Healthcare Realty Trust Incorporated (NYSE:HR) Q2 2023 Results Conference Call August 8, 2023 12:00 PM ET Company Participants Ron Hubbard - VP, IR Todd Meredith - President and CEO Kris Douglas - EVP and CFO Rob Hull - EVP, Investments Conference Call Participants Austin Wurschmidt - KeyBanc Capital Markets Michael Griffin - Citi Juan Sanabria - BMO Capital Markets Steven Valiquette - Barclays Mike Mueller - JP Morgan John Pawlowski - Green Street Operator Good morning or good afternoon, and welcome to the ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-Q 3310 West End Avenue, Suite 700 Nashville, Tennessee 37203 (Address of principal executive offices) (615) 269-8175 (Registrant's telephone number, including area code) www.healthcarerealty.com (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES E ...

Healthcare Realty Trust Incorporated (NYSE:HR) Q1 2023 Results Conference Call May 9, 2023 11:00 AM ET Company Participants Ron Hubbard - VP of IR Todd Meredith - President, CEO and Director Kris Douglas - Executive VP and CFO Rob Hull - EVP of Investments Conference Call Participants Nick Joseph - Citigroup Juan Sanabria - BMO Capital Markets Nick Yulico - Scotiabank Tayo Okusanya - Credit Suisse Connor Siversky - Wells Fargo Mike Mueller - JPMorgan John Pawlowski - Green Street Austin Wurschmidt - KeyBanc ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Unaudited Q1 2023 financial statements show a **net loss of $88.1 million**, driven by increased expenses post-merger with HTA [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets were **$13.57 billion**, liabilities **$6.10 billion**, and equity **$7.46 billion**, with minor decreases from year-end 2022 Condensed Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$13,568,884** | **$13,849,631** | | Total real estate properties, net | $12,056,264 | $12,412,354 | | Cash and cash equivalents | $49,941 | $60,961 | | **Total Liabilities** | **$6,102,045** | **$6,167,799** | | Notes and bonds payable | $5,361,699 | $5,351,827 | | **Total Equity** | **$7,464,839** | **$7,679,818** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q1 2023 saw a **net loss of $87.1 million** ($0.23/share), a significant shift from Q1 2022 net income, driven by higher post-merger expenses Q1 2023 vs. Q1 2022 Statement of Operations (Unaudited) | (In thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total Revenues | $332,925 | $142,894 | | Total Expenses | $326,596 | $129,960 | | Depreciation and amortization | $184,479 | $54,041 | | Interest expense | ($63,759) | ($13,661) | | **Net (Loss) Income Attributable to Common Stockholders** | **($87,125)** | **$42,227** | | **Diluted EPS** | **($0.23)** | **$0.28** | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Q1 2023 operating cash flow increased to **$69.2 million**, investing activities provided **$41.6 million** from property sales, and financing used **$121.8 million** Q1 2023 vs. Q1 2022 Cash Flow Summary (Unaudited) | (In thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $69,190 | $43,771 | | Net cash provided by (used in) investing activities | $41,560 | ($113,267) | | Net cash (used in) provided by financing activities | ($121,770) | $79,015 | | **(Decrease) increase in cash and cash equivalents** | **($11,020)** | **$9,519** | [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the HTA **reverse merger accounting**, **purchase price allocation**, and the company's portfolio of **681 properties** totaling **39.9 million square feet** - As of March 31, 2023, the Company's portfolio included **681** real estate properties in 35 states, totaling approximately **39.9 million square feet**, with a gross investment value of about **$13.9 billion**[21](index=21&type=chunk) - The merger with HTA on July 20, 2022, was treated as a "**reverse acquisition**" for accounting purposes, with **Legacy HR** as the accounting acquirer. The historical financial statements of **Legacy HR** became the historical financial statements of the combined company[10](index=10&type=chunk)[50](index=50&type=chunk) - The preliminary **purchase price allocation** for the HTA merger resulted in **$8.73 billion** in real estate investments, **$5.65 billion** in assumed liabilities, and goodwill of **$257.3 million**. This allocation is not yet final[55](index=55&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk) - In Q1 2023, the company acquired one property in Tampa, FL for **$31.5 million** and disposed of several properties for total proceeds of **$208.8 million**[61](index=61&type=chunk)[65](index=65&type=chunk) - Total notes and bonds payable as of March 31, 2023, stood at **$5.36 billion**, including a **$1.5 billion** unsecured credit facility with **$385 million** drawn[79](index=79&type=chunk)[80](index=80&type=chunk) - The company declared and paid a common stock dividend of **$0.31** per share during Q1 2023[97](index=97&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A discusses merger impact on liquidity and operations; Q1 2023 **Normalized FFO** was **$152.8 million** ($0.40/share), with **Same Store Cash NOI** up **2.8%** [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources include rent, property sales, and debt/equity offerings, with **$1.1 billion** available on the **Unsecured Credit Facility** as of March 31, 2023 - As of March 31, 2023, the Company had **$1.1 billion** available on its **Unsecured Credit Facility** and **$49.9 million** in cash[122](index=122&type=chunk) - In Q1 2023, the company disposed of **six** properties for a total sales price of **$208.8 million**, generating cash proceeds of **$149.2 million**[127](index=127&type=chunk) - The company has an at-the-market (ATM) equity offering program with **$750.0 million** available for issuance as of March 31, 2023, though no shares were sold under it in Q1 2023[95](index=95&type=chunk)[130](index=130&type=chunk) [Trends and Matters Impacting Operating Results](index=31&type=section&id=Trends%20and%20Matters%20Impacting%20Operating%20Results) Rising interest rates and capital market volatility increase **cost of capital**; **3.3 million square feet** of leases expire in 2023 with **75% to 90%** retention expected - Rising interest rates and capital market volatility have increased the company's **cost of capital** and could adversely impact operations and **tenant financial health**[135](index=135&type=chunk)[136](index=136&type=chunk) - **1,169** leases totaling **3.3 million square feet** are set to expire during the remainder of 2023, with an expected tenant retention rate of **75% to 90%**[137](index=137&type=chunk) - As of March 31, 2023, **47** properties are subject to purchase options, representing a gross real estate investment of **$1.22 billion**[139](index=139&type=chunk) [Non-GAAP Financial Measures and Key Performance Indicators](index=33&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Key%20Performance%20Indicators) This section defines and reconciles non-GAAP metrics; Q1 2023 **Normalized FFO** was **$152.8 million** and **Same Store Cash NOI** increased **2.8%** Q1 2023 vs. Q1 2022 Non-GAAP Performance | (In thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net (Loss) Income Attributable to Common Stockholders | ($87,125) | $42,227 | | FFO Attributable to Common Stockholders | $127,978 | $55,445 | | **Normalized FFO Attributable to Common Stockholders** | **$152,846** | **$64,788** | | **Normalized FFO per Share - Diluted** | **$0.40** | **$0.43** | | FAD | $125,934 | $57,035 | - **Same Store Cash NOI** increased **2.8%** year-over-year, from **$173.6 million** in Q1 2022 to **$178.6 million** in Q1 2023. The same-store pool consists of **588** properties[155](index=155&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) Q1 2023 results were heavily influenced by the HTA merger, driving significant increases in rental income, operating expenses, depreciation, and interest expense - The HTA merger was the primary driver of changes in Q1 2023 results, contributing an **$180.2 million** increase in rental income, a **$64.2 million** increase in property operating expenses, and a **$128.0 million** increase in depreciation and amortization[160](index=160&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - Interest expense increased by **$50.1 million** (**366.7%**) year-over-year, driven by debt assumed in the merger (**$26.0M** increase) and higher rates on variable debt[165](index=165&type=chunk)[168](index=168&type=chunk) - The company recognized impairment charges of **$26.2 million** on properties sold or held for sale and recorded a **$5.2 million** credit loss reserve on notes receivable in Q1 2023[166](index=166&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's primary market risk is from changing interest rates on debt, with no material changes from the prior **Annual Report on Form 10-K** - The company's primary market risk is from changing interest rates on its debt. There were no material changes to this risk profile during the quarter[168](index=168&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded **disclosure controls and procedures** were effective as of March 31, 2023, with no material changes to **internal control over financial reporting** - The CEO and CFO concluded that the company's **disclosure controls and procedures** were effective as of the end of the period[169](index=169&type=chunk) - There were no material changes in the company's **internal control over financial reporting** during the first quarter of 2023[170](index=170&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any pending or threatened litigation that would materially adversely affect its financial condition or results - The Company is not aware of any pending or threatened litigation that would have a material adverse effect on its financial condition or results of operations[171](index=171&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section refers investors to the detailed discussion of risk factors in the company's **Annual Report on Form 10-K** for 2022 - The report directs investors to the Risk Factors section of the **Annual Report on Form 10-K** for the year ended December 31, 2022 for a detailed discussion of potential risks[172](index=172&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q1 2023, the company withheld **38,632 shares** at **$21.71** per share to satisfy employee tax withholding obligations Share Withholding for Tax Obligations | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | February 1 - February 28, 2023 | 38,632 | $21.71 | [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including **CEO and CFO certifications** and **XBRL data files** - Exhibits filed with the report include **CEO and CFO certifications** (Exhibits 31.1, 31.2, 32) and **XBRL data files**[174](index=174&type=chunk)

Healthcare Realty Trust Incorporated (NYSE:HR) Q4 2022 Earnings Conference Call March 1, 2023 12:00 PM ET Company Participants Ron Hubbard - Vice President of Investor Relations Todd Meredith - President, Chief Executive Officer & Director Kris Douglas - Chief Financial Officer Rob Hull - Executive Vice President, Investments Conference Call Participants Austin Wurschmidt - KeyBanc Capital Markets Nick Yulico - Scotiabank Rich Anderson - SMBC Nikko Securities Michael Griffin - Citigroup Steven Valiquett ...

PART I [Business](index=4&type=section&id=Item%201.%20Business) Healthcare Realty Trust, a self-managed REIT, expanded its portfolio to $14.1 billion across 688 properties after its 2022 merger, focusing on outpatient healthcare facilities - The company completed a reverse acquisition merger with Legacy HTA on July 20, 2022, operating as Healthcare Realty Trust Incorporated (HR)[14](index=14&type=chunk) - In 2022, the company acquired **33 medical office buildings for $504.6 million** and disposed of **44 properties for $1.2 billion**[25](index=25&type=chunk)[26](index=26&type=chunk) - As of December 31, 2022, the company employed **583 people** and integrated ESG principles into operations and executive incentive programs[44](index=44&type=chunk)[49](index=49&type=chunk) Owned Properties by Facility Type as of December 31, 2022 | Dollars and square feet in thousands | Gross Investment ($ thousands) | Square Feet (thousands) | Number of Properties | Occupancy (%) | | :--- | :--- | :--- | :--- | :--- | | Medical office/outpatient | $12,570,933 | 36,800 | 656 | 87.2% | | Inpatient | $653,648 | 1,528 | 20 | 91.2% | | Office | $508,741 | 1,789 | 10 | 96.2% | | **Subtotal** | **$13,733,322** | **40,117** | **686** | **87.7%** | | Construction in progress | $35,560 | | | | | Land held for development | $74,265 | | | | | Investments in financing receivables, net | $120,236 | 187 | 1 | 100.0% | | Financing lease right-of-use assets | $83,824 | 45 | 1 | 77.8% | | Corporate property | $10,418 | | | | | **Total real estate investments** | **$14,057,625** | **40,349** | **688** | **87.8%** | | Unconsolidated joint ventures | $350,305 | 1,913 | 33 | 85.4% | | **Total investments** | **$14,407,930** | **42,262** | **721** | **87.7%** | Lease Expirations as of December 31, 2022 | Expiration Year | Number of Leases | Leased Square Feet | Percentage of Leased Square Feet (%) | | :--- | :--- | :--- | :--- | | 2023 | 1,459 | 5,004,436 | 14.2% | | 2024 | 1,171 | 5,150,146 | 14.6% | | 2025 | 1,020 | 4,442,560 | 12.6% | | 2026 | 814 | 3,610,265 | 10.2% | | 2027 | 807 | 4,420,368 | 12.5% | | Thereafter | 1,547 | 12,598,757 | 35.9% | | **Total** | **7,058** | **35,230,532** | **100.0%** | [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including merger integration challenges, tenant financial health dependency, substantial debt, and complex REIT compliance - Substantial expenses and integration difficulties from the Legacy HTA merger could disrupt operations and hinder anticipated cost savings[59](index=59&type=chunk)[60](index=60&type=chunk) - Revenue highly depends on tenant rental payments, vulnerable to economic slowdowns, healthcare regulation changes, and pandemics[69](index=69&type=chunk)[71](index=71&type=chunk) - As of December 31, 2022, the company had approximately **$5.7 billion in outstanding indebtedness**, potentially limiting funds for strategy and distributions[99](index=99&type=chunk) - Failure to maintain REIT qualification, due to complex IRS provisions, would result in federal income tax, significantly reducing distributable cash and stock value[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) [Unresolved Staff Comments](index=24&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - No unresolved staff comments are reported[129](index=129&type=chunk) [Properties](index=25&type=section&id=Item%202.%20Properties) The company owns its corporate headquarters in Nashville, Tennessee, and a corporate office in Charleston, South Carolina - The company owns its corporate headquarters in Nashville, Tennessee, and a corporate office in Charleston, South Carolina[130](index=130&type=chunk) [Legal Proceedings](index=25&type=section&id=Item%203.%20Legal%20Proceedings) The company is not aware of any material pending or threatened litigation - No pending or threatened litigation is expected to have a material adverse effect on the company's financial position or results[131](index=131&type=chunk) [Mine Safety Disclosures](index=25&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This disclosure item is not applicable[132](index=132&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=25&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NYSE (HR), with a $500 million stock repurchase program authorized in August 2022, under which no shares have been repurchased - On August 2, 2022, the Board authorized a **$500 million stock repurchase program**, with no shares repurchased to date[137](index=137&type=chunk) Issuer Purchases of Equity Securities in 2022 | Period | Total Number of Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | February 1 - February 28 | 6,727 | $30.67 | | September 1 - September 30 | 2,018 | $24.14 | | December 1 - December 31 | 129,147 | $19.37 | | **Total** | **137,892** | | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and operations, highlighting the merger's impact on liquidity, capital resources, investing, financing, and a 74.4% increase in rental income [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity through operations and dispositions, with 2022 cash flow from operations at $272.7 million and total outstanding debt of $5.7 billion - Cash flows from operating activities increased to **$272.7 million** in 2022 from **$232.6 million** in 2021[156](index=156&type=chunk) - Dividends in 2022 were partially funded by the Unsecured Credit Facility due to merger costs, but 2023 dividends are expected to be covered by operating cash flows[153](index=153&type=chunk) Total Outstanding Debt as of December 31, 2022 | Debt Category | Principal Balance ($ thousands) | Carrying Balance ($ thousands) | Weighted Years to Maturity | Effective Rate (%) | | :--- | :--- | :--- | :--- | :--- | | Total Senior Notes Outstanding | 3,699,500 | 3,387,134 | 5.9 | 4.43% | | $1.5 billion unsecured credit facility | 385,000 | 385,000 | 4.8 | 5.27% | | Unsecured Term Loans (Total) | 1,500,000 | 1,495,446 | - | 5.17% | | Mortgage notes payable | 84,122 | 84,247 | 2.0 | 3.97% | | **Total Outstanding Notes and Bonds Payable** | **$5,668,622** | **$5,351,827** | **5.0** | **4.69%** | [Trends and Matters Impacting Operating Results](index=39&type=section&id=Trends%20and%20Matters%20Impacting%20Operating%20Results) In 2022, the company acquired $504.6 million in properties and disposed of $1.2 billion, with ongoing development, strong tenant retention, and inflation-mitigating lease terms - In 2022, the company acquired **33 medical office buildings for $504.6 million** and disposed of **44 properties for $1.2 billion**, using proceeds to repay debt[187](index=187&type=chunk)[188](index=188&type=chunk) - Tenant retention in 2022 ranged from **72% to 86%**, with cash leasing spreads for renewing leases averaging **3.3%**[196](index=196&type=chunk)[197](index=197&type=chunk) - Capital expenditures in 2022 totaled **$48.9 million**, or **$1.21 per square foot**, representing **8.5% of cash net operating income**[200](index=200&type=chunk) - As of December 31, 2022, **$100.4 million** in properties were subject to exercisable purchase options, with an additional **$1.1 billion** becoming exercisable after 2022[211](index=211&type=chunk) [Results of Operations](index=43&type=section&id=Results%20of%20Operations) The 2022 results were significantly impacted by the merger, with total revenues increasing 74.4% to $932.6 million, but net income decreasing to $40.9 million due to higher expenses and merger costs Comparison of Results of Operations (2022 vs. 2021) | (in thousands) | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Rental Income ($ thousands) | $907,451 | $520,334 | 74.4% | | Total Revenues ($ thousands) | $932,637 | $534,817 | 74.4% | | Property Operating Expenses ($ thousands) | $344,038 | $212,273 | 62.1% | | Merger-Related Costs ($ thousands) | $103,380 | $0 | N/A | | Depreciation and Amortization ($ thousands) | $453,082 | $202,714 | 123.5% | | Total Expenses ($ thousands) | $956,463 | $453,069 | 111.1% | | Gain on Sales of Real Estate ($ thousands) | $270,271 | $55,940 | 383.2% | | Interest Expense ($ thousands) | ($146,691) | ($53,124) | 176.1% | | Impairment of Real Estate ($ thousands) | ($54,427) | ($17,101) | 218.3% | | Net Income Attributable to Common Stockholders ($ thousands) | $40,897 | $66,659 | (38.6)% | [Non-GAAP Financial Measures and Key Performance Indicators](index=45&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Key%20Performance%20Indicators) The company uses non-GAAP measures, reporting 2022 Normalized FFO of $1.69 per diluted share and Same Store Cash NOI growth of 2.5% to $722.6 million - Same Store Cash NOI for **593 stabilized properties** grew **2.5%** year-over-year, reaching **$722.6 million** in 2022[239](index=239&type=chunk)[241](index=241&type=chunk) Reconciliation of Net Income to FFO and Normalized FFO (Attributable to Common Stockholders) | (in thousands, except per share data) | 2022 | 2021 | | :--- | :--- | :--- | | Net Income Attributable to Common Stockholders ($ thousands) | $40,897 | $66,659 | | Adjustments ($ thousands) | $256,084 | $174,857 | | **FFO Attributable to Common Stockholders ($ thousands)** | **$296,981** | **$241,516** | | Normalizing Items ($ thousands) | $133,131 | $4,565 | | **Normalized FFO Attributable to Common Stockholders ($ thousands)** | **$430,112** | **$246,081** | | FFO per Common Share - Diluted ($) | $1.17 | $1.68 | | Normalized FFO per Common Share - Diluted ($) | $1.69 | $1.71 | [Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its $5.4 billion debt, mitigated by fixed-rate debt and $1.2 billion in interest rate swaps - As of December 31, 2022, **$3.5 billion** of the company's **$5.4 billion** outstanding debt was at fixed rates, with the remainder exposed to variable interest rate risk[276](index=276&type=chunk) - A hypothetical **10% increase** in market interest rates would negatively impact annual earnings and cash flow by an estimated **$9.8 million**[278](index=278&type=chunk) - The company uses interest rate swaps to mitigate risk, holding **$1.2 billion** in swaps at a weighted average rate of **2.63%** as of year-end[278](index=278&type=chunk) [Financial Statements and Supplementary Data](index=55&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents consolidated financial statements and the independent auditor's unqualified opinion, with key balance sheet data showing $13.8 billion in total assets and $40.9 million in 2022 net income - BDO USA, LLP issued an **unqualified opinion** on the consolidated financial statements and internal control effectiveness as of December 31, 2022[281](index=281&type=chunk)[282](index=282&type=chunk) - Critical audit matters identified include asset impairment triggering events, accounting acquirer determination in the merger, and fair value measurements for acquired real estate properties[287](index=287&type=chunk)[289](index=289&type=chunk)[291](index=291&type=chunk) Consolidated Balance Sheet Summary (as of Dec 31) | (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Total Real Estate Investments, Net ($ thousands) | $12,412,354 | $3,766,199 | | Total Assets ($ thousands) | $13,849,631 | $4,258,919 | | Notes and Bonds Payable ($ thousands) | $5,351,827 | $1,801,325 | | Total Liabilities ($ thousands) | $6,167,799 | $2,073,803 | | Total Stockholders' Equity ($ thousands) | $7,571,076 | $2,185,116 | Consolidated Statement of Income Summary (Year Ended Dec 31) | (in thousands) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Rental Income ($ thousands) | $907,451 | $520,334 | $492,262 | | Total Revenues ($ thousands) | $932,637 | $534,817 | $499,629 | | Total Expenses ($ thousands) | $956,463 | $453,069 | $420,214 | | Net Income Attributable to Common Stockholders ($ thousands) | $40,897 | $66,659 | $72,195 | | Diluted Earnings per Common Share ($) | $0.15 | $0.45 | $0.52 | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=104&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure are reported[505](index=505&type=chunk) [Controls and Procedures](index=104&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of December 31, 2022, excluding Legacy HTA operations from internal control assessment due to the merger - The CEO and CFO concluded that disclosure controls and procedures were **effective** as of December 31, 2022[507](index=507&type=chunk) - Due to the July 20, 2022 merger, Legacy HTA operations (65% of total assets, 38% of total revenue) were excluded from the 2022 internal control assessment[508](index=508&type=chunk)[517](index=517&type=chunk) - Excluding the Legacy HTA acquisition, management concluded internal control over financial reporting was **effective** as of December 31, 2022[511](index=511&type=chunk) [Other Information](index=107&type=section&id=Item%209B.%20Other%20Information) The company reports no other information under this item - No other information is reported under this item[520](index=520&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=108&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) This section details executive officers and incorporates by reference information on directors, audit committee, and corporate governance from the upcoming Proxy Statement - Information on directors, audit committee, and Section 16(a) compliance is incorporated by reference from the Proxy Statement[522](index=522&type=chunk)[530](index=530&type=chunk)[532](index=532&type=chunk) Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Todd J. Meredith | 48 | President and Chief Executive Officer | | J. Christopher Douglas | 47 | Executive Vice President and Chief Financial Officer | | John M. Bryant, Jr. | 56 | Executive Vice President and General Counsel | | Robert E. Hull | 50 | Executive Vice President - Investments | | Julie F. Wilson | 51 | Executive Vice President - Operations | [Executive Compensation](index=109&type=section&id=Item%2011.%20Executive%20Compensation) Executive and director compensation information is incorporated by reference from the company's definitive Proxy Statement - Executive compensation details are incorporated by reference from the company's definitive Proxy Statement[533](index=533&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=109&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership by management and beneficial owners, and equity compensation plan details, are incorporated by reference from the Proxy Statement and Item 5 - Security ownership and equity compensation plan information is incorporated by reference from the Proxy Statement and Item 5 of this Form 10-K[534](index=534&type=chunk)[535](index=535&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=109&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the Proxy Statement - Details on certain relationships, related transactions, and director independence are incorporated by reference from the company's definitive Proxy Statement[536](index=536&type=chunk) [Principal Accountant Fees and Services](index=110&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) BDO USA, LLP is the independent auditor; information on their fees and services is incorporated by reference from the Proxy Statement - BDO USA, LLP is the independent registered public accounting firm; accountant fees and services information is incorporated by reference from the Proxy Statement[537](index=537&type=chunk) [Exhibits and Financial Statement Schedules](index=110&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section provides an index of all financial statements, schedules, and exhibits included with the Form 10-K filing, cross-referencing Item 8 for financial statements - This item provides an index of all financial statements, schedules, and exhibits included with the Form 10-K filing[538](index=538&type=chunk) [Form 10-K Summary](index=117&type=section&id=Item%2016.%20Form%2010-K%20Summary) No summary is provided under this item - No summary is provided under this item[546](index=546&type=chunk)

Financial Data and Key Metrics Changes - Healthcare Realty reported pro forma FFO per share for Q3 2022 at $0.39, with a run rate FFO per share of $0.40, reflecting a significant impact from merger-related expenses [23][24] - The company realized $16.4 million in G&A synergies, which is 50% of the projected $33 million to $36 million in annual G&A savings, indicating strong operational efficiency post-merger [21][22] - Same-store NOI growth was 2.8% in Q3 2022, up from 2% a year ago, showing an acceleration in performance [27] Business Line Data and Key Metrics Changes - The company has made significant progress in asset sales, with 29 properties sold for a total of $922 million at a 4.6% cap rate, and expects to reach $1.1 billion in total dispositions by year-end [33][34] - The development pipeline has increased to $209 million, with a long-term embedded development pipeline of approximately $2 billion, indicating strong growth potential [36][37] Market Data and Key Metrics Changes - The medical office building (MOB) market is currently experiencing price discovery due to rising debt costs, with cap rates around 6% [34] - The company’s top 15 markets account for 60% of total NOI, with an average of 31 properties in these markets, enhancing its competitive position [15] Company Strategy and Development Direction - The company is focused on integration and organizational realignment, with nearly 50% of expected G&A savings already realized, and aims to boost NOI through operational efficiencies [12][21] - Healthcare Realty plans to selectively sell assets and reinvest proceeds into development projects, acquisitions, or stock repurchases, maintaining a patient approach in the current market [11][36] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth driven by occupancy gains, rent growth, and a robust development pipeline, expecting to generate the fastest growth in the medical office sector [18][19] - The company is actively monitoring interest rates and their impact on growth, indicating that a 1% increase in interest expense could reduce overall growth by about 1.5% [55][101] Other Important Information - The company has made strides in ESG efforts, achieving a GRESB score of 80 points, which is a notable improvement and positions it well among peers [19] - The company is implementing real-time electricity monitoring in properties, leading to an average 8% reduction in energy consumption, which is expected to further enhance operational efficiency [29] Q&A Session Summary Question: What is the rate on the new swaps? - The rate on the $250 million swaps is approximately 4.12%, bringing the fixed debt ratio to over 50% [47][48] Question: How should we think about the adjusted run rate FAD for next year? - The company views occupancy upside as a key growth driver, with expectations of 3% to 5% growth on fundamental contractual escalations and cash leasing spreads [53][54] Question: Can you elaborate on the leasing and operations teams' realignment? - The realignment focuses on leveraging top talent from both legacy companies to enhance efficiency and accelerate occupancy gains [60] Question: What are the realistic prospects for further dispositions in 2023? - The company anticipates a measured approach to dispositions, potentially in the $250 million to $300 million range, depending on market conditions [74] Question: What yields are expected from the $300 million development pipeline? - The targeted initial yield for developments is in the range of 7% to 8%, which is above the current cost of capital [84]

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited condensed consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flow statements, reflecting significant changes due to the July 20, 2022 merger with HTA, accounted for as a reverse acquisition [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of September 30, 2022, shows significant increases in total assets, liabilities, real estate properties, notes and bonds payable, and stockholders' equity, primarily driven by the HTA merger Balance Sheet Highlights | Metric | September 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------- | :-------------------------------- | :--------------------------------- | | Total real estate properties, net | $12,716,543 | $3,766,199 | | Cash and cash equivalents | $57,583 | $13,175 | | Total assets | $14,195,443 | $4,258,919 | | Notes and bonds payable | $5,570,139 | $1,801,325 | | Total liabilities | $6,356,417 | $2,073,803 | | Total equity | $7,839,026 | $2,185,116 | [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The income statement reflects substantial increases in revenues and expenses for both the three and nine months ended September 30, 2022, largely due to the HTA merger, with net income turning positive for the three-month period Income Statement Highlights | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Rental income | $298,931 | $131,746 | $578,052 | $388,620 | | Total revenues | $306,354 | $136,632 | $594,575 | $398,393 | | Property operating expenses | $112,473 | $55,518 | $226,947 | $159,241 | | Merger-related costs | $79,402 | — | $92,603 | — | | Depreciation and amortization | $158,117 | $50,999 | $267,889 | $150,904 | | Total expenses | $367,215 | $115,698 | $628,893 | $337,784 | | 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) | | Net income (loss) | $28,616 | $(2,066) | $76,973 | $45,052 | | Basic EPS | $0.08 | $(0.02) | $0.36 | $0.31 | | Diluted EPS | $0.08 | $(0.02) | $0.35 | $0.31 | [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for the three and nine months ended September 30, 2022, significantly increased compared to the prior year, primarily driven by net income and gains from interest rate swaps Comprehensive Income Highlights | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $28,616 | $(2,066) | $76,973 | $45,052 | | Gains arising during the period on interest rate swaps | $6,083 | $36 | $12,905 | $2,079 | | Comprehensive income (loss) | $35,462 | $(899) | $92,550 | $50,471 | [Condensed Consolidated Statements of Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Total equity saw a substantial increase from December 31, 2021, to September 30, 2022, primarily due to the merger consideration transferred and additional paid-in capital, reflecting the reverse acquisition of HTA Equity Highlights | Metric (in thousands) | September 30, 2022 | December 31, 2021 | | :-------------------- | :----------------- | :---------------- | | Common Stock | $3,806 | $1,505 | | Additional Paid-In Capital | $9,586,556 | $3,972,917 | | Total Stockholders' Equity | $7,727,213 | $2,185,116 | | Non-controlling interest | $111,813 | — | | Total Equity | $7,839,026 | $2,185,116 | - Merger consideration transferred contributed **$5.58 billion** to total stockholders' equity and **$110.7 million** to non-controlling interest during the nine months ended September 30, 2022[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows from operating activities decreased, while investing activities generated a significant cash inflow, and financing activities resulted in a substantial outflow, largely influenced by the HTA merger and related debt and dividend payments Cash Flow Highlights | Metric (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $126,659 | $170,255 | | Net cash provided by (used in) investing activities | $1,425,834 | $(364,670) | | Net cash (used in) provided by financing activities | $(1,508,085) | $195,112 | | Cash and cash equivalents at end of period | $57,583 | $16,000 | - Investing activities included **$1.15 billion** cash assumed in the Merger and **$870.8 million** from sales of real estate properties in 2022[21](index=21&type=chunk) - Financing activities included a special dividend payment of **$1.12 billion** related to the Merger and net repayments on unsecured credit facility of **$154.4 million**[21](index=21&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's accounting policies, the significant impact of the HTA merger, real estate investment activities, lease accounting, other assets and liabilities, debt structure changes, derivative instruments, commitments, contingencies, and stockholders' equity [Note 1. Summary of Significant Accounting Policies](index=12&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's healthcare REIT business, basis of presentation, consolidation principles, use of estimates, and accounting for various revenue streams and financial instruments, including the impact of the HTA reverse acquisition - 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[24](index=24&type=chunk) - The Merger was treated as a 'reverse acquisition' where Legacy HR was the accounting acquirer, and its historical financial statements became the Company's historical financial statements[25](index=25&type=chunk) Other Revenue Streams | Type of Revenue (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Parking income | $2,428 | $2,187 | $6,100 | $5,725 | | Management fee income | $1,426 | $723 | $2,864 | $1,381 | | Miscellaneous | $203 | $59 | $306 | $241 | | Total | $4,057 | $2,969 | $9,270 | $7,347 | [Note 2. Merger with HTA](index=15&type=section&id=Note%202.%20Merger%20with%20HTA) This note details the July 20, 2022 merger with HTA, accounted for as a reverse acquisition with Legacy HR as the accounting acquirer, leading to an UPREIT structure, significant asset and liability increases, and goodwill recognition - The Merger was completed on July 20, 2022, with Legacy HTA changing its name to Healthcare Realty Trust Incorporated and Legacy HR becoming HRTI, LLC, a wholly-owned subsidiary of the OP, forming an UPREIT structure[45](index=45&type=chunk)[47](index=47&type=chunk) - The Merger was treated as a 'reverse acquisition' for accounting purposes, with Legacy HR as the accounting acquirer, and its historical financial statements becoming those of the Combined Company[49](index=49&type=chunk) Merger Financial Impact | Metric (in thousands) | Amount | | :-------------------- | :----- | | Consideration transferred | $5,576,463 | | Total assets acquired | $11,177,186 | | Total liabilities assumed | $5,635,425 | | Net identifiable assets acquired | $5,541,761 | | Goodwill | $145,404 | - Merger-related costs totaled **$79.4 million** for the three months and **$92.6 million** for the nine months ended September 30, 2022, primarily for legal, consulting, and banking services[58](index=58&type=chunk) [Note 3. Real Estate Investments](index=18&type=section&id=Note%203.%20Real%20Estate%20Investments) The company engaged in significant real estate acquisition and disposition activities during the nine months ended September 30, 2022, including properties acquired in the merger and subsequently classified as held for sale Real Estate Acquisitions | Acquisition Type | Purchase Price (in thousands) | Square Footage | | :--------------- | :---------------------------- | :------------- | | Company Acquisitions | $377,190 | 786,704 | | Joint Venture Acquisitions | $100,975 | 214,124 | Real Estate Dispositions | Disposition Type | Sale Price (in thousands) | Square Footage | | :--------------- | :------------------------ | :------------- | | Total Dispositions | $892,447 | 1,991,669 | - Six properties were classified as assets held for sale as of September 30, 2022, with a net value of **$185.1 million**, compared to none at December 31, 2021[74](index=74&type=chunk) [Note 4. Leases](index=20&type=section&id=Note%204.%20Leases) The company operates as both a lessor and lessee, with significant increases in operating lease income and substantial future lease payment obligations for both properties and ground leases Lease Income and Expense | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating lease income | $298,931 | $131,746 | $578,052 | $388,620 | | Total lease expense | $6,507 | $2,557 | $12,533 | $7,453 | Future Lease Payment Obligations | Future Lease Payments (in thousands) | Operating (Lessor) | Operating (Lessee) | Financing (Lessee) | | :----------------------------------- | :----------------- | :----------------- | :----------------- | | 2022 (remaining) | $243,946 | $3,665 | $503 | | 2023 | $937,733 | $15,606 | $2,139 | | 2027 and thereafter | $2,242,792 | $894,018 | $398,092 | - As of September 30, 2022, the Company had **243 properties** totaling **17.8 million square feet** under ground leases, with initial terms of **40 to 99 years**[79](index=79&type=chunk) [Note 5. Other Assets and Liabilities](index=23&type=section&id=Note%205.%20Other%20Assets%20and%20Liabilities) This note details the composition of 'Other assets, net' and 'Accounts payable and accrued liabilities' and 'Other liabilities' on the balance sheet, showing significant increases in most categories from December 31, 2021, to September 30, 2022, largely due to the merger Other Assets, Net | Other Assets (in thousands) | September 30, 2022 | December 31, 2021 | | :-------------------------- | :----------------- | :---------------- | | Above-market intangible assets, net | $86,410 | $4,966 | | Real estate notes receivable, net | $79,036 | — | | Interest rate swap assets | $16,136 | — | | Total Other assets, net | $438,235 | $185,673 | Accounts Payable and Accrued Liabilities | Accounts Payable & Accrued Liabilities (in thousands) | September 30, 2022 | December 31, 2021 | | :------------------------------------ | :----------------- | :---------------- | | Accrued property taxes | $86,192 | $35,295 | | Accounts payable and capital expenditures | $61,461 | $17,036 | | Total Accounts payable and accrued liabilities | $231,018 | $86,108 | Other Liabilities | Other Liabilities (in thousands) | September 30, 2022 | December 31, 2021 | | :------------------------------- | :----------------- | :---------------- | | Below-market intangible liabilities, net | $113,118 | $4,931 | | Deferred revenue | $60,675 | $45,130 | | Total Other liabilities | $203,398 | $67,387 | [Note 6. Notes and Bonds Payable](index=24&type=section&id=Note%206.%20Notes%20and%20Bonds%20Payable) The company's notes and bonds payable significantly increased due to debt instruments assumed in the HTA merger and new credit facilities, alongside an exchange offer for Legacy HR notes and mortgage note repayments Notes and Bonds Payable Details | Debt Instrument (in thousands) | Maturity Dates | Balance as of Sep 30, 2022 | Balance as of Dec 31, 2021 | Effective Interest Rate (Sep 30, 2022) | | :----------------------------- | :------------- | :------------------------- | :------------------------- | :------------------------------------- | | $1.5 billion Unsecured Credit Facility | 10/27 | $190,600 | — | 3.99 % | | $1.125 billion Asset Sale Term Loan | 7/24 | $421,919 | — | 4.07 % | | Senior Notes due 2026 | 8/26 | $569,786 | — | 4.94 % | | Total Notes and bonds payable | | $5,570,139 | $1,801,325 | | - The Company assumed **$2.55 billion** in Senior Notes as part of the Merger with Legacy HTA, including notes due 2026, 2027, 2030, and 2031[93](index=93&type=chunk) - Legacy HR's **$700.0 million** revolving credit facility was replaced by a **$1.5 billion** revolving credit facility, and existing term loans were restructured and assumed by the Borrower under the new Credit Facility[94](index=94&type=chunk)[96](index=96&type=chunk) [Note 7. Derivative Financial Instruments](index=26&type=section&id=Note%207.%20Derivative%20Financial%20Instruments) The company uses interest rate swaps as cash flow hedges to manage interest rate risk, with 15 outstanding derivatives having a net asset fair value of **$16.1 million** as of September 30, 2022 - The Company uses interest rate swaps to hedge variable cash flows associated with existing variable-rate debt, with gains or losses recorded in Accumulated Other Comprehensive Income (Loss) (AOCI)[97](index=97&type=chunk)[98](index=98&type=chunk) Interest Rate Swap Details | Expiration Date | Amount (in thousands) | Weighted Average Rate | | :-------------- | :-------------------- | :-------------------- | | December 16, 2022 | $75,000 | 2.37 % | | January 31, 2023 | $300,000 | 1.42 % | | January 15, 2024 | $200,000 | 1.21 % | | May 1, 2026 | $100,000 | 2.15 % | | Total | $675,000 | 1.57 % | - As of September 30, 2022, the fair value of interest rate swaps designated as hedging instruments was **$16.1 million** (asset position)[102](index=102&type=chunk) [Note 8. Commitments and Contingencies](index=28&type=section&id=Note%208.%20Commitments%20and%20Contingencies) The company is engaged in various medical office building development and redevelopment projects with significant funded costs, and is not aware of any material adverse legal proceedings - The Company is undertaking several development and redevelopment projects, including a **217,114 sq ft** medical office building in Dallas, TX (**$11.1 million** funded), a medical office building in Tacoma, WA (**$10.3 million** funded), and a new **106,194 sq ft** medical office building in Nashville, TN (**$15.3 million** funded)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) - A joint venture partnership is developing a **120,694 sq ft** medical office building in Raleigh, NC, with approximately **$15.3 million** funded by the joint venture[113](index=113&type=chunk) - The Company is not aware of any pending or threatened litigation that would have a material adverse effect on its financial position, results of operations, or cash flows[108](index=108&type=chunk) [Note 9. Stockholders' Equity](index=29&type=section&id=Note%209.%20Stockholders%20Equity) This note details changes in common stock, the ATM equity offering program, common stock dividends, EPS computation, and an overview of incentive plans including restricted shares and RSUs Common Stock Activity | Metric | Nine Months Ended Sep 30, 2022 | Twelve Months Ended Dec 31, 2021 | | :----------------------------- | :----------------------------- | :------------------------------- | | Balance, beginning of period | 150,457,433 | 139,487,375 | | Issuance of common stock | 229,615,152 | 10,899,301 | | Balance, end of period | 380,572,290 | 150,457,433 | - The Company declared and paid common stock dividends totaling **$0.93 per share** during the nine months ended September 30, 2022[118](index=118&type=chunk) Earnings Per Share | EPS Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic EPS | $0.08 | $(0.02) | $0.36 | $0.31 | | Diluted EPS | $0.08 | $(0.02) | $0.35 | $0.31 | [Note 10. Fair Value of Financial Instruments](index=31&type=section&id=Note%2010.%20Fair%20Value%20of%20Financial%20Instruments) This note describes the methods and assumptions for estimating the fair value of financial instruments, including a comparison of carrying and fair values for notes, bonds payable, and real estate notes receivable - Fair value for real estate notes receivable, senior notes, and mortgage notes payable is estimated using cash flow analyses based on current interest rates for similar arrangements[133](index=133&type=chunk) Fair Value of Financial Instruments | Financial Instrument (in millions) | September 30, 2022 Carrying Value | September 30, 2022 Fair Value | December 31, 2021 Carrying Value | December 31, 2021 Fair Value | | :------------------------------- | :-------------------------------- | :---------------------------- | :------------------------------- | :--------------------------- | | Notes and bonds payable | $5,570.1 | $5,321.0 | $1,801.3 | $1,797.4 | | Real estate notes receivable | $79.0 | $79.0 | — | — | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on financial condition and operating results, emphasizing the HTA merger's impact, discussing liquidity, capital resources, investing, financing, operating activities, key trends, and non-GAAP financial measures [Merger with Healthcare Trust of America](index=33&type=section&id=Merger%20with%20Healthcare%20Trust%20of%20America) The July 20, 2022 merger with HTA established an UPREIT structure, rebranded the entity, and resulted in Legacy HR's historical financial statements becoming the Company's due to reverse acquisition accounting - The Merger was completed on July 20, 2022, resulting in Legacy HTA changing its name to Healthcare Realty Trust Incorporated and Legacy HR becoming a wholly-owned subsidiary of the OP, operating under an UPREIT structure[139](index=139&type=chunk) - Legacy HR was the accounting acquirer in the reverse acquisition, meaning its historical financial statements became the historical financial statements of the Company[140](index=140&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity, supported by rent receipts and property sales, includes **$1.3 billion** available on its Credit Facility and **$57.6 million** in cash as of September 30, 2022, deemed adequate by management - 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[142](index=142&type=chunk) - Primary sources of cash include rent receipts, proceeds from property sales, joint ventures, and public/private debt or equity offerings[142](index=142&type=chunk) - The Credit Facility was restructured in connection with the Merger, adding additional borrowing capacities[144](index=144&type=chunk) [Investing Activities](index=34&type=section&id=Investing%20Activities) Investing activities generated approximately **$1.4 billion** in cash flow for the nine months ended September 30, 2022, driven by significant real estate acquisitions and dispositions, including properties acquired and sold as part of the merger - Cash flows provided by investing activities for the nine months ended September 30, 2022, were approximately **$1.4 billion**[145](index=145&type=chunk) Real Estate Acquisitions | Acquisition Type | Purchase Price (in thousands) | Square Footage | | :--------------- | :---------------------------- | :------------- | | Company Acquisitions | $377,190 | 786,704 | | Joint Venture Acquisitions | $100,975 | 214,124 | Real Estate Dispositions | Disposition Type | Sales Price (in thousands) | Square Footage | | :--------------- | :------------------------- | :------------- | | Total Dispositions | $892,447 | 1,991,669 | [Capital Funding](index=36&type=section&id=Capital%20Funding) During the nine months ended September 30, 2022, capital funding included **$48.6 million** for development and redevelopment projects, **$26.0 million** for first-generation tenant improvements and capital expenditures for acquisitions, **$20.1 million** for second-generation tenant improvements, and **$23.2 million** for capital expenditures - Capital funding for the nine months ended September 30, 2022, included **$48.6 million** for development/redevelopment, **$26.0 million** for first-generation tenant improvements and planned capital expenditures for acquisitions, **$20.1 million** for second-generation tenant improvements, and **$23.2 million** for capital expenditures[154](index=154&type=chunk) [Financing Activities](index=36&type=section&id=Financing%20Activities) Cash flows used in financing activities totaled approximately **$1.5 billion** for the nine months ended September 30, 2022, primarily due to a special merger-related dividend and debt repayments, alongside an active ATM equity offering program - Cash flows used in financing activities for the nine months ended September 30, 2022, were approximately **$1.5 billion**[154](index=154&type=chunk) - The Company repaid mortgage notes totaling **$12.6 million** and **$6.4 million** in February 2022[156](index=156&type=chunk)[157](index=157&type=chunk) Interest Rate Swap Details | Interest Rate Swap (in thousands) | Expiration Date | Amount | Weighted Average Rate | | :-------------------------------- | :-------------- | :----- | :-------------------- | | Outstanding interest rate derivatives | January 31, 2023 | $300,000 | 1.42 % | | | December 16, 2022 | $75,000 | 2.37 % | | | January 15, 2024 | $200,000 | 1.21 % | | | May 1, 2026 | $100,000 | 2.15 % | | Total | | $675,000 | 1.57 % | [Operating Activities](index=37&type=section&id=Operating%20Activities) Cash flows provided by operating activities decreased to **$126.7 million** for the nine months ended September 30, 2022, from **$170.3 million** in the prior year, influenced by property operations, interest payments, and expense timing - Cash flows provided by operating activities decreased from **$170.3 million** for the nine months ended September 30, 2021, to **$126.7 million** for the nine months ended September 30, 2022[159](index=159&type=chunk) [Trends and Matters Impacting Operating Results](index=37&type=section&id=Trends%20and%20Matters%20Impacting%20Operating%20Results) Management identifies rising interest rates and capital market volatility as increasing capital costs, expects approximately **15%** annual lease expirations with **75-90%** retention, anticipates operating expense increases, and projects **$33 million to $36 million** in annual G&A expense synergies within a year of the merger - Rising interest rates and increased capital market volatility have increased the Company's cost and availability of debt and equity capital, potentially impacting financing and acquisition/development abilities[163](index=163&type=chunk) - Approximately **15%** of leases are expected to expire annually, with **477 leases** (**1.3 million sq ft**) expiring in Q4 2022, and the Company typically expects to retain **75% to 90%** of tenants[164](index=164&type=chunk) - The Company expects annual general and administrative expense synergies of **$33 million to $36 million** to be realized within a year from the closing of the Merger[166](index=166&type=chunk) [Non-GAAP Financial Measures and Key Performance Indicators](index=38&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Key%20Performance%20Indicators) Management utilizes non-GAAP financial measures like FFO, Normalized FFO, FAD, Cash NOI, and Same Store Cash NOI to evaluate operating performance and property-level results, acknowledging they are not GAAP substitutes Non-GAAP Performance Metrics | Metric (in thousands, except per share) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | FFO attributable to common stockholders | $47,942 | $61,365 | $161,161 | $179,212 | | Normalized FFO attributable to common stockholders | $129,415 | $62,441 | $261,221 | $181,489 | | FAD | $100,450 | $48,605 | $214,526 | $150,353 | | FFO per common share - diluted | $0.14 | $0.42 | $0.76 | $1.26 | | Normalized FFO per common share - diluted | $0.39 | $0.43 | $1.23 | $1.27 | Same Store Cash NOI | Same Store Cash NOI (in thousands) | 2022 | 2021 | | :--------------------------------- | :-------- | :-------- | | Proforma same store cash NOI | $178,828 | $173,951 | - Same Store Cash NOI for the three months ended September 30, 2022, increased to **$178.8 million** from **$174.0 million** in the prior year, reflecting a **2.8%** growth[181](index=181&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) The company's results of operations for both the three and nine months ended September 30, 2022, were significantly impacted by the HTA merger, acquisitions, and capital market transactions, leading to substantial increases in revenues and expenses [Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021](index=41&type=section&id=Three%20Months%20Ended%20September%2030%2C%202022%20Compared%20to%20Three%20Months%20Ended%20September%2030%2C%202021) For the three months ended September 30, 2022, rental income surged by **126.9%**, property operating and G&A expenses more than doubled, and interest expense nearly quadrupled, all primarily due to the merger and associated **$79.4 million** in merger-related costs - Rental income increased **$167.2 million** (**126.9%**) for the three months ended September 30, 2022, with **$154.6 million** from the Merger[187](index=187&type=chunk) - Property operating expenses increased **$57.0 million** (**102.6%**), with **$51.3 million** from the Merger[189](index=189&type=chunk) - Merger-related costs totaled **$79.4 million**, and interest expense increased **$39.7 million** (**297.8%**), with **$22.8 million** from senior notes and unsecured term loans assumed in the Merger[189](index=189&type=chunk)[192](index=192&type=chunk) [Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021](index=43&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202022%20Compared%20to%20Nine%20Months%20Ended%20September%2030%2C%202021) For the nine months ended September 30, 2022, rental income grew by **48.7%**, property operating and G&A expenses increased significantly, and interest expense more than doubled, all primarily driven by the merger and its **$92.6 million** in related costs - Rental income increased **$189.4 million** (**48.7%**) for the nine months ended September 30, 2022, with **$154.6 million** from the Merger[196](index=196&type=chunk)[197](index=197&type=chunk) - Property operating expenses increased **$67.7 million** (**42.5%**), with **$51.3 million** from the Merger[199](index=199&type=chunk) - Merger-related costs totaled **$92.6 million**, and interest expense increased **$42.4 million** (**106.4%**), with **$22.8 million** from senior notes and unsecured term loans assumed in the Merger[199](index=199&type=chunk)[202](index=202&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risk from changing interest rates on its debt and mortgage notes, which management actively monitors, with no material changes reported for the nine months ended September 30, 2022 - The Company is exposed to market risk from changing interest rates on its debt and mortgage notes[205](index=205&type=chunk) - No material changes in quantitative and qualitative disclosures about market risks were reported during the nine months ended September 30, 2022, compared to the Annual Report on Form 10-K for the year ended December 31, 2021[205](index=205&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, excluding Legacy HTA's acquired operations from the internal control assessment due to the recent merger - The Company's disclosure controls and procedures were effective as of September 30, 2022[206](index=206&type=chunk) - The acquired operations of Legacy HTA were excluded from management's assessment of internal control over financial reporting for the nine months ended September 30, 2022, due to the July 20, 2022 merger[207](index=207&type=chunk) [PART II - OTHER INFORMATION](index=46&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The company is occasionally involved in litigation in the ordinary course of business but is not aware of any pending or threatened litigation that would have a material adverse effect on its financial position, results of operations, or cash flows - The Company is not aware of any pending or threatened litigation that would have a material adverse effect on its consolidated financial position, results of operations, or cash flows[208](index=208&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) This section highlights various risks, including substantial merger integration expenses, business combination difficulties, key employee retention challenges, and the impact of significant indebtedness and rising interest rates on capital access and financial performance [Operational Risks](index=46&type=section&id=Operational%20Risks) Operational risks encompass substantial merger and integration expenses, potential difficulties in combining Legacy HR and Legacy HTA's businesses, and challenges in retaining key employees, all of which could disrupt operations and hinder synergy realization - The Company has incurred and expects to incur substantial expenses for completing and integrating the Merger, which may exceed anticipated savings[210](index=210&type=chunk)[211](index=211&type=chunk) - Potential difficulties in integrating Legacy HR and Legacy HTA include combining businesses, managing personnel from different locations, and integrating different histories, cultures, markets, and tenant bases[212](index=212&type=chunk) - The success of the Company after the Merger depends on its ability to retain key employees, who may depart due to integration uncertainties[214](index=214&type=chunk) [Regulatory and Legal Risks](index=48&type=section&id=Regulatory%20and%20Legal%20Risks) Regulatory and legal risks include counterparties exercising contractual rights due to the merger and inherent challenges in joint venture investments such as shared decision-making and reliance on partners' financial stability - Counterparties to certain agreements may exercise contractual rights (e.g., termination, repurchase, acceleration) in connection with the Merger, potentially impacting the Company adversely[219](index=219&type=chunk) - Joint venture investments involve risks such as lack of sole decision-making authority, reliance on partners' financial condition, potential impasses on decisions, and disputes[220](index=220&type=chunk) [Other Risks](index=48&type=section&id=Other%20Risks) Other risks include substantial indebtedness increasing borrowing costs and limiting capital access, the inability to secure additional financing or refinance debt, potential credit rating downgrades, and rising interest rates adversely impacting financial obligations and growth activities - The Company has substantial indebtedness and may incur more, which could reduce credit ratings, hinder adaptability, limit capital access, and increase vulnerability to economic downturns[222](index=222&type=chunk) - The unavailability of equity and debt capital, volatility in credit markets, and increases in interest rates could adversely affect the Company's ability to meet debt payments, pay dividends, or engage in acquisition and development activities[226](index=226&type=chunk) - Increases in interest rates, as seen with the Federal Reserve's actions in March 2022, will increase interest costs on new and existing variable debt, adversely impacting financing, acquisitions, and refinancing capabilities[228](index=228&type=chunk)[229](index=229&type=chunk) [Item 2. Unregistered Sales of Equity and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20and%20Use%20of%20Proceeds) The Board authorized a **$500.0 million** common stock repurchase program on August 2, 2022, with no shares repurchased under this new authorization as of the report date, though **2,018 shares** were purchased in September at an average price of **$24.14** - On August 2, 2022, the Board authorized the repurchase of up to **$500.0 million** of common stock, superseding previous authorizations[230](index=230&type=chunk) - As of the report date, no shares have been repurchased under the new authorization[230](index=230&type=chunk) Common Stock Repurchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------- | :------------------------------- | :--------------------------- | | September 1 - 30 | 2,018 | $24.14 | [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including the Merger Agreement, organizational documents, indentures for senior notes, credit and term loan agreements, employment agreements, and certifications - Key exhibits include the Agreement and Plan of Merger, various Articles of Amendment and Restatement, Indentures for Senior Notes, the Fourth Amended and Restated Revolving Credit and Term Loan Agreement, and employment agreements[232](index=232&type=chunk)[235](index=235&type=chunk) [SIGNATURE](index=56&type=section&id=SIGNATURE) The report is duly signed on behalf of Healthcare Realty Trust Incorporated by J. Christopher Douglas, Executive Vice President and Chief Financial Officer, on November 9, 2022 - The report was signed by J. Christopher Douglas, Executive Vice President and Chief Financial Officer, on November 9, 2022[241](index=241&type=chunk)

Financial Data and Key Metrics Changes - Healthcare Realty's normalized FFO per share increased by 4.7% from $0.21 to $0.45 in the second quarter [22] - FAD per share increased by 11% year-over-year, reducing the FAD payout ratio to 83% for the quarter [23] - Year-over-year quarterly same-store NOI growth for HR increased by 3.3%, driven by a 3.4% increase in revenue [23][24] Business Line Data and Key Metrics Changes - HTA's normalized FFO for the second quarter was $101 million or $0.43 per share, with a FAD payout ratio of 92% [23] - HR's cash leasing spreads for the second quarter were 3.4%, consistent with historical ranges [25] - There were 215,000 square feet of signed leases in the same-store portfolio in the process of build-out, representing 1.6% of total same-store square footage [25] Market Data and Key Metrics Changes - The combined portfolio now includes over 700 properties and 40 million square feet, with significant concentration in high-growth markets [8][10] - The company operates in dense, high-growth markets, with over 75% of properties located in attractive coastal and Sunbelt markets [10] Company Strategy and Development Direction - The company aims to increase scale through the combination with HTA, focusing on asset sales and joint ventures to fund a $1.1 billion special cash dividend [11][14] - Key performance indicators include asset sales, integration, leasing momentum, and relationships to drive growth [11] - The company plans to invest $500 million to $750 million in the low to mid-pods, funded largely through asset recycling [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for outpatient healthcare, driven by an aging population, which is expected to accelerate over the next decade [10] - The company anticipates solid occupancy and NOI improvement due to robust leasing activity and a focus on high-growth markets [11][12] - Management acknowledged the challenges in the current market but remains optimistic about achieving their strategic goals [33] Other Important Information - The company has a $500 million share repurchase program authorized by the board, aimed at opportunistic buybacks when valuations are attractive [28][78] - The company expects to maintain its legacy dividend policy and cadence moving forward [30] Q&A Session Summary Question: What is causing the delay in the $1.1 billion dispositions? - Management indicated that there hasn't been a material delay and that progress is on pace, with nearly half closed and the balance expected to close in August [33] Question: What is the long-term target for on-campus versus off-campus investments? - The company aims for a long-term target of about 75% on or adjacent to campus, with current levels at approximately 68% [35] Question: Can the company achieve a higher growth profile in the medical office sector? - Management believes they can sustain a 3%+ growth profile but does not expect to transform the medical office sector into a cyclical business [41] Question: How does the company plan to balance share buybacks with increased leverage? - The company plans to use disposition proceeds for share buybacks rather than increasing leverage, maintaining a target debt to EBITDA ratio of 6% to 6.5% [78] Question: What is the outlook for occupancy gains in the multi-tenant HTA portfolio? - Management is optimistic about occupancy gains due to a broker-oriented approach and increased scale in markets, with significant leases in the build-out process [81][84]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-35568 (Healthcare Realty Trust Incorporated) HEALTHCARE REALTY TRUST INCORPORATED (Exact name of Registrant as ...