969 9,270 7,347 
306,354 136,632 594,575 398,393 
Expenses
Property operating112,473 55,518 226,947 159,241 
General and administrative16,741 8,207 38,317 25,251 
Acquisition and pursuit costs482 974 3,137 2,388 
Merger-related costs79,402  92,603  
Depreciation and amortization158,117 50,999 267,889 150,904 
367,215 115,698 628,893 337,784 
Other income (expense)
Gain on sales of real estate properties143,908 1,186 197,188 41,046 
Interest expense(53,044)(13,334)(82,248)(39,857)
Loss on extinguishment of debt(1,091) (2,520) 
Impairment of real estate properties (10,669)25 (16,581)
Equity loss from unconsolidated joint ventures(124)(183)(776)(404)
Interest and other (expense) income, net(172) (378)239 
89,477 (23,000)111,291 (15,557)
Net income (loss)$28,616 $(2,066)$76,973 $45,052 
Net income attributable to non-controlling interests(312) (312) 
Net income (loss) attributable to common stockholders$28,304 $(2,066)$76,661 $45,052 
Basic earnings per common share $0.08 $(0.02)$0.36 $0.31 
Diluted earnings per common share $0.08 $(0.02)$0.35 $0.31 
Weighted average common shares outstanding - basic328,805 143,818 209,807 141,521 
Weighted average common shares outstanding - diluted332,031 143,818 210,944 141,613 

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, 2021, are an integral part of these financial statements.


2


Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Comprehensive Income
For the Three and Nine Months Ended September 30, 2022 and 2021
Amounts in thousands
Unaudited
THREE MONTHS ENDED
 September 30,
NINE MONTHS ENDED
September 30,
2022202120222021
Net income (loss)$28,616 $(2,066)$76,973 $45,052 
Other comprehensive income
Interest rate swaps
Reclassification adjustments for losses included in net income (interest expense)763 1,131 2,672 3,340 
Gains arising during the period on interest rate swaps6,083 36 12,905 2,079 
6,846 1,167 15,577 5,419 
Comprehensive income (loss)35,462 (899)92,550 50,471 
Less: comprehensive income attributable to non-controlling interests(384) (384) 
Comprehensive income (loss) attributable to common stockholders$35,078 $(899)$92,166 $50,471 
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, 2021, are an integral part of these financial statements.


3


Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Equity
For the Three Months Ended September 30, 2022 and 2021
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 InterestsTotal
Equity
Balance at June 30, 2022$1,516 $4,002,525 $(1,250)$1,314,515 $(3,139,440)$2,177,866 $ $2,177,866 
Issuance of common stock, net of issuance costs 84 — — — 84 — 84 
Merger consideration transferred2,289 5,574,174 — — — 5,576,463 110,702 5,687,165 
Non-controlling interests acquired— — — — — — 1,266 1,266 
Common stock redemptions— (41)— — — (41)— (41)
Share-based compensation1 9,716 — — — 9,717 — 9,717 
Redemption of non-controlling interest— 98 — — — 98 (97)1 
Net income— — — 28,304 — 28,304 312 28,616 
Reclassification adjustments for losses included in net income (interest expense)
— — 755 — — 755 8 763 
Gains arising during the period on
interest rate swaps
— — 6,019 — — 6,019 64 6,083 
Dividends to common stockholders
($0.31 per share)
— — — — (72,052)(72,052)(442)(72,494)
Balance at September 30, 2022$3,806 $9,586,556 $5,524 $1,342,819 $(3,211,492)$7,727,213 $111,813 $7,839,026 
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Cumulative
Net Income
Cumulative
Dividends
Total
Stockholders’
Equity
Non-controlling InterestsTotal
Equity
Balance at June 30, 2021$1,455 $3,818,592 $(13,580)$1,246,617 $(2,956,830)$2,096,254 $ $2,096,254 
Issuance of common stock, net of issuance costs20 61,442 — — — 61,462 — 61,462 
Common stock redemptions—  — — —  —  
Share-based compensation— 2,538 — — — 2,538 — 2,538 
Net loss— — — (2,066)— (2,066)— (2,066)
Reclassification adjustments for losses included in net income (interest expense)
— — 1,131 — — 1,131 — 1,131 
Losses arising during the period on interest rate swaps
— — 36 — — 36 — 36 
Dividends to common stockholders ($0.3025 per share)
— — — — (44,022)(44,022)— (44,022)
Balance at September 30, 2021$1,475 $3,882,572 $(12,413)$1,244,551 $(3,000,852)$2,115,333 $ $2,115,333 

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, 2021, are an integral part of these financial statements.







4


Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Equity
For the Nine Months Ended September 30, 2022 and 2021
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 InterestTotal Equity
Balance at December 31, 2021$1,505 $3,972,917 $(9,981)$1,266,158 $(3,045,483)$2,185,116 $ $2,185,116 
Issuance of common stock, net of issuance costs8 22,847 — — — 22,855 — 22,855 
Merger consideration transferred2,289 5,574,174 — — — 5,576,463 110,702 5,687,165 
Non-controlling interests acquired— — — — — — 1,266 1,266 
Common stock redemptions— (248)— — — (248)— (248)
Share-based compensation4 16,768 — — — 16,772 — 16,772 
Redemption of non-controlling interest— 98 — — — 98 (97)1 
Net Income— — — 76,661 — 76,661 312 76,973 
Reclassification adjustments for losses included in net income (interest expense)

— — 2,664 — — 2,664 8 2,672 
Gains arising during the period on
interest rate swaps
— — 12,841 — — 12,841 64 12,905 
Dividends to common stockholders
($0.93 per share)
— — — — (166,009)(166,009)(442)(166,451)
Balance at September 30, 2022$3,806 $9,586,556 $5,524 $1,342,819 $(3,211,492)$7,727,213 $111,813 $7,839,026 
Common
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Cumulative
Net Income
Cumulative
Dividends
Total
Stockholders’
Equity
Non-controlling InterestTotal Equity
Balance at December 31, 2020$1,395 $3,635,341 $(17,832)$1,199,499 $(2,870,027)$1,948,376 $ $1,948,376 
Issuance of common stock, net of issuance costs78 240,660 — — — 240,738 — 240,738 
Common stock redemptions— (1,610)— — — (1,610)— (1,610)
Share-based compensation2 8,181 — — — 8,183 — 8,183 
Net income— — — 45,052 — 45,052 — 45,052 
Reclassification adjustments for losses included in net income (interest expense)
— — 3,340 — — 3,340 — 3,340 
Gains arising during the period on interest rate swaps
— — 2,079 — — 2,079 — 2,079 
Dividends to common stockholders ($0.9075 per share)
— — — — (130,825)(130,825)— (130,825)
Balance at September 30, 2021$1,475 $3,882,572 $(12,413)$1,244,551 $(3,000,852)$2,115,333 $ $2,115,333 
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, 2021, are an integral part of these financial statements.







5




Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2022 and 2021
Amounts in thousands
Unaudited

OPERATING ACTIVITIES
NINE MONTHS ENDED
September 30,
20222021
Net income$76,973 $45,052 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization267,889 150,904 
Other amortization11,875 2,721 
Share-based compensation16,772 8,183 
Amortization of straight-line rent receivable (lessor)(12,267)(4,574)
Amortization of straight-line rent on operating leases (lessee)2,016 1,115 
Gain on sales of real estate properties(197,188)(41,046)
Loss on extinguishment of debt2,520  
Impairment of real estate properties(25)16,581 
Equity loss from unconsolidated joint ventures 776 404 
Distributions from unconsolidated joint ventures893  
Non-cash interest from financing and notes receivable(1,901)(196)
Changes in operating assets and liabilities:
Other assets, including right-of-use-assets(19,230)(9,947)
Accounts payable and accrued liabilities35,769 215 
Other liabilities(58,213)843 
Net cash provided by operating activities126,659 170,255 
INVESTING ACTIVITIES
Acquisitions of real estate(376,924)(250,766)
Development of real estate(17,572)(2,020)
Additional long-lived assets(97,797)(69,647)
Funding of mortgages and notes receivable(3,441) 
Investments in unconsolidated joint ventures(99,586)(49,612)
Investment in financing receivable167 (104,654)
Proceeds from sales of real estate properties and additional long-lived assets870,806 112,029 
Proceeds from notes receivable repayments500  
Cash assumed in Merger, including restricted cash for special dividend payment1,149,681  
Net cash provided by (used in) investing activities1,425,834 (364,670)
FINANCING ACTIVITIES
Net (repayments)/borrowings on unsecured credit facility(154,400)90,500 
Borrowings on term loans666,500  
Repayment on term loan(718,500) 
Repayments of notes and bonds payable(18,880)(2,914)
Redemption of notes and bonds payable(2,184) 
Dividends paid(165,735)(130,825)
Special dividend paid in relation to the Merger(1,123,648) 
Net proceeds from issuance of common stock22,851 240,779 
Common stock redemptions(894)(2,014)
Distributions to non-controlling interest holders(442) 
Debt issuance and assumption costs(12,753)(252)
Payments made on finance leases (162)
Net cash (used in) provided by financing activities(1,508,085)195,112 
Increase in cash and cash equivalents44,408 697 
Cash and cash equivalents at beginning of period13,175 15,303 
Cash and cash equivalents at end of period$57,583 $16,000 


6



Supplemental Cash Flow Information
NINE MONTHS ENDED
September 30,
20222021
Interest paid$83,382 $40,653 
Invoices accrued for construction, tenant improvements and other capitalized costs$52,840 $11,663 
Capitalized interest$848 $187 






















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, 2021, are an integral part of these financial statements.


7



Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies
Business Overview
Healthcare Realty Trust Incorporated 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, 2022, the Company had gross investments of approximately $14.2 billion in 695 real estate properties, construction in progress, redevelopments, financing receivables, financing lease right-of-use assets, land held for development and corporate property. The Company's 695 real estate properties are located in 35 states and total approximately 40.7 million square feet. The Company provided leasing and property management services to approximately 38.9 million square feet nationwide. As of September 30, 2022, the Company had a weighted average ownership interest of approximately 49% in 33 real estate properties held in joint ventures. See Note 3 below for more details regarding the Company's unconsolidated joint ventures. 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
For purposes of this Quarterly Report on Form 10-Q, references to the “Company” are to Legacy HR for periods prior to the closing of the Merger and thereafter to Legacy HR and Legacy HTA after giving effect to the Merger. The Merger is described in more detail in Note 2 to these Condensed Consolidated Financial Statements. 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. However, except as disclosed herein and specific disclosures incorporated as a result of the Merger, management believes there has been no material change in the information disclosed in the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. 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, 2021. 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, 2022 for many reasons including, but not limited to, the Merger (as discussed in more detail in Note 2 below), 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, as of September 30, 2022, the accounts of the Company, its wholly owned subsidiaries, and joint ventures and partnerships where the Company controls the operating activities. The interests not owned by the Company are presented as non-controlling interests on the accompanying Condensed Consolidated Balance Sheets and Statements of Operations, Condensed Consolidated Statements of Comprehensive Income, and Condensed Consolidated Statements of Equity. 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 810 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 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. 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 and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis. As of September 30, 2022, the Company


8



Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
identified three entities that qualified as VIE's because the limited partners in these partnerships, although entitled to vote on certain matters, do not possess kick-out rights or substantive participating rights. Two of the entities are consolidated and one is unconsolidated.
Holders of operating partnership units (“OP Units”) are considered to be non-controlling interest holders in the OP and their ownership interests are reflected as equity on 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, 2022, there were approximately 4.0 million, or 1.1%, 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 the interests in the OP. However, because the Company holds what is deemed to be significantly all of the OP, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs.
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.
As of September 30, 2022, 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 3 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.
Reclassifications
Certain reclassifications have been made on the Company's prior year Condensed Consolidated Balance Sheet to conform to current year presentation. Previously, the Company's Lease intangibles were included in Building, improvements and lease intangibles and Goodwill was included with Other assets, net. These amounts are now classified as separate line items on the Company's Condensed Consolidated Balance Sheets.                                                     
Investments in Leases - Financing Receivables, Net
In accordance with Accounting Standards Codification ("ASC") 842, 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 310 “Receivables”.
During the first quarter of 2022, the Company reclassified the two medical office buildings in Nashville, Tennessee that were acquired in separate sale-leaseback transactions in the fourth quarter of 2021. The leases with the sellers commenced in the first quarter, which resulted in the allocation of the financing receivable totaling $73.9 million to land and building and improvements.
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, 2022, real estate notes receivable, net totaled $79.0 million.
Interest Income
Income from Lease Financing Receivables
For the three and nine months ended September 30, 2022, the Company recognized the related income from two financing receivables totaling $2.0 million and $5.9 million, respectively, based on an imputed interest rate over the


9



Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
terms of the applicable lease. As a result, the interest recognized from the financing receivable will not equal the cash payments from the lease agreement.
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 Income from financing receivable, net over the life of the lease.
Income from Real Estate Notes Receivable
During the three and nine months ended September 30, 2022, the Company recognized interest income of $1.3 million related to real estate notes receivable. Unpaid interest is capitalized, with principal and any unpaid interest due on the maturity date.
Revenue from Contracts with Customers (Topic 606)
The Company recognizes certain revenue under the core principle of 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 Topic 606. To achieve the core principle, the Company applies the five step model specified in the guidance.
Revenue that is accounted for under Topic 606 is segregated on the Company’s Condensed Consolidated Statements of Income 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 thousands2022202120222021
Type of Revenue
Parking income$2,428 $2,187 $6,100 $5,725 
Management fee income 1
1,426 723 2,864 1,381 
Miscellaneous203 59 306 241 
$4,057 $2,969 $9,270 $7,347 
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
Accounting Standards Update No. 2020-04
On March 12, 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR and Term SOFR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. Management continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.


10



Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
Note 2. Merger with HTA

On July 20, 2022 (the “Closing Date”), pursuant to the Agreement and Plan of Merger dated as of February 28, 2022 (the “Merger Agreement”), 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”).
On the Closing Date, each outstanding share of Legacy HR common stock, $0.01 par value per share (the “Legacy HR Common Stock”), was cancelled and converted into the right to receive one share of Legacy HTA class A common stock at a fixed ratio of 1.00 to 1.00. Per the terms of the Merger Agreement, Legacy HTA declared a special dividend of $4.82 (the “Special Dividend”) for each outstanding share of Legacy HTA class A common stock, $0.01 par value per share ( the “Legacy HTA Common Stock”), and the OP declared a corresponding distribution to the holders of its partnership units, payable to Legacy HTA stockholders and OP unitholders of record on July 19, 2022.
Immediately following the Merger, Legacy HR converted to a Maryland limited liability company and changed its name to HRTI, LLC and Legacy HTA changed its name to “Healthcare Realty Trust Incorporated”. In addition, the equity interests of Legacy HR were contributed by Legacy HTA by means of a contribution and assignment agreement to the OP such that Legacy HR became a wholly-owned subsidiary of the OP. As a result, Legacy HR became a part of an umbrella partnership REIT (“UPREIT”) structure, which is intended to align the corporate structure of the combined company after giving effect to the Merger and UPREIT reorganization (the “Combined Company”). 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 (the “NYSE”) under the ticker symbol “HR”.
The primary reason for the Merger was to expand the Company’s size, scale, diversification, liquidity and access to capital, in order to further enhance its competitive advantages and accelerate its investment activities.
For accounting purposes, the Merger was treated as a “reverse acquisition” in which Legacy HTA was considered the legal acquirer and Legacy HR was considered the accounting acquirer based on various factors, including, but not limited to: (i) the composition of the board of directors of the Combined Company, (ii) the composition of senior management of the Combined Company, and (iii) the premium transferred to the Legacy HTA stockholders. As a result, the historical financial statements of the accounting acquirer, Legacy HR, became the historical financial statements of the Combined Company.
The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, the assets acquired and the liabilities assumed to be recognized at their acquisition date fair value.
The consideration transferred on the Closing Date is as follows:
Dollars in thousands
Shares of Legacy HTA Common Stock outstanding as of July 20, 2022 as adjusted(a)
228,520,990 
Exchange ratio1.00 
Implied shares of Legacy HR Common Stock issued228,520,990 
Adjusted closing price of Legacy HR Common Stock on July 20, 2022(b)
$24.37 
Value of implied Legacy HR Common Stock issued$5,569,057 
Fair value of Legacy HTA restricted stock awards attributable to pre-Merger services(c)
7,406 
Consideration transferred$5,576,463 
(a) Includes 228,520,990 shares of Legacy HTA Common Stock as of July 20, 2022. The number of shares of HTA Common Stock presented above was based on 228,857,717 total shares of Legacy HTA Common Stock outstanding as of the Closing Date, less 192 HTA fractional shares that were paid in cash less 336,535 shares of Legacy HTA restricted stock (net of 215,764 shares of Legacy HTA restricted stock withheld). For accounting purposes, these shares and units were converted to Legacy HR Common Stock, at an exchange ratio of 1.00 per share of HTA Common Stock.
(b) For accounting purposes, the fair value of Legacy HR Common Stock issued to former holders of Legacy HTA Common Stock was based on the per share closing price of Legacy HR Common Stock on July 20, 2022.


11



Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
(c) Represents the fair value of Legacy HTA restricted shares which fully vested prior to the closing of the Merger or became fully vested as a result of the closing of the Merger and which are attributable to pre-combination services.

Preliminary Purchase Price Allocation
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the Closing Date:
Dollars in thousands
ASSETS
Real estate investments
Land $985,926 
Buildings and improvements6,960,418 
Lease intangible assets(a)
831,920 
Financing lease right-of-use assets9,874 
Construction in progress10,071 
Land held for development46,538 
Total real estate investments$8,844,747 
Assets held for sale, net 707,442 
Investments in unconsolidated joint ventures67,892 
Cash and cash equivalents26,034 
Restricted cash 1,123,647 
Operating lease right-of-use assets198,261 
Other assets, net (b) (c)
209,163 
Total assets acquired$11,177,186 
LIABILITIES
Notes and bonds payable $3,991,300 
Accounts payable and accrued liabilities 1,227,570 
Liabilities of assets held for sale28,677 
Operating lease liabilities 173,948 
Financing lease liabilities 10,720 
Other liabilities 203,210 
Total liabilities assumed$5,635,425 
Net identifiable assets acquired$5,541,761 
Non-controlling interest$110,702 
Goodwill$145,404 
(a) The weighted average amortization period for the acquired lease intangible assets is 5.5 years.
(b) Includes $34.6 million of gross contractual accounts receivable, which approximates fair value, of which the Company preliminarily did not expect $12.3 million to be collected as of Closing Date.
(c) Includes $78.7 million of gross contractual real estate notes receivable, the fair value of which was $74.8 million, and the Company preliminarily expects to collect substantially all of the real estate notes receivable proceeds as of the Closing Date.
As of September 30, 2022, the Company had not finalized the determination of fair value of certain tangible and intangible assets acquired and liabilities assumed including, but not limited to real estate assets and liabilities, notes receivables and goodwill. As such, the assessment of fair value of assets acquired and liabilities assumed is preliminary and was based on information that was available at the time the Condensed Consolidated Financial Statements were prepared. The finalization of the purchase accounting assessment could result in material changes in the Company’s determination of the fair value of assets acquired and liabilities assumed, which will be recorded as measurement period adjustments in the period in which they are identified, up to one year from the Closing Date.
A preliminary estimate of approximately $145.4 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The recognized goodwill is attributable to expected synergies and benefits arising from the Merger, including anticipated general and administrative cost savings and potential economies of scale benefits in both tenant


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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
and vendor relationships following the closing of the Merger. None of the goodwill recognized is expected to be deductible for tax purposes.
Merger related Costs
In conjunction with the Merger, the Company incurred Merger-related costs of $79.4 million during the three months ended September 30, 2022 and $92.6 million during the nine months ended September 30, 2022, which were included within Merger-related costs in results of operations. The Merger-related costs primarily consist of legal, consulting, banking services, and other Merger-related costs.
Unaudited Pro Forma Financial Information
The Condensed Consolidated Statements of Income for the three months ended September 30, 2022 include $157.4 million of revenues and $20.6 million of net loss and for the nine months ended September 30, 2022 include $157.4 million of revenues and $20.6 million of net loss associated with the results of operations of Legacy HTA from the Merger closing date to September 30, 2022.
The following unaudited pro forma information presents a summary of our Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2022 and 2021, as if the Merger had occurred on January 1, 2021. Adjustments in the pro forma financial information include but are not limited to the following:
(i) additional depreciation and amortization expense related to the acquired tangible and intangible assets,
(ii) additional interest expense on transaction-related borrowings, including assumed debt in connection with the Merger,
(iii) additional rental income related to the assumed above and below-market leases, and straight-line rent and
(iv) Merger-related costs and other one-time, non-recurring costs.
The pro forma financial information excludes adjustments for estimated cost synergies or other effects of the integration of the Merger.
The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.
THREE MONTHS ENDED
September 30,
NINE MONTHS ENDED
September 30,
Dollars in thousands2022202120222021
Total revenues$352,744 $332,465 $1,054,809 $982,192 
Net income$115,496 $(14,930)$160,120 $(79,754)




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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.
Note 3. Real Estate Investments
2022 Company Acquisitions
The following table details the Company's acquisitions for the nine months ended September 30, 2022:
Dollars in thousandsDATE ACQUIREDPURCHASE PRICE
CASH
CONSIDERATION
1
REAL
ESTATE 2
OTHER 3
SQUARE FOOTAGE
Dallas, TX 2/11/22$8,175 $8,185 $8,202 $(17)18,000 
San Francisco, CA 4
3/7/22114,000 112,986 108,687 4,299 166,396 
Q1 2022 subtotal122,175 121,171 116,889 4,282 184,396 
Atlanta, GA4/7/226,912 7,054 7,178