Company Quick10K Filing
Healthcare Realty Trust
Price33.35 EPS0
Shares131 P/E366
MCap4,381 P/FCF28
Net Debt1,432 EBIT54
TEV5,813 TEV/EBIT108
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-05
10-Q 2020-03-31 Filed 2020-05-06
10-K 2019-12-31 Filed 2020-02-12
10-Q 2019-09-30 Filed 2019-11-04
10-Q 2019-06-30 Filed 2019-07-30
10-Q 2019-03-31 Filed 2019-05-01
10-K 2018-12-31 Filed 2019-02-13
10-Q 2018-09-30 Filed 2018-11-01
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-03
10-K 2017-12-31 Filed 2018-02-14
10-Q 2017-09-30 Filed 2017-11-01
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-03
10-K 2016-12-31 Filed 2017-02-15
10-Q 2016-09-30 Filed 2016-11-02
10-Q 2016-06-30 Filed 2016-08-03
10-Q 2016-03-31 Filed 2016-05-04
10-K 2015-12-31 Filed 2016-02-16
10-Q 2015-09-30 Filed 2015-11-04
10-Q 2015-06-30 Filed 2015-08-05
10-Q 2015-03-31 Filed 2015-05-06
10-K 2014-12-31 Filed 2015-02-17
10-Q 2014-09-30 Filed 2014-11-04
10-Q 2014-06-30 Filed 2014-07-30
10-Q 2014-03-31 Filed 2014-04-30
10-K 2013-12-31 Filed 2014-02-19
10-Q 2013-09-30 Filed 2013-10-30
10-Q 2013-06-30 Filed 2013-07-30
10-Q 2013-03-31 Filed 2013-05-01
10-K 2012-12-31 Filed 2013-02-20
10-Q 2012-09-30 Filed 2012-11-07
10-Q 2012-06-30 Filed 2012-07-31
10-Q 2012-03-31 Filed 2012-05-01
10-K 2011-12-31 Filed 2012-02-22
10-Q 2011-09-30 Filed 2011-11-01
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-09
10-K 2010-12-31 Filed 2011-02-22
10-Q 2010-09-30 Filed 2010-11-08
10-Q 2010-06-30 Filed 2010-08-09
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-02-22
8-K 2020-08-05 Earnings, Regulation FD, Exhibits
8-K 2020-08-04 Earnings, Exhibits
8-K 2020-06-01
8-K 2020-05-13
8-K 2020-05-06
8-K 2020-05-05
8-K 2020-04-06
8-K 2020-03-18
8-K 2020-03-04
8-K 2020-03-04
8-K 2020-02-14
8-K 2020-02-12
8-K 2020-02-11
8-K 2019-11-04
8-K 2019-10-29
8-K 2019-09-11
8-K 2019-07-30
8-K 2019-05-31
8-K 2019-05-14
8-K 2019-05-01
8-K 2019-04-30
8-K 2019-04-02
8-K 2019-03-15
8-K 2019-02-13
8-K 2019-02-12
8-K 2018-11-01
8-K 2018-10-30
8-K 2018-08-02
8-K 2018-07-31
8-K 2018-05-08
8-K 2018-05-03
8-K 2018-05-01
8-K 2018-03-27
8-K 2018-02-14
8-K 2018-02-13

HR 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Real Estate Investments
Note 3. Leases
Note 4. Notes and Bonds Payable
Note 5. Derivative Financial Instruments
Note 6. Commitments and Contingencies
Note 7. Stockholders' Equity
Note 8. Fair Value of Financial Instruments
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 hr-2020630xex311.htm
EX-31.2 hr-2020630xex312.htm
EX-32 hr-2020630xex32.htm

Healthcare Realty Trust Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
3.52.82.11.40.70.02012201420172020
Assets, Equity
0.20.10.10.0-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.0-0.1-0.2-0.32012201420172020
Ops, Inv, Fin

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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: June 30, 2020

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period             to

For the transition period             to

Commission File Number: 001-11852

HEALTHCARE REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter) 
Maryland
62-1507028
(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)

Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
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 Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
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).    Yes  ☒    No  ☐
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). Yes      No  ☒
 
As of July 31, 2020, the Registrant had 136,048,233 shares of Common Stock outstanding.



 


HEALTHCARE REALTY TRUST INCORPORATED
FORM 10-Q
June 30, 2020


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
JUNE 30, 2020

DECEMBER 31, 2019

Real estate properties
 
 
Land
$
312,139

$
289,751

Buildings, improvements and lease intangibles
3,937,657

3,986,326

Personal property
10,849

10,538

Construction in progress

48,731

Land held for development
24,647

24,647

Total real estate properties
4,285,292

4,359,993

Less accumulated depreciation and amortization
(1,169,298
)
(1,121,102
)
Total real estate properties, net
3,115,994

3,238,891

Cash and cash equivalents
43,680

657

Assets held for sale, net

37

Operating lease right-of-use assets
124,398

126,177

Financing lease right-of-use assets
19,884

12,667

Net investment in sales-type leases
244,381


Other assets, net
183,616

185,426

Total assets
$
3,731,953

$
3,563,855

 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
Liabilities
 
 
Notes and bonds payable
$
1,554,936

$
1,414,069

Accounts payable and accrued liabilities
65,485

78,517

Liabilities of properties held for sale

145

Operating lease liabilities
91,259

91,574

Financing lease liabilities
18,595

18,037

Other liabilities
72,317

61,504

Total liabilities
1,802,592

1,663,846

Commitments and contingencies




Stockholders' equity
 
 
Preferred stock, $.01 par value per share; 50,000 shares authorized; none issued and outstanding


Common stock, $.01 par value per share; 300,000 shares authorized; 136,048 and 134,706 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
1,360

1,347

Additional paid-in capital
3,529,559

3,485,003

Accumulated other comprehensive loss
(20,294
)
(6,175
)
Cumulative net income attributable to common stockholders
1,207,132

1,127,304

Cumulative dividends
(2,788,396
)
(2,707,470
)
Total stockholders' equity
1,929,361

1,900,009

Total liabilities and stockholders' equity
$
3,731,953

$
3,563,855

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, 2019, are an integral part of these financial statements.



1





Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Income
For the Three and Six Months Ended June 30, 2020 and 2019
Amounts in thousands, except per share data
Unaudited

 
THREE MONTHS ENDED
June 30,
SIX MONTHS ENDED
June 30,
 
2020

2019

2020

2019

Revenues
 
 
 
 
Rental income
$
122,358

$
114,351

$
245,001

$
225,046

Other operating
1,332

1,966

3,496

3,928

 
123,690

116,317

248,497

228,974

Expenses
 
 
 
 
Property operating
46,580

44,286

96,134

87,012

General and administrative
7,434

7,845

16,199

16,355

Acquisition and pursuit costs
431

422

1,181

726

Depreciation and amortization
47,691

43,926

95,188

86,588

 
102,136

96,479

208,702

190,681

Other Income (Expense)
 
 
 
 
Gain on sales of real estate assets
68,267

4,849

68,218

4,865

Interest expense
(14,442
)
(13,850
)
(28,402
)
(27,438
)
Impairment of real estate assets

(5,610
)

(5,610
)
Interest and other income (expense), net
134

(743
)
217

(735
)
 
53,959

(15,354
)
40,033

(28,918
)
Net Income
$
75,513

$
4,484

$
79,828

$
9,375

 
 
 
 
 
Basic earnings per common share
$
0.56

$
0.03

$
0.59

$
0.07

Diluted earnings per common share
$
0.56

$
0.03

$
0.59

$
0.07

 
 
 
 
 
Weighted average common shares
outstanding - basic
133,634

127,449

133,335

125,799

Weighted average common shares
outstanding - diluted
133,696

127,525

133,420

125,889

Dividends declared, per common share,
during the period
$
0.30

$
0.30

$
0.60

$
0.60

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, 2019, are an integral part of these financial statements.



2





Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Comprehensive Income (Loss)
For the Three and Six Months Ended June 30, 2020 and 2019
Amounts in thousands
Unaudited

 
THREE MONTHS ENDED
 June 30,
SIX MONTHS ENDED
June 30,
 
2020

2019

2020

2019

Net income
$
75,513

$
4,484

$
79,828

$
9,375

Other comprehensive income (loss)
 
 
 
 
Interest rate swaps
 
 
 
 
Reclassification adjustments for losses included in net income (interest expense)
938

(1
)
1,267

15

Losses arising during the period on interest rate swaps
(1,455
)
(4,577
)
(11,119
)
(5,301
)
Losses on settlement of treasury rate locks arising during the period


(4,267
)

 
(517
)
(4,578
)
(14,119
)
(5,286
)
Comprehensive income (loss)
$
74,996

$
(94
)
$
65,709

$
4,089

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, 2019, are an integral part of these financial statements.



3





Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Equity
For the Three Months Ended June 30, 2020 and 2019
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

Balance at March 31, 2020
$
1,349

$
3,494,123

$
(19,777
)
$
1,131,619

$
(2,747,886
)
$
1,859,428

Issuance of common stock, net of
issuance costs
11

33,031




33,042

Share-based compensation

2,405




2,405

Net income



75,513


75,513

Reclassification adjustments for losses included in net income (interest expense)



938



938

Losses arising during the period on
interest rate swaps



(1,455
)


(1,455
)
Dividends to common stockholders
($0.30 per share)




(40,510
)
(40,510
)
Balance at June 30, 2020
$
1,360

$
3,529,559

$
(20,294
)
$
1,207,132

$
(2,788,396
)
$
1,929,361

 
 
 
 
 
 
 
 
Common
Stock

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Income (Loss)

Cumulative
Net Income

Cumulative
Dividends

Total
Stockholders’
Equity

Balance at March 31, 2019
$
1,292

$
3,302,814

$
(1,611
)
$
1,093,010

$
(2,589,726
)
$
1,805,779

Issuance of common stock, net of issuance costs

159




159

Share-based compensation

2,371




2,371

Net income



4,484


4,484

Reclassification adjustments for losses included in net income (interest expense)



(1
)


(1
)
Losses arising during the period on interest rate swaps



(4,577
)


(4,577
)
Dividends to common stockholders ($0.30 per share)




(38,771
)
(38,771
)
Balance at June 30, 2019
$
1,292

$
3,305,344

$
(6,189
)
$
1,097,494

$
(2,628,497
)
$
1,769,444

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, 2019, are an integral part of these financial statements.









4





Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Equity
For the Six Months Ended June 30, 2020 and 2019
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

Balance at December 31, 2019
$
1,347

$
3,485,003

$
(6,175
)
$
1,127,304

$
(2,707,470
)
$
1,900,009

Issuance of common stock, net of
issuance costs
12

40,351




40,363

Common stock redemptions

(798
)



(798
)
Share-based compensation
1

5,003




5,004

Net income



79,828


79,828

Reclassification adjustments for losses included in net income (interest expense)



1,267



1,267

Losses arising during the period on
interest rate swaps



(15,386
)


(15,386
)
Dividends to common stockholders
($0.60 per share)




(80,926
)
(80,926
)
Balance at June 30, 2020
$
1,360

$
3,529,559

$
(20,294
)
$
1,207,132

$
(2,788,396
)
$
1,929,361

 
 
 
 
 
 
 
 
Common
Stock

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
Income (Loss)

Cumulative
Net Income

Cumulative
Dividends

Total
Stockholders’
Equity

Balance at December 31, 2018
$
1,253

$
3,180,284

$
(902
)
$
1,088,119

$
(2,552,112
)
$
1,716,642

Issuance of common stock, net of issuance costs
38

120,620




120,658

Common stock redemptions

(570
)



(570
)
Share-based compensation
1

5,010




5,011

Net income



9,375


9,375

Reclassification adjustments for losses included in net income (interest expense)



14



14

Losses arising during the period on interest rate swaps



(5,301
)


(5,301
)
Dividends to common stockholders ($0.60 per share)




(76,385
)
(76,385
)
Balance at June 30, 2019
$
1,292

$
3,305,344

$
(6,189
)
$
1,097,494

$
(2,628,497
)
$
1,769,444

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, 2019, are an integral part of these financial statements.




5





Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2020 and 2019
Amounts in thousands
Unaudited

OPERATING ACTIVITIES
 
 
 
SIX MONTHS ENDED
 June 30,
 
2020

2019

Net income
$
79,828

$
9,375

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
95,188

86,588

Other amortization
2,510

1,547

Share-based compensation
5,004

5,011

Amortization of straight-line rent receivable (lessor)
(1,807
)
(1,063
)
Amortization of straight-line rent on operating leases (lessee)
749

776

Gain on sales of real estate assets
(68,218
)
(4,865
)
Impairment of real estate assets

5,610

Loss from unconsolidated joint ventures
127

3

Distributions from unconsolidated joint ventures
184

277

Changes in operating assets and liabilities:
 
 
Other assets, including right-of-use-assets
(1,272
)
(2,015
)
Accounts payable and accrued liabilities
(5,902
)
(8,621
)
Other liabilities
(1,152
)
(1,943
)
Net cash provided by operating activities
105,239

90,680

 
 
 
INVESTING ACTIVITIES
 
 
Acquisitions of real estate
(87,417
)
(193,295
)
Development of real estate
(2,678
)
(13,006
)
Additional long-lived assets
(44,316
)
(30,892
)
Proceeds from sales of real estate assets

12,118

Net cash used in investing activities
(134,411
)
(225,075
)
 
 
 
FINANCING ACTIVITIES
 
 
Net (repayments) borrowings on unsecured credit facility
(293,000
)
58,000

Borrowings on term loan
150,000

50,000

Borrowings of notes and bonds payable
298,995


Repayments of notes and bonds payable
(31,698
)
(11,483
)
Dividends paid
(80,926
)
(76,386
)
Net proceeds from issuance of common stock
40,169

120,668

Common stock redemptions
(892
)
(2,442
)
Settlement of treasury rate locks
(4,267
)

Debt issuance and assumption costs
(3,018
)
(4,584
)
Payments made on finance leases
(3,168
)
(142
)
Net cash provided by financing activities
72,195

133,631

 
 
 
Increase (decrease) in cash and cash equivalents
43,023

(764
)
Cash and cash equivalents at beginning of period
657

8,381

Cash and cash equivalents at end of period
43,680

$
7,617

 
 
 
Supplemental Cash Flow Information
 
 
Interest paid
$
26,101

$
26,512

Invoices accrued for construction, tenant improvements and other capitalized costs
$
10,013

$
10,853

Mortgage notes payable assumed upon acquisition (adjusted to fair value)
$
19,269

$

Capitalized interest
$
706

$
651

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, 2019, are an integral part of these financial statements.



6



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 June 30, 2020, the Company had gross investments of approximately $4.2 billion in 210 real estate properties located in 24 states totaling approximately 15.5 million square feet. The Company provided leasing and property management services to approximately 12.0 million square feet nationwide. Square footage and property count disclosures in these Notes to the Company's Condensed Consolidated Financial Statements are unaudited.

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. However, except as disclosed herein, management believes there has been no material change in the information disclosed in the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2019. All material intercompany transactions and balances have been eliminated in consolidation.
This interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 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, 2020 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, such as the impact of the COVID-19 pandemic.

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.
The Company considered the impact of COVID-19 on these assumptions and estimates used and determined that there were no material adverse impacts on the Company's results of operations and financial position at June 30, 2020. There can be no assurance that COVID-19 will not have a future material adverse impact on the financial results and business operations of the Company.

COVID-19 Update
Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
In response to the COVID-19 pandemic, all of the states and cities in which the Company owns properties, manages properties, and/or has development or redevelopment projects instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of businesses that may continue to operate, and/or restrictions on the types of construction projects that may continue. As a result, a number of the Company's tenants temporarily closed their offices or clinical space or operated on a reduced basis in response to government requirements or recommendations. Many of these restrictions have been lifted, but could be reimposed. In response to these disruptions, the Company provided some of its tenants with deferred rent arrangements. Through July 31, 2020, the Company has collected 97% of second quarter 2020 aggregate tenant billings and has agreed to various forms of rent deferrals representing approximately 2% of second quarter 2020 aggregate tenant billings. The tenant deferral agreements require the deferred amounts to be repaid in the third and fourth quarters of 2020.
For accounting purposes, in accordance with ASC 842: Leases, normally a company would be required to assess a lease modification to determine if the modification should be treated as a separate lease and if not, modification



7



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.


accounting would be applied which would require a company to reassess the classification of the lease. However, in light of the COVID-19 pandemic in which many leases are being modified, the Financial Accounting Standards Board (the "FASB") and U.S. Securities and Exchange Commission (the "SEC") have provided relief that will allow companies to make a policy election as to whether they treat COVID-19 related lease amendments as a provision included in the pre-concession arrangement, and therefore, not a lease modification, or to treat the lease amendment as a modification. The Company has elected to use this relief where applicable and therefore will have no change in the current classification of its leases in connection with many of the leases impacted by negotiations with its tenants. In order to be considered COVID-19 related, cash flows must be substantially the same or less than those prior to the concession. If the cash flows are substantially the same or less, there are two methods to potentially account for such rent deferrals under the relief. The first would be as if no changes to the lease contract were made. Under that accounting, a lessor would increase its lease receivable and a lessee would increase its accounts payable as receivables/payments accrue. In its income statement, a lessor would continue to recognize revenue during the deferral period. The second method would be to treat the deferred payments as variable lease payments (i.e., revenue recognized when cash received). The Company has elected the first method described above, which results in the revenue being recognized on an accrual basis.
If tenants are unable to timely repay deferred rent, or repay at all, request additional rent deferrals or abatements, decide not to renew leases, or renew leases at lower cash leasing spreads, the impact on the Company’s results of operations and financial condition could be material. In the second quarter of 2020, the Company recognized approximately $0.7 million general reserve against an approximate $2.9 million deferred rent balance as of July 17, 2020.
Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 pandemic on its results of operations, financial condition, or liquidity for the fiscal year 2020. The Company continues to evaluate the impact of various forms of governmental assistance that may be or become available to the Company or its tenants.
Revenue from Contracts with Customers (Topic 606)
The Company recognizes certain revenue under the core principle of Topic 606. This 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, rental lease guaranty income, management fee income and other miscellaneous income. Below is a detail of the amounts by category:
 
THREE MONTHS ENDED
June 30,
SIX MONTHS ENDED
June 30,
in thousands
2020

2019

2020

2019

Type of Revenue
 
 
 
 
Parking income
$
1,227

$
1,870

$
3,278

$
3,603

Rental lease guaranty



128

Management fee income
69

64

147

133

Miscellaneous
36

32

71

64

 
$
1,332

$
1,966

$
3,496

$
3,928


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. 2016-13
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This update is intended to improve financial reporting by requiring timelier recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held for



8



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.


investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. This update requires that financial statement assets measured at an amortized cost and certain other financial instruments be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. This standard is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted. Operating lease receivables, representing the majority of the Company's receivables, are not within the scope of the new standard. The Company adopted this standard as of January 1, 2020. There was not a material impact to the Condensed Consolidated Financial Statements resulting from the adoption of this standard.

Accounting Standards Update No. 2017-04
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." This update eliminates Step 2 of the goodwill impairment test. As such, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value. This standard is effective for the Company for annual and interim periods beginning after December 15, 2019. The Company adopted this standard as of January 1, 2020. There was not a material impact to the Condensed Consolidated Financial Statements resulting from the adoption of this standard.

Accounting Standards Update No. 2020-04
On March 12, 2020, the FASB issued 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-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. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.



9



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.


Note 2. Real Estate Investments
2020 Acquisitions
The following table details the Company's acquisitions for the six months ended June 30, 2020:
Dollars in millions
TYPE 1
DATE ACQUIRED
PURCHASE PRICE

MORTGAGE NOTES PAYABLE

CASH
CONSIDERATION
2

REAL
ESTATE

OTHER 3

SQUARE FOOTAGE

Los Angeles, CA
MOB
1/3/20
$
42.0

$
(19.3
)
$
22.8

$
42.4

$
(0.3
)
86,986

Atlanta, GA
MOB
2/13/20
12.0


11.8

12.1

(0.3
)
64,624

Raleigh, NC
MOB
2/25/20
6.3


6.5

6.5


15,964

Colorado Springs, CO
MOB
3/9/20
8.2


8.3

8.6

(0.3
)
34,210

Denver, CO 4
MOB
3/13/20
33.5


33.2

34.0

(0.8
)
136,994

Total real estate acquisitions
 
$
102.0

$
(19.3
)
$
82.6

$
103.6

$
(1.7
)
338,778

Land acquisition 5
 
 
1.6


1.7

1.7



 
 
 
$
103.6

$
(19.3
)
$
84.3

$
105.3

$
(1.7
)
338,778

1
MOB = medical office building.
2
Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition.
3
Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition.
4
Includes three properties.
5
The Company acquired land parcels under four existing buildings (previously ground leased from the hospital system).

Subsequent Acquisitions
Subsequent to the end of the second quarter of 2020, the Company acquired the following properties:
Dollars in millions
TYPE
DATE ACQUIRED
PURCHASE PRICE

SQUARE FOOTAGE

San Diego, CA
MOB
7/1/20
$
16.7

46,083

Los Angeles, CA
MOB
7/17/20
35.0

49,785

Seattle, WA
MOB
7/23/20
11.0

21,309

Atlanta, GA
MOB
7/31/20
20.5

48,145

Total real estate acquisitions
 
$
83.2

165,322


 
Subsequent Dispositions
In May 2020, the Company and Mercy Health negotiated the sale of two single-tenant net leased properties, a medical office building in Oklahoma and an orthopedic specialty hospital in Missouri, for $244.5 million. The sale was structured through amendments to the leases to allow for the early exercise of existing purchase options. The amendments resulted in the application of lease modification accounting under ASC Topic 842, which resulted in lease classification changes from operating to sales-type. During the second quarter, the Company derecognized the real estate assets on the Condensed Consolidated Balance Sheets and recognized the net investment in sales-type leases, resulting in a gain of $68.3 million. See Note 3 to the Condensed Consolidated Financial Statements for additional disclosures of the sales-type leases. The Company disposed of these properties on July 30, 2020.
Assets Held for Sale
As of June 30, 2020 and December 31, 2019, the Company had no properties classified as held for sale.
Note 3. Leases
Lessor Accounting
The Company’s properties generally are leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2035. Some leases provide for fixed rent renewal terms in addition to 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.



10



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.


The Company's leases typically have escalators that are either based on a stated percentage or an index such as CPI (consumer price index). In addition, most of the Company's leases include nonlease 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 nonlease 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 six months ended June 30, 2020 was $122.4 million and $245.0 million, respectively.
Tabular Disclosure of the Components of Sales-Type Leases
The table below presents the components of sale-type leases for the thee and six months ended June 30, 2020:
 
SALES-TYPE LEASES
 
In thousands
three months ended
June 30, 2020

six months ended June 30, 2020

Profit recognized at commencement date
$
68,267

$
68,267

Gain on sales of real estate assets
Interest income
1,553

1,553

Rental income

Future lease payments under the non-cancelable operating and sales-type leases, excluding any reimbursements, as of June 30, 2020 were as follows:
In thousands
Operating

Sales-type 1

2020
$
181,180

$
249,042

2021
332,072


2022
290,524


2023
242,546


2024
185,184


2025 and thereafter
476,791


 
$
1,708,297

$
249,042


1
See Footnote 2 to the Condensed Consolidated Financial Statements for additional information.

Lessee Accounting
As of June 30, 2020, the Company was obligated, as the lessee, under operating lease agreements consisting primarily of the Company’s ground leases. As of June 30, 2020, the Company had 104 properties totaling 8.7 million square feet that were held under ground leases. Some of the ground leases' 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 either stated or based on the CPI. The Company had 42 prepaid ground leases as of June 30, 2020. The amortization of the prepaid rent, included in the operating lease right-of-use asset, represented approximately $0.2 million of the Company’s rental expense for the three months ended June 30, 2020 and 2019, respectively and $0.3 million for the six months ended June 30, 2020 and 2019, respectively.



11



NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.


The Company’s future lease payments (primarily for its 62 non-prepaid ground leases) as of June 30, 2020 were as follows:
In thousands
OPERATING

FINANCING

2020
$
2,012

$
286

2021
4,844

930

2022
4,875

783

2023
4,913

793

2024
4,969

815

2025 and thereafter
307,665

88,808

Total undiscounted lease payments
329,278

92,415

Discount
(238,019
)
(73,820
)
Lease liabilities
$
91,259

$
18,595



The following table provides details of the Company's total lease expense for the three and six months ended June 30, 2020 and 2019:
 
THREE MONTHS ENDED
June 30,
SIX MONTHS ENDED
June 30,
In thousands
2020

2019

2020

2019

Operating lease cost
 
 
 
 
Operating lease expense
$
1,175

$
1,163

$
2,349

$
2,279

Variable lease expense
804

795

1,604

1,535

 
 
 
 
 
Finance lease cost
 
 
 
 
Amortization of right-of-use assets
78

51

148