Healthcare Realty Trust Inc - Quarter Report: 2023 September (Form 10-Q)

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, 2023
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)


Maryland						20-4738467

(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 Class

Trading Symbol

Name of Each Exchange on Which Registered

Class A Common Stock, $0.01 par value per share

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.

☒

Yes

☐

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

☐

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

☒

As of October 27, 2023, the Registrant had 380,874,078 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, and 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 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. Periodic reports for periods ending following the Merger reflect financial and other information of the Company. The acquisition was accounted for using the acquisition method of accounting in accordance with Accounting Standards Codification 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 the combined company after giving effect to the Merger.

In addition, the OP has issued unsecured notes described in Note 5 to the Company's Condensed Consolidated Financial Statements included in this report. All unsecured notes are fully and unconditionally guaranteed by the Company, and the OP is 98.8% owned by the Company. Effective January 4, 2021, the Securities and Exchange Commission (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.

Additionally, as permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, the Company has excluded the summarized financial information for the OP because the assets, liabilities, and results of operations of the OP are not materially different than the corresponding amounts in the Company's consolidated financial statements and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.

HEALTHCARE REALTY TRUST INCORPORATED

FORM 10-Q

September 30, 2023

Table of Contents


PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Statements of Equity and Redeemable Non-Controlling Interests	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to the Condensed Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4	Controls and Procedures	39

PART II - OTHER INFORMATION
Item 1	Legal Proceedings	39
Item 1A	Risk Factors	40
Item 2	Unregistered Sales of Equity and Use of Proceeds	40
Item 5	Other Information	40
Item 6	Exhibits	40

SIGNATURE		42

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, 2023		DECEMBER 31, 2022
Real estate properties
Land	$	1,387,821	$	1,439,798
Buildings and improvements	11,004,195		11,332,037
Lease intangibles	890,273		959,998
Personal property	12,686		11,907
Investment in financing receivable, net	120,975		120,236
Financing lease right-of-use assets	82,613		83,824
Construction in progress	85,644		35,560
Land held for development	59,871		74,265
Total real estate properties	13,644,078		14,057,625
Less accumulated depreciation and amortization	(2,093,952)		(1,645,271)
Total real estate properties, net	11,550,126		12,412,354
Cash and cash equivalents	24,668		60,961


Assets held for sale, net	57,638		18,893
Operating lease right-of-use assets	323,759		336,983
Investments in unconsolidated joint ventures	325,453		327,248
Goodwill	250,530		223,202
Other assets, net	571,554		469,990
Total assets	$	13,103,728	$	13,849,631

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes and bonds payable	$	5,227,413	$	5,351,827
Accounts payable and accrued liabilities	204,947		244,033
Liabilities of assets held for sale	3,814		437
Operating lease liabilities	273,319		279,895
Financing lease liabilities	74,087		72,939
Other liabilities	211,365		218,668
Total liabilities	5,994,945		6,167,799
Commitments and contingencies
Redeemable non-controlling interests	3,195		2,014
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; 380,860 and 380,590 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	3,809		3,806
Additional paid-in capital	9,597,629		9,587,637
Accumulated other comprehensive income	17,079		2,140
Cumulative net income attributable to common stockholders	1,069,327		1,307,055
Cumulative dividends	(3,684,144)		(3,329,562)
Total stockholders' equity	7,003,700		7,571,076
Non-controlling interest	101,888		108,742
Total equity	7,105,588		7,679,818
Total liabilities and equity	$	13,103,728	$	13,849,631

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, 2022, are an integral part of these financial statements.

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2023 and 2022

Amounts in thousands, except per share data

Unaudited


	THREE MONTHS ENDED September 30,				NINE MONTHS ENDED September 30,
	2023		2022		2023		2022
Revenues
Rental income	$	333,335	$	298,931	$	987,109	$	578,052
Interest income	4,264		3,366		12,711		7,253

Other operating	4,661		4,057		13,508		9,270
	342,260		306,354		1,013,328		594,575
Expenses
Property operating	131,639		112,473		379,074		226,947
General and administrative	13,396		16,741		43,796		38,317
Acquisition and pursuit costs	769		482		1,725		3,137
Merger-related costs	7,450		79,402		(3,366)		92,603
Depreciation and amortization	182,989		158,117		550,661		267,889


	336,243		367,215		971,890		628,893
Other income (expense)
Gain on sales of real estate properties	48,811		143,908		56,974		197,188
Interest expense	(66,304)		(53,044)		(195,397)		(82,248)
Gain (loss) on extinguishment of debt	62		(1,091)		62		(2,520)

Impairment of real estate properties and credit loss reserves	(56,873)		—		(143,510)		25
Equity loss from unconsolidated joint ventures	(456)		(124)		(1,253)		(776)
Interest and other income (expense), net	139		(172)		1,278		(378)
	(74,621)		89,477		(281,846)		111,291






Net (loss) income	$	(68,604)	$	28,616	$	(240,408)	$	76,973
Net loss (income) attributable to non-controlling interests	760		(312)		2,680		(312)
Net (loss) income attributable to common stockholders	$	(67,844)	$	28,304	$	(237,728)	$	76,661



Basic earnings per common share	$	(0.18)	$	0.08	$	(0.63)	$	0.36


Diluted earnings per common share	$	(0.18)	$	0.08	$	(0.63)	$	0.35

Weighted average common shares outstanding - basic	378,925		328,805		378,886		209,807
Weighted average common shares outstanding - diluted	378,925		332,031		378,886		210,944

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Comprehensive Income

For the Three and Nine Months Ended September 30, 2023 and 2022

Amounts in thousands

Unaudited


	THREE MONTHS ENDED September 30,				NINE MONTHS ENDED September 30,
	2023		2022		2023		2022
Net (loss) income	$	(68,604)	$	28,616	$	(240,408)	$	76,973
Other comprehensive income


Interest rate swaps
Reclassification adjustments for (gains) losses included in net income (interest expense)	(4,168)		763		(9,874)		2,672
Gains arising during the period on interest rate swaps	12,016		6,083		24,999		12,905

	7,848		6,846		15,125		15,577
Comprehensive (loss) income	(60,756)		35,462		(225,283)		92,550
Less: comprehensive loss (income) attributable to non-controlling interests	663		(384)		2,494		(384)
Comprehensive (loss) income attributable to common stockholders	$	(60,093)	$	35,078	$	(222,789)	$	92,166

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Equity and Redeemable Non-Controlling Interests

For the Three Months Ended September 30, 2023 and 2022

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, 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
Dividends to common stockholders and distributions to non-controlling interest holders ($0.31 per share)	—		—		—		—		(118,203)		(118,203)		(1,467)		(119,670)		—
Adjustments to redemption value of redeemable non-controlling interests	—		—		—		—		—		—		—		—		(2)
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

	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, 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 transferred	2,289		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 compensation	1		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 and distributions to non-controlling interest holders ($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	$	—

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Equity and Redeemable Non-Controlling Interests

For the Nine Months Ended September 30, 2023 and 2022

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, 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
Dividends to common stockholders and distributions to non-controlling interest holders ($0.93 per share)	—		—		—		—		(354,582)		(354,582)		(4,360)		(358,942)		—
Adjustments to redemption value of redeemable non-controlling interests	—		—		—		—		—		—		—		—		(29)
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

	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, 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 costs	8		22,847		—		—		—		22,855		—		22,855		—
Merger consideration transferred	2,289		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 compensation	4		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 and distributions to non-controlling interest holders ($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	$	—

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2023 and 2022

Amounts in thousands

Unaudited


OPERATING ACTIVITIES
	NINE MONTHS ENDED September 30,
	2023		2022
Net (loss) income	$	(240,408)	$	76,973
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	550,661		267,889
Other amortization	33,822		11,875
Share-based compensation	11,470		16,772
Amortization of straight-line rent receivable (lessor)	(29,320)		(12,267)
Amortization of straight-line rent on operating leases (lessee)	4,600		2,016
Gain on sales of real estate properties	(56,974)		(197,188)
(Gain) loss on extinguishment of debt	(62)		2,520
Impairment of real estate properties and credit loss reserves	143,510		(25)
Equity loss from unconsolidated joint ventures	1,253		776
Distributions from unconsolidated joint ventures	4,366		893

Non-cash interest from financing and notes receivable	(1,067)		(1,901)
Changes in operating assets and liabilities:
Other assets, including right-of-use-assets	(34,632)		(19,230)
Accounts payable and accrued liabilities	(32,060)		35,769
Other liabilities	17,345		(58,213)
Net cash provided by operating activities	372,504		126,659

INVESTING ACTIVITIES
Acquisitions of real estate	(48,106)		(376,924)
Development of real estate	(31,318)		(17,572)
Additional long-lived assets	(156,871)		(97,797)
Funding of mortgages and notes receivable	(14,597)		(3,441)
Investments in unconsolidated joint ventures	(3,824)		(99,586)
Investment in financing receivable	(310)		167
Contributions from redeemable non-controlling interests	710		—
Proceeds from sales of real estate properties and additional long-lived assets	366,779		870,806
Proceeds from notes receivable repayments	—		500
Cash assumed in Merger, including restricted cash for special dividend payment	—		1,149,681

Net cash provided by investing activities	112,463		1,425,834

FINANCING ACTIVITIES
Net repayments on unsecured credit facility	(149,000)		(154,400)
Borrowings on term loans	—		666,500
Repayment on term loan	—		(718,500)

Repayments of notes and bonds payable	(11,988)		(18,880)

Redemption of notes and bonds payable	—		(2,184)
Dividends paid	(354,171)		(165,735)
Special dividend paid in relation to the Merger	—		(1,123,648)
Net proceeds from issuance of common stock	110		22,851
Common stock redemptions	(1,834)		(894)
Distributions to non-controlling interest holders	(3,836)		(442)


Debt issuance and assumption costs	(529)		(12,753)
Payments made on finance leases	(12)		—
Net cash used in financing activities	(521,260)		(1,508,085)

(Decrease) increase in cash and cash equivalents	(36,293)		44,408
Cash and cash equivalents at beginning of period	60,961		13,175
Cash and cash equivalents at end of period	$	24,668	$	57,583

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Supplemental Cash Flow Information	NINE MONTHS ENDED September 30,
	2023		2022
Interest paid	$	185,402	$	83,382
Mortgage note receivable taken in connection with sale of real estate	$	45,000	$	—
Invoices accrued for construction, tenant improvements and other capitalized costs	$	32,590	$	52,840
Mortgage note payable assumed in connection with acquisition of real estate, net	$	5,284	$	—
Capitalized interest	$	2,077	$	848

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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, 2023, the Company had gross investments of approximately $13.6 billion in 663 wholly-owned 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 663 real estate properties are located in 35 states and total approximately 39.1 million square feet. The Company provided leasing and property management services to approximately 38.6 million square feet nationwide.

In addition, as of September 30, 2023, the Company had a weighted average ownership interest of approximately 44% in 34 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 as the combined company 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 included 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, 2022. 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, 2022. 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, 2023 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 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.

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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.

Healthcare Realty Holdings, L.P., a Delaware limited partnership (the "OP"), is 98.8% owned by the Company. 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, 2023, there were approximately 4.7 million OP Units, or 1.2% 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.

As of September 30, 2023, the Company had four consolidated VIEs, 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, 2023
Assets:
Net real estate investments	$	72,756
Cash and cash equivalents	1,766
Receivables and other assets	2,594
Total assets	$	77,116
Liabilities:
Accrued expenses and other liabilities	$	16,909
Total equity	60,207
Total liabilities and equity	$	77,116

As of September 30, 2023, the Company had three unconsolidated VIEs consisting of two notes receivables and one joint venture. The Company does not have the power or economic interests to direct the activities of the 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 receivables as amortized cost and a joint venture arrangement under the equity method. 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	Note receivable	$	30,797	$	31,150
2021	Charlotte, NC 1	Note receivable	5,743		6,000
2022	Texas 2	Joint venture	63,579		63,579

1Assumed mortgage note receivable in connection with the Merger.

2Includes investments in seven properties.

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As of September 30, 2023, 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.

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. We measure the redemption value and record an adjustment to the carrying value of the equity securities as a component of redeemable non-controlling interest. As of September 30, 2023, the Company had redeemable non-controlling interests of $3.2 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, 2023, the Company recognized real estate impairments totaling $56.9 million and $138.3 million, respectively, as a result of completed or planned disposition activity.

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, 2023
May 2021	Poway, CA	5.73%	$	113,634
November 2021	Columbus, OH	6.48%	7,341
			$	120,975

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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, 2023, real estate notes receivable, net, which are included in Other assets on the Company's Condensed Consolidated Balance Sheets, totaled $155.0 million.


(dollars in thousands)	ORIGINATION	MATURITY	STATED INTEREST RATE		MAXIMUM LOAN COMMITMENT		OUTSTANDING as of SEPT 30, 2023		ALLOWANCE FOR CREDIT LOSSES		FAIR VALUE DISCOUNT AND FEES		CARRYING VALUE as of SEPT 30, 2023
Mezzanine loans
Texas	6/24/2021	6/24/2024	8.00	%	$	54,119	$	54,119	$	(5,196)	$	(3,067)	$	45,856

Mortgage loans
Texas	6/30/2021	12/31/2023	7.00	%	31,150		31,150		—		(353)		30,797
North Carolina	12/22/2021	12/22/2024	8.00	%	6,000		6,000		—		(257)		5,743
Florida	5/17/2022	2/27/2026	6.00	%	65,000		27,651		—		(49)		27,602
California	3/30/2023	3/29/2026	6.00	%	45,000		45,000		—		—		45,000
					147,150		109,801		—		(659)		109,142

					$	201,269	$	163,920	$	(5,196)	$	(3,726)	$	154,998

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.

In its assessment of current expected credit losses for real estate notes receivable, the Company utilizes past payment history of its borrowers, current economic conditions, and forecasted economic conditions through the maturity date of each note to estimate a probability of default and a resulting loss for each real estate note receivable. During the first quarter of 2023, the Company determined that the risk of credit loss on its mezzanine loans was no longer remote and recorded a credit loss reserve of $5.2 million.

The following table summarizes the Company's allowance for credit losses on real estate notes receivable:


Dollars in thousands	NINE MONTHS ENDED SEPTEMBER 30, 2023		TWELVE MONTHS ENDED DECEMBER 31, 2022
Allowance for credit losses, beginning of period	$	—	$	—
Credit loss reserves	5,196		—
Allowance for credit losses, end of period	$	5,196	$	—

Interest Income

Income from Lease Financing Receivables

The Company recognized the related income from two financing receivables totaling $2.0 million and $6.2 million, respectively, for the three and nine months ended September 30, 2023, and $2.0 million and $5.9 million, respectively for the three and nine months ended September 30, 2022, 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.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Income from Real Estate Notes Receivable

During the three and nine months ended September 30, 2023, the Company recognized interest income of $2.3 million and $6.5 million, respectively, related to real estate notes receivable. 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. As of January 1, 2023, the Company placed two of its real estate notes receivable with principal balances of $48.9 million on non-accrual status and accordingly did not recognize any interest income for the three and nine month periods ended September 30, 2023.

Revenue from Contracts with Customers (ASC 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 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	2023		2022		2023		2022
Type of Revenue
Parking income	$	2,751	$	2,428	$	7,511	$	6,100

Management fee income 1	1,552		1,426		5,122		2,864
Miscellaneous	358		203		875		306
	$	4,661	$	4,057	$	13,508	$	9,270

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.

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”), 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, and Legacy HR became a wholly-owned subsidiary of the OP. The Company operates under the

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

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”.

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 following the Merger, (ii) the composition of senior management of the combined company following the Merger, 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 Company.

The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires, among other things, the assets acquired and the liabilities assumed and non-controlling interests, if any, to be recognized at their acquisition date fair value.

The implied consideration transferred on the Closing Date is as follows:


Dollars in thousands, except for per share data
Shares of Legacy HTA Common Stock outstanding as of July 20, 2022 as adjusted(a)	228,520,990
Exchange ratio	1.00
Implied shares of Legacy HR Common Stock issued	228,520,990
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) The number of shares of Legacy 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 Legacy HTA fractional shares that were cancelled in lieu of cash and 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 were converted to Legacy HR Common Stock, at an exchange ratio of 1.00 share of Legacy HR Common Stock per share of Legacy 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.

(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.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Final Purchase Price Allocation

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Closing Date:


Dollars in thousands	PRELIMINARY AMOUNTS RECOGNIZED ON THE CLOSING DATE		CUMULATIVE MEASUREMENT PERIOD ADJUSTMENTS		AMOUNTS RECOGNIZED ON THE CLOSING DATE (as adjusted)
ASSETS
Real estate investments
Land	$	985,926	$	18,359	$	1,004,285
Buildings and improvements	6,960,418		(119,135)		6,841,283
Lease intangible assets(a)	831,920		1,839		833,759
Financing lease right-of-use assets	9,874		3,146		13,020
Construction in progress	10,071		(6,744)		3,327
Land held for development	46,538		—		46,538
Total real estate investments	$	8,844,747	$	(102,535)	$	8,742,212
Assets held for sale, net	707,442		(7,946)		699,496
Investments in unconsolidated joint ventures	67,892		—		67,892
Cash and cash equivalents	26,034		11,403		37,437
Restricted cash	1,123,647		(1,247)		1,122,400
Operating lease right-of-use assets	198,261		16,370		214,631
Other assets, net (b) (c)	209,163		(3,840)		205,323
Total assets acquired	$	11,177,186	$	(87,795)	$	11,089,391

LIABILITIES
Notes and bonds payable	$	3,991,300	$	—	$	3,991,300
Accounts payable and accrued liabilities	1,227,570		17,374		1,244,944
Liabilities of assets held for sale	28,677		(3,939)		24,738
Operating lease liabilities	173,948		10,173		184,121
Financing lease liabilities	10,720		(855)		9,865
Other liabilities	203,210		(8,909)		194,301
Total liabilities assumed	$	5,635,425	$	13,844	$	5,649,269
Net identifiable assets acquired	$	5,541,761	$	(101,639)	$	5,440,122
Non-controlling interest	$	110,702	$	—	$	110,702
Goodwill	$	145,404	$	101,639	$	247,043
(a) The weighted average amortization period for the acquired lease intangible assets is approximately 6 years.
(b) Includes $15.9 million of contractual accounts receivable, which approximates fair value.
(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.

The cumulative measurement period adjustments recorded through June 30, 2023 are final and primarily resulted from updated valuations related to the Company’s real estate assets and liabilities and additional information obtained by the Company related to the properties acquired in the Merger and their respective tenants, and resulted in an increase to goodwill of $101.6 million.

Based on the final purchase price allocation of fair value, approximately $247.0 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 and vendor relationships following the closing of the Merger. None of the goodwill recognized is expected to be deductible for tax purposes. During the third quarter of 2023, the Company experienced a sustained decline in the price per share of its common stock, which it identified as an indicator of goodwill impairment. As a result, the Company performed an interim goodwill evaluation. The fair value of the Company’s single reporting unit

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

was estimated using a combination of discounted cash flow models and earnings multiples techniques. The quantitative assessment as of September 30, 2023 indicated goodwill was not impaired.

Merger-related Costs

The Company incurred Merger-related costs of $7.5 million and $(3.4) million, respectively, during the three and nine months ended September 30, 2023, which were included within Merger-related costs in results of operations. The Merger-related costs primarily consist of legal, consulting, severance, and banking services and for the nine months ended September 30, 2023 including a refund of $17.8 million for transfer taxes paid during the year ended December 31, 2022.

Note 3. Real Estate Investments

2023 Acquisition Activity

The following table details the Company's real estate acquisition activity for the nine months ended September 30, 2023:


Dollars in thousands	DATE ACQUIRED	PURCHASE PRICE		MORTGAGE NOTES PAYABLE, NET		CASH CONSIDERATION 1		REAL ESTATE		OTHER 2		SQUARE FOOTAGE
Tampa, FL	3/10/23	$	31,500	$	—	$	30,499	$	30,596	$	(97)	115,867
Colorado Springs, CO	7/28/23	11,450		(5,284)		6,024		11,416		(108)		42,770

Total real estate acquisitions		$	42,950	$	(5,284)	$	36,523	$	42,012	$	(205)	158,637

1Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition.

2Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition.

In the third quarter of 2023, the Company acquired a parcel of land previously under a ground lease for $0.8 million and an additional interest in an operating property for $0.6 million.

Unconsolidated Joint Ventures

The Company's investment in and loss recognized for the three and nine months ended September 30, 2023 and 2022 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	2023		2022		2023		2022

Investments in unconsolidated joint ventures, beginning of period	$	327,245	$	210,781	$	327,248	$	161,942
New investment during the period 1	—		117,880		3,824		167,479
Equity loss recognized during the period	(456)		(124)		(1,253)		(776)

Owner distributions	(1,336)		(785)		(4,366)		(893)
Investments in unconsolidated joint ventures, end of period	$	325,453	$	327,752	$	325,453	$	327,752

1In 2023, this 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 sale of a property in Dallas, Texas to the joint venture. See 2023 Real Estate Asset Dispositions below for additional information.

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2023 Real Estate Asset Dispositions

The following table details the Company's dispositions for the nine months ended September 30, 2023:


Dollars in thousands	DATE DISPOSED	SALE PRICE		CLOSING ADJUSTMENTS		COMPANY-FINANCED MORTGAGE NOTES		NET PROCEEDS		NET REAL ESTATE INVESTMENT		OTHER (INCLUDING RECEIVABLES) 1		GAIN/(IMPAIRMENT)		SQUARE FOOTAGE
Tampa/Miami, FL2	1/12/23	$	93,250	$	(5,875)	$	—	$	87,375	$	87,302	$	(888)	$	961	224,037
Dallas, TX 3	1/30/23	19,210		(141)		—		19,069		18,986		43		40		36,691
St. Louis, MO	2/10/23	350		(18)		—		332		398		—		(66)		6,500
Los Angeles, CA	3/23/23	21,000		(526)		—		20,474		20,610		52		(188)		37,165
Los Angeles, CA 4	3/30/23	75,000		(8,079)		(45,000)		21,921		88,624		(803)		(20,900)		147,078
Los Angeles, CA 5	5/12/23	3,300		(334)		—		2,966		3,268		—		(302)		—
Albany, NY	6/30/23	10,000		(1,229)		—		8,771		2,613		(1,040)		7,198		40,870
Houston, TX	8/2/23	8,320		(285)		—		8,035		4,567		194		3,274		57,170
Atlanta, GA	8/22/23	25,142		(66)		—		25,076		23,226		(536)		2,386		55,195
Dallas, TX	9/15/23	115,000		(1,504)		—		113,496		64,183		6,094		43,219		161,264
Houston, TX	9/18/23	250		(24)		—		226		1,998		—		(1,772)		52,040
Chicago, IL	9/27/23	59,950		(870)		—		59,080		74,710		(380)		(15,250)		104,912

Total dispositions		$	430,772	$	(18,951)	$	(45,000)	$	366,821	$	390,485	$	2,736	$	18,600	922,922

1Includes straight-line rent receivables, leasing commissions and lease inducements.

2Includes two properties, sold in two separate transactions to the same buyer on the same date.

3The Company sold this property to a joint venture in which it retained a 40% interest. Sales price and square footage reflect the total sales price paid by the joint venture and total square footage of the property.

4The Company entered into a mortgage note agreement with the buyer for $45 million.

5The Company sold a land parcel totaling 0.34 acres.

Assets Held for Sale

The Company had 17 properties and one corporate entity classified as assets held for sale as of September 30, 2023. The net real estate assets held for sale includes the impact of $15.9 million and $46.4 million, respectively, of impairment charges for the three and nine months ended September 30, 2023. The Company had one property classified as assets held for sale as of December 31, 2022, which was sold in the first quarter of 2023. The table below reflects the assets and liabilities classified as held for sale as of September 30, 2023 and December 31, 2022:


Dollars in thousands	September 30, 2023		December 31, 2022
Balance Sheet data:
Land	$	14,282	$	1,700
Building and improvements	41,538		15,164
Lease intangibles	12,938		1,986




	68,758		18,850
Accumulated depreciation	(13,634)		—
Real estate assets held for sale, net	55,124		18,850
Operating lease right-of-use assets	585		—
Other assets, net	1,929		43
Assets held for sale, net	$	57,638	$	18,893

Accounts payable and accrued liabilities	$	1,716	$	282
Operating lease liabilities	1,020		—

Other liabilities	1,078		155
Liabilities of assets held for sale	$	3,814	$	437

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Note 4. 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 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 nine months ended September 30, 2023 was $333.3 million and $987.1 million, respectively. Lease income for the Company's operating leases recognized for the three and nine months ended September 30, 2022 was $298.9 million and $578.1 million, respectively.

Future lease payments under the non-cancelable operating leases, excluding any reimbursements and one sale-type lease, as of September 30, 2023 were as follows:


Dollars in thousands	OPERATING
2023	$	231,698
2024	874,750
2025	770,520
2026	666,294
2027	552,111
2028 and thereafter	1,918,689
	$	5,014,062

Lessee Accounting

As of September 30, 2023, the Company was obligated, as the lessee, under operating lease agreements consisting primarily of the Company’s ground leases. As of September 30, 2023, the Company had 240 properties totaling 17.4 million square feet that were held under ground leases. Some of the 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 either stated or based on CPI. The Company had 75 prepaid ground leases as of September 30, 2023. The amortization of the prepaid rent, included in the operating lease right-of-use asset, represented approximately $0.3 million and $0.1 million of the Company’s rental expense for the three months ended September 30, 2023 and 2022, respectively, and $1.0 million and $0.4 million for the nine months ended September 30, 2023 and 2022, respectively.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

The Company’s future lease payments (primarily for its 165 non-prepaid ground leases) as of September 30, 2023 were as follows:


Dollars in thousands	OPERATING		FINANCING
2023	$	3,288	$	513
2024	14,062		2,182
2025	14,253		2,218
2026	14,392		2,255
2027	14,630		2,294
2028 and thereafter	922,019		396,397
Total undiscounted lease payments	982,644		405,859
Discount	(709,325)		(331,772)
Lease liabilities	$	273,319	$	74,087

The following table provides details of the Company's total lease expense for the three and nine months ended September 30, 2023 and 2022:


	THREE MONTHS ENDED September 30,						NINE MONTHS ENDED September 30,
Dollars in thousands	2023			2022			2023		2022
Operating lease cost
Operating lease expense	$	5,312		$	4,204		$	15,748	$	6,613
Variable lease expense	2,417			1,061			6,788		3,123

Finance lease cost
Amortization of right-of-use assets	387			381			1,161		884
Interest on lease liabilities	928			861			2,770		1,913
Total lease expense	$	9,044		$	6,507		$	26,467	$	12,533

Other information
Operating cash flows outflows related to operating leases	$	5,281		$	3,847		$	16,475	$	8,443
Operating cash flows outflows related to financing leases	$	524		$	476		$	1,592	$	1,262
Financing cash flows outflows related to financing leases	$	7		$	3		$	12	$	3
Right-of-use assets obtained in exchange for new finance lease liabilities	$	—		$	9,874		$	—	$	50,463
Right-of-use assets obtained in exchange for new operating lease liabilities	$	—		$	198,261		$	—	$	198,261

Weighted-average years remaining lease term (excluding renewal options) - operating leases	47.5			50.2
Weighted-average years remaining lease term (excluding renewal options) - finance leases	58.2			60.1
Weighted-average discount rate - operating leases	5.8		%	5.7		%
Weighted-average discount rate - finance leases	5.0		%	5.0		%

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Note 5. Notes and Bonds Payable

The table below details the Company’s notes and bonds payable as of September 30, 2023 and December 31, 2022.


	MATURITY DATES	BALANCE 1 AS OF				EFFECTIVE INTEREST RATE as of 9/30/2023
Dollars in thousands		9/30/2023		12/31/2022
$1.5 billion Unsecured Credit Facility	10/25	$	236,000	$	385,000	6.24	%


$200 million Unsecured Term Loan	5/24	199,845		199,670		6.30	%
$350 million Unsecured Term Loan 2	7/24	349,711		349,114		6.30	%
$300 million Unsecured Term Loan	10/25	299,952		299,936		6.30	%
$150 million Unsecured Term Loan	6/26	149,606		149,495		6.30	%
$200 million Unsecured Term Loan	7/27	199,467		199,362		6.30	%
$300 million Unsecured Term Loan	1/28	298,184		297,869		6.30	%
Senior Notes due 2025	5/25	249,391		249,115		4.12	%
Senior Notes due 2026	8/26	577,124		571,587		4.94	%
Senior Notes due 2027	7/27	482,665		479,553		4.76	%
Senior Notes due 2028	1/28	297,283		296,852		3.85	%
Senior Notes due 2030	2/30	572,883		565,402		5.30	%
Senior Notes due 2030	3/30	296,679		296,385		2.72	%
Senior Notes due 2031	3/31	295,706		295,547		2.25	%
Senior Notes due 2031	3/31	645,232		632,693		5.13	%
Mortgage notes payable	12/23-12/26	77,685		84,247		3.57%-6.88%
		$	5,227,413	$	5,351,827

1Balance is presented net of discounts and issuance costs and inclusive of premiums, where applicable.

2On April 26, 2023, the Company exercised its option to extend the maturity date for one year for a fee of approximately $0.4 million.

Changes in Mortgage Notes Payable

On July 28, 2023, the Company assumed a mortgage note payable of $5.6 million in connection with the acquisition of a 42,770 square foot property in Colorado Springs, Colorado. The note bears interest at a rate of 4.5% per annum and matures on April 1, 2026.

On August 1, 2023, the Company repaid in full at maturity a mortgage note payable bearing interest at a rate of 3.31% per annum with an outstanding principal of $9.8 million. The mortgage note encumbered a 66,984 square foot property in Marietta, Georgia.

Note 6. Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

life of the agreements without exchange of the underlying notional amount. Such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

For derivatives designated, and that qualify, as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income (Loss) ("AOCI") and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

As of September 30, 2023, the Company had 14 outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:


EXPIRATION DATE	AMOUNT		WEIGHTED AVERAGE RATE
January 15, 2024	$	200,000	1.21	%
May 1, 2026	100,000		2.15	%
June 1, 2026	150,000		3.83	%
December 1, 2026	150,000		3.84	%
June 1, 2027	150,000		4.13	%
December 1, 2027	250,000		3.79	%
	$	1,000,000	3.17	%

Subsequent Activity

On October 19, 2023, the Company entered into two swap transactions totaling $100.0 million. The notional amounts were $50.0 million each with fixed rates of 4.71% and 4.67%. The swap agreements have effective dates of November 1, 2023 and termination dates of June 1, 2027 and December 1, 2027, respectively.

On October 23, 2023, the Company entered into two swap transactions totaling $100.0 million with an aggregate fixed rate of 4.73%. The swap agreements have effective dates of November 1, 2023 and termination dates of May 31, 2026.

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company's derivative financial instruments, as well as their classification on the Condensed Consolidated Balance Sheet as of September 30, 2023.


	BALANCE AT SEPTEMBER 30, 2023
In thousands	BALANCE SHEET LOCATION	FAIR VALUE
Derivatives designated as hedging instruments

Interest rate swaps	Other assets	$	21,499

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Tabular Disclosure of the Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of cash flow hedge accounting on AOCI during the three and nine months ended September 30, 2023 and 2022 related to the Company's outstanding interest rate swaps.


	(GAIN)/LOSS RECOGNIZED IN AOCI ON DERIVATIVE three months ended September 30,					(GAIN)/LOSS RECLASSIFIED FROM AOCI INTO INCOME three months ended September 30,
In thousands	2023		2022			2023		2022
Interest rate swaps	$	(12,016)	$	(6,083)	Interest expense	$	(4,317)	$	614
Settled treasury hedges	—		—		Interest expense	107		107
Settled interest rate swaps	—		—		Interest expense	42		42
	$	(12,016)	$	(6,083)	Total interest expense	$	(4,168)	$	763


	(GAIN)/LOSS RECOGNIZED IN AOCI ON DERIVATIVE nine months ended September 30,					(GAIN)/LOSS RECLASSIFIED FROM AOCI INTO INCOME nine months ended September 30,
In thousands	2023		2022			2023		2022
Interest rate swaps	$	(24,999)	$	(12,905)	Interest expense	$	(10,320)	$	2,226
Settled treasury hedges	—		—		Interest expense	126		320
Settled interest rate swaps	—		—		Interest expense	320		126
	$	(24,999)	$	(12,905)	Total interest expense	$	(9,874)	$	2,672

The Company estimates that an additional $14.1 million related to active interest rate swaps will be reclassified from AOCI as a decrease to interest expense over the next 12 months, and that an additional $0.6 million related to settled interest rate swaps will be amortized from AOCI as an increase to interest expense over the next 12 months.

Credit-risk-related Contingent Features

The Company's agreements with each of its derivative counterparties contain a cross-default provision under which the Company could be declared in default of its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness.

As of September 30, 2023, the fair value of derivatives in a net asset position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $21.5 million. As of September 30, 2023, the Company had not posted any collateral related to these agreements and was not in breach of any agreement.

Note 7. Commitments and Contingencies

Legal Proceedings

The Company is, from time to time, involved in litigation arising in the ordinary course of business. The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Development and Redevelopment Activity

For the nine months ended September 30, 2023, the Company invested $55.3 million and $15.4 million toward active development and redevelopment of properties, respectively, and $9.2 million toward recently completed development and redevelopment projects.

In the second quarter of 2023, the Company entered into a joint venture agreement for the development of a medical office building in Scottsdale, Arizona. The Company holds a 90% interest in the joint venture and determined the arrangement meets the criteria to be consolidated. The joint venture acquired an $8.8 million land parcel to be developed with the Company contributing cash of $8.3 million. This is included in the Company's investment toward active development properties for the nine months ended September 30, 2023.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Note 8. Stockholders' Equity

Common Stock

The following table provides a reconciliation of the beginning and ending shares of common stock outstanding for the nine months ended September 30, 2023 and the twelve months ended December 31, 2022:


	NINE MONTHS ENDED SEPTEMBER 30, 2023	TWELVE MONTHS ENDED DECEMBER 31, 2022
Balance, beginning of period	380,589,894	150,457,433
Issuance of common stock	7,397	229,618,304
Non-vested share-based awards, net of withheld shares	262,821	514,157
Balance, end of period	380,860,112	380,589,894

At-The-Market Equity Offering Program

The Company has equity distribution agreements with various sales agents with respect to the at-the-market (“ATM”) equity offering program of common stock with an aggregate sales amount of up to $750.0 million. As of September 30, 2023, $750.0 million remained available for issuance under our current ATM equity offering program.

During the nine months ended September 30, 2023, the Company did not sell any shares or enter into any forward sale agreements to sell shares of common stock through its ATM equity offering program.

Common Stock Dividends

During the nine months ended September 30, 2023, the Company declared and paid common stock dividends totaling $0.93 per share. On October 30, 2023, the Company declared a quarterly common stock dividend in the amount of $0.31 per share payable on November 30, 2023 to stockholders of record on November 14, 2023.

Earnings Per Common Share

The Company uses the two-class method of computing net earnings per common shares. The Company's non-vested share-based awards are considered participating securities pursuant to the two-class method.

The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2023 and 2022.


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
Dollars in thousands, except per share data	2023		2022		2023		2022
Weighted average common shares outstanding
Weighted average common shares outstanding	380,857,560		330,788,997		380,828,004		211,740,767
Non-vested shares	(1,932,221)		(1,983,742)		(1,941,897)		(1,933,957)
Weighted average common shares outstanding - basic	378,925,339		328,805,255		378,886,107		209,806,810

Weighted average common shares outstanding - basic	378,925,339		328,805,255		378,886,107		209,806,810
Dilutive effect of forward equity shares	—		—		—		—
Dilutive effect of OP Units	—		3,167,668		—		1,067,493
Dilutive effect of employee stock purchase plan	—		58,461		—		69,687
Weighted average common shares outstanding - diluted	378,925,339		332,031,384		378,886,107		210,943,990

Net (loss) income	$	(68,604)	$	28,616	$	(240,408)	$	76,973
Income allocated to participating securities	(636)		(610)		(1,868)		(1,817)

Loss (income) attributable to non-controlling interest	760		(312)		2,680		(312)
Adjustment to loss attributable to non-controlling interest for legally outstanding restricted units	(29)		—		(122)		—
Net (loss) income applicable to common stockholders - basic	$	(68,509)	$	27,694	$	(239,718)	$	74,844





Basic earnings per common share - net income	$	(0.18)	$	0.08	$	(0.63)	$	0.36


Diluted earnings per common share - net income	$	(0.18)	$	0.08	$	(0.63)	$	0.35

The effect of OP units totaling 4,042,993 shares and options under the Company's Employee Stock Purchase Plan (the "ESPP") to purchase the Company's common stock totaling 26,678 shares for the three months ended September 30,

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

2023 were excluded from the calculation of diluted loss per common share because the effect was anti-dilutive due to the loss from continuing operations incurred during that period.

Incentive Plans

Equity Awards

During the nine months ended September 30, 2023, the Company made the following equity awards:

•During the first quarter of 2023, the Company granted non-vested stock awards to its named executive officers and other members of senior management and employees with a grant date fair value of $5.4 million, which consisted of an aggregate of 270,494 non-vested shares with vesting periods ranging from three to eight years.

•During the second quarter of 2023, the Company granted to its 12 independent directors an aggregate of 42,768 shares of non-vested stock awards with a grant date fair value of $0.7 million, and an aggregate of 57,868 LTIP Series D units with a grant date fair value of $1.1 million. The Company also granted a non-vested stock award to a new employee, which consisted of 508 non-vested shares.

A summary of the activity under the Company's share-based incentive plans for the three and nine months ended September 30, 2023 and 2022 is included in the table below.


	THREE MONTHS ENDED SEPTEMBER 30,		NINE MONTHS ENDED SEPTEMBER 30,
	2023	2022	2023	2022
Share-based awards, beginning of period	1,932,221	1,941,709	1,795,128	1,562,028
Granted	—	71,852	313,770	513,876
Vested	—	(7,434)	(152,314)	(68,481)
Forfeited	—	(4,130)	(24,363)	(5,426)
Share-based awards, end of period	1,932,221	2,001,997	1,932,221	2,001,997

During the nine months ended September 30, 2023 and 2022, the Company withheld 38,632 and 8,745 shares of common stock, respectively, from participants to pay estimated withholding taxes related to shares that vested.

Restricted Stock Units

Prior to 2022, the Company granted long-term incentive awards, comprised of restricted stock, based on backward-looking performance measured at the end of the calendar year. The Company adopted a new incentive compensation structure effective January 2022, comprised of restricted stock and restricted stock units ("RSUs"). The RSUs are granted at the beginning of the year with three-year forward-looking performance targets.

On January 4, 2023, the Company granted RSUs to members of senior management, with a grant date fair value of $3.7 million, which consisted of an aggregate 165,174 RSUs with a five-year vesting period.

Approximately 43% of the RSUs vest based on two market performance conditions. Relative and absolute total shareholder return ("TSR") awards containing these market performance conditions were valued using independent specialists. The Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair values of $24.23 for the absolute TSR component and $27.84 for the relative TSR component for the January 2023 grant using the following assumptions:


	THREE MONTHS ENDED MARCH 31,
Volatility		34.0	%
Dividend assumption		Accrued
Expected term		3 years
Risk-free rate		4.42	%
Stock price (per share)		$20.21

The remaining 57% of the RSUs vest based upon certain operating performance conditions. With respect to the operating performance conditions of the January 4, 2023 grant, the grant date fair value was $20.21 based on the Company's share price on the date of grant. The combined weighted average grant date fair value of the January RSUs was $22.55 per share.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

The following is a summary of the RSU activity during the three and nine months ended September 30, 2023:


	THREE MONTHS ENDED SEPTEMBER 30,			NINE MONTHS ENDED SEPTEMBER 30,
	Restricted Stock Units	Weighted Average Grant Date Fair Value		Restricted Stock Units	Weighted Average Grant Date Fair Value
Non-vested, beginning of period	363,250	$	28.57	294,932	$	33.04
Granted	—	—		165,174	22.55
Vested/Forfeited	—	—		(17,606)	33.04
Probability adjustment of 2022 & 2023 RSUs	(47,196)	20.21		(126,446)	27.40
Non-vested, end of period	316,054	$	27.77	316,054	$	27.77

LTIP Series C Units

In January 2023, the Company modified its incentive compensation structure to award LTIP Series C units ("LTIP-C units) in the OP to named executive officers in lieu of RSUs. The LTIP-C units were granted with three-year forward-looking performance targets, with a grant date fair value of $7.1 million, which consisted of an aggregate 448,249 LTIP-C units with a five-year vesting period.

Approximately 43% of the LTIP-C units vest based on two market performance conditions. Relative and absolute TSR awards containing these market performance conditions were valued using independent specialists. The Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair values of $12.24 for the absolute TSR component and $13.98 for the relative TSR component for the January 2023 grant using the following assumption:


	THREE MONTHS ENDED MARCH 31,
Volatility		34.0	%
Dividend assumption		Accrued
Expected term		3 years
Risk-free rate		4.42	%
Stock price (per share)		$20.21

The remaining 57% of the LTIP-C units vest based upon certain operating performance conditions. With respect to the operating performance conditions of the January 4, 2023 grant, the grant date fair value was $20.21 based on the Company's share price on the date of grant. The combined weighted average grant date fair value of the January LTIP-C units was $15.85 per share. The Company records amortization expense based on the probability of achieving certain operating performance conditions, which is evaluated throughout the performance period.

Employee Stock Purchase Plan

Legacy HR maintained an ESPP prior to the completion of the Merger. The outstanding options to purchase shares of the common stock of Legacy HR became options to purchase class A common stock of the Company upon completion of the Merger. No new options will be granted under the ESPP. A summary of the activity under the ESPP for the three and nine months ended September 30, 2023 and 2022 is included in the table below.


	THREE MONTHS ENDED SEPTEMBER 30,		NINE MONTHS ENDED SEPTEMBER 30,
	2023	2022	2023	2022
Outstanding and exercisable, beginning of period	179,369	405,534	340,976	348,514
Granted	—	—	—	255,960
Exercised	(2,580)	(4,576)	(7,397)	(17,094)
Forfeited	(4,680)	(37,628)	(28,471)	(83,417)
Expired	—	—	(132,999)	(140,633)
Outstanding and exercisable, end of period	172,109	363,330	172,109	363,330

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

The following table represents expected amortization of the Company's non-vested shares issued as of September 30, 2023:


Dollars in millions	FUTURE AMORTIZATION of non-vested shares
2023	$	4.1
2024	13.3
2025	10.8
2026	8.0
2027	2.4
2028 and thereafter	0.5
Total	$	39.1

Note 9. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practical to estimate that value.

•Cash and cash equivalents - The carrying amount approximates fair value (level 1 inputs) due to the short term maturity of these investments.

•Real estate notes receivable - Real estate notes receivable are recorded in other assets on the Company's Condensed Consolidated Balance Sheets. Fair value is estimated using cash flow analyses, based on current interest rates for similar types of arrangements.

•Borrowings under the Unsecured Credit Facility and the Term Loans Due 2024 and 2026 - The carrying amount approximates fair value because the borrowings are based on variable market interest rates.

•Senior Notes and Mortgage Notes payable - The fair value of notes and bonds payable is estimated using cash flow analyses, based on the Company’s current interest rates for similar types of borrowing arrangements.

•Interest rate swap agreements - Interest rate swap agreements are recorded in other liabilities on the Company's Condensed Consolidated Balance Sheets at fair value. Fair value is estimated by utilizing pricing models, level 2 inputs, that consider forward yield curves and discount rates.

The table below details the fair values and carrying values for notes and bonds payable and real estate notes receivable at September 30, 2023 and December 31, 2022.


	September 30, 2023				December 31, 2022
Dollars in millions	CARRYING VALUE		FAIR VALUE		CARRYING VALUE		FAIR VALUE
Notes and bonds payable 1	$	5,227.4	$	4,941.2	$	5,351.8	$	5,149.6
Real estate notes receivable 1	$	155.0	$	151.7	$	99.6	$	99.6

1Level 2 – model-derived valuations in which significant inputs and significant value drivers are observable in active markets.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Disclosure Regarding Forward-Looking Statements

This report and other materials the Company has filed or may file with the SEC, as well as information included in oral statements or other written statements made, or to be made, by management of the Company, contain, or will contain, disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could," "budget" and other comparable terms. These forward-looking statements are based on the Company's current plans, objectives, estimates, expectations and intentions and inherently involve significant risks and uncertainties. Such risks and uncertainties include, among other things, the following: the Company’s expected results may not be achieved; failure to realize the expected benefits of the Merger; the risk that the Company’s and HTA’s respective businesses will not be integrated successfully or that such integration may be more difficult, time-consuming or costly than expected; risks related to future opportunities and plans for the Company, including the uncertainty of expected future financial performance and results of the Company; the possibility that, if the Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial analysts or investors, the market price of the Company’s common stock could decline; pandemics or other health crises, such as COVID-19; increases in interest rates; the availability and cost of capital at expected rates; competition for quality assets; negative developments in the operating results or financial condition of the Company's tenants, including, but not limited to, their ability to pay rent; the Company's ability to reposition or sell facilities with profitable results; the Company's ability to release space at similar rates as vacancies occur; the Company's ability to renew expiring leases; government regulations affecting tenants' Medicare and Medicaid reimbursement rates and operational requirements; unanticipated difficulties and/or expenditures relating to future acquisitions and developments; changes in rules or practices governing the Company's financial reporting; the Company may be required under purchase options to sell properties and may not be able to reinvest the proceeds from such sales at rates of return equal to the return received on the properties sold; uninsured or underinsured losses related to casualty or liability; the incurrence of impairment charges on its real estate properties or other assets; other legal and operational matters; and other risks and uncertainties affecting the Company, including those described from time to time under the caption “Risk Factors” and elsewhere in the Company’s filings and reports with the SEC, including the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Moreover, other risks and uncertainties of which the Company is not currently aware may also affect the Company's forward-looking statements and may cause actual results and the timing of events to differ materially from those anticipated. The forward-looking statements made in this communication are made only as of the date hereof or as of the dates indicated in the forward-looking statements, even if they are subsequently made available by the Company on its website or otherwise. The Company undertakes no obligation to update or supplement any forward-looking statements to reflect actual results, new information, future events, changes in its expectations or other circumstances that exist after the date as of which the forward-looking statements were made, except as required by law.

Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports, including, without limitation, estimates and projections regarding the performance of development projects the Company is pursuing.

For a detailed discussion of the Company’s risk factors, please refer to the Company's filings with the SEC, including this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Merger with Healthcare Trust of America

Completed Merger

On July 20, 2022, Legacy HR, Legacy HTA, the OP and Merger Sub completed the Merger in accordance with the terms of the Merger Agreement. 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 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 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 additional information on the Merger, see Note 2 to the Condensed Consolidated Financial Statements.

Because Legacy HR was the accounting acquirer under GAAP in the transaction, its historical financial statements became the historical financial statements of the Company. For additional information, please refer to the Explanatory Note in this report.

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Liquidity and Capital Resources

Sources and Uses of Cash

The Company’s primary sources of cash include rent receipts from its real estate portfolio based on contractual arrangements with its tenants, proceeds from the sales of real estate properties, joint ventures, and proceeds from public or private debt or equity offerings. As of September 30, 2023, the Company had $1.3 billion available to be drawn on its Unsecured Credit Facility and $24.7 million in cash.

The Company expects to continue to meet its liquidity needs, including funding additional investments, paying dividends, and funding debt service, through cash flows from operations and liquidity sources, including the Unsecured Credit Facility. Management believes that the Company's liquidity and sources of capital are adequate to satisfy its cash requirements. The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.

Investing Activities

Cash flows provided by investing activities for the nine months ended September 30, 2023 were approximately $112.5 million. Below is a summary of significant investing activities.

Acquisitions

The following table details the Company's acquisition activity for the nine months ended September 30, 2023:


Dollars in thousands	ASSOCIATED HEALTH SYSTEM/TENANCY 1	DATE ACQUIRED	PURCHASE PRICE		SQUARE FOOTAGE	MILES TO CAMPUS
Tampa, FL	BayCare Health	3/10/23	$	31,500	115,867	0.06
Colorado Springs, CO	UC Health	7/28/23	11,450		42,770	1.30

Total real estate acquisitions			$	42,950	158,637

1Includes buildings located on-campus, adjacent and off-campus that are anchored by healthcare systems or located within two miles of a hospital campus.

In the third quarter of 2023, the Company acquired a parcel of land previously under a ground lease for $0.8 million and an additional interest in an operating property for $0.6 million.

Dispositions

The Company disposed of 12 properties during the nine months ended September 30, 2023 for a total sales price of $430.8 million, including cash proceeds of $366.8 million. The following table details these dispositions for the nine months ended September 30, 2023:


Dollars in thousands	Date Disposed	Sales Price		Square Footage
Tampa, FL & Miami, FL 1	1/12/23	$	93,250	224,037
Dallas, TX 2	1/30/23	19,210		36,691
St. Louis, MO	2/10/23	350		6,500
Los Angeles, CA	3/23/23	21,000		37,165
Los Angeles, CA3	3/30/23	75,000		147,078
Los Angeles, CA4	5/12/23	3,300		—
Albany, NY	6/30/23	10,000		40,870
Houston, TX	8/2/23	8,320		57,170
Atlanta, GA	8/22/23	25,142		55,195
Dallas, TX	9/15/23	115,000		161,264
Houston, TX	9/18/23	250		52,040
Chicago, IL	9/27/23	59,950		104,912


Total dispositions		$	430,772	922,922

1Includes two properties sold in two separate transactions to the same buyer on the same date.

2The Company sold this property to a joint venture in which it retained a 40% interest. Sales price and square footage reflect the total sales price paid by the joint venture and total square footage of the property.

3The Company entered into a mortgage note agreement with the buyer for $45 million.

4The Company sold a land parcel totaling 0.34 acres.

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Capital Expenditures

During the nine months ended September 30, 2023, the Company incurred capital expenditures totaling $188.1 million for the following:

•$70.7 million toward active development and redevelopment of properties;

•$9.2 million toward completed development and redevelopment of properties;

•$32.1 million toward first generation tenant improvements and planned capital expenditures for acquisitions;

•$45.4 million toward second generation tenant improvements; and

•$30.7 million toward capital expenditures.

Financing Activities

Cash flows used in financing activities for the nine months ended September 30, 2023 were approximately $521.3 million. See Notes 5 and 8 to the Condensed Consolidated Financial Statements accompanying this report for more information about capital markets and financing activities.

Common Stock Issuances

At-The-Market Equity Offering Program

The Company has equity distribution agreements with various sales agents with respect to our ATM equity offering program of common stock with an aggregate sales amount of up to $750.0 million. As of September 30, 2023, $750.0 million remained available for issuance under our current ATM equity offering program.

Debt Activity

As of September 30, 2023, the Company had outstanding interest rate derivatives totaling $1.0 billion to hedge one-month Term SOFR. The following details the amount and rate of each swap (dollars in thousands):


EXPIRATION DATE	AMOUNT		WEIGHTED AVERAGE RATE
January 15, 2024	$	200,000	1.21	%
May 1, 2026	100,000		2.15	%
June 1, 2026	150,000		3.83	%
December 1, 2026	150,000		3.84	%
June 1, 2027	150,000		4.13	%
December 1, 2027	250,000		3.79	%
	$	1,000,000	3.17	%

During the third quarter of 2023, the Company assumed a mortgage note payable of $5.6 million in connection with the acquisition of a 42,770 square foot property in Colorado Springs, Colorado. The note bears interest at a rate of 4.5% per annum and matures on April 1, 2026. Additionally, the Company repaid in full at maturity a mortgage note payable bearing interest at a rate of 3.31% per annum with an outstanding principal of $9.8 million. The mortgage note encumbered a 66,984 square foot property in Marietta, Georgia.

Subsequent Debt Activity

Operating Activities

Cash flows provided by operating activities increased from $126.7 million for the nine months ended September 30, 2022 to $372.5 million for the nine months ended September 30, 2023. Items impacting cash flows from operations include, but are not limited to, the Merger, cash generated from property operations, interest payments and the timing related to the payment of invoices and other expenses.

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The Company may, from time to time, sell properties and redeploy cash from property sales into new investments or to repay indebtedness. The income from the new investments or reduction in interest expense could be less than the income from properties sold which would adversely affect the Company's results of operations and cash flows.

Trends and Matters Impacting Operating Results

Management monitors factors and trends important to the Company and the REIT industry to gauge the potential impact on the operations of the Company. In addition to the matters discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, below are some of the factors and trends that management believes may impact future operations of the Company.

Economic and Market Conditions

Rising interest rates and increased volatility in the capital markets have increased the Company’s cost and availability of debt and equity capital. Limited availability and increases in the cost of capital could adversely impact the Company’s ability to finance operations and acquire and develop properties. To the extent the Company’s tenants experience increased costs or financing difficulties due to the economic and market conditions, they may be unable or unwilling to make payments or perform their obligations when due. Additionally, increased interest rates may also result in less liquid property markets, limiting the Company’s ability to sell existing assets or obtain joint venture capital.

The Company reviews goodwill for impairment annually as of December 31 of each year or whenever events or changes in circumstances indicate that an impairment may exist. During the third quarter of 2023, management identified qualitative factors indicating that an impairment may exist, including the sustained decrease in stock price. As a result, the Company performed a quantitative assessment, and the fair value of the Company’s single reporting unit was estimated using a combination of discounted cash flow models and earnings multiples techniques. The determination of fair value using the discounted cash flow model technique requires the use of estimates and assumptions related to revenue and expense growth rates, capitalization rates, discount rates, capital expenditures and working capital levels. The determination of fair value using the earnings multiples technique requires assumptions to be made in relation to maintainable earnings and earnings multipliers. These forecasts and assumptions are highly subjective, and while we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results. Although the quantitative assessment as of September 30, 2023 indicated goodwill was not impaired, given the results of our quantitative assessment, the Company is at risk for future goodwill impairment because it is reasonably possible that, among other factors, continual stock price volatility and downward pressure on the Company's market capitalization could have a material impact on one or more of the estimates and assumptions used to evaluate goodwill.

Expiring Leases

The Company expects that approximately 15% of its leases will expire each year in the ordinary course of business. There are 476 leases totaling 1.2 million square feet that will expire during the remainder of 2023. Approximately 73% of the leases expiring during the remainder of 2023 are for space in buildings located on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area. The Company typically expects to retain 75% to 90% of tenants upon expiration, and the retention ratio for the first nine months of the year was within this range.

Operating Expenses

The Company historically has experienced increases in property taxes throughout its portfolio as a result of increasing assessments and tax rates levied across the country. The Company continues its efforts to appeal property tax increases and manage the impact of the increases. In addition, the Company historically has incurred variability in portfolio utilities expense based on seasonality, with the first and third quarters usually reflecting greater amounts. The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement. As of September 30, 2023, leases for approximately 92% of the Company's total leased square footage allow for some recovery of operating expenses, with approximately 27% having modified gross lease structures and approximately 65% having net lease structures.

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Purchase Options

Information about the Company's unexercised purchase options and the amount and basis for determination of the purchase price is detailed in the table below (dollars in thousands):


YEAR EXERCISABLE	NUMBER OF PROPERTIES	GROSS REAL ESTATE INVESTMENT AS OF SEPTEMBER 30, 2023 1
Current 2	6	$	112,271
2024	—	—
2025	6	105,251
2026	6	181,636
2027	4	110,388
2028	5	133,911
2029	3	81,815
2030	—	—
2031	4	108,894
2032	2	24,626
2033 and thereafter 3	9	317,650
Total	45	$	1,176,442

1Includes three properties totaling $45.3 million with stated purchase prices or prices based on fixed capitalization rates.

2These purchase options have been exercisable for an average of 13.6 years.

3Includes two medical office buildings that are recorded in the line item Investment in financing receivable, net on the Company's Condensed Consolidated Balance Sheet.

Non-GAAP Financial Measures and Key Performance Indicators

Management considers certain non-GAAP financial measures and key performance indicators to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors, as well as reconciliations of these measures to the most directly comparable GAAP financial measures.

The non-GAAP financial measures and key performance indicators presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income, as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's historical consolidated operating results, these measures should be examined in conjunction with net income and cash flows from operations as presented in the Condensed Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q.

Funds from Operations ("FFO"), Normalized FFO and Funds Available for Distribution ("FAD")

FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization, impairment, and after adjustments for unconsolidated partnerships and joint ventures.”

In addition to FFO, the Company presents Normalized FFO and FAD. Normalized FFO is presented by adding to FFO acquisition-related costs, acceleration of debt issuance costs, debt extinguishment costs and other Company-defined normalizing items to evaluate operating performance. FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, non-cash financing receivable amortization, loan origination cost

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amortization, deferred financing fees amortization, stock-based compensation expense and rent reserves, net; and subtracting maintenance capital expenditures, including second generation tenant improvements and leasing commissions paid and straight-line rent income, net of expense. The Company's definition of these terms may not be comparable to that of other real estate companies as they may have different methodologies for computing these amounts. FFO, Normalized FFO and FAD should not be considered as an alternative to net income as an indicator of the Company's financial performance or to cash flow from operating activities as an indicator of the Company's liquidity. FFO, Normalized FFO and FAD should be reviewed in connection with GAAP financial measures.

Management believes FFO, Normalized FFO, FFO per common share, Normalized FFO per share and FAD ("Non-GAAP Measures") provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, primarily depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization, impairments and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, Non-GAAP Measures can facilitate comparisons of operating performance between periods. The Company reports Non-GAAP Measures because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs. For these reasons, management deems it appropriate to disclose and discuss these Non-GAAP Measures. However, none of these measures represent cash generated from operating activities determined in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs. Further, these measures should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow from operating activities as a measure of liquidity.

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The table below reconciles net income to FFO, Normalized FFO and FAD for the three and nine months ended September 30, 2023 and 2022.


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
Amounts in thousands, except per share data	2023		2022		2023		2022
Net (loss) income attributable to common stockholders	$	(67,844)	$	28,304	$	(237,728)	$	76,661
Net (loss) income attributable to common stockholders per diluted share 1	$	(0.18)	$	0.08	$	(0.63)	$	0.35

Gain on sales of real estate properties	(48,811)		(143,908)		(56,974)		(197,188)
Impairment of real estate properties	56,873		—		138,314		(25)
Real estate depreciation and amortization	185,143		159,643		556,255		272,634
Non-controlling (loss) income from operating partnership units	(841)		377		(2,935)		377
Proportionate share of unconsolidated joint ventures	4,421		3,526		13,674		8,702
FFO adjustments	$	196,785	$	19,638	$	648,334	$	84,500
FFO adjustments per common share - diluted 7	$	0.51	$	0.06	$	1.69	$	0.40

FFO attributable to common stockholders	$	128,941	$	47,942	$	410,606	$	161,161
FFO attributable to common stockholders per common share - diluted 7	$	0.34	$	0.14	$	1.07	$	0.76

Acquisition and pursuit costs 2	769		482		1,725		3,137
Merger-related costs 3	7,450		79,402		(3,366)		92,603
Merger-related fair value of debt instruments	10,667		—		32,085		—
Lease intangible amortization	213		(2)		600		891
Non-routine legal costs/forfeited earnest money received	—		346		275		577
Allowance for credit losses 4	—		—		8,599		—
Debt financing costs	(62)		1,091		(62)		2,520
Unconsolidated JV normalizing items 5	90		154		300		332
Normalized FFO adjustments	$	19,127	$	81,473	$	40,156	$	100,060
Normalized FFO adjustments per common share - diluted 8	$	0.05	$	0.24	$	0.10	$	0.47

Normalized FFO attributable to common stockholders	$	148,068	$	129,415	$	450,762	$	261,221
Normalized FFO attributable to common stockholders per common share - diluted 8	$	0.39	$	0.39	$	1.18	$	1.23

Non-real estate depreciation and amortization	475		577		1,881		1,593
Non-cash interest amortization 6	1,402		8,924		3,703		10,382
Rent reserves, net	442		457		1,759		616
Straight-line rent, net	(8,470)		(7,715)		(24,720)		(10,251)
Share-based compensation	2,556		3,666		10,224		10,721
Unconsolidated JV non-cash items 7	(231)		(377)		(828)		(890)
Normalized FFO adjusted for non-cash items	$	144,242	$	134,947	$	442,781	$	273,392
2nd generation TI	(21,248)		(10,147)		(47,366)		(20,097)
Leasing commissions paid	(8,907)		(8,283)		(21,413)		(15,525)
Capital additions	(14,354)		(16,067)		(31,949)		(23,244)
FAD	$	99,733	$	100,450	$	342,053	$	214,526


FFO weighted average common shares outstanding - diluted 8	383,428		332,819		383,390		211,746

1Potential common shares are not included in the computation of diluted earnings per share when a loss exists as the effect would be an antidilutive per share amount.

2Acquisition and pursuit costs include third-party and travel costs related to the pursuit of acquisitions and developments.

3Includes costs incurred related to the Merger. For the nine months ended September 30, 2023, merger costs are net of a refund of $17.8 million for transfer taxes paid during the year ended December 31, 2022.

4For the nine months ended September 30, 2023, includes a $5.2 million credit allowance for a mezzanine loan included in "Impairment of real estate and credit loss reserves" on the Statement of Operations and $3.4 million reserve included in “Rental Income” on the Statement of Operations for previously deferred rent and straight line rent for three skilled nursing facilities.

5Includes the Company's proportionate share of acquisition and pursuit costs related to unconsolidated joint ventures.

6Includes the amortization of deferred financing costs, discounts and premiums, and non-cash financing receivable amortization.

7Includes the Company's proportionate share of straight-line rent, net related to unconsolidated joint ventures.

8The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 432,597 and 426,940, respectively, for the three and nine months ended September 30, 2023, and the diluted impact of 4,042,993 OP units outstanding for the three and nine months ended September 30, 2023.

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Cash Net Operating Income ("NOI") and Merger Combined Same Store Cash NOI

Cash NOI and Merger Combined Same Store Cash NOI are key performance indicators. Management considers these to be supplemental measures that allow investors, analysts and Company management to measure unlevered property-level operating results. The Company defines Cash NOI as rental income, interest from financing receivables less property operating expenses. Cash NOI excludes non-cash items such as above and below market lease intangibles, straight-line rent, lease inducements, financing receivable amortization, tenant improvement amortization and leasing commission amortization. The Company also excludes cash lease termination fees. Cash NOI is historical and not necessarily indicative of future results.

Merger Combined Same Store Cash NOI compares Cash NOI for stabilized properties. Stabilized properties are properties that have been included in operations for the duration of the year-over-year comparison period presented. Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale or intended for sale, properties undergoing redevelopment, and newly redeveloped or developed properties.

Legacy HTA properties that met the same store criteria are included in both periods shown as if they were owned by the Company for the full analysis period. The Legacy HR same store pool represented approximately 35% of the NOI of the combined company at the time of the Merger. Management believes that continued reporting of the same store portfolio of only the pre-Merger accounting acquirer (i.e., Legacy HR) offered little value to the investor who was seeking to understand the operating performance and growth potential of the combined company. The Company was provided access to the underlying financial statements of Legacy HTA (which financial statements had been audited or, in the case of interim periods, reviewed) and other detailed information about each property, such as the acquisition date. Based on this available information, the Company was able to consistently apply its same store definition across the combined portfolio, resulting in approximately 85% of the combined portfolio being represented in the same store presentation.

The Company utilizes the redevelopment classification for properties where management has approved a change in strategic direction for such properties through the application of additional resources including an amount of capital expenditures significantly above routine maintenance and capital improvement expenditures.

Any recently acquired property will be included in the merger combined same store pool once the Company has owned the property for eight full quarters. Newly developed or redeveloped properties will be included in the merger combined same store pool eight full quarters after substantial completion.

The following table reflects the Company's Merger Combined Same Store Cash NOI for the nine months ended September 30, 2023 and 2022.


	NUMBER OF PROPERTIES	GROSS INVESTMENT at September 30, 2023		MERGER COMBINED SAME STORE CASH NOI for the nine months ended September 30,
Dollars in thousands				2023		2022
Merger combined same store properties	584	$	11,868,621	$	538,486	$	524,066
Joint venture same store properties	12	185,274		$	7,617	$	7,138

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The following tables reconcile net income to Merger Combined Same Store NOI and the merger combined same store property metrics to the total owned real estate portfolio for the nine months ended September 30, 2023 and 2022:

Reconciliations of Legacy HR and Merger Combined Same Store Cash NOI


MERGER COMBINED SAME STORE RECONCILIATION
	NINE MONTHS ENDED SEPTEMBER 30,
Dollars in thousands	2023		2022
Net (loss) income attributable to common stockholders	$	(237,728)	$	76,661


Other expense (income)	281,846		(111,291)
General and administrative expense	43,796		38,317
Depreciation and amortization expense	550,661		267,889
Other expenses 1	7,753		103,622
Straight-line rent revenue, net	(24,720)		(10,251)
Joint venture properties	14,418		8,480
Other revenue 2	(14,091)		(9,247)
	621,935		364,180
Pre-Merger Legacy HTA NOI	—		282,502
Cash NOI	621,935		646,682
Cash NOI not included in same store	(75,832)		(115,478)
Same store joint venture properties	(7,617)		(7,138)
Merger combined same store cash NOI	$	538,486	$	524,066

1.Includes acquisition and pursuit costs, Merger-related costs, rent reserves, above and below market ground lease intangible amortization, leasing commission amortization and ground lease straight-line rent expense.

2.Includes management fee income, interest, above and below market lease intangible amortization, lease inducement amortization, lease terminations and tenant improvement overage amortization.


LEGACY HR SAME STORE RECONCILIATION
	NINE MONTHS ENDED SEPTEMBER 30,
Dollars in thousands	2023		2022
Net (loss) income attributable to common stockholders	$	(237,728)	$	76,661


Other expense (income)	281,846		(111,291)
General and administrative expense	43,796		38,317
Depreciation and amortization expense	550,661		267,889
Other expenses 1	7,753		103,622
Straight-line rent revenue, net	(24,720)		(10,251)
Joint venture properties	14,418		8,480
Other revenue 2	(14,091)		(9,247)
	621,935		364,180
Cash NOI not included in same store	(383,036)		(134,761)
Legacy HR same store cash NOI 3	$	238,899	$	229,419

1Includes acquisition and pursuit costs, Merger-related costs, rent reserves, above and below market ground lease intangible amortization, leasing commission amortization and ground lease straight-line rent expense.

2Includes management fee income, interest, above and below market lease intangible amortization, lease inducement amortization, lease terminations and tenant improvement overage amortization.

3Legacy HR same store cash NOI includes 221 properties.

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Reconciliation of Merger Combined Same Store Properties


	AS OF SEPTEMBER 30, 2023
Dollars and square feet in thousands	PROPERTY COUNT	GROSS INVESTMENT 1		SQUARE FEET	OCCUPANCY
Merger combined same store properties	584	$	11,868,621	34,798	89.2	%
Joint venture same store properties	12	185,274		998	87.9	%
Wholly owned and joint venture acquisitions	72	977,461		2,895	90.2	%
Development completions	5	151,775		405	73.3	%
Redevelopments	16	408,316		1,368	51.1	%
Planned Dispositions	8	137,017		582	71.1	%
Total	697	$	13,728,464	41,046	87.6	%
Joint venture properties	34	358,015		1,949	86.9	%
Total owned real estate properties	663	$	13,370,449	39,097	87.6	%

1Excludes assets held for sale, construction in progress, land held for development, corporate property and financing lease right-of-use assets unrelated to an imputed lease arrangement as a result of a sale leaseback transaction.

Results of Operations

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The Company’s results of operations for the three months ended September 30, 2023 compared to the same period in 2022 were impacted by the Merger, acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Revenues

Rental income increased $34.4 million, or 11.5%, for the three months ended September 30, 2023 compared to the prior year period. This increase is primarily comprised of the following:

•Acquisitions in 2022 and 2023 contributed $3.7 million.

•Leasing activity, including contractual rent increases, contributed $9.1 million.

•Dispositions in 2022 and 2023 resulted in a decrease of $5.7 million.

•Impact from the Merger contributed $27.3 million.

Interest income increased $0.9 million, or 26.7%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of a note receivable entered into with a buyer upon disposition of a property in the first quarter of 2023.

Other operating income increased $0.6 million, or 14.9%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of variable parking and management fees.

Expenses

Property operating expenses increased $19.2 million, or 17.0%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in 2022 and 2023 resulted in an increase of $1.8 million.

•Increases in portfolio operating expenses as follows:

◦Utilities expense of $1.6 million;

◦Administrative, leasing commissions, and other legal expense of $0.7 million;

◦Maintenance and repair expense of $0.5 million;

◦Property taxes of $0.5 million;

◦Janitorial expense of $0.4 million; and

◦Security expense of $0.2 million.

•Insurance expense decreased $0.4 million.

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•Dispositions in 2022 and 2023 resulted in a decrease of $5.2 million.

•Impact from the Merger resulted in an increase of $19.1 million.

General and administrative expenses decreased approximately $3.3 million, or 20.0%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

•Decrease in payroll and payroll related expenses of approximately $3.1 million.

•Decrease in cash compensation incentive expense of $0.6 million.

•Decrease in non-cash compensation incentive expense of $1.0 million.

•Net increases, primarily due to impacts from the Merger, including professional fees, audit services, insurance and other administrative costs, of $1.4 million.

Merger-related costs decreased $72.0 million, or 90.6%, for the three months ended September 30, 2023 compared to the prior year period primarily due to a reduction in legal and consulting services in connection with the Merger including a refund of $17.8 million related to state transfer taxes.

Depreciation and amortization expense increased $24.9 million, or 15.7%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in 2022 and 2023 resulted in an increase of $1.5 million.

•Various building and tenant improvement expenditures resulted in an increase of $7.0 million.

•Dispositions in 2022 and 2023 resulted in a decrease of $5.7 million.

•Assets that became fully depreciated resulted in a decrease of $4.9 million.

•Impact from the Merger resulted in an increase of $27.0 million.

Other Income (Expense)

Gains on sale of real estate properties

In the third quarter of 2023, the Company recognized gains of approximately $48.8 million. In the third quarter of 2022, the Company recognized gains of approximately $143.9 million.

Interest expense

Interest expense increased $13.3 million, or 25.0%, for the three months ended September 30, 2023 compared to the prior year period. The components of interest expense are as follows:


	THREE MONTHS ENDED SEPTEMBER 30,				CHANGE
Dollars in thousands	2023		2022		$		%
Contractual interest	$	53,911	$	42,019	$	11,892	28.3	%
Net discount/premium accretion	9,785		7,617		2,168		28.5	%
Debt issuance costs amortization	1,338		1,341		(3)		(0.2)	%
Amortization of interest rate swap settlement	42		42		—		—	%
Amortization of treasury hedge settlement	107		107		—		—	%
Fair value derivative	988		1,732		(744)		(43.0)	%
Interest cost capitalization	(795)		(703)		(92)		13.1	%
Interest on lease liabilities	928		889		39		4.4	%
Total interest expense	$	66,304	$	53,044	$	13,260	25.0	%

Contractual interest expense increased $11.9 million, or 28.3%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

•Senior notes and unsecured term loans assumed in the Merger accounted for an increase of approximately $3.3 million.

•New unsecured term loans executed with the amended credit facility accounted for an increase of approximately $8.4 million.

•The Company's Unsecured Term Loans due 2024 and 2026 accounted for an increase of approximately $2.7 million.

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•The Unsecured Credit Facility accounted for an increase of approximately $2.0 million due to an increased weighted average balance outstanding and an increase in the weighted average interest rate.

•Active interest rate derivatives accounted for a decrease of $4.4 million.

•Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.1 million.

Impairment of Real Estate Properties

In the third quarter of 2023, the Company recognized impairments totaling $56.9 million primarily due to the sale of two properties, 12 properties classified into held for sale, and six properties with changes in the expected holding periods.

Equity loss from unconsolidated joint ventures

The Company recognized its proportionate share of losses from its unconsolidated joint ventures. These losses are primarily attributable to non-cash depreciation expense. See Note 3 to the Condensed Consolidated Financial Statements accompanying this report for more details regarding the Company's unconsolidated joint ventures.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The Company’s results of operations for the nine months ended September 30, 2023 compared to the same period in 2022 were impacted by the Merger, acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Revenues

Rental income increased $409.1 million, or 70.8%, for the nine months ended September 30, 2023 compared to the prior year period. This increase is primarily comprised of the following:

•Acquisitions in 2022 and 2023 contributed $17.4 million.

•Leasing activity, including contractual rent increases, contributed $4.5 million.

•Dispositions in 2022 and 2023 resulted in a decrease of $20.0 million.

•Impact from the Merger contributed $407.2 million.

Interest income increased $5.5 million, or 75.3%, from the prior year period primarily as result of notes receivables assumed in the Merger and a note receivable entered into with a buyer upon disposition of a property in the first quarter of 2023.

Other operating income increased $4.2 million, or 45.7%, from the prior year period primarily as a result of variable parking and asset management fees assumed in the Merger.

Expenses

Property operating expenses increased $152.1 million, or 67.0%, for the nine months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in 2022 and 2023 resulted in an increase of $7.8 million.

•Increases in portfolio operating expenses as follows:

◦Utilities expense of $5.4 million;

◦Maintenance and repair of $2.2 million;

◦Administrative, leasing commissions, and other legal expense of $2.1 million;

◦Janitorial expense of $1.5 million;

◦Insurance expense of $0.3 million; and

◦Security expense of $0.1 million.

•Dispositions in 2022 and 2023 resulted in a decrease of $9.7 million.

•Payroll expense resulted in a decrease of $1.0 million.

•Impact from the Merger resulted in an increase of $143.4 million.

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General and administrative expenses increased approximately $5.5 million, or 14.3%, for the nine months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

•Decrease in payroll and payroll related expenses of $1.2 million.

•Decrease in incentive-based awards of $1.1 million.

•Decrease in non-cash compensation incentive expense of $0.7 million.

•Net increases, primarily due to impacts from the Merger, including professional fees, audit services, insurance, travel and other administrative costs, of $8.5 million.

Merger-related costs decreased $96.0 million, or 103.6%, for the nine months ended September 30, 2023 primarily due to a reduction in legal and consulting services in connection with the Merger, including a refund of $17.8 million related to state transfer taxes.

Depreciation and amortization expense increased $282.8 million, or 105.6%, for the nine months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in 2022 and 2023 resulted in an increase of $9.3 million.

•Various building and tenant improvement expenditures resulted in an increase of $15.9 million.

•Dispositions in 2022 and 2023 resulted in a decrease of $4.7 million.

•Assets that became fully depreciated resulted in a decrease of $15.7 million.

•Impact from the Merger including a reset for fair value resulted in an increase of $278.0 million.

Other Income (Expense)

Gains on sale of real estate properties

Gains on the sale of real estate properties for the nine months ended September 30, 2023 and 2022 totaled $57.0 million and $197.2 million, respectively.

Interest expense

Interest expense increased $113.1 million, or 137.6%, for the nine months ended September 30, 2023 compared to the prior year period. The components of interest expense are as follows:


	NINE MONTHS ENDED SEPTEMBER 30,				CHANGE
Dollars in thousands	2023		2022		$		%
Contractual interest	$	157,443	$	68,470	$	88,973	129.9	%
Net discount/premium accretion	29,025		7,747		21,278		274.7	%
Debt issuance costs amortization	4,376		2,760		1,616		58.6	%
Amortization of interest rate swap settlement	126		126		—		—	%
Amortization of treasury hedge settlement	320		320		—		—	%
Fair value derivative	3,414		1,732		1,682		97.1	%
Interest cost capitalization	(2,077)		(848)		(1,229)		144.9	%
Interest on lease liabilities	2,770		1,941		829		42.7	%
Total interest expense	$	195,397	$	82,248	$	113,149	137.6	%

Contractual interest expense increased $89.0 million, or 129.9%, for the nine months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

•Senior notes and unsecured term loans assumed with the Merger accounted for an increase of approximately $55.8 million.

•New unsecured term loans executed with the amended credit facility accounted for an increase of approximately $27.3 million.

•The Company's Unsecured Term Loans due 2024 and 2026, net of swaps, accounted for an increase of approximately $10.4 million.

•The Unsecured Credit Facility accounted for an increase of approximately $10.1 million due to an increased weighted average balance outstanding and an increase in the weighted average interest rate.

•Interest rate derivatives accounted for a decrease of $14.4 million.

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•Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.2 million.

Impairment of Real Estate Properties and Credit Loss Reserves

During the nine months ended September 30, 2023, the Company recognized impairments totaling $138.3 million relating to six properties that were sold, one land parcel that was sold, 17 properties reclassified to held for sale and five additional properties due to changes in the expected holding periods. In addition, the Company recorded $5.2 million in credit loss reserves related to notes receivables. See Note 1 to the Condensed Consolidated Financial Statements accompanying this report for more details regarding the Company's notes receivables and credit loss reserves.

Equity loss from unconsolidated joint ventures

The Company recognized its proportionate share of losses from its unconsolidated joint ventures, These losses are primarily attributable to non-cash depreciation expense. See Note 3 to the Condensed Consolidated Financial Statements accompanying this report for more details regarding the Company's unconsolidated joint ventures.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk in the form of changing interest rates on its debt and mortgage notes. Management uses regular monitoring of market conditions and analysis techniques to manage this risk. During the nine months ended September 30, 2023, there were no material changes in the quantitative and qualitative disclosures about market risks presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports it files or submits under the Exchange Act.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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Item 1A. Risk Factors

In addition to the other information set forth in this report, an investor should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which could materially affect the Company’s business, financial condition or future results. The risks, as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems immaterial also may materially, adversely affect the Company’s business, financial condition, operating results or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the nine months ended September 30, 2023, the Company withheld and canceled shares of Company common stock to satisfy employee tax withholding obligations payable upon the vesting of non-vested shares, as follows:


PERIOD	TOTAL NUMBER OF SHARES PURCHASED	AVERAGE PRICE PAID per share		TOTAL NUMBER OF SHARES purchased as part of publicly announced plans or programs	MAXIMUM NUMBER OF SHARES that may yet be purchased under the plans or programs
January 1 - January 31	—	$	—	—	—
February 1 - February 28	38,632	21.71		—	—
March 1 - March 31	—	—		—	—
April 1 - April 30	—	—		—	—
May 1 - May 31	—	—		—	—
June 1 - June 30	—	—		—	—
July 1 - July 31	—	—		—	—
August 1 - August 31	—	—		—	—
September 1 - September 30	—	—		—	—
Total	38,632	$	21.71

Item 5. Other Information

During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a "Rule 10b5-1 trading agreement" or "non-Rule 10b5-1 trading agreement," as each term is defined in Item 408(a) of Regulation S-K.

Item 6. Exhibits


EXHIBIT			DESCRIPTION
Exhibit 3.1			Fifth Articles of Amendment and Restatement of the Company, as amended .1
Exhibit 3.2			Fourth Amended and Restated Bylaws of the Company.2
Exhibit 4.1			Description of the Registrant's securities registered pursuant to Section 12 of the Securities and Exchange Act of 1934 .
Exhibit 22.1			Subsidiary Issuers of Guaranteed Securities (filed herewith).
Exhibit 31.1			Certification of the Chief Executive Officer of Healthcare Realty Trust Incorporated pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Exhibit 31.2			Certification of the Chief Financial Officer of Healthcare Realty Trust Incorporated pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
Exhibit 32			Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

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Exhibit 101.INS			The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH			XBRL Taxonomy Extension Schema Document (furnished electronically herewith)
Exhibit 101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document (furnished electronically herewith)
Exhibit 101.LAB			XBRL Taxonomy Extension Labels Linkbase Document (furnished electronically herewith)
Exhibit 101.DEF			XBRL Taxonomy Extension Definition Linkbase Document (furnished electronically herewith)
Exhibit 101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document (furnished electronically herewith)

1 Filed as an exhibit to the Company'a (File No. 001-35568) Form 10-Q filed with the SEC on August 8, 2023 and hereby incorporated by reference.

2 Filed as an exhibit to Legacy HTA's (File No. 001-35568) Form 8-K filed with the SEC on April 29, 2020 and hereby incorporated by reference.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	HEALTHCARE REALTY TRUST INCORPORATED

	By:	/s/ J. CHRISTOPHER DOUGLAS
		J. Christopher Douglas
		Executive Vice President and Chief Financial Officer
November 3, 2023