Healthcare Realty Trust Inc 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Healthcare Realty Trust Incorporated Nashville, Tennessee Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Healthcare Realty Trust Incorporated (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 1, 2023 expressed an unqualified opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Asset Impairment - Identification of Triggering Events for Real Estate Properties The Company recorded total real estate investments, net, of approximately $12.4 billion as of December 31, 2022. As described in Notes 1 and 7 to the Company's consolidated financial statements, the Company assesses the potential for impairment of long-lived assets, including real estate properties, whenever events occur, or a change in circumstances indicates, that the carrying value might not be fully recoverable ("triggering events"). If management determines that a triggering event exists, the estimated current and projected operating cash flows of the property are compared to the property’s net carrying value which may result in an impairment charge. 51 We identified management’s assessment of qualitative indicators of potential impairment for real estate properties as a critical audit matter. Qualitative indicators of potential impairment may include significant changes in the Company’s use of properties or the strategy for its overall business, plans to sell a property before its depreciable life has ended, or negative economic or industry trends for the Company or its tenants. Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters. The primary procedures we performed to address this critical audit matter included: • Testing the design and operating effectiveness of controls over management’s identification of changes in circumstances that could indicate the carrying amounts of real estate properties may not be fully recoverable. • Assessing the reasonableness of management’s key assumptions with respect to qualitative factors, including potential sales of properties based on offers received and changes in the use of the Company’s properties, used to determine whether triggering events had occurred. • Reviewing internal documentation to assess whether additional triggering factors were present. Determination of the Accounting Acquirer As discussed in Note 2 to the consolidated financial statements, effective July 20, 2022, Healthcare Realty Trust Incorporated (“Legacy HR”) merged with Healthcare Trust of America, Inc. (“Legacy HTA”), with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA. The merger was accounted for as a reverse acquisition with Legacy HR being identified as the accounting acquirer. We have identified the evaluation of the Company’s determination of the accounting acquirer to be a critical audit matter. A high degree of auditor judgment was required to evaluate the relative importance of the indicative factors, individually and in aggregate, including but not limited to: (i) the composition of the board of directors of the post-merger company, (ii) the composition of senior management of the post-merger company, and (iii) the premium transferred to the Legacy HTA stockholders. A different conclusion would result in a material difference in the accounting for the Merger. The primary procedures we performed to address this critical audit matter included: • Evaluating management’s conclusions with respect to the accounting acquirer, including consideration of post-merger voting rights, the composition of the board of directors and senior management of the post-merger company, terms of the premium transferred, the relative size of the entities, minority voting interests, and the entity initiating the combination, as evidenced in the amended and restated bylaws of the Company, investor presentations, the Merger Agreement, and certain filings with the Securities and Exchange Commission. • Utilizing professionals with specialized knowledge and experience in consolidation assessments to assist in identifying and evaluating the various factors relevant to the determination of the accounting acquirer as well as management’s conclusions with respect to the determination of the accounting acquirer. Acquisition of Real Estate Properties in Connection with Business Combination As discussed in Note 2 to the consolidated financial statements, Legacy HR merged into Legacy HTA, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA. The transaction was accounted for as business combination. In connection with the business combination, the Company acquired real estate investments with a preliminary estimated fair value of $8.8 billion. We identified the volume of the fair value measurements for the acquired real estate investments, constituting land, buildings, and related intangible assets, recorded in connection with the merger as a critical audit matter. The number of real estate properties acquired in the merger increased the sensitivity of management’s estimates with respect to the fair values of land, buildings and related intangible assets acquired. As a result, increased auditor effort, including the use of specialists, was required to test management’s fair value estimates. The primary procedures we performed to address this critical audit matter included: • Involving professionals outside of the engagement team to assist in determining the appropriate risk and controls-based approach to testing the fair value measurements recorded in connection with the merger. • Testing the details of a sample of the real estate properties acquired in connection with the merger including evaluating the accuracy of certain inputs into the fair value measurements including rental payments per executed lease agreements. 52 • Utilizing professionals with specialized skills and experience in valuation to assist in testing certain of the valuation specific assumptions used in the valuation of land, building, and related intangible assets for a selection of real estate properties. /s/ BDO USA, LLP We have served as the Company's auditor since 2005. Nashville, Tennessee March 1, 2023 53 Healthcare Realty Trust Incorporated Consolidated Balance Sheets Amounts in thousands, except per share data ASSETS DECEMBER 31, 2022 2021 Real estate properties Land $ 1,439,798 $ 387,918 Buildings and improvements 11,332,037 4,337,641 Lease intangibles 959,998 120,478 Personal property 11,907 11,761 Investment in financing receivables, net 120,236 186,745 Financing lease right-of-use assets 83,824 31,576 Construction in progress 35,560 3,974 Land held for development 74,265 24,849 Total real estate investments 14,057,625 5,104,942 Less accumulated depreciation ( 1,645,271 ) ( 1,338,743 ) Total real estate investments, net 12,412,354 3,766,199 Cash and cash equivalents 60,961 13,175 Assets held for sale, net 18,893 57 Operating lease right-of-use assets 336,983 128,386 Investments in unconsolidated joint ventures 327,248 161,942 Goodwill 223,202 3,487 Other assets, net 469,990 185,673 Total assets $ 13,849,631 $ 4,258,919 LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY DECEMBER 31, 2022 2021 Liabilities Notes and bonds payable $ 5,351,827 $ 1,801,325 Accounts payable and accrued liabilities 244,033 86,108 Liabilities of properties held for sale 437 294 Operating lease liabilities 279,895 96,138 Financing lease liabilities 72,939 22,551 Other liabilities 218,668 67,387 Total liabilities 6,167,799 2,073,803 Commitments and contingencies (See Footnote 15) Redeemable non-controlling interests 2,014 — Stockholders' equity Preferred stock, $ 0.01 par value; 200,000 shares authorized; none issued and outstanding — — Common stock, $ 0.01 par value; 1,000,000 shares authorized; 380,590 and 150,457 shares issued and outstanding at December 31, 2022 and 2021, respectively. 3,806 1,505 Additional paid-in capital 9,587,637 3,972,917 Accumulated other comprehensive income (loss) 2,140 ( 9,981 ) Cumulative net income attributable to common stockholders 1,307,055 1,266,158 Cumulative dividends ( 3,329,562 ) ( 3,045,483 ) Total stockholders’ equity 7,571,076 2,185,116 Non-controlling interest 108,742 — Total equity 7,679,818 2,185,116 Total liabilities, redeemable non-controlling interests, and stockholders' equity $ 13,849,631 $ 4,258,919 See accompanying notes. 54 Healthcare Realty Trust Incorporated Consolidated Statements of Income Amounts in thousands, except per share data YEAR ENDED DECEMBER 31, 2022 2021 2020 Revenues Rental income $ 907,451 $ 520,334 $ 492,262 Interest income 11,480 4,192 — Other operating 13,706 10,291 7,367 932,637 534,817 499,629 Expenses Property operating 344,038 212,273 196,514 General and administrative 52,734 34,152 30,704 Acquisition and pursuit costs 3,229 3,930 2,561 Merger-related costs 103,380 — — Depreciation and amortization 453,082 202,714 190,435 956,463 453,069 420,214 Other income (expense) Gain on sales of real estate properties 270,271 55,940 70,361 Interest expense ( 146,691 ) ( 53,124 ) ( 56,174 ) Loss on extinguishment of debt ( 2,401 ) — ( 21,503 ) Impairment of real estate properties ( 54,427 ) ( 17,101 ) — Equity loss from unconsolidated joint ventures ( 687 ) ( 795 ) ( 463 ) Interest and other (expense) income, net ( 1,546 ) ( 9 ) 559 64,519 ( 15,089 ) ( 7,220 ) Net income 40,693 66,659 72,195 Net loss attributable to non-controlling interests 204 — — Net income attributable to common stockholders $ 40,897 $ 66,659 $ 72,195 Basic earnings per common share $ 0.15 $ 0.45 $ 0.52 Diluted earnings per common share $ 0.15 $ 0.45 $ 0.52 Weighted average common shares outstanding - basic 252,356 142,637 133,930 Weighted average common shares outstanding - diluted 253,873 142,710 134,007 See accompanying notes. 55 Healthcare Realty Trust Incorporated Consolidated Statements of Comprehensive Income Amounts in thousands YEAR ENDED DECEMBER 31, 2022 2021 2020 Net income $ 40,693 $ 66,659 $ 72,195 Other comprehensive income (loss) Interest rate swaps Reclassification adjustment for losses included in net income (interest expense) 1,527 4,472 3,472 Gains (losses) arising during the period on interest rate swaps 10,630 3,379 ( 10,862 ) Losses on settlement of treasury rate locks arising during the period — — ( 4,267 ) 12,157 7,851 ( 11,657 ) Comprehensive income 52,850 74,510 60,538 Less: Comprehensive loss attributable to non-controlling interests 168 — — Comprehensive income attributable to common stockholders $ 53,018 $ 74,510 $ 60,538 See accompanying notes. 56 Healthcare Realty Trust Incorporated Consolidated Statements of Equity Amounts in thousands, except per share data Preferred Stock 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 December 31, 2019 $ — $ 1,347 $ 3,485,003 $ ( 6,175 ) $ 1,127,304 $ ( 2,707,470 ) $ 1,900,009 $ — $ 1,900,009 Issuance of stock, net of costs — 47 142,123 — — — 142,170 — 142,170 Common stock redemption — ( 1 ) ( 1,705 ) — — — ( 1,706 ) — ( 1,706 ) Share-based compensation — 2 9,920 — — — 9,922 — 9,922 Net income — — — — 72,195 — 72,195 — 72,195 Loss on interest rate swaps and treasury locks — — — ( 11,657 ) — — ( 11,657 ) — ( 11,657 ) Dividends to common stockholders ($ 1.20 per share) — — — — — ( 162,557 ) ( 162,557 ) — ( 162,557 ) 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 stock, net of costs — 109 330,933 — — — 331,042 — 331,042 Common stock redemption — ( 1 ) ( 4,084 ) — — — ( 4,085 ) — ( 4,085 ) Share-based compensation — 2 10,727 — — — 10,729 — 10,729 Net income — — — — 66,659 — 66,659 — 66,659 Gain on interest rate swaps and treasury locks — — — 7,851 — — 7,851 — 7,851 Dividends to common stockholders ($ 1.21 per share) — — — — — ( 175,456 ) ( 175,456 ) — ( 175,456 ) 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 stock, net of costs — 6 22,901 — — — 22,907 — 22,907 Merger consideration transferred — 2,289 5,574,174 — — — 5,576,463 110,702 5,687,165 Common stock redemption — ( 1 ) ( 2,791 ) — — — ( 2,792 ) — ( 2,792 ) Share-based compensation — 7 20,339 — — — 20,346 — 20,346 Redemption of non-controlling interest — — 97 — — — 97 ( 97 ) — Net income — — — — 40,897 — 40,897 ( 204 ) 40,693 Reclassification adjustments for losses included in net income (interest expense) — — — 1,531 — — 1,531 ( 4 ) 1,527 Gains arising during the period on interest rate swaps — — — 10,590 — — 10,590 40 10,630 Dividends to common stockholders ($ 1.24 per share) — — — — — ( 284,079 ) ( 284,079 ) ( 1,695 ) ( 285,774 ) Balance at December 31, 2022 $ — $ 3,806 $ 9,587,637 $ 2,140 $ 1,307,055 $ ( 3,329,562 ) $ 7,571,076 $ 108,742 $ 7,679,818 See accompanying notes. 57 Healthcare Realty Trust Incorporated Consolidated Statements of Cash Flows Amounts in thousands YEAR ENDED DECEMBER 31, OPERATING ACTIVITIES 2022 2021 2020 Net income $ 40,693 $ 66,659 $ 72,195 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 453,082 202,714 190,435 Other amortization 24,695 3,793 4,381 Share-based compensation 20,346 10,729 9,922 Amortization of straight-line rent receivable (lessor) ( 23,498 ) ( 5,801 ) ( 3,735 ) Amortization of straight-line rent on operating leases (lessee) 3,374 1,498 1,490 Gain on sales of real estate properties ( 270,271 ) ( 55,940 ) ( 70,361 ) Loss on extinguishment of debt 2,401 — 21,503 Impairment of real estate properties 54,427 17,101 — Equity loss from unconsolidated joint ventures 687 795 463 Distributions from unconsolidated joint ventures 1,881 — 193 Proceeds from disposition of sales-type lease properties — — 244,454 Non-cash interest from financing and real estate notes receivable ( 2,257 ) ( 391 ) — Changes in operating assets and liabilities: Other assets, including right-of-use-assets ( 26,098 ) ( 11,436 ) ( 727 ) Accounts payable and accrued liabilities 24,191 ( 839 ) 4,555 Other liabilities ( 30,906 ) 3,747 ( 4,679 ) Net cash provided by operating activities 272,747 232,629 470,089 INVESTING ACTIVITIES Acquisitions of real estate ( 402,529 ) ( 365,943 ) ( 397,349 ) Development of real estate ( 37,862 ) ( 4,029 ) ( 3,089 ) Additional long-lived assets ( 163,544 ) ( 100,689 ) ( 93,963 ) Funding of mortgages and notes receivable ( 23,325 ) — — Investments in unconsolidated joint ventures ( 99,967 ) ( 89,600 ) ( 65,663 ) Investment in financing receivable ( 1,002 ) ( 186,433 ) — Proceeds from sales of real estate properties and additional long-lived assets 1,201,068 184,221 4,898 Proceeds from notes receivable repayments 1,688 — — Cash assumed in Merger, including restricted cash for special dividend payment 1,159,837 — Net cash provided by (used in) investing activities 1,634,364 ( 562,473 ) ( 555,166 ) FINANCING ACTIVITIES Net borrowings/(repayments) on unsecured credit facility 40,000 210,000 ( 293,000 ) Borrowings on term loans 666,500 — 150,000 Repayment on term loan ( 1,141,500 ) — — Borrowings of notes and bonds payable — — 596,562 Repayments of notes and bonds payable ( 20,042 ) ( 24,557 ) ( 47,845 ) Redemption of notes and bonds payable ( 2,184 ) — ( 270,386 ) Dividends paid ( 283,713 ) ( 175,456 ) ( 162,557 ) Special dividend paid in relation to the Merger ( 1,123,648 ) — — Net proceeds from issuance of common stock 22,902 331,119 142,000 Common stock redemptions ( 3,192 ) ( 3,803 ) ( 1,436 ) Distributions to non-controlling interest of limited partners ( 1,695 ) — — Settlement of treasury rate locks — — ( 4,267 ) Debt issuance and assumption costs ( 12,753 ) ( 405 ) ( 5,931 ) Payments made on finance leases — ( 9,182 ) ( 3,417 ) Net cash (used in) provided by financing activities ( 1,859,325 ) 327,716 99,723 Increase (decrease) in cash and cash equivalents 47,786 ( 2,128 ) 14,646 Cash and cash equivalents cash at beginning of period 13,175 15,303 657 Cash and cash equivalents at end of period $ 60,961 $ 13,175 $ 15,303 See accompanying notes. Healthcare Realty Trust Incorporated Consolidated Statements of Cash Flows , cont. Amounts in thousands YEAR ENDED DECEMBER 31, Supplemental Cash Flow Information 2022 2021 2020 Interest paid $ 112,692 $ 49,443 $ 52,787 Mortgage notes payable assumed upon acquisition (adjusted to fair value) $ — $ 11,790 $ 36,536 Invoices accrued for construction, tenant improvements and other capitalized costs $ 48,292 $ 17,655 $ 14,935 Capitalized interest $ 1,410 $ 221 $ 1,142 Real estate notes receivable assumed in Merger (adjusted to fair value) $ 74,819 $ — $ — Unsecured credit facility and term loans assumed in Merger (adjusted to fair value) $ 1,758,650 $ — $ — Senior notes assumed in Merger (adjusted to fair value) $ 2,232,650 $ — $ — Consideration transferred in relation to the Merger $ 5,576,463 $ — $ — See accompanying notes. 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Business Overview Healthcare Realty Trust Incorporated (the “Company”) is a real estate investment trust ("REIT") that owns, leases, manages, acquires, finances, develops and redevelops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States of America. See Note 2 below for a discussion of the Merger between Legacy HR and Legacy HTA. The Company had gross investments of approximately $ 14.1 billion in 688 real estate properties, construction in progress, redevelopments, financing receivables, financing lease right-of-use assets, land held for development, and corporate property as of December 31, 2022. The Company’s 688 real estate properties are located in 35 states and total approximately 40.3 million square feet. In addition, the Company had a weighted average ownership interest of approximately 48 % in 33 real estate properties held in joint ventures. See Note 5 below for more details regarding the Company's joint ventures. Square footage and property count disclosures in these Notes to the Company's Consolidated Financial Statements are unaudited. Principles of Consolidation The Company’s Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, and joint ventures and partnerships where the Company controls the operating activities. GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). Accounting Standards Codification Topic 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, with any minority interests reflected as non-controlling interests or redeemable non-controlling interests in the accompanying Consolidated Financial Statements. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk, the disposition of all or a portion of an interest held by the primary beneficiary, or changes in facts and circumstances that impact the power to direct activities of the VIE that most significantly impacts economic performance. The Company performs this analysis on an ongoing basis. For property holding entities not determined to be VIEs, the Company consolidates such entities in which it owns 100 % of the equity or has a controlling financial interest evidenced by ownership of a majority voting interest. All intercompany balances and transactions are eliminated in consolidation. For entities in which the Company owns less than 100 % of the equity interest, the Company consolidates the entity if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements. Healthcare Realty Holdings, L.P. (formally known as Healthcare Trust of America Holdings, LP) (the "OP") is 98.9 % owned by the Company. Holders of operating partnership units (“OP Units”) are considered to be non-controlling interest holders in the OP and their ownership interests are reflected as equity on the accompanying 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 December 31, 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. As of December 31, 2022, the Company had three consolidated VIEs in addition to the OP where it is the primary beneficiary of the VIE based on the combination of operational control and the rights to receive residual returns or the obligation to absorb losses arising from the joint ventures. Accordingly, such joint ventures have been 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. consolidated, and the table below summarizes the balance sheets of consolidated VIEs, excluding the OP, in the aggregate: (dollars in thousands) DECEMBER 31, 2022 Assets: Net real estate investments $ 46,322 Cash and cash equivalents 3,645 Receivables and other assets 2,385 Total assets $ 52,352 Liabilities: Accrued expenses and other liabilities $ 12,214 Total equity 40,138 Total liabilities and equity $ 52,352 As of December 31, 2022, the Company had three unconsolidated VIEs consisting of two notes receivables and one joint venture. The Company does not have the power or economics to direct the activities of the VIEs on a stand-alone basis, therefore it was determined that the Company was not the primary beneficiary. Therefore, the Company accounts for the two notes receivables as amortized cost and a joint venture arrangement under the equity method. See below for additional information regarding the Company's unconsolidated VIEs: ORIGINATION DATE LOCATION SOURCE CARRYING AMOUNT MAXIMUM EXPOSURE TO LOSS 2021 Houston, TX 1 Note receivable $ 29,753 $ 31,150 2021 Charlotte, NC 1 Note receivable 5,984 6,000 2022 Texas 2 Equity method 23,219 23,219 1 Assumed mortgage note receivable in connection with the Merger. 2 Includes investments in six properties. As of December 31, 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 5 for more details regarding the Company's unconsolidated joint ventures. Use of Estimates in the Consolidated Financial Statements Preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates and assumptions. Management makes significant estimates regarding revenue recognition, purchase price allocations to record investments in real estate, impairments, collectability of tenant receivables, and fair value measurements, as applicable. Reclassifications Certain reclassifications have been made on the Company's prior year 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 Consolidated Balance Sheets. Segment Reporting The Company owns, leases, acquires, manages, finances, develops and redevelops outpatient and other healthcare-related properties. The Company is managed as one reporting unit, rather than multiple reporting units, for internal reporting purposes and for internal decision-making. Therefore, the Company discloses its operating results in a single reportable segment. 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. Real Estate Properties Real estate properties are recorded at cost or at fair value if acquired in a transaction that is a business combination under Accounting Standards Codification Topic 805, Business Combinations . Cost or fair value at the time of acquisition is allocated among land, buildings, tenant improvements, lease and other intangibles, and personal property as applicable. During 2022 and 2021, the Company eliminated against accumulated depreciation approximately $ 19.6 million and $ 16.3 million, respectively, of fully amortized real estate intangibles that were initially recorded as a component of certain real estate acquisitions. Also during 2022 and 2021, approximately $ 4.1 million and $ 9.9 million, respectively, of fully depreciated tenant and capital improvements that were no longer in service were eliminated against accumulated depreciation. In addition, during 2021, the Company eliminated against accumulated depreciation approximately $ 7.1 million of a fully depreciated building that is being demolished and redeveloped. Depreciation expense of real estate properties for the three years ended December 31, 2022, 2021 and 2020 was $ 320.8 million, $ 170.0 million and $ 162.4 million, respectively. Depreciation and amortization of real estate assets in place as of December 31, 2022, is provided for on a straight-line basis over the asset’s estimated useful life: Land improvements 2.0 to 39.0 years Buildings and improvements 3.0 to 49.0 years Lease intangibles (including ground lease intangibles) 1.2 to 99.0 years Personal property 3.0 to 20.0 years The Company capitalizes direct costs, including costs such as construction costs and professional services, and indirect costs, including capitalized interest and overhead costs, associated with the development and construction of real estate assets while substantive activities are ongoing to prepare the assets for their intended use. Capitalized interest cost is calculated using the weighted average interest rate of the Company's unsecured debt or the interest rate on project specific debt, if applicable. The Company continues to capitalize interest on the unoccupied portion of the properties in stabilization for up to one year after the buildings have been placed into service, at which time the capitalization of interest must cease. Land Held for Development Land held for development includes parcels of land owned by the Company, upon which the Company intends to develop and own outpatient healthcare facilities. The Company's land held for development included twenty parcels as of December 31, 2022 and seven parcels as of December 31, 2021. The Company’s investments in land held for development totaled approximately $ 74.3 million as of December 31, 2022 and $ 24.8 million as of December 31, 2021. The current land that is held for development is located adjacent to certain of the Company's existing medical office buildings in California, Colorado, Connecticut, Florida, Georgia, Massachusetts, New York, North Carolina, Tennessee, Texas and Washington. 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. Asset Impairment The Company assesses the potential for impairment of identifiable, definite-lived, intangible assets and long-lived assets, including real estate properties, whenever events occur or a change in circumstances indicates that the carrying value might not be fully recoverable. Indicators of impairment may include significant underperformance of an asset relative to historical or expected operating results; significant changes in the Company’s use of assets or the strategy for its overall business; plans to sell an asset before its depreciable life has ended; the expiration of a significant portion of leases in a property; or significant negative economic trends or negative industry trends for the Company or its tenants. In addition, the Company reviews for possible impairment, those assets subject to purchase options and those impacted by casualty losses, such as tornadoes and hurricanes. A property value is considered impaired only if management's estimate of current and projected (undiscounted and unleveraged) operating cash flows of the property is less than the net carrying value of the property. These estimates of future cash flows include only those that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the property based on its estimated remaining useful life. These estimates, including the useful life determination which can be affected by any potential sale of the property, are based on management's assumptions about its use of the property. Therefore, significant judgment is involved in estimating the current and projected cash flows. If management determines that the carrying value of the Company’s assets may not be fully recoverable based on the existence of any of the factors above, or others, management would measure and record an impairment charge based on the estimated fair value of the property or the estimated fair value less costs to sell the property. Acquisitions of Real Estate Properties with In-Place Leases The Company's acquisitions of real estate properties typically do not meet the definition of a business and are accounted for as asset acquisitions. Acquisitions of real estate properties with in-place leases are accounted for at relative fair value. When a building with in-place leases is acquired, the cost of the acquisition must be allocated between the tangible real estate assets "as-if-vacant" and the intangible real estate assets related to in-place leases based on their estimated fair values. Land fair value is estimated by using an assessment of comparable transactions and other relevant data. The Company considers whether any of the in-place lease rental rates are above- or below-market. An asset (if the actual rental rate is above-market) or a liability (if the actual rental rate is below-market) is calculated and recorded in an amount equal to the present value of the future cash flows that represent the difference between the actual lease rate and the estimated market rate. If an in-place lease is identified as a below-market rental rate, the Company would also evaluate any renewal options associated with that lease to determine if the intangible should include those periods. The values related to above- or below-market in-place lease intangibles are amortized over the remaining term of the leases upon acquisition to rental income where the Company is the lessor and to property operating expense where the Company is the lessee. The Company also estimates an absorption period, which can vary by property, assuming the building is vacant and must be leased up to the actual level of occupancy when acquired. During that absorption period, the owner would incur direct costs, such as tenant improvements, and would suffer lost rental income. Likewise, the owner would have acquired a measurable asset in that, assuming the building was vacant, certain fixed costs would be avoided because the actual in-place lessees would reimburse a certain portion of fixed costs through expense reimbursements during the absorption period. All of these intangible assets (above- or below-market lease, tenant improvement costs avoided, leasing costs avoided, rental income lost, and expenses recovered through in-place lessee reimbursements) are estimated and recorded in amounts equal to the present value of estimated future cash flows. The actual purchase price is allocated based on the various relative asset fair values described above. The building and tenant improvement components of the purchase price are depreciated over the estimated useful life of the building or the weighted average remaining term of the in-place leases. The at-market, in-place lease intangibles are amortized to depreciation and amortization expense over the weighted average remaining term of the leases, and customer relationship assets are amortized to depreciation amortization expense over terms applicable to each acquisition. Any goodwill recorded through a business combination would be reviewed for impairment at least annually and is not amortized. 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. See Note 9 for more details on the Company’s intangible assets. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. In calculating fair value, a company must maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements. A hierarchy of valuation techniques is defined to determine whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy: • Level 1 – quoted prices for identical instruments in active markets; • Level 2 – quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and • Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Executed purchase and sale agreements, that are binding agreements, are categorized as level one inputs. Brokerage estimates, letters of intent, or unexecuted purchase and sale agreements are considered to be level three as they are nonbinding in nature. Fair Value of Derivative Financial Instruments Derivative financial instruments are recorded at fair value on the Company's Consolidated Balance Sheets as other assets or other liabilities. The valuation of derivative instruments requires the Company to make estimates and judgments that affect the fair value of the instruments. Fair values of derivatives are estimated by pricing models that consider the forward yield curves and discount rates. The fair value of the Company's forward starting interest rate swap contracts are estimated by pricing models that consider foreign trade rates and discount rates. Such amounts and the recognition of such amounts are subject to significant estimates that may change in the future. For derivatives designated in qualifying cash flow hedging relationships, the change in fair value of the effective portion of the derivatives is recognized in accumulated other comprehensive income (loss). Gains and losses are reclassified from accumulated other comprehensive income (loss) into earnings once the underlying hedged transaction is recognized in earnings. As of December 31, 2022 and 2021, the Company had $ 2.1 million recorded in accumulated other comprehensive income and $ 10.0 million recorded in accumulated other comprehensive loss, respectively, related to forward starting interest rate swaps entered into and settled during 2015 and 2020 and a hedge of the Company's variable rate debt. See Note 11 for additional information. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents includes short-term investments with original maturities of three months or less when purchased. Restricted cash includes cash held in escrow in connection with proceeds from the sales of certain real estate properties. The Company did not have any restricted cash for the years ended December 31, 2022 or 2021. Cash and cash equivalents are held in bank accounts and overnight investments. The Company maintains its bank deposits with large financial institutions in amounts that often exceed federally-insured limits. The Company has not experienced any losses in such accounts. Goodwill and Other Intangible Assets Goodwill and intangible assets with indefinite lives are not amortized, but are tested at least annually for impairment. Intangible assets with finite lives are amortized over their respective lives to their estimated residual values and are reviewed for impairment only when impairment indicators are present. Identifiable intangible assets of the Company are comprised of enterprise goodwill, in-place lease intangible assets, customer relationship intangible assets, and debt issuance costs. In-place lease and customer relationship intangible assets are amortized on a straight-line basis over the applicable lives of the assets. Debt issuance costs are amortized 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. over the term of the debt instrument on the effective interest method or the straight-line method when the effective interest method is not applicable. Goodwill is not amortized but is evaluated annually as of December 31 for impairment. The Company's goodwill asset increased to $ 223.2 million in 2022 as a result of the Merger. The 2022 impairment evaluation indicated that no impairment had occurred with respect to the Company's goodwill asset. See Note 9 for more detail on the Company’s intangible assets. Contingent Liabilities From time to time, the Company may be subject to loss contingencies arising from legal proceedings and similar matters. Additionally, while the Company maintains comprehensive liability and property insurance with respect to each of its properties, the Company may be exposed to unforeseen losses related to uninsured or underinsured damages. The Company continually monitors any matters that may present a contingent liability, and, on a quarterly basis, management reviews the Company’s reserves and accruals in relation to each of them, adjusting provisions as necessary in view of changes in available information. Liabilities for contingencies are first recorded when a loss is determined to be both probable and can be reasonably estimated. Changes in estimates regarding the exposure to a contingent loss are reflected as adjustments to the related liability in the periods when they occur. Because of uncertainties inherent in the estimation of contingent liabilities, it is possible that the Company’s provision for contingent losses could change materially in the near term. To the extent that any significant losses, in addition to amounts recognized, are at least reasonably possible, such amounts will be disclosed in the notes to the Consolidated Financial Statements. Share-Based Compensation The Company has various employee and director share-based awards outstanding. These awards include non-vested common stock and options to purchase common stock granted to employees pursuant to the Company's Amended and Restated 2006 Incentive Plan, dated April 29, 2021 ("Incentive Plan"), which replaced the Company's 2015 Stock Incentive Plan (the "Legacy HR Stock Incentive Plan") following the Merger. References to the Incentive Plan include issuances under the Incentive Plan and the Legacy HR Stock Incentive Plan. Legacy HR's 2000 Employee Stock Purchase Plan (the "Legacy HR Employee Stock Purchase Plan") was terminated during 2022 and all outstanding options will expire by 2024. No new options will be issued under this plan. The Company recognizes share-based payments to employees and directors in the Consolidated Statements of Income on a straight-line basis over the requisite service period based on the fair value of the award on the measurement date. The Company recognizes the impact of forfeitures as they occur. See Note 13 for details on the Company’s share-based awards. Accumulated Other Comprehensive Income (Loss) Certain items must be included in comprehensive income, including items such as foreign currency translation adjustments, minimum pension liability adjustments, changes in the fair value of derivative instruments and unrealized gains or losses on available-for-sale securities. As of December 31, 2022, the Company’s accumulated other comprehensive income (loss) consists of the loss for changes in the fair value of active derivatives designated as cash flow hedges and the loss on the unamortized settlement of forward starting swaps and treasury hedges. See Note 11 for more details on the Company's derivative financial instruments. Revenue from Contracts with Customers (Topic 606) The Company recognizes certain revenue under the core principle of Topic 606. This requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Lease revenue is not within the scope of Topic 606. To achieve the core principle, the Company applies the five step model specified in the guidance. 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. Revenue that is accounted for under Topic 606 is segregated on the Company’s 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: YEAR ENDED DECEMBER 31, Dollars in thousands 2022 2021 2020 Type of Revenue Parking income $ 8,513 $ 7,859 $ 6,720 Management fee income 4,668 2,049 343 Miscellaneous 525 383 304 $ 13,706 $ 10,291 $ 7,367 The Company’s three 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. In most cases, the revenue is due and payable on a monthly basis. The Company had a receivable balance of $ 1.5 million and $ 1.4 million for the years ended December 31, 2022 and 2021, respectively. Management fee income includes property management services provided to third parties and certain of the properties in the Company's unconsolidated joint ventures and is generally calculated, accrued and billed monthly based on a percentage of cash collections of tenant receivables for the month or a stated amount per square foot. Management fee income also includes amounts paid to the Company for its asset management services for certain of its unconsolidated joint ventures. Internal management fee income, where the Company manages its owned properties, is eliminated in consolidation. Rental Income Rental income related to non-cancelable operating leases is recognized as earned over the life of the lease agreements on a straight-line basis. The Company's lease agreements generally include provisions for stated annual increases or increases based on a Consumer Price Index ("CPI"). Rental income from properties under multi-tenant office lease arrangements and rental income from properties with single-tenant lease arrangements are included in rental income on the Company's Consolidated Statements of Income. For lessors, the new standard requires a lessor to classify leases as either sales-type, direct-financing or operating. A lease will be treated as a sale if it is considered to transfer control of the underlying asset to the lessee. A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control. Otherwise, the lease is treated as an operating lease. Nonlease components, such as common area maintenance, are generally accounted for under Topic 606 and separated from the lease payments. However, the Company elected the lessor practical expedient allowing the Company to not separate these components when certain conditions are met. The combined component is accounted for under Accounting Standards Codification, Topic 842. The components of rental income are as follows: YEAR ENDED DECEMBER 31, Dollars in thousands 2022 2021 2020 Property operating income $ 883,953 $ 514,533 $ 488,527 Straight-line rent 23,498 5,801 3,735 Rental income $ 907,451 $ 520,334 $ 492,262 Federal Income Taxes The Company believes it has qualified to be taxed as a REIT and intends at all times to continue to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code. The Company must distribute at least 90 % per annum of its real estate investment trust taxable income to its stockholders and meet other requirements to continue to qualify as a real estate investment trust. As a REIT, the Company is generally not subject to federal income tax on net income it distributes to its stockholders, but may be subject to certain state and local taxes and fees. See Note 16 for further discussion. 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. If HR fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal income taxes on its taxable income and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year during which the qualification is lost unless the IRS grants it relief under certain statutory provisions. Such event could have a material adverse effect on its business, financial condition, results of operations and net cash available for dividend distributions to its stockholders. HR conducts substantially all of its operations through the OP. As a partnership, the OP generally is not liable for federal income taxes. The income and loss from the operations of the OP is included in the tax returns of its partners, including HR, who are responsible for reporting their allocable share of the partnership income and loss. Accordingly no provision for income tax has been made in the accompanying consolidated financial statements. The Company classifies interest and penalties related to uncertain tax positions, if any, in the Consolidated Financial Statements as a component of general and administrative expenses. No such amounts were recognized during the three years ended December 31, 2022. Federal tax returns for the years 2019, 2020, 2021 and 2022 are currently subject to examination by taxing authorities. State Income Taxes The Company must pay certain state income taxes and the provisions for such taxes are generally included in general and administrative expense on the Company’s Consolidated Statements of Income. See Note 16 for further discussion. Sales and Use Taxes The Company must pay sales and use taxes to certain state tax authorities based on rents collected from tenants in properties located in those states. The Company is generally reimbursed for these taxes by the tenant. The Company accounts for the payments to the taxing authority and subsequent reimbursement from the tenant on a net basis in rental income in the Company’s Consolidated Statements of Income. Assets Held for Sale Long-lived assets held for sale are reported at the lower of their carrying amount or their fair value less estimated cost to sell. Further, depreciation of these assets ceases at the time the assets are classified as held for sale. Losses resulting from the sale of such properties are characterized as impairment losses in the Consolidated Statements of Income. See Note 6 for more detail on assets held for sale. Earnings per Share The Company uses the two-class method of computing net earnings per common share. Earnings per common share is calculated by considering share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents as participating securities. Undistributed earnings (excess net income over dividend payments) are allocated on a pro rata basis to common shareholders and restricted shareholders. Undistributed losses (dividends in excess of net income) do not get allocated to restricted stockholders as they do not have the contractual obligation to share in losses. The amount of undistributed losses that applies to the restricted stockholders is allocated to the common stockholders. Basic earnings per common share is calculated using weighted average shares outstanding less issued and outstanding non-vested shares of common stock. Diluted earnings per common share is calculated using weighted average shares outstanding plus the dilutive effect of the outstanding stock options from the Legacy HR Employee Stock Purchase Plan using the treasury stock method and the average stock price during the period. Additionally, net income (loss) allocated to OP units has been included in the numerator and common stock related to redeemable OP units have been included in the denominator for the purpose of computing diluted earnings per share. See Note 14 for the calculations of earnings per share. 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. Redeemable Non-Controlling Interests The Company accounts for redeemable equity securities in accordance with Accounting Standards Update 2009-04 Liabilities (Topic 480): Accounting for Redeemable Equity Instruments, which requires that equity securities redeemable at the option of the holder, not solely within our control, be classified outside permanent stockholders’ equity. The Company classifies redeemable equity securities as redeemable non-controlling interests in the accompanying Consolidated Balance Sheet. Accordingly, the Company records the carrying amount at the greater of the initial carrying amount (increased or decreased for the non-controlling interest’s share of net income or loss and distributions) or the redemption value. We measure the redemption value and record an adjustment to the carrying value of the equity securities as a component of redeemable non-controlling interest. As of December 31, 2022, the Company had redeemable non-controlling interests of $ 2.0 million. Investments in 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”. The Company had two and four medical office buildings that were accounted for as separate sale-lease back transactions and recorded as investments in financing receivables as of December 31, 2022 and 2021, respectively. Income from Financing Receivables, net The Company recognizes the related interest income from the financing receivable based on an imputed interest rate over the terms of the applicable lease. As a result, the interest recognized from the financing receivable will not equal the cash payments from the lease. Acquisition costs incurred in connection with entering into the financing receivable are treated as loan origination fees. These costs are classified with the financing receivable and are included in the balance of the net investment. Amortization of these amounts will be recognized as a reduction to Interest income from financing receivable, net over the life of the lease. 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 December 31, 2022, real estate notes receivable, net, which are included in Other assets on the Company's Consolidated Balance Sheets totaled $ 99.6 million. (dollars in thousands) ORIGINATION MATURITY STATED INTEREST RATE MAXIMUM LOAN COMMITMENT OUTSTANDING as of DECEMBER 31, 2022 Mezzanine loans Texas 6/24/2021 6/24/2024 8 % $ 54,119 $ 54,119 North Carolina 12/22/2021 12/22/2024 8 % 6,000 6,000 60,119 60,119 Mortgage loan Texas 6/30/2021 12/31/2023 7 % $ 31,150 $ 31,150 Florida 5/17/2022 2/27/2026 6 % 65,000 13,062 $ 96,150 $ 44,212 Accrued interest 758 Fair-value discount and fees ( 5,446 ) $ 99,643 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. Pursuant to Topic 326 - Financial Instruments - Credit Losses, we adopted a policy to evaluate current expected credit losses at the inception of loans qualifying for treatment under Topic 326. We utilize a probability of default method approach for estimating current expected credit losses and have determined that the current risk of credit loss is remote. Accordingly, we have recorded no reserve for credit loss as of December 31, 2022. New Accounting Pronouncements Accounting Standards Update No. 2020-04 and 2022-06 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. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 which was issued to defer the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform to December 31, 2024. ASU 2022-06 is effective immediately for all companies. ASU 2022-06 will have no impact on the Company’s consolidated financial statements for the year ended December 31, 2022, as the Company no longer has any LIBOR-based debt. Note 2. Merger with HTA On July 20, 2022 (the “Closing Date”), pursuant to the Agreement and Plan of Merger dated as of February 28, 2022 (the “Merger Agreement”), by and among Healthcare Realty Trust Incorporated, a Maryland corporation (now known as HRTI, LLC, a Maryland limited liability company) (“Legacy HR”), Healthcare Trust of America, Inc., a Maryland corporation (now known as Healthcare Realty Trust Incorporated) (“Legacy HTA”), the OP, and HR Acquisition 2, LLC, a Maryland limited liability company (“Merger Sub”), Merger Sub merged with and into Legacy HR, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA (the “Merger”). On the Closing Date, each outstanding share of Legacy HR common stock, $ 0.01 par value per share (the “Legacy HR Common Stock”), was cancelled and converted into the right to receive one share of Legacy HTA class A common stock at a fixed ratio of 1.00 to 1.00. Per the terms of the Merger Agreement, Legacy HTA declared a special dividend of $ 4.82 (the “Special Dividend”) for each outstanding share of Legacy HTA class A common stock, $ 0.01 par value per share ( the “Legacy HTA Common Stock”), and the OP declared a corresponding distribution to the holders of its partnership units, payable to Legacy HTA stockholders and OP unitholders of record on July 19, 2022. Immediately following the Merger, Legacy HR converted to a Maryland limited liability company and changed its name to HRTI, LLC and Legacy HTA changed its name to “Healthcare Realty Trust Incorporated”. In addition, the equity interests of Legacy HR were contributed by Legacy HTA by means of a contribution and assignment agreement to the OP such that Legacy HR became a wholly-owned subsidiary of the OP. 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 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 consolidated Company, (ii) the composition of senior management of the consolidated 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 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, the liabilities assumed and non-controlling interests, if any, to be recognized at their acquisition date fair value. 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. The implied consideration transferred on the Closing Date is as follows: Dollars in thousands, except for per share data Shares of Legacy HTA Common Stock outstanding as of July 20, 2022 as adjusted (a) 228,520,990 Exchange ratio 1.00 Implied shares of Legacy HR Common Stock issued 228,520,990 Adjusted closing price of Legacy HR Common Stock on July 20, 2022 (b) $ 24.37 Value of implied Legacy HR Common Stock issued $ 5,569,057 Fair value of Legacy HTA restricted stock awards attributable to pre-Merger services (c) 7,406 Consideration transferred $ 5,576,463 (a) 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. (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. 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 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 PRELIMINARY AMOUNTS RECOGNIZED ON THE CLOSING DATE MEASUREMENT PERIOD ADJUSTMENTS PRELIMINARY AMOUNTS RECOGNIZED ON THE CLOSING DATE (as adjusted) ASSETS Real estate investments Land $ 985,926 $ 6,775 $ 992,701 Buildings and improvements 6,960,418 ( 83,662 ) 6,876,756 Lease intangible assets (a) 831,920 1,230 833,150 Financing lease right-of-use assets 9,874 3,146 13,020 Construction in progress 10,071 ( 6,744 ) 3,327 Land held for development 46,538 — 46,538 Total real estate investments $ 8,844,747 $ ( 79,255 ) $ 8,765,492 Assets held for sale, net 707,442 ( 7,946 ) 699,496 Investments in unconsolidated joint ventures 67,892 — 67,892 Cash and cash equivalents 26,034 11,403 37,437 Restricted cash 1,123,647 ( 1,247 ) 1,122,400 Operating lease right-of-use assets 198,261 17,786 216,047 Other assets, net (b) (c) 209,163 ( 3,840 ) 205,323 Total assets acquired $ 11,177,186 $ ( 63,099 ) $ 11,114,087 LIABILITIES Notes and bonds payable $ 3,991,300 $ — $ 3,991,300 Accounts payable and accrued liabilities 1,227,570 17,374 1,244,944 Liabilities of assets held for sale 28,677 ( 3,939 ) 24,738 Operating lease liabilities 173,948 10,173 184,121 Financing lease liabilities 10,720 ( 855 ) 9,865 Other liabilities 203,210 ( 11,541 ) 191,669 Total liabilities assumed $ 5,635,425 $ 11,212 $ 5,646,637 Net identifiable assets acquired $ 5,541,761 $ ( 74,311 ) $ 5,467,450 Non-controlling interest $ 110,702 $ — $ 110,702 Goodwill $ 145,404 $ 74,311 $ 219,715 (a) The weighted average amortization period for the acquired lease intangible assets is approximately 6 years. (b) Includes $ 15.9 million of contractual accounts receivable, which approximates fair value. (c) Includes $ 78.7 million of gross contractual real estate notes receivable, the fair value of which was $ 74.8 million, and the Company preliminarily expects to collect substantially all of the real estate notes receivable proceeds as of the Closing Date. The measurement period adjustments recorded during the year ended December 31, 2022 primarily resulted from updated valuations related to the Company’s real estate assets and liabilities and additional information obtained by the Company related to the properties acquired in the Merger and their respective tenants, and resulted in an increase to goodwill of $ 74.3 million. As of December 31, 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 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. 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. A preliminary estimate of approximately $ 219.7 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The recognized goodwill is attributable to expected synergies and benefits arising from the Merger, including anticipated general and administrative cost savings and potential economies of scale benefits in both tenant and vendor relationships following the closing of the Merger. None of the goodwill recognized is expected to be deductible for tax purposes. Merger related Costs In conjunction with the Merger, the Company incurred Merger-related costs of $ 103.4 million during the year ended December 31, 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 Consolidated Statement of Income for the year ended December 31, 2022 includes $ 351.8 million of revenues and $ 79.3 million of net loss associated with the results of operations of Legacy HTA from the Merger closing date to December 31, 2022. The following unaudited pro forma information presents a summary of our Consolidated Statements of Income for the years ended December 31, 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. YEAR ENDED December 31, Dollars in thousands 2022 2021 Total revenues $ 1,391,096 $ 1,316,743 Net income $ 130,445 $ ( 78,990 ) 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 3. Property Investments The Company invests in healthcare-related properties located throughout the United States. The Company provides management, leasing, development and redevelopment services, and capital for the construction of new facilities as well as for the acquisition of existing properties. The following table summarizes the Company’s consolidated investments at December 31, 2022. Dollars in thousands NUMBER OF PROPERTIES LAND BUILDINGS AND IMPROVEMENTS LEASE INTANGIBLES PERSONAL PROPERTY TOTAL ACCUMULATED DEPRECIATION Dallas, TX 45 $ 95,010 $ 1,116,725 $ 77,589 $ 551 $ 1,289,875 $ ( 202,031 ) Seattle, WA 29 64,295 623,166 13,444 726 701,631 ( 164,423 ) Los Angeles, CA 23 98,524 460,780 31,790 453 591,547 ( 129,663 ) Boston, MA 18 128,904 396,002 63,134 — 588,040 ( 13,513 ) Charlotte, NC 32 35,402 450,076 29,839 105 515,422 ( 95,363 ) Houston, TX 34 85,389 633,474 64,045 57 782,965 ( 63,486 ) Miami, FL 23 72,364 400,839 46,355 105 519,663 ( 52,920 ) Atlanta, GA 28 49,379 437,312 36,170 95 522,956 ( 63,773 ) Tampa, FL 20 31,533 377,455 36,838 33 445,859 ( 18,991 ) Denver, CO 33 76,698 497,235 45,854 609 620,396 ( 65,123 ) Raleigh, NC 27 56,620 363,359 37,446 9 457,434 ( 15,566 ) Phoenix, AZ 35 20,262 430,396 37,097 425 488,180 ( 30,281 ) Chicago, IL 7 32,374 266,672 20,608 81 319,735 ( 28,243 ) Indianapolis, IN 36 52,180 265,070 32,739 13 350,002 ( 19,705 ) Hartford, CT 30 43,326 204,049 31,803 — 279,178 ( 8,015 ) Nashville, TN 12 43,348 346,312 10,205 1,424 401,289 ( 92,720 ) New York, NY 14 64,402 167,819 26,430 — 258,651 ( 4,771 ) Austin, TX 13 27,064 271,692 18,568 142 317,466 ( 40,363 ) Orlando, FL 8 20,708 180,694 21,581 1 222,984 ( 11,654 ) Memphis, TN 11 13,901 184,540 4,211 317 202,969 ( 60,624 ) Other (51 markets) 210 326,262 3,256,027 273,568 1,223 3,857,080 ( 457,572 ) 688 1,437,945 11,329,694 959,314 6,369 13,733,322 ( 1,638,800 ) Construction in progress — — — — 35,560 — Land held for development — — — — — 74,265 ( 1,183 ) Financing lease right-of-use assets — — — — — 83,824 — Investment in financing receivables, net — — — — — 120,236 — Corporate property 1 — 1,853 2,343 684 5,538 10,418 ( 5,288 ) Total real estate investments 688 $ 1,439,798 $ 11,332,037 $ 959,998 $ 11,907 $ 14,057,625 $ ( 1,645,271 ) 1 Includes a 15,014 square foot building located in Charleston, South Carolina that is used as one of the Company's corporate offices. 4. Leases Lessor Accounting Under ASC 842 The Company’s properties generally are leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2052. 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 portfolio of single-tenant leases generally requires 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 records these expenses on a net basis, with the exception of property taxes. Property taxes are recorded on a gross basis as a lessor cost in which the tenant reimburses the Company. The Company generally expects that collectability is probable at lease commencement. If the assessment of collectability changes after the lease commencement date and Rental income is not considered probable, Rental income is recognized on a 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. cash basis and all previously recognized uncollectible Rental income is reversed in the period in which it is determined not to be probable of collection. In addition to the lease-specific collectability assessment performed under Topic 842, the Company may also apply a general reserve ("provision for bad debt"), as a reduction to Rental income, for its portfolio of operating lease receivables. The Company's leases typically have escalators that are either based on a stated percentage or an index such as CPI (consumer price index). In addition, most of the Company's leases include nonlease components such as reimbursement of operating expenses as additional rent or include the reimbursement of expected operating expenses as part of the lease payment. The Company adopted an accounting policy to combine lease and nonlease components. Rent escalators based on indices and reimbursements of operating expenses that are not included in the lease rate are considered variable lease payments. Variable payments are recognized in the period earned. Lease income for the Company's operating leases recognized for the year ended December 31, 2022 was $ 907.5 million. Future minimum lease payments under the non-cancelable operating leases, excluding any reimbursements, as of December 31, 2022 are as follows: In thousands 2023 $ 928,516 2024 814,132 2025 701,659 2026 603,051 2027 500,645 2028 and thereafter 1,633,847 $ 5,181,850 Revenue Concentrations The Company’s real estate portfolio is leased to a diverse tenant base. The Company did not have any customers that account for 10% or more of the Company's revenues for the years ended December 31, 2022, 2021 and 2020. Purchase Option Provisions Certain of the Company’s leases include purchase option provisions. The provisions vary by agreement but generally allow the lessee to purchase the property covered by the agreement at fair market value or an amount equal to the Company’s gross investment. The Company expects that the purchase price from its purchase options will be greater than its net investment in the properties at the time of potential exercise by the lessee. The Company had investments of approximately $ 100.4 million in five real estate properties as of December 31, 2022 that were subject to purchase options that were exercisable. Lessee Accounting Under ASC 842 As of December 31, 2022, the Company was obligated, as the lessee, under operating and finance lease agreements consisting primarily of the Company’s ground leases. Contracts evaluated and treated as leases are those that convey the right to control the use of identified assets for a period of time in exchange for consideration. ASC 842 requires the recording of these leases based on the aggregate future cash flows, discounted utilizing the implicit rate in the lease, or, if not readily determinable, based upon the lessee's incremental borrowing rate, to which the Company utilizes market inputs that are both similar to the Company's credit profile and corresponding term of the leases. As of December 31, 2022, the Company had 242 properties totaling 17.8 million square feet that were held under ground leases. Some of the ground leases renewal terms are based on fixed rent renewal terms and others have market rent renewal terms. These ground leases typically have initial terms of 40 to 99 years with expiration dates through 2119. Any rental increases related to the Company’s ground leases are generally either stated or based on the Consumer Price Index. The Company had 75 prepaid ground leases as of December 31, 2022. The amortization of the prepaid rent, included in the operating lease right-of-use asset, represented approximately $ 1.1 million for the year ended December 31, 2022 and $ 0.6 million for the years ended December 31, 2021 and 2020. 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. The Company’s future lease payments (primarily for its 167 non-prepaid ground leases) as of December 31, 2022 were as follows: In thousands OPERATING FINANCING 2023 $ 15,641 $ 2,140 2024 $ 15,227 $ 2,182 2025 $ 14,814 $ 2,218 2026 $ 14,852 $ 2,255 2027 $ 14,921 $ 2,294 2028 and thereafter $ 939,165 $ 396,398 Total undiscounted lease payments $ 1,014,620 $ 407,487 Discount $ ( 734,725 ) $ ( 334,548 ) Lease liabilities $ 279,895 $ 72,939 The following table provides details of the Company's total lease expense for the year ended December 31, 2022: In thousands YEAR ENDED Dec. 31, 2022 YEAR ENDED Dec. 31, 2021 Operating lease cost Operating lease expense $ 12,699 $ 4,765 Variable lease expense 4,529 3,929 Finance lease cost Amortization of right-of-use assets 1,288 388 Interest on lease liabilities 2,876 1,032 Total lease expense $ 21,392 $ 10,114 Other information Operating cash flows outflows related to operating leases $ 12,816 $ 7,706 Operating cash flows outflows related to financing leases $ 1,838 $ 809 Financing cash flows outflows related to financing leases $ — $ 9,182 Right-of-use assets obtained in exchange for new finance lease liabilities $ 53,765 $ 3,827 Right-of-use assets obtained in exchange for new operating lease liabilities $ 216,047 $ 8,298 Weighted-average remaining lease term (excluding renewal options) - operating leases 47.5 47.6 Weighted-average remaining lease term (excluding renewal options) -finance leases 58.9 62.1 Weighted-average discount rate - operating leases 5.8 % 5.6 % Weighted-average discount rate - finance leases 5.0 % 5.3 % 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 5. Acquisitions, Dispositions and Mortgage Repayments 2022 Acquisitions The following table details the Company's acquisitions, exclusive of the Merger, for the year ended December 31, 2022: Dollars in thousands TYPE 1 DATE ACQUIRED PURCHASE PRICE CASH CONSIDERATION 2 REAL ESTATE OTHER 3 SQUARE FOOTAGE unaudited Dallas, TX 4 MOB 2/11/22 $ 8,175 $ 8,185 $ 8,202 $ ( 17 ) 18,000 San Francisco, CA 5 MOB 3/7/22 114,000 112,986 108,687 4,299 166,396 Atlanta, GA MOB 4/7/22 6,912 7,054 7,178 ( 124 ) 21,535 Denver, CO MOB 4/13/22 6,320 5,254 5,269 ( 15 ) 12,207 Colorado Springs, CO 6 MOB 4/13/22 13,680 13,686 13,701 ( 15 ) 25,800 Seattle, WA MOB 4/28/22 8,350 8,334 8,370 ( 36 ) 13,256 Houston, TX MOB 4/28/22 36,250 36,299 36,816 ( 517 ) 76,781 Los Angeles, CA MOB 4/29/22 35,000 35,242 25,400 9,842 34,282 Oklahoma City, OK MOB 4/29/22 11,100 11,259 11,334 ( 75 ) 34,944 Raleigh, NC 5 MOB 5/31/22 27,500 26,710 27,127 ( 417 ) 85,113 Tampa. FL 6 MOB 6/9/22 18,650 18,619 18,212 407 55,788 Seattle, WA MOB 8/1/22 4,850 4,806 4,882 ( 76 ) 10,593 Raleigh, NC MOB 8/9/22 3,783 3,878 3,932 ( 54 ) 11,345 Jacksonville, FL MOB 8/9/22 18,195 18,508 18,583 ( 75 ) 34,133 Atlanta, GA MOB 8/10/22 11,800 11,525 12,038 ( 513 ) 43,496 Denver, CO MOB 8/11/22 14,800 13,902 13,918 ( 16 ) 34,785 Raleigh, NC MOB 8/18/22 11,375 10,670 10,547 123 31,318 Nashville, TN MOB 9/15/22 21,000 20,764 20,572 192 61,932 Austin, TX MOB 9/29/22 5,450 5,449 5,572 ( 123 ) 15,000 Jacksonville, FL 4 MOB 10/12/22 3,600 3,530 3,609 ( 79 ) 6,200 Houston, TX MOB 11/21/22 5,500 5,469 5,513 ( 44 ) 28,369 Austin, TX 7 MOB 12/28/22 888 890 889 1 2,219 Denver, CO MOB 12/28/22 16,400 16,170 16,467 ( 297 ) 39,692 $ 403,578 $ 399,189 $ 386,818 $ 12,371 863,184 1 MOB = medical office building. 2 Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition. 3 Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition. 4 Represents a single-tenant property. 5 Includes three properties. 6 Includes two properties. 7 The Company acquired additional ownership interests in an existing building bringing the Company's ownership to 71.4 %. 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. The following table summarizes the estimated relative fair values of the assets acquired and liabilities assumed in the real estate acquisitions for 2022 as of the acquisition date: ESTIMATED FAIR VALUE in millions ESTIMATED USEFUL LIFE in years Building $ 250.7 14.0 - 38.0 Land 76.1 — Land Improvements 11.2 5.0 - 14.0 Intangibles At-market lease intangibles 48.8 1.5 - 13.4 Above-market lease intangibles (lessor) 15.9 1.3 - 15.6 Below-market lease intangibles (lessor) ( 2.2 ) 1.3 - 19.3 Below-market lease intangibles (lessee) 1.2 13.1 Other assets acquired 0.4 Accounts payable, accrued liabilities and other liabilities assumed ( 2.9 ) Total cash paid $ 399.2 Unconsolidated Joint Ventures As of December 31, 2022, the Company had a weighted average ownership interest of approximately 48 % in 33 real estate properties held in joint ventures. 2022 Acquisitions The following table details the joint venture acquisitions for the year ended December 31, 2022: Dollars in thousands TYPE 1 DATE ACQUIRED PURCHASE PRICE CASH CONSIDERATION 2 REAL ESTATE OTHER 3 SQUARE FOOTAGE unaudited San Francisco, CA 4 MOB 3/7/22 $ 67,175 $ 66,789 $ 65,179 $ 1,610 110,865 Los Angeles, CA 5 MOB 3/7/22 33,800 32,384 32,390 ( 6 ) 103,259 $ 100,975 $ 99,173 $ 97,569 $ 1,604 214,124 1 MOB = medical office building. 2 Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition. 3 Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition. 4 Includes three properties. 5 Includes two properties. The Company's investment in and loss recognized for the years ended December 31, 2022 and 2021 related to its joint ventures accounted for under the equity method are shown in the table below: DECEMBER 31, Dollars in millions 2022 2021 Investments in unconsolidated joint ventures, beginning of period $ 161.9 $ 73.1 New investments during the period 1 167.9 89.6 Equity loss recognized during the period ( 0.7 ) ( 0.8 ) Owner distributions ( 1.9 ) — Investments in unconsolidated joint ventures, end of period $ 327.2 $ 161.9 1 For the year ended December 31, 2022, this included 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. 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 2021 Acquisitions The following table details the Company's acquisitions for the year ended December 31, 2021: Dollars in thousands TYPE 1 DATE ACQUIRED PURCHASE PRICE 2 MORTGAGES ASSUMED 3 CASH CONSIDERATION 4 REAL ESTATE 2 OTHER 5 SQUARE FOOTAGE unaudited San Diego, CA 6 MOB 1/7/21 $ 17,150 $ — $ 17,182 $ 17,182 $ — 22,461 Dallas, TX 8 MOB 2/1/21 22,515 — 22,299 22,641 ( 342 ) 121,709 Atlanta, GA 8 MOB 2/17/21 9,800 — 10,027 10,073 ( 46 ) 44,567 Washington, D.C. MOB 3/3/21 12,750 — 12,709 12,658 51 26,496 Houston, TX MOB 5/14/21 13,500 — 12,986 13,379 ( 393 ) 45,393 San Diego, CA 6,7 MOB 5/28/21 102,650 — 103,984 104,629 ( 645 ) 160,394 Greensboro, NC MOB 6/28/21 9,390 — 9,475 10,047 ( 572 ) 25,168 Baltimore, MD MOB 6/29/21 14,600 — 14,357 14,437 ( 80 ) 33,316 Denver, CO 9 MOB 7/16/21 70,426 — 69,151 65,100 4,051 259,555 Greensboro, NC 6 MOB 7/19/21 6,400 — 6,374 6,514 ( 140 ) 18,119 Colorado Springs, CO MOB 7/27/21 33,400 — 32,738 33,241 ( 503 ) 69,526 Birmingham, AL MOB 8/19/21 9,250 — 9,355 9,388 ( 33 ) 29,942 Raleigh, NC MOB 9/20/21 5,780 — 5,821 5,810 11 18,280 Denver, CO MOB 9/22/21 20,250 — 19,630 19,405 225 83,604 Raleigh, NC MOB 9/30/21 10,000 — 9,921 9,874 47 29,178 Denver, CO MOB 11/15/21 7,700 — 7,383 7,431 ( 48 ) 18,599 Denver, CO MOB 11/18/21 22,400 — 22,343 22,422 ( 79 ) 30,185 Columbus, OH 10 MOB 12/1/21 16,275 — 15,970 7,365 8,605 71,930 Nashville, TN MOB 12/2/21 11,300 — 11,245 11,263 ( 18 ) 34,908 Colorado Springs, CO MOB 12/20/21 10,575 — 10,541 11,009 ( 468 ) 44,166 Columbus, OH 8 MOB 12/28/21 9,525 — 9,521 9,601 ( 80 ) 28,962 Los Angeles, CA MOB 12/28/21 20,500 ( 11,000 ) 9,396 20,316 80 56,762 Nashville, TN 11 MOB 12/29/21 19,775 — 19,833 19,982 ( 149 ) 85,590 Austin, TX MOB 12/29/21 20,500 — 20,696 20,741 ( 45 ) 62,548 Atlanta, GA MOB 12/30/21 4,900 — 4,772 4,419 353 11,840 Nashville, TN 12 MOB 12/30/21 54,000 — 53,923 54,072 ( 149 ) 74,489 Nashville, TN 12 MOB 12/30/21 20,500 — 19,833 19,825 8 32,454 $ 575,811 $ ( 11,000 ) $ 561,465 $ 562,824 $ 9,641 1,540,141 1 MOB = medical office building. 2 Includes investments in financing receivables and an $ 8.9 million right-of-use asset related to the Columbus, Ohio transaction. 3 The mortgages assumed in the acquisitions do not reflect the fair value adjustments totaling $ 0.8 million in aggregate recorded by the Company upon acquisition (included in Other). 4 Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition. 5 Includes other assets acquired, liabilities assumed, intangibles, and fair value mortgage adjustments recognized at acquisition. 6 Represents a single-tenant property. 7 The Company acquired a single-tenant net lease property in San Diego, CA in a sale-leaseback transaction which was accounted for as a financing arrangement as required under ASC 842, Leases. 8 Includes two properties. 9 Includes three properties. 10 This sale-leaseback transaction was a multi-tenant lease property. A portion of the transaction totaling $ 7.4 million was accounted for as a financing receivable and the remaining $ 8.9 million was accounted for as an imputed lease arrangement. See Note 1 to the Consolidated Financial Statements accompanying this report for more information. 11 Includes purchase of an adjoining 2.7 acre land parcel that will be held for development. 12 This sale-leaseback transaction was a multi-tenant lease property which was accounted for as a financing arrangement as required under ASC 842, Leases. 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. The following table summarizes the estimated relative fair values of the assets acquired and liabilities assumed in the real estate acquisitions for 2021 as of the acquisition date: ESTIMATED FAIR VALUE in millions ESTIMATED USEFUL LIFE in years Building $ 275.1 18.0 - 44.0 Investment in financing receivables, net 185.9 0.5 - 34.0 Financing lease right of use assets 1 8.9 15.0 - 34.0 Land 34.1 — Land Improvements 8.9 6.0 - 16.0 Intangibles At-market lease intangibles 58.8 2.6 - 16.6 Above-market lease intangibles (lessor) 3.4 1.9 - 8.1 Below-market lease intangibles (lessor) ( 1.4 ) 3.1 - 21.8 Above-market lease intangibles (lessee) ( 0.3 ) 36.7 - 64.5 Below-market lease intangibles (lessee) 4.7 45.4 Mortgage notes payable assumed, including fair value adjustments ( 11.8 ) Other assets acquired 0.8 Accounts payable, accrued liabilities and other liabilities assumed ( 5.6 ) Total cash paid $ 561.5 1 The Company acquired a building in Columbus, Ohio in a sale lease back transaction totaling $ 16.3 million, in which $ 8.9 million was recorded as an imputed lease arrangement and the remaining $ 7.4 million was recorded as an investment in financing receivables. Unconsolidated Joint Ventures The following table details the joint venture acquisitions for the year ended December 31, 2021: Dollars in thousands TYPE 1 DATE ACQUIRED PURCHASE PRICE CASH CONSIDERATION 2 REAL ESTATE OTHER 3 SQUARE FOOTAGE unaudited Denver, CO MOB 3/30/21 $ 14,375 $ 14,056 $ 14,550 $ ( 494 ) 59,359 Colorado Springs, CO MOB 4/1/21 7,200 7,288 7,347 ( 59 ) 27,510 Los Angeles, CA MOB 4/8/21 31,335 30,179 30,642 ( 463 ) 57,573 San Antonio, TX MOB 4/30/21 13,600 13,412 13,656 ( 244 ) 45,000 Los Angeles, CA MOB 5/10/21 24,600 24,259 24,147 112 73,078 Colorado Springs, CO 4 MOB 7/27/21 9,133 9,137 9,135 2 23,956 Denver, CO MOB 10/21/21 23,000 22,638 23,021 ( 383 ) 57,257 San Antonio, TX 5 MOB 12/10/21 42,300 41,892 42,190 ( 298 ) 117,597 San Antonio, TX MOB 12/29/21 6,094 6,218 6,308 ( 90 ) 22,381 San Antonio, TX MOB 12/29/21 8,850 8,915 8,866 49 30,542 $ 180,487 $ 177,994 $ 179,862 $ ( 1,868 ) 514,253 1 MOB = medical office building. 2 Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition. 3 Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition. 4 Includes purchase of an adjoining 3.0 acre land parcel. 5 Includes three properties. 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 2022 Real Estate Asset Dispositions The following table details the Company's dispositions for the year ended December 31, 2022: Dollars in thousands TYPE 1 DATE DISPOSED SALES PRICE CLOSING ADJUSTMENTS NET PROCEEDS NET REAL ESTATE INVESTMENT OTHER including receivables 2 GAIN/ (IMPAIRMENT) SQUARE FOOTAGE unaudited Loveland, CO 3, 4 MOB 2/24/22 $ 84,950 $ ( 45 ) $ 84,905 $ 40,095 $ 4 $ 44,806 150,291 San Antonio, TX 3 MOB 4/15/22 25,500 ( 2,272 ) 23,228 14,381 284 8,563 201,523 GA, FL, PA 5, 11 MOB 7/29/22 133,100 ( 8,109 ) 124,991 124,991 — — 316,739 GA, FL, TX 7, 11 MOB 8/4/22 160,917 ( 5,893 ) 155,024 151,819 3,205 — 343,545 Los Angeles, CA 5, 9, 11 MOB 8/5/22 134,845 ( 3,102 ) 131,743 131,332 411 — 283,780 Dallas, TX 7, 10, 11 MOB 8/30/22 114,290 ( 682 ) 113,608 113,608 — — 189,385 Indianapolis, IN 6, 12 MOB 8/31/22 238,845 ( 5,846 ) 232,999 84,767 4,324 143,908 506,406 Dallas, TX 3 MOB 10/4/22 104,025 ( 5,883 ) 98,142 38,872 6,436 52,834 291,328 Houston, TX MOB 10/21/22 32,000 ( 280 ) 31,720 10,762 744 20,214 134,910 College Station, TX MOB 11/10/22 49,177 ( 3,755 ) 45,422 44,918 475 28 122,942 El Paso, TX MOB 12/22/22 55,326 ( 4,002 ) 51,324 56,427 ( 1,897 ) ( 3,205 ) 110,465 Atlanta, GA 8 MOB 12/22/22 91,243 ( 4,326 ) 86,917 109,051 235 ( 22,369 ) 348,416 St. Louis, MO MOB 12/28/22 18,000 ( 1,471 ) 16,529 18,340 4 ( 1,815 ) 69,394 $ 1,242,218 $ ( 45,666 ) $ 1,196,552 $ 939,363 $ 14,225 $ 242,964 3,069,124 1 MOB = medical office building 2 Includes straight-line rent receivables, leasing commissions and lease inducements. 3 Includes two properties. 4 The Company deferred the tax gain through a 1031 exchange and reinvested the proceeds. 5 Includes four properties. 6 Includes five properties. 7 Includes six properties. 8 Includes nine properties. 9 Values and square feet are represented at 100 %. The Company retained a 20 % ownership interest in the joint venture with an unrelated third party that purchased these properties. 10 Values and square feet are represented at 100 %. The Company retained a 40 % ownership interest in the joint venture with an unrelated third party that purchased these properties. 11 These properties were acquired as part of the Merger and were included as assets held for sale in the purchase price allocation. 12 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 Dispositions On January 13, 2023, the Company disposed of two medical office buildings, one in Tampa, Florida and one in Miami, Florida, with a combined total of 224,037 square feet for an aggregate purchase price of $ 93.3 million. On January 30, 2023, the Company disposed of a 36,691 square foot medical office building in Dallas, Texas, for a purchase price of $ 19.2 million. The Company retained a 40 % ownership interest in the joint venture that purchased this property. On February 10, 2023, the Company disposed of a 6,500 square foot medical office building in St. Louis, Missouri for a purchase price of $ 0.4 million. 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 2021 Real Estate Asset Dispositions The following table details the Company's dispositions for the year ended December 31, 2021: Dollars in thousands TYPE 1 DATE DISPOSED SALES PRICE CLOSING ADJUSTMENTS NET PROCEEDS NET REAL ESTATE INVESTMENT OTHER including receivables 2 GAIN/ (IMPAIRMENT) SQUARE FOOTAGE unaudited Los Angeles, CA 3 MOB 3/11/21 $ 26,000 $ ( 555 ) $ 25,445 $ 6,046 $ 509 $ 18,890 73,906 Atlanta, GA MOB 4/12/21 8,050 ( 272 ) 7,778 5,675 151 1,952 19,732 Richmond, VA MOB 5/18/21 52,000 ( 314 ) 51,686 29,414 3,270 19,002 142,856 Gadsden, AL 4 MOB 5/19/21 5,500 ( 280 ) 5,220 5,914 175 ( 869 ) 120,192 Dallas, TX 5 MOB 7/9/21 23,000 ( 1,117 ) 21,883 18,733 1,966 1,184 190,160 Chicago, IL MOB 10/28/21 13,300 ( 388 ) 12,912 23,213 706 ( 11,007 ) 95,436 Des Moines, IA 6 MOB 12/8/21 47,000 ( 901 ) 46,099 32,312 1,037 12,750 132,617 Aberdeen, SD MOB 12/22/21 12,750 ( 299 ) 12,451 10,337 — 2,114 58,285 Dallas, TX MOB 12/23/21 800 ( 103 ) 697 712 167 ( 182 ) 13,818 $ 188,400 $ ( 4,229 ) $ 184,171 $ 132,356 $ 7,981 $ 43,834 847,002 1 MOB = medical office building 2 Includes straight-line rent receivables, leasing commissions and lease inducements. 3 Includes two properties sold to a single purchaser in two transactions which closed on March 5 and March 11, 2021. 4 Includes three properties. 5 Includes four properties and a land parcel sold under a single purchase agreement. 6 Includes three properties and two land parcels under a single purchase agreement. 6. Held for Sale Assets and liabilities of properties sold or classified as held for sale are separately identified on the Company’s Consolidated Balance Sheets. As of December 31, 2022 the Company had one property classified as held for sale, and as of December 31, 2021 the Company had no real estate properties classified as held for sale. The table below reflects the assets and liabilities classified as held for sale as of December 31, 2022 and 2021. DECEMBER 31, Dollars in thousands 2022 2021 Balance Sheet data Land $ 1,700 $ — Buildings and improvements 15,164 — Lease intangibles 1,986 — 18,850 — Accumulated depreciation — — Real estate assets held for sale, net 18,850 — Other assets, net 43 57 Assets held for sale, net $ 18,893 $ 57 Accounts payable and accrued liabilities $ 282 $ 169 Other liabilities 155 125 Liabilities of properties held for sale $ 437 $ 294 7. Impairment Charges An asset is impaired when undiscounted cash flows expected to be generated by the asset are less than the carrying value of the asset. The Company must assess the potential for impairment of its long-lived assets, including real estate properties, whenever events occur or there is a change in circumstances, such as the sale of a property or the decision to sell a property, that indicate that the recorded value might not be fully recoverable. The Company recorded impairment charges on 12 properties sold and three additional properties associated with completed or planned disposition activity for the year ended December 31, 2022 totaling $ 54.4 million. The Company 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. recorded impairment charges on five properties sold and one property being redeveloped for a total of $ 17.1 million in 2021. Both level 1 and level 3 fair value techniques were used to derive these impairment charges. 8. 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 Consolidated Balance Sheets as of December 31, 2022 and 2021 are detailed in the table below: Dollars in thousands December 31, 2022 December 31, 2021 Real estate notes receivable, net $ 99,643 $ — Straight-line rent receivables 88,868 70,784 Prepaid assets 81,900 58,618 Above-market intangible assets, net 80,720 4,966 Accounts receivable, net 1 47,498 14,072 Additional long-lived assets, net 21,446 20,048 Interest rate swap assets 14,512 — Other receivables, net 7,169 — Investment in securities (2) 6,011 — Debt issuance costs, net 5,977 1,813 Project costs 4,337 5,129 Net investment in lease 1,828 — Customer relationship intangible assets, net 1,120 1,174 Other 8,961 9,069 $ 469,990 $ 185,673 1 This amount is net of allowance for doubtful accounts of $ 4.0 million 2 This amount represents the value of the Company's preferred stock investment in a data analytics platform. Accounts Payable and Accrued Liabilities The following table provides details of the items included in "Accounts payable and accrued liabilities" on the Company's Consolidated Balance Sheets as of December 31, 2022 and 2021: Dollars in thousands December 31, 2022 December 31, 2021 Accrued property taxes $ 78,185 $ 35,295 Accounts payable and capital expenditures 57,352 17,036 Accrued interest 50,037 12,060 Other operating accruals 58,459 21,717 $ 244,033 $ 86,108 Other Liabilities The following table provides details of the items included in "Other liabilities" on the Company's Consolidated Balance Sheets as of December 31, 2022 and 2021: Dollars in thousands December 31, 2022 December 31, 2021 Below-market intangible liabilities, net $ 97,935 $ 4,931 Deferred revenue 87,325 45,130 Security deposits 28,521 11,116 Interest rate swap liability 4,269 5,917 Other 618 293 $ 218,668 $ 67,387 81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 9. Intangible Assets and Liabilities The Company has several types of intangible assets and liabilities included in its Consolidated Balance Sheets, including goodwill, debt issuance costs, above-, below-, and at-market lease intangibles, and customer relationship intangibles. For additional detail on the Company's debt issuance costs, see Note 10 to the Consolidated Financial Statements. The Company’s intangible assets and liabilities, including assets held for sale and excluding certain debt issuance costs, as of December 31, 2022 and 2021 consisted of the following: GROSS BALANCE at December 31, ACCUMULATED AMORTIZATION at December 31, WEIGHTED AVG. REMAINING LIFE in years BALANCE SHEET CLASSIFICATION Dollars in millions 2022 2021 2022 2021 Goodwill $ 223.2 $ 3.5 $ — $ — N/A Goodwill Credit facility debt issuance costs 6.9 5.1 0.9 3.3 2.9 Other assets, net Above-market lease intangibles (lessor) 91.5 7.0 10.7 2.0 5.3 Other assets, net Customer relationship intangibles (lessor) 2.1 2.1 1.0 0.9 20.6 Other assets, net Below-market lease intangibles (lessor) ( 112.5 ) ( 10.1 ) ( 14.6 ) ( 5.1 ) 5.7 Other liabilities At-market lease intangibles 1,067.4 213.0 188.3 77.5 5.2 Real estate properties $ 1,278.6 $ 220.6 $ 186.3 $ 78.6 5.3 For the years ended December 31, 2022 and 2021, the Company recognized approximately $ 133.6 million and $ 33.7 million of intangible amortization, respectively. The following table represents expected amortization over the next five years of the Company’s intangible assets and liabilities in place as of December 31, 2022: Dollars in millions FUTURE AMORTIZATION OF INTANGIBLES, NET 2023 $ 233.8 2024 197.9 2025 151.1 2026 97.6 2027 64.3 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 10. Notes and Bonds Payable DECEMBER 31, MATURITY DATES CONTRACTUAL INTEREST RATES EFFECTIVE INTEREST RATES PRINCIPAL PAYMENTS INTEREST PAYMENTS Dollars in thousands 2022 2021 $ 700 M Unsecured Credit Facility $ — $ 210,000 5/23 LIBOR + 0.90 % N/A At maturity Monthly $ 1.5 B Unsecured Credit Facility 385,000 — 10/25 SOFR + 0.95 % 5.27 % At maturity Monthly $ 350 M Unsecured Term Loan 1 349,114 — 7/23 SOFR + 1.05 % 5.17 % At maturity Monthly $ 200 M Unsecured Term Loan 1 199,670 199,460 5/24 SOFR + 1.05 % 5.17 % At maturity Monthly $ 150 M Unsecured Term Loan 1 149,495 149,376 6/26 SOFR + 1.05 % 5.17 % At maturity Monthly $ 300 M Unsecured Term Loan 1 299,936 — 10/25 SOFR + 1.05 % 5.17 % At maturity Monthly $ 200 M Unsecured Term Loan 1 199,362 — 7/27 SOFR + 1.05 % 5.17 % At maturity Monthly $ 300 M Unsecured Term Loan 1 297,869 — 1/28 SOFR + 1.05 % 5.17 % At maturity Monthly Senior Notes due 2025 1 249,115 249,040 5/25 3.88 % 4.12 % At maturity Semi-annual Senior Notes due 2026 1 571,587 — 8/26 3.50 % 4.94 % At maturity Semi-annual Senior Notes due 2027 1 479,553 — 7/27 3.75 % 4.76 % At maturity Semi-annual Senior Notes due 2028 1 296,852 296,612 1/28 3.63 % 3.85 % At maturity Semi-annual Senior Notes due 2030 1 565,402 — 2/30 3.10 % 5.30 % At maturity Semi-annual Senior Notes due 2030 1 296,385 296,813 3/30 2.40 % 2.72 % At maturity Semi-annual Senior Notes due 2031 1 295,547 295,374 3/31 2.05 % 2.25 % At maturity Semi-annual Senior Notes due 2031 1 632,693 — 3/31 2.00 % 5.13 % At maturity Semi-annual Mortgage notes payable 2 84,247 104,650 8/23-12/26 3.31 %- 4.77 % 3.42 %- 4.84 % Monthly Monthly $ 5,351,827 $ 1,801,325 1 Balances are shown net of discounts and unamortized issuance costs. 2 Balances are shown net of discounts and unamortized issuance costs and include premiums. The Company’s various debt agreements contain certain representations, warranties, and financial and other covenants customary in such loan agreements. Among other things, these provisions require the Company to maintain certain financial ratios and impose certain limits on the Company’s ability to incur indebtedness and create liens or encumbrances. As of December 31, 2022, the Company was in compliance with its financial covenant provisions under its various debt instruments. 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”). 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 % 83 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 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 12/31/2022 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 $ — The following table reconciles the Company’s aggregate Senior notes principal balance with the Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021 DECEMBER 31, Dollars in thousands 2022 2021 Senior notes principal balance $ 3,699,500 $ 1,150,000 Unaccreted discount ( 304,919 ) ( 4,730 ) Debt issuance costs ( 7,447 ) ( 7,431 ) Senior notes carrying amount $ 3,387,134 $ 1,137,839 Credit Facilities The Unsecured 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 Unsecured 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. • 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 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. ◦ 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 December 31, 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. The following table reconciles the Company’s aggregate term loan principal balance with the Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021. DECEMBER 31, Dollars in thousands 2022 2021 Term loan principal balances $ 1,500,000 $ 350,000 Debt issuance costs ( 4,554 ) ( 1,164 ) Term Loans carrying amount $ 1,495,446 $ 348,836 $ 1.125 billion Asset Sale Term Loan The Company completed its draw of the $ 1.125 billion asset sale term loan on July 19, 2022. The principal balance was fully repaid on December 30, 2022. Mortgage Notes Payable The following table reconciles the Company’s aggregate mortgage notes principal balance with the Company’s Consolidated Balance Sheets as of December 31, 2022 and 2021. DECEMBER 31, Dollars in thousands 2022 2021 Mortgage notes payable principal balance $ 84,122 $ 103,664 Unamortized premium 486 1,720 Unaccreted discount ( 38 ) ( 83 ) Debt issuance costs ( 323 ) ( 651 ) Mortgage notes payable carrying amount $ 84,247 $ 104,650 85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. Mortgage Activity 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. The following table details the Company’s mortgage notes payable, with related collateral. ORIGINAL BALANCE EFFECTIVE INTEREST RATE 10 MATURITY DATE COLLATERAL 11 PRINCIPAL AND INTEREST PAYMENTS 9 INVESTMENT IN COLLATERAL at December 31, BALANCE at December 31, Dollars in millions 2022 2022 2021 Commercial Bank 1 15.0 5.25 % 4/27 MOB Monthly/ 20 -yr amort. — — 6.1 Life Insurance Co. 2 11.0 3.64 % 5/27 MOB Monthly/ 10 -yr amort. — — 11.6 Life Insurance Co. 3 12.3 3.86 % 8/23 MOB Monthly/ 7 -yr amort. 25.9 10.0 10.3 Life Insurance Co. 4 9.0 4.84 % 12/23 MOB,OFC Monthly/ 10 -yr amort. 24.5 6.8 7.1 Life Insurance Co. 5 13.3 4.13 % 1/24 MOB Monthly/ 10 -yr amort. 22.5 11.7 12.0 Life Insurance Co. 6 6.8 3.96 % 2/24 MOB Monthly/ 7 -yr amort. 14.7 5.8 6.0 Financial Services 7 9.7 4.32 % 9/24 MOB Monthly/ 10 -yr amort. 16.6 7.5 7.8 Life Insurance Co. 8 16.5 3.43 % 12/25 MOB,OFC Monthly/ 7 -yr amort. 39.1 16.2 16.7 Financial Services 11.5 3.71 % 1/26 MOB Monthly/ 10 -yr amort. 40.5 8.3 8.7 Life Insurance Co. 19.2 4.08 % 12/26 MOB Monthly/ 10 -yr amort. 44.5 17.9 18.4 $ 228.3 $ 84.2 $ 104.7 1 The Company repaid this loan at the time of disposal in February 2022. 2 The Company repaid this loan in February 2022. The Company's unencumbered gross investment was $ 20.6 million at December 31, 2022. 3 The unaccreted portion of the $ 0.2 million discount recorded on this note upon acquisition is included in the balance above. 4 The unamortized portion of the $ 0.1 million premium recorded on this note upon acquisition is included in the balance above. 5 The unamortized portion of the $ 0.8 million premium recorded on this note upon acquisition is included in the balance above. 6 The unamortized portion of the $ 0.2 million premium recorded on this note upon acquisition is included in the balance above. 7 The unamortized portion of the $ 0.1 million premium recorded on this note upon acquisition is included in the balance above. 8 The unamortized portion of the $ 0.7 million premium recorded on this note upon acquisition is included in the balance above. 9 Payable in monthly installments of principal and interest with the final payment due at maturity (unless otherwise noted). 10 The contractual interest rates for the eight outstanding mortgage notes ranged from 3.3 % to 4.8 % as of December 31, 2022. 11 MOB-Medical office building; OFC-Office Other Long-Term Debt Information Future maturities of the Company’s notes and bonds payable as of December 31, 2022 were as follows: Dollars in thousands PRINCIPAL MATURITIES NET ACCRETION/ AMORTIZATION 1 DEBT ISSUANCE COSTS 2 NOTES AND BONDS PAYABLE % 2023 $ 368,880 $ ( 38,805 ) $ ( 3,258 ) $ 326,817 6.1 % 2024 225,352 ( 40,922 ) ( 2,211 ) 182,219 3.4 % 2025 951,250 ( 43,193 ) ( 1,851 ) 906,206 16.9 % 2026 773,640 ( 41,798 ) ( 1,636 ) 730,206 13.6 % 2027 700,000 ( 36,192 ) ( 1,518 ) 662,290 12.4 % 2028 and thereafter 2,649,500 ( 103,561 ) ( 1,850 ) 2,544,089 47.6 % $ 5,668,622 $ ( 304,471 ) $ ( 12,324 ) $ 5,351,827 100.0 % 1 Includes discount accretion and premium amortization related to the Company’s Senior Notes and six mortgage notes payable. 2 Excludes approximately $ 6.0 million in debt issuance costs related to the Company's Unsecured Credit Facility included in other assets, net. 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 11. Derivative Financial Instruments Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2022, 2021 and 2020, 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) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During 2020, the Company entered into two treasury rate locks totaling $ 75.0 million and $ 40.0 million, respectively. The treasury rate locks were settled for an aggregate amount of $ 4.3 million concurrent with the Company's issuance of its Senior Notes due 2030. The settlement will be amortized over the 10 -year term of the notes. 87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. As of December 31, 2022, the Company had interest rate derivatives that were designated as cash flow hedges of interest rate risk. The table below presents the notional value and weighted average rates of the Company's derivative financial instruments as of December 31, 2022 and 2021: NOTIONAL VALUE AS OF WEIGHTED AVERAGE RATE EXPIRATION DATE DECEMBER 31, 2022 January 31, 2023 $ 300,000 1.42 % January 15, 2024 200,000 1.21 % May 1, 2026 100,000 2.15 % December 1, 2026 150,000 3.84 % June 1, 2027 150,000 4.13 % December 1, 2027 250,000 3.79 % $ 1,150,000 2.63 % On February 16, 2023, the Company entered into a swap transaction with a notional amount of $ 50.0 million and a fixed rate of 4.16 %. The swap agreement has an effective date of March 1, 2023 and a termination date of June 1, 2026. Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2022 and 2021. AS OF DECEMBER 31, 2022 AS OF DECEMBER 31, 2021 Dollars in thousands BALANCE SHEET LOCATION FAIR VALUE BALANCE SHEET LOCATION FAIR VALUE Derivatives designated as hedging instruments Interest rate swaps 2017 Other liabilities $ ( 420 ) Interest rate swaps 2018 Other liabilities ( 976 ) Interest rate swaps 2019 Other Assets $ 13,603 Other liabilities ( 4,521 ) Interest rate swaps 2022 Other Assets 909 — Interest rate swaps 2022 Other Liabilities ( 4,269 ) — Total derivatives designated as hedging instruments $ 10,243 $ ( 5,917 ) Tabular Disclosure of the Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss) The table below presents the effect of cash flow hedge accounting on Accumulated other comprehensive income (loss) as of December 31, 2022 related to the Company's outstanding interest rate swaps. AMOUNT OF GAIN/(LOSS) RECOGNIZED IN OCI on derivatives AMOUNT OF (GAIN)/LOSS RECLASSIFIED FROM OCI INTO INCOME for the year ended December 31, Dollars in thousands 2022 2022 2021 Interest rate swaps 2017 $ 302 Interest expense $ 118 $ 527 Interest rate swaps 2018 616 Interest expense 361 1,194 Interest rate swaps 2019 12,964 Interest expense 563 2,157 Interest rate swaps 2022 ( 3,252 ) Interest expense ( 109 ) — Settled treasury hedges — Interest expense 426 426 Settled interest rate swaps — Interest expense 168 168 $ 10,630 Total interest expense $ 1,527 $ 4,472 The Company estimates that an additional $ 10.3 million will be reclassified from accumulated other comprehensive loss as a net decrease to interest expense over the next 12 months. Tabular Disclosure Offsetting Derivatives 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of December 31, 2022. The net amounts of derivative liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative liabilities are presented on the Company's Consolidated Balance Sheets. Offsetting of Derivative Assets GROSS AMOUNTS of recognized assets GROSS AMOUNTS OFFSET in the Consolidated Balance Sheets NET AMOUNTS OF ASSETS presented in the Consolidated Balance Sheets GROSS AMOUNTS NOT OFFSET in the Consolidated Balance Sheets FINANCIAL INSTRUMENTS CASH COLLATERAL NET AMOUNT Derivatives $ 14,512 $ — $ 14,512 $ ( 4,269 ) $ — $ 10,243 Offsetting of Derivative Liabilities GROSS AMOUNTS of recognized liabilities GROSS AMOUNTS OFFSET in the Consolidated Balance Sheets NET AMOUNTS OF LIABILITIES presented in the Consolidated Balance Sheets GROSS AMOUNTS NOT OFFSET in the Consolidated Balance Sheets FINANCIAL INSTRUMENTS CASH COLLATERAL NET AMOUNT Derivatives $ ( 4,269 ) $ — $ ( 4,269 ) $ 4,269 $ — $ — Credit-risk-related Contingent Features The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. As of December 31, 2022, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ 2.1 million. As of December 31, 2022, the Company has not posted any collateral related to these agreements and was not in breach of any agreement provisions. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $ 2.1 million. 12. Stockholders’ Equity Common Stock The Company had no preferred shares outstanding and had common shares outstanding for the three years ended December 31, 2022, 2021, and 2020 as follows: YEAR ENDED DECEMBER 31, 2022 2021 2020 Balance, beginning of year 150,457,433 139,487,375 134,706,154 Issuance of common stock 229,618,304 10,899,301 4,637,445 Non-vested share-based awards, net of withheld shares and forfeitures 514,157 70,757 143,776 Balance, end of year 380,589,894 150,457,433 139,487,375 89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. At-The-Market Equity Offering Program The Company has in place an ATM equity offering program to sell shares of the Company’s common stock from time to time in at-the-market sales transactions. The Company has equity distribution agreements with various sales agents with respect to the ATM offering program of common stock with an aggregate sales amount of up to $ 750.0 million. As of December 31, 2022, $ 750.0 million remained available for issuance under the current ATM offering program. The Company's previous ATM agreements involving Legacy HR are no longer in effect following the Merger on July 20, 2022. The following table details the Company's at-the-market activity, including any forward transactions: WEIGHTED AVERAGE SALE PRICE per share SHARES PRICED SHARES SETTLED SHARES REMAINING TO BE SETTLED NET PROCEEDS in millions 2021 $ 31.09 9,763,680 10,859,539 727,400 $ 330.3 2022 $ 31.73 — 727,400 — $ 22.3 Dividends Declared During 2022, the Company declared and paid common stock dividends aggregating $ 1.24 per share ($ 0.31 per share per quarter). On February 24, 2023, the Company declared a quarterly common stock dividend in the amount of $ 0.31 per share payable on March 21, 2023 to stockholders of record on March 7, 2023. Authorization to Repurchase Common Stock On August 2, 2022, the Company’s Board of Directors authorized the repurchase of up to $ 500.0 million of outstanding shares of the Company’s common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints, and other customary conditions. The Company is not obligated under this authorization to repurchase any specific number of shares. This authorization supersedes all previous stock repurchase authorizations. As of the date of these Consolidated Financial Statements, the Company has not repurchased any shares of its common stock under this authorization. Accumulated Other Comprehensive Income During the year ended December 31, 2020, the Company entered into two treasury rate locks that were settled for an aggregate amount of $ 4.3 million concurrent with the Company’s issuance of its Senior Notes due 2030. This amount will be reclassified out of accumulated other comprehensive over the 10 -year term of the notes. The Company continues to amortize the 2015 settlement of forward-starting interest rate swaps. This amount will be reclassified out of accumulated other comprehensive income impacting net income over the 10 -year term of the associated senior note issuance. See Note 11 for more information regarding the Company's derivative instruments. The following table represents the changes in accumulated other comprehensive income (loss) during the years ended December 31, 2022 and 2021: INTEREST RATE SWAPS as of December 31, Dollars in thousands 2022 2021 Beginning balance $ ( 9,981 ) $ ( 17,832 ) Other comprehensive loss before reclassifications 1,531 4,472 Amounts reclassified from accumulated other comprehensive income 10,590 3,379 Net current-period other comprehensive income 12,121 7,851 Ending balance $ 2,140 $ ( 9,981 ) The following table represents the details regarding the reclassifications from accumulated other comprehensive income (loss) during the year ended December 31, 2022 (dollars in thousands): 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. DETAILS ABOUT ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMPONENTS AMOUNT RECLASSIFIED from accumulated other comprehensive income (loss) AFFECTED LINE ITEM in the statement where net income is presented Amounts reclassified from accumulated other comprehensive income (loss) related to settled interest rate swaps $ 594 Interest Expense Amounts reclassified from accumulated other comprehensive income (loss) related to current interest rate swaps 937 Interest Expense $ 1,531 13. Stock and Other Incentive Plans Stock Incentive Plan The Legacy HR stockholders approved the Legacy HR Incentive Plan, which authorized the Company to issue 3,500,000 shares of common stock to its employees and directors. The Legacy HR Incentive Plan was replaced as of the merger date by the Incentive Plan. As of December 31, 2022 and 2021, the Company had issued a total of 3,417,696 and 2,386,822 restricted shares under the Incentive Plan and the Legacy HR Incentive Plan, respectively. Unvested awards under the Legacy HR Incentive Plan were assumed according to their existing terms by the Company in connection with the Merger. Non-vested shares issued under the Legacy HR Incentive Plan are generally subject to fixed vesting periods varying from three to eight years beginning on the date of issue. If a recipient voluntarily terminates his or her relationship with the Company or is terminated for cause before the end of the vesting period, the shares are forfeited, at no cost to the Company. Once the shares have been issued, the recipient has the right to receive dividends and the right to vote the shares through the vesting period. Compensation expense, included in general and administrative expense, recognized during the years ended December 31, 2022, 2021 and 2020 from the amortization of the value of shares over the vesting period issued to employees and directors was $ 13.9 million , $ 10.4 million and $ 9.7 million, respectively. The following table represents expected amortization of the Company's non-vested shares issued as of December 31, 2022: Dollars in millions FUTURE AMORTIZATION of non-vested shares 2023 $ 12.0 2024 10.0 2025 8.3 2026 5.5 2027 0.4 2028 and thereafter 0.1 Total $ 36.3 Executive Incentive Plan The Compensation Committee has adopted an executive incentive plan pursuant to the Incentive Plan (the "Executive Incentive Plan") to provide specific award criteria with respect to incentive awards made under the Incentive Plan subject to the discretion of the Compensation Committee. Under the terms of the Executive Incentive Plan, the Company's named executive officers, and certain other members of senior management, may earn incentive awards in the form of cash, non-vested stock, restricted stock units ("RSUs"), and units in the OP ("OP Units"). For 2022, 2021 and 2020, compensation expense, included in general and administrative expense, resulting from the amortization of the Executive Incentive Plan non-vested share and RSU grants to officers was approximately $ 9.8 million , $ 6.6 million, and $ 5.9 million, respectively. Details of equity awards that have been issued under this plan are as follows: • On January 3, 2022, the Company granted non-vested stock awards to its named executive officers, and certain other members of senior management and employees, with a grant date fair value of $ 7.9 million, which consisted of an aggregate of 249,689 non-vested shares with a five-year vesting period, which will result in an annual compensation expense of $ 1.6 million for each of 2023, 2024, 2025 and 2026. • On January 3, 2022, the Company granted RSUs to its named executive officers, and certain other members of senior management and officers, with a grant date fair value of $ 9.7 million, which consisted of an aggregate 91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 294,932 RSUs with a three-year performance period and a total five-year vesting period, which will result in an annual compensation expense of $ 1.9 million for each of 2023, 2024, 2025, and 2026. • On February 22, 2022, the Company granted a performance-based award to its named executive officers, senior vice presidents, and first vice presidents with a grant date fair value of $ 3.9 million, which consisted of an aggregate of 126,930 non-vested shares with a five-year vesting period, which will result in an annual compensation expense of $ 0.8 million for 2023, 2024, 2025 and 2026, and $ 0.1 million for 2027. • On December 12, 2022, the Company granted non-vested stock awards to its named executive officers in view of efforts with respect to the merger transaction and integration of the two companies, with a grant date fair value of $ 2.7 million, which consisted of an aggregate of 140,809 non-vested shares with a three-year vesting period, which will result in an compensation expense of $ 0.9 million for 2023, 2024 and 2025. • On January 4, 2023, the Company granted non-vested stock awards to its named executive officers, senior vice presidents, and first vice presidents with a grant date fair value of $ 4.1 million, which consisted of an aggregate of 205,264 shares with a ratable five-year vesting period, which will result in an annual compensation expense of $ 0.8 million for 2023, 2024, 2025, 2026 and 2027. • On January 4, 2023, the Company granted 627,547 in OP units to named executive officers with a three-year performance period and ratable vestings of 50 % in year four and 50 % in year five. The expense will be recognized on the straight-line basis over the five-year vesting period. • On January 4, 2023, the Company granted RSUs to certain of its non-executive senior officers consisting of an aggregate of 165,174 RSUs with ratable vestings of 50 % in year four and 50 % in year five. The expense will be recognized on the straight-line basis over the 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: Volatility 30.0 % Dividend Assumption Accrued Expected term in years 3 years Risk-free rate 1.02 % Stock price (per share) $ 31.68 The remaining 57 % of the RSUs 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 2022 RSUs was $ 33.04 per share. Long-Term Incentive Program In the first quarter of 2022, the Company granted a performance-based award to certain non-executive officers under the Long-term Incentive Program adopted under the Legacy HR Incentive Plan (the "LTIP") totaling approximately $ 0.6 million, which was granted in the form of 19,204 non-vested shares. In the first quarter of 2021, the Company granted a performance-based award to certain non-executive officers under the LTIP totaling approximately $ 0.6 million, which was granted in the form of 19,679 non-vested shares. The shares have vesting periods ranging from one to eight years with a weighted average vesting period of approximately five years . For 2022, 2021 and 2020, compensation expense resulting from the amortization of non-vested share grants to officers was approximately $ 0.9 million , $ 1.0 million, and $ 1.1 million, respectively. 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. Salary Deferral Plan The Company's salary deferral plan allows certain of its officers to elect to defer up to 50 % of their base salary in the form of non-vested shares subject to long-term vesting. The number of shares will be increased through a Company match depending on the length of the vesting period selected by the officer. The officer's vesting period choices are: three years for a 30 % match; five years for a 50 % match; and eight years for a 100 % match. During 2022, 2021 and 2020, the Company issued 17,381 shares, 21,396 shares and 17,570 shares, respectively, to its officers through the salary deferral plan. For 2022, 2021 and 2020, compensation expense resulting from the amortization of non-vested share grants to officers was approximately $ 0.9 million for each year , respectively. Non-employee Directors Incentive Plan The Company issues non-vested shares to its non-employee directors under the Incentive Plan. The directors’ shares have a one-year vesting period and are subject to forfeiture prior to such date upon termination of the director’s service, at no cost to the Company. For each of the years 2022, 2021 and 2020, compensation expense resulting from the amortization of non-vested share grants to directors was approximately $ 1.5 million , $ 1.2 million, and $ 1.0 million, respectively. • On May 13, 2022, the Company granted a non-vested stock award 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. • On August 2, 2022, the Company granted non-vested stock awards to twelve of its directors, with a grant date fair value of $ 1.8 million, which consisted of an aggregate of 70,816 non-vested shares, with a vesting period between one and three years . Other Grants The Company issued three one-time non-vested share grants related to executive management transition in 2016. For 2022, 2021 and 2020, compensation expense resulting from the amortization of these non-vested share grants to officers was approximately $ 0.8 million , $ 0.7 million, and $ 0.8 million, respectively. In 2022, the Company made discretionary awards of 5,806 shares of non-vested stock to three employees. A summary of the activity under the Incentive Plans and related information for the three years in the period ended December 31, 2022 follows: YEAR ENDED DECEMBER 31, Dollars in thousands, except per share data 2022 2021 2020 Share-based awards, beginning of year 1,562,028 1,766,061 1,754,066 Granted 657,475 203,701 197,999 Vested ( 418,949 ) ( 404,777 ) ( 186,004 ) Forfeited ( 5,426 ) ( 2,957 ) — Share-based awards, end of year 1,795,128 1,562,028 1,766,061 Weighted-average grant date fair value of Share-based awards, beginning of year $ 31.10 $ 30.51 $ 29.82 Share-based awards granted during the year $ 28.11 $ 30.86 $ 30.33 Share-based awards vested during the year $ 31.52 $ 28.38 $ 23.82 Stock-based awards forfeited during the year $ 31.48 $ 33.04 $ — Share-based awards, end of year $ 29.91 $ 31.10 $ 30.51 Grant date fair value of shares granted during the year $ 18,480 $ 6,286 $ 6,006 The vesting periods for the non-vested shares granted during 2022 ranged from one to eight years with a weighted-average amortization period remaining as of December 31, 2022 of approximately 4.3 years . During 2022, 2021 and 2020, the Company withheld 137,892 s hares, 129,987 shares and 54,223 shares, respectively, of common stock from its officers to pay estimated withholding taxes related to the vesting of shares. 93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 401(k) Plan The Company maintains a 401(k) plan that allows eligible employees to defer salary, subject to certain limitations imposed by the Internal Revenue Code. The Company provides a matching contribution of up to 3 % of each eligible employee’s salary, subject to certain limitations. The Company’s matching contributions were approximately $ 1.2 million for the year ended December 31, 2022, $ 0.7 million for 2021 and $ 0.6 million for 2020. Employee Stock Purchase Plan The outstanding options relate only to the Legacy HR Employee Stock Purchase Plan, which was terminated in November 2022. No new options will be issued under the Legacy HR Employee Stock Purchase Plan and existing options will expire in March 2024. During the years ended December 31, 2022, 2021 and 2020, the Company recognized in general and administrative expenses approximately $ 0.4 million, $ 0.4 million, and $ 0.3 million, respectively, of compensation expense related to the annual grant of options to its employees to purchase shares under the Legacy HR Employee Stock Purchase Plan. Cash received from employees upon exercising options under the Legacy HR Employee Stock Purchase Plan was approximately $ 0.4 million for the year ended December 31, 2022, $ 0.8 million for the year ended December 31, 2021, and $ 0.7 million for the year ended December 31, 2020. A summary of the Legacy HR Employee Stock Purchase Plan activity and related information for the three years in the period ended December 31, 2022 is as follows: YEAR ENDED DECEMBER 31, Dollars in thousands, except per share data 2022 2021 2020 Options outstanding, beginning of year 348,514 341,647 332,659 Granted 255,960 253,200 212,716 Exercised ( 20,246 ) ( 30,281 ) ( 21,713 ) Forfeited ( 102,619 ) ( 71,630 ) ( 42,221 ) Expired ( 140,633 ) ( 144,422 ) ( 139,794 ) Options outstanding and exercisable, end of year 340,976 348,514 341,647 Weighted-average exercise price of Options outstanding, beginning of year $ 25.38 $ 24.70 $ 25.59 Options granted during the year $ 26.89 $ 25.16 $ 28.36 Options exercised during the year $ 20.97 $ 25.03 $ 24.10 Options forfeited during the year $ 21.88 $ 25.45 $ 25.29 Options expired during the year $ 23.36 $ 24.17 $ 23.74 Options outstanding, end of year $ 16.38 $ 25.38 $ 24.70 Weighted-average fair value of options granted during the year (calculated as of the grant date) $ 9.91 $ 9.05 $ 8.06 Intrinsic value of options exercised during the year $ 75 $ 165 $ 101 Intrinsic value of options outstanding and exercisable (calculated as of December 31) $ 985 $ 1,997 $ 1,673 Exercise prices of options outstanding (calculated as of December 31) $ 16.38 $ 25.91 $ 24.70 Weighted-average contractual life of outstanding options (calculated as of December 31, in years) 0.8 0.8 0.8 The fair values for these options were estimated at the date of grant using a Black-Scholes options pricing model with the weighted-average assumptions for the options granted during the period noted in the following table. The risk-free interest rate was based on the U.S. Treasury constant maturity-nominal two-year rate whose maturity is nearest to the date of the expiration of the latest option outstanding and exercisable; the expected dividend yield was based on the expected dividends of the current year as a percentage of the average stock price of the prior year; the expected life of each option was estimated using the historical exercise behavior of employees; expected volatility was based on 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. historical volatility of the Company’s common stock; and expected forfeitures were based on historical forfeiture rates within the look-back period. 2022 2021 2020 Risk-free interest rates 0.73 % 0.13 % 1.58 % Expected dividend yields 3.97 % 4.11 % 3.69 % Expected life (in years) 1.44 1.43 1.43 Expected volatility 49.0 % 48.2 % 28.6 % Expected forfeiture rates 85 % 85 % 85 % 14. Earnings Per Share The Company uses the two-class method of computing net earnings per common shares. The Company's non-vested share-based awards are considered participating securities pursuant to the two-class method. The Company used the treasury method to determine the dilution from the forward equity agreements during the period of time prior to settlement. The number of weighted-average shares outstanding used in the computation of earnings per common share for the year ended December 31, 2021 included the effect from the assumed issuance of 0.7 million shares of common stock pursuant to the settlement of the forward equity agreements at the contractual price, less the assumed repurchase of the common stock at the average market price using the proceeds of approximately $ 23.1 million, adjusted for costs to borrow. For the year ended December 31, 2021, 1,682 weighted-average incremental shares of common stock were excluded from the computation of weighted-average common shares outstanding - diluted, as the impact was anti-dilutive. As of and for the year ended December 31, 2022, these forward equity agreements settled and consequently, the Company did not have any remaining shares subject to unsettled forward sale agreements. The table below sets forth the computation of basic and diluted earnings per common share for the three years in the period ended December 31, 2022. YEAR ENDED DECEMBER 31, Dollars in thousands, except per share data 2022 2021 2020 Weighted average common shares outstanding Weighted average common shares outstanding 254,296,810 144,411,835 135,666,503 Non-vested shares ( 1,940,607 ) ( 1,774,669 ) ( 1,736,358 ) Weighted average common shares outstanding - basic 252,356,203 142,637,166 133,930,145 Weighted average common shares outstanding - basic 252,356,203 142,637,166 133,930,145 Dilutive effect of forward equity shares — — 6,283 Dilutive effect of OP Units 1,451,599 — — Dilutive effect of employee stock purchase plan 65,519 73,062 70,512 Weighted average common shares outstanding - diluted 253,873,321 142,710,228 134,006,940 Net income attributable to common stockholders $ 40,897 $ 66,659 $ 72,195 Dividends paid on nonvested share-based awards ( 2,437 ) ( 2,154 ) ( 2,083 ) Net income applicable to common stockholders - basic $ 38,460 $ 64,505 $ 70,112 Net income attributable to OP Units 81 — — Net income applicable to common stockholders - diluted $ 38,541 $ 64,505 $ 70,112 Basic earnings per common share - net income $ 0.15 $ 0.45 $ 0.52 Diluted earnings per common share - net income $ 0.15 $ 0.45 $ 0.52 95 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. 15. Commitments and Contingencies Re/development Activity During the year ended December 31, 2022, the Company funded $ 60.8 million toward development and redevelopment of properties. Tenant Improvements The Company may provide a tenant improvement allowance in new or renewal leases for the purpose of refurbishing or renovating tenant space. As of December 31, 2022, the Company had commitments of approximately $ 195.1 million that are expected to be spent on tenant improvements throughout the portfolio, excluding development properties currently under construction. Land Held for Development Land held for development includes parcels of land owned by the Company, upon which the Company intends to develop and own outpatient healthcare facilities. The Company's land held for development included twenty parcels as of December 31, 2022 and seven parcels as of December 31, 2021. The Company’s investments in land held for development totaled approximately $ 74.3 million as of December 31, 2022 and $ 24.8 million as of December 31, 2021. The current land held for development is located adjacent to certain of the Company's existing medical office buildings in New York, Massachusetts, California, Connecticut, Florida, North Carolina, Texas, Tennessee, Georgia, Washington, and Colorado. Security Deposits and Letters of Credit As of December 31, 2022, the Company held approximately $ 32.1 million in letters of credit and security deposits for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease. Generally, the Company may, at its discretion and upon notification to the tenant, draw upon these instruments if there are any defaults under the leases. 16. Other Data Taxable Income (unaudited) The Company has elected to be taxed as a REIT, as defined under the Internal Revenue Code. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its taxable income to its stockholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income it distributes currently to its stockholders. Accordingly, no provision for federal income taxes has been made in the accompanying Consolidated Financial Statements. If the Company fails to qualify as a REIT for any taxable year, then it will be subject to federal income taxes at regular corporate rates, including any applicable alternative minimum tax, and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies as a REIT, it may be subject to certain state and local taxes on its income and property and to federal income and excise tax on its undistributed taxable income. Earnings and profits (as defined under the Internal Revenue Code), the current and accumulated amounts of which determine the taxability of distributions to stockholders, vary from net income attributable to common stockholders and taxable income because of different depreciation recovery periods, depreciation methods, and other items. While Legacy HR was considered the accounting acquirer in the Merger for GAAP purposes, Legacy HR’s separate tax existence ceased with the Merger and Legacy HTA continues as the tax successor. On a tax basis, the Company’s gross real estate assets totaled approximately $ 13.0 billion as of December 31, 2022. As of December 31, 2021 and 2020 gross real estate assets on a tax basis were $ 5.0 billion and $ 4.7 billion for Legacy HR and $ 8.2 billion and $ 7.9 billion for Legacy HTA, respectively. Characterization of Distributions (unaudited) Distributions in excess of earnings and profits generally constitute a return of capital. The following table gives the characterization of the distributions on the Company’s common stock for the three years ended December 31, 2022. 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. For the three years ended December 31, 2022, there were no preferred shares outstanding. As such, no dividends were distributed related to preferred shares for those periods. YEAR ENDED DECEMBER 31, 2022 2021 2020 PER SHARE PER SHARE PER SHARE Tax Treatment of Dividends Pre-Merger Healthcare Trust of America Ordinary income 1 $ 0.5862 $ 0.7920 $ 0.6976 Return of capital 4.0162 0.4930 0.5582 Capital gain 1.2216 — 0.0092 Common stock distributions $ 5.8240 $ 1.2850 $ 1.2650 Tax Treatment of Dividends Pre-Merger Healthcare Realty Ordinary income 1 $ 0.2655 $ 0.7500 $ 0.7738 Return of capital 0.5555 0.3600 0.1084 Capital gain — 0.0964 0.3178 Common stock distributions $ 0.8210 $ 1.2064 $ 1.2000 Tax Treatment of Dividends Post-Merger Healthcare Realty Ordinary income 1 $ 0.0422 $ — $ — Return of capital 0.2889 — — Capital gain 0.0879 — — Common stock distributions $ 0.4190 $ — $ — 1 Reporting year ordinary income is also Code Section 199A eligible per the The Tax Cut and Jobs Act of 2017. State Income Taxes The Company must pay certain state income taxes, which are typically included in general and administrative expense on the Company’s Consolidated Statements of Income. The State of Texas gross margins tax on gross receipts from operations is disclosed in the table below as an income tax because it is considered such by the Securities and Exchange Commission. State income tax expense and state income tax payments for the three years ended December 31, 2022 are detailed in the table below: YEAR ENDED DECEMBER 31, Dollars in thousands 2022 2021 2020 State income tax expense Texas gross margins tax $ 1,693 $ 564 $ 546 Other 151 8 8 Total state income tax expense $ 1,844 $ 572 $ 554 State income tax payments, net of refunds and collections $ 1,834 $ 560 $ 557 17. 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, cash equivalents and restricted cash - The carrying amount approximates fair value. • Borrowings under the Unsecured Credit Facility, Unsecured Term Loan due 2024 and Unsecured Term Loan due 2026 - The carrying amount approximates fair value because the borrowings are based on variable market interest rates. • Senior unsecured 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. • Mortgage notes payable - The fair value is estimated using cash flow analyses, based on the Company’s current interest rates for similar types of borrowing arrangements. 97 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, cont. • Interest rate swap agreements - Interest rate swap agreements are recorded in other assets on the Company's Consolidated Balance Sheets at fair value. Fair value, using level 2 inputs, is estimated by utilizing pricing models that consider forward yield curves and discount rates. The table below details the fair value and carrying values for our other financial instruments as of December 31, 2022 and 2021. December 31, 2022 December 31, 2021 Dollars in millions CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE Notes and bonds payable 1, 2 $ 5,351.8 $ 5,149.6 $ 1,801.3 $ 1,797.4 Real estate notes receivable 1 $ 99.6 $ 99.6 $ — $ — 1 Level 2 – model-derived valuations in which significant inputs and significant value drivers are observable in active markets. 2 Fair value for senior notes includes accrued interest as of December 31, 2022. 18. Related-Party Transactions In the ordinary course of conducting its business, the Company enters into agreements with affiliates in relation to the management and leasing of its real estate assets, including real estate assets owned through joint ventures. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.