Quarterly Report (10-q)

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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:	September 30, 2021
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: 001-11852

HEALTHCARE REALTY TRUST INCORPORATED

(Exact name of Registrant as specified in its charter)


Maryland			62-1507028
(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)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common stock, $0.01 par value per share

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

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). Yes ☐ No ☒

As of October 29, 2021, the Registrant had 147,541,832 shares of Common Stock outstanding.

HEALTHCARE REALTY TRUST INCORPORATED

FORM 10-Q

September 30, 2021

Table of Contents


PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Statements of Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4	Controls and Procedures	32

PART II - OTHER INFORMATION
Item 1	Legal Proceedings	32
Item 1A	Risk Factors	32
Item 2	Unregistered Sales of Equity and Use of Proceeds	32
Item 5	Other Information	33
Item 6	Exhibits	33

SIGNATURE		35

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Healthcare Realty Trust Incorporated

Condensed Consolidated Balance Sheets

Amounts in thousands, except per share data


ASSETS
	Unaudited SEPTEMBER 30, 2021		DECEMBER 31, 2020
Real estate properties
Land	$	375,342	$	362,695
Buildings, improvements and lease intangibles	4,383,314		4,220,297
Personal property	11,555		11,195
Investment in financing receivable, net	104,806		—
Construction in progress	1,546		—
Land held for development	27,232		27,226
Total real estate properties	4,903,795		4,621,413
Less accumulated depreciation and amortization	(1,322,577)		(1,239,224)
Total real estate properties, net	3,581,218		3,382,189
Cash and cash equivalents	16,000		15,303


Assets held for sale, net	13,603		20,646
Operating lease right-of-use assets	128,945		125,198
Financing lease right-of-use assets	20,760		19,667

Investments in unconsolidated joint ventures	122,345		73,137
Other assets, net	186,328		176,120
Total assets	$	4,069,199	$	3,812,260

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes and bonds payable	$	1,691,433	$	1,602,769
Accounts payable and accrued liabilities	79,381		81,174
Liabilities of assets held for sale	766		1,216
Operating lease liabilities	95,913		92,273
Financing lease liabilities	20,460		18,837
Other liabilities	65,913		67,615
Total liabilities	1,953,866		1,863,884
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value per share; 50,000 shares authorized; none issued and outstanding	—		—
Common stock, $.01 par value per share; 300,000 shares authorized; 147,542 and 139,487 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	1,475		1,395
Additional paid-in capital	3,882,572		3,635,341
Accumulated other comprehensive loss	(12,413)		(17,832)
Cumulative net income attributable to common stockholders	1,244,551		1,199,499
Cumulative dividends	(3,000,852)		(2,870,027)
Total stockholders' equity	2,115,333		1,948,376


Total liabilities and stockholders' equity	$	4,069,199	$	3,812,260

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, 2020, are an integral part of these financial statements.

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Income

For the Three and Nine Months Ended September 30, 2021 and 2020

Amounts in thousands, except per share data

Unaudited


	THREE MONTHS ENDED September 30,				NINE MONTHS ENDED September 30,
	2021		2020		2021		2020
Revenues
Rental income	$	131,746	$	123,384	$	388,620	$	368,385
Interest from financing receivable, net	1,917		—		2,426		—

Other operating	2,969		1,868		7,347		5,364
	136,632		125,252		398,393		373,749
Expenses
Property operating	55,518		50,171		159,241		146,305
General and administrative	8,207		7,299		25,251		23,498
Acquisition and pursuit costs	974		440		2,388		1,621
Depreciation and amortization	50,999		47,143		150,904		142,331


	115,698		105,053		337,784		313,755
Other income (expense)
Gain on sales of real estate properties	1,186		2,177		41,046		70,395
Interest expense	(13,334)		(14,154)		(39,857)		(42,556)


Impairment of real estate properties	(10,669)		—		(16,581)		—
Equity loss from unconsolidated joint ventures	(183)		(66)		(404)		(194)
Interest and other income (expense), net	—		74		239		419
	(23,000)		(11,969)		(15,557)		28,064






Net (loss) income	$	(2,066)	$	8,230	$	45,052	$	88,058





Basic earnings per common share	$	(0.02)	$	0.06	$	0.31	$	0.65


Diluted earnings per common share	$	(0.02)	$	0.06	$	0.31	$	0.65

Weighted average common shares outstanding - basic	143,818		134,309		141,521		133,662
Weighted average common shares outstanding - diluted	143,818		134,357		141,613		133,736

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Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the Three and Nine Months Ended September 30, 2021 and 2020

Amounts in thousands

Unaudited


	THREE MONTHS ENDED September 30,				NINE MONTHS ENDED September 30,
	2021		2020		2021		2020
Net (loss) income	$	(2,066)	$	8,230	$	45,052	$	88,058
Other comprehensive income (loss)


Interest rate swaps
Reclassification adjustments for losses included in net income (interest expense)	1,131		1,101		3,340		2,367
Gains (losses) arising during the period on interest rate swaps	36		(74)		2,079		(11,192)
Losses on settlement of treasury rate locks arising during the period	—		—		—		(4,267)
	1,167		1,027		5,419		(13,092)

Comprehensive (loss) income	$	(899)	$	9,257	$	50,471	$	74,966

Table of Contents

Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Equity

For the Three Months Ended September 30, 2021 and 2020

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
Balance at June 30, 2021	$	1,455	$	3,818,592	$	(13,580)	$	1,246,617	$	(2,956,830)	$	2,096,254
Issuance of common stock, net of issuance costs	20		61,442		—		—		—		61,462

Share-based compensation	—		2,538		—		—		—		2,538
Net loss	—		—		—		(2,066)		—		(2,066)
Reclassification adjustments for losses included in net income (interest expense)	—		—		1,131		—		—		1,131
Gains arising during the period on interest rate swaps	—		—		36		—		—		36
Dividends to common stockholders ($0.3025 per share)	—		—		—		—		(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

	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Cumulative Net Income		Cumulative Dividends		Total Stockholders’ Equity
Balance at June 30, 2020	$	1,360	$	3,529,559	$	(20,294)	$	1,207,132	$	(2,788,396)	$	1,929,361
Issuance of common stock, net of issuance costs	1		126		—		—		—		127

Share-based compensation	—		2,445		—		—		—		2,445
Net income	—		—		—		8,230		—		8,230
Reclassification adjustments for losses included in net income (interest expense)	—		—		1,101		—		—		1,101
Losses arising during the period on interest rate swaps	—		—		(74)		—		—		(74)
Dividends to common stockholders ($0.3000 per share)	—		—		—		—		(40,815)		(40,815)
Balance at September 30, 2020	$	1,361	$	3,532,130	$	(19,267)	$	1,215,362	$	(2,829,211)	$	1,900,375

Table of Contents

Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Equity

For the Nine Months Ended September 30, 2021 and 2020

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
Balance at December 31, 2020	$	1,395	$	3,635,341	$	(17,832)	$	1,199,499	$	(2,870,027)	$	1,948,376
Issuance of common stock, net of issuance costs	78		240,660		—		—		—		240,738
Common stock redemptions	—		(1,610)		—		—		—		(1,610)
Share-based compensation	2		8,181		—		—		—		8,183
Net income	—		—		—		45,052		—		45,052
Reclassification adjustments for losses included in net income (interest expense)	—		—		3,340		—		—		3,340
Gains arising during the period on interest rate swaps	—		—		2,079		—		—		2,079
Dividends to common stockholders ($0.9075 per share)	—		—		—		—		(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

	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Cumulative Net Income		Cumulative Dividends		Total Stockholders’ Equity
Balance at December 31, 2019	$	1,347	$	3,485,003	$	(6,175)	$	1,127,304	$	(2,707,470)	$	1,900,009
Issuance of common stock, net of issuance costs	13		40,477		—		—		—		40,490
Common stock redemptions	—		(798)		—		—		—		(798)
Share-based compensation	1		7,448		—		—		—		7,449
Net income	—		—		—		88,058		—		88,058
Reclassification adjustments for losses included in net income (interest expense)	—		—		2,367		—		—		2,367
Losses arising during the period on interest rate swaps	—		—		(15,459)		—		—		(15,459)
Dividends to common stockholders ($0.9000 per share)	—		—		—		—		(121,741)		(121,741)
Balance at September 30, 2020	$	1,361	$	3,532,130	$	(19,267)	$	1,215,362	$	(2,829,211)	$	1,900,375

Table of Contents

Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2021 and 2020

Amounts in thousands

Unaudited


OPERATING ACTIVITIES
	NINE MONTHS ENDED September 30,
	2021		2020
Net income	$	45,052	$	88,058
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	150,904		142,331
Other amortization	2,721		3,409
Share-based compensation	8,183		7,449
Amortization of straight-line rent receivable (lessor)	(4,574)		(2,722)
Amortization of straight-line rent on operating leases (lessee)	1,115		1,122
Gain on sales of real estate properties	(41,046)		(70,395)

Impairment of real estate properties	16,581		—
Equity loss from unconsolidated joint ventures	404		194
Distributions from unconsolidated joint ventures	—		193
Proceeds from disposition of sales-type lease properties	—		244,454
Non-cash interest from financing receivable	(196)		—
Changes in operating assets and liabilities:
Other assets, including right-of-use-assets	(9,947)		(965)
Accounts payable and accrued liabilities	215		5,098
Other liabilities	843		(6,662)
Net cash provided by operating activities	170,255		411,564

INVESTING ACTIVITIES
Acquisitions of real estate	(250,766)		(199,162)
Development of real estate	(2,020)		(2,941)
Additional long-lived assets	(69,647)		(62,707)
Investments in unconsolidated joint ventures	(49,612)		—
Investment in financing receivable	(104,654)		—
Proceeds from sales of real estate properties	112,029		4,905

Net cash used in investing activities	(364,670)		(259,905)

FINANCING ACTIVITIES
Net borrowings (repayments) on unsecured credit facility	90,500		(293,000)
Borrowings on term loan	—		150,000

Borrowings of notes and bonds payable	—		298,995
Repayments of notes and bonds payable	(2,914)		(32,704)


Dividends paid	(130,825)		(121,741)
Net proceeds from issuance of common stock	240,779		40,296
Common stock redemptions	(2,014)		(892)


Settlement of treasury rate locks	—		(4,267)
Debt issuance and assumption costs	(252)		(3,057)
Payments made on finance leases	(162)		(3,310)
Net cash provided by financing activities	195,112		30,320

Increase in cash and cash equivalents	697		181,979
Cash and cash equivalents at beginning of period	15,303		657
Cash and cash equivalents at end of period	$	16,000	$	182,636

Supplemental Cash Flow Information
Interest paid	$	40,653	$	39,165
Invoices accrued for construction, tenant improvements and other capitalized costs	$	11,663	$	12,709
Mortgage notes payable assumed upon acquisition (adjusted to fair value)	$	—	$	19,269
Capitalized interest	$	187	$	913

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Business Overview

Healthcare Realty Trust Incorporated (the "Company") is a real estate investment trust ("REIT") that owns, leases, manages, acquires, finances, develops and redevelops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. As of September 30, 2021, the Company had gross investments of approximately $4.9 billion in 235 real estate properties located in 24 states totaling approximately 16.8 million square feet. The Company provided leasing and property management services to approximately 13.8 million square feet nationwide. The Company owns 50% of an unconsolidated joint venture with Teachers Insurance and Annuity Association (the "TIAA Joint Venture") and earns certain fees as the managing member. As of September 30, 2021, the TIAA Joint Venture owned ten real estate properties. See Note 2 for more details regarding the Company's unconsolidated joint ventures.

Basis of Presentation

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, management believes there has been no material change in the information disclosed in the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2020. 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, 2020. 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, 2021 for many reasons including, but not limited to, 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 the accounts of the Company, its wholly owned subsidiaries, and joint ventures and partnerships where the Company controls the operating activities. GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). Accounting Standards Codification 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.

For property holding entities not determined to be VIEs, the Company consolidates such entities in which it owns 100% of the equity or has a controlling financial interest evidenced by ownership of a majority voting interest. All intercompany balances and transactions are eliminated in consolidation. For entities in which the Company owns less than 100% of the equity interest, the Company consolidates the entity if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements.

As of September 30, 2021, 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 2 for more details regarding the Company's unconsolidated joint ventures.

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

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.

The Company considered the impact of COVID-19 on these assumptions and estimates used and determined that there were no material adverse impacts on the Company's results of operations and financial position at September 30, 2021. There can be no assurance that COVID-19 will not have a future material adverse impact on the financial results and business operations of the Company.

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”. In the second quarter of 2021, the Company acquired a building in San Diego, California in a sale leaseback transaction in which the seller-lessee had a purchase option. Therefore, control was not considered to be transferred under GAAP. Accordingly, this transaction was accounted for as a financing receivable and recorded on the Condensed Consolidated Balance Sheet in the line item Investment in financing receivable, net. The Company evaluated the impact of ASC 326, "Credit Losses" to the financing receivable, and the amount calculated was determined to be immaterial and therefore not recorded.

Income from Lease Financing Receivables

The Company recognizes the related income from the financing receivable based on an imputed interest rate over the terms of the applicable lease. As a result, the interest recognized from the financing receivable will not equal the cash payments from the lease 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.

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	2021		2020		2021		2020
Type of Revenue
Parking income	$	2,187	$	1,764	$	5,725	$	5,042

Management fee income 1	723		62		1,381		209
Miscellaneous	59		42		241		113
	$	2,969	$	1,868	$	7,347	$	5,364

1 Includes the recovery of certain expenses under the financing receivable as outlined in the management agreement.

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

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-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. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Note 2. Real Estate Investments

2021 Company Acquisitions

The following table details the Company's acquisitions for the nine months ended September 30, 2021:


Dollars in thousands	DATE ACQUIRED	PURCHASE PRICE		CASH CONSIDERATION 1		REAL ESTATE		OTHER 2		SQUARE FOOTAGE
San Diego, CA 3	1/7/21	$	17,150	$	17,182	$	17,182	$	—	22,461
Dallas, TX 4	2/1/21	22,515		22,299		22,641		(342)		121,709
Atlanta, GA 4	2/17/21	9,800		10,027		10,073		(46)		44,567
Washington, D.C.	3/3/21	12,750		12,709		12,658		51		26,496
Houston, TX	5/14/21	13,500		12,986		13,379		(393)		45,393
San Diego, CA 5	5/28/21	102,650		103,984		104,629		(645)		160,394
Greensboro, NC	6/28/21	9,390		9,475		10,047		(572)		25,168
Baltimore, MD	6/29/21	14,600		14,357		14,437		(80)		33,316
Denver, CO 6	7/16/21	70,426		69,151		65,100		4,051		259,555
Greensboro, NC 3	7/19/21	6,400		6,374		6,514		(140)		18,119
Colorado Springs, CO	7/27/21	33,400		32,738		33,241		(503)		69,526
Birmingham, AL	8/19/21	9,250		9,355		9,388		(33)		29,942
Raleigh, NC	9/20/21	5,780		5,821		5,810		11		18,280
Denver, CO	9/22/21	20,250		19,630		19,405		225		83,604
Raleigh, NC	9/30/21	10,000		9,921		9,874		47		29,178




Total real estate acquisitions		$	357,861	$	356,009	$	354,378	$	1,631	987,708

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.

3Represents a single-tenant property.

4Includes two properties.

5The Company accounted for this transaction as a financing receivable.

6Includes three properties.

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

2021 TIAA Joint Venture Acquisitions

The TIAA Joint Venture is not consolidated for purposes of the Company's Condensed Consolidated Financial Statements. The following table details the TIAA Joint Venture acquisitions for the nine months ended September 30, 2021:


Dollars in thousands	DATE ACQUIRED	PURCHASE PRICE		CASH CONSIDERATION 1		REAL ESTATE		OTHER 2		SQUARE FOOTAGE	COMPANY OWNERSHIP %
Denver, CO	3/30/21	$	14,375	$	14,056	$	14,550	$	(494)	59,359	50	%
Colorado Springs, CO	4/1/21	7,200		7,288		7,347		(59)		27,510	50	%
Los Angeles, CA	4/8/21	31,335		30,179		30,642		(463)		57,573	50	%
San Antonio, TX	4/30/21	13,600		13,412		13,656		(244)		45,000	50	%
Los Angeles, CA	5/10/21	24,600		24,259		24,147		112		73,078	50	%
Colorado Springs, CO 3	7/27/21	9,133		9,137		9,135		2		23,956	50	%




Total real estate acquisitions		$	100,243	$	98,331	$	99,477	$	(1,146)	286,476

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 purchase of adjoining 3.0 acre land parcel.

Subsequent to September 30, 2021, the TIAA Joint Venture acquired the following property:


Dollars in thousands	DATE ACQUIRED	PURCHASE PRICE		SQUARE FOOTAGE	COMPANY OWNERSHIP %
Denver, CO	10/21/21	$	23,000	57,257	50	%

Unconsolidated Joint Ventures

The Company's investment in and loss recognized for the three and nine months ended September 30, 2021 and 2020 related to its 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	2021		2020		2021		2020

Investments in unconsolidated joint ventures, beginning of period 1	$	117,935	$	7,818	$	73,137	$	8,130
New investments during the period	4,593		—		49,612		—
Equity loss recognized during the period 1	(183)		(66)		(404)		(194)
Owner distributions	—		(9)		—		(193)
Investments in unconsolidated joint ventures, end of period 1	$	122,345	$	7,743	$	122,345	$	7,743

1In addition to the TIAA Joint Venture, the Company also has a 55% and 27% ownership interest, respectively, in two limited liability companies that each own a parking garage in Atlanta, Georgia.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

2021 Real Estate Asset Dispositions

The following table details the Company's dispositions for the nine months ended September 30, 2021:


Dollars in millions	DATE DISPOSED	SALE PRICE		CLOSING ADJUSTMENTS		NET PROCEEDS		NET REAL ESTATE INVESTMENT		OTHER (INCLUDING RECEIVABLES) 1		GAIN/(IMPAIRMENT)		SQUARE FOOTAGE
Los Angeles, CA 2	3/11/21	$	26,000	$	(555)	$	25,445	$	6,046	$	509	$	18,890	73,906
Atlanta, GA 3	4/12/21	8,050		(272)		7,778		5,675		151		1,952		19,732
Richmond, VA 3	5/18/21	52,000		(314)		51,686		29,414		3,270		19,002		142,856
Gadsden, AL 3,4	5/19/21	5,500		(280)		5,220		5,914		175		(869)		120,192
Dallas, TX 3,5	7/9/21	23,000		(1,117)		21,883		18,733		1,966		1,184		190,160

Total dispositions		$	114,550	$	(2,538)	$	112,012	$	65,782	$	6,071	$	40,159	546,846

1Includes straight-line rent receivables, leasing commissions and lease inducements.

2Includes two properties sold to a single purchaser in two transactions which occurred on March 5 and March 11, 2021.

3Previously classified as held for sale.

4Includes three properties.

5Includes four properties and a land parcel sold under a single purchase agreement.

Assets Held for Sale

As of September 30, 2021 and December 31, 2020, the Company had one and four properties, respectively, classified as assets held for sale. During the third quarter of 2021, the Company reclassified to held for sale a medical office building in Chicago, Illinois with a contractual sales price of $13.3 million and recorded an impairment charge of $10.7 million based on the contractual sales price less estimated costs to sell. The Company disposed of this property on October 28, 2021.

The table below reflects the assets and liabilities of the properties classified as held for sale as of September 30, 2021 and December 31, 2020:


(Dollars in thousands)	September 30, 2021		December 31, 2020
Balance Sheet data:
Land	$	5,859	$	1,664
Building, improvements and lease intangibles	13,710		27,443
Personal property	133		39
	19,702		29,146
Accumulated depreciation	(7,158)		(10,455)
Real estate assets held for sale, net	12,544		18,691

Other assets, net	1,059		1,955
Assets held for sale, net	$	13,603	$	20,646

Accounts payable and accrued liabilities	$	467	$	533
Other liabilities	299		683
Liabilities of assets held for sale	$	766	$	1,216

Note 3. Leases

Lessor Accounting

The Company’s properties generally are 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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

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, 2021 was $131.7 million and $388.6 million, respectively.

Future lease payments under the non-cancelable operating leases, excluding any reimbursements, as of September 30, 2021 were as follows:


In thousands	OPERATING
2021	$	102,435
2022	385,734
2023	336,473
2024	266,722
2025	215,350
2026 and thereafter	598,757
	$	1,905,471

Lessee Accounting

As of September 30, 2021, the Company was obligated, as the lessee, under operating lease agreements consisting primarily of the Company’s ground leases. As of September 30, 2021, the Company had 110 properties totaling 9.2 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 43 prepaid ground leases as of September 30, 2021. The amortization of the prepaid rent, included in the operating lease right-of-use asset, represented approximately $0.1 million and $0.1 million of the Company’s rental expense for the three months ended September 30, 2021 and 2020, respectively, and $0.4 million and $0.5 million for the nine months ended September 30, 2021 and 2020, respectively.

The Company’s future lease payments (primarily for its 67 non-prepaid ground leases) as of September 30, 2021 were as follows:


In thousands	OPERATING		FINANCING
2021	$	1,051	$	180
2022	5,030		838
2023	5,071		848
2024	5,130		871
2025	5,174		886
2026 and thereafter	312,163		92,689
Total undiscounted lease payments	333,619		96,312
Discount	(237,706)		(75,852)
Lease liabilities	$	95,913	$	20,460

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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, 2021 and 2020:


	THREE MONTHS ENDED September 30,						NINE MONTHS ENDED September 30,
In thousands	2021			2020			2021		2020
Operating lease cost
Operating lease expense	$	1,196		$	1,180		$	3,555	$	3,529
Variable lease expense	1,016			1,066			2,883		2,669

Finance lease cost
Amortization of right-of-use assets	90			88			267		236
Interest on lease liabilities	255			245			748		722
Total lease expense	$	2,557		$	2,579		$	7,453	$	7,156

Other information
Operating cash flows outflows related to operating leases	$	1,424		$	1,440		$	5,855	$	5,412
Operating cash flows outflows related to financing leases	$	151		$	151		$	678	$	616
Financing cash flows outflows related to financing leases	$	6		$	143		$	162	$	3,310
Right-of-use assets obtained in exchange for new finance lease liabilities	$	1,420		$	—		$	1,420	$	7,212
Right-of-use assets obtained in exchange for new operating lease liabilities	$	8,298		$	—		$	8,298	$	—

Weighted-average remaining lease term (excluding renewal options) - operating leases	47.8			48.9
Weighted-average remaining lease term (excluding renewal options) - finance leases	63.2			64.7
Weighted-average discount rate - operating leases	5.6		%	5.7		%
Weighted-average discount rate - finance leases	5.4		%	5.4		%

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Note 4. Notes and Bonds Payable

The table below details the Company’s notes and bonds payable.


	MATURITY DATES	BALANCE AS OF				EFFECTIVE INTEREST RATE as of 9/30/2021
Dollars in thousands		9/30/2021		12/31/2020
$700 million Unsecured Credit Facility	5/23	$	90,500	$	—	0.98	%
$200 million Unsecured Term Loan due 2024, net of issuance costs 1	5/24	199,404		199,236		1.94	%
$150 million Unsecured Term Loan due 2026, net of issuance costs 2	6/26	149,341		149,479		2.47	%
Senior Notes due 2025, net of discount and issuance costs 3	5/25	248,973		248,776		4.08	%
Senior Notes due 2028, net of discount and issuance costs	1/28	296,488		296,123		3.84	%
Senior Notes due 2030, net of discount and issuance costs 4	3/30	296,726		296,468		2.71	%
Senior Notes due 2031, net of discount and issuance costs	3/31	295,261		294,924		2.24	%
Mortgage notes payable, net of discounts and issuance costs and including premiums	11/22-4/27	114,740		117,763		4.06	%
		$	1,691,433	$	1,602,769

1The effective interest rate includes the impact of interest rate swaps on $75.0 million at a weighted average rate of 2.37% (plus the applicable margin rate, currently 100 basis points).

2The effective interest rate includes the impact of interest rate swaps on $100.0 million at a weighted average rate of 2.23% (plus the applicable margin rate, currently 95 basis points).

3The effective interest rate includes the impact of the $1.7 million settlement of forward-starting interest rate swaps that is included in Accumulated other comprehensive loss on the Company's Condensed Consolidated Balance Sheets.

4The effective interest rate includes the impact of the $4.3 million settlement of forward interest rate hedges that is included in Accumulated other comprehensive loss on the Company's Condensed Consolidated Balance Sheets.

Changes in Debt Structure

On June 1, 2021, the Company entered into a second amendment to the Amended and Restated Term Loan, dated May 31, 2019, that reduced the current interest rate on the $150 million portion of the loan due 2026 from LIBOR plus a margin rate ranging from 1.45% to 2.40% (previously 1.60%) to LIBOR plus a margin rate ranging from 0.80% to 1.60% (0.95% as of September 30, 2021). With the amendment, the Company paid up front fees of approximately $0.5 million, of which $0.2 million was paid to lenders, capitalized and amortized over the remainder of the term of the loan, and $0.3 million was paid to lenders as administration fees and was expensed in the second quarter of 2021. In addition, the amendment added a sustainability metric incentive tied to increasing the Company's properties with green building certifications.

Subsequent Changes in Debt Structure

On November 1, 2021, the Company repaid in full a mortgage note payable bearing interest at a rate of 4.69% per annum with an outstanding principal of $11.1 million. The mortgage note encumbered a 62,379 square foot property in Maryland.

Note 5. Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

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, 2021, the Company had eight outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:


DERIVATIVE INSTRUMENT	NUMBER OF INSTRUMENTS	NOTIONAL AMOUNT in millions
Interest rate swaps	8	$175.0

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, 2021.


	BALANCE AT SEPTEMBER 30, 2021
In thousands	BALANCE SHEET LOCATION	FAIR VALUE
Derivatives designated as hedging instruments
Interest rate swaps	Other liabilities	$	8,201
Total derivatives designated as hedging instruments		$	8,201

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, 2021 and 2020 related to the Company's outstanding interest rate swaps.


	(GAIN) LOSS RECOGNIZED IN AOCI ON DERIVATIVE three months ended September 30,					LOSS RECLASSIFIED FROM AOCI INTO INCOME three months ended September 30,
In thousands	2021		2020			2021		2020
Interest rate swaps	$	(36)	$	74	Interest expense	$	982	$	952
Settled treasury hedges	—		—		Interest expense	107		107
Settled interest rate swaps	—		—		Interest expense	42		42
	$	(36)	$	74	Total interest expense	$	1,131	$	1,101


	(GAIN) LOSS RECOGNIZED IN AOCI ON DERIVATIVE nine months ended September 30,					LOSS RECLASSIFIED FROM AOCI INTO INCOME nine months ended September 30,
In thousands	2021		2020			2021		2020
Interest rate swaps	$	(2,079)	$	11,192	Interest expense	$	2,894	$	2,012
Settled treasury hedges	—		4,267		Interest expense	320		229
Settled interest rate swaps	—		—		Interest expense	126		126
	$	(2,079)	$	15,459	Total interest expense	$	3,340	$	2,367

The Company estimates that $4.4 million will be reclassified from AOCI 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, 2021, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $8.6 million. As of September 30,

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

2021, the Company has not posted any collateral related to these agreements and was not in breach of any agreement.

Note 6. 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.

Redevelopment Activity

During the third quarter of 2021, the Company continued the redevelopment of 110,860 square feet of a 217,114 square foot medical office building in Dallas, Texas. As of September 30, 2021, the Company had funded approximately $2.1 million in project costs. The building continues to operate with in-place leases during construction. The first new tenant lease of the redevelopment is expected to commence in the first quarter of 2022.

During the third quarter of 2021, the Company continued the redevelopment of a 110,883 square foot medical office building in Memphis, Tennessee. As of September 30, 2021, the Company had funded approximately $31.1 million in project costs. The core and shell portion of this redevelopment was completed and the first new tenant took occupancy in the first quarter of 2021, with the construction of tenant spaces to be completed in early 2022.

In April 2021, the Company began the redevelopment of a medical office building in Tacoma, Washington. As of September 30, 2021, the Company had funded approximately $1.7 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 second quarter of 2022.

In July 2021, the Company began the redevelopment of a medical office building in Nashville, Tennessee. The Company expects to construct a new 106,194 square foot medical office building with the initial tenant lease expected to commence in the second quarter of 2023. As of September 30, 2021, the Company had funded approximately $0.8 million in project costs. The redevelopment includes the demolition of an existing 81,000 square foot medical office building. In the second quarter of 2021, the Company recognized an impairment charge of $5.0 million related to the existing building.

Note 7. 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, 2021 and the year ended December 31, 2020:


	NINE MONTHS ENDED	TWELVE MONTHS ENDED
	SEPTEMBER 30, 2021	DECEMBER 31, 2020
Balance, beginning of period	139,487,375	134,706,154
Issuance of common stock	7,905,570	4,637,445
Nonvested share-based awards, net of withheld shares	148,772	143,776
Balance, end of period	147,541,717	139,487,375

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

At-The-Market Equity Offering Program

On August 6, 2021, the Company entered into equity distribution agreements with 11 investment banks to allow for issuance and sale under its at-the-market equity offering program of up to an aggregate of $750.0 million of common stock. The Company's previous at-the-market equity program to sell up to an aggregate of $500.0 million of common stock ended in August 2021. The following table details the Company's forward at-the-market activity:


	WEIGHTED AVERAGE SALE PRICE per share		FORWARD SHARE CONTRACTS	SHARES SETTLED	SHARES REMAINING TO BE SETTLED	NET PROCEEDS in millions
Balance at December 31, 2020	$	—	—	—	1,823,259	$	—
1Q 2021	$	30.09	215,532	2,038,791	—	$	62.7
2Q 2021	$	30.99	5,835,400	3,827,971	2,007,429	$	116.1
3Q 2021	$	31.06	1,670,186	2,007,429	1,670,186	$	61.3
October 2021 1	$	31.34	2,042,562	—	3,712,748	$	—

1Includes forward share activity from August to October 2021 for trade confirmations dated in October 2021.

The 3.7 million shares remaining to be settled in forward equity arrangements are expected to be settled by October 2022 for expected gross proceeds of $115.9 million, depending on the timing of settlement. Expected net proceeds are calculated by reducing the initial price by adjustments provided in the forward equity arrangements. After accounting for these settlements, the Company has approximately $686.0 million remaining available to be sold under the current equity distribution agreements at the date of this filing.

Common Stock Dividends

During the nine months ended September 30, 2021, the Company declared and paid common stock dividends totaling $0.9075 per share. On November 2, 2021, the Company declared a quarterly common stock dividend in the amount of $0.3025 per share payable on November 30, 2021 to stockholders of record on November 15, 2021.

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 months ended September 30, 2021, the Company entered into forward sale agreements to sell approximately 1.7 million shares of common stock through the Company's at-the-market equity offering program. The Company used the treasury method to determine the dilution from the forward equity agreements during the period of time prior to settlement. The number of weighted-average shares outstanding used in the computation of earnings per common share for the three and nine months ended September 30, 2021 included the effect from the assumed issuance of 1.7 million shares of common stock pursuant to the settlement of the forward equity agreements at the contractual price, less the assumed repurchase of the common stock at the average market price using the proceeds, adjusted for costs to borrow.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2021 and 2020.


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
Dollars in thousands, except per share data	2021		2020		2021		2020
Weighted average common shares outstanding
Weighted average common shares outstanding	145,594,127		136,048,781		143,305,737		135,393,798
Non-vested shares	(1,776,508)		(1,739,364)		(1,784,544)		(1,731,658)
Weighted average common shares outstanding - basic	143,817,619		134,309,417		141,521,193		133,662,140

Weighted average common shares outstanding - basic	143,817,619		134,309,417		141,521,193		133,662,140
Dilutive effect of forward equity shares	—		—		14,036		—
Dilutive effect of employee stock purchase plan	—		47,810		78,200		74,029
Weighted average common shares outstanding - diluted	143,817,619		134,357,227		141,613,429		133,736,169

Net Income (loss)	$	(2,066)	$	8,230	$	45,052	$	88,058
Dividends paid on nonvested share-based awards	(537)		(522)		(1,617)		(1,561)
Net income (loss) applicable to common stockholders	$	(2,603)	$	7,708	$	43,435	$	86,497





Basic earnings per common share - net income (loss)	$	(0.02)	$	0.06	$	0.31	$	0.65


Diluted earnings per common share - net income (loss)	$	(0.02)	$	0.06	$	0.31	$	0.65

The effect of non-vested stock awards totaling 911,594 shares, options under the the Company's Employee Stock Purchase Plan (the "Purchase Plan")to purchase the Company's stock totaling 63,383 shares, and the dilutive impact of forward-equity contracts outstanding of 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

During the nine months ended September 30, 2021, the Company made the following stock awards:

•On January 1, 2021, the Company granted non-vested stock awards to certain officers with a grant date fair value of $0.6 million, which consisted of an aggregate 21,396 non-vested shares through its salary deferral program.

•On February 10, 2021, the Company granted non-vested stock awards to its four named executive officers, five senior vice presidents, and five first vice presidents with a grant date fair value totaling $3.8 million, which consisted of an aggregate 124,648 non-vested shares, with a five-year vesting period.

•Also, on February 10, 2021, the Company granted a performance-based award to its officers, excluding the four named executive officers, five senior vice presidents, and five first vice presidents totaling $0.6 million, which consisted of an aggregate 19,679 non-vested shares.

•On May 11, 2021, the Company granted non-vested stock awards to its eight directors with a grant date fair value totaling $1.2 million, which consisted of an aggregate 36,682 non-vested shares, with a one-year vesting period.

•On June 21, 2021, the Company granted a non-vested stock award to an employee, which consisted of 1,296 non-vested shares as a discretionary grant.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

A summary of the activity under the Company's share-based incentive plans for the three and nine months ended September 30, 2021 and 2020 is included in the table below.


	THREE MONTHS ENDED SEPTEMBER 30,		NINE MONTHS ENDED SEPTEMBER 30,
	2021	2020	2021	2020
Share-based awards, beginning of period	1,778,308	1,739,258	1,766,061	1,754,066
Granted	—	188	203,701	79,025
Vested	—	—	(191,454)	(93,645)
Forfeited	(2,957)	—	(2,957)	—
Share-based awards, end of period	1,775,351	1,739,446	1,775,351	1,739,446

During the nine months ended September 30, 2021 and 2020, the Company withheld 51,972 and 23,563 shares of common stock, respectively, from participants to pay estimated withholding taxes related to shares that vested.

In addition to the share-based incentive plans, the Company maintains the Purchase Plan. A summary of the activity under the Purchase Plan for the three and nine months ended September 30, 2021 and 2020 is included in the table below.


	THREE MONTHS ENDED SEPTEMBER 30,		NINE MONTHS ENDED SEPTEMBER 30,
	2021	2020	2021	2020
Outstanding and exercisable, beginning of period	389,414	361,719	341,647	332,659
Granted	—	—	253,200	212,716
Exercised	(5,323)	(3,504)	(24,300)	(17,871)
Forfeited	(18,961)	(6,659)	(60,995)	(36,154)
Expired	—	—	(144,422)	(139,794)
Outstanding and exercisable, end of period	365,130	351,556	365,130	351,556

Note 8. 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.

•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.

The table below details the fair values and carrying values for notes and bonds payable at September 30, 2021 and December 31, 2020.


	September 30, 2021				December 31, 2020
Dollars in millions	CARRYING VALUE		FAIR VALUE		CARRYING VALUE		FAIR VALUE
Notes and bonds payable 1	$	1,691.4	$	1,678.6	$	1,602.8	$	1,645.4

1Level 2 – model-derived valuations in which significant inputs and significant value drivers are observable in active markets.

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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, 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. These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties, including the duration and scope of the COVID-19 pandemic; the impact of the COVID-19 pandemic on occupancy rates for the Company's properties, actions governments take in response to the COVID-19 pandemic, including the introduction of public health measures and other regulations affecting the Company’s properties and the operations of the Company and its tenants; the effects of health and safety measures adopted by the Company and its tenants related to the COVID-19 pandemic; the impact of the COVID-19 pandemic on the operations, business and financial condition of the Company and its tenants; general economic uncertainty in key markets as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth; the status of capital markets, including availability and cost of capital; and the risks described in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, that could significantly affect the Company’s current plans and expectations and future financial condition and results.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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 filings with the Securities and Exchange Commission, including this report and its Annual Report on Form 10-K for the year ended December 31, 2020.

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, borrowings under the Company's Amended and Restated Credit Agreement, dated as of May 31, 2019, as amended (the "Unsecured Credit Facility") and the Amended and Restated Term Loan Agreement, dated as of May 31, 2019, as amended (the "Term Loan Agreement"), proceeds from the sales of real estate properties, joint ventures, and proceeds from public or private debt or equity offerings. As of September 30, 2021, the Company had $609.5 million available to be drawn on its Unsecured Credit Facility and $16.0 million in cash. In addition, the Company has entered into forward equity agreements that have expected gross proceeds of up to approximately $115.9 million, depending on the timing of settlement.

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 described above. The Company had unencumbered real estate assets with a gross book value of approximately $4.6 billion at September 30, 2021, of which a portion could serve as collateral for secured mortgage financing. The Company believes that its 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.

Investing Activities

Cash flows used in investing activities for the nine months ended September 30, 2021 were approximately $364.7 million. Below is a summary of significant investing activities.

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2021 Company Acquisitions

The following table details the Company's acquisitions for the nine months ended September 30, 2021:


Dollars in thousands	ASSOCIATED HEALTH SYSTEM/TENANCY 1	DATE ACQUIRED	PURCHASE PRICE		SQUARE FOOTAGE	MILES TO CAMPUS
San Diego, CA 2	Scripps Health/UCSD	1/7/21	$	17,150	22,461	0.02
Dallas, TX 3	Baylor Scott & White Health	2/1/21	22,515		121,709	0.00
Atlanta, GA 3	Wellstar Health System	2/17/21	9,800		44,567	0.19
Washington, D.C.	Sentara Healthcare	3/3/21	12,750		26,496	0.09
Houston, TX	Houston Methodist	5/14/21	13,500		45,393	0.03
San Diego, CA 4	Palomar Health	5/28/21	102,650		160,394	0.00
Greensboro, NC	Cone Health	6/28/21	9,390		25,168	0.60
Baltimore, MD	None	6/29/21	14,600		33,316	1.50
Denver, CO 5	Centura Health (AdventHealth)	7/16/21	70,426		259,555	0.00
Greensboro, NC 2	Cone Health	7/19/21	6,400		18,119	0.18
Colorado Springs, CO	Centura Health (CommonSpirit)	7/27/21	33,400		69,526	0.00
Birmingham, AL	Community Health Systems	8/19/21	9,250		29,942	0.24
Raleigh, NC	WakeMed Health	9/20/21	5,780		18,280	0.70
Denver, CO	Centura Health (AdventHealth)	9/22/21	20,250		83,604	0.00
Raleigh, NC	WakeMed Health	9/30/21	10,000		29,178	0.22



Total real estate acquisitions			$	357,861	987,708

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

2Represents a single-tenant property.

3Includes 2 properties.

4The Company accounted for this transaction as a financing receivable. See Note 1 to the Condensed Consolidated Financial Statements accompanying this report for more information.

5Includes three properties.

2021 TIAA Joint Venture Acquisitions

The following table details the TIAA Joint Venture's acquisitions for the nine months ended September 30, 2021:


Dollars in thousands	ASSOCIATED HEALTH SYSTEM/TENANCY 1	DATE ACQUIRED	PURCHASE PRICE		SQUARE FOOTAGE	MILES TO CAMPUS	COMPANY OWNERSHIP %
Denver, CO	HCA	3/30/21	$	14,375	59,359	0.60	50	%
Colorado Springs, CO	None	4/1/21	7,200		27,510	4.70	50	%
Los Angeles, CA	MemorialCare Health	4/8/21	31,335		57,573	0.00	50	%
San Antonio, TX	CHRISTUS Health/Baptist Health	4/30/21	13,600		45,000	0.90	50	%
Los Angeles, CA	MemorialCare Health	5/10/21	24,600		73,078	0.00	50	%
Colorado Springs, CO 2	Centura Health (CommonSpirit)	7/27/21	9,133		23,956	1.90	50	%


Total TIAA Joint Venture real estate acquisitions			$	100,243	286,476

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

2Includes purchase of an adjoining 3.0 acre land parcel.

Subsequent to September 30, 2021, the TIAA Joint Venture acquired the following property:

Dollars in thousands

ASSOCIATED HEALTH SYSTEM/TENANCY 1

DATE ACQUIRED

PURCHASE PRICE

SQUARE FOOTAGE

MILES TO CAMPUS

COMPANY OWNERSHIP %

Denver, CO

None

10/21/21

23,000

57,257

3.10

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

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2021 Dispositions

The Company disposed of 11 properties during the nine months ended September 30, 2021 for a total sales price of $114.6 million, including cash proceeds of $112.0 million. The following table details these dispositions for the nine months ended September 30, 2021:


Dollars in thousands	Date Disposed	Sales Price		Square Footage
Los Angeles, CA 1,2	3/11/21	$	26,000	73,906
Atlanta, GA 2	4/12/21	8,050		19,732
Richmond, VA 2,5	5/18/21	52,000		142,856
Gadsden, AL 2,3	5/19/21	5,500		120,192
Dallas, TX 2,4	7/9/21	23,000		190,160


Total dispositions		$	114,550	546,846

1Includes two properties sold to a single purchaser in two transactions which occurred on March 5 and March 11, 2021.

2Previously classified as held for sale.

3Includes three properties.

4Includes four properties and an associated land parcel sold to a single purchaser in two transactions.

5 The Company deferred the tax gain through a 1031 exchange and reinvested the proceeds.

Subsequent Disposition

On October 28, 2021, the Company disposed of a 95,436 square foot medical office building located in Chicago, Illinois. The sales price was $13.3 million, and the Company's net investment in the building as of September 30, 2021 was approximately $12.5 million and was included in assets held for sale. During the third quarter of 2021, an impairment charge of $10.7 million was recorded based on the contractual sales price less estimated costs to sell.

Capital Funding

During the nine months ended September 30, 2021, the Company funded the following:

•$21.6 million toward the following development and redevelopment of properties:

◦Memphis, Tennessee redevelopment totaled $9.4 million;

◦Dallas, Texas redevelopment totaled $1.7 million;

◦Tacoma, Washington redevelopment totaled $1.7 million;

◦reposition properties capital and tenant improvements totaled $1.5 million; and

◦tenant improvement funding for previously completed projects totaled $7.3 million.

•$14.5 million toward first generation tenant improvements and planned capital expenditures for acquisitions;

•$16.2 million toward second generation tenant improvements; and

•$13.5 million toward capital expenditures.

Financing Activities

Cash flows provided by financing activities for the nine months ended September 30, 2021 were approximately $195.1 million. Inflows from equity proceeds related to the Company's common stock issuances and net borrowings totaled $328.1 million, net of issuance costs incurred. Aggregate cash outflows totaled approximately $133.0 million primarily associated with dividends paid to common stockholders. See Notes 4 and 7 to the Condensed Consolidated Financial Statements accompanying this report for more information about capital markets and financing activities.

Common Stock Issuances

At-The-Market Equity Offering Program

On August 6, 2021, the Company entered into equity distribution agreements with eleven investment banks to allow for issuance and sale under its at-the-market equity offering program of up to an aggregate of $750.0 million of common stock. The Company's previous at-the-market equity program to sell up to an aggregate of $500.0 million ended in August 2021. The following table details the Company's forward at-the-market activity:

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	WEIGHTED AVERAGE SALE PRICE per share		FORWARD SHARE CONTRACTS	SHARES SETTLED	SHARES REMAINING TO BE SETTLED	NET PROCEEDS in millions
Balance at December 31, 2020	$	—	—	—	1,823,259	$	—
1Q 2021	$	30.09	215,532	2,038,791	—	$	62.7
2Q 2021	$	30.99	5,835,400	3,827,971	2,007,429	$	116.1
3Q 2021	$	31.06	1,670,186	2,007,429	1,670,186	$	61.3
October 2021 1	$	31.34	2,042,562	—	3,712,748	$	—

1Includes forward share activity from August to October 2021 for trade confirmations dated in October 2021.

Debt Activity

The Company has outstanding interest rate derivatives totaling $175.0 million to hedge one-month LIBOR. The following details the amount and rate of each swap (dollars in thousands):


EFFECTIVE DATE	AMOUNT		WEIGHTED AVERAGE RATE		EXPIRATION DATE
December 18, 2017	$	25,000	2.18	%	December 16, 2022
February 1, 2018	50,000		2.46	%	December 16, 2022
May 1, 2019	50,000		2.33	%	May 1, 2026
June 3, 2019	50,000		2.13	%	May 1, 2026
	$	175,000	2.29	%

On June 1, 2021, the Company entered into a second amendment to the Term Loan Agreement that reduced the current interest rate on the $150 million portion of the loan due 2026 from LIBOR plus a margin rate ranging from 1.45% to 2.40% (previously 1.60%) to LIBOR plus a margin rate ranging from 0.80% to 1.60% (0.95% as of September 30, 2021). With the amendment, the Company paid up front fees of approximately $0.5 million, of which $0.2 million was paid to lenders, capitalized and amortized over the remainder of the term of the loan, and $0.3 million was paid to lenders as administration fees and was expensed in the second quarter of 2021. In addition, the amendment added a sustainability metric incentive tied to increasing the Company's properties with green building certifications.

Subsequent Changes in Debt Structure

Operating Activities

Cash flows provided by operating activities decreased from $411.6 million for the nine months ended September 30, 2020 to $170.3 million for the nine months ended September 30, 2021. The nine months ended September 30, 2020 includes proceeds from the disposition of sales-type lease properties totaling $244.5 million. Items impacting cash flows from operations include, but are not limited to, cash generated from property operations, interest payments and the timing related to the payment of invoices and other expenses.

The Company may, from time to time, sell properties and redeploy cash from property sales into new investments. To the extent revenues related to the properties being sold exceed income from these new investments, the Company's results of operations and cash flows could be adversely affected.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital

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expenditures or capital resources.

New Accounting Pronouncements

See Note 1 to the Condensed Consolidated Financial Statements accompanying this report for information on new accounting standards.

Trends and Matters Impacting Operating Results

Management monitors factors and trends important to the Company and the REIT industry to gauge the potential impact on the operations of the Company. In addition to the matters discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, below are some of the factors and trends that management believes may impact future operations of the Company.

Expiring Leases

The Company expects that approximately 15% to 20% of the leases will expire each year in the ordinary course of business. There are 193 leases totaling 0.6 million square feet that will expire during the remainder of 2021. Approximately 91% of the leases expiring in 2021 are in buildings located on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area. The Company typically expects to retain 75% to 90% of tenants upon expiration, and the retention ratio for the first nine months of the year was within this range.

Operating Expenses

The Company historically has experienced increases in property taxes throughout its portfolio as a result of increasing assessments and tax rates levied across the country. The Company continues its efforts to appeal property tax increases and manage the impact of the increases. In addition, the Company historically has incurred variability in portfolio utilities expense based on seasonality, with the first and third quarters usually reflecting greater amounts. The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement. As of September 30, 2021, leases for 90% of the Company's multi-tenant leased square footage allow for some recovery of operating expenses, with 32% having modified gross lease structures and 58% having net lease structures.

Purchase Options

Information about the Company's unexercised purchase options and the amount and basis for determination of the purchase price is detailed in the table below (dollars in thousands):


	NUMBER OF PROPERTIES		GROSS REAL ESTATE INVESTMENT AS OF SEPTEMBER 30, 2021
YEAR EXERCISABLE	MOB	INPATIENT	FAIR MARKET VALUE METHOD 1		NON FAIR MARKET VALUE METHOD 2		TOTAL
Current 3	2	1	$	54,543	$	—	$	54,543
2022	1	—	—		14,984		14,984
2023	—	—	—		—		—
2024	—	—	—		—		—
2025	4	—	48,241		19,459		67,700
2026	1	—	18,164		—		18,164
2027	—	—	—		—		—
2028	1	—	41,082		—		41,082
2029	1	—	26,501		—		26,501
2030	—	—	—		—		—
2031 and thereafter 4	9	—	298,260		—		298,260
Total	19	1	$	486,791	$	34,443	$	521,234

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

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

3These purchase options have been exercisable for an average of 14.1 years.

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

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Non-GAAP Financial Measures and Key Performance Indicators

Management considers certain non-GAAP financial measures and key performance indicators to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors, as well as reconciliations of these measures to the most directly comparable GAAP financial measures.

The non-GAAP financial measures and key performance indicators presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income, as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's historical consolidated operating results, these measures should be examined in conjunction with net income and cash flows from operations as presented in the Condensed Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q.

Funds from Operations ("FFO"), Normalized FFO and Funds Available for Distribution ("FAD")

FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization, impairment, and after adjustments for unconsolidated partnerships and joint ventures.”

In addition to FFO, the Company presents Normalized FFO and FAD. Normalized FFO is presented by adding to FFO acquisition-related costs, acceleration of debt issuance costs, debt extinguishment costs and other Company-defined normalizing items to evaluate operating performance. FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, non-cash financing receivable amortization, loan origination cost amortization, deferred financing fees amortization, stock-based compensation expense and provision for bad debts, net; and subtracting maintenance capital expenditures, including second generation tenant improvements and leasing commissions paid and straight-line rent income, net of expense. The Company's definition of these terms may not be comparable to that of other real estate companies as they may have different methodologies for computing these amounts. FFO, Normalized FFO and FAD should not be considered as an alternative to net income as an indicator of the Company's financial performance or to cash flow from operating activities as an indicator of the Company's liquidity. FFO, Normalized FFO and FAD should be reviewed in connection with GAAP financial measures.

Management believes FFO, Normalized FFO, FFO per share, Normalized FFO per share and FAD ("Non-GAAP Measures") provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, primarily depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization, impairments and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, Non-GAAP Measures can facilitate comparisons of operating performance between periods. The Company reports Non-GAAP Measures because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs. For these reasons, management deems it appropriate to disclose and discuss these Non-GAAP Measures. However, none of these measures represent cash generated from operating activities determined in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs. Further, these measures should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow from operating activities as a measure of liquidity. The table below reconciles net income to FFO, Normalized FFO

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and FAD for the three and nine months ended September 30, 2021 and 2020.


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
Amounts in thousands, except per share data	2021		2020		2021		2020
Net income (loss)	$	(2,066)	$	8,230	$	45,052	$	88,058
Gain on sales of real estate properties	(1,186)		(2,177)		(41,046)		(70,395)
Impairment of real estate properties	10,669		—		16,581		—
Real estate depreciation and amortization	52,390		48,215		154,899		145,324
Proportionate share of unconsolidated joint ventures	1,558		80		3,726		240
FFO attributable to common stockholders	$	61,365	$	54,348	$	179,212	$	163,227
Acquisition and pursuit costs 1	974		440		2,388		1,621
Lease intangible amortization	48		(35)		(30)		694
Forfeited earnest money received	—		—		(500)		—
Debt financing costs	—		—		283		—
Unconsolidated JV normalizing items 2	54		—		136		—
Normalized FFO attributable to common stockholders	$	62,441	$	54,753	$	181,489	$	165,542
Non-real estate depreciation and amortization	586		785		1,900		2,430
Non-cash interest amortization 3	720		934		2,511		2,715
Provision for bad debt, net	25		(144)		3		718
Straight-line rent, net	(1,171)		(543)		(3,459)		(1,600)
Stock-based compensation	2,538		2,445		8,183		7,449
Unconsolidated JV non-cash items 4	(341)		8		(1,051)		23
Normalized FFO adjusted for non-cash items	$	64,798	$	58,238	$	189,576	$	177,277
2nd generation TI	(6,219)		(5,323)		(16,156)		(17,368)
Leasing commissions paid	(4,531)		(1,999)		(9,528)		(7,081)
Capital additions	(5,443)		(4,580)		(13,539)		(12,827)
FAD	$	48,605	$	46,336	$	150,353	$	140,001
FFO per common share - diluted	$	0.42	$	0.40	$	1.26	$	1.21
Normalized FFO per common share - diluted	$	0.43	$	0.41	$	1.27	$	1.23
FFO weighted average common shares outstanding - diluted 5	144,807		135,159		142,488		134,537

1Acquisition and pursuit costs include third-party and travel costs related to the pursuit of acquisitions and developments.

2Includes the Company's proportionate share of acquisition and pursuit costs related to unconsolidated joint ventures.

3Includes the amortization of deferred financing costs, discounts and premiums, and non-cash financing receivable amortization.

4Includes the Company's proportionate share of straight-line rent, net related to unconsolidated joint ventures.

5The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 911,594 and 874,189, respectively for the three and nine months ended September 30, 2021.

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

Cash NOI and Same Store Cash NOI are key performance indicators. Management considers these to be supplemental measures that allow investors, analysts and Company management to measure unlevered property-level operating results. The Company defines Cash NOI as rental income, interest from financing receivables and property lease guaranty income less property operating expenses. Cash NOI excludes non-cash items such as above and below market lease intangibles, straight-line rent, lease inducements, financing receivable amortization, tenant improvement amortization and leasing commission amortization. The Company also excludes cash lease termination fees. Cash NOI is historical and not necessarily indicative of future results.

Same Store Cash NOI compares Cash NOI for stabilized properties. Stabilized properties are properties that have been included in operations for the duration of the year-over-year comparison period presented and include redevelopment projects. Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale, reposition properties and newly developed properties. The Company utilizes the reposition classification for properties experiencing a shift in strategic direction. Such a shift can occur for a variety of reasons, including a substantial change in the use of the asset, a change in strategy or closure of a

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neighboring hospital, or significant property damage. Such properties may require enhanced management, leasing, capital needs or a disposition strategy that differs from the rest of the portfolio. To identify properties exhibiting these reposition characteristics, the Company applies the following Company-defined criteria:

•Properties having less than 60% occupancy that is expected to last at least two quarters;

•Properties that experience a loss of occupancy over 30% in a single quarter; or

•Properties with negative NOI that is expected to last at least two quarters.

Any recently acquired property will be included in the same store pool once the Company has owned the property for eight full quarters. Newly developed properties will be included in the same store pool eight full quarters after substantial completion. Any additional square footage created by redevelopment projects at a same store property is included in the same store pool immediately upon completion. Any property included in the reposition property group will be included in the same store analysis once occupancy has increased to 60% or greater with positive NOI and has remained at that level for eight full quarters.

During the third quarter of 2021, the Company's reposition pool decreased by one property to a total of six properties as a result of the property being reclassified from reposition to same store.

The following table reflects the Company's same store cash NOI for the three months ended September 30, 2021 and 2020.


	NUMBER OF PROPERTIES	GROSS INVESTMENT at September 30, 2021		SAME STORE CASH NOI for the three months ended September 30,
Dollars in thousands				2021		2020
Same store properties	178	$	3,786,406	$	68,062	$	66,874

The following tables reconcile net income to same store NOI and the same store property metrics to the total owned real estate portfolio for the three months ended September 30, 2021 and 2020:

Reconciliation of Same Store Cash NOI


	THREE MONTHS ENDED SEPTEMBER 30,
Dollars in thousands	2021		2020
Net income (loss)	$	(2,066)	$	8,230


Other income (expense)	23,000		11,969
General and administrative expense	8,207		7,299
Depreciation and amortization expense	50,999		47,143
Other expenses 1	3,193		2,364
Straight-line rent revenue	(1,170)		(542)
Joint venture properties	1,210		19
Other revenue 2	(2,043)		(1,609)
Cash NOI	81,330		74,873
Cash NOI not included in same store	(13,268)		(7,999)
Same store cash NOI	68,062		66,874
Reposition NOI	691		954
Same store and reposition cash NOI	$	68,753	$	67,828

1Includes acquisition and pursuit costs, bad debt, above and below market ground lease intangible amortization, leasing commission amortization and ground lease straight-line rent expense.

2Includes management fee income, interest, above and below market lease intangible amortization, lease inducement amortization, lease terminations and tenant improvement overage amortization.

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Reconciliation of Same Store Properties


	AS OF SEPTEMBER 30, 2021
Dollars in thousands	PROPERTY COUNT	GROSS INVESTMENT		SQUARE FEET	OCCUPANCY
Same store properties	178	$	3,786,406	13,426,252	88.4	%
Acquisitions	49	895,660		2,396,693	89.8	%
Development completions	2	83,452		261,914	72.3	%
Reposition	6	101,672		668,889	54.8	%
Total owned real estate properties	235	$	4,867,190	16,753,748	87.0	%

Results of Operations

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

The Company’s results of operations for the three months ended September 30, 2021 compared to the same period in 2020 were impacted by acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Revenues

Rental income increased $8.4 million, or 6.8%, for the three months ended September 30, 2021 compared to the prior year period. This increase is comprised of the following:

•Acquisitions in 2020 and 2021 contributed $10.0 million.

•Leasing activity, including contractual rent increases, contributed $2.6 million.

•Dispositions in 2020 and 2021 resulted in a decrease of $4.2 million.

Interest from a financing receivable, net totaled $1.9 million for the three months ended September 30, 2021. The Company acquired a property in the second quarter of 2021 under a sale leaseback transaction. The sale leaseback did not qualify for sale accounting as a result of a purchase option included in the tenant lease. Therefore, the Company accounted for the transaction as a financing receivable. See Note 1 to the Condensed Consolidated Financial Statements accompanying this report for more information.

Other operating income increased $1.1 million, or 58.9%, from the prior year period primarily as a result of variable parking and asset management fees.

Expenses

Property operating expenses increased $5.3 million, or 10.7%, for the three months ended September 30, 2021 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in 2020 and 2021 resulted in an increase of $4.9 million.

•Increases in portfolio operating expenses as follows:

◦Maintenance and repair expense of $0.6 million;

◦Utilities expense of $0.5 million;

◦Compensation expense of $0.2 million;

◦Administrative and other legal expense of $0.2 million;

◦Janitorial expense of $0.1 million;

◦Property tax expense increase of $0.1 million;

◦Insurance expense of $0.1 million.

•Dispositions in 2020 and 2021 resulted in a decrease of $1.4 million.

General and administrative expenses increased approximately $0.9 million, or 12.4%, for the three months ended September 30, 2021 compared to the prior year period primarily as a result of the following activity:

•Travel expense increases of $0.2 million.

•Incentive-based awards increases of $0.5 million.

•Compensation expense increases of $0.7 million, including $0.1 million of non-cash expense.

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•Net decreases, including professional fees and other administrative costs, of $0.5 million.

Depreciation and amortization expense increased $3.9 million, or 8.2%, for the three months ended September 30, 2021 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in 2020 and 2021 resulted in an increase of $5.4 million.

•Various building and tenant improvement expenditures resulted in an increase of $2.4 million.

•Dispositions in 2020 and 2021 resulted in a decrease of $1.2 million.

•Assets that became fully depreciated resulted in a decrease of $2.7 million.

Other Income (Expense)

Gains on sale of real estate properties

In the third quarter of 2021, the Company recognized gains of approximately $1.2 million on the sale of four properties and a land parcel sold under a single purchase agreement.

In the third quarter of 2020, the Company recognized gains of approximately $2.2 million primarily related to the sale of one property.

Interest expense

Interest expense decreased $0.8 million, or 5.8%, for the three months ended September 30, 2021 compared to the prior year period. The components of interest expense are as follows:


	THREE MONTHS ENDED SEPTEMBER 30,				CHANGE
Dollars in thousands	2021		2020		$		%
Contractual interest	$	12,201	$	13,182	$	(981)	(7.4)	%
Net discount/premium accretion	50		102		(52)		(51.0)	%
Deferred financing costs amortization	713		683		30		4.4	%
Interest rate swap amortization	42		42		—		—	%
Treasury hedge amortization	107		107		—		—	%
Interest cost capitalization	(34)		(207)		173		(83.6)	%
Right-of-use assets financing amortization	255		245		10		4.1	%
Total interest expense	$	13,334	$	14,154	$	(820)	(5.8)	%

Contractual interest expense decreased $1.0 million, or 7.4%, primarily as a result of the following activity:

•The unsecured senior notes due 2031 accounted for an increase of approximately $1.5 million.

•The redemption of the unsecured senior notes due 2023 accounted for a decrease of $2.3 million.

•The Company's unsecured term loan due 2024 and unsecured term loan due 2026, net of swaps, accounted for a decrease of approximately $0.3 million.

•The Unsecured Credit Facility accounted for an increase of approximately $0.2 million.

•Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.1 million.

Impairment of Real Estate Properties

Impairment of real estate properties totaling approximately $10.7 million was recorded based on the contractual sales price of a property that was reclassified to held for sale during the third quarter of 2021.

Equity loss from unconsolidated joint ventures

The Company recognized its proportionate share of losses from the TIAA Joint Venture and its parking garage joint ventures during the third quarter of 2021. These losses are primarily attributable to non-cash depreciation expense. See Note 2 to the Condensed Consolidated Financial Statements accompanying this report for more details regarding the Company's unconsolidated joint ventures.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

The Company’s results of operations for the nine months ended September 30, 2021 compared to the same period in 2020 were impacted by acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

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Revenues

Rental income increased $20.2 million, or 5.5%, for the nine months ended September 30, 2021 compared to the prior year period. This increase is comprised of the following:

•Acquisitions in 2020 and 2021 contributed $27.8 million.

•A development completed in 2020 contributed $1.0 million.

•Leasing activity, including contractual rent increases, contributed $7.0 million.

•Dispositions in 2020 and 2021 resulted in a decrease of $15.6 million.

Interest from financing receivable, net of $2.4 million resulted from the 2021 acquisition of a property classified as an investment in financing receivable. See Note 1 to the Condensed Consolidated Financial Statements accompanying this report.

Other operating income increased $2.0 million, or 37.0%, from the prior year period primarily resulting from variable parking and asset management fees.

Expenses

Property operating expenses increased $12.9 million, or 8.8%, for the nine months ended September 30, 2021 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in 2020 and 2021 resulted in an increase of $11.4 million.

•A development completed in 2020 resulted in an increase of $0.4 million.

•Increases in portfolio operating expenses as follows:

◦Maintenance and repair expense of $2.2 million;

◦Property tax expense of $0.7 million;

◦Utilities expense of $0.9 million;

◦Compensation expense of $0.5 million; and

◦Insurance expense of $0.3 million.

•Intangible amortization write-off in the first quarter of 2020 resulted from the acquisition of previously ground leased land resulted in a decrease of $0.7 million.

•Dispositions in 2020 and 2021 resulted in a decrease of $2.8 million.

General and administrative expenses increased approximately $1.8 million, or 7.5%, for the nine months ended September 30, 2021 compared to the prior year period primarily as a result of the following activity:

•Increase in incentive-based awards of approximately $0.7 million.

•Compensation expense increases of $1.8 million, including $0.6 million of non-cash expense.

•Net decreases, including professional fees and other administrative costs, of $0.7 million.

Depreciation and amortization expense increased $8.6 million, or 6.0%, for the nine months ended September 30, 2021 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in 2020 and 2021 and a development in 2020 resulted in an increase of $15.1 million.

•Various building and tenant improvement expenditures resulted in an increase of $7.1 million.

•Dispositions in 2020 and 2021 resulted in a decrease of $5.3 million.

•Assets that became fully depreciated resulted in a decrease of $8.3 million.

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Other Income (Expense)

Gains on sale of real estate properties

Gains on sale of real estate properties in 2021 totaling approximately $41.0 million are associated with eight real estate properties.

Gains on sale of real estate properties in 2020 totaling $70.4 million are associated with three real estate properties.

Interest expense

Interest expense decreased $2.7 million, or 6.3%, for the nine months ended September 30, 2021 compared to the prior year period. The components of interest expense are as follows:


	NINE MONTHS ENDED SEPTEMBER 30,				CHANGE
Dollars in thousands	2021		2020		$		%
Contractual interest	$	36,590	$	40,031	$	(3,441)	(8.6)	%
Net discount/premium accretion	146		358		(212)		(59.2)	%
Deferred financing costs amortization	2,114		2,003		111		5.5	%
Interest rate swap amortization	126		126		—		—	%
Treasury hedge amortization	320		229		91		39.7	%
Interest cost capitalization	(187)		(913)		726		(79.5)	%
Right-of-use assets financing amortization	748		722		26		3.6	%
Total interest expense	$	39,857	$	42,556	$	(2,699)	(6.3)	%

Contractual interest expense decreased $3.4 million, or 8.6%, primarily as a result of the following activity:

•The unsecured senior notes due 2031 and the Senior Notes due 2030 accounted for an increase of approximately $6.1 million.

•The redemption of the unsecured senior notes due 2023 accounted for a decrease of $7.0 million.

•The Company's unsecured term loan due 2024 and the unsecured term loan due 2026, net of swaps, accounted for an increase of approximately $0.5 million.

•The Unsecured Credit Facility accounted for a decrease of approximately $2.0 million.

•Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $1.0 million.

Impairment of Real Estate Properties

Impairment of real estate properties totaling approximately $16.6 million was associated with the disposal of one property totaling $0.8 million and the reclassification of a property to held for sale resulting in an impairment of $10.7 million based on the contractual sales price. In addition, the Company recorded impairment charges totaling $5.1 million which includes a property associated with a redevelopment project in Nashville, Tennessee. See Note 6 to the Condensed Consolidated Financial Statements accompany this report for further discussion of this project.

Equity loss from unconsolidated joint ventures

The Company recognized its proportionate share of losses from the TIAA Joint Venture and its parking garage joint ventures. These losses are primarily attributable to non-cash depreciation expense. See Note 2 to the Condensed Consolidated Financial Statements accompanying this report for more details regarding the Company's unconsolidated joint ventures.

Interest and other income (expense), net

In 2021, the Company recorded approximately $0.5 million from a forfeited earnest money deposit and expensed approximately $0.3 million of debt issuance costs as a result of the amendment to the Term Loan Agreement.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk in the form of changing interest rates on its debt and mortgage notes. Management uses regular monitoring of market conditions and analysis techniques to manage this risk. During the nine months ended September 30, 2021, there were no material changes in the quantitative and qualitative

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disclosures about market risks presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports it files or submits under the Exchange Act.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

In addition to the other information set forth in this report, an investor should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which could materially affect the Company’s business, financial condition or future results. The risks, as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems immaterial also may materially, adversely affect the Company’s business, financial condition, operating results or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Authorized Repurchases of Equity Securities by the Issuer

On May 4, 2021, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of outstanding shares of the Company’s common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints, and other customary conditions. The Company is not obligated under this authorization to repurchase any specific number of shares. This authorization supersedes all previous stock repurchase authorizations. As of the date of this report, the Company has not repurchased any shares of its common stock under this authorization.

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Item 5. Other Information

On November 2, 2021, the Compensation Committee of the Company's Board of Directors adopted the 2021 Executive Incentive Program under the Company's 2015 Stock Incentive Plan. The 2021 Executive Incentive Program supersedes the Company's Amended and Restated Executive Incentive Plan that was originally adopted in 2015. Copies of the 2021 Executive Incentive Program and the related Form of Restricted Stock Unit Agreement are filed as Exhibits 10.2 and 10.3, respectively, to this report and are incorporated herein by reference.

Item 6. Exhibits


EXHIBIT			DESCRIPTION
Exhibit 3.1			Second Articles of Amendment and Restatement of the Company, as amended 1
Exhibit 3.2			Amended and Restated Bylaws of the Company, as amended 1
Exhibit 4.1			Specimen Stock Certificate 2
Exhibit 4.2			Indenture, dated as of May 15, 2001, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company, as trustee (as successor to the trustee named therein) 3
Exhibit 4.3			Fifth Supplemental Indenture, dated March 26, 2013, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company, as Trustee (as successor to the trustee named therein)4
Exhibit 4.4			Form of 3.75% Senior Note due 2023 (set forth in Exhibit B to the Fifth Supplemental Indenture filed as Exhibit 4.3 thereto) 4
Exhibit 4.5			Sixth Supplemental Indenture, dated April 24, 2015, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company, as Trustee (as successor to the trustee named therein) 5
Exhibit 4.6			Form of 3.875% Senior Note due 2025 (set forth in Exhibit B to the Sixth Supplemental Indenture filed as Exhibit 4.5 thereto) 5
Exhibit 4.7			Seventh Supplemental Indenture, dated December 11, 2017, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company, as Trustee. 6
Exhibit 4.8			Form of 3.625% Senior Note due 2028 (set forth in Exhibit B to the Seventh Supplemental Indenture filed as Exhibit 4.7 hereto). 6
Exhibit 4.9			Eighth Supplemental Indenture, dated March 18, 2020, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company, as Trustee.7
Exhibit 4.10			Form of 2.400% Senior Note due 2030 (set forth in Exhibit B to the Eighth Supplemental Indenture filed as Exhibit 4.9 hereto). 7
Exhibit 4.11			Ninth Supplemental Indenture, dated October 2, 2020, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company, as Trustee. 8
Exhibit 4.12			Form of 2.050% Senior Note due 2031 (set forth in Exhibit B to the Ninth Supplemental Indenture filed as Exhibit 4.11 hereto). 8
Exhibit 10.1			Amended and Restated Employment Agreement between the Company and Julie F. Wilson, dated as of July 1, 2021.9
Exhibit 10.2			Healthcare Realty Trust Incorporated 2021 Executive Incentive Program, dated November 2, 2021 (filed herewith).
Exhibit 10.3			Form of Healthcare Realty Trust Incorporated Restricted Stock Unit Agreement (filed herewith).
Exhibit 31.1			Certification of the Chief Executive Officer of Healthcare Realty Trust Incorporated pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
Exhibit 31.2			Certification of the Chief Financial Officer of Healthcare Realty Trust Incorporated pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
Exhibit 32			Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
Exhibit 101.INS			The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH			XBRL Taxonomy Extension Schema Document (furnished electronically herewith)
Exhibit 101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document (furnished electronically herewith)
Exhibit 101.LAB			XBRL Taxonomy Extension Labels Linkbase Document (furnished electronically herewith)
Exhibit 101.DEF			XBRL Taxonomy Extension Definition Linkbase Document (furnished electronically herewith)
Exhibit 101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document (furnished electronically herewith)

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1Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed February 13, 2019 and hereby incorporated by reference.

2Filed as an exhibit to the Company’s Registration Statement on Form S-11 (Registration No. 33-60506) filed April 2, 1993 and hereby incorporated by reference.

3Filed as an exhibit to the Company's Current Report on Form 8-K filed May 17, 2001 and hereby incorporated by reference.

4Filed as an exhibit to the Company's Current Report on Form 8-K filed March 26, 2013 and hereby incorporated by reference.

5Filed as an exhibit to the Company's Current Report on Form 8-K filed April 24, 2015 and hereby incorporated by reference.

6Filed as an exhibit to the Company’s Current Report on Form 8-K filed December 11, 2017 and hereby incorporated by reference.

7Filed as an exhibit to the Company's Current Report on Form 8-K filed March 18, 2020 and hereby incorporated by reference.

8Filed as an exhibit to the Company's Current Report on Form 8-K filed October 2, 2020 and hereby incorporated by reference.

9Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and hereby incorporated by reference.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	HEALTHCARE REALTY TRUST INCORPORATED

	By:	/s/ J. CHRISTOPHER DOUGLAS
		J. Christopher Douglas
		Executive Vice President and Chief Financial Officer
November 3, 2021