What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-09 · 170 added, 154 removed, 282 unchanged (53% of the section changed)

2 unchanged sentences

This report and other materials the Company has filed or may file with the Securities and Exchange Commission (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, and include, but are not limited to, statements related to the anticipated timing, financing benefits and financial and operational impact of the Merger.

These forward-looking statements are based on the Company's, and with respect to the Merger, include HTA's, current plans, objectives, estimates, expectations and intentions and inherently involve significant risks and uncertainties.

These forward-looking statements are based on the Company's current plans, objectives, estimates, expectations and intentions and inherently involve significant risks and uncertainties.

Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation, risks and uncertainties associated with:

risks related to diverting the attention the Company's management from ongoing business operations;

diverting the attention the Company's management from ongoing business operations;

failure to realize the expected benefits of the Merger;

significant transaction costs and/or unknown or inestimable liabilities of the Merger;

the risk of shareholder litigation in connection with the Merger, including resulting expense or delay;

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 Combined Company, including the uncertainty of expected future financial performance and results of the Combined Company following completion of the transaction;

the possibility that, if the Combined 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 Combined Company’s common stock could decline;

the risk that Legacy HR's and Legacy 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;

general adverse economic and local real estate conditions;

2 unchanged sentences

increases in operating expenses and real estate taxes;

changes in the dividend policy for the Combined Company’s common stock or its ability to pay dividends;

changes in the dividend policy for the Company’s common stock or its ability to pay dividends;

impairment charges;

pandemics or other health crises, such as COVID-19;

and other risks and uncertainties affecting the Combined Company, including those described from time to time under the caption “Risk Factors” and elsewhere in the Combined Company’s filings and reports with the SEC, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Moreover, other risks and uncertainties of which the Combined Company is not currently aware may also affect the Combined 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 Combined Company on its website or otherwise.

The Combined 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 Combined Company’s filings and reports, including, without limitation, estimates and projections regarding the performance of development projects the Combined Company is pursuing.

For a detailed discussion of the Combined Company’s risk factors, please refer to Legacy HR's and Legacy HTA's filings with the SEC, including this report and Item 1A.

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 Legacy HR’s and Legacy HTA's Annual Reports on Form 10-K for the year ended December 31, 2021.

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 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, Legacy HR's and Legacy HTA's filings with the SEC, including this report and Item 1A.

Risk Factors herein and Legacy HR's and Legacy HTA's Annual Report on Form 10-K for the year ended December 31, 2021.

4 unchanged sentences

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”.

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 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 Notes 2 and 6 to the Condensed Consolidated Financial Statements.

Unless expressly stated otherwise, the discussion in this Item 2 refers to Legacy HR's financial condition and results of operations on a stand-alone basis prior to giving effect to the Merger.

Because Legacy HR was the accounting acquirer under GAAP in the transaction, its historical financial statements become the historical financial statements for the Company.

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 Quarterly Report on Form 10-Q.

2 unchanged sentences

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.

Prior to the refinancing of its bank facilities in connection with the Merger, as of June 30, 2022, the Company had $209.5 million available to be drawn on its unsecured credit facility under the Amended and Restated Credit Agreement, dated as of May 31, 2019 (the "Unsecured Credit Facility") and $34.3 million in cash.

The Combined 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 described in Note 9 to the Condensed Consolidated Financial Statements included in this report.

The Combined Company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements.

The Combined Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Combined Company in sufficient amounts to meet its liquidity needs.

After the refinancing of its bank facilities in connection with the Merger, as of September 30, 2022, the Company had $1.3 billion available to be drawn on its Credit Facility and $57.6 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 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.

Financings in Connection with the Merger

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.

See Note 9 to the Condensed Consolidated Financial Statements for additional information.

In connection with the effectiveness of the Merger, Legacy HR (in a limited capacity), Legacy HTA and the OP entered into the Credit Facility, which restructures the parties’ existing bank facilities and adds additional borrowing capacities for the Company following the Merger.

Investing Activities

Cash flows used in investing activities for the six months ended June 30, 2022 were approximately $281.2 million.

Cash flows provided by investing activities for the nine months ended September 30, 2022 were approximately $1.4 billion.

Below is a summary of significant investing activities.

Company Acquisitions

The following table details the Company's acquisitions for the six months ended June 30, 2022:

The following table details the Company's acquisitions for the nine months ended September 30, 2022:

Dollars in thousands ASSOCIATED HEALTH SYSTEM/TENANCY 1

3 unchanged sentences

Kaiser/Sutter Health 3/7/22 114,000 166,396 0.90 to 3.30

Q1 2022 subtotal 122,175 184,396

Atlanta, GA Wellstar Health 4/7/22 6,912 21,535 0.00

9 unchanged sentences

BayCare Health 6/9/22 18,650 55,788 0.23

Q2 2022 subtotal 163,762 359,706

Seattle, WA EvergreenHealth 8/1/22 4,850 10,593 0.24

Raleigh, NC WakeMed 8/9/22 3,783 11,345 0.24

Jacksonville, FL Ascension 8/9/22 18,195 34,133 0.03

Atlanta, GA Wellstar 8/10/22 11,800 43,496 0.11

Denver, CO Centura 8/11/22 14,800 34,785 2.10

Raleigh, NC Duke 8/18/22 11,375 31,318 0.19

Nashville, TN Ascension 9/15/22 21,000 61,932 0.80

Austin, TX HCA 9/29/22 5,450 15,000 0.03

Q3 2022 subtotal 91,253 242,602

Total real estate acquisitions $ 377,190 786,704

2 unchanged sentences

3 Includes two properties.

Subsequent to June 30, 2022 and unrelated to the Merger, the Company acquired the following property:

Subsequent to September 30, 2022, the Company acquired the following property:

Dollars in thousands ASSOCIATED HEALTH SYSTEM/TENANCY 1

DATE ACQUIRED PURCHASE PRICE SQUARE FOOTAGE MILES TO CAMPUS

Seattle, WA EvergreenHealth 8/1/22 $ 4,850 10,593 0.24

TIAA Joint Venture Acquisitions

The following table details the TIAA Joint Venture's acquisitions for the six months ended June 30, 2022:

Jacksonville, FL Ascension 10/12/22 $ 3,600 6,200 0.10

Joint Venture Acquisitions

The following table details the Joint Venture's acquisitions for the nine months ended September 30, 2022:

Dollars in thousands ASSOCIATED HEALTH SYSTEM/TENANCY 1

4 unchanged sentences

Valley Presbyterian Health 3/7/22 33,800 103,259 1.30 50 %

Total TIAA Joint Venture acquisitions $ 100,975 214,124

Total joint venture acquisitions $ 100,975 214,124

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

1 unchanged sentence

3 Includes two properties.

The Company disposed of four properties during the six months ended June 30, 2022 for a total sales price of $110.5 million, including cash proceeds of $108.1 million.

The following table details these dispositions for the six months ended June 30, 2022:

The Company disposed of 30 properties during the nine months ended September 30, 2022 for a total sales price of $892.4 million, including cash proceeds of $866.5 million.

The following table details these dispositions for the nine months ended September 30, 2022:

Dollars in thousands Date Disposed Sales Price Square Footage

3 unchanged sentences

4/15/22 25,500 201,523

7/29/22 133,100 316,739

8/4/22 160,917 343,545

Los Angeles, CA 2, 5

8/5/22 134,845 283,780

Dallas, TX 4, 6

8/30/22 114,290 189,385

Indianapolis, IN 3

8/31/22 238,845 506,406

Total dispositions $ 892,447 1,991,669

1 Includes two properties.

2 Includes four properties.

3 Includes five properties.

4 Includes six properties.

5 Values and square feet are represented at 100%.

The Company retained a 20% ownership interest in the joint venture that purchased these properties.

6 Values and square feet are represented at 100%.

The Company retained a 40% ownership interest in the joint venture that purchased these properties.

Subsequent to September 30, 2022, the Company disposed of the following properties:

Dollars in thousands DATE DISPOSED SALE PRICE SQUARE FOOTAGE

Dallas, TX 1, 2

10/4/22 $ 104,025 291,328

Houston, TX 2

10/21/22 32,000 134,910

Total dispositions $ 136,025 426,238

1 Includes two properties.

2 These properties were classified as assets held for sale as of September 30, 2022.

Capital Funding

During the six months ended June 30, 2022, capital funding included the following:

During the nine months ended September 30, 2022, capital funding included the following:

• $48.6 million toward the following development and redevelopment of properties:

3 unchanged sentences

◦ Nashville, Tennessee development totaled $13.6 million;

◦ reposition properties capital and tenant improvements totaled $0.1 million;

◦ Orlando, Florida development totaled $1.0 million;

◦ Raleigh, North Carolina development totaled $5.9 million;

◦ Miscellaneous other redevelopment totaled $13.7 million;

◦ tenant improvement funding for previously completed projects totaled $1.6 million.

3 unchanged sentences

Financing Activities

Cash flows provided by financing activities for the six months ended June 30, 2022 were approximately $188.2 million.

Inflows from equity proceeds related to the Company's common stock issuances totaled $22.8 million, net of issuance costs incurred, and net borrowing totaled $262.3 million.

Aggregate cash outflows totaled approximately $96.9 million primarily associated with dividends paid to common stockholders.

Cash flows used in financing activities for the nine months ended September 30, 2022 were approximately $1.5 billion.

See Notes 6 and 9 to the Condensed Consolidated Financial Statements accompanying this report for more information about capital markets and financing activities.

1 unchanged sentence

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

Balance at December 31, 2021 $ — — — 727,400 $ —

1Q 2022 $ 31.73 — 727,400 — $ 22.3

2Q 2022 $ — — — — $ —

The Company has equity distribution agreements with various sales agents with respect to our ATM offering program of common stock with an aggregate sales amount of up to $750.0 million.

As of September 30, 2022, $750.0 million remained available for issuance under our current ATM offering program.

Debt Activity

2 unchanged sentences

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.

On February 24, 2022, the Company repaid in full a mortgage note payable bearing interest at a rate of 6.17% that encumbered an 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.

As of June 30, 2022, the Company has outstanding interest rate derivatives from Legacy HR totaling $175.0 million to hedge one-month LIBOR.

As of September 30, 2022, the Company had outstanding interest rate derivatives totaling $675.0 million to hedge one-month LIBOR/Term SOFR.

The following details the amount and rate of each swap (dollars in thousands):

EFFECTIVE DATE AMOUNT WEIGHTED

AVERAGE RATE EXPIRATION DATE

December 18, 2017 $ 25,000 2.18 % December 16, 2022

February 1, 2018 50,000 2.46 % December 16, 2022

May 1, 2019 50,000 2.33 % May 1, 2026

June 3, 2019 50,000 2.13 % May 1, 2026

EXPIRATION DATE AMOUNT WEIGHTED

January 31, 2023 $ 300,000 1.42 %

December 16, 2022 75,000 2.37 %

January 15, 2024 1

200,000 1.21 %

May 1, 2026 1

100,000 2.15 %

$ 675,000 1.57 %

1 Derivatives hedge one-month term SOFR.

Operating Activities

Cash flows provided by operating activities increased from $105.6 million for the six months ended June 30, 2021 to $114.1 million for the six months ended June 30, 2022.

Cash flows provided by operating activities decreased from $170.3 million for the nine months ended September 30, 2021 to $126.7 million for the nine months ended September 30, 2022.

Items impacting cash flows from operations include, but are not limited to, cash generated from property operations, interest payments and the timing related to the payment of invoices and other expenses.

6 unchanged sentences

In addition to the matters discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, 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.

Expiring Leases

The Company expects that approximately 15% to 20% of the leases will expire each year in the ordinary course of business.

There are 540 leases totaling 1.9 million square feet that will expire during the remainder of 2022.

Approximately 87% of the leases expiring in 2022 are 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 six months of the year was within this range.

The Company expects that approximately 15% of its leases will expire each year in the ordinary course of business.

There are 477 leases totaling 1.3 million square feet that will expire during the fourth quarter of 2022.

Approximately 79% of the leases expiring during the fourth quarter of 2022 are 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

3 unchanged sentences

The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement.

As of June 30, 2022, leases for 90% of the Company's multi-tenant leased square footage allow for some recovery of operating expenses, with 30% having modified gross lease structures and 60% having net lease structures.

As of September 30, 2022, leases for approximately 91% of the Company's multi-tenant leased square footage allow for some recovery of operating expenses, with approximately 32% having modified gross lease structures and approximately 59% having net lease structures.

General and Administrative Expense

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 RSUs.

RSUs are granted at the beginning of the year with three-year forward-looking performance targets.

With this change in the timing and structure of incentive awards, the expense associated with the 2021 backward-looking awards will overlap the expense associated with the January 2022 forward-looking awards.

The new plan is expected to increase total general and administrative expense by $3.5 million in 2022.

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):

NUMBER OF PROPERTIES GROSS REAL ESTATE INVESTMENT AS OF JUNE 30, 2022

YEAR EXERCISABLE MOB INPATIENT FAIR MARKET

VALUE METHOD 1

NON FAIR MARKET

VALUE METHOD 2

2 1 $ 55,146 $ — $ 55,146

2023 — — — — —

2024 — — — — —

2025 4 — 48,298 19,459 67,757

2026 1 — 21,109 — 21,109

2027 — — — — —

2028 1 — 41,101 — 41,101

2029 2 — 51,437 — 51,437

2030 — — — — —

2031 3 — 84,570 — 84,570

2032 and thereafter 4

7 — 255,071 — 255,071

Total 20 1 $ 556,732 $ 19,459 $ 576,191

1 The purchase option price includes a fair market value component that is determined by an appraisal process.

2 Includes properties with stated purchase prices or prices based on fixed capitalization rates.

3 These purchase options have been exercisable for an average of 14.9 years.

4 Includes the medical office building that is recorded in the line item Investment in financing receivable, net on the Company's Condensed Consolidated Balance Sheet.

The Company expects annual general and administrative expense synergies of $33 million to $36 million that will be realized within a year from the closing of the Merger.

Non-GAAP Financial Measures and Key Performance Indicators

10 unchanged sentences

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 amortization, deferred financing fees amortization, stock-based compensation expense and provision for bad debts, net;

FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, non-cash financing receivable amortization, loan origination cost amortization, deferred financing fees amortization, stock-based compensation expense and provision for bad debts, net;

and subtracting maintenance capital expenditures, including second generation tenant improvements and leasing commissions paid and straight-line rent income, net of expense.

10 unchanged sentences

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.

The table below reconciles net income to FFO, Normalized FFO and FAD for the three and six months ended June 30, 2022 and 2021.

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,

The table below reconciles net income to FFO, Normalized FFO and FAD for the three and nine months ended September 30, 2022 and 2021.

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,

Amounts in thousands, except per share data 2022 2021 2022 2021

Net income $ 6,130 $ 23,096 $ 48,357 $ 47,118

Net income (loss) attributable to common stockholders $ 28,304 $ (2,066) $ 76,661 $ 45,052

Gain on sales of real estate properties (143,908) (1,186) (197,188) (41,046)

1 unchanged sentence

Real estate depreciation and amortization 159,643 52,390 272,634 154,899

Non-controlling income from operating partnership units 377 — 377

Proportionate share of unconsolidated joint ventures 3,526 1,558 8,702 3,726

9 unchanged sentences

Unconsolidated JV normalizing items 4

154 54 332 136

Normalized FFO attributable to common stockholders $ 129,415 $ 62,441 $ 261,221 $ 181,489

24 unchanged sentences

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

7 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 806,310 and 806,487, respectively for the three and six months ended June 30, 2022.

7 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 787,559 and 802,150, respectively, for the three and nine months ended September 30, 2022.

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

8 unchanged sentences

Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held 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, on a proforma basis, as if they were owned by the Company for the full analysis period.

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.

2 unchanged sentences

Newly developed or redeveloped properties will be included in the same store pool eight full quarters after substantial completion.

The following table reflects the Company's same store cash NOI for the three months ended June 30, 2022 and 2021.

The following table reflects the Company's proforma same store cash NOI for the three months ended September 30, 2022 and 2021.

NUMBER OF PROPERTIES GROSS INVESTMENT

at June 30, 2022 SAME STORE CASH NOI for the three months ended June 30,

at September 30, 2022 SAME STORE CASH NOI for the three months ended September 30,

Dollars in thousands 2022 2021

Same store properties 589 $ 7,943,839 $ 178,828 $ 173,951

The following tables reconcile net income to same store NOI and the same store property metrics to the total owned real estate portfolio for the three months ended June 30, 2022 and 2021:

Reconciliation of Same Store Cash NOI

THREE MONTHS ENDED JUNE 30,

The following tables reconcile net income to proforma same store NOI and the same store property metrics to the total owned real estate portfolio for the three months ended September 30, 2022 and 2021:

Reconciliation of Proforma Same Store Cash NOI

THREE MONTHS ENDED SEPTEMBER 30,

Dollars in thousands 2022 2021

Net income $ 28,304 $ (2,066)

Non-controlling interests 312 —

Other income (expense) (89,477) 23,000

2 unchanged sentences

Other expenses 1

Straight-line rent revenue (1,327) (1,194)

Straight-line rent revenue, net (7,715) (1,170)

Joint venture properties 3,922 1,210

2 unchanged sentences

Cash NOI 187,621 81,330

Pre-Merger Legacy HTA NOI 27,769 125,609

Proforma cash NOI 215,390 206,939

Cash NOI not included in same store (36,562) (32,988)

Same store cash NOI $ 70,808 $ 68,574

Proforma same store cash NOI $ 178,828 $ 173,951

1 Includes acquisition and pursuit costs, Merger-related costs, bad debt, 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.

Reconciliation of Same Store Properties

AS OF JUNE 30, 2022

Dollars in thousands PROPERTY COUNT GROSS INVESTMENT 1

Reconciliation of Proforma Same Store Properties

AS OF SEPTEMBER 30, 2022

Dollars and square feet in thousands PROPERTY COUNT GROSS INVESTMENT 1

FEET OCCUPANCY

3 unchanged sentences

Redevelopments 11 168,154 1,067 58.4 %

Planned Dispositions 4 69,449 223 2.4 %

Total owned real estate properties 695 $ 8,774,736 40,666 87.8 %

1 Excludes 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.

1 Excludes 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 June 30, 2022 Compared to Three Months Ended June 30, 2021

The Company’s results of operations for the three months ended June 30, 2022 compared to the same period in 2021 were impacted by acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income increased $12.1 million, or 9.5%, for the three months ended June 30, 2022 compared to the prior year period.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

The Company’s results of operations for the three months ended September 30, 2022 compared to the same period in 2021 were impacted by the Merger, acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income increased $167.2 million, or 126.9%, for the three months ended September 30, 2022 compared to the prior year period.

This increase is comprised of the following:

2 unchanged sentences

• Dispositions in 2021 and 2022 resulted in a decrease of $5.0 million.

Interest from financing receivables, net increased $1.4 million, or 283.7%, from the prior year period as a result of two financing receivables acquired during 2021.

• Impact from the Merger contributed $154.6 million.

Interest income increased $1.4 million, or 75.6%, from the prior year period as a result of interest from notes receivables assumed in the Merger.

Other operating income increased $1.1 million, or 36.6%, from the prior year period primarily as a result of variable parking and asset management fees.

Property operating expenses increased $5.5 million, or 10.7%, for the three months ended June 30, 2022 compared to the prior year period primarily as a result of the following activity:

Property operating expenses increased $57.0 million, or 102.6%, for the three months ended September 30, 2022 compared to the prior year period primarily as a result of the following activity:

• Acquisitions in 2021 and 2022 resulted in an increase of $5.3 million.

1 unchanged sentence

◦ Utilities expense of $1.3 million;

◦ Maintenance and repair of $1.0 million;

◦ Administrative, leasing commissions, and other legal expense of $0.6 million;

1 unchanged sentence

◦ Compensation expense of $0.1 million;

◦ Security expense of $0.1 million;

◦ Insurance expense of $0.1 million.

• Property taxes decreased $0.4 million.

• Dispositions in 2021 and 2022 resulted in a decrease of $2.5 million.

General and administrative expenses increased approximately $2.0 million, or 23.3%, for the three months ended June 30, 2022 compared to the prior year period primarily as a result of the following activity:

• Incentive-based awards increases of $0.7 million.

• Impact from the Merger resulted in an increase of $51.3 million.

General and administrative expenses increased approximately $8.5 million, or 104.0%, for the three months ended September 30, 2022 compared to the prior year period primarily as a result of the following activity:

• Compensation expense increases of $1.4 million, including $1.0 million of non-cash expense.

• Net increases, including professional fees and other administrative costs, of $0.1 million.

Merger-related costs totaled $7.1 million for the three months ended June 30, 2022.

• Net increases, including professional fees, audit services, insurance and other administrative costs, of $1.5 million.

• Impact from the Merger resulted in an increase of $5.6 million.

Merger-related costs totaled $79.4 million for the three months ended September 30, 2022.

These costs, consisting primarily of legal, consulting, and banking services, were incurred in connection with the Merger with HTA.

Depreciation and amortization expense increased $5.9 million, or 11.9%, for the three months ended June 30, 2022 compared to the prior year period primarily as a result of the following activity:

Depreciation and amortization expense increased $107.1 million, or 210.0%, for the three months ended September 30, 2022 compared to the prior year period primarily as a result of the following activity:

• Acquisitions in 2021 and 2022 resulted in an increase of $6.9 million.

2 unchanged sentences

• Assets that became fully depreciated resulted in a decrease of $2.8 million.

• Impact from the Merger resulted in an increase of $102.7 million.

Other Income (Expense)

Gains on sale of real estate properties

In the second quarter of 2022, the Company recognized gains of approximately $8.5 million on the sale of two properties.

In the second quarter of 2021, the Company recognized gains of approximately $21.0 million primarily related to the sale of two properties.

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

In the third quarter of 2021, the Company recognized gains of approximately $1.2 million.

Interest expense

Interest expense increased $2.3 million, or 17.2%, for the three months ended June 30, 2022 compared to the prior year period.

Interest expense increased $39.7 million, or 297.8%, for the three months ended September 30, 2022 compared to the prior year period.

The components of interest expense are as follows:

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

Dollars in thousands 2022 2021 $ %

4 unchanged sentences

Treasury hedge amortization 107 107 — — %

Fair value derivative 1,732 — 1,732 — %

Interest cost capitalization (703) (34) (669) 1,967.6 %

1 unchanged sentence

Total interest expense $ 53,044 $ 13,334 $ 39,710 297.8 %

Contractual interest expense increased $1.8 million, or 14.8%, for the three months ended June 30, 2022 compared to the prior year period primarily as a result of the following activity:

• The Company's Unsecured Term Loan due 2026, net of swaps, accounted for a decrease of approximately $0.1 million.

• The Company's Unsecured Term Loan due 2024, net of swaps, accounted for an increase of approximately $0.2 million.

• 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.

Contractual interest expense increased $29.8 million, or 244.4%, for the three months ended September 30, 2022 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 $22.8 million.

• New unsecured term loans executed with the amended credit facility accounted for an increase of approximately $2.2 million.

• The Company's Unsecured Term Loan due 2024 and 2026, net of swaps, accounted for an increase of approximately $1.0 million.

• The Credit Facility accounted for an increase of approximately $4.2 million due to an increased weighted average balance outstanding and an increase in the weighted average interest rate.

• Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.3 million.

Impairment of Real Estate Properties

Impairment of real estate properties in 2021 totaling approximately $5.1 million was associated with a redevelopment project in Nashville, Tennessee.

In the third quarter of 2021, the Company recognized an impairment of approximately $10.7 million based on the contractual sales price of a property that was reclassified to held for sale during the third quarter of 2021.

Equity loss from unconsolidated joint ventures

The Company recognized its proportionate share of losses from its unconsolidated joint ventures, including the TIAA Joint Venture during the second quarter of 2022.

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.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The Company’s results of operations for the six months ended June 30, 2022 compared to the same period in 2021 were impacted by acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income increased $22.2 million, or 8.7%, for the six months ended June 30, 2022 compared to the prior year period.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

The Company’s results of operations for the nine months ended September 30, 2022 compared to the same period in 2021 were impacted by the Merger, acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income increased $189.4 million, or 48.7%, for the nine months ended September 30, 2022 compared to the prior year period.

This increase is comprised of the following:

2 unchanged sentences

• Dispositions in 2021 and 2022 resulted in a decrease of $14.2 million.

Interest from financing receivables, net increased $3.4 million, or 662.2%, from the prior year period as the result of two financing receivables acquired during 2021.

• Impact from the Merger contributed $154.6 million.

Interest income increased $4.8 million, or 199.0%, from the prior year period as the result of two financing receivables acquired during 2021 contributing $3.4 million and interest totaling $1.4 million from notes receivables assumed in the Merger.

Other operating income increased $1.9 million, or 26.2%, from the prior year period primarily as a result of variable parking and asset management fees.

Property operating expenses increased $10.8 million, or 10.4%, for the six months ended June 30, 2022 compared to the prior year period primarily as a result of the following activity:

Property operating expenses increased $67.7 million, or 42.5%, for the nine months ended September 30, 2022 compared to the prior year period primarily as a result of the following activity:

• Acquisitions in 2021 and 2022 resulted in an increase of $15.1 million.

9 unchanged sentences

• Dispositions in 2021 and 2022 resulted in a decrease of $7.6 million.

General and administrative expenses increased approximately $4.5 million, or 26.6%, for the six months ended June 30, 2022 compared to the prior year period primarily as a result of the following activity:

• Impact from the Merger resulted in an increase of $51.3 million.

General and administrative expenses increased approximately $13.1 million, or 51.7%, for the nine months ended September 30, 2022 compared to the prior year period primarily as a result of the following activity:

• Incentive-based awards increases of $1.5 million.

• Compensation expense increases of $4.0 million, including $2.4 million of non-cash expense.

• Net increases, including professional fees and other administrative costs, of $0.4 million.

Merger-related costs totaled $13.2 million for the six months ended June 30, 2022.

• Net increases, including professional fees, audit services, insurance and other administrative costs, of $2.0 million.

• Impact from the Merger resulted in an increase of $5.6 million.

Merger-related costs totaled $92.6 million for the nine months ended September 30, 2022.

These costs consisted primarily of legal, consulting, and banking services incurred in connection with the Merger with HTA.

Depreciation and amortization expense increased $9.9 million, or 9.9%, for the six months ended June 30, 2022 compared to the prior year period primarily as a result of the following activity:

Depreciation and amortization expense increased $117.0 million, or 77.5%, for the nine months ended September 30, 2022 compared to the prior year period primarily as a result of the following activity:

• Acquisitions in 2021 and 2022 resulted in an increase of $19.6 million.

2 unchanged sentences

• Assets that became fully depreciated resulted in a decrease of $7.6 million.

• Impact from the Merger including a reset for fair value resulted in an increase of $102.7 million.

Other Income (Expense)

Gains on sale of real estate properties

Gains on the sale of real estate properties in 2022 totaling approximately $53.3 million primarily related to the sale of four real estate properties.

Gains on the sale of real estate properties in 2021 totaling approximately $39.9 million primarily related to the sale of four real estate properties.

Gains on the sale of real estate properties in 2022 totaling approximately $197.2 million.

Gains on the sale of real estate properties in 2021 totaling approximately $41.0 million.

Interest expense

Interest expense increased $2.7 million, or 10.1%, for the six months ended June 30, 2022 compared to the prior year period.

Interest expense increased $42.4 million, or 106.4%, for the nine months ended September 30, 2022 compared to the prior year period.

The components of interest expense are as follows:

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

Dollars in thousands 2022 2021 $ %

4 unchanged sentences

Treasury hedge amortization 320 320 — — %

Fair value derivative 1,732 — 1,732 — %

Interest cost capitalization (848) (187) (661) 353.5 %

1 unchanged sentence

Total interest expense $ 82,248 $ 39,857 $ 42,391 106.4 %

Contractual interest expense increased $2.1 million, or 8.5%, for the six months ended June 30, 2022 compared to the prior year period primarily as a result of the following activity:

• The Company's Unsecured Term Loan due 2026, net of swaps, accounted for a decrease of approximately $0.3 million.

• The Company's Unsecured Term Loan due 2024, net of swaps, accounted for an increase of approximately $0.2 million.

Contractual interest expense increased $31.9 million, or 87.1%, for the nine months ended September 30, 2022 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 $22.8 million.

• New unsecured term loans executed with the amended credit facility accounted for an increase of approximately $2.2 million.

• The Company's Unsecured Term Loan due 2024 and 2026, net of swaps, accounted for an increase of approximately $0.9 million.

• The Unsecured Credit Facility accounted for an increase of approximately $7.0 million due to an increased weighted average balance outstanding and an increase in the weighted average interest rate.

1 unchanged sentence

Impairment of Real Estate Properties

Impairment of real estate properties in 2021 totaling approximately $5.9 million was associated with the disposal of one property totaling $0.8 million and $5.1 million associated with a redevelopment project in Nashville, Tennessee.

Impairment of real estate properties in 2021 totaling approximately $16.6 million was associated with the disposal of one property totaling $0.8 million and the reclassification of a property to held for sale resulting in an impairment of $10.7 million based on the contractual sales price.

In addition, the Company recorded impairment charges totaling $5.1 million which includes a property associated with a redevelopment project in Nashville, Tennessee.

Equity loss from unconsolidated joint ventures

The Company recognized its proportionate share of losses from its unconsolidated joint ventures, including the TIAA Joint Venture during the first quarter of 2022.

These losses are primarily attributable to non-cash depreciation expense.

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.

Interest and other income (expense), net

In the first quarter of 2021, the Company recorded approximately $0.5 million from a forfeited earnest money deposit.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis