Healthcare Realty Trust Inc

Note 4. Notes and Bonds Payable

The table below details the Company’s notes and bonds payable as of September 30, 2024, and December 31, 2023.

1 Balance is presented net of discounts and issuance costs and inclusive of premiums, where applicable.

2 As of September 30, 2024, the Company had $1.3 billion available to be drawn on its $1.5 billion Unsecured Credit Facility.

3 In April 2024, the Company exercised its option to extend the maturity date forone year to May 2025 for a fee of approximately $0.3 million.

4 In June 2024, the Company repaid $100 million of the initial $350 million Unsecured Term Loan and exercised its second option to extend the maturity date forone year to July 2025 for a fee of approximately $0.3 million.

5 In September 2024, the Company repaid an additional $150 million of the $350 million Unsecured Term Loan. In October 2024, the Company repaid the remaining $100 million outstanding on this loan.

Changes in Debt Structure

On January 6, 2024, the Company repaid in full at maturity a mortgage note payable bearing interest at a rate of 4.77% per annum with an outstanding principal balance of $11.3 million. The mortgage note encumbered a 63,012 square foot property in California.

On February 1, 2024, the Company repaid in full at maturity a mortgage note payable bearing interest at a rate of 4.12% per annum with an outstanding principal balance of $5.6 million. The mortgage note encumbered a 40,324 square foot property in Georgia.

On September 1, 2024, the Company repaid in full at maturity a mortgage note payable bearing interest at a rate of 4.15% per annum with an outstanding principal balance of $6.9 million. The mortgage note encumbered a 64,143 square foot property in Minnesota.

Note 5. Derivative Financial Instruments

Risk Management Objective of Using Derivatives

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

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

For derivatives designated, and that qualify, as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income (Loss) ("AOCI") and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.

As of September 30, 2024, the Company had 15 outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company's derivative financial instruments and their classification on the Condensed Consolidated Balance Sheet as of September 30, 2024.

Tabular Disclosure of the Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of cash flow hedge accounting on AOCI during the three and nine months ended September 30, 2024 and 2023 related to the Company's outstanding interest rate swaps.

The Company estimates that an additional $1.5 million related to active interest rate swaps will be reclassified from AOCI as an increase to interest expense over the next 12 months, and that an additional $0.5 million related to settled interest rate swaps will be amortized from AOCI as an increase to interest expense over the next 12 months.

Credit-risk-related Contingent Features

The Company's agreements with each of its derivative counterparties contain a cross-default provision under which the Company could be declared in default of its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender should the Company default on the indebtedness.

As of September 30, 2024, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $3.3 million. As of September 30, 2024, the Company had not posted any collateral related to these agreements and was not in breach of any agreement.

Note 6. Commitments and Contingencies

Legal Proceedings

From time to time, the Company is involved in litigation arising in the ordinary course of business. The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

Development and Redevelopment Activity

For the nine months ended September 30, 2024, the Company invested $58.7 million and $17.7 million toward active development and redevelopment of properties, respectively, and $34.6 million toward recently completed development and redevelopment projects.

Note 7. Stockholders' Equity

Common Stock

The following table provides a reconciliation of the beginning and ending shares of common stock outstanding for the nine months ended September 30, 2024 and the twelve months ended December 31, 2023:

Common Stock Dividends

During the nine months ended September 30, 2024, the Company declared and paid common stock dividends totaling $0.93 per share. On October 29, 2024, the Company declared a quarterly common stock dividend in the amount of $0.31 per share payable on November 27, 2024, to stockholders of record on November 12, 2024.

Common Stock Repurchases

On May 31, 2023, the Company’s Board of Directors authorized the repurchase of up to $500.0 million of outstanding shares of the Company’s common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints, and other customary conditions. In April 2024, the Company repurch ased 2,966,764 shares of its common stock at a weighted average price of $14.07 for a total of $41.7 million under this authorization.

On April 30, 2024, the Company's Board of Directors authorized the repurchase of up to $500.0 million of outstanding shares of the Company's common stock, superseding the previous stock repurchase authorization. Under the Maryland General Corporation Law, outstanding shares of common stock acquired by a corporation become authorized but unissued shares, which may be re-issued. In May and June 2024, the Company repurchased an aggregate of 14,275,473 shares of its common stock at a weighted average price of $16.18 for a total of $231.0 million under this authorization.

During the third quarter of 2024, the Company repurchased an aggregate of 8,492,851 shares of its common stock at a weighted average price of $17.64 for a total of $149.8 million under this authorization. As of September 30, 2024, the Company was authorized to repurchase an additional $119.2 million of the Company's common stock.

Subsequent to September 30, 2024, the Company repurchased 1,380,000 shares of its common stock for a total of $24.2 million. On October 29, 2024, the Company's Board of Directors authorized the repurchase of up to $300.0 million of outstanding shares of the Company's common stock, superseding the previous stock repurchase authorization. The stock repurchase authorization expires on October 28, 2025, and the Company may suspend or terminate repurchases at any time without prior notice.

Earnings Per Common Share

The Company uses the two-class method of computing net earnings per common share. The Company's non-vested share-based awards are considered participating securities pursuant to the two-class method.

The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2024, and 2023.

The effect of OP Units redeemable for 3,649,637 shares and 3,662,800 shares for the three and nine months ended September 30, 2024, respectively, were excluded from the calculation of diluted loss per common share because the effect was anti-dilutive due to the loss from continuing operations incurred during those periods.

Stock Incentive Plan

The Company's stock incentive plan ("Incentive Plan") permits the grant of incentive awards to its employees and directors in any of the following forms: options, stock appreciation rights, restricted stock, restricted or deferred stock units, performance awards, dividend equivalents, or other stock-based awards, including units in the OP.

Equity Incentive Plans

During the nine months ended September 30, 2024, the Company made the following equity awards:

•Restricted Stock

•During the first quarter of 2024, the Company granted non-vested stock awards to its named executive officers and other members of senior management with an aggregate grant date fair value of $5.6 million, which consisted of an aggregate of 361,712 non-vested shares with vesting periods ranging from three toeight years.

•During the second quarter of 2024, the Company granted to independent directors an aggregate of 58,910 shares of non-vested stock with a grant date fair value of $0.9 million, and an aggregate of 45,982 LTIP Series D units with a grant date fair value of $0.7 million. The Company also grantednon-vested stock to other members of senior management with an aggregate grant date fair value of $0.1 million, which consisted of an aggregate of 9,350 non-vested shares.

•Restricted Stock Units ("RSUs")

•On February 13, 2024, the Company granted an aggregate of 208,055 RSUs to members of senior management, with an aggregate grant date fair value of $3.5 million and afive-year vesting period.

•On April 30, 2024, the Company granted an aggregate of 21,816 RSUs to members of senior management, with an aggregate grant date fair value of $0.3 million and afive-year vesting period.

Approximately 36% of the RSUs vest based on relative total shareholder return ("TSR") and were valued using independent specialists. The Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair value of $19.10 for the relative TSR component for the February 2024 grant using the following assumptions:

The remaining 64% of the RSUs vest based upon certain operating performance conditions. With respect to the operating performance conditions of the February 13, 2024 grant, the grant date fair value was $15.22 based on the Company's share price on the date of grant.

•LTIP Series C Units

On February 13, 2024, the Company granted an aggregate of 906,044 LTIP Series C units ("LTIP-C units) in the OP to its named executive officers with three-year forward-looking performance targets, afive-year vesting period and an aggregate grant date fair value of $7.5 million.

Approximately 36% of the LTIP-C units vest based on relative TSR and were valued using independent specialists. The Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair value of $9.62 for the relative TSR component for the February 2024 grant using the following assumptions:

The remaining 64% of the LTIP-C units vest based upon certain operating performance conditions. With respect to the operating performance conditions of the February 13, 2024 grant, the grant date fair value was $15.22 based on the Company's share price on the date of grant. The Company records amortization expense based on the probability of achieving certain operating performance conditions, which is evaluated throughout the performance period.

The following table represents the summary of non-vested share-based awards under the Incentive Plan for the three and nine months ended September 30, 2024 and 2023:

1 LTIP-C units are issued at the maximum possible value of the award and are reflected as such in this table until the performance conditions have been satisfied and the exact number of awards are determinable.

The following table represents expected amortization of the Company's non-vested awards issued as of September 30, 2024:

Note 8. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practical to estimate that value.

•Cash and cash equivalents - The carrying amount approximates fair value (level 1 inputs) due to the short-term maturity of these investments.

•Real estate notes receivable - Real estate notes receivable is recorded in other assets on the Company's Condensed Consolidated Balance Sheets. Fair value is estimated using cash flow analyses, based on current interest rates for similar types of arrangements using level 2 inputs in the hierarchy. However, the fair value of three notes receivable were determined utilizing the fair value of the receivables' collateral, as the receivables are collateral-dependent, and were classified as level 3 inputs in the hierarchy.

•Borrowings under the Unsecured Credit Facility and the Term Loans Due 2024 and 2026 - The carrying amount approximates fair value because the borrowings are based on variable market interest rates.

•Senior Notes and Mortgage Notes payable - The fair value of notes and bonds payable is estimated using cash flow analyses, based on the Company’s current interest rates for similar types of borrowing arrangements.

•Interest rate swap agreements - Interest rate swap agreements are recorded in other liabilities on the Company's Condensed Consolidated Balance Sheets at fair value. Fair value is estimated by utilizing pricing models, level 2 inputs, which consider forward yield curves and discount rates. See Note 5 for additional information.

The table below details the fair values and carrying values for notes and bonds payable and real estate notes receivable at September 30, 2024, and December 31, 2023:

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