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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
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(Mark One)
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the quarterly period ended: |
September 30, 2022 |
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OR
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
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Commission File Number: 001-35568 (Healthcare Realty Trust
Incorporated)
HEALTHCARE REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its
charter)
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Maryland |
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20-4738467 |
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(State or other jurisdiction of Incorporation or
organization) |
(I.R.S. Employer Identification No.) |
3310 West End Avenue, Suite 700
Nashville, Tennessee 37203
(Address of principal executive offices)
(615) 269-8175
(Registrant's telephone number, including area code)
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www.healthcarerealty.com
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(Internet address) |
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of Each Class |
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Trading Symbol |
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Name of Each Exchange on Which Registered |
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Class A Common Stock, $0.01 par value per share |
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HR |
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New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such
files).
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
As of November 4, 2022, the Registrant had 380,572,290
shares
of Common Stock outstanding.
Explanatory Note
On July 20, 2022, pursuant to that certain Agreement and Plan of
Merger dated as of February 28, 2022 (the “Merger Agreement”), by
and among Healthcare Realty Trust Incorporated, a Maryland
corporation (now known as HRTI, LLC, a Maryland limited liability
company) (“Legacy HR”), Healthcare Trust of America, Inc., a
Maryland corporation (now known as Healthcare Realty Trust
Incorporated) (“Legacy HTA”), Healthcare Trust of America Holdings,
LP, a Delaware limited partnership (now known as Healthcare Realty
Holdings, L.P.) (the “OP”), and HR Acquisition 2, LLC, a Maryland
limited liability company (“Merger Sub”), Merger Sub merged with
and into Legacy HR, with Legacy HR continuing as the surviving
entity and a wholly-owned subsidiary of Legacy HTA (the “Merger”).
Immediately following the Merger, Legacy HR converted to a Maryland
limited liability company and changed its name to “HRTI, LLC” and
Legacy HTA changed its name to “Healthcare Realty Trust
Incorporated”. In addition, the equity interests of Legacy HR were
contributed by means of a contribution and assignment agreement to
the OP such that Legacy HR became a wholly-owned subsidiary of the
OP. As a result, Legacy HR became a part of an umbrella partnership
REIT (“UPREIT”) structure, which is intended to align the corporate
structure of the combined company after giving effect to the Merger
and the UPREIT reorganization and to provide a platform for the
combined company to more efficiently acquire properties in a
tax-deferred manner. The combined company operates under the name
“Healthcare Realty Trust Incorporated” and its shares of class A
common stock, $0.01 par value per share, trade on the New York
Stock Exchange (the “NYSE”) under the ticker symbol
“HR”.
For accounting purposes, the Merger was treated as a “reverse
acquisition” in which Legacy HR was considered the accounting
acquirer. As a result, the historical financial statements of the
accounting acquirer, Legacy HR, became the historical financial
statements of the Company, as defined below. Future periodic
reports for periods ending following the Merger will reflect
financial and other information of the Company. The acquisition was
accounted for using the acquisition method of accounting in
accordance with ASC 805,
Business Combinations
(“ASC 805”), which requires, among other things, the assets
acquired and the liabilities assumed to be recognized at their
acquisition date fair value.
For purposes of this Quarterly Report on Form 10-Q, references to
the “Company” are to Legacy HR for periods prior to the closing of
the Merger and thereafter to Legacy HR and Legacy HTA after giving
effect to the Merger.
In addition, the OP has issued unsecured notes described in Note 6
to our Condensed Consolidated Financial Statements included in this
report. All unsecured notes are fully and unconditionally
guaranteed by the Company, and the OP is 98.9% owned by the
Company. Effective January 4, 2021, the SEC adopted amendments to
the financial disclosure requirements which permit subsidiary
issuers of obligations guaranteed by the parent to omit separate
financial statements if the consolidated financial statements of
the parent company have been filed, the subsidiary obligor is a
consolidated subsidiary of the parent company, the guaranteed
security is debt or debt-like, and the security is guaranteed fully
and unconditionally by the parent. Accordingly, separate
consolidated financial statements of the OP have not been
presented.
HEALTHCARE REALTY TRUST INCORPORATED
FORM 10-Q
September 30, 2022
Table of Contents
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PART I - FINANCIAL INFORMATION |
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PART II - OTHER INFORMATION |
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SIGNATURE |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Healthcare Realty Trust Incorporated
Condensed Consolidated Balance Sheets
Amounts in thousands, except per share data
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ASSETS |
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Unaudited
SEPTEMBER 30, 2022
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DECEMBER 31, 2021 |
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Real estate properties |
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Land |
$ |
1,449,550 |
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387,918 |
|
|
Buildings and improvements |
11,439,797 |
|
4,337,641 |
|
|
Lease intangibles |
968,914 |
|
120,478 |
|
|
Personal property |
11,680 |
|
11,761 |
|
|
Investment in financing receivable, net |
118,919 |
|
186,745 |
|
|
Financing lease right-of-use assets |
79,950 |
|
31,576 |
|
|
Construction in progress |
43,148 |
|
3,974 |
|
|
Land held for development |
73,321 |
|
24,849 |
|
|
Total real estate properties |
14,185,279 |
|
5,104,942 |
|
|
Less accumulated depreciation and amortization |
(1,468,736) |
|
(1,338,743) |
|
|
Total real estate properties, net |
12,716,543 |
|
3,766,199 |
|
|
Cash and cash equivalents |
57,583 |
|
13,175 |
|
|
|
|
|
|
|
|
Assets held for sale, net |
185,074 |
|
57 |
|
|
Operating lease right-of-use assets |
321,365 |
|
128,386 |
|
|
Investments in unconsolidated joint ventures |
327,752 |
|
161,942 |
|
|
Goodwill |
148,891 |
|
3,487 |
|
|
Other assets, net |
438,235 |
|
185,673 |
|
|
Total assets |
$ |
14,195,443 |
|
$ |
4,258,919 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
Liabilities |
|
|
|
Notes and bonds payable |
$ |
5,570,139 |
|
$ |
1,801,325 |
|
|
Accounts payable and accrued liabilities |
231,018 |
|
86,108 |
|
|
Liabilities of assets held for sale |
10,644 |
|
294 |
|
|
Operating lease liabilities |
268,840 |
|
96,138 |
|
|
Financing lease liabilities |
72,378 |
|
22,551 |
|
|
Other liabilities |
203,398 |
|
67,387 |
|
|
Total liabilities |
6,356,417 |
|
2,073,803 |
|
|
Commitments and contingencies |
|
|
|
Stockholders' equity |
|
|
|
Preferred stock, $.01 par value per share; 200,000 shares
authorized; none issued and outstanding
|
— |
|
— |
|
|
Class A Common stock, $.01 par value per share; 1,000,000 shares
authorized; 380,572 and 150,457 shares issued and outstanding at
September 30, 2022 and December 31, 2021, respectively
|
3,806 |
|
1,505 |
|
|
Additional paid-in capital |
9,586,556 |
|
3,972,917 |
|
|
Accumulated other comprehensive income (loss) |
5,524 |
|
(9,981) |
|
|
Cumulative net income attributable to common
stockholders |
1,342,819 |
|
1,266,158 |
|
|
Cumulative dividends |
(3,211,492) |
|
(3,045,483) |
|
|
Total stockholders' equity |
7,727,213 |
|
2,185,116 |
|
|
Non-controlling interest |
111,813 |
|
— |
|
|
Total equity |
7,839,026 |
|
2,185,116 |
|
|
Total liabilities and equity |
$ |
14,195,443 |
|
$ |
4,258,919 |
|
The accompanying notes, together with the Notes to the Consolidated
Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2021, are an
integral part of these financial statements.
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2022 and
2021
Amounts in thousands, except per share data
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
September 30, |
NINE MONTHS ENDED
September 30, |
|
2022 |
2021 |
2022 |
2021 |
|
Revenues |
|
|
|
|
|
Rental income |
$ |
298,931 |
|
$ |
131,746 |
|
$ |
578,052 |
|
$ |
388,620 |
|
|
Interest income |
3,366 |
|
1,917 |
|
7,253 |
|
2,426 |
|
|
|
|
|
|
|
Other operating |
4,057 |
|
2,969 |
|
9,270 |
|
7,347 |
|
|
306,354 |
|
136,632 |
|
594,575 |
|
398,393 |
|
|
Expenses |
|
|
|
|
|
Property operating |
112,473 |
|
55,518 |
|
226,947 |
|
159,241 |
|
|
General and administrative |
16,741 |
|
8,207 |
|
38,317 |
|
25,251 |
|
|
Acquisition and pursuit costs |
482 |
|
974 |
|
3,137 |
|
2,388 |
|
|
Merger-related costs |
79,402 |
|
— |
|
92,603 |
|
— |
|
|
Depreciation and amortization |
158,117 |
|
50,999 |
|
267,889 |
|
150,904 |
|
|
|
|
|
|
|
|
|
|
|
|
367,215 |
|
115,698 |
|
628,893 |
|
337,784 |
|
|
Other income (expense) |
|
|
|
|
|
Gain on sales of real estate properties |
143,908 |
|
1,186 |
|
197,188 |
|
41,046 |
|
|
Interest expense |
(53,044) |
|
(13,334) |
|
(82,248) |
|
(39,857) |
|
|
Loss on extinguishment of debt |
(1,091) |
|
— |
|
(2,520) |
|
— |
|
|
|
|
|
|
|
Impairment of real estate properties |
— |
|
(10,669) |
|
25 |
|
(16,581) |
|
|
Equity loss from unconsolidated joint ventures |
(124) |
|
(183) |
|
(776) |
|
(404) |
|
|
Interest and other (expense) income, net |
(172) |
|
— |
|
(378) |
|
239 |
|
|
89,477 |
|
(23,000) |
|
111,291 |
|
(15,557) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
28,616 |
|
$ |
(2,066) |
|
$ |
76,973 |
|
$ |
45,052 |
|
|
Net income attributable to non-controlling interests |
(312) |
|
— |
|
(312) |
|
— |
|
|
Net income (loss) attributable to common stockholders |
$ |
28,304 |
|
$ |
(2,066) |
|
$ |
76,661 |
|
$ |
45,052 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
$ |
0.08 |
|
$ |
(0.02) |
|
$ |
0.36 |
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
$ |
0.08 |
|
$ |
(0.02) |
|
$ |
0.35 |
|
$ |
0.31 |
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic |
328,805 |
|
143,818 |
|
209,807 |
|
141,521 |
|
|
Weighted average common shares outstanding - diluted |
332,031 |
|
143,818 |
|
210,944 |
|
141,613 |
|
The accompanying notes, together with the Notes to the Consolidated
Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2021, are an
integral part of these financial statements.
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Comprehensive
Income
For the Three and Nine Months Ended September 30, 2022 and
2021
Amounts in thousands
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
September 30, |
NINE MONTHS ENDED
September 30, |
|
2022 |
2021 |
2022 |
2021 |
|
Net income (loss) |
$ |
28,616 |
|
$ |
(2,066) |
|
$ |
76,973 |
|
$ |
45,052 |
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
|
|
|
|
Reclassification adjustments for losses included in net income
(interest expense) |
763 |
|
1,131 |
|
2,672 |
|
3,340 |
|
|
Gains arising during the period on interest rate swaps |
6,083 |
|
36 |
|
12,905 |
|
2,079 |
|
|
|
|
|
|
|
6,846 |
|
1,167 |
|
15,577 |
|
5,419 |
|
|
Comprehensive income (loss) |
35,462 |
|
(899) |
|
92,550 |
|
50,471 |
|
|
Less: comprehensive income attributable to non-controlling
interests |
(384) |
|
— |
|
(384) |
|
— |
|
|
Comprehensive income (loss) attributable to common
stockholders |
$ |
35,078 |
|
$ |
(899) |
|
$ |
92,166 |
|
$ |
50,471 |
|
The accompanying notes, together with the Notes to the Consolidated
Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2021, are an
integral part of these financial statements.
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Equity
For the Three Months Ended September 30, 2022 and
2021
Amounts in thousands, except per share data
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
Additional
Paid-In
Capital |
Accumulated
Other
Comprehensive
Income (Loss) |
Cumulative
Net Income |
Cumulative
Dividends |
Total
Stockholders’
Equity |
Non-controlling Interests |
Total
Equity |
|
Balance at June 30, 2022 |
$ |
1,516 |
|
$ |
4,002,525 |
|
$ |
(1,250) |
|
$ |
1,314,515 |
|
$ |
(3,139,440) |
|
$ |
2,177,866 |
|
$ |
— |
|
$ |
2,177,866 |
|
|
Issuance of common stock, net of issuance costs |
— |
|
84 |
|
— |
|
— |
|
— |
|
84 |
|
— |
|
84 |
|
|
Merger consideration transferred |
2,289 |
|
5,574,174 |
|
— |
|
— |
|
— |
|
5,576,463 |
|
110,702 |
|
5,687,165 |
|
|
Non-controlling interests acquired |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1,266 |
|
1,266 |
|
|
Common stock redemptions |
— |
|
(41) |
|
— |
|
— |
|
— |
|
(41) |
|
— |
|
(41) |
|
|
Share-based compensation |
1 |
|
9,716 |
|
— |
|
— |
|
— |
|
9,717 |
|
— |
|
9,717 |
|
|
Redemption of non-controlling interest |
— |
|
98 |
|
— |
|
— |
|
— |
|
98 |
|
(97) |
|
1 |
|
|
Net income |
— |
|
— |
|
— |
|
28,304 |
|
— |
|
28,304 |
|
312 |
|
28,616 |
|
Reclassification adjustments for losses included in net income
(interest expense)
|
— |
|
— |
|
755 |
|
— |
|
— |
|
755 |
|
8 |
|
763 |
|
Gains arising during the period on
interest rate swaps
|
— |
|
— |
|
6,019 |
|
— |
|
— |
|
6,019 |
|
64 |
|
6,083 |
|
|
Dividends to common stockholders
($0.31 per share)
|
— |
|
— |
|
— |
|
— |
|
(72,052) |
|
(72,052) |
|
(442) |
|
(72,494) |
|
|
Balance at September 30, 2022 |
$ |
3,806 |
|
$ |
9,586,556 |
|
$ |
5,524 |
|
$ |
1,342,819 |
|
$ |
(3,211,492) |
|
$ |
7,727,213 |
|
$ |
111,813 |
|
$ |
7,839,026 |
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
Additional
Paid-In
Capital |
Accumulated
Other
Comprehensive
Income (Loss) |
Cumulative
Net Income |
Cumulative
Dividends |
Total
Stockholders’
Equity |
Non-controlling Interests |
Total
Equity |
|
Balance at June 30, 2021 |
$ |
1,455 |
|
$ |
3,818,592 |
|
$ |
(13,580) |
|
$ |
1,246,617 |
|
$ |
(2,956,830) |
|
$ |
2,096,254 |
|
$ |
— |
|
$ |
2,096,254 |
|
|
Issuance of common stock, net of issuance costs |
20 |
|
61,442 |
|
— |
|
— |
|
— |
|
61,462 |
|
— |
|
61,462 |
|
|
Common stock redemptions |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|
Share-based compensation |
— |
|
2,538 |
|
— |
|
— |
|
— |
|
2,538 |
|
— |
|
2,538 |
|
|
Net loss |
— |
|
— |
|
— |
|
(2,066) |
|
— |
|
(2,066) |
|
— |
|
(2,066) |
|
Reclassification adjustments for losses included in net income
(interest expense)
|
— |
|
— |
|
1,131 |
|
— |
|
— |
|
1,131 |
|
— |
|
1,131 |
|
Losses arising during the period on interest rate
swaps
|
— |
|
— |
|
36 |
|
— |
|
— |
|
36 |
|
— |
|
36 |
|
|
Dividends to common stockholders ($0.3025 per share)
|
— |
|
— |
|
— |
|
— |
|
(44,022) |
|
(44,022) |
|
— |
|
(44,022) |
|
|
Balance at September 30, 2021 |
$ |
1,475 |
|
$ |
3,882,572 |
|
$ |
(12,413) |
|
$ |
1,244,551 |
|
$ |
(3,000,852) |
|
$ |
2,115,333 |
|
$ |
— |
|
$ |
2,115,333 |
|
The accompanying notes, together with the Notes to the Consolidated
Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2021, are an
integral part of these financial statements.
Healthcare Realty Trust Incorporated
Condensed Consolidated Statements of Equity
For the Nine Months Ended September 30, 2022 and
2021
Amounts in thousands, except per share data
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
Additional
Paid-In
Capital |
Accumulated
Other
Comprehensive
Income (Loss) |
Cumulative
Net Income |
Cumulative
Dividends |
Total
Stockholders’
Equity |
Non-controlling Interest |
Total Equity |
|
|
|
|
|
|
Balance at December 31, 2021 |
$ |
1,505 |
|
$ |
3,972,917 |
|
$ |
(9,981) |
|
$ |
1,266,158 |
|
$ |
(3,045,483) |
|
$ |
2,185,116 |
|
$ |
— |
|
$ |
2,185,116 |
|
|
|
|
|
|
|
Issuance of common stock, net of issuance costs |
8 |
|
22,847 |
|
— |
|
— |
|
— |
|
22,855 |
|
— |
|
22,855 |
|
|
|
|
|
|
|
Merger consideration transferred |
2,289 |
|
5,574,174 |
|
— |
|
— |
|
— |
|
5,576,463 |
|
110,702 |
|
5,687,165 |
|
|
|
|
|
|
|
Non-controlling interests acquired |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1,266 |
|
1,266 |
|
|
|
|
|
|
|
Common stock redemptions |
— |
|
(248) |
|
— |
|
— |
|
— |
|
(248) |
|
— |
|
(248) |
|
|
|
|
|
|
|
Share-based compensation |
4 |
|
16,768 |
|
— |
|
— |
|
— |
|
16,772 |
|
— |
|
16,772 |
|
|
|
|
|
|
|
Redemption of non-controlling interest |
— |
|
98 |
|
— |
|
— |
|
— |
|
98 |
|
(97) |
|
1 |
|
|
|
|
|
|
|
Net Income |
— |
|
— |
|
— |
|
76,661 |
|
— |
|
76,661 |
|
312 |
|
76,973 |
|
|
|
|
|
|
|
Reclassification adjustments for losses included in net income
(interest expense)
|
— |
|
— |
|
2,664 |
|
— |
|
— |
|
2,664 |
|
8 |
|
2,672 |
|
|
|
|
|
|
Gains arising during the period on
interest rate swaps |
— |
|
— |
|
12,841 |
|
— |
|
— |
|
12,841 |
|
64 |
|
12,905 |
|
|
|
|
|
|
|
Dividends to common stockholders
($0.93 per share)
|
— |
|
— |
|
— |
|
— |
|
(166,009) |
|
(166,009) |
|
(442) |
|
(166,451) |
|
|
|
|
|
|
|
Balance at September 30, 2022 |
$ |
3,806 |
|
$ |
9,586,556 |
|
$ |
5,524 |
|
$ |
1,342,819 |
|
$ |
(3,211,492) |
|
$ |
7,727,213 |
|
$ |
111,813 |
|
$ |
7,839,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
Additional
Paid-In
Capital |
Accumulated
Other
Comprehensive
Income (Loss) |
Cumulative
Net Income |
Cumulative
Dividends |
Total
Stockholders’
Equity |
Non-controlling Interest |
Total Equity |
|
|
|
|
|
|
Balance at December 31, 2020 |
$ |
1,395 |
|
$ |
3,635,341 |
|
$ |
(17,832) |
|
$ |
1,199,499 |
|
$ |
(2,870,027) |
|
$ |
1,948,376 |
|
$ |
— |
|
$ |
1,948,376 |
|
|
|
|
|
|
|
Issuance of common stock, net of issuance costs |
78 |
|
240,660 |
|
— |
|
— |
|
— |
|
240,738 |
|
— |
|
240,738 |
|
|
|
|
|
|
|
Common stock redemptions |
— |
|
(1,610) |
|
— |
|
— |
|
— |
|
(1,610) |
|
— |
|
(1,610) |
|
|
|
|
|
|
|
Share-based compensation |
2 |
|
8,181 |
|
— |
|
— |
|
— |
|
8,183 |
|
— |
|
8,183 |
|
|
|
|
|
|
|
Net income |
— |
|
— |
|
— |
|
45,052 |
|
— |
|
45,052 |
|
— |
|
45,052 |
|
|
|
|
|
|
Reclassification adjustments for losses included in net income
(interest expense)
|
— |
|
— |
|
3,340 |
|
— |
|
— |
|
3,340 |
|
— |
|
3,340 |
|
|
|
|
|
|
Gains arising during the period on interest rate
swaps
|
— |
|
— |
|
2,079 |
|
— |
|
— |
|
2,079 |
|
— |
|
2,079 |
|
|
|
|
|
|
|
Dividends to common stockholders ($0.9075 per share)
|
— |
|
— |
|
— |
|
— |
|
(130,825) |
|
(130,825) |
|
— |
|
(130,825) |
|
|
|
|
|
|
|
Balance at September 30, 2021 |
$ |
1,475 |
|
$ |
3,882,572 |
|
$ |
(12,413) |
|
$ |
1,244,551 |
|
$ |
(3,000,852) |
|
$ |
2,115,333 |
|
$ |
— |
|
$ |
2,115,333 |
|
|
|
|
|
|
The accompanying notes, together with the Notes to the Consolidated
Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2021, are an
integral part of these financial statements.
Healthcare
Realty Trust Incorporated
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2022 and
2021
Amounts in thousands
Unaudited
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
NINE MONTHS ENDED
September 30, |
|
2022 |
2021 |
|
Net income |
$ |
76,973 |
|
$ |
45,052 |
|
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Depreciation and amortization |
267,889 |
|
150,904 |
|
|
Other amortization |
11,875 |
|
2,721 |
|
|
Share-based compensation |
16,772 |
|
8,183 |
|
|
Amortization of straight-line rent receivable (lessor) |
(12,267) |
|
(4,574) |
|
|
Amortization of straight-line rent on operating leases
(lessee) |
2,016 |
|
1,115 |
|
|
Gain on sales of real estate properties |
(197,188) |
|
(41,046) |
|
|
Loss on extinguishment of debt |
2,520 |
|
— |
|
|
Impairment of real estate properties |
(25) |
|
16,581 |
|
|
Equity loss from unconsolidated joint ventures |
776 |
|
404 |
|
|
Distributions from unconsolidated joint ventures |
893 |
|
— |
|
|
|
|
|
Non-cash interest from financing and notes receivable |
(1,901) |
|
(196) |
|
|
Changes in operating assets and liabilities: |
|
|
|
Other assets, including right-of-use-assets |
(19,230) |
|
(9,947) |
|
|
Accounts payable and accrued liabilities |
35,769 |
|
215 |
|
|
Other liabilities |
(58,213) |
|
843 |
|
|
Net cash provided by operating activities |
126,659 |
|
170,255 |
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
Acquisitions of real estate |
(376,924) |
|
(250,766) |
|
|
Development of real estate |
(17,572) |
|
(2,020) |
|
|
Additional long-lived assets |
(97,797) |
|
(69,647) |
|
|
Funding of mortgages and notes receivable |
(3,441) |
|
— |
|
|
Investments in unconsolidated joint ventures |
(99,586) |
|
(49,612) |
|
|
Investment in financing receivable |
167 |
|
(104,654) |
|
|
Proceeds from sales of real estate properties and additional
long-lived assets |
870,806 |
|
112,029 |
|
|
Proceeds from notes receivable repayments |
500 |
|
— |
|
|
Cash assumed in Merger, including restricted cash for special
dividend payment |
1,149,681 |
|
— |
|
|
|
|
|
Net cash provided by (used in) investing activities |
1,425,834 |
|
(364,670) |
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
Net (repayments)/borrowings on unsecured credit
facility |
(154,400) |
|
90,500 |
|
|
Borrowings on term loans |
666,500 |
|
— |
|
|
Repayment on term loan |
(718,500) |
|
— |
|
|
|
|
|
Repayments of notes and bonds payable |
(18,880) |
|
(2,914) |
|
|
|
|
|
Redemption of notes and bonds payable |
(2,184) |
|
— |
|
|
Dividends paid |
(165,735) |
|
(130,825) |
|
|
Special dividend paid in relation to the Merger |
(1,123,648) |
|
— |
|
|
|
|
|
Net proceeds from issuance of common stock |
22,851 |
|
240,779 |
|
|
Common stock redemptions |
(894) |
|
(2,014) |
|
|
Distributions to non-controlling interest holders |
(442) |
|
— |
|
|
|
|
|
|
|
|
Debt issuance and assumption costs |
(12,753) |
|
(252) |
|
|
Payments made on finance leases |
— |
|
(162) |
|
|
Net cash (used in) provided by financing activities |
(1,508,085) |
|
195,112 |
|
|
|
|
|
Increase in cash and cash equivalents |
44,408 |
|
697 |
|
|
Cash and cash equivalents at beginning of period |
13,175 |
|
15,303 |
|
|
Cash and cash equivalents at end of period |
$ |
57,583 |
|
$ |
16,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information |
|
|
|
NINE MONTHS ENDED
September 30, |
|
2022 |
2021 |
|
Interest paid |
$ |
83,382 |
|
$ |
40,653 |
|
|
Invoices accrued for construction, tenant improvements and other
capitalized costs |
$ |
52,840 |
|
$ |
11,663 |
|
|
|
|
|
Capitalized interest |
$ |
848 |
|
$ |
187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes, together with the Notes to the Consolidated
Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2021, are an
integral part of these financial statements.
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 1. Summary of Significant Accounting Policies
Business Overview
Healthcare Realty Trust Incorporated is a real estate investment
trust ("REIT") that owns, leases, manages, acquires, finances,
develops and redevelops income-producing real estate properties
associated primarily with the delivery of outpatient healthcare
services throughout the United States. As of September 30,
2022, the Company had gross investments of approximately
$14.2 billion in 695 real estate properties, construction in
progress, redevelopments, financing receivables, financing lease
right-of-use assets, land held for development and corporate
property. The Company's 695 real estate properties are located in
35 states and total approximately 40.7 million square feet.
The Company provided leasing and property management services to
approximately 38.9 million square feet nationwide. As of
September 30, 2022, the Company had a weighted average
ownership interest of approximately 49% in 33 real estate
properties held in joint ventures. See Note 3 below for more
details regarding the Company's unconsolidated joint
ventures.
Any references to square footage or occupancy percentage, and any
amounts derived from these values in these notes to the Company's
Condensed Consolidated Financial Statements, are outside the scope
of our independent registered public accounting firm’s
review.
Basis of Presentation
For purposes of this Quarterly Report on Form 10-Q, references to
the “Company” are to Legacy HR for periods prior to the closing of
the Merger and thereafter to Legacy HR and Legacy HTA after giving
effect to the Merger. The Merger is described in more detail in
Note 2 to these Condensed Consolidated Financial Statements. The
Condensed Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the
United States ("GAAP") for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
They do not include all of the information and footnotes required
by GAAP for complete financial statements. However, except as
disclosed herein and specific disclosures incorporated as a result
of the Merger, management believes there has been no material
change in the information disclosed in the Notes to the
Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2021. All
material intercompany transactions and balances have been
eliminated in consolidation.
This interim financial information should be read in conjunction
with the consolidated financial statements included in the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2021. Management believes that all adjustments of
a normal, recurring nature considered necessary for a fair
presentation have been included. In addition, the interim financial
information does not necessarily represent or indicate what the
operating results will be for the year ending December 31,
2022 for many reasons including, but not limited to, the Merger (as
discussed in more detail in Note 2 below), acquisitions,
dispositions, capital financing transactions, changes in interest
rates and the effects of other trends, risks and
uncertainties.
Principles of Consolidation
The Company’s Condensed Consolidated Financial Statements include,
as of September 30, 2022, the accounts of the Company, its
wholly owned subsidiaries, and joint ventures and partnerships
where the Company controls the operating activities. The interests
not owned by the Company are presented as non-controlling interests
on the accompanying Condensed Consolidated Balance Sheets and
Statements of Operations, Condensed Consolidated Statements of
Comprehensive Income, and Condensed Consolidated Statements of
Equity. GAAP requires us to identify entities for which control is
achieved through means other than voting rights and to determine
which business enterprise is the primary beneficiary of variable
interest entities (“VIEs”). Accounting Standards Codification 810
broadly defines a VIE as an entity in which either (i) the equity
investors as a group, if any, lack the power through voting or
similar rights to direct the activities of such entity that most
significantly impact such entity’s economic performance or (ii) the
equity investment at risk is insufficient to finance that entity’s
activities without additional subordinated financial support. The
Company identifies the primary beneficiary of a VIE as the
enterprise that has both of the following characteristics: (i) the
power to direct the activities of the VIE that most significantly
impact the entity’s economic performance; and (ii) the obligation
to absorb losses or receive benefits of the VIE that could
potentially be significant to the entity. The Company consolidates
its investment in a VIE when it determines that it is the VIE’s
primary beneficiary. The Company may change its original assessment
of a VIE upon subsequent events such as the modification of
contractual arrangements that affect the characteristics or
adequacy of the entity’s equity investments at risk and the
disposition of all or a portion of an interest held by the primary
beneficiary. The Company performs this analysis on an ongoing
basis. As of September 30, 2022, the Company
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
identified three entities that qualified as VIE's because the
limited partners in these partnerships, although entitled to vote
on certain matters, do not possess kick-out rights or substantive
participating rights. Two of the entities are consolidated and one
is unconsolidated.
Holders of operating partnership units (“OP Units”) are considered
to be non-controlling interest holders in the OP and their
ownership interests are reflected as equity on the accompanying
Condensed Consolidated Balance Sheets. Further, a portion of the
earnings and losses of the OP are allocated to non-controlling
interest holders based on their respective ownership percentages.
Upon conversion of OP Units to common stock, any difference between
the fair value of the common stock issued and the carrying value of
the OP Units converted to common stock is recorded as a component
of equity. As of September 30, 2022, there were approximately
4.0 million, or 1.1%, of OP Units issued and outstanding held
by non-controlling interest holders. Additionally, the Company is
the primary beneficiary of this VIE. Accordingly, the Company
consolidates the interests in the OP. However, because the Company
holds what is deemed to be significantly all of the OP, it
qualifies for the exemption from providing certain disclosure
requirements associated with investments in VIEs.
For property holding entities not determined to be VIEs, the
Company consolidates such entities in which it owns 100% of the
equity or has a controlling financial interest evidenced by
ownership of a majority voting interest. All intercompany balances
and transactions are eliminated in consolidation.
As of September 30, 2022, the Company's unconsolidated joint
venture arrangements were accounted for using the equity method of
accounting as the Company exercised significant influence over but
did not control these entities. See Note 3 below for more details
regarding the Company's unconsolidated joint ventures.
Use of Estimates in the Condensed Consolidated Financial
Statements
Preparation of the Condensed Consolidated Financial Statements in
accordance with GAAP requires management to make estimates and
assumptions that affect amounts reported in the Condensed
Consolidated Financial Statements and accompanying notes. Actual
results may differ from those estimates.
Reclassifications
Certain reclassifications have been made on the Company's prior
year Condensed Consolidated Balance Sheet to conform to current
year presentation. Previously, the Company's Lease intangibles were
included in Building, improvements and lease intangibles and
Goodwill was included with Other assets, net. These amounts are now
classified as separate line items on the Company's Condensed
Consolidated Balance Sheets.
Investments in Leases - Financing Receivables, Net
In accordance with Accounting Standards Codification ("ASC") 842,
for transactions in which the Company enters into a contract to
acquire an asset and leases it back to the seller (i.e., a sale
leaseback transaction), control of the asset is not considered to
have transferred when the seller-lessee has a purchase option. As a
result, the Company does not recognize the underlying real estate
asset but instead recognizes a financial asset in accordance with
ASC 310 “Receivables”.
During the first quarter of 2022, the Company reclassified the two
medical office buildings in Nashville, Tennessee that were acquired
in separate sale-leaseback transactions in the fourth quarter of
2021. The leases with the sellers commenced in the first quarter,
which resulted in the allocation of the financing receivable
totaling $73.9 million to land and building and
improvements.
Real Estate Notes Receivable
Real estate notes receivable consists of mezzanine and other real
estate loans, which are generally collateralized by a pledge of the
borrower’s ownership interest in the respective real estate owner,
a mortgage or deed of trust, and/or corporate guarantees. Real
estate notes receivable are intended to be held-to-maturity and are
recorded at amortized cost, net of unamortized loan origination
costs and fees and allowance for credit losses. As of September 30,
2022, real estate notes receivable, net totaled
$79.0 million.
Interest Income
Income from Lease Financing Receivables
For the three and nine months ended September 30, 2022, the
Company recognized the related income from two financing
receivables totaling $2.0 million and $5.9 million,
respectively, based on an imputed interest rate over
the
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
terms of the applicable lease. As a result, the interest recognized
from the financing receivable will not equal the cash payments from
the lease agreement.
Acquisition costs incurred in connection with entering into the
financing receivable are treated as loan origination fees. These
costs are classified with the financing receivable and are included
in the balance of the net investment. Amortization of these amounts
will be recognized as a reduction to Income from financing
receivable, net over the life of the lease.
Income from Real Estate Notes Receivable
During the three and nine months ended September 30, 2022, the
Company recognized interest income of $1.3 million related to
real estate notes receivable. Unpaid interest is capitalized, with
principal and any unpaid interest due on the maturity
date.
Revenue from Contracts with Customers (Topic 606)
The Company recognizes certain revenue under the core principle of
Topic 606. This topic requires an entity to recognize revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.
Lease revenue is not within the scope of Topic 606. To achieve the
core principle, the Company applies the five step model specified
in the guidance.
Revenue that is accounted for under Topic 606 is segregated on the
Company’s Condensed Consolidated Statements of Income in the Other
operating line item. This line item includes parking income,
management fee income and other miscellaneous income. Below is a
detail of the amounts by category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
September 30, |
NINE MONTHS ENDED
September 30, |
|
in thousands |
2022 |
2021 |
2022 |
2021 |
|
Type of Revenue |
|
|
|
|
|
Parking income |
$ |
2,428 |
|
$ |
2,187 |
|
$ |
6,100 |
|
$ |
5,725 |
|
|
|
|
|
|
|
Management fee income
1
|
1,426 |
|
723 |
|
2,864 |
|
1,381 |
|
|
Miscellaneous |
203 |
|
59 |
|
306 |
|
241 |
|
|
$ |
4,057 |
|
$ |
2,969 |
|
$ |
9,270 |
|
$ |
7,347 |
|
1 Includes the recovery of certain expenses under the financing
receivable as outlined in the management agreement.
The Company’s major types of revenue that are accounted for under
Topic 606 that are listed above are all accounted for as the
performance obligation is satisfied. The performance obligations
that are identified for each of these items are satisfied over
time, and the Company recognizes revenue monthly based on this
principle.
New Accounting Pronouncements
Accounting Standards Update No. 2020-04
On March 12, 2020, the Financial Accounting Standards Board
("FASB") issued Accounting Standards Update ("ASU") 2020-04,
Reference Rate Reform (Topic 848).
ASU 2020-04 contains practical expedients for reference rate reform
related activities that impact debt, leases, derivatives and other
contracts. The guidance in ASU 2020-04 is optional and may be
elected over time as reference rate reform activities occur. The
Company has elected to apply the hedge accounting expedients
related to probability and the assessments of effectiveness for
future LIBOR and Term SOFR-indexed cash flows to assume that the
index upon which future hedged transactions will be based matches
the index on the corresponding derivatives. Application of these
expedients preserves the presentation of derivatives consistent
with past presentation. Management continues to evaluate the impact
of the guidance and may apply other elections as applicable as
additional changes in the market occur.
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
Note 2. Merger with HTA
On July 20, 2022 (the “Closing Date”), pursuant to the Agreement
and Plan of Merger dated as of February 28, 2022 (the “Merger
Agreement”), by and among Healthcare Realty Trust Incorporated, a
Maryland corporation (now known as HRTI, LLC, a Maryland limited
liability company) (“Legacy HR”), Healthcare Trust of America,
Inc., a Maryland corporation (now known as Healthcare Realty Trust
Incorporated) (“Legacy HTA”), Healthcare Trust of America Holdings,
LP, a Delaware limited partnership (now known as Healthcare Realty
Holdings, L.P.) (the “OP”), and HR Acquisition 2, LLC, a Maryland
limited liability company (“Merger Sub”), Merger Sub merged with
and into Legacy HR, with Legacy HR continuing as the surviving
entity and a wholly-owned subsidiary of Legacy HTA (the
“Merger”).
On the Closing Date, each outstanding share of Legacy HR common
stock, $0.01 par value per share (the “Legacy HR Common Stock”),
was cancelled and converted into the right to receive one share of
Legacy HTA class A common stock at a fixed ratio of 1.00 to 1.00.
Per the terms of the Merger Agreement, Legacy HTA declared a
special dividend of $4.82 (the “Special Dividend”) for each
outstanding share of Legacy HTA class A common stock, $0.01 par
value per share ( the “Legacy HTA Common Stock”), and the OP
declared a corresponding distribution to the holders of its
partnership units, payable to Legacy HTA stockholders and OP
unitholders of record on July 19, 2022.
Immediately following the Merger, Legacy HR converted to a Maryland
limited liability company and changed its name to HRTI, LLC and
Legacy HTA changed its name to “Healthcare Realty Trust
Incorporated”. In addition, the equity interests of Legacy HR were
contributed by Legacy HTA by means of a contribution and assignment
agreement to the OP such that Legacy HR became a wholly-owned
subsidiary of the OP. As a result, Legacy HR became a part of an
umbrella partnership REIT (“UPREIT”) structure, which is intended
to align the corporate structure of the combined company after
giving effect to the Merger and UPREIT reorganization (the
“Combined Company”). The combined company operates under the name
“Healthcare Realty Trust Incorporated” and its shares of class A
common stock, $0.01 par value per share, trade on the New York
Stock Exchange (the “NYSE”) under the ticker symbol
“HR”.
The primary reason for the Merger was to expand the Company’s size,
scale, diversification, liquidity and access to capital, in order
to further enhance its competitive advantages and accelerate its
investment activities.
For accounting purposes, the Merger was treated as a “reverse
acquisition” in which Legacy HTA was considered the legal acquirer
and Legacy HR was considered the accounting acquirer based on
various factors, including, but not limited to: (i) the composition
of the board of directors of the Combined Company, (ii) the
composition of senior management of the Combined Company, and (iii)
the premium transferred to the Legacy HTA stockholders. As a
result, the historical financial statements of the accounting
acquirer, Legacy HR, became the historical financial statements of
the Combined Company.
The acquisition was accounted for using the acquisition method of
accounting in accordance with ASC 805, which requires, among other
things, the assets acquired and the liabilities assumed to be
recognized at their acquisition date fair value.
The consideration transferred on the Closing Date is as
follows:
|
|
|
|
|
|
|
Dollars in thousands |
|
|
Shares of Legacy HTA Common Stock outstanding as of July 20, 2022
as adjusted(a)
|
228,520,990 |
|
|
Exchange ratio |
1.00 |
|
|
Implied shares of Legacy HR Common Stock issued |
228,520,990 |
|
|
Adjusted closing price of Legacy HR Common Stock on July 20,
2022(b)
|
$ |
24.37 |
|
|
Value of implied Legacy HR Common Stock issued |
$ |
5,569,057 |
|
|
Fair value of Legacy HTA restricted stock awards attributable to
pre-Merger services(c)
|
7,406 |
|
|
Consideration transferred |
$ |
5,576,463 |
|
(a) Includes 228,520,990 shares of Legacy HTA Common Stock as of
July 20, 2022. The number of shares of HTA Common Stock presented
above was based on 228,857,717 total shares of Legacy HTA Common
Stock outstanding as of the Closing Date, less 192 HTA fractional
shares that were paid in cash less 336,535 shares of Legacy HTA
restricted stock (net of 215,764 shares of Legacy HTA restricted
stock withheld). For accounting purposes, these shares and units
were converted to Legacy HR Common Stock, at an exchange ratio of
1.00 per share of HTA Common Stock.
(b) For accounting purposes, the fair value of Legacy HR Common
Stock issued to former holders of Legacy HTA Common Stock was based
on the per share closing price of Legacy HR Common Stock on July
20, 2022.
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
(c) Represents the fair value of Legacy HTA restricted shares which
fully vested prior to the closing of the Merger or became fully
vested as a result of the closing of the Merger and which are
attributable to pre-combination services.
Preliminary Purchase Price Allocation
The following table summarizes the preliminary estimated fair
values of the assets acquired and liabilities assumed at the
Closing Date:
|
|
|
|
|
|
|
Dollars in thousands |
|
| ASSETS |
|
|
Real estate investments |
|
|
Land |
$ |
985,926 |
|
|
Buildings and improvements |
6,960,418 |
|
|
Lease intangible assets(a)
|
831,920 |
|
|
Financing lease right-of-use assets |
9,874 |
|
|
Construction in progress |
10,071 |
|
|
Land held for development |
46,538 |
|
|
Total real estate investments |
$ |
8,844,747 |
|
|
Assets held for sale, net |
707,442 |
|
|
Investments in unconsolidated joint ventures |
67,892 |
|
|
Cash and cash equivalents |
26,034 |
|
|
Restricted cash |
1,123,647 |
|
|
Operating lease right-of-use assets |
198,261 |
|
|
Other assets, net
(b) (c)
|
209,163 |
|
|
Total assets acquired |
$ |
11,177,186 |
|
|
|
|
LIABILITIES |
|
|
Notes and bonds payable |
$ |
3,991,300 |
|
|
Accounts payable and accrued liabilities |
1,227,570 |
|
|
Liabilities of assets held for sale |
28,677 |
|
|
Operating lease liabilities |
173,948 |
|
|
Financing lease liabilities |
10,720 |
|
|
Other liabilities |
203,210 |
|
|
Total liabilities assumed |
$ |
5,635,425 |
|
|
Net identifiable assets acquired |
$ |
5,541,761 |
|
|
Non-controlling interest |
$ |
110,702 |
|
|
Goodwill |
$ |
145,404 |
|
|
(a) The weighted average amortization period for the acquired lease
intangible assets is 5.5 years.
|
|
(b) Includes $34.6 million of gross contractual accounts
receivable, which approximates fair value, of which the Company
preliminarily did not expect $12.3 million to be collected as of
Closing Date.
|
|
(c) Includes $78.7 million of gross contractual real estate notes
receivable, the fair value of which was $74.8 million, and the
Company preliminarily expects to collect substantially all of the
real estate notes receivable proceeds as of the Closing
Date.
|
As of September 30, 2022, the Company had not finalized the
determination of fair value of certain tangible and intangible
assets acquired and liabilities assumed including, but not limited
to real estate assets and liabilities, notes receivables and
goodwill. As such, the assessment of fair value of assets acquired
and liabilities assumed is preliminary and was based on information
that was available at the time the Condensed Consolidated Financial
Statements were prepared. The finalization of the purchase
accounting assessment could result in material changes in the
Company’s determination of the fair value of assets acquired and
liabilities assumed, which will be recorded as measurement period
adjustments in the period in which they are identified, up to one
year from the Closing Date.
A preliminary estimate of approximately $145.4 million has
been allocated to goodwill. Goodwill represents the excess of the
purchase price over the fair value of the net tangible and
intangible assets acquired and liabilities assumed. The recognized
goodwill is attributable to expected synergies and benefits arising
from the Merger, including anticipated general and administrative
cost savings and potential economies of scale benefits in both
tenant
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
and vendor relationships following the closing of the Merger. None
of the goodwill recognized is expected to be deductible for tax
purposes.
Merger related Costs
In conjunction with the Merger, the Company incurred Merger-related
costs of $79.4 million during the three months ended September 30,
2022 and $92.6 million during the nine months ended September 30,
2022, which were included within Merger-related costs in results of
operations. The Merger-related costs primarily consist of legal,
consulting, banking services, and other Merger-related
costs.
Unaudited Pro Forma Financial Information
The Condensed Consolidated Statements of Income for the three
months ended September 30, 2022 include $157.4 million of
revenues and $20.6 million of net loss and for the nine months
ended September 30, 2022 include $157.4 million of revenues
and $20.6 million of net loss associated with the results of
operations of Legacy HTA from the Merger closing date to September
30, 2022.
The following unaudited pro forma information presents a summary of
our Condensed Consolidated Statements of Income for the three
months and nine months ended September 30, 2022 and 2021, as if the
Merger had occurred on January 1, 2021. Adjustments in the pro
forma financial information include but are not limited to the
following:
(i) additional depreciation and amortization expense related to the
acquired tangible and intangible assets,
(ii) additional interest expense on transaction-related borrowings,
including assumed debt in connection with the Merger,
(iii) additional rental income related to the assumed above and
below-market leases, and straight-line rent and
(iv) Merger-related costs and other one-time, non-recurring
costs.
The pro forma financial information excludes adjustments for
estimated cost synergies or other effects of the integration of the
Merger.
The following pro forma financial information is not necessarily
indicative of the results of operations had the acquisition been
effected on the assumed date, nor is it necessarily an indication
of trends in future results for a number of reasons, including, but
not limited to, differences between the assumptions used to prepare
the pro forma information, cost savings from operating
efficiencies, potential synergies, and the impact of incremental
costs incurred in integrating the businesses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
September 30, |
NINE MONTHS ENDED
September 30, |
|
Dollars in thousands |
2022 |
2021 |
2022 |
2021 |
|
Total revenues |
$ |
352,744 |
|
$ |
332,465 |
|
$ |
1,054,809 |
|
$ |
982,192 |
|
|
Net income |
$ |
115,496 |
|
$ |
(14,930) |
|
$ |
160,120 |
|
$ |
(79,754) |
|
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
Note 3. Real Estate Investments
2022 Company Acquisitions
The following table details the Company's acquisitions for the nine
months ended September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
DATE ACQUIRED |
PURCHASE PRICE |
|
|
CASH
CONSIDERATION
1
|
REAL
ESTATE
2
|
OTHER
3
|
SQUARE FOOTAGE |
|
Dallas, TX |
2/11/22 |
$ |
8,175 |
|
|
|
$ |
8,185 |
|
$ |
8,202 |
|
$ |
(17) |
|
18,000 |
|
|
San Francisco, CA
4
|
3/7/22 |
114,000 |
|
|
|
112,986 |
|
108,687 |
|
4,299 |
|
166,396 |
|
|
Q1 2022 subtotal |
|
122,175 |
|
|
|
121,171 |
|
116,889 |
|
4,282 |
|
184,396 |
|
|
Atlanta, GA |
4/7/22 |
6,912 |
|
|
|
7,054 |
|
7,178 |
|
(124) |
|
21,535 |
|
|
Denver, CO |
4/13/22 |
6,320 |
|
|
|
5,254 |
|
5,269 |
|
(15) |
|
12,207 |
|
|
Colorado Springs, CO
5
|
4/13/22 |
13,680 |
|
|
|
13,686 |
|
13,701 |
|
(15) |
|
25,800 |
|
|
Seattle, WA |
4/28/22 |
8,350 |
|
|
|
8,334 |
|
8,370 |
|
(36) |
|
13,256 |
|
|
Houston, TX |
4/28/22 |
36,250 |
|
|
|
36,299 |
|
36,816 |
|
(517) |
|
76,781 |
|
|
Los Angeles, CA |
4/29/22 |
35,000 |
|
|
|
35,242 |
|
25,400 |
|
9,842 |
|
34,282 |
|
|
Oklahoma City, OK |
4/29/22 |
11,100 |
|
|
|
11,259 |
|
11,334 |
|
(75) |
|
34,944 |
|
|
Raleigh, NC
4
|
5/31/22 |
27,500 |
|
|
|
26,710 |
|
27,127 |
|
(417) |
|
85,113 |
|
|
Tampa, FL
5
|
6/9/22 |
18,650 |
|
|
|
18,619 |
|
18,212 |
|
407 |
|
55,788 |
|
|
Q2 2022 subtotal |
|
163,762 |
|
|
|
162,457 |
|
153,407 |
|
9,050 |
|
359,706 |
|
|
Seattle, WA |
8/1/22 |
4,850 |
|
|
|
4,806 |
|
4,882 |
|
(76) |
|
10,593 |
|
|
Raleigh, NC |
8/9/22 |
3,783 |
|
|
|
3,878 |
|
3,932 |
|
(54) |
|
11,345 |
|
|
Jacksonville, FL |
8/9/22 |
18,195 |
|
|
|
18,508 |
|
18,583 |
|
(75) |
|
34,133 |
|
|
Atlanta, GA |
8/10/22 |
11,800 |
|
|
|
11,525 |
|
12,038 |
|
(513) |
|
43,496 |
|
|
Denver, CO |
8/11/22 |
14,800 |
|
|
|
13,902 |
|
13,918 |
|
(16) |
|
34,785 |
|
|
Raleigh, NC |
8/18/22 |
11,375 |
|
|
|
10,670 |
|
10,547 |
|
123 |
|
31,318 |
|
|
Nashville, TN |
9/15/22 |
21,000 |
|
|
|
20,764 |
|
20,572 |
|
192 |
|
61,932 |
|
|
Austin, TX |
9/29/22 |
5,450 |
|
|
|
5,449 |
|
5,572 |
|
(123) |
|
15,000 |
|
|
Q3 2022 subtotal |
|
91,253 |
|
|
|
89,502 |
|
90,044 |
|
(542) |
|
242,602 |
|
|
Total real estate acquisitions |
|
$ |
377,190 |
|
|
|
$ |
373,130 |
|
$ |
360,340 |
|
$ |
12,790 |
|
786,704 |
|
1Cash
consideration excludes prorations of revenue and expense due
to/from seller at the time of the acquisition.
2Excludes
financing right of use assets.
3Includes
other assets acquired, liabilities assumed, and intangibles
recognized at acquisition.
4Includes
three properties.
5Includes
two properties.
Subsequent to September 30, 2022, the Company acquired the
following property:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
DATE ACQUIRED |
PURCHASE PRICE |
|
|
|
|
|
SQUARE FOOTAGE |
|
Jacksonville, FL |
10/12/22 |
$ |
3,600 |
|
|
|
|
|
|
6,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 Joint Venture Acquisitions
The following table details the joint venture acquisitions for the
nine months ended September 30, 2022. These joint venture
acquisitions are not consolidated for purposes of the Company's
Condensed Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
DATE ACQUIRED |
PURCHASE PRICE |
|
|
CASH
CONSIDERATION
1
|
REAL
ESTATE |
OTHER
2
|
SQUARE FOOTAGE |
COMPANY OWNERSHIP % |
|
San Francisco, CA
3
|
3/7/22 |
$ |
67,175 |
|
|
|
$ |
66,789 |
|
$ |
65,179 |
|
$ |
1,610 |
|
110,865 |
|
50 |
% |
|
Los Angeles, CA
4
|
3/7/22 |
33,800 |
|
|
|
32,384 |
|
32,390 |
|
(6) |
|
103,259 |
|
50 |
% |
|
Total joint venture acquisitions |
|
$ |
100,975 |
|
|
|
$ |
99,173 |
|
$ |
97,569 |
|
$ |
1,604 |
|
214,124 |
|
|
1Cash
consideration excludes prorations of revenue and expense due
to/from seller at the time of the acquisition.
2Includes
other assets acquired, liabilities assumed, and intangibles
recognized at acquisition.
3Includes
three properties.
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
4Includes
two properties.
Unconsolidated Joint Ventures
The Company's investment in and loss recognized for the three and
nine months ended September 30, 2022 and 2021 related to its
unconsolidated joint ventures accounted for under the equity method
are shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
September 30, |
NINE MONTHS ENDED
September 30, |
|
|
Dollars in thousands |
2022 |
2021 |
2022 |
2021 |
|
|
|
|
|
|
|
|
Investments in unconsolidated joint ventures, beginning of
period |
$ |
210,781 |
|
$ |
117,935 |
|
$ |
161,942 |
|
$ |
73,137 |
|
|
|
New investments during the period
1
|
117,880 |
|
4,593 |
|
167,479 |
|
49,612 |
|
|
|
Equity loss recognized during the period |
(124) |
|
(183) |
|
(776) |
|
(404) |
|
|
|
|
|
|
|
|
|
Owner distributions |
(785) |
|
— |
|
(893) |
|
— |
|
|
|
Investments in unconsolidated joint ventures, end of period
1
|
$ |
327,752 |
|
$ |
122,345 |
|
$ |
327,752 |
|
$ |
122,345 |
|
|
1Includes
unconsolidated joint ventures acquired as part of the Merger, as
well as investments in two joint ventures representing a 20% and
40% ownership interest in portfolios in Los Angeles, California and
Dallas, Texas, respectively. Also, see 2022 Real Estate Asset
Dispositions below for additional information.
2022 Real Estate Asset Dispositions
The following table details the Company's dispositions for the nine
months ended September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
DATE DISPOSED |
SALE PRICE |
CLOSING ADJUSTMENTS |
NET PROCEEDS |
NET REAL ESTATE INVESTMENT |
OTHER (INCLUDING RECEIVABLES)
1
|
GAIN/(IMPAIRMENT) |
SQUARE FOOTAGE |
|
Loveland, CO
2
|
2/24/22 |
$ |
84,950 |
|
$ |
(45) |
|
$ |
84,905 |
|
$ |
40,095 |
|
$ |
4 |
|
$ |
44,806 |
|
150,291 |
|
|
San Antonio, TX
2
|
4/15/22 |
25,500 |
|
(2,272) |
|
23,228 |
|
14,381 |
|
284 |
|
8,563 |
|
201,523 |
|
|
GA, FL, PA
3, 8
|
7/29/22 |
133,100 |
|
(8,109) |
|
124,991 |
|
124,991 |
|
— |
|
— |
|
316,739 |
|
|
GA, FL, TX
5, 8
|
8/4/22 |
160,917 |
|
(5,893) |
|
155,024 |
|
151,819 |
|
3,205 |
|
— |
|
343,545 |
|
|
Los Angeles, CA
3, 6, 8
|
8/5/22 |
134,845 |
|
(3,102) |
|
131,743 |
|
131,332 |
|
411 |
|
— |
|
283,780 |
|
|
Dallas, TX
5, 7, 8
|
8/30/22 |
114,290 |
|
(682) |
|
113,608 |
|
113,608 |
|
— |
|
— |
|
189,385 |
|
|
Indianapolis, IN
4, 9
|
8/31/22 |
238,845 |
|
(5,846) |
|
232,999 |
|
84,767 |
|
4,324 |
|
143,908 |
|
506,406 |
|
|
|
|
|
|
|
|
|
|
|
Total dispositions |
|
$ |
892,447 |
|
$ |
(25,949) |
|
$ |
866,498 |
|
$ |
660,993 |
|
$ |
8,228 |
|
$ |
197,277 |
|
1,991,669 |
|
1Includes
straight-line rent receivables, leasing commissions and lease
inducements.
2Includes
two properties.
3Includes
four properties.
4Includes
five properties.
5Includes
six properties.
6Values
and square feet are represented at 100%. The Company retained a 20%
ownership interest in the joint venture that purchased these
properties.
7Values
and square feet are represented at 100%. The Company retained a 40%
ownership interest in the joint venture that purchased these
properties.
8These
properties were acquired as part of the Merger and were included as
assets held for sale in the purchase price allocation.
9Two
of the five properties included in this portfolio were acquired in
the Merger and were included as assets held for sale in the
purchase price allocation.
Subsequent to September 30, 2022, the Company disposed of the
following properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
DATE DISPOSED |
SALE PRICE |
SQUARE FOOTAGE |
|
Dallas, TX
1, 2
|
10/4/22 |
$ |
104,025 |
|
291,328 |
|
|
Houston, TX
2
|
10/21/22 |
32,000 |
|
134,910 |
|
|
|
|
|
|
|
|
|
|
Total dispositions |
|
$ |
136,025 |
|
426,238 |
|
1Includes
two properties.
2These
properties were classified as assets held for sale as of September
30, 2022.
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
Assets Held for Sale
The Company had six properties classified as assets held for sale
as of September 30, 2022 and no properties classified as assets
held for sale as of December 31, 2021. The table below reflects the
assets and liabilities of the properties classified as held for
sale as of September 30, 2022 and December 31,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
September 30, 2022 |
|
December 31, 2021 |
|
Balance Sheet data: |
|
|
|
|
|
Land |
|
$ |
10,594 |
|
|
$ |
— |
|
|
Building and improvements |
|
199,821 |
|
|
— |
|
|
Lease intangibles |
|
11,389 |
|
|
— |
|
|
Personal property |
|
211 |
|
|
— |
|
|
Financing lease right-of-use assets |
|
307 |
|
|
— |
|
|
|
222,322 |
|
|
— |
|
|
Accumulated depreciation |
|
(47,051) |
|
|
— |
|
|
Real estate assets held for sale, net |
|
175,271 |
|
|
— |
|
|
Operating lease right-of-use assets |
|
1,193 |
|
|
— |
|
|
Other assets, net |
|
8,610 |
|
|
57 |
|
|
Assets held for sale, net |
|
$ |
185,074 |
|
|
$ |
57 |
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
3,768 |
|
|
$ |
169 |
|
|
Operating lease liabilities |
|
$ |
864 |
|
|
$ |
— |
|
|
Financing lease liabilities |
|
$ |
2,427 |
|
|
$ |
— |
|
|
Other liabilities |
|
3,585 |
|
|
125 |
|
|
Liabilities of assets held for sale |
|
$ |
10,644 |
|
|
$ |
294 |
|
Note 4. Leases
Lessor Accounting
The Company’s properties generally were leased pursuant to
non-cancelable, fixed-term operating leases with expiration dates
through 2040. Some leases provide for fixed rent renewal terms in
addition to market rent renewal terms. Some leases provide the
lessee, during the term of the lease, with an option or right of
first refusal to purchase the leased property. The Company’s
single-tenant net leases generally require the lessee to pay
minimum rent and all taxes (including property tax), insurance,
maintenance and other operating costs associated with the leased
property.
The Company's leases typically have escalators that are either
based on a stated percentage or an index such as the consumer price
index ("CPI"). In addition, most of the Company's leases include
nonlease components, such as reimbursement of operating expenses as
additional rent, or include the reimbursement of expected operating
expenses as part of the lease payment. The Company adopted an
accounting policy to combine lease and nonlease components. Rent
escalators based on indices and reimbursements of operating
expenses that are not included in the lease rate are considered
variable lease payments. Variable payments are recognized in the
period earned. Lease income for the Company's operating leases
recognized for the three and nine months ended September 30,
2022 was $298.9 million and $578.1 million, respectively. Lease
income for the Company's operating leases recognized for the three
and nine months ended September 30, 2021 was $131.7 million
and $388.6 million, respectively.
On March 30, 2022, the Company executed a lease as a ground lessor
for a 1.9 acre parcel of land in Texas previously recorded in land
held for development. The lease is classified as a sales-type lease
under Topic 842 as the present value of lease payments equals or
exceeds substantially all of the fair value of the underlying
asset. The land value of $1.8 million was reclassified from
Land held for development to Other assets.
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
Future lease payments under the non-cancelable operating leases,
excluding any reimbursements and the sale-type lease, as of
September 30, 2022 were as follows:
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
OPERATING |
|
|
2022 |
$ |
243,946 |
|
|
|
2023 |
937,733 |
|
|
|
2024 |
816,000 |
|
|
|
2025 |
702,251 |
|
|
|
2026 |
605,417 |
|
|
|
2027 and thereafter |
2,242,792 |
|
|
|
$ |
5,548,139 |
|
|
Lessee Accounting
As of September 30, 2022, the Company was obligated, as the
lessee, under operating lease agreements consisting primarily of
the Company’s ground leases. As of September 30, 2022, the
Company had 243 properties totaling 17.8 million square feet that
were held under ground leases. Some of the ground lease renewal
terms are based on fixed rent renewal terms and others have market
rent renewal terms. These ground leases typically have initial
terms of 40 to 99 years with expiration dates through 2119. Any
rental increases related to the Company’s ground leases are
generally either stated or based on CPI. The Company had 75 prepaid
ground leases as of September 30, 2022. The amortization of
the prepaid rent, included in the operating lease right-of-use
asset, represented approximately $0.5 million and $0.1 million
of the Company’s rental expense for the three months ended
September 30, 2022 and 2021, respectively, and
$0.8 million and $0.4 million for the nine months ended
September 30, 2022 and 2021, respectively.
The Company’s future lease payments (primarily for its 168
non-prepaid ground leases) as of September 30, 2022 were as
follows:
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
OPERATING |
FINANCING |
|
2022 |
$ |
3,665 |
|
$ |
503 |
|
|
2023 |
15,606 |
|
2,139 |
|
|
2024 |
15,193 |
|
2,182 |
|
|
2025 |
14,715 |
|
2,218 |
|
|
2026 |
14,735 |
|
2,255 |
|
|
2027 and thereafter |
894,018 |
|
398,092 |
|
|
Total undiscounted lease payments |
957,932 |
|
407,389 |
|
|
Discount |
(689,092) |
|
(335,011) |
|
|
Lease liabilities |
$ |
268,840 |
|
$ |
72,378 |
|
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
The following table provides details of the Company's total lease
expense for the three and nine months ended September 30, 2022
and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
September 30, |
NINE MONTHS ENDED
September 30, |
|
Dollars in thousands |
2022 |
2021 |
2022 |
2021 |
|
Operating lease cost |
|
|
|
|
|
Operating lease expense |
$ |
4,204 |
|
$ |
1,196 |
|
$ |
6,613 |
|
$ |
3,555 |
|
|
Variable lease expense |
1,061 |
|
1,016 |
|
3,123 |
|
2,883 |
|
|
|
|
|
|
|
Finance lease cost |
|
|
|
|
|
Amortization of right-of-use assets |
381 |
|
90 |
|
884 |
|
267 |
|
|
Interest on lease liabilities |
861 |
|
255 |
|
1,913 |
|
748 |
|
|
Total lease expense |
$ |
6,507 |
|
$ |
2,557 |
|
$ |
12,533 |
|
$ |
7,453 |
|
|
|
|
|
|
|
Other information |
|
|
|
|
|
Operating cash flows outflows related to operating
leases |
$ |
3,847 |
$ |
1,424 |
|
$ |
8,443 |
|
$ |
5,855 |
|
|
Operating cash flows outflows related to financing
leases |
$ |
476 |
$ |
151 |
|
$ |
1,262 |
|
$ |
678 |
|
|
Financing cash flows outflows related to financing
leases |
$ |
3 |
$ |
6 |
|
$ |
3 |
|
$ |
162 |
|
|
Right-of-use assets obtained in exchange for new finance lease
liabilities |
$ |
9,874 |
$ |
1,420 |
|
$ |
50,463 |
|
$ |
1,420 |
|
|
Right-of-use assets obtained in exchange for new operating lease
liabilities |
$ |
198,261 |
$ |
8,298 |
|
$ |
198,261 |
|
$ |
8,298 |
|
|
|
|
|
|
|
Weighted-average years remaining lease term (excluding renewal
options) - operating leases |
50.2 |
47.8 |
|
|
|
Weighted-average years remaining lease term (excluding renewal
options) - finance leases |
60.1 |
63.2 |
|
|
|
Weighted-average discount rate - operating leases |
5.7 |
% |
5.6 |
% |
|
|
|
Weighted-average discount rate - finance leases |
5.0 |
% |
5.4 |
% |
|
|
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
Note 5. Other Assets and Liabilities
Other Assets
Other assets consist primarily of intangible assets, prepaid
assets, real estate notes receivable, straight-line rent
receivables, accounts receivable, additional long-lived assets and
interest rate swaps. Items included in "Other assets, net" on the
Company's Condensed Consolidated Balance Sheets as of
September 30, 2022 and December 31, 2021 are detailed in
the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
September 30, 2022 |
|
December 31, 2021 |
|
Above-market intangible assets, net |
|
$ |
86,410 |
|
|
$ |
4,966 |
|
|
Prepaid assets |
|
85,053 |
|
|
58,618 |
|
|
Real estate notes receivable, net
1
|
|
79,036 |
|
|
— |
|
|
Straight-line rent receivables |
|
78,038 |
|
|
70,784 |
|
|
Accounts receivable, net |
|
36,103 |
|
|
14,072 |
|
|
Additional long-lived assets, net |
|
21,722 |
|
|
20,048 |
|
|
Interest rate swap assets |
|
16,136 |
|
|
— |
|
|
Ground lease modification, net |
|
8,170 |
|
|
8,511 |
|
|
Other receivables, net |
|
7,258 |
|
|
— |
|
|
Debt issuance costs, net |
|
6,504 |
|
|
1,813 |
|
|
Project costs |
|
4,001 |
|
|
5,129 |
|
|
Net investment in lease |
|
1,828 |
|
|
— |
|
|
Customer relationship intangible assets, net |
|
1,134 |
|
|
1,174 |
|
|
Other |
|
6,842 |
|
|
558 |
|
|
|
$ |
438,235 |
|
|
$ |
185,673 |
|
1 In October 2022, an additional amount of $15.0 million was
funded for a real estate loan transaction.
Accounts Payable and Accrued Liabilities
The following table provides details of the items included in
"Accounts payable and accrued liabilities" on the Company's
Condensed Consolidated Balance Sheets as of September 30, 2022
and December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
September 30, 2022 |
|
December 31, 2021 |
|
Accrued property taxes |
|
$ |
86,192 |
|
|
$ |
35,295 |
|
|
Accounts payable and capital expenditures |
|
61,461 |
|
|
17,036 |
|
|
Accrued interest |
|
24,959 |
|
|
12,060 |
|
|
Accrued income and franchise taxes |
|
2,685 |
|
|
983 |
|
|
Retainage accrued on construction invoices |
|
1,304 |
|
|
2,215 |
|
|
Other operating accruals |
|
54,417 |
|
|
18,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
231,018 |
|
|
$ |
86,108 |
|
Other Liabilities
The following table provides details of the items included in
"Other liabilities" on the Company's Condensed Consolidated Balance
Sheets as of September 30, 2022 and December 31,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
September 30, 2022 |
|
December 31, 2021 |
|
Below-market intangible liabilities, net |
|
$ |
113,118 |
|
|
$ |
4,931 |
|
|
Deferred revenue |
|
60,675 |
|
|
45,130 |
|
|
Security deposits |
|
28,299 |
|
|
11,116 |
|
|
Interest rate swap liability |
|
— |
|
|
5,917 |
|
|
Other |
|
1,306 |
|
|
293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
203,398 |
|
|
$ |
67,387 |
|
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
Note 6. Notes and Bonds Payable
The table below details the Company’s notes and bonds payable as of
September 30, 2022 and December 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MATURITY DATES
1
|
BALANCE
2
AS OF
|
EFFECTIVE INTEREST RATE
as of 9/30/2022 |
|
Dollars in thousands |
9/30/2022 |
12/31/2021 |
|
$1.5 billion Unsecured Credit Facility
3
|
10/27 |
$ |
190,600 |
|
$ |
— |
|
3.99 |
% |
|
$700 million Unsecured Credit Facility
3
|
5/23 |
— |
|
210,000 |
|
— |
% |
|
$1.125 billion Asset Sale Term Loan
4
|
7/24 |
421,919 |
|
— |
|
4.07 |
% |
|
$350 million Unsecured Term Loan
3
|
7/25 |
348,735 |
|
— |
|
4.10 |
% |
|
$200 million Unsecured Term Loan
4
|
5/26 |
199,611 |
|
199,460 |
|
3.51 |
% |
|
$300 million Unsecured Term Loan
4 5
|
10/26 |
299,930 |
|
— |
|
2.47 |
% |
|
$150 million Unsecured Term Loan
5
|
5/26 |
149,458 |
|
149,376 |
|
3.32 |
% |
|
$200 million Unsecured Term Loan
4 5
|
7/27 |
199,328 |
|
— |
|
2.27 |
% |
|
$300 million Unsecured Term Loan
3
|
1/28 |
297,764 |
|
— |
|
3.56 |
% |
|
Senior Notes due 2025 |
5/25 |
249,025 |
|
249,040 |
|
4.12 |
% |
|
Senior Notes due 2026
4
|
8/26 |
569,786 |
|
— |
|
4.94 |
% |
|
Senior Notes due 2027
4
|
7/27 |
478,541 |
|
— |
|
4.76 |
% |
|
Senior Notes due 2028 |
1/28 |
296,711 |
|
296,612 |
|
3.85 |
% |
|
Senior Notes due 2030
4
|
2/30 |
562,974 |
|
— |
|
5.30 |
% |
|
Senior Notes due 2030 |
3/30 |
296,787 |
|
296,813 |
|
2.72 |
% |
|
Senior Notes due 2031
4
|
3/31 |
628,617 |
|
— |
|
5.13 |
% |
|
Senior Notes due 2031 |
3/31 |
295,424 |
|
295,374 |
|
2.25 |
% |
|
Mortgage notes payable |
8/23-12/26 |
84,929 |
|
104,650 |
|
3.97 |
% |
|
|
$ |
5,570,139 |
|
$ |
1,801,325 |
|
|
1Includes
extension options.
2Balance
is presented net of discounts and issuance costs and inclusive of
premiums, where applicable.
3On
July 20, 2022, the Company entered into an amended and restated
credit facility which included a $1.5 billion revolving credit
facility, replacing Legacy HR's $700 million credit
facility.
4Debt
instruments assumed as part of the Merger with Legacy HTA on July
20, 2022. Amounts shown represent fair value
adjustments.
5The
effective interest rate includes the impact of interest rate swaps
on $675.0 million at a weighted average rate of 1.57% (plus the
applicable margin rate, currently 105 basis points).
Changes in Debt Structure
Mortgage payoffs
On February 18, 2022, the Company repaid in full a mortgage note
payable bearing interest at a rate of 4.70% that encumbered a
56,762 square foot property in California. The aggregate payoff
price of $12.6 million consisted of outstanding principal of
$11.0 million and a "make-whole" amount of approximately
$1.6 million. The unamortized premium of $0.8 million and
the unamortized cost on this note of $0.1 million were written
off upon payoff.
On February 24, 2022, the Company repaid in full a mortgage note
payable bearing interest at a rate of 6.17% that encumbered a
80,153 square foot property in Colorado, in conjunction with the
disposition of the property. The aggregate payoff price of
$6.4 million consisted of outstanding principal of
$5.8 million and a "make-whole" amount of approximately
$0.6 million. The unamortized premium of $0.1 million was
written off upon payoff.
Exchange Offer
In connection with the Merger, the OP offered to exchange all
validly tendered and accepted notes of each series previously
issued by Legacy HR (the “Old HR Notes”) for (i) up to $250,000,000
of 3.875% Senior Notes due 2025 (the “2025 Notes”), (ii) up to
$300,000,000 of 3.625% Senior Notes due 2028 (the “2028 Notes”),
(iii) up to $300,000,000 of 2.400% Senior Notes due 2030 (the “2030
Notes”) and (iv) up to $300,000,000 of 2.050% Senior Notes due 2031
to be issued by the OP (the “2031 Notes” and, collectively, the
“New HR Notes”) and solicited consents from holders of the Old HR
Notes to amend the indenture governing the Old HR Notes to
eliminate substantially all of the restrictive covenants in such
indenture (the “Exchange Offers”). The New HR Notes were issued
pursuant to an indenture dated July 22, 2022, among the OP, Legacy
HTA and U.S. Bank Trust Company, National Association, as trustee,
as
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
supplemented by the first supplemental indenture, dated as of July
22, 2022, the second supplemental indenture, dated as of July 22,
2022, the third supplemental indenture, dated as of July 22, 2022
and the fourth supplemental indenture, dated as of July 22, 2022.
Legacy HTA guaranteed the New HR Notes pursuant to (i) a guarantee
of the 2025 Notes, (ii) a guarantee of the 2028 Notes, (iii) a
guarantee of the 2030 Notes, and (iv) a guarantee of the 2031
Notes, each dated July 22, 2022. Legacy HTA and the OP filed a
registration statement on Form S-4 (File No. 333-265593) relating
to the issuance of the New HR Notes with the Securities and
Exchange Commission (the “SEC”) on June 14, 2022, which was
declared effective by the SEC on June 28, 2022. The following sets
forth the results of the Exchange Offers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Series of Old HR Notes |
Tenders and Consents Received as of the Expiration Date |
Percentage of Total Outstanding Principal Amount of Such Series of
Old HR Notes |
|
3.875 |
% |
Senior Notes due 2025
|
$235,016,000 |
94.01 |
% |
|
3.625 |
% |
Senior Notes due 2028
|
$290,246,000 |
96.75 |
% |
|
2.400 |
% |
Senior Notes due 2030
|
$297,507,000 |
99.17 |
% |
|
2.050 |
% |
Senior Notes due 2031
|
$298,858,000 |
99.62 |
% |
Senior Notes Assumed with the Merger
In connection with the Merger, the Company assumed senior notes
("Legacy Senior Notes") that were originated on various dates prior
to the date of the Merger by the OP (formerly, Healthcare Trust of
America Holdings, LP). These notes are all fully and
unconditionally guaranteed by the Company and have semi-annual
payment requirements. In addition, the Legacy Senior Notes carry
customary restrictive financial covenants, including limitations on
our ability to incur additional indebtedness and requirements to
maintain a pool of unencumbered assets. In addition, the
corresponding indentures provide for the ability to redeem the
Legacy Senior Notes, subject to certain "make whole" call
provisions. The Legacy Senior Notes assumed by the Company consist
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COUPON |
|
PRINCIPAL OUTSTANDING AS OF |
|
Dollars in thousands |
FACE VALUE |
9/30/2022 |
12/31/2021 |
|
Senior Notes due 2026 |
3.50% |
$ |
600,000 |
|
$ |
600,000 |
|
$ |
— |
|
|
Senior Notes due 2027 |
3.75% |
500,000 |
|
500,000 |
|
— |
|
|
Senior Notes due 2030 |
3.10% |
650,000 |
|
650,000 |
|
— |
|
|
Senior Notes due 2031 |
2.00% |
800,000 |
|
800,000 |
|
— |
|
|
|
$ |
2,550,000 |
|
$ |
2,550,000 |
|
$ |
— |
|
Credit Facilities
In connection with the effectiveness of the Merger, Legacy HR (in a
limited capacity), Legacy HTA and the OP entered into the Fourth
Amended and Restated Credit and Term Loan Agreement (the “Credit
Facility”) with Wells Fargo Bank, National Association, as
Administrative Agent; Wells Fargo Securities, LLC, JPMorgan Chase
Bank, N.A., and Citibank, N.A., as Joint Book Runners; Wells Fargo
Securities, LLC, JPMorgan Chase Bank, N.A., U.S. Bank National
Association, Citibank, N.A., The Bank of Nova Scotia, Capital One,
National Association, U.S. Bank National Association, and PNC
Capital Markets LLC, as Joint Lead Arrangers; and the other lenders
named therein. The Credit Facility restructured the parties’
existing bank facilities and added additional borrowing capacities
for the Company following the Merger. The OP is the borrower under
the Credit Facility (in such capacity, the
“Borrower”).
•Legacy
HR’s existing $700.0 million revolving credit facility under
the Amended and Restated Credit Agreement, dated as of May 31, 2019
(as amended, restated, replaced, supplemented, or otherwise
modified from time to time prior to July 20, 2022, the “Existing HR
Revolving Credit Agreement”), by and among Legacy HR, the lenders
party thereto from time to time and their assignees, as lenders,
and Wells Fargo Bank, National Association, as the administrative
agent (the “WF Administrative Agent”), was terminated, all
outstanding obligations in respect thereof were deemed paid in full
and all commitments thereunder were permanently reduced to zero and
terminated.
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
•Legacy
HR’s existing $200.0 million term loan facility and existing
$150.0 million term loan facility under the Amended and
Restated Term Loan Agreement, dated as of May 31, 2019 (as amended,
restated, replaced, supplemented, or otherwise modified from time
to time prior to July 20, 2022, the “Existing HR Term Loan
Agreement”), by and among Legacy HR, the lenders party thereto from
time to time and their assignees, as lenders, and the WF
Administrative Agent, in each, case, were deemed continued and
assumed by the Borrower under the Credit Facility, and the Existing
HR Term Loan Agreement was terminated.
◦The
existing $200.0 million term loan facility was amended to: (a)
conform to the terms of the Borrower’s other term loan facilities
under the Credit Facility; (b) include two one-year extension
options, resulting in a latest final maturity in May 2026; and (c)
reprice to align with the pricing for the Borrower’s other term
loan facilities under the Credit Facility; and
◦The
existing $150.0 million term loan facility was amended to
conform to the terms of the Borrower’s other term loan facilities
under the Credit Facility, and the existing maturity in June 2026
remains unchanged under the Credit Facility.
•Legacy
HTA’s and the OP’s existing $1.0 billion revolving credit
facility was upsized to $1.5 billion (the “Revolver”) pursuant
to the Credit Facility. The Revolver currently matures in October
2025, and the Credit Facility adds an additional one-year extension
option for the Revolver, for a total of two one-year extension
options.
•Legacy
HTA’s and the OP’s existing $300.0 million term loan facility
was deemed continued pursuant to the Credit Facility and was
amended to conform to the terms of the Borrower’s other term loan
facilities under the Credit Facility. The existing maturity in
October 2025 remains unchanged under the Credit
Facility.
•Legacy
HTA’s and the OP’s existing $200.0 million term loan facility
was deemed continued pursuant to the Credit Facility and was
amended to (a) conform to the terms of the Borrower’s other term
loan facilities under the Credit Facility; (b) extend the maturity
from January 2024 to July 20, 2027; and (c) reprice to align with
the pricing for the Borrower’s other term loan facilities under the
Credit Facility.
•The
Credit Facility provides for a new $350.0 million delayed-draw
term loan facility that is available to be drawn for 12 months
after July 20, 2022 and has an initial maturity date of July 20,
2023, with two one-year extension options. As of September 30,
2022, the $350.0 million Credit Facility was drawn in full.
The terms of any delayed draw term loans funded thereunder conform
to the terms of the Borrower’s other term loan facilities under the
Credit Facility, and the pricing for such delayed draw term loans
aligns with the pricing for the Borrower’s other term loan
facilities under the Credit Facility.
•The
Credit Facility provides for a new $300.0 million term loan
facility that was funded on July 20, 2022 and has a maturity date
of January 20, 2028, with no extension options. The terms of such
term loan facility conform to the terms of the Borrower’s other
term loan facilities under the Credit Facility, and the pricing for
such term loan facility aligns with the pricing for the Borrower’s
other term loan facilities under the Credit Facility.
Note 7. Derivative Financial Instruments
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its
business operations and economic conditions. The Company
principally manages its exposures to a wide variety of business and
operational risks through management of its core business
activities. The Company manages economic risks, including interest
rate, liquidity, and credit risk, primarily by managing the amount,
sources, and duration of its assets and liabilities and the use of
derivative financial instruments. Specifically, the Company enters
into derivative financial instruments to manage exposures that
arise from business activities that result in the receipt or
payment of future known and uncertain cash amounts, the value of
which are determined by interest rates. The Company’s derivative
financial instruments are used to manage differences in the amount,
timing, and duration of the Company’s known or expected cash
receipts and its known or expected cash payments principally
related to the Company’s borrowings.
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to
add stability to interest expense and to manage its exposure to
interest rate movements. To accomplish this objective, the Company
primarily uses interest rate swaps as part of its interest rate
risk management strategy. Interest rate swaps designated as cash
flow hedges involve the receipt of variable amounts from a
counterparty in exchange for the Company making fixed-rate payments
over the life of the agreements without exchange of the underlying
notional amount. Such derivatives were used to hedge the variable
cash flows associated with existing variable-rate
debt.
For derivatives designated, and that qualify, as cash flow hedges
of interest rate risk, the gain or loss on the derivative is
recorded in Accumulated Other Comprehensive Income (Loss) ("AOCI")
and subsequently reclassified into interest expense in the same
period(s) during which the hedged transaction affects earnings.
Amounts reported in AOCI related to derivatives will be
reclassified to interest expense as interest payments are made on
the Company’s variable-rate debt.
As of September 30, 2022, the Company had 15 outstanding
interest rate derivatives that were designated as cash flow hedges
of interest rate risk:
|
|
|
|
|
|
|
|
|
|
EXPIRATION DATE |
AMOUNT |
WEIGHTED
AVERAGE RATE |
|
December 16, 2022 |
75,000 |
|
2.37 |
% |
|
January 31, 2023 |
$ |
300,000 |
|
1.42 |
% |
|
January 15, 2024
1
|
200,000 |
|
1.21 |
% |
|
May 1, 2026
1
|
100,000 |
|
2.15 |
% |
|
$ |
675,000 |
|
1.57 |
% |
1 Derivatives hedge one-month term SOFR.
Subsequent to September 30, 2022, the Company entered into two
additional interest rate swaps totaling $250.0 million with
multiple counterparties, with both expiring in 2027. The Company
designated these interest rate swaps as cash flow hedges of
interest rate risk in the fourth quarter of 2022.
Tabular Disclosure of Fair Values of Derivative Instruments on the
Balance Sheet
The table below presents the fair value of the Company's derivative
financial instruments, as well as their classification on the
Condensed Consolidated Balance Sheet as of September 30,
2022.
|
|
|
|
|
|
|
|
|
|
BALANCE AT SEPTEMBER 30, 2022 |
|
In thousands |
BALANCE SHEET LOCATION |
FAIR VALUE |
|
Derivatives designated as hedging instruments |
|
|
|
|
|
|
Interest rate swaps |
Other assets |
$ |
16,136 |
|
|
|
|
Tabular Disclosure of the Effect of Cash Flow Hedge Accounting on
Accumulated Other Comprehensive Income (Loss)
The table below presents the effect of cash flow hedge accounting
on AOCI during the three and nine months ended September 30,
2022 and 2021 related to the Company's outstanding interest rate
swaps.
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|
|
|
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|
|
|
|
|
|
GAIN RECOGNIZED IN
AOCI ON DERIVATIVE
three months ended September 30, |
|
LOSS RECLASSIFIED FROM
AOCI INTO INCOME
three months ended September 30, |
|
In thousands |
2022 |
2021 |
2022 |
2021 |
|
Interest rate swaps |
$ |
(6,083) |
|
$ |
(36) |
|
Interest expense |
$ |
614 |
|
$ |
982 |
|
|
Settled treasury hedges |
— |
|
— |
|
Interest expense |
107 |
|
107 |
|
|
Settled interest rate swaps |
— |
|
— |
|
Interest expense |
42 |
|
42 |
|
|
|
$ |
(6,083) |
|
$ |
(36) |
|
Total interest expense |
$ |
763 |
|
$ |
1,131 |
|
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
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|
|
GAIN RECOGNIZED IN
AOCI ON DERIVATIVE
nine months ended September 30, |
|
LOSS RECLASSIFIED FROM
AOCI INTO INCOME
nine months ended September 30, |
|
In thousands |
2022 |
2021 |
2022 |
2021 |
|
Interest rate swaps |
$ |
(12,905) |
|
$ |
(2,079) |
|
Interest expense |
$ |
2,226 |
|
$ |
2,894 |
|
|
Settled treasury hedges |
— |
|
— |
|
Interest expense |
320 |
|
320 |
|
|
Settled interest rate swaps |
— |
|
— |
|
Interest expense |
126 |
|
126 |
|
|
|
$ |
(12,905) |
|
$ |
(2,079) |
|
Total interest expense |
$ |
2,672 |
|
$ |
3,340 |
|
The Company estimates that $4.8 million related to active interest
rate swaps will be reclassified from AOCI as a decrease to interest
expense over the next 12 months, and that $0.6 million related
to settled interest rate swaps will be amortized from AOCI as an
increase to interest expense over the next 12 months.
Credit-risk-related Contingent Features
The Company's agreements with each of its derivative counterparties
contain a cross-default provision under which the Company could be
declared in default of its derivative obligations if repayment
of the underlying indebtedness is accelerated by the lender
due to the Company's default on the indebtedness.
As of September 30, 2022, the fair value of derivatives in a
net asset position including accrued interest but excluding any
adjustment for nonperformance risk related to these agreements
was $16.5 million. As of September 30, 2022, the
Company has not posted any collateral related to these agreements
and was not in breach of any agreement.
Note 8. Commitments and Contingencies
Legal Proceedings
The Company is, from time to time, involved in litigation arising
in the ordinary course of business. The Company is not aware of any
pending or threatened litigation that, if resolved against the
Company, would have a material adverse effect on the Company’s
consolidated financial position, results of operations or cash
flows.
Development and Redevelopment Activity
During the third quarter of 2022, the Company continued the
redevelopment of a 217,114 square foot medical office building in
Dallas, Texas. As of September 30, 2022, the Company had
funded approximately $11.1 million in project costs. The
building continues to operate with in-place leases during
construction. The first new tenant lease of the redevelopment
commenced in the first quarter of 2022.
During the third quarter of 2022, the Company continued the
redevelopment of a medical office building in Tacoma, Washington.
As of September 30, 2022, the Company had funded approximately
$10.3 million in project costs. The redevelopment includes interior
and exterior improvements to the existing building, plus the
addition of 23,000 square feet. The Company expects the 23,000
square foot tenant lease for the expansion space to commence in the
fourth quarter of 2022.
The Company continued the development of a medical office building
in Nashville, Tennessee. The Company is constructing a new 106,194
square foot medical office building with the initial tenant lease
expected to commence in the third quarter of 2023. As of
September 30, 2022, the Company had funded approximately
$15.3 million in project costs. The redevelopment includes the
demolition of an existing 81,000 square foot medical office
building. The Company recognized an impairment charge of
$5.0 million related to the existing building in
2021.
The Company is financing the construction of a two building medical
office complex in Orlando, Florida. The 156,566 square foot
development is expected to be complete in the second quarter of
2024. As of September 30, 2022, the Company had funded
approximately $10.6 million towards the project
costs.
The Company, through a joint venture partnership, continued the
development of a medical office building in Raleigh, North
Carolina. This joint venture expects to construct a new 120,694
square foot medical office building that is projected to be
complete in the fourth quarter of 2024. As of September 30,
2022, the joint venture had funded approximately $15.3 million
towards the project costs.
The Company is redeveloping three medical office buildings totaling
259,290 square feet in Washington, DC. The Company has approved a
leasing plan with a capital outlay that is expected to be completed
in the second quarter of
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
2024. As of September 30, 2022, the Company had funded
$2.0 million in project costs.
Note 9. Stockholders' Equity
Common Stock
The following table provides a reconciliation of the beginning and
ending shares of common stock outstanding for the nine months ended
September 30, 2022 and the twelve months ended
December 31, 2021:
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|
|
|
NINE MONTHS ENDED SEPTEMBER 30, 2022 |
TWELVE MONTHS ENDED DECEMBER 31, 2021 |
|
Balance, beginning of period |
150,457,433 |
|
139,487,375 |
|
|
Issuance of common stock |
229,615,152 |
|
10,899,301 |
|
|
Non-vested share-based awards, net of withheld shares |
499,705 |
|
70,757 |
|
|
Balance, end of period |
380,572,290 |
|
150,457,433 |
|
At-The-Market Equity Offering Program
The Company has equity distribution agreements with various sales
agents with respect to the at-the-market (“ATM”) offering program
of common stock with an aggregate sales amount of up to $750.0
million. As of September 30, 2022, $750.0 million remained
available for issuance under our current ATM offering
program.
Common Stock Dividends
During the nine months ended September 30, 2022, the Company
declared and paid common stock dividends totaling $0.93 per share.
On November 2, 2022, the Company declared a quarterly common stock
dividend in the amount of $0.31 per share payable on November 30,
2022 to stockholders of record on November 15, 2022.
Earnings Per Common Share
The Company uses the two-class method of computing net earnings per
common shares. The Company's non-vested share-based awards are
considered participating securities pursuant to the two-class
method.
During the three and nine months ended September 30, 2022, the
Company did not enter into any forward sale agreements to sell
shares of common stock through the Company's ATM offering
program.
The following table sets forth the computation of basic and diluted
earnings per common share for the three and nine months ended
September 30, 2022 and 2021.
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|
|
THREE MONTHS ENDED SEPTEMBER 30, |
NINE MONTHS ENDED SEPTEMBER 30, |
|
Dollars in thousands, except per share data |
2022 |
2021 |
2022 |
2021 |
|
Weighted average common shares outstanding |
|
|
|
|
|
Weighted average common shares outstanding |
330,788,997 |
|
145,594,127 |
|
211,740,767 |
|
143,305,737 |
|
|
Non-vested shares |
(1,983,742) |
|
(1,776,508) |
|
(1,933,957) |
|
(1,784,544) |
|
|
Weighted average common shares outstanding - basic |
328,805,255 |
|
143,817,619 |
|
209,806,810 |
|
141,521,193 |
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic |
328,805,255 |
|
143,817,619 |
|
209,806,810 |
|
141,521,193 |
|
|
Dilutive effect of forward equity shares |
— |
|
— |
|
— |
|
14,036 |
|
|
Dilutive effect of OP Units |
3,167,668 |
|
— |
|
1,067,493 |
|
— |
|
|
Dilutive effect of employee stock purchase plan |
58,461 |
|
— |
|
69,687 |
|
78,200 |
|
|
Weighted average common shares outstanding - diluted |
332,031,384 |
|
143,817,619 |
|
210,943,990 |
|
141,613,429 |
|
|
|
|
|
|
|
Net Income (loss) attributable to common stockholders |
$ |
28,304 |
|
$ |
(2,066) |
|
$ |
76,661 |
|
$ |
45,052 |
|
|
Dividends paid on nonvested share-based awards |
(610) |
|
(537) |
|
(1,817) |
|
(1,617) |
|
|
Net income (loss) applicable to common stockholders-
basic |
$ |
27,694 |
|
$ |
(2,603) |
|
$ |
74,844 |
|
$ |
43,435 |
|
|
Net income attributable to OP units |
312 |
|
— |
|
312 |
|
— |
|
|
Net income (loss) applicable to common stockholders -
diluted |
$ |
28,006 |
|
$ |
(2,603) |
|
$ |
75,156 |
|
$ |
43,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share - net income |
$ |
0.08 |
|
$ |
(0.02) |
|
$ |
0.36 |
|
$ |
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share - net income |
$ |
0.08 |
|
$ |
(0.02) |
|
$ |
0.35 |
|
$ |
0.31 |
|
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
The effect of non-vested stock awards totaling 911,594 shares,
options under the Company's Employee Stock Purchase Plan (the
"ESPP") to purchase the Company's stock totaling 63,383 shares, and
the dilutive impact of forward-equity contracts outstanding for
14,734 shares of common stock for the three months ended September
30, 2021 were excluded from the calculation of diluted loss per
common share because the effect was anti-dilutive due to the loss
from continuing operations incurred during that
period.
Incentive Plans
Restricted Common Shares
During the nine months ended September 30, 2022, the Company
made the following stock awards:
•During
the first quarter of 2022, the Company granted non-vested stock
awards to its named executive officers and other members of senior
management and employees with a grant date fair value of
$13.0 million, which consisted of an aggregate of 415,184
non-vested shares with vesting periods ranging from
three to eight years.
•During
the second quarter of 2022, the Company granted non-vested stock
awards to eight of its directors with a grant date fair value of
$0.8 million, which consisted of an aggregate of 26,840
non-vested shares, with a one-year vesting period.
•During
the third quarter of 2022, the Company granted non-vested stock
awards to its 12 non-employee directors with a grant date fair
value of $1.8 million, which consisted of an aggregate of
70,816 non-vested shares, with vesting periods ranging from
one to three years. The Company also granted non-vested
stock awards to an employee, which consisted of 1,036 non-vested
shares as a discretionary grant.
A summary of the activity under the Company's share-based incentive
plans for the three and nine months ended September 30, 2022
and 2021 is included in the table below.
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THREE MONTHS ENDED SEPTEMBER 30, |
NINE MONTHS ENDED SEPTEMBER 30, |
|
|
2022 |
2021 |
2022 |
2021 |
|
Share-based awards, beginning of period |
1,941,709 |
|
1,778,308 |
|
1,562,028 |
|
1,766,061 |
|
|
Granted |
71,852 |
|
— |
|
513,876 |
|
203,701 |
|
|
Vested |
(7,434) |
|
— |
|
(68,481) |
|
(191,454) |
|
|
Forfeited |
(4,130) |
|
(2,957) |
|
(5,426) |
|
(2,957) |
|
|
Share-based awards, end of period |
2,001,997 |
|
1,775,351 |
|
2,001,997 |
|
1,775,351 |
|
During the nine months ended September 30, 2022 and 2021, the
Company withheld 8,745 and 51,972 shares of common stock,
respectively, from participants to pay estimated withholding taxes
related to shares that vested.
Restricted Stock Units
Prior to 2022, the Company granted long-term incentive awards,
comprised of restricted stock, based on backward-looking
performance measured at the end of the calendar year. The Company
adopted a new incentive compensation structure effective January
2022, comprised of restricted stock and restricted stock units
("RSUs"). The RSUs are granted at the beginning of the year with
three-year forward-looking performance targets.
On January 3, 2022, the Company granted RSUs to its named executive
officers and certain other officers, with a grant date fair value
of $9.7 million, which consisted of an aggregate 294,932 RSUs with
a five-year vesting period.
Approximately 43% of the RSUs vest based on two market performance
conditions. Relative and absolute total shareholder return ("TSR")
awards containing these market performance conditions were valued
using independent specialists. The Company utilized a Monte Carlo
simulation to calculate the weighted average grant date fair values
of $30.56 for the absolute TSR component and $41.30 for the
relative TSR component for the January 2022 grant using the
following assumptions:
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
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|
|
|
|
|
|
|
THREE MONTHS ENDED MARCH 31, |
|
Volatility |
|
|
30.0 |
% |
|
Dividend assumption |
|
|
Accrued |
|
Expected term |
|
|
3 years |
|
Risk-free rate |
|
|
1.02 |
% |
|
Stock price (per share) |
|
|
$31.68 |
The remaining 57% of the restricted stock units vest upon certain
operating performance conditions. With respect to the operating
performance conditions of the January grant, the grant date fair
value was $31.68 based on the Company's share price on the date of
grant. The combined weighted average grant date fair value of the
January restricted stock units was $33.04 per share.
The following is a summary of the RSU activity during the
three and nine
months ended September 30, 2022:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED SEPTEMBER 30, |
NINE MONTHS ENDED SEPTEMBER 30, |
|
|
Restricted Stock Units |
Weighted Average Grant Date Fair Value |
Restricted Stock Units |
Weighted Average Grant Date Fair Value |
|
Non-vested, beginning of period |
294,932 |
|
— |
|
— |
|
— |
|
|
Granted |
— |
|
— |
|
294,932 |
|
$ |
33.04 |
|
|
Vested |
— |
|
— |
|
— |
|
— |
|
|
Non-vested as of September 30, 2022 |
294,932 |
|
|
294,932 |
|
|
Employee Stock Purchase Plan
Legacy HR maintained an ESPP prior to the completion of the Merger.
The outstanding options to purchase shares of the common stock of
Legacy HR became options to purchase Class A Common Stock of the
Company upon completion of the Merger. No new options will be
granted under the ESPP. A summary of the activity under the ESPP
for the three and nine months ended September 30, 2022 and
2021 is included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED SEPTEMBER 30, |
NINE MONTHS ENDED SEPTEMBER 30, |
|
|
2022 |
2021 |
2022 |
2021 |
|
Outstanding and exercisable, beginning of period |
405,534 |
|
389,414 |
|
348,514 |
|
341,647 |
|
|
Granted |
— |
|
— |
|
255,960 |
|
253,200 |
|
|
Exercised |
(4,576) |
|
(5,323) |
|
(17,094) |
|
(24,300) |
|
|
Forfeited |
(37,628) |
|
(18,961) |
|
(83,417) |
|
(60,995) |
|
|
Expired |
— |
|
— |
|
(140,633) |
|
(144,422) |
|
|
Outstanding and exercisable, end of period |
363,330 |
|
365,130 |
|
363,330 |
|
365,130 |
|
Note 10. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instrument for which it is
practical to estimate that value.
•Cash
and cash equivalents
- The carrying amount approximates fair value due to the short term
maturity of these investments.
•Real
estate notes receivable
- Real estate notes receivable are recorded in other assets on the
Company's Condensed Consolidated Balance Sheets. Fair value is
estimated using cash flow analyses, based on current interest rates
for similar types of arrangements.
•Borrowings
under the Unsecured Credit Facility and the Term Loans Due 2024 and
2026
- The carrying amount approximates fair value because the
borrowings are based on variable market interest
rates.
•Senior
Notes and Mortgage Notes payable
- The fair value of notes and bonds payable is estimated using cash
flow analyses, based on the Company’s current interest rates for
similar types of borrowing arrangements.
•Interest
rate swap agreements
- Interest rate swap agreements are recorded in other liabilities
on the Company's Condensed Consolidated Balance Sheets at fair
value. Fair value is estimated by utilizing pricing models that
consider forward yield curves and discount rates.
Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
cont.
The table below details the fair values and carrying values for
notes and bonds payable and real estate notes receivable at
September 30, 2022 and December 31, 2021.
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|
September 30, 2022 |
December 31, 2021 |
|
Dollars in millions |
CARRYING VALUE |
FAIR VALUE |
CARRYING VALUE |
FAIR VALUE |
|
Notes and bonds payable
1
|
$ |
5,570.1 |
|
$ |
5,321.0 |
|
$ |
1,801.3 |
|
$ |
1,797.4 |
|
|
Real estate notes receivable
1
|
$ |
79.0 |
|
$ |
79.0 |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
1Level
2 – model-derived valuations in which significant inputs and
significant value drivers are observable in active
markets.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Disclosure Regarding Forward-Looking Statements
This report and other materials the Company has filed or may file
with the Securities and Exchange Commission (the "SEC"), as well as
information included in oral statements or other written statements
made, or to be made, by management of the Company, contain, or will
contain, disclosures that are “forward-looking statements.”
Forward-looking statements include all statements that do not
relate solely to historical or current facts and can be identified
by the use of words such as “may,” “will,” “expect,” “believe,”
“anticipate,” “target,” “intend,” “plan,” “estimate,” “project,”
“continue,” “should,” “could," "budget" and other comparable terms,
and include, but are not limited to, statements related to the
anticipated timing, financing benefits and financial and
operational impact of the Merger. These forward-looking statements
are based on the Company's current plans, objectives, estimates,
expectations and intentions and inherently involve significant
risks and uncertainties. Actual results and the timing of events
could differ materially from those anticipated in such
forward-looking statements as a result of these risks and
uncertainties, which include, without limitation, risks and
uncertainties associated with: diverting the attention the
Company's management from ongoing business operations; failure to
realize the expected benefits of the Merger; significant
transaction costs and/or unknown or inestimable liabilities of the
Merger; the risk that Legacy HR's and Legacy HTA’s respective
businesses will not be integrated successfully or that such
integration may be more difficult, time-consuming or costly than
expected; risks related to future opportunities and plans for the
Company, including the uncertainty of expected future financial
performance and results of the Company; the possibility that, if
the Company does not achieve the perceived benefits of the Merger
as rapidly or to the extent anticipated by financial analysts or
investors, the market price of the Company’s common stock could
decline; general adverse economic and local real estate conditions;
the inability of significant tenants to continue paying their rent
obligations due to bankruptcy, insolvency or a general downturn in
their business; increases in interest rates; increases in operating
expenses and real estate taxes; changes in the dividend policy for
the Company’s common stock or its ability to pay dividends;
impairment charges; pandemics or other health crises, such as
COVID-19; and other risks and uncertainties affecting the Company,
including those described from time to time under the caption “Risk
Factors” and elsewhere in the Company’s filings and reports with
the SEC, including Legacy HR’s and Legacy HTA's Annual Reports on
Form 10-K for the year ended December 31, 2021. Moreover, other
risks and uncertainties of which the Company is not currently aware
may also affect the Company's forward-looking statements and may
cause actual results and the timing of events to differ materially
from those anticipated. The forward-looking statements made in this
communication are made only as of the date hereof or as of the
dates indicated in the forward-looking statements, even if they are
subsequently made available by the Company on its website or
otherwise. The Company undertakes no obligation to update or
supplement any forward-looking statements to reflect actual
results, new information, future events, changes in its
expectations or other circumstances that exist after the date as of
which the forward-looking statements were made, except as required
by law.
Stockholders and investors are cautioned not to unduly rely on such
forward-looking statements when evaluating the information
presented in the Company’s filings and reports, including, without
limitation, estimates and projections regarding the performance of
development projects the Company is pursuing.
For a detailed discussion of the Company’s risk factors, please
refer to the Company's, Legacy HR's and Legacy HTA's filings with
the SEC, including this report and Item 1A. Risk Factors herein and
Legacy HR's and Legacy HTA's Annual Report on Form 10-K for the
year ended December 31, 2021.
Merger with Healthcare Trust of America
Completed Merger
On July 20, 2022, Legacy HR, Legacy HTA, the OP and Merger Sub
completed the Merger in accordance with the terms of the Merger
Agreement. Immediately following the Merger, Legacy HR converted to
a Maryland limited liability company and changed its name to “HRTI,
LLC” and Legacy HTA changed its name to “Healthcare Realty Trust
Incorporated”. In addition, the equity interests of Legacy HR were
contributed by Legacy HTA by means of a contribution and assignment
agreement to the OP such that Legacy HR became a wholly-owned
subsidiary of the OP. As a result, Legacy HR became a part of an
umbrella partnership REIT (“UPREIT”) structure, which is intended
to align the corporate structure of the combined company after
giving effect to the Merger and the UPREIT reorganization and to
provide a platform for the combined company to more efficiently
acquire properties in a tax-deferred manner. The Company operates
under the name “Healthcare Realty Trust Incorporated” and its
shares of class A common stock, $0.01 par value per share, trade on
the New York Stock Exchange (the “NYSE”) under the ticker symbol
“HR”. For additional information on the Merger, see Notes 2 and 6
to the Condensed Consolidated Financial Statements.
Unless expressly stated otherwise, the discussion in this Item 2
refers to Legacy HR's financial condition and results of operations
on a stand-alone basis prior to giving effect to the Merger.
Because Legacy HR was the accounting acquirer under GAAP in the
transaction, its historical financial statements became the
historical financial
statements of the Company. For additional information, please refer
to the Explanatory Note in this Quarterly Report on Form
10-Q.
Liquidity and Capital Resources
Sources and Uses of Cash
The Company’s primary sources of cash include rent receipts from
its real estate portfolio based on contractual arrangements with
its tenants, proceeds from the sales of real estate properties,
joint ventures, and proceeds from public or private debt or equity
offerings. After the refinancing of its bank facilities in
connection with the Merger, as of September 30, 2022, the
Company had $1.3 billion available to be drawn on its Credit
Facility and $57.6 million in cash.
The Company expects to continue to meet its liquidity needs,
including funding additional investments, paying dividends, and
funding debt service, through cash flows from operations and
liquidity sources, including the Credit Facility. Management
believes that the Company's liquidity and sources of capital are
adequate to satisfy its cash requirements. The Company cannot,
however, be certain that these sources of funds will be available
at a time and upon terms acceptable to the Company in sufficient
amounts to meet its liquidity needs.
Financings in Connection with the Merger
In connection with the effectiveness of the Merger, Legacy HR (in a
limited capacity), Legacy HTA and the OP entered into the Credit
Facility, which restructures the parties’ existing bank facilities
and adds additional borrowing capacities for the Company following
the Merger.
Investing Activities
Cash flows provided by investing activities for the nine months
ended September 30, 2022 were approximately $1.4 billion.
Below is a summary of significant investing
activities.
Acquisitions
The following table details the Company's acquisitions for the nine
months ended September 30, 2022:
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Dollars in thousands |
ASSOCIATED HEALTH SYSTEM/TENANCY
1
|
DATE ACQUIRED |
PURCHASE PRICE |
SQUARE FOOTAGE |
MILES TO CAMPUS |
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Dallas, TX |
Texas Health Resources |
2/11/22 |
$ |
8,175 |
|
18,000 |
0.19 |
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San Francisco, CA
2
|
Kaiser/Sutter Health |
3/7/22 |
114,000 |
|
166,396 |
|
0.90 to 3.30 |
|
Q1 2022 subtotal |
|
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122,175 |
|
184,396 |
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Atlanta, GA |
Wellstar Health |
4/7/22 |
6,912 |
|
21,535 |
|
0.00 |
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Denver, CO |
Centura Health |
4/13/22 |
6,320 |
|
12,207 |
|
2.40 |
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Colorado Springs, CO
3
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Centura Health |
4/13/22 |
13,680 |
|
25,800 |
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0.80 to 1.70 |
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Seattle, WA |
UW Medicine |
4/28/22 |
8,350 |
|
13,256 |
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0.05 |
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Houston, TX |
CommonSpirit |
4/28/22 |
36,250 |
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76,781 |
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1.70 |
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Los Angeles, CA |
Cedars-Sinai Health Systems |
4/29/22 |
35,000 |
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34,282 |
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0.11 |
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Oklahoma City, OK |
Mercy Health |
4/29/22 |
11,100 |
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34,944 |
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0.18 |
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Raleigh, NC
2
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WakeMed/None |
5/31/22 |
27,500 |
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85,113 |
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0.25 to 12.30 |
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Tampa, FL
3
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BayCare Health |
6/9/22 |
18,650 |
|
55,788 |
|
0.23 |
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Q2 2022 subtotal |
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163,762 |
|
359,706 |
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Seattle, WA |
EvergreenHealth |
8/1/22 |
4,850 |
|
10,593 |
|
0.24 |
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Raleigh, NC |
WakeMed |
8/9/22 |
3,783 |
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11,345 |
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0.24 |
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Jacksonville, FL |
Ascension |
8/9/22 |
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