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What changed in Healthcare Realty Trust Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Healthcare Realty Trust Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+267 added−288 removedSource: 10-K (2024-02-16) vs 10-K (2023-03-01)

Top changes in Healthcare Realty Trust Inc's 2023 10-K

267 paragraphs added · 288 removed · 223 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

34 edited+3 added−4 removed39 unchanged
Biggest changeExamples of significant legislation or regulatory action recently proposed, enacted, or in the process of implementation include: • the Coronavirus Aid, Relief and Economic Security Act of 2020, along with subsequent stimulus and COVID-19 relief bills and federal spending legislation, which provided relief funding and financial aid to businesses, individuals, and healthcare providers impacted by COVID-19, including higher Medicare reimbursement rates, forgiveness of small business loans to providers for payroll and rent, and additional resources for testing and vaccine distribution; • the expansion of Medicaid benefits and health insurance exchanges established by the Affordable Care Act, whereby individuals and small businesses purchase health insurance with assistance from federal subsidies; • various state legislature proposals for state-funded single-payer health insurance and a limit on allowable rates of reimbursement to healthcare providers; • the implementation of quality control, cost containment, and value-based payment system reforms for Medicaid and Medicare, such as expansion of pay-for-performance criteria, bundled provider payments, accountable care organizations, comparative effectiveness research, and lower payments for hospital readmissions; • ongoing evaluation of and transition toward value-based reimbursement models for Medicare payments to physicians as designated under MACRA; • annual regulatory updates to Medicare policy for healthcare providers that can broadly change reimbursement methodology under budget-neutral guidelines, with the effect of lowering payments for some services and increasing payments for others, having a varying impact, positively or negatively, on providers; • ongoing efforts to equalize Medicare payment rates across different facility-type settings, according to Section 603 of the Bipartisan Budget Act of 2015, which lowered Medicare payment rates, effective January 4 1, 2017, for services provided in off-campus, provider-based outpatient departments to the same level of rates for physician office settings; • the continued adoption by providers of federal standards for the Medicare Promoting Interoperability Program; • reforms to the physician self-referral laws, commonly referred to as the Stark Law, as adjusted in 2020 in order to promote the transition toward value-based, coordinated care among providers, although clear intent to boost referrals could still yield provider penalties; • consideration of broad reforms to Medicare and Medicaid, including a significant expansion of Medicare coverage to the greater U.S. population; • more stringent regulatory criteria by which federal antitrust agencies evaluate the potential for anti-competitive practices as a result of mergers and acquisitions of health systems and physicians; • regulations requiring the publication of hospital prices for certain services, as well as hospitals’ negotiated rates with insurers for these services; • limits on price increases in pharmaceutical drugs and the cost to Medicare beneficiaries, including the potential for setting prices according to an international standard; and • the prohibition of “surprise billing,” or high payment rates charged to consumers for out-of-network physician services.
Biggest changeExamples of significant legislation or regulatory action recently proposed, enacted, or in the process of implementation include: • the expansion of Medicaid benefits and health insurance exchanges established by the Affordable Care Act, whereby individuals and small businesses purchase health insurance with assistance from federal subsidies; • various state legislature proposals for state-funded single-payer health insurance and a limit on allowable rates of reimbursement to healthcare providers; • the implementation of quality control, cost containment, and value-based payment system reforms for Medicaid and Medicare, such as expansion of pay-for-performance criteria, bundled provider payments, accountable care organizations, comparative effectiveness research, and lower payments for hospital readmissions; • ongoing evaluation of and transition toward value-based reimbursement models for Medicare payments to physicians as designated under MACRA; • annual regulatory updates to Medicare policy for healthcare providers that can broadly change reimbursement methodology under budget-neutral guidelines, with the effect of lowering payments for some services and increasing payments for others, having a varying impact, positively or negatively, on providers; • ongoing efforts to equalize Medicare payment rates across different facility-type settings, according to Section 603 of the Bipartisan Budget Act of 2015, which lowered Medicare payment rates, effective January 1, 2017, for services provided in off-campus, provider-based outpatient departments to the same level of rates for physician office settings; • the continued adoption by providers of federal standards for the Medicare Promoting Interoperability Program; • reforms to the physician self-referral laws, commonly referred to as the Stark Law, as adjusted in 2020 in order to promote the transition toward value-based, coordinated care among providers, although clear intent to boost referrals could still yield provider penalties; • consideration of broad reforms to Medicare and Medicaid, including a significant expansion of Medicare coverage to the greater U.S. population; • more stringent regulatory criteria by which federal antitrust agencies evaluate the potential for anti-competitive practices as a result of mergers and acquisitions of health systems and physicians; • regulations requiring the publication of hospital prices for certain services, as well as hospitals’ negotiated rates with insurers for these services; 4 • limits on price increases in pharmaceutical drugs and the cost to Medicare beneficiaries, including the potential for setting prices according to an international standard; and • the prohibition of “surprise billing,” or high payment rates charged to consumers for out-of-network physician services.
Government Regulation The facilities owned by the Company are utilized by medical tenants which are required to comply with extensive regulation and legislation at the federal, state and local levels, including, but not limited to, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "Affordable Care Act"), the Bipartisan Budget Act of 2015, the Medicare Access and CHIP Reauthorization Act of 2015, and laws intended to combat fraud, waste and abuse such as the Anti-Kickback Statute, Stark Law and False Claims Act, and laws intended to protect the privacy and security of patient information, such as the Health Insurance Portability and Accountability Act of 1996.
Government Regulation The facilities owned by the Company are utilized by medical tenants which are required to comply with extensive regulation and legislation at the federal, state and local levels, including, but not limited to, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "Affordable Care Act"), the Bipartisan Budget Act of 2015, the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), and laws intended to combat fraud, waste and abuse such as the Anti-Kickback Statute, Stark Law and False Claims Act, and laws intended to protect the privacy and security of patient information, such as the Health Insurance Portability and Accountability Act of 1996.
Available Information The Company makes available to the public free of charge through its website the Company’s Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after the Company electronically files such reports with, or furnishes such reports to, the Securities and Exchange Commission ("SEC").
Available Information The Company makes available to the public free of charge through its website the Company’s Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after the Company electronically files such reports with, or furnishes such reports to, the SEC.
As we implement our strategy and pursue our objectives, the Company’s actions are guided by our Sustainability Principles and Policies, to ensure continuous improvement and long-term success. Our Sustainability Principles and Policies include: 6 a. Integration : Embed and integrate leading environmental, social and governance practices designed to enhance portfolio performance into the Company’s daily operations. b.
As we implement our strategy and pursue our objectives, the Company’s actions are guided by our Sustainability Principles and Policies, to ensure continuous improvement and long-term success. Our Sustainability Principles and Policies include: a. Integration : Embed and integrate leading environmental, social and governance practices designed to enhance portfolio performance into the Company’s daily operations. b.
Legislative Developments Taxation of Dividends The Tax Cuts and Jobs Act of 2017 generally allows a deduction for individuals equal to 20% of certain income from pass-through entities, including ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income).
Legislative Developments Taxation of Dividends The Tax Cuts and Jobs Act of 2017 (“TCJA”) generally allows a deduction for individuals equal to 20% of certain income from pass-through entities, including ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income).
In addition, several of the Company's properties were built during the period that asbestos was commonly used in building construction and other such facilities may be acquired by the 5 Company in the future.
In addition, several of the Company's properties were built during the period that asbestos was commonly used in building construction and other such facilities may be acquired by the Company in the future.
The Company’s Board of Directors is committed to overseeing the integration of our ESG principles throughout the Company. In addition, the Company's incentive program for executive officers includes ESG performance measures.
The Company’s Board of Directors is committed to overseeing the integration of our ESG principles throughout the Company. In addition, the Company's incentive program for named executive officers includes ESG performance measures.
Impact : Drive positive impact across the Company while mitigating risk and creating long-term value for stakeholders, including our tenants, investors, employees, and the communities in which we live, work and invest. c. Integrity : Conduct business with integrity, respect and excellence, earning the right to be a preferred provider of medical office properties.
Impact : Drive positive impact across the Company while mitigating risk and creating long-term value for stakeholders, including our tenants, investors, employees, and the communities in which we live, work and invest. c. Integrity : Conduct business with integrity, respect and excellence, earning the right to be a preferred provider of outpatient medical properties.
Changes from year to year in reimbursement methodology, rates and other regulatory requirements may cause the profitability of providing care to Medicare and Medicaid patients to decline, which could adversely affect tenants' ability to make lease payments to the Company. The Centers for Medicare and Medicaid Services continued to adjust Medicare payment rates in 2022 to implement site-neutral payment policies.
Changes from year to year in reimbursement methodology, rates and other regulatory requirements may cause the profitability of providing care to Medicare and Medicaid patients to decline, which could adversely affect tenants' ability to make lease payments to the Company. The Centers for Medicare and Medicaid Services continued to adjust Medicare payment rates in 2023 to implement site-neutral payment policies.
Committee Charters The Board of Directors has an Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The Board of Directors has adopted written charters for each committee, which are posted on the Company’s website ( www.healthcarerealty.com ) and are available in print to any stockholder who requests a copy.
Committee Charters The Board of Directors has an Audit Committee, Compensation and Human Capital Committee, and Nominating and Corporate Governance Committee. The Board of Directors has adopted written charters for each committee, which are posted on the Company’s website ( www.healthcarerealty.com ) and are available in print to any stockholder who requests a copy.
Square feet has not been adjusted by the Company's ownership percentage. 1 Financial Concentrations The Company’s real estate portfolio is leased to a diverse tenant base. For the year ended December 31, 2022, the Company did not have any tenants that accounted for 10% or more of the Company’s consolidated revenues.
Square feet have not been adjusted by the Company's ownership percentage. 1 Financial Concentrations The Company’s real estate portfolio is leased to a diverse tenant base. For the year ended December 31, 2023, the Company did not have any tenants that accounted for 10% or more of the Company’s consolidated revenues.
However, 3 the Company has not seen a measurable impact from site-neutral Medicare payment policy, positively or negatively. The Company cannot predict the amount of benefit from these measures or if other federal health policy will ultimately require cuts to reimbursement rates for services provided in other settings.
However, the Company has not seen a material impact from site-neutral Medicare payment policy, positively or negatively. The Company cannot predict the amount of benefit from these measures or if other federal health policy will ultimately require cuts to reimbursement rates for services provided in other settings.
More information regarding the Company’s Sustainability Principles and Policies and ESG performance can be found in the Company’s 2022 Corporate Responsibility Report on its website ( www.healthcarerealty.com ).
More information regarding the Company’s Sustainability Principles and Policies and ESG performance can be found in the Company’s 2023 Corporate Responsibility Report on its website ( www.healthcarerealty.com ).
Additional information regarding employee and community engagement is available in the 2022 Corporate Responsibility Report, which is posted on the Company's website ( www.healthcarerealty.com ).
Additional information regarding employee and community engagement is available in the 2023 Corporate Responsibility Report, which is posted on the Company's website ( www.healthcarerealty.com ).
See Note 3 to the Consolidated Financial Statements for additional information regarding the Company's gross investments by geographic market. Expiring Leases As of December 31, 2022, the weighted average remaining years to expiration pursuant to the Company’s leases was approximately 4.5 years, with expirations through 2052.
See Note 3 to the Consolidated Financial Statements for additional information regarding the Company's gross investments by geographic market. Expiring Leases As of December 31, 2023, the weighted average remaining years to expiration pursuant to the Company’s leases was approximately 4.2 years, with expirations through 2052.
To retain talented employees that contribute to the Company’s strategic objectives, we offer an attractive set of employee benefits, including: • Health benefits and 401(k) starting on the first day of employment; • Auto-enrollment of new employees in our 401(k) plan at 3%; • Dollar-for-dollar match on 401(k) contributions up to $2,800, encouraging higher employee savings; • 100% of long-term disability and life insurance premiums paid; and • Tuition reimbursement up to $3,000 annually for any employee pursuing higher education.
To retain talented employees who contribute to the Company’s strategic objectives, we offer an attractive set of employee benefits, including: • Health benefits and 401(k) starting on the first day of employment; • Dollar-for-dollar match on 401(k) contributions up to $2,800, encouraging higher employee savings; • 100% of long-term disability and life insurance premiums paid; and • Tuition reimbursement up to $3,000 annually for any employee pursuing higher education.
In addition, the deduction for ordinary REIT dividends is not subject to the wage and tax basis limitations applicable to the deduction for other qualifying pass-through income. The Tax Cuts and Jobs Act of 2017 was a far-reaching and complex revision to the existing U.S. federal income tax laws.
In addition, the deduction for ordinary REIT dividends is not subject to the wage and tax basis limitations applicable to the deduction for other qualifying pass-through income. The TCJA was a far-reaching and complex revision to the existing U.S. federal income tax laws.
In addition, the Company had a weighted average ownership interest of approximately 48% in 33 real estate properties held in joint ventures as of December 31, 2022. The Company provided leasing and property management services to 93% of its portfolio nationwide as of December 31, 2022.
The Company had a weighted average ownership interest of approximately 43% in 33 real estate properties held in unconsolidated joint ventures as of December 31, 2023. The Company provided leasing and property management services to 93% of its portfolio nationwide as of December 31, 2023.
The Company seeks to reduce financial and operational risk by owning properties in high-growth markets with a broad tenant mix that includes over 30 physician specialties, as well as surgery, imaging, cancer, and diagnostic centers. 2022 Investment Activity In 2022, the Company acquired 33 medical office buildings through acquisitions and investments in joint ventures.
The Company seeks to reduce financial and operational risk by owning properties in high-growth markets with a broad tenant mix that includes over 30 physician specialties, as well as surgery, imaging, cancer, and diagnostic centers. 2023 Investment Activity In 2023, the Company acquired two medical office buildings.
Implementation of the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), and the ongoing debate over the most effective payment system to use to promote value-based reimbursement, along with its budget-neutrality rule that requires any increases in payments to be offset by decreases, present the industry and its individual participants with uncertainty and financial risk.
Implementation of MACRA, and the ongoing debate over the most effective payment system to use to promote value-based reimbursement, along with its budget-neutrality rule that requires 3 any increases in payments to be offset by decreases, present the industry and its individual participants with uncertainty and financial risk.
The table below details the Company’s lease expirations as of December 31, 2022, excluding the Company's unconsolidated joint ventures, financing receivables and right-of-use assets.
The table below details the Company’s lease expirations as of December 31, 2023, excluding the Company's unconsolidated joint ventures, financing receivables, assets held for sale and right-of-use assets.
The remaining $7.4 million was accounted for as a financing arrangement and is included in Investments in financing receivables, net and includes its relative portion of the square feet and occupancy. 4 Gross investment includes the Company's pro rata share of unconsolidated joint ventures, net of mortgage note payable.
The remaining $7.4 million was accounted for as a financing arrangement and is included in investments in financing receivables, net. 5 Gross investment includes the Company's pro rata share of unconsolidated joint ventures, net of mortgage notes payable.
Real Estate Properties The Company had gross investments of approximately $14.1 billion in 688 real estate properties, construction in progress, redevelopments, financing receivables, financing lease right-of-use assets, land held for development and corporate property as of December 31, 2022.
Real Estate Properties The Company had gross investments of approximately $13.4 billion in 655 consolidated real estate properties, construction in progress, redevelopments, financing receivables, financing lease right-of-use assets, land held for development and corporate property as of December 31, 2023.
There was one property excluded from the table above that was classified as held for sale as of December 31, 2022. 2 Investments in financing receivables, net includes a single-tenant net lease property in San Diego, CA in a sale-leaseback transaction totaling $112.9 million. 3 Financing lease right-of-use assets includes a multi-tenant lease property in Columbus, OH in a sale-leaseback transaction totaling $16.1 million, of which $8.7 million was accounted for as an imputed lease arrangement as required under ASC 842, Leases.
There was one property excluded from the table above that was classified as held for sale as of December 31, 2023. 2 Includes one real estate property held in a consolidated joint venture. 3 Investments in financing receivables, net includes an investment of $115.2 million in a single-tenant net lease property in San Diego, CA related to a sale-leaseback transaction. 4 Financing lease right-of-use assets includes a multi-tenant lease property in Columbus, OH related to a sale-leaseback transaction totaling $15.8 million, of which $8.4 million was accounted for as an imputed lease arrangement as required under ASC 842, Leases.
Our employees are comprised of accountants, maintenance engineers, property managers, leasing personnel, architects, administrative staff, an investments team, and the corporate management team. By supporting, recognizing, and investing in our employees, we believe that we are able to attract and retain the highest quality talent. We are committed to fostering, cultivating, and preserving a culture of diversity and inclusion.
As of December 31, 2023, the Company employed 584 people. Our employees are comprised of accountants, maintenance engineers, property managers, leasing personnel, architects, administrative staff, an investments team, and the corporate management team. By supporting, recognizing, and investing in our employees, we believe that we are able to attract and retain the highest quality talent.
We embrace employee differences in race, color, religion, sex, sexual orientation, national origin, age, disability, veteran status, and other characteristics that make our employees unique.
We are committed to fostering, cultivating, and preserving a culture of diversity and inclusion. We embrace employee differences in race, color, religion, sex, sexual orientation, national origin, age, disability, veteran status, and other characteristics that make our employees unique.
Some of the Company's competitors may have lower costs of capital. The financial performance of all of the Company’s properties is subject to competition from similar properties.
The business of acquiring and developing new healthcare facilities is highly competitive and is subject to price, construction and operating costs, and other competitive pressures. Some of the Company's competitors may have lower costs of capital. The financial performance of all of the Company’s properties is subject to competition from similar properties.
In addition, the terms of the Company’s leases do not give the Company control over the operational activities of its tenants or healthcare operators, nor will the Company monitor the tenants or healthcare operators with respect to environmental matters.
In addition, the terms of the Company’s leases do not give the Company control over the operational activities of its tenants or healthcare operators, nor will the Company monitor the tenants or healthcare operators with respect to environmental matters. 5 Human Capital Resources We believe our employees are a critical component to the achievement of our business objectives and recognition as a trusted owner and operator of medical office properties.
Private, federal and state health insurance programs and other laws and regulations may also have an effect on the utilization of the properties. The Company’s properties operate in a competitive environment, and patients and referral sources, including physicians, may change their preferences for a healthcare facility from time to time.
Private, federal and state health insurance programs and other laws and regulations may also have an effect on the utilization of the properties.
The following table details the Company's owned properties by facility type as of December 31, 2022: December 31, 2022 Dollars and square feet in thousands GROSS INVESTMENT SQUARE FEET NUMBER OF PROPERTIES OCCUPANCY 1 Medical office/outpatient $ 12,570,933 36,800 656 87.2 % Inpatient 653,648 1,528 20 91.2 % Office 508,741 1,789 10 96.2 % 13,733,322 40,117 686 87.7 % Construction in progress 35,560 Land held for development 74,265 Investments in financing receivables, net 2,3 120,236 187 1 100.0 % Financing lease right-of-use assets 3 83,824 45 1 77.8 % Corporate property 10,418 Total real estate investments 14,057,625 40,349 688 87.8 % Unconsolidated joint ventures 4 350,305 1,913 33 85.4 % Total investments $ 14,407,930 42,262 721 87.7 % 1 The occupancy column represents the percentage of total rentable square feet leased (including month-to-month and holdover leases).
The following table details the Company's owned properties by facility type as of December 31, 2023: December 31, 2023 Dollars and square feet in thousands GROSS INVESTMENT SQUARE FEET NUMBER OF PROPERTIES OCCUPANCY 1 Medical office/outpatient 2 $ 12,160,240 35,677 630 87.1 % Inpatient 439,464 934 15 89.9 % Office 467,182 1,631 8 96.2 % 13,066,886 38,242 653 87.5 % Construction in progress 60,727 Land held for development 59,871 Investments in financing receivables, net 3,4 122,602 160 1 100.0 % Financing lease right-of-use assets 4 82,209 72 1 83.7 % Corporate property 6,772 Total real estate investments 13,399,067 38,474 655 87.6 % Unconsolidated joint ventures 5 340,644 1,837 33 87.2 % Total investments $ 13,739,711 40,311 688 87.5 % 1 The occupancy column represents the percentage of total rentable square feet leased (including month-to-month and holdover leases).
In 2022, the Company funded $60.8 million toward development and redevelopment of properties. See the Company's discussion regarding the 2022 acquisition, joint venture and disposition activity in Note 5 to the Consolidated Financial Statements and development activity in Note 15 to the Consolidated Financial Statements.
See the Company's discussion regarding the 2023 acquisition, joint venture and disposition activity in Note 5 to the Consolidated Financial Statements and development activity in Note 15 to the Consolidated Financial Statements. Also, please refer to the Company's discussion in "Trends and Matters Impacting Operating Results" as part of Item 7.
Competition The Company competes for the acquisition and development of real estate properties with private investors, healthcare providers, other REITs, real estate partnerships and financial institutions, among others. The business of acquiring and developing new healthcare facilities is highly competitive and is subject to price, construction and operating costs, and other competitive pressures.
Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report. Competition The Company competes for the acquisition and development of real estate properties with private investors, healthcare providers, other REITs, real estate partnerships and financial institutions, among others.
The Company disposed of 44 properties during 2022 for sales prices totaling $1.2 billion, including 10 properties contributed into joint ventures in which the Company maintained a non-controlling interest. The weighted average capitalization rate for these properties was 4.8%. The Company calculates the capitalization rate for dispositions as the in-place cash net operating income divided by the sales price.
The total purchase price of the acquisitions was $43.0 million and the weighted average capitalization rate for these investments was 6.5%. The Company disposed of 39 properties in 2023 for sales prices totaling $787.0 million, including a regional corporate office and one property contributed into a joint venture in which the Company maintains a non-controlling interest.
EXPIRATION YEAR NUMBER OF LEASES LEASED SQUARE FEET PERCENTAGE OF LEASED SQUARE FEET 2023 (1) 1,459 5,004,436 14.2 % 2024 1,171 5,150,146 14.6 % 2025 1,020 4,442,560 12.6 % 2026 814 3,610,265 10.2 % 2027 807 4,420,368 12.5 % 2028 440 2,547,615 7.2 % 2029 381 2,484,979 7.1 % 2030 288 2,206,923 6.3 % 2031 227 1,203,587 3.5 % 2032 267 2,106,365 6.0 % Thereafter 184 2,053,288 5.8 % 7,058 35,230,532 100.0 % 1 Includes 177 leases totaling 311,889 square feet that expired prior to December 31, 2022 and were on month-to-month terms.
EXPIRATION YEAR NUMBER OF LEASES LEASED SQUARE FEET PERCENTAGE OF LEASED SQUARE FEET 2024 (1) 1,610 6,081,500 18.2 % 2025 1,096 4,567,388 13.6 % 2026 1,061 4,086,806 12.2 % 2027 856 4,216,127 12.6 % 2028 835 3,732,888 11.1 % 2029 402 2,051,552 6.1 % 2030 367 2,531,991 7.6 % 2031 252 1,198,077 3.6 % 2032 295 2,139,548 6.4 % 2033 203 1,123,683 3.4 % Thereafter 203 1,750,005 5.2 % 7,180 33,479,565 100.0 % 1 Includes 189 leases totaling 397,188 square feet that expired prior to December 31, 2023, and were on month-to-month terms.
Removed
The total purchase price of the acquisitions was $504.6 million and the weighted average capitalization rate for these investments was 5.3%.
Added
These transactions yielded net cash proceeds of $687.6 million, net of $36.9 million of closing costs and related adjustments, $58.7 million in Company financed notes and $3.8 million of retained joint venture interests. The 2 weighted average capitalization rate for these sales was 6.5%.
Removed
The following bullets provide further detail of the 2022 acquisition activity. • The Company (exclusive of joint ventures) acquired 28 medical office buildings for purchase prices totaling $403.6 million. 2 • Through its joint ventures, the Company acquired interests in five medical office buildings for purchase prices totaling $101.0 million.
Added
The Company calculates the capitalization rate for dispositions as the in-place cash net operating income divided by the sales price. In 2023, the Company funded $112.2 million toward development and redevelopment of properties.
Removed
Also, please refer to the Company's discussion in "Trends and Matters Impacting Operating Results" as part of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report.
Added
The Company's unsecured credit facility (described in more detail herein) contains a sustainability-linked provision that can reduce borrowing costs if the Company meets certain metrics relating to green building certifications. The 6 Company met the metrics in 2023 and, as a result, will save one basis point on the cost of its borrowings under the unsecured credit facility in 2024.
Removed
Human Capital Resources We believe our employees are a critical component to achievement of our business objectives and recognition as a trusted owner and operator of medical office properties. At December 31, 2022, the Company employed 583 people.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeReal property taxes on the Company's properties may increase as its properties are reassessed by taxing authorities or as property tax rates change. For example, a current California law commonly referred to as Proposition 13 generally limits annual real estate tax increases on California properties to 2% of assessed value.
Biggest changeFor example, a current California law commonly referred to as Proposition 13 generally limits annual real estate tax increases on California properties to 2% of assessed value at the date of acquisition. Accordingly, the assessed value and resulting property tax the Company pays is less than it would be if the properties were assessed at current values.
These risks, as well as the risks described in Item 1 under the headings “Competition,” “Government Regulation,” “Legislative Developments,” and “Environmental Matters,” and in Item 7 under the heading “Disclosure Regarding Forward-Looking Statements,” should be carefully considered before making an investment decision regarding the 7 Company.
These risks, as well as the risks described in Item 1 under the headings “Competition,” “Government Regulation,” “Legislative Developments,” and “Environmental Matters,” and in Item 7 under the heading “Disclosure Regarding Forward-Looking Statements,” should be carefully considered before making an investment decision regarding the Company.
During 2020, all of the states and cities in which the Company owns properties, manages properties, and/or has development or redevelopment projects instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of businesses that may continue to operate, and/or restrictions on the types of construction projects that may continue.
During 2020, all of the states and cities in which the Company owns properties, manages properties, and/or has development or redevelopment projects instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of businesses that may continue to operate, and/or restrictions on the types of construction projects that may continue.
A security breach or other significant disruption involving the Company's IT network and related systems could: • disrupt the proper functioning of the Company's networks and systems and therefore the Company's operations and/or those of certain tenants; • result in misstated financial reports, violations of loan covenants, missed reporting deadlines, and/or missed permitting deadlines; • result in the Company's inability to properly monitor its compliance with the rules and regulations regarding the Company's qualification as a REIT; • result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, or otherwise valuable information of the Company or others, which others could use to compete against the Company or which could expose it to damage claims by third-parties for disruption, destructive, or otherwise harmful purposes or outcomes; • result in the Company's inability to maintain the building systems relied upon by the its tenants for the efficient use of their leased space; • require significant management attention and resources to remedy any damages that result; • subject the Company to claims for breach of contract, damages, credits, penalties, or termination of leases or other agreements; or • damage the Company's reputation among its tenants and investors generally.
A security breach or other significant disruption involving the Company's IT network and related systems could: • disrupt the proper functioning of the Company's networks and systems and therefore the Company's operations and/or those of certain tenants; • result in misstated financial reports, violations of loan covenants, missed reporting deadlines, and/or missed permitting deadlines; • result in the Company's inability to properly monitor its compliance with the rules and regulations regarding the Company's qualification as a REIT; • result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, or otherwise valuable information of the Company or others, which others could use to compete against the Company or which could expose it to damage claims by third parties for disruption, destructive, or otherwise harmful purposes or outcomes; • result in the Company's inability to maintain the building systems relied upon by its tenants for the efficient use of their leased space; • require significant management attention and resources to remedy any damages that result; • subject the Company to claims for breach of contract, damages, credits, penalties, or termination of leases or other agreements; or • damage the Company's reputation among its tenants and investors generally.
A high level of indebtedness could also: • limit the Company’s ability to adjust rapidly to changing market conditions in the event of a downturn in general economic conditions or in the real estate and/or healthcare industries; • limit the Company's ability to adjust rapidly to changing market conditions in the event of a downturn in general economic conditions or in the real estate and/or healthcare industries; • impair the Company’s ability to obtain additional debt financing or require potentially dilutive equity to fund obligations and carry out its business strategy; and • result in a downgrade of the rating of the Company’s debt securities by one or more rating agencies, which would increase the costs of borrowing under the Unsecured Credit Facility and the cost of issuance of new debt securities, among other things.
A high level of indebtedness could also: • limit the Company’s ability to adjust rapidly to changing market conditions in the event of a downturn in general economic conditions or in the real estate and/or healthcare industries; • impair the Company’s ability to obtain additional debt financing or require potentially dilutive equity to fund obligations and carry out its business strategy; and • result in a downgrade of the rating of the Company’s debt securities by one or more rating agencies, which would increase the costs of borrowing under the Unsecured Credit Facility and the cost of issuance of new debt securities, among other things.
Pursuant to a resolution adopted by the Board of Directors, the Company is prohibited from classifying the Board under Subtitle 8 unless stockholders entitled to vote generally in the election of directors approve a proposal to repeal such resolution by the affirmative of a majority of the votes cast on the matter.
Pursuant to a resolution adopted by the Board of Directors, the Company is prohibited from classifying the Board of Directors under Subtitle 8 unless stockholders entitled to vote generally in the election of directors approve a proposal to repeal such resolution by the affirmative of a majority of the votes cast on the matter.
A REIT's net gain from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The Company may be subject to the prohibited transaction tax equal to 100% of net gain upon a disposition of real property.
A REIT's net gain from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The Company may be subject to the prohibited transaction tax equal to 100% of net gain upon the disposition of real property.
The healthcare service industry may be affected by the following: • disruption in patient volume and revenue from pandemics, such as COVID-19; • trends in the method of delivery of healthcare services, such as telehealth; • transition to value-based care and reimbursement of providers; • competition among healthcare providers; • consolidation among healthcare providers, health insurers, hospitals and health systems; • a rise in government-funded health insurance coverage; • pressure on providers' operating profit margins from lower reimbursement rates, lower admissions growth, and higher expense growth; • availability of capital; • credit downgrades; • liability insurance expense; • rising pharmaceutical drug expense; • regulatory and government reimbursement uncertainty related to the Medicare and Medicaid programs; • a trend toward government regulation of pharmaceutical pricing; • government regulation of hospitals' and health insurers' pricing transparency; • federal court decisions on cases challenging the legality of the Affordable Care Act, in whole or in part; • site-neutral rate-setting for Medicare services across different care settings; • heightened health information technology security standards and the meaningful use of electronic health records by healthcare providers; and • potential tax law changes affecting providers.
The healthcare service industry may be affected by the following: • transition to value-based care and reimbursement of providers; • competition among healthcare providers; • consolidation among healthcare providers, health insurers, hospitals and health systems; • a rise in government-funded health insurance coverage; • pressure on providers' operating profit margins from lower reimbursement rates, lower admissions growth, and higher expense growth; • availability of capital; • credit downgrades; • liability insurance expense; • rising pharmaceutical drug expense; 17 • regulatory and government reimbursement uncertainty related to the Medicare and Medicaid programs; • a trend toward government regulation of pharmaceutical pricing; • government regulation of hospitals' and health insurers' pricing transparency; • federal court decisions on cases challenging the legality of the Affordable Care Act, in whole or in part; • site-neutral rate-setting for Medicare services across different care settings; • disruption in patient volume and revenue from pandemics, such as COVID-19; • trends in the method of delivery of healthcare services, such as telehealth; • heightened health information technology security standards and the meaningful use of electronic health records by healthcare providers; and • potential tax law changes affecting providers.
This may be the result of various factors, including, but not limited to: changes in the economy; the availability and cost of capital at favorable rates; increases in property taxes, utilities and other operating expenses; changes to facility-related healthcare regulations; changes in interest rates; competition for quality assets; negative developments in the operating results or financial condition of the Company's tenants, including, but not limited to, their ability to pay rent; the Company's ability to reposition or sell facilities with profitable results; the Company's ability to re-lease space at similar rates as vacancies occur; the Company's ability to timely reinvest proceeds from the sale of assets at similar yields; government regulations affecting tenants' Medicare and Medicaid reimbursement rates and operational requirements; unanticipated difficulties and/or expenditures relating to future acquisitions and developments; changes in rules or practices governing the Company's financial reporting; and other legal and operational matters.
This may be the result of various factors, including, but not limited to: changes in the economy; the availability and 7 cost of capital at favorable rates; increases in property taxes, utilities and other operating expenses; changes to facility-related healthcare regulations; changes in interest rates; competition for quality assets; negative developments in the operating results or financial condition of the Company's tenants, including, but not limited to, their ability to pay rent; the Company's ability to reposition or sell facilities with profitable results; the Company's ability to re-lease space at similar rates as vacancies occur; the Company's ability to timely reinvest proceeds from the sale of assets at similar yields; government regulations affecting tenants' Medicare and Medicaid reimbursement rates and operational requirements; unanticipated difficulties and/or expenditures relating to future acquisitions and developments; changes in rules or practices governing the Company's financial reporting; and other legal and operational matters.
The Company is subject to certain risks associated with the development and redevelopment of properties including the following: • The construction of properties generally requires various government and other approvals that may not be received when expected, or at all, which could delay or preclude commencement of construction; • Opportunities that the Company pursued but later abandoned could result in the expensing of pursuit costs, which could impact the Company’s consolidated results of operations; 11 • Construction costs could exceed original estimates, which could impact the building’s profitability to the Company; • Operating expenses could be higher than forecasted; • Time required to initiate and complete the construction of a property and to lease up a completed property may be greater than originally anticipated, thereby adversely affecting the Company’s cash flow and liquidity; • Occupancy rates and rents of a completed development property may not be sufficient to make the property profitable to the Company; and • Favorable capital sources to fund the Company’s development and redevelopment activities may not be available when needed.
The Company is subject to certain risks associated with the development and redevelopment of properties including the following: • The construction of properties generally requires various government and other approvals that may not be received when expected, or at all, which could delay or preclude commencement of construction; 9 • Opportunities that the Company pursued but later abandoned could result in the expensing of pursuit costs, which could impact the Company’s consolidated results of operations; • Construction costs could exceed original estimates, which could impact the building’s profitability to the Company; • Operating expenses could be higher than forecasted; • Time required to initiate and complete the construction of a property and to lease up a completed property may be greater than originally anticipated, thereby adversely affecting the Company’s cash flow and liquidity; • Occupancy rates and rents of a completed development property may not be sufficient to make the property profitable to the Company; and • Favorable capital sources to fund the Company’s development and redevelopment activities may not be available when needed.
Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, there can be no assurance that the Company can comply in all cases with the safe harbor or that it will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business.
Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, there can be no assurance that the Company can comply in all cases with the safe harbor or that it will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of 20 business.
In addition, the Company assesses the potential for impairment of identifiable intangible assets and long-lived assets, including real estate properties, whenever events occur or a change in circumstances indicates that the recorded value might not be fully recoverable. The decision to sell a property also requires the Company to assess the potential for impairment.
In addition, the Company assesses the potential for impairment of identifiable intangible assets and long-lived assets, including real estate properties and goodwill, whenever events occur or a change in circumstances indicates that the recorded value might not be fully recoverable. The decision to sell a property also requires the Company to assess the potential for impairment.
The Company's credit ratings could be downgraded. If the Company's credit ratings are downgraded or other negative action is taken, the Company could be required, among other things, to pay additional interest and fees on borrowings under the Unsecured Credit Facility. Increases in interest rates could have a material adverse effect on the Company's cost of capital.
The Company's credit ratings could be downgraded. If the Company's credit ratings are downgraded or other negative action is taken, the Company could be required, among other things, to pay additional interest and fees on borrowings under the Unsecured Credit Facility. 15 Increases in interest rates could have a material adverse effect on the Company's cost of capital.
In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may hinder the Company's ability to sell, rent, or pledge such property as collateral for future borrowings. 18 Compliance with new laws or regulations or stricter interpretation of existing laws may require the Company to incur significant expenditures.
In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may hinder the Company's ability to sell, rent, or pledge such property as collateral for future borrowings. Compliance with new laws or regulations or stricter interpretation of existing laws may require the Company to incur significant expenditures.
While breaches to date have not had a material 13 impact, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that these security measures will be effective or that future attempted security breaches or disruptions would not be successful or damaging.
While breaches to date have not had a material impact, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that these security measures will be effective or that future attempted security breaches or disruptions would not be successful or damaging.
In addition, certain provisions of the MGCL applicable to the Company may have the effect of inhibiting or deterring a third party from making a proposal to acquire the Company or of delaying or preventing a change of control under circumstances that otherwise could provide Company stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including: • provisions under Subtitle 8 of Title 3 of the MGCL that permit the Board of Directors, without stockholders’ approval and regardless of what is currently provided in the Company's Articles of Incorporation or bylaws, to implement certain takeover defenses; • “business combination” provisions that, subject to limitations, prohibit certain business combinations, asset transfers and equity security issuances or reclassifications between the Company and an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the Company's outstanding voting stock or an affiliate or associate of the Company who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the Company's then outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose supermajority voting requirements unless certain minimum price conditions are satisfied; and • “control share” provisions that provide that holders of “control shares” of the Company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by Company stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
In addition, under these circumstances, the Company has the right to redeem such stock. 19 In addition, certain provisions of the MGCL applicable to the Company may have the effect of inhibiting or deterring a third party from making a proposal to acquire the Company or of delaying or preventing a change of control under circumstances that otherwise could provide Company stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including: • provisions under Subtitle 8 of Title 3 of the MGCL that permit the Board of Directors, without stockholders’ approval and regardless of what is currently provided in the Company's Articles of Incorporation or bylaws, to implement certain takeover defenses; • “business combination” provisions that, subject to limitations, prohibit certain business combinations, asset transfers and equity security issuances or reclassifications between the Company and an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the Company's outstanding voting stock or an affiliate or associate of the Company who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the Company's then outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose supermajority voting requirements unless certain minimum price conditions are satisfied; and • “control share” provisions that provide that holders of “control shares” of the Company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by Company stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
Moreover, if the Company were required to repurchase units for cash at a time when it did not have sufficient cash to fund the repurchase, the Company might be required to sell one or more of its properties to raise funds to satisfy this obligation.
Moreover, if the Company were 12 required to repurchase units for cash at a time when it did not have sufficient cash to fund the repurchase, the Company might be required to sell one or more of its properties to raise funds to satisfy this obligation.
The Company’s ground lease agreements with hospitals and health systems typically contain restrictions that limit building occupancy to physicians on the medical staff of an affiliated hospital and prohibit tenants from providing services that compete with the services provided by the affiliated hospital.
The Company’s ground lease agreements with 10 hospitals and health systems typically contain restrictions that limit building occupancy to physicians on the medical staff of an affiliated hospital and prohibit tenants from providing services that compete with the services provided by the affiliated hospital.
A foreclosure on one or more of the Company's properties could have a material adverse effect on the Company’s consolidated financial condition and results of operations. The Company generally does not intend to reserve funds to retire existing debt upon maturity.
A foreclosure on one or more of the Company's properties could have a material adverse effect on the Company’s consolidated financial condition and results of operations. 14 The Company generally does not intend to reserve funds to retire existing debt upon maturity.
Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials.
Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials.
In the case of the business combination provisions of the MGCL, the Board of Directors has adopted a resolution providing that any business 20 combination between the Company and any other person is exempted from this statute, provided that such business combination is first approved by the Board of Directors.
In the case of the business combination provisions of the MGCL, the Board of Directors has adopted a resolution providing that any business combination between the Company and any other person is exempted from this statute, provided that such business combination is first approved by the Board of Directors.
In the event that we recognize a significant gain from the cash settlement of a forward equity agreement, we might be unable to satisfy the gross income requirements applicable to REITs under the Internal Revenue Code.
In the event 16 that we recognize a significant gain from the cash settlement of a forward equity agreement, we might be unable to satisfy the gross income requirements applicable to REITs under the Internal Revenue Code.
The viability of these health systems depends on factors such as the quality and mix of healthcare services provided, competition, demographic trends in the surrounding community, market position and growth potential.
The viability of these health systems depends on factors such as the quality and mix of healthcare services provided, competition, payor mix, demographic trends in the surrounding community, market position and growth potential.
Ground leases may also contain consent requirements or other restrictions on sale or 12 assignment of the Company’s leasehold interest, including rights of first offer and first refusal in favor of the lessor.
Ground leases may also contain consent requirements or other restrictions on sale or assignment of the Company’s leasehold interest, including rights of first offer and first refusal in favor of the lessor.
In addition, in such event the Company would no longer be required to pay dividends to maintain REIT status, which could adversely affect the value of the Company’s common stock.
In addition, in such an event the Company would no longer be required to pay dividends to maintain REIT status, which could adversely affect the value of the Company’s common stock.
Any slowdown in the economy, decline in the availability of financing from the 9 capital markets, and changes in healthcare regulations may adversely affect the businesses of the Company’s tenants to varying degrees.
Any slowdown in the economy, decline in the availability of financing from the capital markets, and changes in healthcare regulations may adversely affect the businesses of the Company’s tenants to varying degrees.
The Company’s continued qualification as a REIT will depend on the Company’s satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis.
The Company’s continued qualification as a REIT will depend on the Company’s satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other 18 requirements on a continuing basis.
The exercise of these purchase options exposes 10 the Company to reinvestment risk and a reduction in investment return. Certain properties subject to purchase options may be purchased at rates of return above the rates of return the Company expects to achieve with new investments.
The exercise of these purchase options 8 exposes the Company to reinvestment risk and a reduction in investment return. Certain properties subject to purchase options may be purchased at rates of return above the rates of return the Company expects to achieve with new investments.
The stockholders of the Company may not receive dividends at the same rate they received dividends as stockholders of Legacy HR and stockholders of Legacy HTA for various reasons, including the following: (i) the Company may not have enough cash to pay such dividends due to changes in the Company's cash requirements, capital spending plans, cash flow or financial position; (ii) decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Board of Directors of the Company, which reserves the right to change the Company's current dividend practices at any time and for any reason; (iii) the Company may desire to retain cash to maintain or improve its credit ratings; and (iv) the amount of dividends that the Company's subsidiaries may distribute to the Company may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.
The stockholders of the Company may not receive dividends at the same rate they received previously for various reasons, including the following: (i) the Company may not have enough cash to pay such dividends due to changes in the Company's cash requirements, capital spending plans, cash flow or financial position; (ii) decisions on whether, when and in what amounts to make any future distributions will remain at all times entirely at the discretion of the Board of Directors, which reserves the right to change the Company's current dividend practices at any time and for any reason; (iii) the Company may desire to retain cash to maintain or improve its credit ratings; and (iv) the amount of dividends that the Company's subsidiaries may distribute to the Company may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.
Increases in such tax rates can impose significant additional transaction costs on sales of commercial real estate and may reduce the value of the Company’s properties at sale by the amount of the new or increased tax.
Increases in such tax rates can impose significant additional transaction costs on sales of commercial real estate and may reduce the value of the Company’s properties for sale by the amount of the new or increased tax.
As a result, a number of the Company's tenants temporarily closed their offices or clinical space or operated on a reduced basis in response to government requirements or recommendations. The COVID-19 pandemic also caused, and may continue to cause, severe economic, market and other disruptions worldwide.
As a result, a number of the Company's tenants temporarily closed their offices or clinical space or operated on a reduced basis in response to government requirements or recommendations. The COVID-19 pandemic also caused severe economic, market and other disruptions worldwide.
As a ground lessee, the Company is also exposed to the risk of reversion of the property upon expiration of the ground lease term, or an earlier breach by the Company of the ground lease, which may have a material adverse effect on the Company’s consolidated financial condition and results of operations. The Company may experience uninsured or underinsured losses.
As a ground lessee, the Company is also exposed to the risk of reversion of the property upon expiration of the ground lease term, or an earlier breach by the Company of the ground lease, which may have a material adverse effect on the Company’s consolidated financial condition and results of operations.
Approximately 94% of leases have increases that are based upon fixed percentages and approximately 6% of leases have increases based on the Consumer Price Index. To the extent fixed percentage increases lag behind inflation and operating expense growth, the Company's performance, growth, and profitability would be negatively impacted.
Approximately 95% of leases have increases that are based upon fixed percentages and approximately 5% of leases have increases based on the Consumer Price Index. To the extent fixed percentage increases lag behind inflation and operating expense growth, the Company's performance, growth, and profitability would be negatively impacted.
This resolution, however, may be altered or repealed in whole or in part at any time. In the case of the control share provisions of the MGCL, the Company has opted out of these provisions pursuant to a provision in its bylaws.
This resolution, however, may be altered or repealed in whole or in part at any time. In the case of the control share provisions of the MGCL, the Company has opted out of these provisions pursuant to a provision in its bylaws. The Company may, however, by amendment to its bylaws, opt into the control share provisions of the MGCL.
The Company carries comprehensive liability insurance and property insurance covering its owned and managed properties. A portion of the property insurance is provided by a wholly-owned captive insurance company. In addition, tenants under single-tenant leases are required to carry property insurance covering the Company’s interest in the buildings.
The Company may experience uninsured or underinsured losses . The Company carries comprehensive liability insurance and property insurance covering its owned and managed properties. A portion of the property insurance is provided by a wholly-owned captive insurance company. In addition, tenants under single-tenant leases are required to carry property insurance covering the Company’s interest in the buildings.
The Company’s articles of incorporation, as well as provisions of the Maryland General Corporation Law ("MGCL"), contain limits and restrictions on transferability of the Company’s common stock which may have adverse effects on the value of the Company’s common stock.
The Company’s articles of incorporation, as well as provisions of the MGCL, contain limits and restrictions on transferability of the Company’s common stock which may have adverse effects on the value of the Company’s common stock.
The Company incurred impairment charges of $54.4 million in 2022, associated with completed or planned disposition activity. The Company may determine in future periods that an impairment has occurred in the value of one or more of its real estate properties or other assets.
The Company incurred impairment charges of $149.7 million in 2023, associated with completed or planned disposition activity. The Company may determine in future periods that an impairment has occurred in the value of one or more of its real estate properties or other assets.
Covenants under the Fourth Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 20, 2022, among the Company, the OP, and Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders that are party thereto, as amended ("Unsecured Credit Facility"), and the indentures governing the Company's senior notes permit the Company to incur substantial, additional debt, and the Company may borrow additional funds, which may include secured borrowings.
Covenants under the Fourth Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 20, 2022, among Healthcare Realty Trust, the OP, and Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders that are party thereto, as amended ("Unsecured Credit Facility"), and the indentures governing the OP's senior notes permit the Company to incur substantial, additional debt, and the Company may borrow additional funds, which may include secured borrowings or additional instances of notes by the OP that are fully guaranteed by Healthcare Realty Trust.
The Company had approximately $100.4 million, or 0.71%, of real estate property investments that were subject to purchase options held by lessees that were exercisable as of December 31, 2022. Other properties have purchase options that will become exercisable after 2022. Properties with purchase options exercisable in 2022 produced aggregate net operating income of approximately $9.6 million in 2022.
The Company had approximately $111.1 million, or 0.83%, of real estate property investments that were subject to purchase options held by lessees that were exercisable as of December 31, 2023. Other properties have purchase options that will become exercisable after 2023. Properties with purchase options exercisable in 2023 produced aggregate net operating income of approximately $10.6 million in 2023.
During 2022, the Federal Reserve began, and is expected to continue, to raise interest rates in an effort to curb inflation. Increases in interest rates will increase interest cost on new and existing variable rate debt. Such increases in the cost of capital could adversely impact our ability to finance operations, acquire and develop properties, and refinance existing debt.
During 2023, the Federal Reserve continued to raise interest rates in an effort to curb inflation. Further increases in interest rates will increase interest costs on any new debt and existing variable rate debt. Such increases in the cost of capital could adversely impact our ability to finance operations, acquire and develop properties, and refinance existing debt.
As of December 31, 2022, the Company had weighted average annual fixed rent escalators of 2.77%. The Company’s real estate investments are illiquid and the Company may not be able to sell properties strategically targeted for disposition.
As of December 31, 2023, the Company had weighted average annual fixed rent escalators of 2.82% with its wholly-owned and consolidated properties. The Company’s real estate investments are illiquid and the Company may not be able to sell properties strategically targeted for disposition .
To qualify as a REIT for federal income tax purposes, the Company must continually satisfy tests concerning, among other things, the sources of its income, the nature of its assets, the amounts it distributes to its stockholders and the ownership of its stock.
Complying with the REIT requirements may cause the Company to forego otherwise attractive opportunities. To qualify as a REIT for federal income tax purposes, the Company must continually satisfy tests concerning, among other things, the sources of its income, the nature of its assets, the amounts it distributes to its stockholders and the ownership of its stock.
These conditions could adversely affect the Company’s revenues and could increase allowances for losses and result in impairment charges, which could decrease net income attributable to common stockholders and equity, and reduce cash flows from operations.
These conditions could adversely affect the Company’s revenues and could increase allowances for losses and result in impairment charges, which could decrease net income attributable to common stockholders and equity and reduce cash flows from operations. Owning real estate and indirect interests in real estate is subject to inherent risks .
The terms of the Unsecured Credit Facility, the indentures governing the Company’s outstanding senior notes and other debt instruments that the Company may enter into in the future are subject to customary financial and operational covenants.
The terms of the Unsecured Credit Facility, the indentures governing the OP’s outstanding senior notes (which are fully and unconditionally guaranteed by Healthcare Realty Trust) and other debt instruments that the Company may enter into in the future are subject to customary financial and operational covenants.
Pandemics, such as COVID-19 and other pandemics that may occur in the future, and measures intended to prevent their spread or mitigate their severity could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition.
Pandemics, such as COVID-19, and measures intended to prevent their spread or mitigate their severity could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition . The COVID-19 pandemic had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets.
Therefore, to the extent that there are any shares of common stock with respect to which any forward equity agreement has not been settled at the time of the commencement of any such bankruptcy or insolvency proceedings, we would not receive the relevant forward equity price per share in respect of those shares of common stock. 17 Risks relating to government regulations The Company's property taxes could increase due to reassessment or property tax rate changes.
Therefore, to the extent that there are any shares of common stock with respect to which any forward equity agreement has not been settled at the time of the commencement of any such bankruptcy or insolvency proceedings, we would not receive the relevant forward equity price per share in respect of those shares of common stock.
In the event that we elect to settle any forward equity agreement for cash and the settlement price is below the applicable forward equity price, we would be entitled to receive a cash payment from the relevant forward purchaser.
The Company currently has no forward equity agreements outstanding. I n the event that we enter into forward equity agreements in the future and elect to settle any such forward equity agreement for cash and the settlement price is below the applicable forward equity price, we would be entitled to receive a cash payment from the relevant forward purchaser.
These ground leases contain provisions that may limit the Company’s ability to lease, sell, or finance these properties. As of December 31, 2022, the Company had 242 properties that were held under ground leases, representing an aggregate gross investment of approximately $5.6 billion. The weighted average remaining term of the Company's ground leases is approximately 64.4 years, including renewal options.
These ground leases contain provisions that may limit the Company’s ability to lease, sell, or finance these properties . As of December 31, 2023, the Company had 232 properties that were held under ground leases, representing an aggregate gross investment of approximately $5.4 billion.
Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to the Company’s stockholders, which in turn could have an adverse impact on the value of, and trading prices for, the Company’s 19 common stock.
Further, dividends paid to the Company’s stockholders would not be deductible by the Company in computing its taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to the Company’s stockholders, which in turn could have an adverse impact on the value of the Company’s common stock.
If any of the events underlying the following risks actually occurred, the Company’s business, consolidated financial condition, operating results and cash flows, including distributions to the Company's stockholders, could suffer, and the trading price of its common stock could decline. Merger and Integration Risks The Company incurred substantial expenses related to the Merger .
If any of the events underlying the following risks actually occurred, the Company’s business, consolidated financial condition, operating results and cash flows, including distributions to the Company's stockholders, could suffer, and the trading price of its common stock could decline. Risks relating to our business and operations The Company's expected results may not be achieved.
The U.S. federal income tax treatment of the cash that the Company might receive from cash settlement of a forward equity agreement is unclear and could jeopardize the Company's ability to meet the REIT qualification requirements.
The U.S. federal income tax treatment of the cash that the Company might receive from cash settlement of a forward equity agreement is unclear and could jeopardize the Company's ability to meet the REIT qualification requirements. The Company has utilized and, in the future, may utilize forward equity agreements to secure pricing for equity capital needed at a later time.
Item 1A. Risk Factors The following are some of the risks and uncertainties that could negatively affect the Company’s consolidated financial condition, results of operations, business and prospects.
Item 1A. Risk Factors The following are some of the risks and uncertainties that could negatively affect the Company’s consolidated financial condition, results of operations, business and prospects. These risk factors are grouped into three categories: risks relating to the Company’s business and operations; risks relating to the Company’s capital structure and financings; and risks relating to government regulations.
Financial and other covenants that limit the Company’s operational flexibility, as well as defaults resulting from a breach of any of these covenants in its debt instruments, could have a material adverse effect on the Company’s consolidated financial condition and results of operations. 15 If lenders under the Unsecured Credit Facility fail to meet their funding commitments, the Company’s operations and consolidated financial position would be negatively impacted.
Financial and other covenants that limit the Company’s operational flexibility, as well as defaults resulting from a breach of any of these covenants in its debt instruments, could have a material adverse effect on the Company’s consolidated financial condition and results of operations.
As of December 31, 2022, the Company had investments of $327.2 million in unconsolidated joint ventures with unrelated third parties comprised of 33 properties and two parking garages. The Company may acquire, develop, or 16 redevelop additional properties in joint ventures with unrelated third parties.
As of December 31, 2023, the Company had investments of $311.5 million in unconsolidated joint ventures with unrelated third parties comprised of 33 properties and two parking garages.
As of December 31, 2022, the Company had investment concentrations of greater than 5% of its total investments in the Dallas, Texas (9.2%), Houston, Texas (5.6%), and Seattle, Washington (5.0%) markets.
As of December 31, 2023, the Company had investment concentrations of greater than 5% of its total investments in the Dallas, TX (8.7%), Houston, TX (5.6%), and Seattle, WA (5.3%) markets.
If this initiative had passed, it would have ended the beneficial effect of Proposition 13 for the Company's properties, and property tax expense could have increase substantially, adversely affecting the Company's cash flow from operations and net income.
Most recently, an initiative qualified for California’s November 2020 statewide ballot that would generally limit Proposition 13’s protections to residential real estate. If this initiative had passed, it would have ended the beneficial effect of Proposition 13 for the Company's properties, and property tax expense could have increase substantially, adversely affecting the Company's cash flow from operations and net income.
The Company incurred substantial expenses in connection with completing the Merger and expects to incur substantial expenses integrating the business, operations, networks, systems, technologies, policies and procedures of the two companies, including severance costs.
The Company incurred substantial expenses in connection with completing the Merger and integrating the business, operations, networks, systems, technologies, policies and procedures of the two companies, including severance costs. While the integration of the two companies is largely complete, the Company could still incur significant expenses as it operates and refines the combined portfolios of the companies.
In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve energy efficiency of our existing properties and could require the Company to spend more on development and redevelopment properties without a corresponding increase in revenue.
In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve energy efficiency of our existing properties and could require the Company to spend more on development and redevelopment properties without a corresponding increase in revenue. 11 The Company faces risks associated with security breaches through cyber attacks, cyber intrusions, or otherwise, as well as other significant disruptions of its information technology networks and related systems .
The Company may, however, by amendment to its bylaws, opt in to the control share provisions of the MGCL. The Company may also choose to adopt other takeover defenses in the future. Any such actions could deter a transaction that may otherwise be in the interest of Company stockholders.
The Company may also choose to adopt other takeover defenses in the future. Any such actions could deter a transaction that may otherwise be in the interest of Company stockholders. These restrictions on the transfer of the Company’s shares could have adverse effects on the value of the Company’s common stock.
Such an agreement would prevent 14 the Company from selling those properties, even if market conditions would allow such a sale to be favorable to the Company. Risks relating to our capital structure and financings The Company has incurred significant debt obligations and may incur additional debt and increase leverage in the future.
Such an agreement would prevent the Company from selling those properties, even if market conditions would allow such a sale to be favorable to the Company.
Access to external capital on favorable terms is critical to the Company’s success in growing and maintaining its portfolio.
If lenders under the Unsecured Credit Facility fail to meet their funding commitments, the Company’s operations and consolidated financial position would be negatively impacted. Access to external capital on favorable terms is critical to the Company’s success in growing and maintaining its portfolio.
Accordingly, the historical trading prices and financial results of Legacy HR and Legacy HTA may not be indicative of these matters for the Company after the Merger. The Company cannot assure you that it will be able to continue paying dividends at or above the rates paid by Legacy HR and Legacy HTA .
The Company cannot assure you that it will be able to continue paying dividends at or above the rates previously paid .
Stockholders of the Company do not have contractual or other legal right to dividends that have not been authorized by the Board of Directors of the Company. Risk relating to our business and operations The Company's expected results may not be achieved. The Company's expected results may not be achieved, and actual results may differ materially from expectations.
Stockholders of the Company do not have a contractual or other legal right to dividends that have not been authorized by the Board of Directors. 13 The Company previously incurred and may continue to incur substantial expenses related to the Merger .
As of December 31, 2022, the Company had approximately $5.7 billion of outstanding indebtedness excluding discounts, premiums and debt issuance costs.
Risks relating to our capital structure and financings The Company has incurred significant debt obligations and may incur additional debt and increase leverage in the future. As of December 31, 2023, the Company had approximately $5.3 billion of outstanding indebtedness excluding discounts, premiums and debt issuance costs.
From time to time, proposals have been made to reduce the beneficial impact of Proposition 13 , particularly with respect to commercial property, which would include medical office buildings. Most recently, an initiative qualified for California’s November 2020 statewide ballot that would generally limit Proposition 13’s protections to residential real estate.
The Company owns 36 properties in California, representing 7.1% of its total revenue. From time to time, proposals have been made to reduce the beneficial impact of Proposition 13 , particularly with respect to commercial property, which would include medical office buildings.
Removed
These risk factors are grouped into four categories: risks relating to the Company's merger and integration of Legacy HR and Legacy HTA businesses; risks relating to the Company’s business and operations; risks relating to the Company’s capital structure and financings; and risks relating to government regulations.
Added
The Company's expected results may not be achieved, and actual results may differ materially from expectations.
Removed
In addition, there are a large number of systems that must be integrated, including billing, management information, asset management, accounting and finance, payroll and benefits, lease administration and regulatory compliance.
Added
The weighted average remaining term of the Company's ground leases is approximately 64.9 years, including renewal options.
Removed
Although the Company assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of its integration expenses.
Added
Healthcare Realty Trust is a holding company with no direct operations and, as such, it relies on funds received from the OP to pay liabilities, and the interests of its stockholders will be structurally subordinated to all liabilities and obligations of the OP and its subsidiaries.
Removed
The transaction and integration expenses associated with the Merger could, particularly in the near term, exceed the savings that the Company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the businesses.
Added
Substantially all of Healthcare Realty Trust's assets are held through the OP, which holds substantially all of its assets through subsidiaries. Healthcare Realty Trust does not have, apart from its interest in the OP, any independent operations. Substantially all of Healthcare Realty Trust's cash flow is dependent upon cash distributions from the OP.
Removed
The Company may be unable to integrate the businesses of Legacy HR and Legacy HTA successfully and realize the anticipated synergies and related benefits of the Merger or do so within the anticipated timeframe . The Merger involved the combination of two companies that operated as independent public companies.
Added
As a result, Healthcare Realty Trust relies on distributions from the OP to pay any dividends that may be declared on its shares of Class A common stock. Healthcare Realty Trust also relies on distributions from the OP to meet its other obligations, including any tax liability on taxable income allocated to it from the OP.
Removed
The Company is devoting significant management attention and resources to integrate the business practices and operations of Legacy HR and Legacy HTA.
Added
In addition, because Healthcare Realty Trust is a holding company, stockholder claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of the OP and its subsidiaries.
Removed
Potential difficulties the Company may encounter in the integration process include the following: 1. the inability to successfully combine the businesses of Legacy HR and Legacy HTA in a manner that permits the Company to achieve the cost savings anticipated to result from the Merger, which would result in the anticipated benefits of the Merger not being realized in the timeframe currently anticipated or at all; 2. the complexities associated with managing the combined businesses out of different locations and integrating personnel from the two companies; 3. the additional complexities of combining two companies with different histories, cultures, markets and tenant bases; 4. the failure to retain key employees of the Company; and 5. potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger.
Added
In the event of a bankruptcy, liquidation, or reorganization of Healthcare Realty Trust, its assets and those of the OP and its subsidiaries will be available to satisfy the claims of stockholders only after all of Healthcare Realty Trust's and the OP’s and its subsidiaries’ liabilities and obligations have been paid in full.
Removed
For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of the Company's management, the disruption of the Company's ongoing business or inconsistencies in the Company's services, standards, controls, procedures and policies, any of which could adversely affect the ability of the Company to maintain relationships with tenants, health systems, vendors and employees or to achieve the anticipated benefits of the Merger, or could otherwise adversely affect the business and financial results of the Company.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company owns its corporate headquarters located at 3310 West End Avenue in Nashville, Tennessee and a corporate office in Charleston, South Carolina.
Biggest changeThe Company owns its corporate headquarters located at 3310 West End Avenue in Nashville, Tennessee.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Legacy HR Employee Stock Purchase Plan provides that shares of common stock may be purchased at a per share price equal to 85% of the fair market value of the common stock at the beginning of the offering period or a purchase date applicable to such offering period, whichever is lower. 22 Issuer Purchases of Equity Securities During the year ended December 31, 2022, the Company withheld and canceled shares of Company common stock to satisfy employee tax withholding obligations payable upon the vesting of non-vested shares, as follows: PERIOD TOTAL NUMBER OF SHARES PURCHASED AVERAGE PRICE PAID per share TOTAL NUMBER OF SHARES purchased as part of publicly announced plans or programs MAXIMUM NUMBER OF SHARES that may yet be purchased under the plans or programs January 1 - January 31 — $ — — — February 1 - February 28 6,727 30.67 — — March 1 - March 31 — — — — April 1 - April 30 — — — — May 1 - May 31 — — — — June 1 - June 30 — — — — July 1 - July 31 — — — — August 1 - August 31 — — — — September 1 - September 30 2,018 24.14 — — October 1 - October 31 — — — — November 1 - November 30 — — — — December 1 - December 31 129,147 19.37 — — Total 137,892 Authorization to Repurchase Common Stock On August 2, 2022, the Company’s Board of Directors authorized the repurchase of up to $500 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.
Biggest changeIssuer Purchases of Equity Securities During the year ended December 31, 2023, the Company withheld and canceled shares of Company common stock to satisfy employee tax withholding obligations payable upon the vesting of non-vested shares, as follows: PERIOD TOTAL NUMBER OF SHARES PURCHASED AVERAGE PRICE PAID per share TOTAL NUMBER OF SHARES purchased as part of publicly announced plans or programs MAXIMUM NUMBER OF SHARES that may yet be purchased under the plans or programs February 1 - February 28 38,632 $ 21.71 — — December 1 - December 31 87,453 15.97 — — Total 126,085 $ 18.84 Authorization to Repurchase Common Stock On May 31, 2023, the Company’s Board of Directors authorized the repurchase of up to $500 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 comparison assumes $100 was invested on December 31, 2017 in the Company's common stock and in each of the indexes and assumes reinvestment of dividends, as applicable. The Company's data for periods prior to the closing of the Merger is the stock performance of Legacy HR.
The comparison assumes $100 was invested on December 31, 2018, in the Company's common stock and in each of the indexes and assumes reinvestment of dividends, as applicable. The Company's data for periods prior to the closing of the Merger is the stock performance of Legacy HR.
Equity Compensation Plan Information The following table provides information as of December 31, 2022 about the Company’s common stock that may be issued as restricted stock and upon the exercise of options, warrants and rights under all of the Company’s existing compensation plans, including the Amended and Restated 2006 Incentive Plan.
Equity Compensation Plan Information The following table provides information as of December 31, 2023, about the Company’s common stock that may be issued as restricted stock and upon the exercise of options, warrants and rights under the Company’s existing compensation plans, including the Amended and Restated 2006 Incentive Plan.
As of the date of this report, the Company has not repurchased any shares of its common stock under this authorization. 23 Stock Performance Graph The following graph provides a comparison of the Company's cumulative total shareholder return with the Russell 3000 Index and cumulative total returns of FTSE NAREIT All Equity REITs Index for the period from December 31, 2017 through December 31, 2022.
As of the date of this report, the Company has not repurchased any shares of its common stock under this authorization. 23 Stock Performance Graph The following graph provides a comparison of the Company's cumulative total shareholder return with the Russell 3000 Index and cumulative total returns of FTSE NAREIT All Equity REITs Index for the period from December 31, 2018, through December 31, 2023.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Shares of the Company’s common stock are traded under the symbol “HR.” At December 31, 2022, there were 2,457 stockholders of record. Future dividends will be declared and paid at the discretion of the Board of Directors.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Shares of the Company’s common stock are traded under the symbol “HR.” As of December 31, 2023, there were 2,167 stockholders of record. 22 Future dividends will be declared and paid at the discretion of the Board of Directors.
PLAN CATEGORY NUMBER OF SECURITIES TO BE ISSUED upon exercise of outstanding options, warrants, and rights 1 WEIGHTED AVERAGE EXERCISE PRICE of outstanding options, warrants, and rights 1 NUMBER OF SECURITIES REMAINING AVAILABLE for future issuance under equity compensation plans (excluding securities reflected in the first column) Equity compensation plans approved by security holders 340,976 — 9,214,187 Equity compensation plans not approved by security holders — — — Total 340,976 — 9,214,187 1 The outstanding options relate only to Legacy HR's 2000 Employee Stock Purchase Plan (the "Legacy HR Employee Stock Purchase Plan"), which was terminated in November 2022.
PLAN CATEGORY NUMBER OF SECURITIES TO BE ISSUED upon exercise of outstanding options, warrants, and rights 1 WEIGHTED AVERAGE EXERCISE PRICE of outstanding options, warrants, and rights 1 NUMBER OF SECURITIES REMAINING AVAILABLE for future issuance under equity compensation plans (excluding securities reflected in the first column) Equity compensation plans approved by security holders 155,613 — 8,102,861 Equity compensation plans not approved by security holders — — — Total 155,613 — 8,102,861 1 The outstanding options relate only to Legacy HR's 2000 Employee Stock Purchase Plan (the "Legacy HR Employee Stock Purchase Plan"), which was terminated in November 2022.
Added
The Legacy HR Employee Stock Purchase Plan provides that shares of common stock may be purchased at a per share price equal to 85% of the fair market value of the common stock at the beginning of the offering period or a purchase date applicable to such offering period, whichever is lower.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

112 edited+31 added−40 removed78 unchanged
Biggest changeYEAR ENDED DECEMBER 31, Amounts in thousands, except per share data 2022 2021 2020 Net income attributable to common stockholders $ 40,897 $ 66,659 $ 72,195 Gain on sales of real estate assets (270,271) (55,940) (70,361) Impairments 54,427 17,101 — Real estate depreciation and amortization 459,211 208,155 194,574 Non-controlling income from operating partnership units (5) — — Proportionate share of unconsolidated joint ventures 12,722 5,541 564 FFO attributable to common stockholders 296,981 241,516 196,972 Acquisition and pursuit costs 1 3,229 3,930 2,561 Merger-related costs 103,380 — — Fair value of debt instruments 21,248 — — Lease intangible amortization 3 1,028 162 690 Non-routine legal costs/forfeited earnest money received 2 771 (35) — Debt financing costs 4 3,145 283 21,920 Unconsolidated JV normalizing items 5 330 225 16 Normalized FFO attributable to common stockholders 430,112 246,081 222,159 Non-real estate depreciation and amortization 2,217 2,397 3,154 Non-cash interest expense amortization 6 5,129 3,182 3,691 Provision for bad debt, net 516 73 207 Straight-line rent income, net (20,124) (4,303) (2,245) Share-based compensation 14,294 10,729 9,922 Proportionate share of unconsolidated joint ventures (1,206) (1,357) 27 Normalized FFO adjusted for non-cash items 430,938 256,802 236,915 2nd Generation tenant improvements (33,620) (26,363) (26,209) Leasing commissions paid (22,929) (11,742) (10,369) Capital expenditures (48,913) (19,582) (21,758) Maintenance capital expenditures (105,462) (57,687) (58,336) FAD attributable to common stockholders $ 325,476 $ 199,115 $ 178,579 FFO per common share - diluted $ 1.17 $ 1.68 $ 1.46 Normalized FFO per common share - diluted $ 1.69 $ 1.71 $ 1.65 Weighted average common shares outstanding - diluted 7 254,622 143,618 134,835 1 Acquisition and pursuit costs include third party and travel costs related to the pursuit of acquisitions and developments. 2 Non-routine legal costs include expenses related to disputes with a contractor and a tenant relating to a violation of use restrictions.
Biggest changeYEAR ENDED DECEMBER 31, Amounts in thousands, except per share data 2023 2022 2021 Net (loss) income attributable to common stockholders $ (278,261) $ 40,897 $ 66,659 Net (loss) income attributable to common stockholders per diluted share 1 $ (0.74) $ 0.15 $ 0.45 Gain on sales of real estate assets (77,546) (270,271) (55,940) Impairments 149,717 54,427 17,101 Real estate depreciation and amortization 738,526 459,211 208,155 Non-controlling income from operating partnership units (3,426) (5) — Proportionate share of unconsolidated joint ventures 18,116 12,722 5,541 FFO adjustments $ 825,387 $ 256,084 $ 174,857 FFO adjustments per common share - diluted 8 $ 2.15 $ 1.01 $ 1.22 FFO attributable to common stockholders $ 547,126 $ 296,981 $ 241,516 FFO attributable to common stockholders per common share - diluted 7 $ 1.43 $ 1.17 $ 1.68 Acquisition and pursuit costs 2 2,026 3,229 3,930 Merger-related costs 3 (1,952) 103,380 — Merger-related fair value of debt instruments 42,885 21,248 — Lease intangible amortization 860 1,028 162 Allowance for credit losses 4 8,599 — — Non-routine legal costs/forfeited earnest money received 175 771 (35) Debt financing costs (62) 3,145 283 Severance costs 1,445 — — Unconsolidated JV normalizing items 5 389 330 225 Normalized FFO adjustments $ 54,365 $ 133,131 $ 4,565 Normalized FFO adjustments per common share - diluted 8 $ 0.14 $ 0.52 $ 0.03 Normalized FFO attributable to common stockholders $ 601,491 $ 430,112 $ 246,081 Normalized FFO attributable to common stockholders per common share - diluted 8 $ 1.57 $ 1.69 $ 1.71 Non-real estate depreciation and amortization 2,566 2,217 2,397 Non-cash interest expense amortization 6 4,968 5,129 3,182 Provision for bad debt, net 3,163 516 73 Straight-line rent income, net (32,592) (20,124) (4,303) Share-based compensation 13,791 14,294 10,729 Unconsolidated JV non-cash items 7 (1,034) (1,206) (1,357) Normalized FFO adjusted for non-cash items $ 592,353 $ 430,938 $ 256,802 2nd Generation tenant improvements (66,081) (33,620) (26,363) Leasing commissions paid (36,391) (22,929) (11,742) Capital expenditures (49,343) (48,913) (19,582) Maintenance capital expenditures (151,815) (105,462) (57,687) FAD $ 440,538 $ 325,476 $ 199,115 FFO weighted average common shares outstanding - diluted 8 383,381 254,622 143,618 40 1 Potential common shares are not included in the computation of diluted earnings per share when a loss exists as the effect would be an antidilutive per share amount. 2 Acquisition and pursuit costs include third-party and travel costs related to the pursuit of acquisitions and developments. 3 Includes costs incurred related to the Merger.
The Company reclassifies the property or disposal group as held for sale when all the following criteria for a qualifying plan of sale are met: • Management, having the authority to approve the action, commits to a plan to sell the property or disposal group; • The property or disposal group is available for immediate sale (i.e., a seller currently has the intent and ability to transfer the property or disposal group to a buyer) in its present condition, subject only to conditions that are usual and customary for sales of such properties or disposal groups; • An active program to locate a buyer and other actions required to complete the plan to sell have been initiated; • The sale of the property or disposal group is probable (i.e., likely to occur) and the transfer is expected to qualify for recognition as a completed sale within one year, with certain exceptions; • The property or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and 47 • Actions necessary to complete the plan indicate that it is unlikely significant changes to the plan will be made or that the plan will be withdrawn.
The Company reclassifies the property or disposal group as held for sale when all the following criteria for a qualifying plan of sale are met: • Management, having the authority to approve the action, commits to a plan to sell the property or disposal group; • The property or disposal group is available for immediate sale (i.e., a seller currently has the intent and ability to transfer the property or disposal group to a buyer) in its present condition, subject only to conditions that are usual and customary for sales of such properties or disposal groups; • An active program to locate a buyer and other actions required to complete the plan to sell have been initiated; • The sale of the property or disposal group is probable (i.e., likely to occur) and the transfer is expected to qualify for recognition as a completed sale within one year, with certain exceptions; • The property or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and • Actions necessary to complete the plan indicate that it is unlikely significant changes to the plan will be made or that the plan will be withdrawn.
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) 41 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.
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.
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. Overview The Company owns and operates properties that facilitate the delivery of healthcare services in primarily outpatient settings.
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. 26 Overview The Company owns and operates properties that facilitate the delivery of healthcare services in primarily outpatient settings.
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 believes that by excluding the effect of depreciation, 39 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 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. The Company has exposure to variable interest rates and its common stock price is impacted by the volatility in the stock markets.
The Company cannot, 27 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. The Company has exposure to variable interest rates and its common stock price is impacted by the volatility in the stock markets.
The overhead load factors are computed to absorb that portion of indirect employee costs (payroll and benefits, training, and similar costs) that are attributable to the productive time the employee incurs working directly on projects. The employees in the Company’s development departments who work on these projects maintain and report their hours, by project.
The overhead load factors are computed to absorb that portion of indirect employee costs (payroll and benefits, training, and similar costs) that are attributable to the productive time the employee incurs working directly on projects. The employees in the Company’s 43 development departments who work on these projects maintain and report their hours, by project.
The Company considers, among other factors, its leverage ratios and lending covenants, dividend payout percentages, interest rates, underlying treasury rate, debt market spreads and cost of equity capital to compare its operations to its peers and to help identify areas in which the Company may need to focus its attention.
The Company considers, among other factors, its leverage ratios and lending covenants, dividend payout percentages, interest rates, underlying treasury rates, debt market spreads and cost of equity capital to compare its operations to its peers and to help identify areas in which the Company may need to focus its attention.
The Company expects to continue to meet its liquidity needs, including capital for additional investments, tenant improvement allowances, operating and finance lease payments, paying dividends, and funding debt service, through 27 cash on hand, cash flows from operations and the cash flow sources addressed above.
The Company expects to continue to meet its liquidity needs, including capital for additional investments, tenant improvement allowances, operating and finance lease payments, paying dividends, and funding debt service, through cash on hand, cash flows from operations and the cash flow sources addressed above.
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 SEC, as well as information included in oral statements or other written statements made, or to be made, by senior 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” and other comparable terms.
Management's Discussion and Analysis of Financial Condition and Results of Operations Disclosure Regarding Forward-Looking Statements This report and other materials the Company have filed or may file with the SEC, as well as information included in oral statements or other written statements made, or to be made, by senior 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” and other comparable terms.
Generally, the Company may, at its discretion and upon notification to the tenant, draw upon these instruments if there are any defaults under the leases. Expiring Leases The Company expects that approximately 15% of the leases in its portfolio will expire each year.
Generally, the Company may, at its discretion and upon notification to the tenant, draw upon these instruments if there are any defaults under the leases. Expiring Leases The Company expects that approximately 15% to 20% of the leases in its portfolio will expire each year.
Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report. 36 Tenant Improvements The Company may invest in tenant improvements for the purpose of refurbishing or renovating tenant space. The Company categorizes these expenditures into first and second generation tenant improvements.
Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report. Tenant Improvements The Company may invest in tenant improvements for the purpose of refurbishing or renovating tenant space. The Company categorizes these expenditures into first and second generation tenant improvements.
The 45 Company’s overhead costs are based on overhead load factors that are charged to a project based on direct time incurred. The Company computes the overhead load factors annually for its acquisition and development departments, which have employees who are involved in the projects.
The Company’s overhead costs are based on overhead load factors that are charged to a project based on direct time incurred. The Company computes the overhead load factors annually for its acquisition and development departments, which have employees who are involved in the projects.
The investment’s value would have 46 been impaired only if management’s estimate of the fair value of the Company’s investment was less than its carrying value. To the extent impairment had occurred, a loss would have been recognized for the excess of its carrying amount over its fair value.
The investment’s value would have been impaired only if management’s estimate of the fair value of the Company’s investment was less than its carrying value. To the extent impairment had occurred, a loss would have been recognized for the excess of its carrying amount over its fair value.
An impairment charge is recognized for any initial adjustment of the property's or disposal group's carrying amount to its fair value less estimated costs to sell in the period the held for sale criteria are met.
An impairment charge is recognized for any initial adjustment of the property's or disposal group's carrying amount to its fair value less estimated costs to sell in the period the held for sale criteria are 45 met.
Alternatively, the Company may explore disposing of an operating real estate property but without specific intent to sell the property and without the property meeting the criteria to be classified as held for sale (see discussion below).
Alternatively, the Company may 44 explore disposing of an operating real estate property but without specific intent to sell the property and without the property meeting the criteria to be classified as held for sale (see discussion below).
In either case, such overages are amortized by the Company as rental income over the term of the lease. Interest earned on tenant overages is included in other operating income in the Company's Consolidated Statements of Income.
In either case, such overages are amortized by the Company as rental income over the term of the lease. Interest earned on tenant overages is included in other operating income in the Company's Consolidated Statements of Operations.
Accordingly, the information discussed in this section reflects, for periods prior to the closing of the Merger, the financial condition and results of operations of Legacy HR, and for periods from the closing of the Merger, that of the consolidated company.
Accordingly, the information discussed in this section reflects, for periods prior to the closing of the Merger, the financial condition and results of operations of Legacy HR, and for periods from the closing of the Merger, that of the Company.
Risks relating to government regulations • The Company's property taxes could increase due to reassessment or property tax rate changes; • Trends in the healthcare service industry may negatively affect the demand for the Company’s properties, lease revenues and the values of its investments; • The costs of complying with governmental laws and regulations may adversely affect the Company's results of operations; • Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code; • If the Company fails to remain qualified as a REIT, the Company will be subject to significant adverse consequences, including adversely affecting the value of its common stock; • The Company’s articles of incorporation, as well as provisions of the Maryland General Corporation Law ("MGCL"), contain limits and restrictions on transferability of the Company’s common stock which may have adverse effects on the value of the Company’s common stock; • Complying with the REIT requirements may cause the Company to forego otherwise attractive opportunities; • The prohibited transactions tax may limit the Company's ability to sell properties; • New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for the Company to qualify as a REIT; and 26 • New and increased transfer tax rates may reduce the value of the Company’s properties.
Risks relating to government regulations • The Company's property taxes could increase due to reassessment or property tax rate changes; • Trends in the healthcare service industry may negatively affect the demand for the Company’s properties, lease revenues and the values of its investments; • The costs of complying with governmental laws and regulations may adversely affect the Company's results of operations; • Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code; • If the Company fails to remain qualified as a REIT, the Company will be subject to significant adverse consequences, including adversely affecting the value of its common stock; • The Company’s articles of incorporation, as well as provisions of the MGCL, contain limits and restrictions on transferability of the Company’s common stock which may have adverse effects on the value of the Company’s common stock; • Complying with the REIT requirements may cause the Company to forego otherwise attractive opportunities; • The prohibited transactions tax may limit the Company's ability to sell properties; • New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for the Company to qualify as a REIT; and • New and increased transfer tax rates may reduce the value of the Company’s properties.
The Company assigns a useful life to its owned properties based on many factors, including the age and condition of the property when acquired. 48 Revenue Recognition The Company's primary source of revenue is rental income derived from non-cancelable leases. When a lease is executed, the terms and conditions of the lease are assessed to determine the appropriate accounting classification.
The Company assigns a useful life to its owned properties based on many factors, including the age and condition of the property when acquired. 46 Revenue Recognition The Company's primary source of revenue is rental income derived from non-cancelable leases. When a lease is executed, the terms and conditions of the lease are assessed to determine the appropriate accounting classification.
Capitalized pursuit costs, net of the reserve, are carried in other assets in the Company’s Consolidated Balance Sheets, and any reserve recorded is charged to acquisition and pursuit costs on the Consolidated Statements of Income. All pursuit costs will ultimately be written off to expense or capitalized as part of the constructed real estate asset.
Capitalized pursuit costs, net of the reserve, are carried in other assets in the Company’s Consolidated Balance Sheets, and any reserve recorded is charged to acquisition and pursuit costs on the Consolidated Statements of Operations. All pursuit costs will ultimately be written off to expense or capitalized as part of the constructed real estate asset.
Such abatements, when made, are amortized by the Company on a straight-line basis against rental income over the lease term. Rent abatements for 2022 totaled approximately $14.8 million, or $0.37 per square foot. Rent abatements for 2021 totaled approximately $4.6 million, or $0.27 per square foot.
Such abatements, when made, are amortized by the Company on a straight-line basis against rental income over the lease term. Rent abatements for 2023 totaled approximately $14.3 million, or $0.37 per square foot. Rent abatements for 2022 totaled approximately $14.8 million, or $0.37 per square foot. Rent abatements for 2021 totaled approximately $4.6 million, or $0.27 per square foot.
When a derivative instrument is initiated, the Company will assess its intended use of the derivative instrument and may elect a hedging relationship and apply hedge accounting. As required by the accounting literature, the Company will formally document the hedging relationship for all derivative instruments prior to or contemporaneous with entering into the derivative instrument. 49
When a derivative instrument is initiated, the Company will assess its intended use of the derivative instrument and may elect a hedging relationship and apply hedge accounting. As required by the accounting literature, the Company will formally document the hedging relationship for all derivative instruments prior to or contemporaneous with entering into the derivative instrument. 47
In addition, the Company pays its leasing employees incentive compensation when leases are executed that meet certain leasing thresholds. External leasing commissions are amortized to property operating expense, and internal leasing costs are amortized to general and administrative expense in the Company's Consolidated Statements of Income.
In addition, the Company pays its leasing employees incentive compensation when leases are executed that meet certain leasing thresholds. External leasing commissions are amortized to property operating expense, and internal leasing costs are amortized to general and administrative expense in the Company's Consolidated Statements of Operations.
However, there can be no assurance that the Company's ability to increase rents or recover operating expenses will keep pace with inflation. The Company's leases have a weighted average lease term remaining of approximately 4.5 years.
However, there can be no assurance that the Company's ability to increase rents or recover operating expenses will keep pace with inflation. The Company's leases have a weighted average lease term remaining of approximately 4.2 years.
Operating expense recoveries, which includes reimbursements for building specific operating expenses, are recognized as revenue in the period in which the related expenses are incurred. The Company generally expects that collectability is probable at lease commencement.
Operating expense recoveries, which include reimbursements for building specific operating expenses, are recognized as revenue in the period in which the related expenses are incurred. The Company generally expects that collectability is probable at lease commencement.
In such cases, the Company and a potential buyer typically negotiate a letter of intent followed by a purchase and sale agreement that includes a due diligence time line for completion of customary due diligence procedures. Anytime throughout this period the transaction could be terminated by the parties.
In such cases, the Company and a potential buyer typically negotiate a letter of intent followed by a purchase and sale agreement that includes a due diligence timeline for completion of customary due diligence procedures. Anytime throughout this period the transaction could be terminated by the parties.
The Company also had unencumbered real estate assets with a gross book value of approximately $13.8 billion at December 31, 2022, 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 also had unencumbered real estate assets with a gross book value of approximately $13.2 billion at December 31, 2023, 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.
Total costs to develop or redevelop a typical medical office building can vary depending on the scope of the project, market rental terms, parking configuration, building amenities, asset type and geographic location. The Company’s disclosures regarding projections or estimates of completion dates and leasing may not be indicative of actual results.
Total costs to develop or redevelop a typical medical office building can vary depending on the scope of the project, market rental terms, parking configuration, building amenities, asset type and geographic location. The Company’s disclosures regarding certain estimates or projections may not be indicative of actual results.
The Company has approximately $1.1 billion in real estate properties that are subject to purchase options that will become exercisable after 2022.
The Company has approximately $1.1 billion in real estate properties that are subject to purchase options that will become exercisable after 2023.
The Company may, from time to time, be approached by a third party with interest in purchasing one or more of the Company's operating real estate properties that was otherwise not for sale.
The Company may, from time to time, be approached by a third party with an interest in purchasing one or more of the Company's operating real estate properties that were otherwise not for sale.
As of December 31, 2022 and 2021, the Company's Consolidated Balance Sheets include capitalized pursuit costs relating to potential developments totaling $4.3 million and $5.1 million respectively. The Company expensed costs related to the pursuit of acquisitions totaling $1.0 million, $2.6 million and $1.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.
As of December 31, 2023 and 2022, the Company's Consolidated Balance Sheets include capitalized pursuit costs relating to potential developments totaling $6.2 million and $4.3 million, respectively. The Company expensed costs related to the pursuit of acquisitions totaling $0.8 million, $1.0 million and $2.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
As a percentage of cash net operating income, 2022 and 2021 capital expenditures were 8.5% and 6.1%, respectively. For a reconciliation of cash net operating income, see "Same Store Cash NOI" in the "Non-GAAP Financial Measures and Key Performance Indicators" section as part of Item 7.
As a percentage of cash net operating income, 2023 and 2022 capital expenditures were 5.8% and 8.5%, respectively. For a reconciliation of cash net operating income, see "Same Store Cash NOI" in the "Non-GAAP Financial Measures and Key Performance Indicators" section as part of Item 7.
Depreciation of Real Estate Assets and Amortization of Related Intangible Assets As of December 31, 2022, the Company had gross investments of approximately $12.7 billion in depreciable real estate assets and related intangible assets. When real estate assets and related intangible assets are acquired or placed in service, they must be depreciated or amortized.
Depreciation of Real Estate Assets and Amortization of Related Intangible Assets As of December 31, 2023, the Company had gross investments of approximately $12.1 billion in depreciable real estate assets and related intangible assets. When real estate assets and related intangible assets are acquired or placed in service, they must be depreciated or amortized.
Operating Leases As of December 31, 2022, the Company was obligated to make rental payments under operating lease agreements consisting primarily of ground leases related to 167 real estate investments, excluding those ground leases the Company has prepaid.
Operating Leases As of December 31, 2023, the Company was obligated to make rental payments under operating lease agreements consisting primarily of ground leases related to 157 real estate investments, excluding those ground leases the Company has prepaid.
These ground leases typically have initial terms of 50 to 75 years with one or more renewal options extending the terms to 75 to 100 years, with expiration dates through 2119. Purchase Options The Company had approximately $100.4 million in real estate properties as of December 31, 2022 that were subject to exercisable purchase options.
These ground leases typically have initial terms of 50 to 75 years with one or more renewal options extending the terms to 75 to 100 years, with expiration dates through 2119. 35 Purchase Options The Company had approximately $111.1 million in real estate properties as of December 31, 2023 that were subject to exercisable purchase options.
Other Items Impacting Operations General and administrative expenses will fluctuate quarter-to-quarter. In the first quarter of each year, general and administrative expense includes increases for certain expenses such as payroll taxes and healthcare savings account fundings. The Company expects these customary expenses to increase by approximately $0.8 million in the first quarter of 2023.
Other Items Impacting Operations General and administrative expenses will fluctuate quarter-to-quarter. In the first quarter of each year, general and administrative expense include increases for certain expenses such as payroll taxes and healthcare savings account fundings. The Company expects these customary expenses to increase by approximately $0.9 million in the first quarter of 2024.
The effect of any required adjustment is reflected in income from continuing operations at the date of the decision not to sell. The Company recorded impairment charges totaling $54.4 million for the year ended December 31, 2022 related to real estate properties and other long-lived assets.
The effect of any required adjustment is reflected in income from continuing operations at the date of the decision not to sell. The Company recorded impairment charges totaling $149.7 million for the year ended December 31, 2023 related to real estate properties and other long-lived assets.
First Generation Tenant Improvements & Planned Capital Expenditures for Acquisitions First generation tenant improvements and planned capital expenditures for acquisition spending totaled $46.4 million and $19.3 million for the years ended December 31, 2022 and 2021, respectively. First generation tenant improvements include build out costs related to suite space in shell condition.
First Generation Tenant Improvements & Planned Capital Expenditures for Acquisitions First generation tenant improvements and planned capital expenditures for acquisition spending totaled $38.7 million and $46.4 million for the years ended December 31, 2023 and 2022, respectively. First generation tenant improvements include build out costs related to suite space in shell condition.
Planned capital expenditures for acquisitions include expected near-term fundings that were contemplated as part of the acquisition. Second Generation Tenant Improvements Second generation tenant improvements spending totaled $33.6 million in 2022, or 5.8% of total cash net operating income. In 2021, this spending totaled $26.4 million, or 8.3% of total cash net operating income.
Planned capital expenditures for acquisitions include expected near-term fundings that were contemplated as part of the acquisition. Second Generation Tenant Improvements Second generation tenant improvements spending totaled $63.5 million in 2023, or 7.7% of total cash net operating income. In 2022, this spending totaled $33.6 million, or 5.8% of total cash net operating income.
As of December 31, 2022, all of the Company's leases, where the Company is the lessor, are classified as operating leases. Operating leases are recognized on the straight-line basis over the term of the related lease, including periods where a tenant is provided a rent concession.
As of December 31, 2023, with the exception of one finance lease, all of the Company's leases, where the Company is the lessor, are classified as operating leases. Operating leases are recognized on the straight-line basis over the term of the related lease, including periods where a tenant is provided a rent concession.
Other operating income increased $3.4 million, or 33.2%, from the prior year primarily as a result of income from transient parking and management fees assumed with the Merger.
Other operating income increased $3.7 million, or 27.3%, from the prior year primarily as a result of income from transient parking and management fees assumed with the Merger.
In-place leases have a weighted average lease term of 8.9 years and a weighted average remaining lease term of 4.5 years. Demand for well-located real estate with complementary practice types and services remains consistent, and the Company's 2022 quarterly tenant retention statistics ranged from 72% to 86%.
In-place leases have a weighted average lease term of 8.5 years and a weighted average remaining lease term of 4.2 years. Demand for well-located real estate with complementary practice types and services remains consistent, and the Company's 2023 quarterly tenant retention statistics ranged from 74% to 79%.
Capital expenditures also do not include improvements related to a specific tenant suite, unless the improvement is part of a major building system or common area improvement. The Company invested $48.9 million, or $1.21 per square foot, in capital expenditures in 2022 and $19.6 million, or $1.15 per square foot, in capital expenditures in 2021.
Capital expenditures also do not include improvements related to a specific tenant suite, unless the improvement is part of a major building system or common area improvement. The Company invested $47.7 million, or $1.24 per square foot, in capital expenditures in 2023 and $48.9 million, or $1.21 per square foot, in capital expenditures in 2022.
Security Deposits and Letters of Credit As of December 31, 2022, the Company held approximately $32.1 million in letters of credit and security deposits for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease.
Security Deposits and Letters of Credit As of December 31, 2023, the Company held approximately $38.5 million in letters of credit and security deposits for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease.
Debt Management The Company maintains a conservative and flexible capital structure that allows it to fund new investments and operate its existing portfolio. The Company has approximately $84.1 million of mortgage notes payable, most of which were assumed when the Company acquired properties.
Debt Management The Company maintains a conservative and flexible capital structure that allows it to fund new investments and operate its existing portfolio. The Company has approximately $70.8 million of mortgage notes payable, most of which were assumed when the Company acquired properties. The Company has approximately $24.1 million of mortgage notes payable that will mature in 2024.
As of December 31, 2022, the Company had commitments of approximately $195.1 million that are expected to be spent on tenant improvements throughout the portfolio, excluding development properties currently under construction.
As of December 31, 2023, the Company had commitments of approximately $222.4 million that are expected to be spent on tenant improvements throughout the portfolio, excluding development properties currently under construction.
Also, as of December 31, 2022, the Company's incurrence of total debt as defined in the senior notes due 2030 and 2031 [debt divided by (total assets less intangibles and accounts receivable)] was approximately 38.4% (cannot be greater than 60%) and debt service coverage [interest expense divided by (net income plus interest expense, taxes, depreciation and amortization, gains and impairments)] was approximately 3.1 times (cannot be less than 1.5x).
Also, as of December 31, 2023, the Company's incurrence of total debt as defined in the senior notes [debt divided by (total assets less intangibles and accounts receivable)] was approximately 37.5% (cannot be greater than 60%) and debt service coverage [interest expense divided by (net income plus interest expense, taxes, depreciation and amortization, gains and impairments)] was approximately 3.2 times (cannot be less than 1.5 times).
Second generation, multi-tenant tenant improvement commitments in 2022 for new leases averaged $5.74 per square foot per lease year, ranging quarterly from $4.84 to $7.07. In 2021, these commitments averaged $5.39 per square foot per lease year, ranging quarterly from $4.74 to $5.96.
Second generation, multi-tenant tenant improvement commitments in 2023 for new leases averaged $5.69 per square foot per lease year, ranging quarterly from $4.44 to $7.11. In 2022, these commitments averaged $5.74 per square foot per lease year, ranging quarterly from $4.84 to $7.07.
Capitalization of Costs GAAP generally allows for the capitalization of various types of costs. The rules and regulations on capitalizing costs and the subsequent depreciation or amortization of those costs versus expensing them in the period incurred vary depending on the type of costs and the reason for capitalizing the costs.
The rules and regulations on capitalizing costs and the subsequent depreciation or amortization of those costs versus expensing them in the period incurred vary depending on the type of costs and the reason for capitalizing the costs.
The amount of leasing commissions amortized over the term of the applicable leases totaled $27.2 million, $8.5 million and $7.4 million for the years ended December 31, 2022, 2021 and 2020, respectively. Rent Abatements Rent abatements, which generally take the form of deferred rent, are sometimes used to help induce a potential tenant to lease space in the Company's properties.
The amount of leasing commissions amortized over the term of the applicable leases totaled $13.8 million, $11.0 million and $9.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. Rent Abatements Rent abatements, which generally take the form of deferred rent, are sometimes used to help induce a potential tenant to lease space in the Company's properties.
The Company funded an additional $7.8 million related to ongoing tenant improvements at previously completed projects. 35 The Company is in the planning stages with several health systems and developers regarding new development and redevelopment opportunities and expects one or more to begin in 2023.
The Company funded an additional $22.6 million related to ongoing tenant improvements at previously completed projects. The Company is in the planning stages with several health systems and developers regarding new development and redevelopment opportunities and one or more could begin in 2024.
Principles of Consolidation The Company’s Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, joint ventures, and partnerships where the Company controls the operating activities. All material intercompany accounts and transactions have been eliminated.
Principles of Consolidation The Company’s Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, joint ventures, and partnerships where the Company controls the operating activities. All material intercompany accounts and transactions have been eliminated. Capitalization of Costs GAAP generally allows for the capitalization of various types of costs.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 The Company's discussion regarding the comparison of the year ended December 31, 2021 compared to the year ended December 31, 2020 was previously disclosed beginning on page 38 of Legacy HR's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 16, 2022, and is incorporated herein by reference.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The Company's discussion regarding the comparison of the year ended December 31, 2022 compared to the year ended December 31, 2021 was previously disclosed beginning on page 39 of the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023, and is incorporated herein by reference.
Operating Activities Cash flows provided by operating activities for the two years ended December 31, 2022 and 2021 were $272.7 million and $232.6 million, respectively.
Operating Activities Cash flows provided by operating activities for the two years ended December 31, 2023 and 2022 were $499.8 million and $272.7 million, respectively.
The first and second generation tenant overage amount amortized to rent, including interest, totaled approximately $7.5 million in 2022, $5.9 million in 2021, and $6.6 million in 2020. Second generation, multi-tenant tenant improvement commitments in 2022 for renewals averaged $1.76 per square foot per lease year, ranging quarterly from $1.46 to $1.90.
The first and second generation tenant overage amount amortized to rent, including interest, totaled approximately $8.4 million in 2023, $7.5 million in 2022, and $5.9 million in 2021. 34 Second generation, multi-tenant tenant improvement commitments in 2023 for renewals averaged $1.78 per square foot per lease year, ranging quarterly from $1.64 to $1.89.
The Company also performs an annual goodwill impairment review. The Company's reviews are performed as of December 31 of each year. The Company's 2022 goodwill asset was $223.2 million after giving effect to the Merger. The 2021 review indicated that no impairment had occurred with respect to the Company's $3.5 million goodwill asset.
The Company also performs an annual goodwill impairment review. The Company's reviews are performed as of December 31 of each year. The 2023 and 2022 reviews indicated that no impairment had occurred with respect to the Company's goodwill asset of $250.5 million and $223.2 million, respectively.
The Company will repay mortgages with cash on hand or borrowings under the Unsecured Credit Facility. 38 Impact of Inflation The Company is subject to the risk of inflation as most of its revenues are derived from long-term leases.
The Company will repay mortgages with cash on hand or borrowings under the Unsecured Credit Facility. See additional information in Liquidity and Capital Resources - Financing Activities. Impact of Inflation The Company is subject to the risk of inflation as most of its revenues are derived from long-term leases.
In addition, the Company expensed costs related to the pursuit of developments totaling $2.2 million, $1.4 million and $1.6 million for the years ended December 31, 2022, 2021 and 2020, respectively. Furthermore, the Company expensed costs related to the Merger totaling $103.4 million for the year ended December 31, 2022.
In addition, the Company expensed costs related to the pursuit of developments totaling $0.8 million, $2.2 million and $1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.
In 2022, the Company paid leasing commissions of approximately $22.9 million, or $0.57 per square foot. In 2021, the Company paid leasing commissions of approximately $11.7 million, or $0.69 per square foot. As a percentage of total cash net operating income, leasing commissions paid for 2022 and 2021 were 0.9% and 2.8%, respectively.
In 2023, the Company paid leasing commissions of approximately $35.9 million, or $0.93 per square foot. In 2022, the Company paid leasing commissions of approximately $22.9 million, or $0.57 per square foot. As a percentage of total cash net operating income, leasing commissions paid for 2023 and 2022 were 4.3% and 4.0%, respectively.
Expenses Property operating expenses increased $131.8 million, or 62.1%, from the prior year primarily as a result of the following activity: • Acquisitions in 2021 and 2022 resulted in an increase of $19.6 million. • Increases in portfolio operating expenses as follows: ◦ Utilities expense of $4.0 million; ◦ Compensation of $2.3 million; ◦ Leasing commission amortization of $1.9 million; ◦ Janitorial expense of $1.2 million; 39 ◦ Maintenance and repair expense of $0.8 million; ◦ Property tax of $0.6 million; ◦ Security of $0.5 million; ◦ Administrative and other legal expense of $0.5 million; and ◦ Insurance expense of $0.4 million. • Dispositions in 2021 and 2022 resulted in a decrease of $11.9 million. • Impact from the Merger resulted in an increase of $111.9 million.
Expenses Property operating expenses increased $156.4 million, or 45.5%, from the prior year primarily as a result of the following activity: • Impact from the Merger resulted in an increase of $130.9 million. • Acquisitions in 2022 and 2023 resulted in an increase of $8.9 million. • Increases in portfolio operating expenses as follows: ◦ Utilities expense of $7.0 million; ◦ Administrative, leasing commissions, and other legal expense of $5.7 million; ◦ Maintenance and repair expense of $4.9 million; ◦ Janitorial expense of $1.9 million; and ◦ Security expense of $0.1 million. • Dispositions in 2022 and 2023 resulted in a decrease of $1.7 million. • Property tax expense decreased $1.0 million. • Insurance expense decreased $0.3 million.
As of December 31, 2022 and 2021, the Company's contractual rental rate growth averaged 2.68% and 2.87% for in-place leases. In addition, the Company continued to see strong quarterly weighted average rental rate growth for renewing leases ("cash leasing spread") and expects the majority of its renewal rates to increase between 3.0% and 4.0%.
In addition, the Company continued to see strong quarterly weighted average rental rate growth for renewing leases ("cash leasing spread") and expects the majority of its renewal rates to increase between 3.0% and 4.0%. In 2023, cash leasing spreads averaged 2.6%.
At December 31, 2022, the Company had 242 properties totaling 17.8 million square feet that were held under ground leases with a remaining weighted average term of 64.4 years, including renewal options.
As of December 31, 2023, the Company had 232 properties totaling 16.9 million square feet that were held under ground leases with a remaining weighted average term of 64.9 years, including renewal options.
The information included in the table below represents management’s estimates and expectations at December 31, 2022, which are subject to change. The Company’s disclosures regarding certain projections or estimates of completion dates may not reflect actual results.
Development and Redevelopment Activity The table below details the Company’s activity related to its active development and redevelopment projects as of December 31, 2023. The information included in the table below represents management’s estimates and expectations at December 31, 2023, which are subject to change. The Company’s disclosures regarding certain projections or estimates may not reflect actual results.
The Company has equity distribution agreements with various sales agents with respect to the ATM offering program with an aggregate sales amount of up to $750.0 million. As of December 31, 2022, $750.0 million remained available for issuance under the current ATM offering program. Legacy HR's ATM agreements are no longer in effect following the Merger on July 20, 2022.
The Company has equity distribution agreements with various sales agents with respect to the ATM offering program with an aggregate sales amount of up to $750.0 million. As of December 31, 2023, $750.0 million remained available for issuance under the current ATM offering program.
Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The Company’s consolidated results of operations for 2022 compared to 2021 were significantly impacted by the Merger, acquisitions, dispositions, gain on sales and impairment charges recorded on real estate properties, and capital markets transactions.
Approximately $0.6 million is not expected to recur in subsequent quarters in 2024. 36 Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The Company’s consolidated results of operations for 2023 compared to 2022 were significantly impacted by the Merger, acquisitions, dispositions, gain on sales and impairment charges recorded on real estate properties, and capital markets transactions.
In 2021, these commitments averaged $1.53 per square foot per lease year, ranging quarterly from $1.27 to $1.87. In 2020, these commitments averaged $1.58 per square foot per lease year, ranging quarterly from $1.48 to $1.78.
In 2022, these commitments averaged $1.76 per square foot per lease year, ranging quarterly from $1.46 to $1.90. In 2021, these commitments averaged $1.53 per square foot per lease year, ranging quarterly from $1.27 to $1.87.
The following details the amount and rate of each swap (dollars in thousands): EXPIRATION DATE AMOUNT WEIGHTED AVERAGE RATE January 31, 2023 $ 300,000 1.42 % January 15, 2024 200,000 1.21 % May 1, 2026 100,000 2.15 % December 1, 2026 150,000 3.84 % June 1, 2027 150,000 4.13 % December 1, 2027 250,000 3.79 % $ 1,150,000 2.63 % 33 On February 16, 2023, the Company entered into a swap transaction with a notional amount of $50.0 million and a fixed rate of 4.16%.
The following details the amount and rate of each swap as of such date (dollars in thousands): EXPIRATION AMOUNT WEIGHTED AVERAGE RATE January 2024 200,000 1.21 % May 2026 275,000 3.74 % June 2026 150,000 3.83 % December 2026 150,000 3.84 % June 2027 200,000 4.27 % December 2027 300,000 3.93 % $ 1,275,000 3.49 % 30 2023 Interest Rate Swap Activity On February 16, 2023, the Company entered into a swap transaction with a notional amount of $50.0 million and a fixed rate of 4.16%.
The Company has 93.6% of leases that provide for fixed base rent increases and 6.4% that provide for Consumer Price Index-based rent increases as of December 31, 2022.
The Company has 94.9% of leases that provide for fixed base rent increases and 5.1% that provide for Consumer Price Index-based rent increases as of December 31, 2023.
This section is organized in the following sections: • Liquidity and Capital Resources • Trends and Matters Impacting Operating Results • Results of Operations • Non-GAAP Financial Measures and Key Performance Indicators • Application of Critical Accounting Policies to Accounting Estimates Liquidity and Capital Resources The Company monitors its liquidity and capital resources and considers several indicators in its assessment of capital markets for financing acquisitions and other operating activities.
This section is organized into the following sections: • Liquidity and Capital Resources; • Trends and Matters Impacting Operating Results; • Results of Operations; • Non-GAAP Financial Measures and Key Performance Indicators; and • Application of Critical Accounting Policies to Accounting Estimates.
Interest Expense Interest expense increased $93.6 million for the year ended December 31, 2022 compared to the prior year.
Interest Expense Interest expense increased $111.9 million for the year ended December 31, 2023 compared to the prior year.
In 2023, the Company has 1,446 leases totaling 4.3 million square feet in its multi-tenant portfolio that are scheduled to expire. Of those leases, 73% are in on-campus buildings, which, in our experience, tend to have high tenant retention rates between 75% to 90%. The Company continues to emphasize its contractual rent increases for in-place leases.
In 2024, the Company has 1,546 leases totaling 5.0 million square feet in its multi-tenant portfolio that are scheduled to expire. Of those leases, 74% are in on-campus buildings, which, in our experience, tend to have high tenant retention rates between 75% to 90%.
Other Income (Expense) Other income (expense), increased $79.6 million, or 527.6%, from the prior year mainly due to the following activity: Gain on Sales of Real Estate Properties Gain on sales of real estate properties totaling approximately $270.3 million and $55.9 million are associated with the sales of 10 and 12 real estate properties during 2022 and 2021, respectively.
Other Income (Expense) Other income (expense), as an expense increased $400.7 million, or 621.1%, from the prior year mainly due to the following activity: Gain on Sales of Real Estate Properties Gain on sales of real estate properties totaling approximately $77.5 million and $270.3 million are associated with the sales of 12 and ten real estate properties during 2023 and 2022, respectively.
General and administrative expenses increased approximately $18.6 million, or 54.4%, from the prior year primarily as a result of the following activity: • Compensation expense increased $6.3 million, including $3.5 million of non-cash expense. • Net increases, including professional fees, audit services, travel and other administrative costs of $4.9 million. • Impact from the Merger resulted in an increase of $7.4 million.
General and administrative expenses increased approximately $5.7 million, or 10.8%, from the prior year primarily as a result of the following activity: • Net increases, primarily due to impacts from the Merger, including professional fees, audit services, insurance, travel and other administrative costs, of $5.6 million. • Payroll and related expenses of $1.5 million, of which $1.3 million was related to severance. • Decrease in non-cash compensation incentive expense of $1.4 million.
Risk relating to our business and operations • The Company's expected results may not be achieved; • The Company’s revenues depend on the ability of its tenants under its leases to generate sufficient income from their operations to make rental payments to the Company; • Pandemics, such as COVID-19 and other pandemics that may occur in the future, and measures intended to prevent their spread or mitigate their severity could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition; • Owning real estate and indirect interests in real estate is subject to inherent risks; • The Company may incur impairment charges on its real estate properties or other assets; • The Company has properties subject to purchase options that expose it to reinvestment risk and reduction in expected investment returns; • If the Company is unable to promptly re-let its properties, if the rates upon such re-letting are significantly lower than the previous rates or if the Company is required to undertake significant expenditures or make significant leasing concessions to attract new tenants, then the Company’s business, consolidated financial condition and results of operations would be adversely affected; • Certain of the Company’s properties are special purpose healthcare facilities and may not be easily adaptable to other uses; • The Company has, and in the future may have more, exposure to fixed rent escalators, which could lag behind inflation and the growth in operating expenses such as real estate taxes, utilities, insurance, and maintenance expense; • The Company’s real estate investments are illiquid and the Company may not be able to sell properties strategically targeted for disposition; • The Company is subject to risks associated with the development and redevelopment of properties; • The Company may make material acquisitions and undertake developments and redevelopments that may involve the expenditure of significant funds and may not perform in accordance with management’s expectations; 25 • The Company is exposed to risks associated with geographic concentration; • Many of the Company’s leases are dependent on the viability of associated health systems.
Such risks and uncertainties as more fully discussed in Item 1A “Risk Factors” of this report and in other reports filed by the Company with the SEC from time to time include, among other things, the following: Risks relating to our business and operations • The Company's expected results may not be achieved; • The Company’s revenues depend on the ability of its tenants under its leases to generate sufficient income from their operations to make rental payments to the Company; • Owning real estate and indirect interests in real estate is subject to inherent risks; • The Company may incur impairment charges on its real estate properties or other assets; • The Company has properties subject to purchase options that expose it to reinvestment risk and reduction in expected investment returns; • If the Company is unable to promptly re-let its properties, if the rates upon such re-letting are significantly lower than the previous rates or if the Company is required to undertake significant expenditures or make significant leasing concessions to attract new tenants, then the Company’s business, consolidated financial condition and results of operations would be adversely affected; • The Company’s real estate investments are illiquid and the Company may not be able to sell properties strategically targeted for disposition; • The Company is subject to risks associated with the development and redevelopment of properties; • The Company may make material acquisitions and undertake developments and redevelopments that may involve the expenditure of significant funds and may not perform in accordance with management’s expectations; • Many of the Company’s leases are dependent on the viability of associated health systems.
Louis, Missouri for a purchase price of $0.4 million. Financing Activities Common Stock Issuances The Company has in place an at-the-market ("ATM") equity offering program to sell shares of the Company’s common stock from time to time in at-the-market sales transactions.
The Company entered into a separate note receivable for $7.7 million related to this sale. 29 Financing Activities Common Stock Issuances The Company has in place an at-the-market ("ATM") equity offering program to sell shares of the Company’s common stock from time to time in at-the-market sales transactions.
The following table details the Company's debt balances as of December 31, 2022: PRINCIPAL BALANCE CARRYING BALANCE 1 WEIGHTED YEARS TO MATURITY 2 CONTRACTUAL RATE EFFECTIVE RATE Senior Notes due 2025 $ 250,000 $ 249,115 2.3 3.88 % 4.12 % Senior Notes due 2026 3 600,000 571,587 3.6 3.50 % 4.94 % Senior Notes due 2027 3 500,000 479,553 4.5 3.75 % 4.76 % Senior Notes due 2028 300,000 296,852 5.0 3.63 % 3.85 % Senior Notes due 2030 3 650,000 565,402 7.1 3.10 % 5.30 % Senior Notes due 2030 299,500 296,385 7.2 2.40 % 2.72 % Senior Notes due 2031 300,000 295,547 8.2 2.05 % 2.25 % Senior Notes due 2031 3 800,000 632,693 8.2 2.00 % 5.13 % Total Senior Notes Outstanding 3,699,500 3,387,134 5.9 2.97 % 4.43 % $1.5 billion unsecured credit facility 4 5 385,000 385,000 4.8 SOFR + 0.95% 5.27 % $350 million unsecured term loan 5 350,000 349,114 2.6 SOFR + 1.05% 5.17 % $200 million unsecured term loan 200,000 199,670 3.4 SOFR + 1.05% 5.17 % $150 million unsecured term loan 150,000 149,495 3.4 SOFR + 1.05% 5.17 % $300 million unsecured term loan 3 300,000 299,936 3.8 SOFR + 1.05% 5.17 % $200 million unsecured term loan 3 200,000 199,362 4.5 SOFR + 1.05% 5.17 % $300 million unsecured term loan 5 300,000 297,869 5.0 SOFR + 1.05% 5.17 % Mortgage notes payable 84,122 84,247 2.0 4.07 % 3.97 % Total Outstanding Notes and Bonds Payable $ 5,668,622 $ 5,351,827 5.0 3.72 % 4.69 % 1 Balances are reflected net of discounts and debt issuance costs and include premiums. 2 Includes extension options. 3 Debt instruments assumed as part of the Merger with Legacy HTA on July 20, 2022.
The following table details the Company's debt balances as of December 31, 2023: PRINCIPAL BALANCE CARRYING BALANCE 1 WEIGHTED YEARS TO MATURITY 2 CONTRACTUAL RATE EFFECTIVE RATE Senior Notes due 2025 $ 250,000 $ 249,484 1.3 3.88 % 4.12 % Senior Notes due 2026 3 600,000 579,017 2.6 3.50 % 4.94 % Senior Notes due 2027 3 500,000 483,727 3.5 3.75 % 4.76 % Senior Notes due 2028 300,000 297,429 4.0 3.63 % 3.85 % Senior Notes due 2030 3 650,000 575,443 6.1 3.10 % 5.30 % Senior Notes due 2030 299,500 296,780 6.2 2.40 % 2.72 % Senior Notes due 2031 299,785 295,832 7.2 2.05 % 2.25 % Senior Notes due 2031 3 800,000 649,521 7.2 2.00 % 5.13 % Total Senior Notes Outstanding 3,699,285 3,427,233 4.9 2.97 % 4.43 % $1.5 billion unsecured credit facility 4 — — 3.8 SOFR + 0.95% 6.31 % $350 million unsecured term loan 350,000 349,798 1.6 SOFR + 1.05% 6.39 % $200 million unsecured term loan 200,000 199,903 2.4 SOFR + 1.05% 6.39 % $150 million unsecured term loan 150,000 149,643 2.4 SOFR + 1.05% 6.39 % $300 million unsecured term loan 3 300,000 299,958 2.8 SOFR + 1.05% 6.39 % $200 million unsecured term loan 3 200,000 199,502 3.5 SOFR + 1.05% 6.39 % $300 million unsecured term loan 300,000 298,288 4.0 SOFR + 1.05% 6.39 % Mortgage notes payable 70,752 70,534 2.0 4.17 % 4.15 % Total Outstanding Notes and Bonds Payable $ 5,270,037 $ 4,994,859 4.0 3.96 % 5.02 % 1 Balances are reflected net of discounts and debt issuance costs and include premiums. 2 Includes extension options. 3 Debt instruments assumed as part of the Merger with Legacy HTA on July 20, 2022.
Gross leases, wherein the Company has full exposure to all operating expenses, comprise 8% of its lease portfolio. Modified gross or base year leases, in which the Company and tenant both pay a share of operating expenses, comprise 27% of the Company's leased portfolio. Net leases, in which tenants pay substantially all operating expenses, total 58% of the leased portfolio.
Modified gross or base year leases, in which the Company and tenant both pay a share of operating expenses, comprise 28% of the Company's leased portfolio. Net leases, in which tenants pay substantially all operating expenses, total 59% of the leased portfolio. Absolute net leases, in which tenants pay substantially all the building's operating and capital expenses, comprise 5%.
Additional information about 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 DECEMBER 31, 2022 YEAR EXERCISABLE MOB INPATIENT FAIR MARKET VALUE METHOD 1 NON FAIR MARKET VALUE METHOD 2 TOTAL Current 3 3 2 $ 100,366 $ — $ 100,366 2023 2 — 36,171 — 36,171 2024 — — — — — 2025 6 1 88,412 44,459 132,871 2026 5 1 179,929 — 179,929 2027 4 — 110,125 — 110,125 2028 2 2 109,399 — 109,399 2029 2 1 81,794 — 81,794 2030 — — — — — 2031 3 1 108,769 — 108,769 2032 2 — 24,628 — 24,628 2033 and thereafter 4 10 — 334,634 — 334,634 Total 39 8 $ 1,174,227 $ 44,459 $ 1,218,686 1 The purchase option price includes a fair market value component that is determined by an appraisal process. 2 Includes properties with stated purchase prices or prices based on fixed capitalization rates. 3 These purchase options have been exercisable for an average of 15.6 years. 4 Includes two medical office buildings that are recorded in the line item Investment in financing receivable, net on the Company's Consolidated Balance Sheet.
Additional information about the amount and basis for determination of the purchase price is detailed in the table below (dollars in thousands): YEAR EXERCISABLE NUMBER OF PROPERTIES GROSS REAL ESTATE INVESTMENT AS OF DECEMBER 31, 2023 1 Current 2 6 $ 111,074 2024 — — 2025 5 93,813 2026 6 181,696 2027 4 110,537 2028 5 134,227 2029 3 81,855 2030 — — 2031 4 108,936 2032 2 24,629 2033 — — 2034 and thereafter 3 9 320,771 Total 44 $ 1,167,538 1 Purchase option prices are based on fair market value components that are determined by an appraisal process, except for three properties totaling $45.3 million with stated prices or prices based on fixed capitalization rates. 2 These purchase options have been exercisable for an average of 13.9 years. 3 Includes two medical office buildings that are recorded in the line item Investment in financing receivable, net on the Company's Consolidated Balance Sheet.
In 2020, these commitments averaged $5.52 per square foot per lease year, ranging quarterly from $4.07 to $6.40.
In 2021, these commitments averaged $5.39 per square foot per lease year, ranging quarterly from $4.74 to $5.96.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFAIR VALUE Dollars in thousands CARRYING VALUE as of Dec. 31, 2022 2 DEC. 31, 2022 ASSUMING 10% INCREASE in market interest rates ASSUMING 10% DECREASE in market interest rates DEC. 31, 2021 1 Fixed Rate Debt Senior Notes due 2025 $ 249,115 $ 241,413 $ 240,866 $ 241,916 $ 253,110 Senior Notes due 2026 571,587 570,139 568,234 571,940 — Senior Notes due 2027 479,553 473,450 471,535 475,298 — Senior Notes due 2028 296,852 271,058 272,142 269,914 311,594 Senior Notes due 2030 565,402 560,723 549,682 556,431 — Senior Notes due 2030 296,385 236,219 234,692 237,675 288,886 Senior Notes due 2031 295,547 219,321 226,475 220,856 275,696 Senior Notes due 2031 632,693 611,392 606,887 615,727 — Mortgage Notes Payable 84,247 80,913 80,734 81,041 104,634 Total Fixed Rate Debt $ 3,471,381 $ 3,264,628 $ 3,251,247 $ 3,270,798 $ 1,233,920 1 Fair values as of December 31, 2021 represent fair values of obligations that were outstanding as of that date, and do not reflect the effect of any subsequent changes in principal balances and/or additions or extinguishments of instruments. 2 Balances are presented net of discounts and debt issuance costs and including premiums.
Biggest changeFAIR VALUE Dollars in thousands CARRYING VALUE as of Dec. 31, 2023 2 DEC. 31, 2023 2 ASSUMING 10% INCREASE in market interest rates ASSUMING 10% DECREASE in market interest rates DEC. 31, 2022 1 Fixed Rate Debt Senior Notes due 2025 $ 249,484 $ 244,233 $ 244,527 $ 243,909 $ 241,413 Senior Notes due 2026 579,017 581,556 582,919 580,141 570,139 Senior Notes due 2027 483,727 483,590 485,102 482,048 473,450 Senior Notes due 2028 297,429 282,200 283,207 281,170 271,058 Senior Notes due 2030 575,443 577,702 580,777 574,583 560,723 Senior Notes due 2030 296,780 249,124 250,490 247,728 236,219 Senior Notes due 2031 295,832 235,894 237,394 234,366 219,321 Senior Notes due 2031 649,521 649,347 653,508 645,118 611,392 Mortgage Notes Payable 70,534 69,058 69,157 68,959 80,913 Total Fixed Rate Debt $ 3,497,767 $ 3,372,704 $ 3,387,081 $ 3,358,022 $ 3,264,628 1 Fair values as of December 31, 2022, represent fair values of obligations that were outstanding as of that date, and do not reflect the effect of any subsequent changes in principal balances and/or additions or extinguishments of instruments. 2 Balances are presented net of discounts and debt issuance costs and including premiums.
The fair value presented is based on Level 2 inputs defined as model-derived valuations in which significant inputs and significant value drivers are observable in active markets. 50
The fair value presented is based on Level 2 inputs defined as model-derived valuations in which significant inputs and significant value drivers are observable in active markets. 48
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk in the form of changing interest rates on its debt. Management uses regular monitoring of market conditions and analysis techniques to manage this risk. As of December 31, 2022, $3.5 billion of the Company’s $5.4 billion of outstanding debt bore interest at fixed rates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk in the form of changing interest rates on its debt. Management uses regular monitoring of market conditions and analysis techniques to manage this risk. As of December 31, 2023, $3.5 billion of the Company’s $5.0 billion of outstanding debt bore interest at fixed rates.
As of December 31, 2022, the Company had $1.2 billion of interest rate swaps at a weighted average rate of 2.63%. See Note 11 to the Consolidated Financial Statements for more information regarding the Company's interest rate swaps.
As of December 31, 2023, the Company h ad $1.3 billion of interest rate swaps at a weighted average rate of 3.49% . See Note 11 to the Consolidated Financial Statements for more information regarding the Company's interest rate swaps.
IMPACT ON EARNINGS AND CASH FLOW Dollars in thousands OUTSTANDING PRINCIPAL BALANCE as of Dec. 31, 2022 CALCULATED ANNUAL INTEREST ASSUMING 10% INCREASE in market interest rates ASSUMING 10% DECREASE in market interest rates Variable Rate Debt Unsecured Credit Facility $ 385,000 $ 20,290 $ (2,029) $ 2,029 Unsecured Term Loan due 2025 350,000 18,095 (1,810) 1,810 Unsecured Term Loan due 2026 200,000 10,340 (1,034) 1,034 Unsecured Term Loan due 2026 300,000 15,510 (1,551) 1,551 Unsecured Term Loan due 2026 150,000 7,755 (776) 776 Unsecured Term Loan due 2027 200,000 10,340 (1,034) 1,034 Unsecured Term Loan due 2028 300,000 15,510 (1,551) 1,551 $ 1,885,000 $ 97,840 $ (9,785) $ 9,785 The Company has outstanding interest rate swaps to help mitigate its risk related to variable rate debt.
IMPACT ON EARNINGS AND CASH FLOW Dollars in thousands OUTSTANDING PRINCIPAL BALANCE as of Dec. 31, 2023 CALCULATED ANNUAL INTEREST ASSUMING 10% INCREASE in market interest rates ASSUMING 10% DECREASE in market interest rates Variable Rate Debt Unsecured Credit Facility $ — $ — $ — $ — Unsecured Term Loan due 2024 350,000 22,372 (2,237) 2,237 Unsecured Term Loan due 2024 200,000 12,784 (1,278) 1,278 Unsecured Term Loan due 2025 300,000 19,176 (1,918) 1,918 Unsecured Term Loan due 2026 150,000 9,588 (959) 959 Unsecured Term Loan due 2027 200,000 12,784 (1,278) 1,278 Unsecured Term Loan due 2028 300,000 19,176 (1,918) 1,918 $ 1,500,000 $ 95,880 $ (9,588) $ 9,588 The Company has outstanding interest rate swaps to help mitigate its risk related to variable rate debt.

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