Healthcare Realty Trust Inc 10-Q

Item 1. Financial Statements Healthcare Realty Trust Incorporated Condensed Consolidated Balance Sheets Amounts in thousands, except per share data ASSETS Unaudited JUNE 30, 2022 DECEMBER 31, 2021 Real estate properties Land $ 456,306 $ 387,918 Buildings, improvements and lease intangibles 4,673,026 4,458,119 Personal property 11,799 11,761 Investment in financing receivable, net 118,446 186,745 Financing lease right-of-use assets 71,632 31,576 Construction in progress 16,728 3,974 Land held for development 22,952 24,849 Total real estate properties 5,370,889 5,104,942 Less accumulated depreciation and amortization ( 1,402,509 ) ( 1,338,743 ) Total real estate properties, net 3,968,380 3,766,199 Cash and cash equivalents 34,312 13,175 Assets held for sale, net — 57 Operating lease right-of-use assets 126,204 128,386 Investments in unconsolidated joint ventures 210,781 161,942 Other assets, net 209,200 189,160 Total assets $ 4,548,877 $ 4,258,919 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Notes and bonds payable $ 2,063,755 $ 1,801,325 Accounts payable and accrued liabilities 84,210 86,108 Liabilities of assets held for sale — 294 Operating lease liabilities 94,748 96,138 Financing lease liabilities 62,195 22,551 Other liabilities 66,102 67,387 Total liabilities 2,371,010 2,073,803 Commitments and contingencies Stockholders' equity Preferred stock, $ .01 par value per share; 50,000 shares authorized; none issued and outstanding — — Common stock, $ .01 par value per share; 300,000 shares authorized; 151,637 and 150,457 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively 1,516 1,505 Additional paid-in capital 4,002,526 3,972,917 Accumulated other comprehensive loss ( 1,250 ) ( 9,981 ) Cumulative net income attributable to common stockholders 1,314,515 1,266,158 Cumulative dividends ( 3,139,440 ) ( 3,045,483 ) Total stockholders' equity 2,177,867 2,185,116 Total liabilities and stockholders' equity $ 4,548,877 $ 4,258,919 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 1 Table of Contents Healthcare Realty Trust Incorporated Condensed Consolidated Statements of Income For the Three and Six Months Ended June 30, 2022 and 2021 Amounts in thousands, except per share data Unaudited THREE MONTHS ENDED June 30, SIX MONTHS ENDED June 30, 2022 2021 2022 2021 Revenues Rental income $ 140,632 $ 128,486 $ 279,121 $ 256,874 Interest from financing receivable, net 1,957 510 3,887 510 Other operating 2,738 2,427 5,213 4,378 145,327 131,423 288,221 261,762 Expenses Property operating 57,010 51,509 114,474 103,724 General and administrative 10,540 8,545 21,576 17,044 Acquisition and pursuit costs 1,352 670 2,655 1,414 Merger-related costs 7,085 — 13,201 — Depreciation and amortization 55,731 49,826 109,772 99,905 131,718 110,550 261,678 222,087 Other income (expense) Gain on sales of real estate properties 8,496 20,970 53,280 39,860 Interest expense ( 15,543 ) ( 13,261 ) ( 29,204 ) ( 26,523 ) Loss on extinguishment of debt — — ( 1,429 ) — Impairment of real estate properties — ( 5,078 ) 25 ( 5,912 ) Equity loss from unconsolidated joint ventures ( 307 ) ( 146 ) ( 652 ) ( 220 ) Interest and other (expense) income, net ( 125 ) ( 262 ) ( 206 ) 238 ( 7,479 ) 2,223 21,814 7,443 Net income $ 6,130 $ 23,096 $ 48,357 $ 47,118 Basic earnings per common share $ 0.04 $ 0.16 $ 0.32 $ 0.33 Diluted earnings per common share $ 0.04 $ 0.16 $ 0.32 $ 0.33 Weighted average common shares outstanding - basic 149,676 141,917 149,321 140,354 Weighted average common shares outstanding - diluted 149,739 142,049 149,397 140,468 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 2 Table of Contents Healthcare Realty Trust Incorporated Condensed Consolidated Statements of Comprehensive Income For the Three and Six Months Ended June 30, 2022 and 2021 Amounts in thousands Unaudited THREE MONTHS ENDED June 30, SIX MONTHS ENDED June 30, 2022 2021 2022 2021 Net income $ 6,130 $ 23,096 $ 48,357 $ 47,118 Other comprehensive income Interest rate swaps Reclassification adjustments for losses included in net income (interest expense) 823 1,114 1,909 2,209 Gains (losses) arising during the period on interest rate swaps 1,663 ( 807 ) 6,822 2,043 2,486 307 8,731 4,252 Comprehensive income $ 8,616 $ 23,403 $ 57,088 $ 51,370 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 3 Table of Contents Healthcare Realty Trust Incorporated Condensed Consolidated Statements of Equity For the Three Months Ended June 30, 2022 and 2021 Amounts in thousands, except per share data Unaudited Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Cumulative Net Income Cumulative Dividends Total Stockholders’ Equity Balance at March 31, 2022 $ 1,516 $ 3,999,060 $ ( 3,736 ) $ 1,308,385 $ ( 3,092,343 ) $ 2,212,882 Issuance of common stock, net of issuance costs — 110 — — — 110 Share-based compensation — 3,356 — — — 3,356 Net income — — — 6,130 — 6,130 Reclassification adjustments for losses included in net income (interest expense) — — 823 — — 823 Gains arising during the period on interest rate swaps — — 1,663 — — 1,663 Dividends to common stockholders ($ 0.31 per share) — — — — ( 47,097 ) ( 47,097 ) Balance at June 30, 2022 $ 1,516 $ 4,002,526 $ ( 1,250 ) $ 1,314,515 $ ( 3,139,440 ) $ 2,177,867 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Cumulative Net Income Cumulative Dividends Total Stockholders’ Equity Balance at March 31, 2021 $ 1,417 $ 3,699,867 $ ( 13,887 ) $ 1,223,521 $ ( 2,912,809 ) $ 1,998,109 Issuance of common stock, net of issuance costs 38 116,153 — — — 116,191 Common stock redemptions — ( 55 ) — — — ( 55 ) Share-based compensation — 2,627 — — — 2,627 Net income — — — 23,096 — 23,096 Reclassification adjustments for losses included in net income (interest expense) — — 1,114 — — 1,114 Losses arising during the period on interest rate swaps — — ( 807 ) — — ( 807 ) Dividends to common stockholders ($ 0.3025 per share) — — — — ( 44,021 ) ( 44,021 ) Balance at June 30, 2021 $ 1,455 $ 3,818,592 $ ( 13,580 ) $ 1,246,617 $ ( 2,956,830 ) $ 2,096,254 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 4 Table of Contents Healthcare Realty Trust Incorporated Condensed Consolidated Statements of Equity For the Six Months Ended June 30, 2022 and 2021 Amounts in thousands, except per share data Unaudited Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Cumulative Net Income Cumulative Dividends Total Stockholders’ Equity Balance at December 31, 2021 $ 1,505 $ 3,972,917 $ ( 9,981 ) $ 1,266,158 $ ( 3,045,483 ) $ 2,185,116 Issuance of common stock, net of issuance costs 7 22,764 — — — 22,771 Common stock redemptions — ( 206 ) — — — ( 206 ) Share-based compensation 4 7,051 — — — 7,055 Net Income — — — 48,357 — 48,357 Reclassification adjustments for losses included in net income (interest expense) — — 1,909 — — 1,909 Gains arising during the period on interest rate swaps — — 6,822 — — 6,822 Dividends to common stockholders ($ 0.62 per share) — — — — ( 93,957 ) ( 93,957 ) Balance at June 30, 2022 $ 1,516 $ 4,002,526 $ ( 1,250 ) $ 1,314,515 $ ( 3,139,440 ) $ 2,177,867 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Cumulative Net Income Cumulative Dividends Total Stockholders’ Equity Balance at December 31, 2020 $ 1,395 $ 3,635,341 $ ( 17,832 ) $ 1,199,499 $ ( 2,870,027 ) $ 1,948,376 Issuance of common stock, net of issuance costs 59 179,216 — — — 179,275 Common stock redemptions ( 1 ) ( 1,610 ) — — — ( 1,611 ) Share-based compensation 2 5,645 — — — 5,647 Net income — — — 47,118 — 47,118 Reclassification adjustments for losses included in net income (interest expense) — — 2,209 — — 2,209 Gains arising during the period on interest rate swaps — — 2,043 — — 2,043 Dividends to common stockholders ($ 0.6050 per share) — — — — ( 86,803 ) ( 86,803 ) Balance at June 30, 2021 $ 1,455 $ 3,818,592 $ ( 13,580 ) $ 1,246,617 $ ( 2,956,830 ) $ 2,096,254 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 5 Table of Contents Healthcare Realty Trust Incorporated Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2022 and 2021 Amounts in thousands Unaudited OPERATING ACTIVITIES SIX MONTHS ENDED June 30, 2022 2021 Net income $ 48,357 $ 47,118 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 109,772 99,905 Other amortization 2,680 1,728 Share-based compensation 7,055 5,647 Amortization of straight-line rent receivable (lessor) ( 3,292 ) ( 3,024 ) Amortization of straight-line rent on operating leases (lessee) 756 735 Gain on sales of real estate properties ( 53,280 ) ( 39,860 ) Loss on extinguishment of debt 1,429 — Impairment of real estate properties ( 25 ) 5,912 Equity loss from unconsolidated joint ventures 652 220 Distributions from unconsolidated joint ventures 108 — Non-cash interest from financing receivable ( 388 ) — Changes in operating assets and liabilities: Other assets, including right-of-use-assets 540 ( 4,746 ) Accounts payable and accrued liabilities ( 3,166 ) ( 10,418 ) Other liabilities 2,923 2,412 Net cash provided by operating activities 114,121 105,629 INVESTING ACTIVITIES Acquisitions of real estate ( 287,004 ) ( 100,121 ) Development of real estate ( 7,475 ) ( 1,415 ) Additional long-lived assets ( 45,631 ) ( 41,839 ) Investments in unconsolidated joint ventures ( 49,599 ) ( 45,018 ) Investment in financing receivable 498 ( 104,648 ) Proceeds from sales of real estate properties 108,044 90,144 Net cash used in investing activities ( 281,167 ) ( 202,897 ) FINANCING ACTIVITIES Net borrowings on unsecured credit facility 280,500 13,000 Repayments of notes and bonds payable ( 18,224 ) ( 1,925 ) Redemption of notes and bonds payable ( 2,184 ) — Dividends paid ( 93,774 ) ( 86,803 ) Net proceeds from issuance of common stock 22,768 179,381 Common stock redemptions ( 852 ) ( 2,014 ) Debt issuance and assumption costs — ( 252 ) Payments made on finance leases ( 51 ) ( 683 ) Net cash provided by financing activities 188,183 100,704 Increase in cash and cash equivalents 21,137 3,436 Cash and cash equivalents at beginning of period 13,175 15,303 Cash and cash equivalents at end of period $ 34,312 $ 18,739 Supplemental Cash Flow Information Interest paid $ 26,641 $ 24,659 Invoices accrued for construction, tenant improvements and other capitalized costs $ 18,874 $ 19,506 Capitalized interest $ 145 $ 154 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 6 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Business Overview Healthcare Realty Trust Incorporated is a real estate investment trust ("REIT") that owns, leases, manages, acquires, finances, develops and redevelops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. References to the Company in these Notes to the Condensed Consolidated Financial Statements are to Legacy HR as the "accounting acquiror" in the Merger defined and described in more detail in Note 9 to these Condensed Consolidated Financial Statements. As of June 30, 2022, the Company had gross investments of approximately $ 5.4 billion in 255 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 255 real estate properties are located in 23 states and total approximately 17.2 million square feet. The Company provided leasing and property management services to approximately 15.4 million square feet nationwide. The Company owns 50 % of an unconsolidated joint venture with Teachers Insurance and Annuity Association (the "TIAA Joint Venture") and earns certain fees as the managing member. As of June 30, 2022, the TIAA Joint Venture owned 21 real estate properties. See Note 2 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 The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, management believes there has been no material change in the information disclosed in the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. All material intercompany transactions and balances have been eliminated in consolidation. This interim financial information should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. In addition, the interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2022 for many reasons including, but not limited to, the Merger (as discussed in more detail in Note 9 below), acquisitions, dispositions, capital financing transactions, changes in interest rates and the effects of other trends, risks and uncertainties. Principles of Consolidation The Company’s Condensed Consolidated Financial Statements include, as of June 30, 2022, 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 810 broadly defines a VIE as an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is the VIE’s primary beneficiary. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis. 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 any entity in which the Company owns 7 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. 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. As of June 30, 2022, the Company's unconsolidated joint venture arrangements were accounted for using the equity method of accounting as the Company exercised significant influence over but did not control these entities. See Note 2 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. Investments in Leases - Financing Receivables, Net In accordance with Accounting Standards Codification ("ASC") 842, for transactions in which the Company enters into a contract to acquire an asset and leases it back to the seller (i.e., a sale leaseback transaction), control of the asset is not considered to have transferred when the seller-lessee has a purchase option. As a result, the Company does not recognize the underlying real estate asset but instead recognizes a financial asset in accordance with ASC 310 “Receivables”. During the first quarter of 2022, the Company reclassified the two medical office buildings in Nashville, Tennessee that were acquired in separate sale-leaseback transactions in the fourth quarter of 2021. The leases with the sellers commenced in the first quarter, which resulted in the allocation of the financing receivable totaling $ 73.9 million to land and building and improvements. Income from Lease Financing Receivables The Company recognizes the related income from the financing receivable based on an imputed interest rate over the terms of the applicable lease. As a result, the interest recognized from the financing receivable will not equal the cash payments from the lease agreement. Acquisition costs incurred in connection with entering into the financing receivable are treated as loan origination fees. These costs are classified with the financing receivable and are included in the balance of the net investment. Amortization of these amounts will be recognized as a reduction to Income from financing receivable, net over the life of the lease. Revenue from Contracts with Customers (Topic 606) The Company recognizes certain revenue under the core principle of Topic 606. This topic requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Lease revenue is not within the scope of Topic 606. To achieve the core principle, the Company applies the five step model specified in the guidance. Revenue that is accounted for under Topic 606 is segregated on the Company’s Condensed Consolidated Statements of Income in the Other operating line item. This line item includes parking income, management fee income and other miscellaneous income. Below is a detail of the amounts by category: THREE MONTHS ENDED June 30, SIX MONTHS ENDED June 30, in thousands 2022 2021 2022 2021 Type of Revenue Parking income $ 1,919 $ 1,880 $ 3,672 $ 3,538 Management fee income 1 783 419 1,438 658 Miscellaneous 36 128 103 182 $ 2,738 $ 2,427 $ 5,213 $ 4,378 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. 8 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. New Accounting Pronouncements Accounting Standards Update No. 2020-04 On March 12, 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848) . ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. Management continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. Note 2. Real Estate Investments 2022 Company Acquisitions The following table details the Company's acquisitions for the six months ended June 30, 2022: Dollars in thousands DATE ACQUIRED PURCHASE PRICE CASH CONSIDERATION 1 REAL ESTATE 2 OTHER 3 SQUARE FOOTAGE Dallas, TX 2/11/22 $ 8,175 $ 8,185 $ 8,202 $ ( 17 ) 18,000 San Francisco, CA 4 3/7/22 114,000 112,986 108,687 4,299 166,396 Atlanta, GA 4/7/22 6,912 7,054 7,178 ( 124 ) 21,535 Denver, CO 4/13/22 6,320 5,254 5,269 ( 15 ) 12,207 Colorado Springs, CO 5 4/13/22 13,680 13,686 13,701 ( 15 ) 25,800 Seattle, WA 4/28/22 8,350 8,334 8,370 ( 36 ) 13,256 Houston, TX 4/28/22 36,250 36,299 36,816 ( 517 ) 76,781 Los Angeles, CA 4/29/22 35,000 35,242 25,400 9,842 34,282 Oklahoma City, OK 4/29/22 11,100 11,259 11,334 ( 75 ) 34,944 Raleigh, NC 4 5/31/22 27,500 26,710 27,127 ( 417 ) 85,113 Tampa, FL 5 6/9/22 18,650 18,619 18,212 407 55,788 Total real estate acquisitions $ 285,937 $ 283,628 $ 270,296 $ 13,332 544,102 1 Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition. 2 Excludes financing right of use assets. 3 Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition. 4 Includes three properties. 5 Includes two properties. Subsequent to June 30, 2022 and unrelated to the Merger, the Company acquired the following property: Dollars in thousands DATE ACQUIRED PURCHASE PRICE SQUARE FOOTAGE Seattle, WA 8/1/22 $ 4,850 10,593 9 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. 2022 TIAA Joint Venture Acquisitions The TIAA Joint Venture is not consolidated for purposes of the Company's Condensed Consolidated Financial Statements. The following table details the TIAA Joint Venture acquisitions for the six months ended June 30, 2022: Dollars in thousands DATE ACQUIRED PURCHASE PRICE CASH CONSIDERATION 1 REAL ESTATE OTHER 2 SQUARE FOOTAGE COMPANY OWNERSHIP % San Francisco, CA 3 3/7/22 $ 67,175 $ 66,789 $ 65,179 $ 1,610 110,865 50 % Los Angeles, CA 4 3/7/22 33,800 32,384 32,390 ( 6 ) 103,259 50 % Total real estate acquisitions $ 100,975 $ 99,173 $ 97,569 $ 1,604 214,124 1 Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition. 2 Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition. 3 Includes three properties. 4 Includes two properties. Unconsolidated Joint Ventures The Company's investment in and loss recognized for the three and six months ended June 30, 2022 and 2021 related to its joint ventures accounted for under the equity method are shown in the table below: THREE MONTHS ENDED June 30, SIX MONTHS ENDED June 30, Dollars in thousands 2022 2021 2022 2021 Investments in unconsolidated joint ventures, beginning of period 1 $ 211,195 $ 83,943 $ 161,942 $ 73,137 New investments during the period — 34,138 49,599 45,018 Equity loss recognized during the period 1 ( 307 ) ( 146 ) ( 652 ) ( 220 ) Owner Distributions ( 107 ) — ( 108 ) — Investments in unconsolidated joint ventures, end of period 1 $ 210,781 $ 117,935 $ 210,781 $ 117,935 1 In addition to the TIAA Joint Venture, the Company also has a 55 % and 27 % ownership interest, respectively, in two limited liability companies that each own a parking garage in Atlanta, Georgia. 2022 Real Estate Asset Dispositions The following table details the Company's dispositions for the six months ended June 30, 2022: Dollars in millions DATE DISPOSED SALE PRICE CLOSING ADJUSTMENTS NET PROCEEDS NET REAL ESTATE INVESTMENT OTHER (INCLUDING RECEIVABLES) 1 GAIN/(IMPAIRMENT) SQUARE FOOTAGE Loveland, CO 2 2/24/22 $ 84,950 $ ( 45 ) $ 84,905 $ 40,095 $ 4 $ 44,806 150,291 San Antonio, TX 2 4/15/22 25,500 ( 2,272 ) 23,228 14,381 284 8,563 201,523 Total dispositions $ 110,450 $ ( 2,317 ) $ 108,133 $ 54,476 $ 288 $ 53,369 351,814 1 Includes straight-line rent receivables, leasing commissions and lease inducements. 2 Includes two properties. 10 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. Assets Held for Sale The Company did not have any properties classified as assets held for sale as of June 30, 2022 and December 31, 2021. The table below reflects the assets and liabilities of the properties classified as held for sale as of June 30, 2022 and December 31, 2021: Dollars in thousands June 30, 2022 December 31, 2021 Other assets, net $ — $ 57 Assets held for sale, net $ — $ 57 Accounts payable and accrued liabilities $ — $ 169 Other liabilities — 125 Liabilities of assets held for sale $ — $ 294 Note 3. Leases Lessor Accounting The Company’s properties generally were leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2040. Some leases provide for fixed rent renewal terms in addition to market rent renewal terms. Some leases provide the lessee, during the term of the lease, with an option or right of first refusal to purchase the leased property. The Company’s single-tenant net leases generally require the lessee to pay minimum rent and all taxes (including property tax), insurance, maintenance and other operating costs associated with the leased property. 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 six months ended June 30, 2022 was $ 140.6 million and $ 279.1 million, respectively. On March 30, 2022, the Company executed a lease as a ground lessor for a 1.9 acre parcel of land in Texas previously recorded in land held for development. The lease is classified as a sales-type lease under Topic 842 as the present value of lease payments equals or exceeds substantially all of the fair value of the underlying asset. The land value of $ 1.8 million was reclassified from Land held for development to Other assets. Future lease payments under the non-cancelable operating leases, excluding any reimbursements and the sale-type lease, as of June 30, 2022 were as follows: Dollars in thousands OPERATING 2022 $ 214,083 2023 398,689 2024 326,597 2025 269,308 2026 217,068 2027 and thereafter 566,038 $ 1,991,783 Lessee Accounting As of June 30, 2022, the Company was obligated, as the lessee, under operating lease agreements consisting primarily of the Company’s ground leases. As of June 30, 2022, the Company had 108 properties totaling 8.9 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 41 prepaid ground leases as of June 30, 2022. The amortization of the prepaid rent, included in the operating lease right-of-use asset, represented approximately $ 0.1 11 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. million and $ 0.2 million of the Company’s rental expense for the three months ended June 30, 2022 and 2021, respectively, and $ 0.3 million for the six months ended June 30, 2022 and 2021, respectively. The Company’s future lease payments (primarily for its 67 non-prepaid ground leases) as of June 30, 2022 were as follows: Dollars in thousands OPERATING FINANCING 2022 $ 2,118 $ 735 2023 5,071 1,654 2024 5,130 1,692 2025 5,174 1,723 2026 5,201 1,749 2027 and thereafter 306,956 368,730 Total undiscounted lease payments 329,650 376,283 Discount ( 234,902 ) ( 314,088 ) Lease liabilities $ 94,748 $ 62,195 The following table provides details of the Company's total lease expense for the three and six months ended June 30, 2022 and 2021: THREE MONTHS ENDED June 30, SIX MONTHS ENDED June 30, Dollars in thousands 2022 2021 2022 2021 Operating lease cost Operating lease expense $ 1,194 $ 1,182 $ 2,409 $ 2,360 Variable lease expense 1,038 972 2,062 1,868 Finance lease cost Amortization of right-of-use assets 331 88 503 176 Interest on lease liabilities 765 247 1,052 493 Total lease expense $ 3,328 $ 2,489 $ 6,026 $ 4,897 Other information Operating cash flows outflows related to operating leases $ 1,799 $ 2,587 $ 4,596 $ 4,431 Operating cash flows outflows related to financing leases $ 509 $ — $ 767 $ — Financing cash flows outflows related to financing leases $ — $ 321 $ 51 $ 683 Right-of-use assets obtained in exchange for new finance lease liabilities $ — $ — $ 40,589 $ — Weighted-average remaining lease term (excluding renewal options) - operating leases 47.4 48.1 Weighted-average remaining lease term (excluding renewal options) - finance leases 61.7 64.5 Weighted-average discount rate - operating leases 5.6 % 5.7 % Weighted-average discount rate - finance leases 5.0 % 5.4 % 12 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. Note 4. Notes and Bonds Payable The table below details the Company’s notes and bonds payable as of June 30, 2022 and 2021. MATURITY DATES BALANCE AS OF EFFECTIVE INTEREST RATE as of 6/30/2022 Dollars in thousands 6/30/2022 12/31/2021 $ 700 million Unsecured Credit Facility 5/23 $ 490,500 $ 210,000 2.69 % $ 200 million Unsecured Term Loan due 2024, net of issuance costs 1 5/24 199,572 199,460 2.55 % $ 150 million Unsecured Term Loan due 2026, net of issuance costs 2 6/26 149,447 149,376 2.79 % Senior Notes due 2025, net of discount and issuance costs 3 5/25 249,176 249,040 4.08 % Senior Notes due 2028, net of discount and issuance costs 1/28 296,864 296,612 3.84 % Senior Notes due 2030, net of discount and issuance costs 4 3/30 296,989 296,813 2.71 % Senior Notes due 2031, net of discount and issuance costs 3/31 295,601 295,374 2.24 % Mortgage notes payable, net of discounts and issuance costs and including premiums 8/23-12/26 85,606 104,650 3.97 % $ 2,063,755 $ 1,801,325 1 The effective interest rate includes the impact of interest rate swaps on $ 75.0 million at a weighted average rate of 2.37 % (plus the applicable margin rate, currently 100 basis points). 2 The effective interest rate includes the impact of interest rate swaps on $ 100.0 million at a weighted average rate of 2.23 % (plus the applicable margin rate, currently 95 basis points). 3 The effective interest rate includes the impact of the $ 1.7 million settlement of forward-starting interest rate swaps that is included in Accumulated other comprehensive loss on the Company's Condensed Consolidated Balance Sheets. 4 The effective interest rate includes the impact of the $ 4.3 million settlement of forward interest rate hedges that is included in Accumulated other comprehensive loss on the Company's Condensed Consolidated Balance Sheets. Changes in Debt Structure Mortgage payoffs On February 18, 2022, the Company repaid in full a mortgage note payable bearing interest at a rate of 4.70 % that encumbered a 56,762 square foot property in California. The aggregate payoff price of $ 12.6 million consisted of outstanding principal of $ 11.0 million and a "make-whole" amount of approximately $ 1.6 million. The unamortized premium of $ 0.8 million and the unamortized cost on this note of $ 0.1 million were written off upon payoff. On February 24, 2022, the Company repaid in full a mortgage note payable bearing interest at a rate of 6.17 % that encumbered a 80,153 square foot property in Colorado, in conjunction with the disposition of the property. The aggregate payoff price of $ 6.4 million consisted of outstanding principal of $ 5.8 million and a "make-whole" amount of approximately $ 0.6 million. The unamortized premium of $ 0.1 million was written off upon payoff. Note 5. 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 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. 13 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. 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 June 30, 2022, the Company had eight outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk: DERIVATIVE INSTRUMENT NUMBER OF INSTRUMENTS NOTIONAL AMOUNT in millions Interest rate swaps 8 $ 175.0 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 June 30, 2022. BALANCE AT JUNE 30, 2022 In thousands BALANCE SHEET LOCATION FAIR VALUE Derivatives designated as hedging instruments Interest rate swaps 2017, 2018, and 2019 Other assets $ 2,516 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 six months ended June 30, 2022 and 2021 related to the Company's outstanding interest rate swaps. (GAIN) LOSS RECOGNIZED IN AOCI ON DERIVATIVE three months ended June 30, LOSS RECLASSIFIED FROM AOCI INTO INCOME three months ended June 30, In thousands 2022 2021 2022 2021 Interest rate swaps $ ( 1,663 ) $ 807 Interest expense $ 674 $ 965 Settled treasury hedges — — Interest expense 107 107 Settled interest rate swaps — — Interest expense 42 42 $ ( 1,663 ) $ 807 Total interest expense $ 823 $ 1,114 GAIN RECOGNIZED IN AOCI ON DERIVATIVE six months ended June 30, LOSS RECLASSIFIED FROM AOCI INTO INCOME six months ended June 30, In thousands 2022 2021 2022 2021 Interest rate swaps $ ( 6,822 ) $ ( 2,043 ) Interest expense $ 1,612 $ 1,912 Settled treasury hedges — — Interest expense 213 213 Settled interest rate swaps — — Interest expense 84 84 $ ( 6,822 ) $ ( 2,043 ) Total interest expense $ 1,909 $ 2,209 The Company estimates that $ 1.0 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 $ 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 June 30, 2022, 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 $ 2.4 million. As of June 30, 2022, the Company has not posted any collateral related to these agreements and was not in breach of any agreement. 14 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. Note 6. 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. Redevelopment Activity During the second quarter of 2022, the Company continued the redevelopment of a 217,114 square foot medical office building in Dallas, Texas. As of June 30, 2022, the Company had funded approximately $ 10.2 million in project costs. The building continues to operate with in-place leases during construction. The first new tenant lease of the redevelopment commenced in the first quarter of 2022. During the second quarter of 2022, the Company continued the redevelopment of a medical office building in Tacoma, Washington. As of June 30, 2022, the Company had funded approximately $ 9.5 million in project costs. The redevelopment includes interior and exterior improvements to the existing building, plus the addition of 23,000 square feet. The Company expects the 23,000 square foot tenant lease for the expansion space to commence in the fourth quarter of 2022. During the second quarter of 2022, the Company continued the development of a medical office building in Nashville, Tennessee. The Company began construction of a 106,194 square foot medical office building with the initial tenant lease expected to commence in the third quarter of 2023. As of June 30, 2022, the Company had funded approximately $ 7.4 million in project costs. The redevelopment includes the demolition of an existing 81,000 square foot medical office building. The Company recognized an impairment charge of $ 5.0 million related to the existing building in 2021. During the second quarter of 2022, the Company continued redevelopment projects related to the following: • Two medical office buildings totaling 158,338 square feet in Washington, DC. The Company has approved a leasing plan with a capital outlay that is expected to be completed in the first quarter of 2024. As of June 30, 2022, the Company has funded $ 0.1 million in project costs. • A medical office building totaling 145,365 square feet in Dallas, Texas. The Company has approved a capital and leasing plan that is expected to be completed in the first quarter of 2024. As of June 30, 2022, the Company has funded $ 0.6 million in project costs. • A medical office building totaling 93,992 square feet in Denver, Colorado that is expected to be a part of a larger redevelopment plan that was initiated in the first quarter of 2022. Note 7. Stockholders' Equity Common Stock The following table provides a reconciliation of the beginning and ending shares of common stock outstanding for the six months ended June 30, 2022 and the twelve months ended December 31, 2021: SIX MONTHS ENDED JUNE 30, 2022 TWELVE MONTHS ENDED DECEMBER 31, 2021 Balance, beginning of period 150,457,433 139,487,375 Issuance of common stock 745,483 10,899,301 Non-vested share-based awards, net of withheld shares 434,001 70,757 Balance, end of period 151,636,917 150,457,433 15 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. At-The-Market Equity Offering Program On August 6, 2021 and November 5, 2021, the Company entered into equity distribution agreements with 12 investment banks to allow for issuance and sale under its at-the-market equity offering program of up to an aggregate of $ 750.0 million of common stock. These agreements are no longer in effect following the closing of the Merger on July 20, 2022. The following table details the Company's forward at-the-market activity: WEIGHTED AVERAGE SALE PRICE per share FORWARD SHARE CONTRACTS SHARES SETTLED SHARES REMAINING TO BE SETTLED NET PROCEEDS in millions Balance at December 31, 2021 $ — — — 727,400 $ — 1Q 2022 $ 31.73 — 727,400 — $ 22.3 2Q 2022 $ — — — — $ — Common Stock Dividends During the six months ended June 30, 2022, the Company declared and paid common stock dividends totaling $ 0.62 per share. On July 1, 2022, the Company declared a prorated quarterly common stock dividend in the amount of $ 0.2010 per share payable on July 19, 2022 to stockholders of record on July 14, 2022. The remaining quarterly common stock dividend portion of $ 0.1090 per share was declared August 2, 2022 and is payable on August 30, 2022 to stockholders of record on August 15, 2022 . 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. During the three and six months ended June 30, 2022, the Company did not enter into any forward sale agreements to sell shares of common stock through the Company's at-the market equity offering program. The following table sets forth the computation of basic and diluted earnings per common share for the three and six months ended June 30, 2022 and 2021. THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, Dollars in thousands, except per share data 2022 2021 2022 2021 Weighted average common shares outstanding Weighted average common shares outstanding 151,620,897 143,700,491 151,230,064 142,142,577 Non-vested shares ( 1,945,042 ) ( 1,783,278 ) ( 1,908,652 ) ( 1,788,410 ) Weighted average common shares outstanding - basic 149,675,855 141,917,213 149,321,412 140,354,167 Weighted average common shares outstanding - basic 149,675,855 141,917,213 149,321,412 140,354,167 Dilutive effect of forward equity shares — 61,064 — 27,896 Dilutive effect of employee stock purchase plan 62,694 70,711 75,394 85,714 Weighted average common shares outstanding - diluted 149,738,549 142,048,988 149,396,806 140,467,777 Net Income $ 6,130 $ 23,096 $ 48,357 $ 47,118 Dividends paid on nonvested share-based awards ( 601 ) ( 539 ) ( 1,207 ) ( 1,080 ) Net income applicable to common stockholders $ 5,529 $ 22,557 $ 47,150 $ 46,038 Basic earnings per common share - net income $ 0.04 $ 0.16 $ 0.32 $ 0.33 Diluted earnings per common share - net income $ 0.04 $ 0.16 $ 0.32 $ 0.33 Incentive Plans Restricted Common Shares During the six months ended June 30, 2022, the Company made the following stock awards: • During the first quarter of 2022, 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 16 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. $ 13.0 million, which consisted of an aggregate of 415,184 non-vested shares with vesting periods ranging from three to eight years. • During the second quarter of 2022, the Company granted non-vested stock awards to its eight directors with a grant date fair value of $ 0.8 million, which consisted of an aggregate of 26,840 non-vested shares, with a one -year vesting period. A summary of the activity under the Company's share-based incentive plans for the three and six months ended June 30, 2022 and 2021 is included in the table below. THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2022 2021 2022 2021 Share-based awards, beginning of period 1,951,551 1,786,371 1,562,028 1,766,061 Granted 26,840 37,978 442,024 203,701 Vested ( 36,682 ) ( 46,041 ) ( 61,047 ) ( 191,454 ) Forfeited — — ( 1,296 ) — Share-based awards, end of period 1,941,709 1,778,308 1,941,709 1,778,308 During the six months ended June 30, 2022 and 2021, the Company withheld 6,727 and 51,972 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 3, 2022, the Company granted restricted stock units to its named executive officers and certain other members of senior management and officers, with a grant date fair value of $ 9.7 million, which consisted of an aggregate 294,932 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 $ 30.56 for the absolute TSR component and $ 41.30 for the relative TSR component for the January 2022 grant using the following assumptions: THREE MONTHS ENDED MARCH 31, Volatility 30.0 % Dividend assumption Accrued Expected term in years 3 years Risk-free rate 1.02 % Stock price (per share) $ 31.68 The remaining 57 % of the restricted stock units vest upon certain operating performance conditions. With respect to the operating performance conditions of the January grant, the grant date fair value was $ 31.68 based on the Company's share price on the date of grant. The combined weighted average grant date fair value of the January restricted stock units was $ 33.04 per share. 17 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. The following is a summary of the RSU activity during the three and six months ended June 30, 2022: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, Restricted Stock Units Weighted Average Grant Date Fair Value Restricted Stock Units Weighted Average Grant Date Fair Value Non-vested, beginning of period 294,932 — — — Granted — — 294,932 $ 33.04 Vested — — — — Non-vested as of June 30, 2022 294,932 — 294,932 Employee Stock Purchase Plan In addition to the share-based incentive plans, the Company maintains the Employee Stock Purchase Plan. A summary of the activity under the Purchase Plan for the three and six months ended June 30, 2022 and 2021 is included in the table below. THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2022 2021 2022 2021 Outstanding and exercisable, beginning of period 427,802 415,299 348,514 341,647 Granted — — 255,960 253,200 Exercised ( 1,965 ) ( 3,012 ) ( 12,518 ) ( 18,977 ) Forfeited ( 20,303 ) ( 22,873 ) ( 45,789 ) ( 42,034 ) Expired — — ( 140,633 ) ( 144,422 ) Outstanding and exercisable, end of period 405,534 389,414 405,534 389,414 Note 8. 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 due to the short term maturity of these investments. • 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 that consider forward yield curves and discount rates. The table below details the fair values and carrying values for notes and bonds payable at June 30, 2022 and December 31, 2021. June 30, 2022 December 31, 2021 Dollars in millions CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE Notes and bonds payable 1 $ 2,063.8 $ 1,955.6 $ 1,801.3 $ 1,797.4 1 Level 2 – model-derived valuations in which significant inputs and significant value drivers are observable in active markets. Note 9. Subsequent Events 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” or the "Company"), 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”). Pursuant to the Merger Agreement, on the Closing Date, 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, 18 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. Legacy HR converted to a Maryland limited liability company and changed its name to “HRTI, LLC” and Legacy HTA changed its name to “Healthcare Realty Trust Incorporated”. In addition, the equity interests of Legacy HR were contributed by Legacy HTA by means of a contribution and assignment agreement to the OP such that Legacy HR became a wholly-owned subsidiary of the OP. As a result, Legacy HR became a part of an umbrella partnership REIT (“UPREIT”) structure, which is intended to align the corporate structure of the combined company after giving effect to the Merger and the UPREIT reorganization (the “Combined Company”) and to provide a platform for the Combined Company to more efficiently acquire properties in a tax-deferred manner. The Combined Company operates under the name “Healthcare Realty Trust Incorporated” and its shares of class A common stock, $ 0.01 par value per share, trade on the New York Stock Exchange (the “NYSE”) under the ticker symbol “HR”. Executive Officers and Directors The executive officers of the Company immediately preceding the Merger serve as the executive officers of the Combined Company. The board of directors of the Combined Company is comprised of all nine directors from the Company's board and four directors from HTA’s board. Exchange Offer In connection with the Merger, the OP offered to exchange all validly tendered and accepted notes of each series previously issued by Legacy HR (the “Old HR Notes”) for (i) up to $ 250,000,000 of 3.875 % Senior Notes due 2025 (the “2025 Notes”), (ii) up to $ 300,000,000 of 3.625 % Senior Notes due 2028 (the “2028 Notes”), (iii) up to $ 300,000,000 of 2.400 % Senior Notes due 2030 (the “2030 Notes”) and (iv) up to $ 300,000,000 of 2.050 % Senior Notes due 2031 to be issued by the OP (the “2031 Notes” and, collectively, the “New HR Notes”) and solicited consents from holders of the Old HR Notes to amend the indenture governing the Old HR Notes to eliminate substantially all of the restrictive covenants in such indenture (the “Exchange Offers”). The New HR Notes were issued pursuant to an indenture dated July 22, 2022, among the OP, Legacy HTA and U.S. Bank Trust Company, National Association, as trustee, as supplemented by the first supplemental indenture, dated as of July 22, 2022, the second supplemental indenture, dated as of July 22, 2022, the third supplemental indenture, dated as of July 22, 2022 and the fourth supplemental indenture, dated as of July 22, 2022. Legacy HTA guaranteed the New HR Notes pursuant to (i) a guarantee of the 2025 Notes, (ii) a guarantee of the 2028 Notes, (iii) a guarantee of the 2030 Notes, and (iv) a guarantee of the 2031 Notes, each dated July 22, 2022. Legacy HTA and the OP filed a registration statement on Form S-4 (File No. 333-265593) relating to the issuance of the New HR Notes with the Securities and Exchange Commission (the “SEC”) on June 14, 2022, which was declared effective by the SEC on June 28, 2022. The following sets forth the results of the Exchange Offers: Series of Old HR Notes Tenders and Consents Received as of the Expiration Date Percentage of Total Outstanding Principal Amount of Such Series of Old HR Notes 3.875 % Senior Notes due 2025 $ 235,016,000 94.01 % 3.625 % Senior Notes due 2028 $ 290,246,000 96.75 % 2.400 % Senior Notes due 2030 $ 297,507,000 99.17 % 2.050 % Senior Notes due 2031 $ 298,858,000 99.62 % Credit Facilities In connection with the effectiveness of the Merger, Legacy HR (in a limited capacity), Legacy HTA and the OP entered into the Fourth Amended and Restated Credit and Term Loan Agreement (the “Credit Facility”) with Wells Fargo Bank, National Association, as Administrative Agent; Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., and Citibank, N.A., as Joint Book Runners; Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., U.S. Bank National Association, Citibank, N.A., The Bank of Nova Scotia, Capital One, National Association, U.S. Bank National Association, and PNC Capital Markets LLC, as Joint Lead Arrangers; and the other lenders named therein. The Credit Facility restructures the parties’ existing bank facilities and adds additional borrowing capacities for the Combined Company following the Merger. The OP is the borrower under the Credit Facility (in such capacity, the “Borrower”). • Legacy HR’s existing $ 700.0 million revolving credit facility under the Amended and Restated Credit Agreement, dated as of May 31, 2019 (as amended, restated, replaced, supplemented, or otherwise modified 19 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. from time to time prior to July 20, 2022, the “Existing HR Revolving Credit Agreement”), by and among Legacy HR, the lenders party thereto from time to time and their assignees, as lenders, and Wells Fargo Bank, National Association, as the administrative agent (the “WF Administrative Agent”), was terminated, all outstanding obligations in respect thereof were deemed paid in full and all commitments thereunder were permanently reduced to zero and terminated. • Legacy HR’s existing $ 200.0 million term loan facility and existing $ 150.0 million term loan facility under the Amended and Restated Term Loan Agreement, dated as of May 31, 2019 (as amended, restated, replaced, supplemented, or otherwise modified from time to time prior to July 20, 2022, the “Existing HR Term Loan Agreement”), by and among Legacy HR, the lenders party thereto from time to time and their assignees, as lenders, and the WF Administrative Agent, in each, case, were deemed continued and assumed by the Borrower under the Credit Facility, and the Existing HR Term Loan Agreement was terminated. ◦ The existing $ 200.0 million term loan facility was amended to: (a) conform to the terms of the Borrower’s other term loan facilities under the Credit Facility; (b) include two one-year extension options, resulting in a latest final maturity in May 2026; and (c) reprice to align with the pricing for the Borrower’s other term loan facilities under the Credit Facility; and ◦ The existing $ 150.0 million term loan facility was amended to conform to the terms of the Borrower’s other term loan facilities under the Credit Facility, and the existing maturity in June 2026 remains unchanged under the Credit Facility. • Legacy HTA’s and the OP’s existing $ 1.0 billion revolving credit facility was upsized to $ 1.5 billion (the “Revolver”) pursuant to the Credit Facility. The Revolver currently matures in October 2025, and the Credit Facility adds an additional one-year extension option for the Revolver, for a total of two one-year extension options. • Legacy HTA’s and the OP’s existing $ 300.0 million term loan facility was deemed continued pursuant to the Credit Facility and was amended to conform to the terms of the Borrower’s other term loan facilities under the Credit Facility. The existing maturity in October 2025 remains unchanged under the Credit Facility. • Legacy HTA’s and the OP’s existing $ 200.0 million term loan facility was deemed continued pursuant to the Credit Facility and was amended to (a) conform to the terms of the Borrower’s other term loan facilities under the Credit Facility; (b) extend the maturity from January 2024 to July 20, 2027; and (c) reprice to align with the pricing for the Borrower’s other term loan facilities under the Credit Facility. • The Credit Facility provides for a new $ 350.0 million delayed-draw term loan facility that is available to be drawn for 12 months after July 20, 2022 and has an initial maturity date of July 20, 2023, with two one-year extension options. The terms of any delayed draw term loans funded thereunder conform to the terms of the Borrower’s other term loan facilities under the Credit Facility, and the pricing for such delayed draw term loans aligns with the pricing for the Borrower’s other term loan facilities under the Credit Facility. • The Credit Facility provides for a new $ 300.0 million term loan facility that was funded on July 20, 2022 and has a maturity of January 20, 2028, with no extension options. The terms of such term loan facility conform to the terms of the Borrower’s other term loan facilities under the Credit Facility, and the pricing for such term loan facility aligns with the pricing for the Borrower’s other term loan facilities under the Credit Facility. Special Dividend On May 13, 2022, Legacy HTA entered into a new $ 1.125 billion term loan agreement to fund the special dividend pursuant to the terms of the Merger Agreement. Prior to the Merger, Legacy HTA drew against the term loan to fund the special dividend of $ 4.82 that was declared on July 6, 2022 for shareholders of record on July 19, 2022. The special dividend was paid to all Legacy HTA shareholders on July 27, 2022. The Company plans to repay the term loan with proceeds from asset sales and joint ventures. As of the date of this report, the Company has closed on $ 433 million in joint ventures and asset sales. The remainder is expected to close in the third quarter of 2022. 20 Table of Contents