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 SEPTEMBER 30, 2022 DECEMBER 31, 2021 Real estate properties Land $ 1,449,550 $ 387,918 Buildings and improvements 11,439,797 4,337,641 Lease intangibles 968,914 120,478 Personal property 11,680 11,761 Investment in financing receivable, net 118,919 186,745 Financing lease right-of-use assets 79,950 31,576 Construction in progress 43,148 3,974 Land held for development 73,321 24,849 Total real estate properties 14,185,279 5,104,942 Less accumulated depreciation and amortization ( 1,468,736 ) ( 1,338,743 ) Total real estate properties, net 12,716,543 3,766,199 Cash and cash equivalents 57,583 13,175 Assets held for sale, net 185,074 57 Operating lease right-of-use assets 321,365 128,386 Investments in unconsolidated joint ventures 327,752 161,942 Goodwill 148,891 3,487 Other assets, net 438,235 185,673 Total assets $ 14,195,443 $ 4,258,919 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Notes and bonds payable $ 5,570,139 $ 1,801,325 Accounts payable and accrued liabilities 231,018 86,108 Liabilities of assets held for sale 10,644 294 Operating lease liabilities 268,840 96,138 Financing lease liabilities 72,378 22,551 Other liabilities 203,398 67,387 Total liabilities 6,356,417 2,073,803 Commitments and contingencies Stockholders' equity Preferred stock, $ .01 par value per share; 200,000 shares authorized; none issued and outstanding — — Class A Common stock, $ .01 par value per share; 1,000,000 shares authorized; 380,572 and 150,457 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively 3,806 1,505 Additional paid-in capital 9,586,556 3,972,917 Accumulated other comprehensive income (loss) 5,524 ( 9,981 ) Cumulative net income attributable to common stockholders 1,342,819 1,266,158 Cumulative dividends ( 3,211,492 ) ( 3,045,483 ) Total stockholders' equity 7,727,213 2,185,116 Non-controlling interest 111,813 — Total equity 7,839,026 2,185,116 Total liabilities and equity $ 14,195,443 $ 4,258,919 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 1 Table of Contents Healthcare Realty Trust Incorporated Condensed Consolidated Statements of Income For the Three and Nine Months Ended September 30, 2022 and 2021 Amounts in thousands, except per share data Unaudited THREE MONTHS ENDED September 30, NINE MONTHS ENDED September 30, 2022 2021 2022 2021 Revenues Rental income $ 298,931 $ 131,746 $ 578,052 $ 388,620 Interest income 3,366 1,917 7,253 2,426 Other operating 4,057 2,969 9,270 7,347 306,354 136,632 594,575 398,393 Expenses Property operating 112,473 55,518 226,947 159,241 General and administrative 16,741 8,207 38,317 25,251 Acquisition and pursuit costs 482 974 3,137 2,388 Merger-related costs 79,402 — 92,603 — Depreciation and amortization 158,117 50,999 267,889 150,904 367,215 115,698 628,893 337,784 Other income (expense) Gain on sales of real estate properties 143,908 1,186 197,188 41,046 Interest expense ( 53,044 ) ( 13,334 ) ( 82,248 ) ( 39,857 ) Loss on extinguishment of debt ( 1,091 ) — ( 2,520 ) — Impairment of real estate properties — ( 10,669 ) 25 ( 16,581 ) Equity loss from unconsolidated joint ventures ( 124 ) ( 183 ) ( 776 ) ( 404 ) Interest and other (expense) income, net ( 172 ) — ( 378 ) 239 89,477 ( 23,000 ) 111,291 ( 15,557 ) Net income (loss) $ 28,616 $ ( 2,066 ) $ 76,973 $ 45,052 Net income attributable to non-controlling interests ( 312 ) — ( 312 ) — Net income (loss) attributable to common stockholders $ 28,304 $ ( 2,066 ) $ 76,661 $ 45,052 Basic earnings per common share $ 0.08 $ ( 0.02 ) $ 0.36 $ 0.31 Diluted earnings per common share $ 0.08 $ ( 0.02 ) $ 0.35 $ 0.31 Weighted average common shares outstanding - basic 328,805 143,818 209,807 141,521 Weighted average common shares outstanding - diluted 332,031 143,818 210,944 141,613 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 2 Table of Contents Healthcare Realty Trust Incorporated Condensed Consolidated Statements of Comprehensive Income For the Three and Nine Months Ended September 30, 2022 and 2021 Amounts in thousands Unaudited THREE MONTHS ENDED September 30, NINE MONTHS ENDED September 30, 2022 2021 2022 2021 Net income (loss) $ 28,616 $ ( 2,066 ) $ 76,973 $ 45,052 Other comprehensive income Interest rate swaps Reclassification adjustments for losses included in net income (interest expense) 763 1,131 2,672 3,340 Gains arising during the period on interest rate swaps 6,083 36 12,905 2,079 6,846 1,167 15,577 5,419 Comprehensive income (loss) 35,462 ( 899 ) 92,550 50,471 Less: comprehensive income attributable to non-controlling interests ( 384 ) — ( 384 ) — Comprehensive income (loss) attributable to common stockholders $ 35,078 $ ( 899 ) $ 92,166 $ 50,471 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 3 Table of Contents Healthcare Realty Trust Incorporated Condensed Consolidated Statements of Equity For the Three Months Ended September 30, 2022 and 2021 Amounts in thousands, except per share data Unaudited Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Cumulative Net Income Cumulative Dividends Total Stockholders’ Equity Non-controlling Interests Total Equity Balance at June 30, 2022 $ 1,516 $ 4,002,525 $ ( 1,250 ) $ 1,314,515 $ ( 3,139,440 ) $ 2,177,866 $ — $ 2,177,866 Issuance of common stock, net of issuance costs — 84 — — — 84 — 84 Merger consideration transferred 2,289 5,574,174 — — — 5,576,463 110,702 5,687,165 Non-controlling interests acquired — — — — — — 1,266 1,266 Common stock redemptions — ( 41 ) — — — ( 41 ) — ( 41 ) Share-based compensation 1 9,716 — — — 9,717 — 9,717 Redemption of non-controlling interest — 98 — — — 98 ( 97 ) 1 Net income — — — 28,304 — 28,304 312 28,616 Reclassification adjustments for losses included in net income (interest expense) — — 755 — — 755 8 763 Gains arising during the period on interest rate swaps — — 6,019 — — 6,019 64 6,083 Dividends to common stockholders ($ 0.31 per share) — — — — ( 72,052 ) ( 72,052 ) ( 442 ) ( 72,494 ) Balance at September 30, 2022 $ 3,806 $ 9,586,556 $ 5,524 $ 1,342,819 $ ( 3,211,492 ) $ 7,727,213 $ 111,813 $ 7,839,026 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Cumulative Net Income Cumulative Dividends Total Stockholders’ Equity Non-controlling Interests Total Equity Balance at June 30, 2021 $ 1,455 $ 3,818,592 $ ( 13,580 ) $ 1,246,617 $ ( 2,956,830 ) $ 2,096,254 $ — $ 2,096,254 Issuance of common stock, net of issuance costs 20 61,442 — — — 61,462 — 61,462 Common stock redemptions — — — — — — — — Share-based compensation — 2,538 — — — 2,538 — 2,538 Net loss — — — ( 2,066 ) — ( 2,066 ) — ( 2,066 ) Reclassification adjustments for losses included in net income (interest expense) — — 1,131 — — 1,131 — 1,131 Losses arising during the period on interest rate swaps — — 36 — — 36 — 36 Dividends to common stockholders ($ 0.3025 per share) — — — — ( 44,022 ) ( 44,022 ) — ( 44,022 ) Balance at September 30, 2021 $ 1,475 $ 3,882,572 $ ( 12,413 ) $ 1,244,551 $ ( 3,000,852 ) $ 2,115,333 $ — $ 2,115,333 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 4 Table of Contents Healthcare Realty Trust Incorporated Condensed Consolidated Statements of Equity For the Nine Months Ended September 30, 2022 and 2021 Amounts in thousands, except per share data Unaudited Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Cumulative Net Income Cumulative Dividends Total Stockholders’ Equity Non-controlling Interest Total Equity Balance at December 31, 2021 $ 1,505 $ 3,972,917 $ ( 9,981 ) $ 1,266,158 $ ( 3,045,483 ) $ 2,185,116 $ — $ 2,185,116 Issuance of common stock, net of issuance costs 8 22,847 — — — 22,855 — 22,855 Merger consideration transferred 2,289 5,574,174 — — — 5,576,463 110,702 5,687,165 Non-controlling interests acquired — — — — — — 1,266 1,266 Common stock redemptions — ( 248 ) — — — ( 248 ) — ( 248 ) Share-based compensation 4 16,768 — — — 16,772 — 16,772 Redemption of non-controlling interest — 98 — — — 98 ( 97 ) 1 Net Income — — — 76,661 — 76,661 312 76,973 Reclassification adjustments for losses included in net income (interest expense) — — 2,664 — — 2,664 8 2,672 Gains arising during the period on interest rate swaps — — 12,841 — — 12,841 64 12,905 Dividends to common stockholders ($ 0.93 per share) — — — — ( 166,009 ) ( 166,009 ) ( 442 ) ( 166,451 ) Balance at September 30, 2022 $ 3,806 $ 9,586,556 $ 5,524 $ 1,342,819 $ ( 3,211,492 ) $ 7,727,213 $ 111,813 $ 7,839,026 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Cumulative Net Income Cumulative Dividends Total Stockholders’ Equity Non-controlling Interest Total Equity Balance at December 31, 2020 $ 1,395 $ 3,635,341 $ ( 17,832 ) $ 1,199,499 $ ( 2,870,027 ) $ 1,948,376 $ — $ 1,948,376 Issuance of common stock, net of issuance costs 78 240,660 — — — 240,738 — 240,738 Common stock redemptions — ( 1,610 ) — — — ( 1,610 ) — ( 1,610 ) Share-based compensation 2 8,181 — — — 8,183 — 8,183 Net income — — — 45,052 — 45,052 — 45,052 Reclassification adjustments for losses included in net income (interest expense) — — 3,340 — — 3,340 — 3,340 Gains arising during the period on interest rate swaps — — 2,079 — — 2,079 — 2,079 Dividends to common stockholders ($ 0.9075 per share) — — — — ( 130,825 ) ( 130,825 ) — ( 130,825 ) Balance at September 30, 2021 $ 1,475 $ 3,882,572 $ ( 12,413 ) $ 1,244,551 $ ( 3,000,852 ) $ 2,115,333 $ — $ 2,115,333 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 5 Table of Contents Healthcare Realty Trust Incorporated Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2022 and 2021 Amounts in thousands Unaudited OPERATING ACTIVITIES NINE MONTHS ENDED September 30, 2022 2021 Net income $ 76,973 $ 45,052 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 267,889 150,904 Other amortization 11,875 2,721 Share-based compensation 16,772 8,183 Amortization of straight-line rent receivable (lessor) ( 12,267 ) ( 4,574 ) Amortization of straight-line rent on operating leases (lessee) 2,016 1,115 Gain on sales of real estate properties ( 197,188 ) ( 41,046 ) Loss on extinguishment of debt 2,520 — Impairment of real estate properties ( 25 ) 16,581 Equity loss from unconsolidated joint ventures 776 404 Distributions from unconsolidated joint ventures 893 — Non-cash interest from financing and notes receivable ( 1,901 ) ( 196 ) Changes in operating assets and liabilities: Other assets, including right-of-use-assets ( 19,230 ) ( 9,947 ) Accounts payable and accrued liabilities 35,769 215 Other liabilities ( 58,213 ) 843 Net cash provided by operating activities 126,659 170,255 INVESTING ACTIVITIES Acquisitions of real estate ( 376,924 ) ( 250,766 ) Development of real estate ( 17,572 ) ( 2,020 ) Additional long-lived assets ( 97,797 ) ( 69,647 ) Funding of mortgages and notes receivable ( 3,441 ) — Investments in unconsolidated joint ventures ( 99,586 ) ( 49,612 ) Investment in financing receivable 167 ( 104,654 ) Proceeds from sales of real estate properties and additional long-lived assets 870,806 112,029 Proceeds from notes receivable repayments 500 — Cash assumed in Merger, including restricted cash for special dividend payment 1,149,681 — Net cash provided by (used in) investing activities 1,425,834 ( 364,670 ) FINANCING ACTIVITIES Net (repayments)/borrowings on unsecured credit facility ( 154,400 ) 90,500 Borrowings on term loans 666,500 — Repayment on term loan ( 718,500 ) — Repayments of notes and bonds payable ( 18,880 ) ( 2,914 ) Redemption of notes and bonds payable ( 2,184 ) — Dividends paid ( 165,735 ) ( 130,825 ) Special dividend paid in relation to the Merger ( 1,123,648 ) — Net proceeds from issuance of common stock 22,851 240,779 Common stock redemptions ( 894 ) ( 2,014 ) Distributions to non-controlling interest holders ( 442 ) — Debt issuance and assumption costs ( 12,753 ) ( 252 ) Payments made on finance leases — ( 162 ) Net cash (used in) provided by financing activities ( 1,508,085 ) 195,112 Increase in cash and cash equivalents 44,408 697 Cash and cash equivalents at beginning of period 13,175 15,303 Cash and cash equivalents at end of period $ 57,583 $ 16,000 6 Table of Contents Supplemental Cash Flow Information NINE MONTHS ENDED September 30, 2022 2021 Interest paid $ 83,382 $ 40,653 Invoices accrued for construction, tenant improvements and other capitalized costs $ 52,840 $ 11,663 Capitalized interest $ 848 $ 187 The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, are an integral part of these financial statements. 7 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Business Overview Healthcare Realty Trust Incorporated is a real estate investment trust ("REIT") that owns, leases, manages, acquires, finances, develops and redevelops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. As of September 30, 2022, the Company had gross investments of approximately $ 14.2 billion in 695 real estate properties, construction in progress, redevelopments, financing receivables, financing lease right-of-use assets, land held for development and corporate property. The Company's 695 real estate properties are located in 35 states and total approximately 40.7 million square feet. The Company provided leasing and property management services to approximately 38.9 million square feet nationwide. As of September 30, 2022, the Company had a weighted average ownership interest of approximately 49 % in 33 real estate properties held in joint ventures. See Note 3 below for more details regarding the Company's unconsolidated joint ventures. Any references to square footage or occupancy percentage, and any amounts derived from these values in these notes to the Company's Condensed Consolidated Financial Statements, are outside the scope of our independent registered public accounting firm’s review. Basis of Presentation For purposes of this Quarterly Report on Form 10-Q, references to the “Company” are to Legacy HR for periods prior to the closing of the Merger and thereafter to Legacy HR and Legacy HTA after giving effect to the Merger. The Merger is described in more detail in Note 2 to these Condensed Consolidated Financial Statements. The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein and specific disclosures incorporated as a result of the Merger, management believes there has been no material change in the information disclosed in the Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. All material intercompany transactions and balances have been eliminated in consolidation. This interim financial information should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. In addition, the interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2022 for many reasons including, but not limited to, the Merger (as discussed in more detail in Note 2 below), acquisitions, dispositions, capital financing transactions, changes in interest rates and the effects of other trends, risks and uncertainties. Principles of Consolidation The Company’s Condensed Consolidated Financial Statements include, as of September 30, 2022, the accounts of the Company, its wholly owned subsidiaries, and joint ventures and partnerships where the Company controls the operating activities. The interests not owned by the Company are presented as non-controlling interests on the accompanying Condensed Consolidated Balance Sheets and Statements of Operations, Condensed Consolidated Statements of Comprehensive Income, and Condensed Consolidated Statements of Equity. GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). Accounting Standards Codification 810 broadly defines a VIE as an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is the VIE’s primary beneficiary. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis. As of September 30, 2022, the Company 8 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. identified three entities that qualified as VIE's because the limited partners in these partnerships, although entitled to vote on certain matters, do not possess kick-out rights or substantive participating rights. Two of the entities are consolidated and one is unconsolidated. Holders of operating partnership units (“OP Units”) are considered to be non-controlling interest holders in the OP and their ownership interests are reflected as equity on the accompanying Condensed Consolidated Balance Sheets. Further, a portion of the earnings and losses of the OP are allocated to non-controlling interest holders based on their respective ownership percentages. Upon conversion of OP Units to common stock, any difference between the fair value of the common stock issued and the carrying value of the OP Units converted to common stock is recorded as a component of equity. As of September 30, 2022, there were approximately 4.0 million, or 1.1 %, of OP Units issued and outstanding held by non-controlling interest holders. Additionally, the Company is the primary beneficiary of this VIE. Accordingly, the Company consolidates the interests in the OP. However, because the Company holds what is deemed to be significantly all of the OP, it qualifies for the exemption from providing certain disclosure requirements associated with investments in VIEs. For property holding entities not determined to be VIEs, the Company consolidates such entities in which it owns 100 % of the equity or has a controlling financial interest evidenced by ownership of a majority voting interest. All intercompany balances and transactions are eliminated in consolidation. As of September 30, 2022, the Company's unconsolidated joint venture arrangements were accounted for using the equity method of accounting as the Company exercised significant influence over but did not control these entities. See Note 3 below for more details regarding the Company's unconsolidated joint ventures. Use of Estimates in the Condensed Consolidated Financial Statements Preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates. Reclassifications Certain reclassifications have been made on the Company's prior year Condensed Consolidated Balance Sheet to conform to current year presentation. Previously, the Company's Lease intangibles were included in Building, improvements and lease intangibles and Goodwill was included with Other assets, net. These amounts are now classified as separate line items on the Company's Condensed Consolidated Balance Sheets. Investments in Leases - Financing Receivables, Net In accordance with Accounting Standards Codification ("ASC") 842, for transactions in which the Company enters into a contract to acquire an asset and leases it back to the seller (i.e., a sale leaseback transaction), control of the asset is not considered to have transferred when the seller-lessee has a purchase option. As a result, the Company does not recognize the underlying real estate asset but instead recognizes a financial asset in accordance with ASC 310 “Receivables”. During the first quarter of 2022, the Company reclassified the two medical office buildings in Nashville, Tennessee that were acquired in separate sale-leaseback transactions in the fourth quarter of 2021. The leases with the sellers commenced in the first quarter, which resulted in the allocation of the financing receivable totaling $ 73.9 million to land and building and improvements. Real Estate Notes Receivable Real estate notes receivable consists of mezzanine and other real estate loans, which are generally collateralized by a pledge of the borrower’s ownership interest in the respective real estate owner, a mortgage or deed of trust, and/or corporate guarantees. Real estate notes receivable are intended to be held-to-maturity and are recorded at amortized cost, net of unamortized loan origination costs and fees and allowance for credit losses. As of September 30, 2022, real estate notes receivable, net totaled $ 79.0 million. Interest Income Income from Lease Financing Receivables For the three and nine months ended September 30, 2022, the Company recognized the related income from two financing receivables totaling $ 2.0 million and $ 5.9 million, respectively, based on an imputed interest rate over the 9 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. terms of the applicable lease. As a result, the interest recognized from the financing receivable will not equal the cash payments from the lease agreement. Acquisition costs incurred in connection with entering into the financing receivable are treated as loan origination fees. These costs are classified with the financing receivable and are included in the balance of the net investment. Amortization of these amounts will be recognized as a reduction to Income from financing receivable, net over the life of the lease. Income from Real Estate Notes Receivable During the three and nine months ended September 30, 2022, the Company recognized interest income of $ 1.3 million related to real estate notes receivable. Unpaid interest is capitalized, with principal and any unpaid interest due on the maturity date. Revenue from Contracts with Customers (Topic 606) The Company recognizes certain revenue under the core principle of Topic 606. This topic requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Lease revenue is not within the scope of Topic 606. To achieve the core principle, the Company applies the five step model specified in the guidance. Revenue that is accounted for under Topic 606 is segregated on the Company’s Condensed Consolidated Statements of Income in the Other operating line item. This line item includes parking income, management fee income and other miscellaneous income. Below is a detail of the amounts by category: THREE MONTHS ENDED September 30, NINE MONTHS ENDED September 30, in thousands 2022 2021 2022 2021 Type of Revenue Parking income $ 2,428 $ 2,187 $ 6,100 $ 5,725 Management fee income 1 1,426 723 2,864 1,381 Miscellaneous 203 59 306 241 $ 4,057 $ 2,969 $ 9,270 $ 7,347 1 Includes the recovery of certain expenses under the financing receivable as outlined in the management agreement. The Company’s major types of revenue that are accounted for under Topic 606 that are listed above are all accounted for as the performance obligation is satisfied. The performance obligations that are identified for each of these items are satisfied over time, and the Company recognizes revenue monthly based on this principle. New Accounting Pronouncements Accounting Standards Update No. 2020-04 On March 12, 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848) . ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR and Term SOFR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. Management continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. 10 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. Note 2. Merger with HTA On July 20, 2022 (the “Closing Date”), pursuant to the Agreement and Plan of Merger dated as of February 28, 2022 (the “Merger Agreement”), by and among Healthcare Realty Trust Incorporated, a Maryland corporation (now known as HRTI, LLC, a Maryland limited liability company) (“Legacy HR”), Healthcare Trust of America, Inc., a Maryland corporation (now known as Healthcare Realty Trust Incorporated) (“Legacy HTA”), Healthcare Trust of America Holdings, LP, a Delaware limited partnership (now known as Healthcare Realty Holdings, L.P.) (the “OP”), and HR Acquisition 2, LLC, a Maryland limited liability company (“Merger Sub”), Merger Sub merged with and into Legacy HR, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA (the “Merger”). On the Closing Date, each outstanding share of Legacy HR common stock, $ 0.01 par value per share (the “Legacy HR Common Stock”), was cancelled and converted into the right to receive one share of Legacy HTA class A common stock at a fixed ratio of 1.00 to 1.00. Per the terms of the Merger Agreement, Legacy HTA declared a special dividend of $ 4.82 (the “Special Dividend”) for each outstanding share of Legacy HTA class A common stock, $ 0.01 par value per share ( the “Legacy HTA Common Stock”), and the OP declared a corresponding distribution to the holders of its partnership units, payable to Legacy HTA stockholders and OP unitholders of record on July 19, 2022. Immediately following the Merger, Legacy HR converted to a Maryland limited liability company and changed its name to HRTI, LLC and Legacy HTA changed its name to “Healthcare Realty Trust Incorporated”. In addition, the equity interests of Legacy HR were contributed by Legacy HTA by means of a contribution and assignment agreement to the OP such that Legacy HR became a wholly-owned subsidiary of the OP. As a result, Legacy HR became a part of an umbrella partnership REIT (“UPREIT”) structure, which is intended to align the corporate structure of the combined company after giving effect to the Merger and UPREIT reorganization (the “Combined Company”). The combined company operates under the name “Healthcare Realty Trust Incorporated” and its shares of class A common stock, $ 0.01 par value per share, trade on the New York Stock Exchange (the “NYSE”) under the ticker symbol “HR”. The primary reason for the Merger was to expand the Company’s size, scale, diversification, liquidity and access to capital, in order to further enhance its competitive advantages and accelerate its investment activities. For accounting purposes, the Merger was treated as a “reverse acquisition” in which Legacy HTA was considered the legal acquirer and Legacy HR was considered the accounting acquirer based on various factors, including, but not limited to: (i) the composition of the board of directors of the Combined Company, (ii) the composition of senior management of the Combined Company, and (iii) the premium transferred to the Legacy HTA stockholders. As a result, the historical financial statements of the accounting acquirer, Legacy HR, became the historical financial statements of the Combined Company. The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, the assets acquired and the liabilities assumed to be recognized at their acquisition date fair value. The consideration transferred on the Closing Date is as follows: Dollars in thousands Shares of Legacy HTA Common Stock outstanding as of July 20, 2022 as adjusted (a) 228,520,990 Exchange ratio 1.00 Implied shares of Legacy HR Common Stock issued 228,520,990 Adjusted closing price of Legacy HR Common Stock on July 20, 2022 (b) $ 24.37 Value of implied Legacy HR Common Stock issued $ 5,569,057 Fair value of Legacy HTA restricted stock awards attributable to pre-Merger services (c) 7,406 Consideration transferred $ 5,576,463 (a) Includes 228,520,990 shares of Legacy HTA Common Stock as of July 20, 2022. The number of shares of HTA Common Stock presented above was based on 228,857,717 total shares of Legacy HTA Common Stock outstanding as of the Closing Date, less 192 HTA fractional shares that were paid in cash less 336,535 shares of Legacy HTA restricted stock (net of 215,764 shares of Legacy HTA restricted stock withheld). For accounting purposes, these shares and units were converted to Legacy HR Common Stock, at an exchange ratio of 1.00 per share of HTA Common Stock. (b) For accounting purposes, the fair value of Legacy HR Common Stock issued to former holders of Legacy HTA Common Stock was based on the per share closing price of Legacy HR Common Stock on July 20, 2022. 11 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. (c) Represents the fair value of Legacy HTA restricted shares which fully vested prior to the closing of the Merger or became fully vested as a result of the closing of the Merger and which are attributable to pre-combination services. Preliminary Purchase Price Allocation The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the Closing Date: Dollars in thousands ASSETS Real estate investments Land $ 985,926 Buildings and improvements 6,960,418 Lease intangible assets (a) 831,920 Financing lease right-of-use assets 9,874 Construction in progress 10,071 Land held for development 46,538 Total real estate investments $ 8,844,747 Assets held for sale, net 707,442 Investments in unconsolidated joint ventures 67,892 Cash and cash equivalents 26,034 Restricted cash 1,123,647 Operating lease right-of-use assets 198,261 Other assets, net (b) (c) 209,163 Total assets acquired $ 11,177,186 LIABILITIES Notes and bonds payable $ 3,991,300 Accounts payable and accrued liabilities 1,227,570 Liabilities of assets held for sale 28,677 Operating lease liabilities 173,948 Financing lease liabilities 10,720 Other liabilities 203,210 Total liabilities assumed $ 5,635,425 Net identifiable assets acquired $ 5,541,761 Non-controlling interest $ 110,702 Goodwill $ 145,404 (a) The weighted average amortization period for the acquired lease intangible assets is 5.5 years. (b) Includes $ 34.6 million of gross contractual accounts receivable, which approximates fair value, of which the Company preliminarily did not expect $ 12.3 million to be collected as of Closing Date. (c) Includes $ 78.7 million of gross contractual real estate notes receivable, the fair value of which was $ 74.8 million, and the Company preliminarily expects to collect substantially all of the real estate notes receivable proceeds as of the Closing Date. As of September 30, 2022, the Company had not finalized the determination of fair value of certain tangible and intangible assets acquired and liabilities assumed including, but not limited to real estate assets and liabilities, notes receivables and goodwill. As such, the assessment of fair value of assets acquired and liabilities assumed is preliminary and was based on information that was available at the time the Condensed Consolidated Financial Statements were prepared. The finalization of the purchase accounting assessment could result in material changes in the Company’s determination of the fair value of assets acquired and liabilities assumed, which will be recorded as measurement period adjustments in the period in which they are identified, up to one year from the Closing Date. A preliminary estimate of approximately $ 145.4 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The recognized goodwill is attributable to expected synergies and benefits arising from the Merger, including anticipated general and administrative cost savings and potential economies of scale benefits in both tenant 12 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. and vendor relationships following the closing of the Merger. None of the goodwill recognized is expected to be deductible for tax purposes. Merger related Costs In conjunction with the Merger, the Company incurred Merger-related costs of $ 79.4 million during the three months ended September 30, 2022 and $ 92.6 million during the nine months ended September 30, 2022, which were included within Merger-related costs in results of operations. The Merger-related costs primarily consist of legal, consulting, banking services, and other Merger-related costs. Unaudited Pro Forma Financial Information The Condensed Consolidated Statements of Income for the three months ended September 30, 2022 include $ 157.4 million of revenues and $ 20.6 million of net loss and for the nine months ended September 30, 2022 include $ 157.4 million of revenues and $ 20.6 million of net loss associated with the results of operations of Legacy HTA from the Merger closing date to September 30, 2022. The following unaudited pro forma information presents a summary of our Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2022 and 2021, as if the Merger had occurred on January 1, 2021. Adjustments in the pro forma financial information include but are not limited to the following: (i) additional depreciation and amortization expense related to the acquired tangible and intangible assets, (ii) additional interest expense on transaction-related borrowings, including assumed debt in connection with the Merger, (iii) additional rental income related to the assumed above and below-market leases, and straight-line rent and (iv) Merger-related costs and other one-time, non-recurring costs. The pro forma financial information excludes adjustments for estimated cost synergies or other effects of the integration of the Merger. The following pro forma financial information is not necessarily indicative of the results of operations had the acquisition been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses. THREE MONTHS ENDED September 30, NINE MONTHS ENDED September 30, Dollars in thousands 2022 2021 2022 2021 Total revenues $ 352,744 $ 332,465 $ 1,054,809 $ 982,192 Net income $ 115,496 $ ( 14,930 ) $ 160,120 $ ( 79,754 ) 13 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. Note 3. Real Estate Investments 2022 Company Acquisitions The following table details the Company's acquisitions for the nine months ended September 30, 2022: Dollars in 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 Q1 2022 subtotal 122,175 121,171 116,889 4,282 184,396 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 Q2 2022 subtotal 163,762 162,457 153,407 9,050 359,706 Seattle, WA 8/1/22 4,850 4,806 4,882 ( 76 ) 10,593 Raleigh, NC 8/9/22 3,783 3,878 3,932 ( 54 ) 11,345 Jacksonville, FL 8/9/22 18,195 18,508 18,583 ( 75 ) 34,133 Atlanta, GA 8/10/22 11,800 11,525 12,038 ( 513 ) 43,496 Denver, CO 8/11/22 14,800 13,902 13,918 ( 16 ) 34,785 Raleigh, NC 8/18/22 11,375 10,670 10,547 123 31,318 Nashville, TN 9/15/22 21,000 20,764 20,572 192 61,932 Austin, TX 9/29/22 5,450 5,449 5,572 ( 123 ) 15,000 Q3 2022 subtotal 91,253 89,502 90,044 ( 542 ) 242,602 Total real estate acquisitions $ 377,190 $ 373,130 $ 360,340 $ 12,790 786,704 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 September 30, 2022, the Company acquired the following property: Dollars in thousands DATE ACQUIRED PURCHASE PRICE SQUARE FOOTAGE Jacksonville, FL 10/12/22 $ 3,600 6,200 2022 Joint Venture Acquisitions The following table details the joint venture acquisitions for the nine months ended September 30, 2022. These joint venture acquisitions are not consolidated for purposes of the Company's Condensed Consolidated Financial Statements. 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 joint venture 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. 14 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. 4 Includes two properties. Unconsolidated Joint Ventures The Company's investment in and loss recognized for the three and nine months ended September 30, 2022 and 2021 related to its unconsolidated joint ventures accounted for under the equity method are shown in the table below: THREE MONTHS ENDED September 30, NINE MONTHS ENDED September 30, Dollars in thousands 2022 2021 2022 2021 Investments in unconsolidated joint ventures, beginning of period $ 210,781 $ 117,935 $ 161,942 $ 73,137 New investments during the period 1 117,880 4,593 167,479 49,612 Equity loss recognized during the period ( 124 ) ( 183 ) ( 776 ) ( 404 ) Owner distributions ( 785 ) — ( 893 ) — Investments in unconsolidated joint ventures, end of period 1 $ 327,752 $ 122,345 $ 327,752 $ 122,345 1 Includes unconsolidated joint ventures acquired as part of the Merger, as well as investments in two joint ventures representing a 20 % and 40 % ownership interest in portfolios in Los Angeles, California and Dallas, Texas, respectively. Also, see 2022 Real Estate Asset Dispositions below for additional information. 2022 Real Estate Asset Dispositions The following table details the Company's dispositions for the nine months ended September 30, 2022: Dollars in thousands 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 GA, FL, PA 3, 8 7/29/22 133,100 ( 8,109 ) 124,991 124,991 — — 316,739 GA, FL, TX 5, 8 8/4/22 160,917 ( 5,893 ) 155,024 151,819 3,205 — 343,545 Los Angeles, CA 3, 6, 8 8/5/22 134,845 ( 3,102 ) 131,743 131,332 411 — 283,780 Dallas, TX 5, 7, 8 8/30/22 114,290 ( 682 ) 113,608 113,608 — — 189,385 Indianapolis, IN 4, 9 8/31/22 238,845 ( 5,846 ) 232,999 84,767 4,324 143,908 506,406 Total dispositions $ 892,447 $ ( 25,949 ) $ 866,498 $ 660,993 $ 8,228 $ 197,277 1,991,669 1 Includes straight-line rent receivables, leasing commissions and lease inducements. 2 Includes two properties. 3 Includes four properties. 4 Includes five properties. 5 Includes six properties. 6 Values and square feet are represented at 100 %. The Company retained a 20 % ownership interest in the joint venture that purchased these properties. 7 Values and square feet are represented at 100 %. The Company retained a 40 % ownership interest in the joint venture that purchased these properties. 8 These properties were acquired as part of the Merger and were included as assets held for sale in the purchase price allocation. 9 Two of the five properties included in this portfolio were acquired in the Merger and were included as assets held for sale in the purchase price allocation. 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. 15 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. Assets Held for Sale The Company had six properties classified as assets held for sale as of September 30, 2022 and no properties classified as assets held for sale as of December 31, 2021. The table below reflects the assets and liabilities of the properties classified as held for sale as of September 30, 2022 and December 31, 2021: Dollars in thousands September 30, 2022 December 31, 2021 Balance Sheet data: Land $ 10,594 $ — Building and improvements 199,821 — Lease intangibles 11,389 — Personal property 211 — Financing lease right-of-use assets 307 — 222,322 — Accumulated depreciation ( 47,051 ) — Real estate assets held for sale, net 175,271 — Operating lease right-of-use assets 1,193 — Other assets, net 8,610 57 Assets held for sale, net $ 185,074 $ 57 Accounts payable and accrued liabilities $ 3,768 $ 169 Operating lease liabilities $ 864 $ — Financing lease liabilities $ 2,427 $ — Other liabilities 3,585 125 Liabilities of assets held for sale $ 10,644 $ 294 Note 4. 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 nine months ended September 30, 2022 was $ 298.9 million and $ 578.1 million, respectively. Lease income for the Company's operating leases recognized for the three and nine months ended September 30, 2021 was $ 131.7 million and $ 388.6 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. 16 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. Future lease payments under the non-cancelable operating leases, excluding any reimbursements and the sale-type lease, as of September 30, 2022 were as follows: Dollars in thousands OPERATING 2022 $ 243,946 2023 937,733 2024 816,000 2025 702,251 2026 605,417 2027 and thereafter 2,242,792 $ 5,548,139 Lessee Accounting As of September 30, 2022, the Company was obligated, as the lessee, under operating lease agreements consisting primarily of the Company’s ground leases. As of September 30, 2022, the Company had 243 properties totaling 17.8 million square feet that were held under ground leases. Some of the ground lease renewal terms are based on fixed rent renewal terms and others have market rent renewal terms. These ground leases typically have initial terms of 40 to 99 years with expiration dates through 2119. Any rental increases related to the Company’s ground leases are generally either stated or based on CPI. The Company had 75 prepaid ground leases as of September 30, 2022. The amortization of the prepaid rent, included in the operating lease right-of-use asset, represented approximately $ 0.5 million and $ 0.1 million of the Company’s rental expense for the three months ended September 30, 2022 and 2021, respectively, and $ 0.8 million and $ 0.4 million for the nine months ended September 30, 2022 and 2021, respectively. The Company’s future lease payments (primarily for its 168 non-prepaid ground leases) as of September 30, 2022 were as follows: Dollars in thousands OPERATING FINANCING 2022 $ 3,665 $ 503 2023 15,606 2,139 2024 15,193 2,182 2025 14,715 2,218 2026 14,735 2,255 2027 and thereafter 894,018 398,092 Total undiscounted lease payments 957,932 407,389 Discount ( 689,092 ) ( 335,011 ) Lease liabilities $ 268,840 $ 72,378 17 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. The following table provides details of the Company's total lease expense for the three and nine months ended September 30, 2022 and 2021: THREE MONTHS ENDED September 30, NINE MONTHS ENDED September 30, Dollars in thousands 2022 2021 2022 2021 Operating lease cost Operating lease expense $ 4,204 $ 1,196 $ 6,613 $ 3,555 Variable lease expense 1,061 1,016 3,123 2,883 Finance lease cost Amortization of right-of-use assets 381 90 884 267 Interest on lease liabilities 861 255 1,913 748 Total lease expense $ 6,507 $ 2,557 $ 12,533 $ 7,453 Other information Operating cash flows outflows related to operating leases $ 3,847 $ 1,424 $ 8,443 $ 5,855 Operating cash flows outflows related to financing leases $ 476 $ 151 $ 1,262 $ 678 Financing cash flows outflows related to financing leases $ 3 $ 6 $ 3 $ 162 Right-of-use assets obtained in exchange for new finance lease liabilities $ 9,874 $ 1,420 $ 50,463 $ 1,420 Right-of-use assets obtained in exchange for new operating lease liabilities $ 198,261 $ 8,298 $ 198,261 $ 8,298 Weighted-average years remaining lease term (excluding renewal options) - operating leases 50.2 47.8 Weighted-average years remaining lease term (excluding renewal options) - finance leases 60.1 63.2 Weighted-average discount rate - operating leases 5.7 % 5.6 % Weighted-average discount rate - finance leases 5.0 % 5.4 % 18 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. Note 5. Other Assets and Liabilities Other Assets Other assets consist primarily of intangible assets, prepaid assets, real estate notes receivable, straight-line rent receivables, accounts receivable, additional long-lived assets and interest rate swaps. Items included in "Other assets, net" on the Company's Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 are detailed in the table below: Dollars in thousands September 30, 2022 December 31, 2021 Above-market intangible assets, net $ 86,410 $ 4,966 Prepaid assets 85,053 58,618 Real estate notes receivable, net 1 79,036 — Straight-line rent receivables 78,038 70,784 Accounts receivable, net 36,103 14,072 Additional long-lived assets, net 21,722 20,048 Interest rate swap assets 16,136 — Ground lease modification, net 8,170 8,511 Other receivables, net 7,258 — Debt issuance costs, net 6,504 1,813 Project costs 4,001 5,129 Net investment in lease 1,828 — Customer relationship intangible assets, net 1,134 1,174 Other 6,842 558 $ 438,235 $ 185,673 1 In October 2022, an additional amount of $ 15.0 million was funded for a real estate loan transaction. Accounts Payable and Accrued Liabilities The following table provides details of the items included in "Accounts payable and accrued liabilities" on the Company's Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021: Dollars in thousands September 30, 2022 December 31, 2021 Accrued property taxes $ 86,192 $ 35,295 Accounts payable and capital expenditures 61,461 17,036 Accrued interest 24,959 12,060 Accrued income and franchise taxes 2,685 983 Retainage accrued on construction invoices 1,304 2,215 Other operating accruals 54,417 18,519 $ 231,018 $ 86,108 Other Liabilities The following table provides details of the items included in "Other liabilities" on the Company's Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021: Dollars in thousands September 30, 2022 December 31, 2021 Below-market intangible liabilities, net $ 113,118 $ 4,931 Deferred revenue 60,675 45,130 Security deposits 28,299 11,116 Interest rate swap liability — 5,917 Other 1,306 293 $ 203,398 $ 67,387 19 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. Note 6. Notes and Bonds Payable The table below details the Company’s notes and bonds payable as of September 30, 2022 and December 31, 2021. MATURITY DATES 1 BALANCE 2 AS OF EFFECTIVE INTEREST RATE as of 9/30/2022 Dollars in thousands 9/30/2022 12/31/2021 $ 1.5 billion Unsecured Credit Facility 3 10/27 $ 190,600 $ — 3.99 % $ 700 million Unsecured Credit Facility 3 5/23 — 210,000 — % $ 1.125 billion Asset Sale Term Loan 4 7/24 421,919 — 4.07 % $ 350 million Unsecured Term Loan 3 7/25 348,735 — 4.10 % $ 200 million Unsecured Term Loan 4 5/26 199,611 199,460 3.51 % $ 300 million Unsecured Term Loan 4 5 10/26 299,930 — 2.47 % $ 150 million Unsecured Term Loan 5 5/26 149,458 149,376 3.32 % $ 200 million Unsecured Term Loan 4 5 7/27 199,328 — 2.27 % $ 300 million Unsecured Term Loan 3 1/28 297,764 — 3.56 % Senior Notes due 2025 5/25 249,025 249,040 4.12 % Senior Notes due 2026 4 8/26 569,786 — 4.94 % Senior Notes due 2027 4 7/27 478,541 — 4.76 % Senior Notes due 2028 1/28 296,711 296,612 3.85 % Senior Notes due 2030 4 2/30 562,974 — 5.30 % Senior Notes due 2030 3/30 296,787 296,813 2.72 % Senior Notes due 2031 4 3/31 628,617 — 5.13 % Senior Notes due 2031 3/31 295,424 295,374 2.25 % Mortgage notes payable 8/23-12/26 84,929 104,650 3.97 % $ 5,570,139 $ 1,801,325 1 Includes extension options. 2 Balance is presented net of discounts and issuance costs and inclusive of premiums, where applicable. 3 On July 20, 2022, the Company entered into an amended and restated credit facility which included a $ 1.5 billion revolving credit facility, replacing Legacy HR's $ 700 million credit facility. 4 Debt instruments assumed as part of the Merger with Legacy HTA on July 20, 2022. Amounts shown represent fair value adjustments. 5 The effective interest rate includes the impact of interest rate swaps on $ 675.0 million at a weighted average rate of 1.57 % (plus the applicable margin rate, currently 105 basis points). 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. 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 20 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. 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 % Senior Notes Assumed with the Merger In connection with the Merger, the Company assumed senior notes ("Legacy Senior Notes") that were originated on various dates prior to the date of the Merger by the OP (formerly, Healthcare Trust of America Holdings, LP). These notes are all fully and unconditionally guaranteed by the Company and have semi-annual payment requirements. In addition, the Legacy Senior Notes carry customary restrictive financial covenants, including limitations on our ability to incur additional indebtedness and requirements to maintain a pool of unencumbered assets. In addition, the corresponding indentures provide for the ability to redeem the Legacy Senior Notes, subject to certain "make whole" call provisions. The Legacy Senior Notes assumed by the Company consist of the following: COUPON PRINCIPAL OUTSTANDING AS OF Dollars in thousands FACE VALUE 9/30/2022 12/31/2021 Senior Notes due 2026 3.50 % $ 600,000 $ 600,000 $ — Senior Notes due 2027 3.75 % 500,000 500,000 — Senior Notes due 2030 3.10 % 650,000 650,000 — Senior Notes due 2031 2.00 % 800,000 800,000 — $ 2,550,000 $ 2,550,000 $ — 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 restructured the parties’ existing bank facilities and added additional borrowing capacities for the 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 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. 21 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. • 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. As of September 30, 2022, the $ 350.0 million Credit Facility was drawn in full. 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 date 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. Note 7. 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. 22 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. 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. For derivatives designated, and that qualify, as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income (Loss) ("AOCI") and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of September 30, 2022, the Company had 15 outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk: EXPIRATION DATE AMOUNT WEIGHTED AVERAGE RATE December 16, 2022 75,000 2.37 % January 31, 2023 $ 300,000 1.42 % 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. Subsequent to September 30, 2022, the Company entered into two additional interest rate swaps totaling $ 250.0 million with multiple counterparties, with both expiring in 2027. The Company designated these interest rate swaps as cash flow hedges of interest rate risk in the fourth quarter of 2022. Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet The table below presents the fair value of the Company's derivative financial instruments, as well as their classification on the Condensed Consolidated Balance Sheet as of September 30, 2022. BALANCE AT SEPTEMBER 30, 2022 In thousands BALANCE SHEET LOCATION FAIR VALUE Derivatives designated as hedging instruments Interest rate swaps Other assets $ 16,136 Tabular Disclosure of the Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) The table below presents the effect of cash flow hedge accounting on AOCI during the three and nine months ended September 30, 2022 and 2021 related to the Company's outstanding interest rate swaps. GAIN RECOGNIZED IN AOCI ON DERIVATIVE three months ended September 30, LOSS RECLASSIFIED FROM AOCI INTO INCOME three months ended September 30, In thousands 2022 2021 2022 2021 Interest rate swaps $ ( 6,083 ) $ ( 36 ) Interest expense $ 614 $ 982 Settled treasury hedges — — Interest expense 107 107 Settled interest rate swaps — — Interest expense 42 42 $ ( 6,083 ) $ ( 36 ) Total interest expense $ 763 $ 1,131 23 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. GAIN RECOGNIZED IN AOCI ON DERIVATIVE nine months ended September 30, LOSS RECLASSIFIED FROM AOCI INTO INCOME nine months ended September 30, In thousands 2022 2021 2022 2021 Interest rate swaps $ ( 12,905 ) $ ( 2,079 ) Interest expense $ 2,226 $ 2,894 Settled treasury hedges — — Interest expense 320 320 Settled interest rate swaps — — Interest expense 126 126 $ ( 12,905 ) $ ( 2,079 ) Total interest expense $ 2,672 $ 3,340 The Company estimates that $ 4.8 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 September 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 $ 16.5 million. As of September 30, 2022, the Company has not posted any collateral related to these agreements and was not in breach of any agreement. Note 8. Commitments and Contingencies Legal Proceedings The Company is, from time to time, involved in litigation arising in the ordinary course of business. The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Development and Redevelopment Activity During the third quarter of 2022, the Company continued the redevelopment of a 217,114 square foot medical office building in Dallas, Texas. As of September 30, 2022, the Company had funded approximately $ 11.1 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 third quarter of 2022, the Company continued the redevelopment of a medical office building in Tacoma, Washington. As of September 30, 2022, the Company had funded approximately $ 10.3 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. The Company continued the development of a medical office building in Nashville, Tennessee. The Company is constructing a new 106,194 square foot medical office building with the initial tenant lease expected to commence in the third quarter of 2023. As of September 30, 2022, the Company had funded approximately $ 15.3 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. The Company is financing the construction of a two building medical office complex in Orlando, Florida. The 156,566 square foot development is expected to be complete in the second quarter of 2024. As of September 30, 2022, the Company had funded approximately $ 10.6 million towards the project costs. The Company, through a joint venture partnership, continued the development of a medical office building in Raleigh, North Carolina. This joint venture expects to construct a new 120,694 square foot medical office building that is projected to be complete in the fourth quarter of 2024. As of September 30, 2022, the joint venture had funded approximately $ 15.3 million towards the project costs. The Company is redeveloping three medical office buildings totaling 259,290 square feet in Washington, DC. The Company has approved a leasing plan with a capital outlay that is expected to be completed in the second quarter of 24 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. 2024. As of September 30, 2022, the Company had funded $ 2.0 million in project costs . Note 9. Stockholders' Equity Common Stock The following table provides a reconciliation of the beginning and ending shares of common stock outstanding for the nine months ended September 30, 2022 and the twelve months ended December 31, 2021: NINE MONTHS ENDED SEPTEMBER 30, 2022 TWELVE MONTHS ENDED DECEMBER 31, 2021 Balance, beginning of period 150,457,433 139,487,375 Issuance of common stock 229,615,152 10,899,301 Non-vested share-based awards, net of withheld shares 499,705 70,757 Balance, end of period 380,572,290 150,457,433 At-The-Market Equity Offering Program The Company has equity distribution agreements with various sales agents with respect to the at-the-market (“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. Common Stock Dividends During the nine months ended September 30, 2022, the Company declared and paid common stock dividends totaling $ 0.93 per share. On November 2, 2022, the Company declared a quarterly common stock dividend in the amount of $ 0.31 per share payable on November 30, 2022 to stockholders of record on November 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 nine months ended September 30, 2022, the Company did not enter into any forward sale agreements to sell shares of common stock through the Company's ATM offering program. The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2022 and 2021. THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, Dollars in thousands, except per share data 2022 2021 2022 2021 Weighted average common shares outstanding Weighted average common shares outstanding 330,788,997 145,594,127 211,740,767 143,305,737 Non-vested shares ( 1,983,742 ) ( 1,776,508 ) ( 1,933,957 ) ( 1,784,544 ) Weighted average common shares outstanding - basic 328,805,255 143,817,619 209,806,810 141,521,193 Weighted average common shares outstanding - basic 328,805,255 143,817,619 209,806,810 141,521,193 Dilutive effect of forward equity shares — — — 14,036 Dilutive effect of OP Units 3,167,668 — 1,067,493 — Dilutive effect of employee stock purchase plan 58,461 — 69,687 78,200 Weighted average common shares outstanding - diluted 332,031,384 143,817,619 210,943,990 141,613,429 Net Income (loss) attributable to common stockholders $ 28,304 $ ( 2,066 ) $ 76,661 $ 45,052 Dividends paid on nonvested share-based awards ( 610 ) ( 537 ) ( 1,817 ) ( 1,617 ) Net income (loss) applicable to common stockholders- basic $ 27,694 $ ( 2,603 ) $ 74,844 $ 43,435 Net income attributable to OP units 312 — 312 — Net income (loss) applicable to common stockholders - diluted $ 28,006 $ ( 2,603 ) $ 75,156 $ 43,435 Basic earnings per common share - net income $ 0.08 $ ( 0.02 ) $ 0.36 $ 0.31 Diluted earnings per common share - net income $ 0.08 $ ( 0.02 ) $ 0.35 $ 0.31 25 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. The effect of non-vested stock awards totaling 911,594 shares, options under the Company's Employee Stock Purchase Plan (the "ESPP") to purchase the Company's stock totaling 63,383 shares, and the dilutive impact of forward-equity contracts outstanding for 14,734 shares of common stock for the three months ended September 30, 2021 were excluded from the calculation of diluted loss per common share because the effect was anti-dilutive due to the loss from continuing operations incurred during that period. Incentive Plans Restricted Common Shares During the nine months ended September 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 $ 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 eight of its 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. • During the third quarter of 2022, the Company granted non-vested stock awards to its 12 non-employee directors with a grant date fair value of $ 1.8 million, which consisted of an aggregate of 70,816 non-vested shares, with vesting periods ranging from one to three years . The Company also granted non-vested stock awards to an employee, which consisted of 1,036 non-vested shares as a discretionary grant. A summary of the activity under the Company's share-based incentive plans for the three and nine months ended September 30, 2022 and 2021 is included in the table below. THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2022 2021 2022 2021 Share-based awards, beginning of period 1,941,709 1,778,308 1,562,028 1,766,061 Granted 71,852 — 513,876 203,701 Vested ( 7,434 ) — ( 68,481 ) ( 191,454 ) Forfeited ( 4,130 ) ( 2,957 ) ( 5,426 ) ( 2,957 ) Share-based awards, end of period 2,001,997 1,775,351 2,001,997 1,775,351 During the nine months ended September 30, 2022 and 2021, the Company withheld 8,745 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 RSUs to its named executive officers and certain other 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: 26 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. THREE MONTHS ENDED MARCH 31, Volatility 30.0 % Dividend assumption Accrued Expected term 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. The following is a summary of the RSU activity during the three and nine months ended September 30, 2022: THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, Restricted Stock Units Weighted Average Grant Date Fair Value Restricted Stock Units Weighted Average Grant Date Fair Value Non-vested, beginning of period 294,932 — — — Granted — — 294,932 $ 33.04 Vested — — — — Non-vested as of September 30, 2022 294,932 294,932 Employee Stock Purchase Plan Legacy HR maintained an ESPP prior to the completion of the Merger. The outstanding options to purchase shares of the common stock of Legacy HR became options to purchase Class A Common Stock of the Company upon completion of the Merger. No new options will be granted under the ESPP. A summary of the activity under the ESPP for the three and nine months ended September 30, 2022 and 2021 is included in the table below. THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2022 2021 2022 2021 Outstanding and exercisable, beginning of period 405,534 389,414 348,514 341,647 Granted — — 255,960 253,200 Exercised ( 4,576 ) ( 5,323 ) ( 17,094 ) ( 24,300 ) Forfeited ( 37,628 ) ( 18,961 ) ( 83,417 ) ( 60,995 ) Expired — — ( 140,633 ) ( 144,422 ) Outstanding and exercisable, end of period 363,330 365,130 363,330 365,130 Note 10. 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. • Real estate notes receivabl e - Real estate notes receivable are recorded in other assets on the Company's Condensed Consolidated Balance Sheets. Fair value is estimated using cash flow analyses, based on current interest rates for similar types of arrangements. • Borrowings under the Unsecured Credit Facility and the Term Loans Due 2024 and 2026 - The carrying amount approximates fair value because the borrowings are based on variable market interest rates. • Senior Notes and Mortgage Notes payable - The fair value of notes and bonds payable is estimated using cash flow analyses, based on the Company’s current interest rates for similar types of borrowing arrangements. • Interest rate swap agreements - Interest rate swap agreements are recorded in other liabilities on the Company's Condensed Consolidated Balance Sheets at fair value. Fair value is estimated by utilizing pricing models that consider forward yield curves and discount rates. 27 Table of Contents NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont. The table below details the fair values and carrying values for notes and bonds payable and real estate notes receivable at September 30, 2022 and December 31, 2021. September 30, 2022 December 31, 2021 Dollars in millions CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE Notes and bonds payable 1 $ 5,570.1 $ 5,321.0 $ 1,801.3 $ 1,797.4 Real estate notes receivable 1 $ 79.0 $ 79.0 $ — $ — 1 Level 2 – model-derived valuations in which significant inputs and significant value drivers are observable in active markets. 28 Table of Contents