~~Table of Contents~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

FORM 10-Q

~~(Mark One)~~



(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~For the quarterly period ended:~~ ~~September 30, 2019~~


	For the quarterly period ended:	September 30, 2020
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to For the transition period to

~~For the transition period from to~~

Commission File Number: 001-11852

~~001-11852~~

HEALTHCARE REALTY TRUST INCORPORATED

(Exact name of Registrant as specified in its charter)

3310 West End Avenue, Suite 700

Nashville,, Tennessee37203

(Address of principal executive offices)

(~~615~~) (615) 269-8175

(Registrant's telephone number, including area code)

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

~~Securities registered pursuant to Section 12(b)~~Title of ~~the Act:~~Each Class

Trading Symbol

Name of Each Exchange on Which Registered

~~Title of each class~~

~~Trading Symbol~~

~~Name of each exchange on which registered~~

Common stock, $0.01 par value per share

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:



~~Large accelerated filer~~	☒	~~Accelerated filer~~	☐
~~Non-accelerated filer~~	☐	~~Smaller reporting company~~	☐
		~~Emerging growth company~~	☐

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

☐

Indicate by check mark whether the ~~Registrant~~registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

~~Yes~~ ☐ No ☒

As of October ~~31, 2019,~~30, 2020, the Registrant had ~~133,736,079~~136,054,024 shares of Common Stock outstanding.

HEALTHCARE REALTY TRUST INCORPORATED

FORM 10-Q

September 30, ~~2019~~2020

~~TABLE OF CONTENTS~~

Table of Contents

PART I.I - FINANCIAL INFORMATION

Item 1. Financial Statements

Healthcare Realty Trust Incorporated

Condensed Consolidated Balance Sheets

(Amounts in thousands, except per share ~~data)~~

data

(Unaudited)
September 30,
2019 December 31,
2018
ASSETS
Real estate properties:
Land $ 267,803
$ 230,206
Buildings, improvements and lease intangibles 3,915,308
3,675,415
Personal property 10,899
10,696
Construction in progress 44,041
33,107
Land held for development 24,647
24,647
4,262,698
3,974,071
Less accumulated depreciation and amortization (1,106,387 ) (1,015,174 )
Total real estate properties, net 3,156,311
2,958,897
Cash and cash equivalents 11,809
8,381
Assets held for sale, net 5,289
9,272
Operating lease right-of-use assets 126,711
—
Financing lease right-of-use assets 9,063
—
Other assets, net 181,975
214,697
Total assets $ 3,491,158
$ 3,191,247
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable $ 1,443,919
$ 1,345,984
Accounts payable and accrued liabilities 75,094
80,411
Liabilities of properties held for sale 300
587
Operating lease liabilities 91,356
—
Financing lease liabilities 14,305
—
Other liabilities 61,023
47,623
Total liabilities 1,685,997
1,474,605
Commitments and contingencies

Stockholders' equity:
Preferred stock, $.01 par value per share; 50,000 shares authorized; none issued and outstanding —
—
Common stock, $.01 par value per share; 300,000 shares authorized; 131,368 and 125,279 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively 1,314
1,253
Additional paid-in capital 3,379,572
3,180,284
Accumulated other comprehensive loss (8,470 ) (902 )
Cumulative net income attributable to common stockholders 1,100,094
1,088,119
Cumulative dividends (2,667,349 ) (2,552,112 )
Total stockholders' equity 1,805,161
1,716,642
Total liabilities and stockholders' equity $ 3,491,158
$ 3,191,247


ASSETS
	Unaudited SEPTEMBER 30, 2020		DECEMBER 31, 2019
Real estate properties
Land	$	330,840	$	289,751
Buildings, improvements and lease intangibles	4,014,740		3,986,326
Personal property	10,962		10,538
Construction in progress	0		48,731
Land held for development	24,647		24,647
Total real estate properties	4,381,189		4,359,993
Less accumulated depreciation and amortization	(1,198,444)		(1,121,102)
Total real estate properties, net	3,182,745		3,238,891
Cash and cash equivalents	121,992		657
Restricted cash	60,644		0

Assets held for sale, net	20,051		37
Operating lease right-of-use assets	123,807		126,177
Financing lease right-of-use assets	19,776		12,667

Other assets, net	182,436		185,426
Total assets	$	3,711,451	$	3,563,855

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes and bonds payable	$	1,554,395	$	1,414,069
Accounts payable and accrued liabilities	79,528		78,517
Liabilities of assets held for sale	548		145
Operating lease liabilities	91,466		91,574
Financing lease liabilities	18,697		18,037
Other liabilities	66,442		61,504
Total liabilities	1,811,076		1,663,846
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value per share; 50,000 shares authorized; NaN issued and outstanding	0		0
Common stock, $.01 par value per share; 300,000 shares authorized; 136,054 and 134,706 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	1,361		1,347
Additional paid-in capital	3,532,130		3,485,003
Accumulated other comprehensive loss	(19,267)		(6,175)
Cumulative net income attributable to common stockholders	1,215,362		1,127,304
Cumulative dividends	(2,829,211)		(2,707,470)
Total stockholders' equity	1,900,375		1,900,009


Total liabilities and stockholders' equity	$	3,711,451	$	3,563,855

The accompanying notes, together with the Notes to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, are an integral part of these financial statements.

Table of Contents

Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Income

For the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

(Amounts in thousands, except per share ~~data)~~data

~~(Unaudited)~~

Unaudited


														THREE MONTHS ENDED September 30,				NINE MONTHS ENDED September 30,
														2020		2019		2020		2019
Revenues													Revenues
Rental income													Rental income	$	123,384	$	117,740	$	368,385	$	342,787

Other operating													Other operating	1,868		2,059		5,364		5,987
														125,252		119,799		373,749		348,774
Expenses													Expenses
Property operating													Property operating	50,171		46,777		146,305		133,790
General and administrative													General and administrative	7,299		10,802		23,498		27,157
Acquisition and pursuit costs													Acquisition and pursuit costs	440		501		1,621		1,227
Depreciation and amortization													Depreciation and amortization	47,143		45,137		142,331		131,725

														105,053		103,217		313,755		293,899
Other Income (Expense)													Other Income (Expense)
Gain on sales of real estate assets													Gain on sales of real estate assets	2,177		200		70,395		5,065
Interest expense													Interest expense	(14,154)		(14,181)		(42,556)		(41,619)

Impairment of real estate assets													Impairment of real estate assets	—		—		—		(5,610)

Interest and other income (expense), net													Interest and other income (expense), net	8		—		225		(736)
														(11,969)		(13,981)		28,064		(42,900)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
REVENUES
Rental income	$	117,740		$	111,452		$	342,787		$	331,247
Other operating	2,059			2,010			5,987			5,973
	119,799			113,462			348,774			337,220
EXPENSES
Property operating	46,777			44,135			133,790			127,691
General and administrative	10,802			8,504			27,157			25,977
Acquisition and pursuit costs	501			141			1,227			538
Depreciation and amortization	45,137			42,061			131,725			121,764
Bad debts, net of recoveries	—			(62		)	—			42
	103,217			94,779			293,899			276,012
OTHER INCOME (EXPENSE)
Gain on sales of real estate assets	200			1,288			5,065			30,879
Interest expense	(14,181		)	(13,464		)	(41,619		)	(39,202		)
Impairment of real estate assets	—			—			(5,610		)	—
Interest and other income (expense), net	—			41			(736		)	571
	(13,981		)	(12,135		)	(42,900		)	(7,752		)
NET INCOME	$	2,601		$	6,548		$	11,975		$	53,456
Net Income													Net Income	$	8,230	$	2,601	$	88,058	$	11,975

Basic earnings per common share	$	0.02		$	0.05		$	0.08		$	0.42		Basic earnings per common share	$	0.06	$	0.02	$	0.65	$	0.08

Diluted earnings per common share	$	0.02		$	0.05		$	0.08		$	0.42		Diluted earnings per common share	$	0.06	$	0.02	$	0.65	$	0.08

Weighted average common shares outstanding - basic	128,090			123,300			126,571			123,281			Weighted average common shares outstanding - basic	134,309		128,090		133,662		126,571
Weighted average common shares outstanding - diluted	128,169			123,352			126,657			123,336			Weighted average common shares outstanding - diluted	134,357		128,169		133,736		126,657
Dividends declared, per common share, during the period	$	0.30		$	0.30		$	0.90		$	0.90		Dividends declared, per common share, during the period	$	0.30	$	0.30	$	0.90	$	0.90

Table of Contents

Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Comprehensive Income (Loss)

For the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

~~(Dollars~~Amounts in ~~thousands)~~thousands

~~(Unaudited)~~Unaudited


	THREE MONTHS ENDED September 30,				NINE MONTHS ENDED September 30,
	2020		2019		2020		2019
Net income	$	8,230	$	2,601	$	88,058	$	11,975
Other comprehensive income (loss)


Interest rate swaps
Reclassification adjustments for losses included in net income (interest expense)	1,101		60		2,367		74
Losses arising during the period on interest rate swaps	(74)		(2,341)		(11,192)		(7,642)
Losses on settlement of treasury rate locks arising during the period	0		0		(4,267)		0
	1,027		(2,281)		(13,092)		(7,568)

Comprehensive income	$	9,257	$	320	$	74,966	$	4,407

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
NET INCOME $ 2,601
$ 6,548
$ 11,975
$ 53,456
Other comprehensive income (loss):
Interest rate swaps:
Reclassification adjustments for losses included in net income (interest expense) 60
95
74
369
(Losses) gains arising during the period on interest rate swaps (2,341 ) 374
(7,642 ) 1,403
Total other comprehensive income (loss) (2,281 ) 469
(7,568 ) 1,772
COMPREHENSIVE INCOME $ 320
$ 7,017
$ 4,407
$ 55,228

Table of Contents

Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Equity

For the Three ~~and Nine~~ Months EndedSeptember 30, 2020 and 2019

~~(Dollars~~Amounts in thousands, except per share ~~data)~~data

~~(Unaudited)~~

Unaudited

Common
Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss) Cumulative
Net
Income Cumulative
Dividends Total
Stockholders’
Equity
Balance at June 30, 2019 $ 1,292
$ 3,305,344
$ (6,189 ) $ 1,097,493
$ (2,628,497 ) $ 1,769,443
Issuance of common stock, net of issuance costs 22
71,792
—
—
—
71,814
Common stock redemptions —
(2,695 ) —
—
—
(2,695 )
Share-based compensation —
5,131
—
—
—
5,131
Net income —
—
—
2,601
—
2,601
Reclassification adjustments for losses included in net income (interest expense)

—
—
60
—
—
60
Losses arising during the period on interest rate swaps

—
—
(2,341 ) —
—
(2,341 )
Dividends to common stockholders ($0.30 per share) —
—
—
—
(38,852 ) (38,852 )
Balance at September 30, 2019 $ 1,314
$ 3,379,572
$ (8,470 ) $ 1,100,094
$ (2,667,349 ) $ 1,805,161

Common
Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss) Cumulative
Net
Income Cumulative
Dividends Total
Stockholders’
Equity
Balance at December 31, 2018 $ 1,253
$ 3,180,284
$ (902 ) $ 1,088,119
$ (2,552,112 ) $ 1,716,642
Issuance of common stock, net of issuance costs 61
192,414
—
—
—
192,475
Common stock redemptions (1 ) (3,266 ) —
—
—
(3,267 )
Share-based compensation 1
10,140
—
—
—
10,141
Net income —
—
—
11,975
—
11,975
Reclassification adjustments for losses included in net income (interest expense)

—
—
74
—
—
74
Losses arising during the period on interest rate swaps

—
—
(7,642 ) —
—
(7,642 )
Dividends to common stockholders ($0.90 per share) —
—
—
—
(115,237 ) (115,237 )
Balance at September 30, 2019 $ 1,314
$ 3,379,572
$ (8,470 ) $ 1,100,094
$ (2,667,349 ) $ 1,805,161


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

Share-based compensation	—		2,445		—		—		—		2,445
Net income	—		—		—		8,230		—		8,230
Reclassification adjustments for losses included in net income (interest expense)	—		—		1,101		—		—		1,101
Losses arising during the period on interest rate swaps and treasury rate locks	—		—		(74)		—		—		(74)
Dividends to common stockholders ($0.30 per share)	—		—		—		—		(40,815)		(40,815)
Balance at September 30, 2020	$	1,361	$	3,532,130	$	(19,267)	$	1,215,362	$	(2,829,211)	$	1,900,375

	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Cumulative Net Income		Cumulative Dividends		Total Stockholders’ Equity
Balance at June 30, 2019	$	1,292	$	3,305,344	$	(6,189)	$	1,097,493	$	(2,628,497)	$	1,769,443
Issuance of common stock, net of issuance costs	22		71,792		—		—		—		71,814
Common stock redemptions	—		(2,695)		—		—		—		(2,695)
Share-based compensation	—		5,131		—		—		—		5,131
Net income	—		—		—		2,601		—		2,601
Reclassification adjustments for losses included in net income (interest expense)	—		—		60		—		—		60
Losses arising during the period on interest rate swaps	—		—		(2,341)		—		—		(2,341)
Dividends to common stockholders ($0.30 per share)	—		—		—		—		(38,852)		(38,852)
Balance at September 30, 2019	$	1,314	$	3,379,572	$	(8,470)	$	1,100,094	$	(2,667,349)	$	1,805,161

Table of Contents

Healthcare Realty Trust Incorporated

Condensed Consolidated Statements of Equity

For the ~~Three and~~ Nine Months EndedSeptember 30, ~~2018~~2020 and 2019

~~(Dollars~~Amounts in thousands, except per share ~~data)~~data

~~(Unaudited)~~Unaudited

Common
Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss) Cumulative
Net
Income Cumulative
Dividends Total
Stockholders’
Equity
Balance at June 30, 2018 $ 1,252
$ 3,178,514
$ 4
$ 1,065,256
$ (2,476,971 ) $ 1,768,055
Issuance of common stock, net of issuance costs

—
113
—
—
—
113
Common stock redemptions —
(39 ) —
—
—
(39 )
Share-based compensation —
2,675
—
—
—
�� 2,675
Net income —
—
—
6,548
—
6,548
Reclassification adjustments for losses included in net income (interest expense)

—
—
95
—
—
95
Gains arising during the period on interest rate swaps

—
—
374
—
—
374
Dividends to common stockholders ($0.30 per share) —
—
—
—
(37,569 ) (37,569 )
Balance at September 30, 2018 $ 1,252
$ 3,181,263
$ 473
$ 1,071,804
$ (2,514,540 ) $ 1,740,252

Common
Stock Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss) Cumulative
Net
Income Cumulative
Dividends Total
Stockholders’
Equity
Balance at December 31, 2017 $ 1,251
$ 3,173,429
$ (1,299 ) $ 1,018,348
$ (2,401,846 ) $ 1,789,883
Issuance of common stock, net of issuance costs
—
464
—
—
—
464
Common stock redemptions —
(719 ) —
—
—
(719 )
Share-based compensation 1
8,089
—
—
—
8,090
Net income —
—
—
53,456
—
53,456
Reclassification adjustments for losses included in net income (interest expense)
—
—
369
—
—
369
Gains arising during the period on interest rate swaps
—
—
1,403
—
—
1,403
Dividends to common stockholders ($0.90 per share) —
—
—
—
(112,694 ) (112,694 )
Balance at September 30, 2018 $ 1,252
$ 3,181,263
$ 473
$ 1,071,804
$ (2,514,540 ) $ 1,740,252


	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Cumulative Net Income		Cumulative Dividends		Total Stockholders’ Equity
Balance at December 31, 2019	$	1,347	$	3,485,003	$	(6,175)	$	1,127,304	$	(2,707,470)	$	1,900,009
Issuance of common stock, net of issuance costs	13		40,477		—		—		—		40,490
Common stock redemptions	—		(798)		—		—		—		(798)
Share-based compensation	1		7,448		—		—		—		7,449
Net income	—		—		—		88,058		—		88,058
Reclassification adjustments for losses included in net income (interest expense)	—		—		2,367		—		—		2,367
Losses arising during the period on interest rate swaps	—		—		(15,459)		—		—		(15,459)
Dividends to common stockholders ($0.90 per share)	—		—		—		—		(121,741)		(121,741)
Balance at September 30, 2020	$	1,361	$	3,532,130	$	(19,267)	$	1,215,362	$	(2,829,211)	$	1,900,375

	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Cumulative Net Income		Cumulative Dividends		Total Stockholders’ Equity
Balance at December 31, 2018	$	1,253	$	3,180,284	$	(902)	$	1,088,119	$	(2,552,112)	$	1,716,642
Issuance of common stock, net of issuance costs	61		192,414		—		—		—		192,475
Common stock redemptions	(1)		(3,266)		—		—		—		(3,267)
Share-based compensation	1		10,140		—		—		—		10,141
Net income	—		—		—		11,975		—		11,975
Reclassification adjustments for losses included in net income (interest expense)	—		—		74		—		—		74
Losses arising during the period on interest rate swaps	—		—		(7,642)		—		—		(7,642)
Dividends to common stockholders ($0.90 per share)	—		—		—		—		(115,237)		(115,237)
Balance at September 30, 2019	$	1,314	$	3,379,572	$	(8,470)	$	1,100,094	$	(2,667,349)	$	1,805,161

Table of Contents

HealthcareRealty Trust Incorporated

Condensed Consolidated Statements of Cash Flows

For the Nine Months EndedSeptember 30, ~~2019~~2020 and ~~2018~~2019

~~(Dollars~~Amounts in ~~thousands)~~thousands

~~(Unaudited)~~

Unaudited

Nine Months Ended September 30,
2019 2018
OPERATING ACTIVITIES
Net income $ 11,975
$ 53,456
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 131,725
121,764
Other amortization 2,279
2,113
Share-based compensation 10,141
8,090
Amortization of straight-line rent receivable (lessor) (1,833 ) (3,599 )
Amortization of straight-line rent on operating leases (lessee) 1,159
1,147
Gain on sales of real estate assets (5,065 ) (30,879 )
Impairment of real estate assets 5,610
—
Loss (income) from unconsolidated joint ventures 16
(15 )
Distributions from unconsolidated joint ventures 277
182
Provision for bad debts, net —
42
Changes in operating assets and liabilities:
Other assets, including right-of-use-assets (6,740 ) (6,891 )
Accounts payable and accrued liabilities 3,220
5,908
Other liabilities 5,709
(638 )
Net cash provided by operating activities 158,473
150,680
INVESTING ACTIVITIES
Acquisitions of real estate (271,575 ) (67,445 )
Development of real estate (19,152 ) (21,059 )
Additional long-lived assets (45,902 ) (59,802 )
Proceeds from sales of real estate assets 14,151
64,271
Proceeds from notes receivable repayments —
8
Net cash used in investing activities (322,478 ) (84,027 )
FINANCING ACTIVITIES
Net borrowings on unsecured credit facility 60,000
56,000
Borrowings on term loan 50,000
—
Repayments of notes and bonds payable (12,663 ) (3,808 )
Dividends paid (115,237 ) (112,694 )
Net proceeds from issuance of common stock 192,514
459
Common stock redemptions (2,343 ) (2,673 )
Debt issuance and assumption costs (4,589 ) (125 )
Payments made on finance leases (249 ) —
Net cash provided by (used in) financing activities 167,433
(62,841 )
Increase in cash and cash equivalents 3,428
3,812
Cash and cash equivalents at beginning of period 8,381
6,215
Cash and cash equivalents at end of period $ 11,809
$ 10,027

Supplemental Cash Flow Information:
Interest paid $ 37,946
$ 30,463
Invoices accrued for construction, tenant improvements and other capitalized costs $ 10,702
$ 5,680
Mortgage notes payable assumed upon acquisition (adjusted to fair value) $ —
$ 7,995
Capitalized interest $ 999
$ 684


OPERATING ACTIVITIES
	NINE MONTHS ENDED September 30,
	2020		2019
Net income	$	88,058	$	11,975
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	142,331		131,725
Other amortization	3,409		2,279
Share-based compensation	7,449		10,141
Amortization of straight-line rent receivable (lessor)	(2,722)		(1,833)
Amortization of straight-line rent on operating leases (lessee)	1,122		1,159
Gain on sales of real estate assets	(70,395)		(5,065)

Impairment of real estate assets	—		5,610
Loss from unconsolidated joint ventures	194		16
Distributions from unconsolidated joint ventures	193		277
Proceeds from disposition of sales-type lease properties	244,454		0
Changes in operating assets and liabilities:

Other assets, including right-of-use-assets	(965)		(6,740)
Accounts payable and accrued liabilities	5,098		3,220
Other liabilities	(6,662)		5,709
Net cash provided by operating activities	411,564		158,473

INVESTING ACTIVITIES
Acquisitions of real estate	(199,162)		(271,575)
Development of real estate	(2,941)		(19,152)
Additional long-lived assets	(62,707)		(45,902)
Proceeds from sales of real estate assets	4,905		14,151

Net cash used in investing activities	(259,905)		(322,478)

FINANCING ACTIVITIES
Net (repayments) borrowings on unsecured credit facility	(293,000)		60,000
Borrowings on term loan	150,000		50,000

Borrowings of notes and bonds payable	298,995		—
Repayments of notes and bonds payable	(32,704)		(12,663)


Dividends paid	(121,741)		(115,237)
Net proceeds from issuance of common stock	40,296		192,514
Common stock redemptions	(892)		(2,343)


Settlement of treasury rate locks	(4,267)		—
Debt issuance and assumption costs	(3,057)		(4,589)
Payments made on finance leases	(3,310)		(249)
Net cash provided by financing activities	30,320		167,433

Increase in cash, cash equivalents and restricted cash	181,979		3,428
Cash and cash equivalents at beginning of period	657		8,381
Cash, cash equivalents and restricted cash at end of period	$	182,636	$	11,809

Supplemental Cash Flow Information
Interest paid	$	39,165	$	37,946
Invoices accrued for construction, tenant improvements and other capitalized costs	$	12,709	$	10,702
Mortgage notes payable assumed upon acquisition (adjusted to fair value)	$	19,269	$	—
Capitalized interest	$	913	$	999

Table of Contents

~~Healthcare Realty Trust Incorporated~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Notes to the Condensed Consolidated Financial Statements~~

~~September 30, 2019~~

~~(Unaudited)~~

Note 1. Summary of Significant Accounting Policies

Business Overview

Healthcare Realty Trust Incorporated (the "Company") is a real estate investment trust ("REIT") that owns, leases, manages, acquires, finances, develops and redevelops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. As of September 30, ~~2019,~~2020, the Company had gross investments of approximately ~~$4.2~~$4.3 billion in ~~204~~211 real estate properties located in 2624 states totaling approximately ~~15.4~~15.5 million square feet. The Company provided leasing and property management services to approximately ~~11.2~~11.9 million square feet nationwide. Square footage and property count disclosures in these Notes to the Company's Condensed Consolidated Financial Statements are unaudited.

Basis of Presentation

The Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States ~~of America~~ ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, management believes there has been no material change in the information disclosed in the Notes to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. All material intercompany transactions and balances have been eliminated in consolidation.

This interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. In addition, the interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, ~~2019~~2020 for many reasons including, but not limited to, acquisitions, dispositions, capital financing transactions, changes in interest rates and the effects of other trends, risks and ~~uncertainties.~~uncertainties, such as the impact of the COVID-19 pandemic.

Use of Estimates in the Condensed Consolidated Financial Statements

Preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates.

The Company considered the impact of COVID-19 on these assumptions and estimates used and determined that there were no material adverse impacts on the Company's results of operations and financial position at September 30, 2020. There can be no assurance that COVID-19 will not have a future material adverse impact on the financial results and business operations of the Company.

COVID-19 Update

Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.

In response to the COVID-19 pandemic, 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. 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. Many of these restrictions have been lifted, but could be reimposed. In response to these disruptions, the Company provided some of its tenants with deferred rent arrangements. Such arrangements were made primarily in the second quarter of 2020, and less than $0.1 million of deferred rent arrangements originated in the third quarter. Through November 2, 2020, the Company has collected more than 99% of second and third quarter 2020 aggregate tenant billings. The Company has collected 96% of total scheduled deferral payments due in the third quarter of 2020. In addition, the Company has remaining various forms of rent deferrals outstanding representing

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

approximately $1.2 million, or less than 1% of second and third quarter 2020 aggregate tenant billings. The tenant deferral agreements generally require the deferred amounts to be repaid by the fourth quarter of 2020.

For accounting purposes, in accordance with ASC 842: Leases, normally a company would be required to assess a lease modification to determine if the modification should be treated as a separate lease and if not, modification accounting would be applied which would require a company to reassess the classification of the lease. However, in light of the COVID-19 pandemic in which many leases are being modified, the Financial Accounting Standards Board (the "FASB") and U.S. Securities and Exchange Commission (the "SEC") have provided relief that will allow companies to make a policy election as to whether they treat COVID-19 related lease amendments as a provision included in the pre-concession arrangement, and therefore, not a lease modification, or to treat the lease amendment as a modification. The Company has elected to use this relief where applicable and therefore will have no change in the current classification of its leases in connection with many of the leases impacted by negotiations with its tenants. In order to be considered COVID-19 related, cash flows must be substantially the same or less than those prior to the concession. If the cash flows are substantially the same or less, there are two methods to potentially account for such rent deferrals under the relief. The first would be as if no changes to the lease contract were made. Under that accounting, a lessor would increase its lease receivable and a lessee would increase its accounts payable as receivables/payments accrue. In its income statement, a lessor would continue to recognize revenue during the deferral period. The second method would be to treat the deferred payments as variable lease payments (i.e., revenue recognized when cash received). The Company has elected the first method described above, which results in the revenue being recognized on an accrual basis.

If tenants are unable to timely repay deferred rent, or repay at all, request additional rent deferrals or abatements, decide not to renew leases, or renew leases at lower cash leasing spreads, the impact on the Company’s results of operations and financial condition could be material. In the second quarter of 2020, the Company recognized approximately $0.7 million general reserve against the deferred rent balance. Following positive collection trends in the third quarter of 2020, the Company released approximately $0.3 million of the general reserve. As of September 30, 2020, the Company had a remaining general reserve of $0.4 million against an approximate $1.7 million deferred rent balance.

Given the daily evolution of the COVID-19 pandemic and the global response to curb its spread, the Company is not able to estimate the effects of the COVID-19 pandemic on its results of operations, financial condition, or liquidity for the fiscal year 2020. The Company continues to evaluate the impact of various forms of governmental assistance that may be or become available to the Company or its tenants.

Revenue from Contracts with Customers (Topic 606)

The Company recognizes certain revenue under the core principle of Topic 606. This requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Lease revenue is not within the scope of Topic 606. To achieve the core principle, the Company applies the five step model specified in the guidance.

Revenue that is accounted for under Topic 606 is segregated on the Company’s Condensed Consolidated Statements of Income in the Other operating line item. This line item includes parking income, rental lease guaranty income, management fee income and other miscellaneous income. Below is a detail of the amounts by category:

(in thousands) Three Months Ended September 30, Nine Months Ended September 30,
Type of Revenue 2019 2018 2019 2018
Parking income $ 1,935
$ 1,752
$ 5,538
$ 5,197
Rental lease guaranty —
168
128
488
Management fee income 69
68
201
205
Miscellaneous 55
22
120
83
$ 2,059
$ 2,010
$ 5,987
$ 5,973


	THREE MONTHS ENDED September 30,				NINE MONTHS ENDED September 30,
in thousands	2020		2019		2020		2019
Type of Revenue
Parking income	$	1,764	$	1,935	$	5,042	$	5,538
Rental lease guaranty	0		0		0		128
Management fee income	62		69		209		201
Miscellaneous	42		55		113		120
	$	1,868	$	2,059	$	5,364	$	5,987

The Company’s 3 major types of revenue that are accounted for under Topic 606 that are listed above are all accounted for as the performance obligation is satisfied. The performance obligations that are identified for each of these items are satisfied over time, and the Company recognizes revenue monthly based on this principle.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents includes short-term investments with original maturities of three months or less when purchased. Restricted cash includes cash held in escrow from the sale of a property in Oklahoma. These proceeds have been or will be disbursed as the Company acquires real estate investments in like-kind exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company's Condensed Consolidated Balance Sheets to the combined amounts shown on the Company's Condensed Consolidated Statements of Cash Flows:


In thousands	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	121,992	$	657
Restricted cash	60,644		0
Total cash, cash equivalents and restricted cash	$	182,636	$	657

New Accounting Pronouncements

Accounting Standards Update No. ~~2016-02, No. 2018-01 and No. 2018-11~~

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, "Leases." In January 2018, FASB issued ASU 2018-01, "Leases - Land Easement Practical Expedient for Transition to Topic 842," in July 2018, FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases" and ASU 2018-11, "Leases - Targeted Improvements," and in December 2018, FASB issued ASU 2018-20, “Narrow-Scope Improvements for Lessors.” These accounting standard updates are collectively referred to as "Topic 842."

Topic 842 provides several practical expedients that the Company elected. These are (a) the package of practical expedients offered that allows an entity not to reassess upon adoption (i) whether an expired or existing contract contains a lease, (ii) lease classification related to expired or existing lease arrangements, and (iii) whether costs incurred on expired or existing leases qualify as initial direct costs, (b) the lessor practical expedient not to separate certain non-lease components, such as common area maintenance, from the lease component if (i) the timing and pattern of transfer are the same for the non-lease component and associated lease component, and (ii) the lease component would be classified as an operating lease if accounted for separately and (c) the lessee practical expedient not to separate certain non-lease components from the associated lease component.

For lessees, the new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with the classification affecting the pattern of expense recognition in the income statement. The Company's ground leases executed or assumed prior to the adoption of Topic 842 continue to be accounted for as operating leases and will not result in a materially different ground lease expense. However, each ground lease executed by the Company after the adoption of Topic 842 will be evaluated to determine if it is an operating or finance lease. If the lease is to be accounted for as a finance lease, ground lease expense would be accounted for using the effective interest method instead of the straight-line method over the term of the lease, which would result in higher ground lease expense in the earlier years of a ground lease when compared to the straight-line method. Leases in which the Company is the lessee are primarily ground leases, but also includes management office leases in third party buildings and certain copier and postage machine leases. The terms of the ground leases generally range from 40 to 99 years with a weighted average lease term remaining of 52.5 years, excluding renewal options. The Company's discount rates, which approximates the Company's incremental borrowing rate, ranged from 3.4% for leases expiring in 2019 to 6.2% for leases expiring in 2115. The Company utilized a third party to assist in determining the discount rates for its ground leases. The discount rates consider the general economic environment and factor in various financing and asset specific adjustments so that the discount rate is appropriate for the intended use of the underlying lease. As of January 1, 2019, the Company recognized the present value of its lease payments and a corresponding lease liability of $91.7 million. In addition, the Company reclassified $45.0 million of prepaid ground leases and below-market lease intangibles from the Other assets line item, $1.9 million of above-market lease intangibles from the Other liabilities line and $8.4 million of straight-line rent from the Accounts payable and accrued liabilities line item to the Operating lease right-of-use assets line item on the Condensed Consolidated Balance Sheets.

For lessors, the new standard requires a lessor to classify leases as either sales-type, direct-financing or operating. A lease will be treated as a sale if it is considered to transfer control of the underlying asset to the lessee. A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control. Otherwise, the lease is treated as an operating lease. Lessor accounting remains largely unchanged with some exceptions including the concept of separating lease and nonlease components. Nonlease components, such as common area maintenance, are generally accounted for under Topic 606 and separated from the lease payments. However, the Company elected the lessor practical expedient allowing the Company to not separate these components when certain conditions are met. The combined component is accounted for under Topic 842. Lease related receivables, which include accounts receivable and accrued straight-line rent receivables, are reduced for revenue reserves and are recognized as a reduction to rental income. The adoption of Topic 842, where the Company is the lessor, did not have a material impact on the Company's Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2019.

The new standard was effective for the Company on January 1, 2019. Topic 842 provides two transition alternatives. The Company elected to choose the prospective optional transition method available to apply the guidance in Accounting Standards Codification Topic 840 in the comparative periods presented in the year Topic 842 was adopted. Topic 842 includes extensive quantitative and qualitative disclosures as compared to Topic 840, Leases, for both lessees and lessors. See Note 3 to the Company's Condensed Consolidated Financial Statements for additional disclosures.

~~Accounting Standards Update No.~~ 2016-13 ~~and No. 2018-19~~

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This update is intended to improve financial reporting by requiring timelier recognition of credit losses on loans and other financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to-maturity debt securities, trade and other receivables, net investment in leases and other such commitments. This update requires that financial statement assets measured at an amortized cost and certain other financial instruments be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. ASU 2018-19 also clarifies that receivables arising from operating leases are not within the scope of this topic. Instead, impairment of these receivables should be accounted for in accordance with Topic 842, Leases. This standard is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted. Operating lease receivables, representing the majority of the Company's receivables, are not within the scope of the new standard. The Company ~~is evaluating~~adopted this standard as of January 1, 2020. There was not a material impact to the ~~impact~~Condensed Consolidated Financial Statements resulting from the adoption of this ~~new standard on the Condensed Consolidated Financial Statements and related notes.~~standard.

Accounting Standards Update No. 2017-04

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment." This update eliminates Step 2 of the goodwill impairment test. As such, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value. This standard is effective for the Company for annual and interim periods beginning after December 15, 2019. The Company ~~does~~adopted this standard as of January 1, 2020. There was not ~~expect~~ a material impact onto the Condensed Consolidated Financial Statements ~~and related notes~~resulting from the adoption of this standard.

Accounting Standards Update No. 2020-04

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Note 2. Real Estate Investments

~~2019~~2020 Acquisitions

The following table details the Company's acquisitions for the nine months ended September 30, ~~2019:~~2020:


Dollars in millions	TYPE 1	DATE ACQUIRED	PURCHASE PRICE		MORTGAGE NOTES PAYABLE		CASH CONSIDERATION 2		REAL ESTATE		OTHER 3		SQUARE FOOTAGE
Los Angeles, CA	MOB	1/3/20	$	42.0	$	(19.3)	$	22.8	$	42.4	$	(0.3)	86,986
Atlanta, GA	MOB	2/13/20	12.0		0		11.8		12.1		(0.3)		64,624
Raleigh, NC	MOB	2/25/20	6.3		0		6.5		6.5		0		15,964
Colorado Springs, CO	MOB	3/9/20	8.2		0		8.3		8.6		(0.3)		34,210
Denver, CO 4	MOB	3/13/20	33.5		0		33.2		34.0		(0.8)		136,994
San Diego, CA	MOB	7/1/20	16.7		0		16.7		16.9		(0.2)		46,083
Los Angeles, CA	MOB	7/17/20	35.0		0		37.7		37.7		0		49,785
Seattle, WA	MOB	7/23/20	11.0		0		10.9		11.3		(0.4)		21,309
Atlanta, GA	MOB	7/31/20	20.5		0		21.6		21.3		0.3		48,145
Houston, TX	MOB	9/24/20	11.0		0		10.9		11.0		(0.1)		40,235
Los Angeles, CA	MOB	9/28/20	14.0		0		14.0		13.9		0.1		24,252

Total real estate acquisitions			$	210.2	$	(19.3)	$	194.4	$	215.7	$	(2.0)	568,587
Land acquisition 5			1.6		0		1.7		1.7		0		0
Land acquisition 6			1.0		0		1.1		1.1		0		0
			$	212.8	$	(19.3)	$	197.2	$	218.5	$	(2.0)	568,587

(Dollars in millions)
Type ⁽¹⁾
Date
Acquired Purchase Price

Cash
Consideration⁽²⁾

Real
Estate

Other ⁽³⁾

Square
Footage
(Unaudited)

Washington, D.C. ⁽⁴⁾
MOB 3/28/19 $ 46.0
$ 45.9
$ 50.2
$ (4.3 ) 158,338
Indianapolis, IN ⁽⁵⁾
MOB 3/28/19 47.0
44.8
43.7
1.1
143,499
Atlanta, GA MOB 4/2/19 28.0
28.0
28.0
—
47,963
Dallas, TX MOB 6/10/19 17.0
16.7
17.0
(0.3 ) 89,990
Seattle, WA MOB 6/11/19 7.7
7.8
7.8
—
29,870
Seattle, WA MOB 6/14/19 19.0
19.1
19.5
(0.4 ) 47,255
Seattle, WA MOB 6/28/19 30.5
30.4
30.6
(0.2 ) 78,288
Houston, TX MOB 8/1/19 13.5
13.5
13.5
—
29,903
Oklahoma City, OK MOB 9/26/19 4.1
4.1
4.1
—
28,542
Los Angeles, CA ⁽⁶⁾
MOB 9/30/19 61.1
60.9
61.8
(0.9 ) 115,634
$ 273.9
$ 271.2
$ 276.2
$ (5.0 ) 769,282
1MOB = medical office building.

~~______~~


~~(1)~~	~~MOB = medical office building.~~


~~(2)~~	~~Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition.~~


~~(3)~~	~~Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition.~~

~~(4)~~

Includes 2 properties. The Company assumed 2 ground leases in connection with this acquisition that are classified as financing leases. The present value of future lease payments totaling $14.3 million was recorded on the Company's Condensed Consolidated Balance Sheets under the caption Finance lease liabilities. In addition, the right-of-use assets were partially offset by $5.2 million of above-market lease intangibles included in Other.


~~(5)~~	The Company assumed a prepaid ground lease totaling $0.8 million and recorded a below-market lease intangible totaling $0.9 million in connection with this acquisition that is classified as an operating lease that is included in Other.


~~(6)~~	~~Includes 2 properties.~~

2Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition.

3Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition.

4Includes 3 properties.

5The Company acquired land parcels under 4 existing buildings (previously ground leased).

6The Company acquired a land parcel under an existing building (previously ground leased). The building and land were sold on September 30, 2020.

Subsequent ~~Acquisitions~~Acquisition

On October ~~31, 2019,~~7, 2020 the Company acquired a ~~57,730~~36,720 square foot medical office building in ~~Raleigh, North Carolina~~Colorado Springs, CO for a purchase price of ~~$21.6~~$8.9 million.

~~On October 31, 2019, the Company acquired a 48,192 square foot medical office building in Dallas, Texas for a purchase price of $20.1 million.~~

~~2019~~2020 Real Estate Asset Dispositions

The following table details the Company's dispositions for the nine months ended September 30, ~~2019:~~2020:

(Dollars in millions)
Type ⁽¹⁾
Date
Disposed Sales Price Closing Adjustments Net
Proceeds Net Real
Estate
Investment
Other
(including
receivables)⁽²⁾
Gain/
(Impairment)
Square
Footage
(Unaudited)
Tucson, AZ ⁽³⁾
MOB 4/9/19 $ 13.0
$ (0.9 ) $ 12.1
$ 6.9
$ 0.4
$ 4.8
67,345
Virginia Beach, VA ⁽⁴⁾
MOB 8/1/19 1.3
(0.1 ) 1.2
1.2
—
—
10,000
San Antonio, TX MOB 8/28/19 0.9
(0.1 ) 0.8
0.6
—
0.2
10,138
Total dispositions $ 15.2
$ (1.1 ) $ 14.1
$ 8.7
$ 0.4
$ 5.0
87,483


Dollars in millions	TYPE 1	Date Disposed	Sale Price		Closing Adjustments		Net Proceeds		Net Real Estate Investment		Other (including receivables)2		Gain/(Impairment)		Square Footage (Unaudited)
Springfield, MO 3	SF	7/30/20	$	138.0	$	0	$	138.0	$	92.4	$	3.9	$	41.7	186,000
Oklahoma City, OK 3	MOB	7/30/20	106.5		0		106.5		76.8		3.1		26.6		200,000
Miami, FL	MOB	9/30/20	5.0		(0.2)		4.8		2.6		0.1		2.1		26,000

Total dispositions			$	249.5	$	(0.2)	$	249.3	$	171.8	$	7.1	$	70.4	412,000

~~______~~


~~(1)~~	~~MOB = medical office building.~~


~~(2)~~	~~Includes straight-line rent receivables, leasing commissions and lease inducements.~~


~~(3)~~	~~Includes four properties sold to a single purchaser.~~


~~(4)~~	~~The Company reclassified this property to held for sale during the second quarter of 2019 and recorded an impairment charge of $0.4 million based on the sales price less estimated costs to sell.~~

1.MOB = medical office building; SF = surgical facility

~~Subsequent Disposition~~2.Includes straight-line rent receivables, leasing commissions and lease inducements.

~~On October 25, 2019,~~3.In the second quarter of 2020, the Company ~~disposed of~~entered into agreements to sell 2 single-tenant net leased properties, resulting in a 90,123 square foot inpatient rehabilitation facility located in Erie, Pennsylvania following the ground lessor's exercise of a purchase option. The purchase price, determined by an appraisal process, was $14.0 millionlease modification and ~~the Company's net investment in the building as of September 30, 2019 was approximately $1.3 million.~~classification change from operating to sales-type.

Assets Held for Sale

~~As of~~In September 30, 2019 and December 31, 2018, the Company had 2 properties and 1 property, respectively, classified as held for sale. The following is a description of the two properties held for sale as of September 30, 2019:

~~In March 2019,~~2020, the Company reclassified ~~an inpatient rehabilitation facility~~4 medical office buildings and a land parcel to assets held for sale upon notification that the ground lessor exercised a purchase option. The purchase price, determined by an appraisal process, was $14.0 million and the current net investment is approximately $1.3 million. This property was sold on October 25, 2019.

~~In May 2019, the Company accepted~~acceptance of an offer from a third party to purchase the properties under a ~~former long-term acute care facility located in Pittsburgh, Pennsylvania and recorded an impairment charge totaling $5.2 million based on the~~single sales agreement. The contractual sales price ~~less estimated costs to sell. This property was reclassified to~~of $23.0 million is greater than the current net investment of approximately $18.1 million. As

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

of September 30, 2020 and December 31, 2019, the Company had 4 and 0 properties, respectively, classified as assets held for ~~sale in 2017.~~sale.

The table below reflects the assets and liabilities of the properties classified as held for sale as of September 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


(Dollars in thousands)	September 30, 2019			December 31, 2018			(Dollars in thousands)	September 30, 2020		December 31, 2019
Balance Sheet data:							Balance Sheet data:
Land	$	1,125		$	1,125		Land	$	1,664	$	0
Buildings, improvements and lease intangibles	34,426			18,231
Building, improvements and lease intangibles							Building, improvements and lease intangibles	26,871		0
Personal property							Personal property	39		0
	35,551			19,356				28,574		0
Accumulated depreciation	(30,706		)	(10,657		)	Accumulated depreciation	(10,443)		0
Real estate assets held for sale, net	4,845			8,699			Real estate assets held for sale, net	18,131		0
Other assets, net	444			573			Other assets, net	1,920		37
Assets held for sale, net	$	5,289		$	9,272		Assets held for sale, net	$	20,051	$	37

Accounts payable and accrued liabilities	$	93		$	450		Accounts payable and accrued liabilities	$	437	$	37
Other liabilities	207			137			Other liabilities	111		108
Liabilities of properties held for sale	$	300		$	587
Liabilities of assets held for sale							Liabilities of assets held for sale	$	548	$	145

Note 3. Leases

Lessor Accounting ~~Under ASC 842~~

The Company’s properties generally are leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through ~~2036.~~2035. Some leases provide for fixed rent renewal terms in addition to market rent renewal terms. Some leases provide the lessee, during the term of the lease, with an option or right of first refusal to purchase the leased property. The Company’s ~~portfolio of~~ single-tenant net leases generally ~~requires~~require the lessee to pay minimum rent and all taxes (including property tax), insurance, maintenance and other operating costs associated with the leased property.

The Company's leases typically have escalators that are either based on a stated percentage or an index such as CPI (consumer price index). In addition, most of the Company's leases include nonlease components, such as reimbursement of operating expenses as additional rent, or include the reimbursement of expected operating expenses as part of the lease payment. The Company adopted an accounting policy to combine lease and nonlease components. Rent escalators based on indices and reimbursements of operating expenses that are not included in the lease rate are considered variable lease payments. Variable payments are recognized in the period earned. ~~As of September 30, 2019, the Company had 1 ground lease that is associated with a property under construction where rent has not yet commenced.~~ Lease income for the Company's operating leases recognized for the three and nine months ended September 30, ~~2019~~2020 was ~~$117.7~~$123.4 million and ~~$342.8~~$368.4 million, respectively.

In May 2020, the Company and Mercy Health negotiated the sale of 2 single-tenant net leased properties, a medical office building in Oklahoma and an orthopedic specialty hospital in Missouri, for $244.5 million. The sale was structured through amendments to the leases to allow for the early exercise of existing purchase options. The amendments resulted in the application of lease modification accounting under ASC Topic 842, which resulted in lease classification changes from operating to sales-type. During the second quarter, the Company derecognized the real estate assets on the Condensed Consolidated Balance Sheets and recognized the net investment in sales-type leases, resulting in a gain of $68.3 million. The Company disposed of these properties on July 30, 2020.

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Tabular Disclosure of the Components of Sales-Type Leases

The table below presents the components of sale-type leases for the three and nine months ended September 30, 2020:


	SALES-TYPE LEASES
In thousands	three months ended September 30, 2020		nine months ended September 30, 2020
Profit recognized at commencement date	$	0	$	68,267	Gain on sales of real estate assets
Interest income	1,454		3,007		Rental income

Future lease payments under the non-cancelable operating leases, excluding any reimbursements, as of September 30, ~~2019~~2020 were as ~~follows (in thousands):~~follows:


In thousands	Operating
2020	$	93,722
2021	352,341
2022	307,166
2023	261,187
2024	200,578
2025 and thereafter	555,264
	$	1,770,258

2019 $ 91,501
2020 340,549
2021 292,541
2022 252,315
2023 210,559
2024 and thereafter 572,767
$ 1,760,232

~~Lessor Accounting Under ASC 840~~

The Company’s properties are generally leased pursuant to non-cancelable, fixed-term operating leases with expiration dates through 2036. Some leases and financial arrangements provide for fixed rent renewal terms in addition to market rent renewal terms. Some leases provide the lessee, during the term of the lease and for a short period thereafter, with an option or a right of first refusal to purchase the leased property. The Company’s portfolio of single-tenant net leases generally requires the lessee to pay minimum rent and all taxes (including property tax), insurance, maintenance and other operating costs associated with the leased property.

~~Future minimum lease payments under the non-cancelable operating leases, excluding any reimbursements, as of December 31, 2018 were as follows (in thousands):~~

2019 $ 326,441
2020 279,211
2021 235,660
2022 201,072
2023 163,978
2024 and thereafter 476,673
$ 1,683,035

Lessee Accounting ~~Under ASC 842~~

As of September 30, ~~2019,~~2020, the Company was obligated, as the lessee, under operating lease agreements consisting primarily of the Company’s ground leases. As of September 30, ~~2019,~~2020, the Company had ~~108~~103 properties ~~excluding 1 property classified as held for sale,~~ totaling ~~9.0~~8.7 million square feet that were held under ground leases. Some of the ground ~~leases~~leases' renewal terms are based on fixed rent renewal terms and others have market rent renewal terms. These ground leases typically have initial terms of 40 to 99 years with expiration dates through ~~2117.~~2119. Any rental increases related to the Company’s ground leases are generally either stated or based on the ~~Consumer Price Index.~~CPI. The Company had 4642 prepaid ground leases as of September 30, ~~2019.~~2020. The amortization of the prepaid rent, included in the operating lease right-of-use asset, represented approximately $0.2 million ~~and $0.1 million~~ of the Company’s rental expense for the three months ended September 30, 2020 and 2019, respectively and ~~2018, respectively~~$0.5 million and $0.4 million for the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively.

The Company’s future lease payments (primarily for its 6261 non-prepaid ground leases) as of September 30, ~~2019~~2020 were as ~~follows (in thousands):~~follows:


In thousands	OPERATING		FINANCING
2020	$	1,008	$	143
2021	4,844		930
2022	4,875		783
2023	4,913		793
2024	4,969		815
2025 and thereafter	307,665		88,808
Total undiscounted lease payments	328,274		92,272
Discount	(236,808)		(73,575)
Lease liabilities	$	91,466	$	18,697

Operating
Financing
2019 $ 999
$ 107
2020 4,816
611
2021 4,846
619
2022 4,877
628
2023 4,915
637
2024 and thereafter 312,712
74,767
Total undiscounted lease payments 333,165
77,369
Discount (241,809 ) (63,064 )
Lease liabilities $ 91,356
$ 14,305

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

The following table provides details of the Company's total lease expense for the three and nine months ended September 30, ~~2019 (in thousands):~~2020 and 2019:


	THREE MONTHS ENDED September 30,						NINE MONTHS ENDED September 30,
In thousands	2020			2019			2020		2019
Operating lease cost
Operating lease expense	$	1,180		$	1,169		$	3,534	$	3,448
Variable lease expense	1,066			845			2,664		2,380

Finance lease cost
Amortization of right-of-use assets	88			51			236		101
Interest on lease liabilities	245			196			722		392
Total lease expense	$	2,579		$	2,261		$	7,156	$	6,321

Other information
Operating cash flows outflows related to operating leases	$	1,440		$	1,313		$	5,412	$	5,461
Financing cash flows outflows related to financing leases	$	143		$	107		$	3,310	$	249
Right-of-use assets obtained in exchange for new finance lease liabilities	$	0		$	0		$	7,212	$	14,294

Weighted-average remaining lease term (excluding renewal options) - operating leases	48.9			49.7
Weighted-average remaining lease term (excluding renewal options) -finance leases	64.7			70.1
Weighted-average discount rate - operating leases	5.7		%	5.7		%
Weighted-average discount rate - finance leases	5.4		%	5.5		%

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Operating lease cost
Operating lease expense $ 1,169
$ 3,448

Variable lease expense 845
2,380

Finance lease cost
Amortization of right-of-use assets 51
101

Interest on lease liabilities 196
392

Total lease expense $ 2,261
$ 6,321

Other information
Operating cash flows outflows related to operating leases $ 1,313
$ 5,461

Financing cash flows outflows related to financing leases $ 107
$ 249

Right-of-use assets obtained in exchange for new finance lease liabilities $ —
$ 14,294

Weighted-average remaining lease term (excluding renewal options) - operating leases 49.7
Weighted-average remaining lease term (excluding renewal options) -finance leases 70.1
Weighted-average discount rate - operating leases 5.7%
Weighted-average discount rate - finance leases 5.5%

~~Lessee Accounting Under ASC 840~~

As of December 31, 2018, the Company was obligated under operating lease agreements consisting primarily of the Company’s ground leases. At December 31, 2018, the Company had 107 properties totaling 8.8 million square feet that were held under ground leases with a remaining weighted average term of 53.9 years, excluding renewal 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 2117. Any rental increases related to the Company’s ground leases are generally either stated or based on the Consumer Price Index.

~~The Company’s future minimum lease payments (primarily for its 60 non-prepaid ground leases) as of December 31, 2018 were as follows (in thousands):~~

2019 $ 5,288
2020 5,260
2021 5,238
2022 5,207
2023 5,224
2024 and thereafter 323,533
$ 349,750

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Note 4. Notes and Bonds Payable

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


	MATURITY DATES	BALANCE AS OF				EFFECTIVE INTEREST RATE as of 9/30/2020
Dollars in thousands		9/30/2020		12/31/2019
$700 million Unsecured Credit Facility	5/23	$	0	$	293,000	N/A
$200 million Unsecured Term Loan Facility, net of issuance costs 1	5/24	199,180		199,013		1.99	%
$150 million Unsecured Term Loan due 2026 2	6/26	149,455		0		3.14	%
Senior Notes due 2023, net of discount and issuance costs	4/23	248,863		248,540		3.95	%
Senior Notes due 2025, net of discount and issuance costs 3	5/25	248,711		248,522		4.08	%
Senior Notes due 2028, net of discount and issuance costs	1/28	296,003		295,651		3.84	%
Senior Notes due 2030, net of discount and issuance costs 4	3/30	296,384		0		2.71	%
Mortgage notes payable, net of discounts and issuance costs and including premiums	1/21-4/27	115,799		129,343		4.38	%
		$	1,554,395	$	1,414,069

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

2The effective interest rate includes the impact of interest rate swaps on $100.0 million at a weighted average rate of 2.23% (plus the applicable margin rate, currently 160 basis points).

Maturity
Dates
Balance as of Effective Interest Rate as of
(Dollars in thousands) September 30, 2019
December 31, 2018
September 30, 2019
$700 million Unsecured Credit Facility 5/23 $ 322,000
$ 262,000
2.92 %
$200 million Unsecured Term Loan Facility, net of issuance costs ⁽¹⁾
5/24 198,957
149,183
3.29 %
$150 million Unsecured Term Loan due 2026 ⁽²⁾
6/26 —
—
N/A
Senior Notes due 2023, net of discount and issuance costs 4/23 248,434
248,117
3.95 %
Senior Notes due 2025, net of discount and issuance costs ⁽³⁾
5/25 248,460
248,278
4.08 %
Senior Notes due 2028, net of discount and issuance costs 1/28 295,536
295,198
3.84 %
Mortgage notes payable, net of discounts and issuance costs and including premiums 7/20-5/40 130,532
143,208
4.81 %
$ 1,443,919
$ 1,345,984

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

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

~~______~~


~~(1)~~	~~The effective interest rate includes the impact of interest rate swaps on $175.0 million at a weighted average rate of 2.29% (plus the applicable margin rate, currently 100 basis points).~~


~~(2)~~	As of September 30, 2019, there were 0 outstanding loans under the $150.0 million unsecured term loan due June 2026. This term loan has a delayed draw feature that allows the Company until February 2020 to draw against the commitments.


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

Changes in Debt Structure

On ~~April 10, 2019,~~February 3, 2020, the Company repaid in full a mortgage note payable bearing interest at a rate of ~~5.00%~~6.10% per annum with an outstanding principal of ~~$8.9~~$5.9 million. The mortgage note encumbered a ~~52,813~~68,860 square foot property in Oklahoma.

On March 4, 2020, the Company issued $300.0 million of unsecured senior notes due 2030 (the "Senior Notes due 2030") in a registered public offering. The Senior Notes due 2030 bear interest at 2.40%, payable semi-annually on March 15 and September 15, beginning September 15, 2020, and are due on March 15, 2030, unless redeemed earlier by the Company. The notes were issued at a discount of approximately $1.0 million and the Company incurred approximately $2.8 million in debt issuance costs. Concurrent with this transaction, the Company settled 2 treasury rate locks for $4.3 million. Inclusive of the discount, debt issuance costs and settlement of the treasury rate locks, the effective interest rate was 2.71%. The Senior Notes due 2030 have various financial covenants that are required to be met on a quarterly and annual basis.

On May 4, 2020, the Company repaid in full a mortgage note payable bearing interest at a rate of 5.74% per annum with an outstanding principal of $0.3 million. The mortgage note encumbered an 83,318 square foot property in Iowa.

On May 29, 2020, the Company borrowed $150.0 million pursuant to its unsecured term loan due 2026.

On June 2, 2020, the Company repaid in full a mortgage note payable bearing interest at a rate of 6.44% per annum with an outstanding principal of $12.6 million. The mortgage note encumbered a 67,510 square foot property in Washington.

On June 25, 2020, the Company repaid in full 3 mortgage notes bearing interest at rates of 5.63%, 6.63% and 6.88% per annum with outstanding principal of $0.5 million, $2.8 million, and $7.0 million, respectively. The mortgage notes encumbered a 60,476 square foot property in Minnesota.

Subsequent Changes in Debt Structure

On ~~May 31, 2019,~~October 1, 2020, the Company amended and restated its $700.0 million unsecured credit facility due 2020 (the "Unsecured Credit Facility") to extend the maturity date from July 2020 to May 2023. Amounts outstanding under the Unsecured Credit Facility bear interest at LIBOR plus an applicable margin, which depends on the Company's credit ratings, ranging from 0.775% to 1.45% (currently 0.90%). In addition, the Company paysrepaid in full a facility fee per annum on the aggregate amount of commitments ranging from 0.125% to 0.30% (currently 0.20%). In connection with the amendment, the Company paid up front fees to the lenders and other costs of approximately $3.5 million, which were capitalized and are being amortized over the term of the Unsecured Credit Facility.

Also, on May 31, 2019, the Company amended and restated its term loan agreement (the "Term Loan") with a syndicate of lenders. The amended agreement extended the maturity date of the Company's unsecured term loan due 2022 to May 2024 (the "Term Loan due 2024") and increased the loan amount from $150.0 million to $200.0 million. In addition, the amended agreement added a $150.0 million seven-year term loan facility (the "Term Loan due 2026"). The Term Loan due 2024 bears interest at LIBOR plus an applicable margin ranging from 0.85% to 1.65% (1.00% at September 30, 2019) based upon the Company's unsecured debt ratings. The Term Loan due 2026 has a delayed draw feature that allows the Company up to nine months to draw against the commitments. As of September 30, 2019, 0 loans were outstanding under the Term Loan due 2026. Loans outstanding under the Term Loan due 2026 will bearmortgage note payable bearing interest at a rate ~~equal to LIBOR plus a margin ranging from 1.45% to 2.40% (1.60% at September 30, 2019). Committed amounts that remain undrawn are subject to a ticking fee ranging from 0.125% to 0.30%~~of 5.47% per annum ~~(0.20% at September 30, 2019). In connection~~ with ~~the amendment,~~an outstanding principal of $4.2 million. The mortgage note encumbered a 40,171 square foot property in Georgia.

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

On October 2, 2020, the Company ~~paid up front fees to~~issued $300.0 million of unsecured senior notes due 2031 (the "Senior Notes due 2031") in a registered public offering. The Senior Notes due 2031 bear interest at 2.05%, payable semi-annually on March 15 and September 15, beginning March 15, 2021, and are due on March 15, 2031, unless redeemed earlier by the ~~lenders~~Company. The notes were issued at a discount of approximately ~~$1.8~~$2.4 million ~~of which $1.0~~and the Company incurred approximately $2.8 million ~~were capitalized and are being amortized over the respective term~~in debt issuance costs. Inclusive of the ~~term loans~~discount and ~~$0.8~~debt issuance costs, the effective interest rate was 2.24%. The Senior Notes due 2031 have various financial covenants that are required to be met on a quarterly and annual basis.

On October 19, 2020, the Company redeemed its unsecured senior notes due 2023 (the "Senior Notes due 2023"). The aggregate redemption price of $270.5 million ~~were expensed during~~consisted of outstanding principal of $250.0 million, accrued interest of $0.1 million, and a "make-whole" amount of approximately $20.4 million for the ~~second quarter~~early extinguishment of ~~2019.~~debt. The unaccreted discount and unamortized costs on these notes of $1.1 million was written off upon redemption. In October 2020, the Company recognized a loss on early extinguishment of debt of approximately $21.5 million related to this redemption.

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.

On ~~April 12, 2019,~~February 24 and 25, 2020, the Company entered into 2 ~~interest~~treasury rate ~~swaps~~locks totaling ~~$50.0~~$75.0 million ~~to fix~~and $40.0 million, respectively. The treasury rate locks were settled for an aggregate amount of $4.3 million on March 4, 2020 concurrent with the ~~one-month LIBOR portion~~Company's issuance of its Senior Notes due 2030. The settlement will be amortized over the 10-year term of the ~~cost of borrowing to a rate of 2.33%. These derivatives are being used to hedge variable cash flows associated with variable-rate debt.~~

On May 15, 2019, the Company entered into 2 interest rate swaps totaling $50.0 million to fix the one-month LIBOR portion of the cost of borrowing to a rate of 2.13%. These derivatives are being used to hedge variable cash flows associated with variable-rate debt.

notes.

As of September 30, ~~2019,~~2020, the Company had 8 outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:


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

Derivative Instrument Number of Instruments

Notional Amount
(in millions)
Interest rate swaps 8
$175.0

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

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

The table below presents the fair value of the Company's derivative financial instruments, as well as their classification on the Condensed Consolidated Balance Sheet as of September 30, ~~2019.~~2020.


	BALANCE AT SEPTEMBER 30, 2020
In thousands	BALANCE SHEET LOCATION	FAIR VALUE
Derivatives designated as hedging instruments
Interest rate swaps	Other liabilities	$	14,460
Total derivatives designated as hedging instruments		$	14,460

Balance at September 30, 2019
(Dollars in thousands) Balance Sheet Location Fair Value
Derivatives designated as hedging instruments
Interest rate swaps Other liabilities $ 7,533
Total derivatives designated as hedging instruments $ 7,533

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, ~~2019~~2020 and ~~2018~~2019 related to the Company's outstanding interest rate swaps.


												LOSS RECOGNIZED IN AOCI ON DERIVATIVE three months ended September 30,						(GAIN) LOSS RECLASSIFIED FROM AOCI INTO INCOME three months ended September 30,
	Gain (Loss) Recognized in AOCI on Derivative						Loss Reclassified from AOCI into Income
	Three Months Ended September 30,						Three Months Ended September 30,
(Dollars in thousands)	2019			2018			2019		2018
In thousands											In thousands	2020		2019						2020		2019
Interest rate swaps	$	(2,341	)	$	374	Interest expense	$	18	$	53	Interest rate swaps	$	74	$	2,341	$	952			$	18
Settled treasury hedges											Settled treasury hedges	0		0		Interest expense		107		0
Settled interest rate swaps	—			—		Interest expense	42		42		Settled interest rate swaps	0		0		Interest expense		42		42
	$	(2,341	)	$	374	Total interest expense	$	60	$	95		$	74	$	2,341	Total interest expense		$	1,101	$	60


	LOSS RECOGNIZED IN AOCI ON DERIVATIVE nine months ended September 30,					(GAIN) LOSS RECLASSIFIED FROM AOCI INTO INCOME nine months ended September 30,
In thousands	2020		2019			2020		2019
Interest rate swaps	$	11,192	$	7,642	Interest expense	$	2,012	$	(52)
Settled treasury hedges	4,267		0		Interest expense	229		0
Settled interest rate swaps	0		0		Interest expense	126		126
	$	15,459	$	7,642	Total interest expense	$	2,367	$	74

Gain (Loss) Recognized in AOCI on Derivative (Gain) Loss Reclassified from AOCI into Income
Nine Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2019
2018
2019
2018
Interest rate swaps $ (7,642 ) $ 1,403
Interest expense $ (52 ) $ 243
Settled interest rate swaps —
—
Interest expense 126
126
$ (7,642 ) $ 1,403
Total interest expense $ 74

$ 369

The Company estimates that $4.4 million will be reclassified from AOCI to interest expense over the next 12 months.

Credit-risk-related Contingent Features

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

As of September 30, 2020, 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 $15.1 million. As of September 30, 2020, the Company has not posted any collateral related to these agreements and was not in breach of any agreement.

~~The Company estimates that $1.3 million will be reclassified from AOCI to interest expense over the next 12 months.~~

Note 6. Commitments and Contingencies

Legal Proceedings

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

Redevelopment Activity

The Company ~~redeveloped~~initiated the redevelopment of a 110,883 square foot medical office building in ~~Charlotte, North Carolina, which includes a 40,278 square foot vertical expansion.~~Memphis, Tennessee ("Memphis Redevelopment") in December 2019. As of September 30, ~~2019,~~2020, the Company funded approximately $5.7 million in project costs, excluding the purchase price of $8.7 million for the land and building. The building will continue to operate with in-place leases during construction. The core and shell portion of the Memphis Redevelopment is expected to be completed in the first quarter of 2021, with construction of tenant spaces to be completed throughout the remainder of 2021.

Table of Contents

Development Activity

In the first quarter of 2020, the Company completed the construction of the core and shell of a 151,031 square foot medical office building in Seattle, Washington. As of September 30, 2020, the Company had funded approximately ~~$9.8~~$59.1 million towards the ~~redevelopment of this property.~~development and additional tenant improvements. The Company expects to fund an additional amount of approximately ~~$2.2~~$5.0 million for additional tenant improvements associated with this project. The first tenant ~~took occupancy during the second quarter of 2019.~~

~~Development Activity~~

The Company began the development of a 151,000 square foot medical office building in Seattle, Washington during 2017. As of September 30, 2019, the Company had funded approximately $44.3 million towards the development. The Company expects to fund an additional amount of approximately $19.8 million to complete this project. The Company expects the first tenant to take occupancycommenced rent payment in the first quarter of 2020.

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, ~~2019~~2020 and the year ended December 31, ~~2018:~~2019:


	SEPTEMBER 30, 2020	DECEMBER 31, 2019
Balance, beginning of period	134,706,154	125,279,455
Issuance of common stock	1,292,324	9,251,440
Nonvested share-based awards, net of withheld shares	55,462	175,259
Balance, end of period	136,053,940	134,706,154

September 30, 2019 December 31, 2018
Balance, beginning of period 125,279,455
125,131,593
Issuance of common stock 6,099,012
26,203
Nonvested share-based awards, net of withheld shares ⁽¹⁾
(10,269 ) 121,659
Balance, end of period 131,368,198
125,279,455

~~______~~


~~(1)~~	The Company's former Executive Chairman, David R. Emery, died on September 30, 2019 resulting in $2.9 million of expenses associated with the acceleration of his outstanding nonvested share-based awards. In connection with the vesting, 80,490 shares were withheld to pay employee federal income taxes.

~~Equity Offering~~

On March 19, 2019, the Company issued 3,737,500 shares of common stock, par value $0.01 per share, at $31.40 per share in an underwritten public offering pursuant to the Company's existing effective registration statement. The net proceeds of the offering, after underwriting discounts and offering expenses, were approximately $115.8 million.

At-The-Market Equity Offering Program

On February 14, 2020, the Company entered into sales agreements with 6 investment banks to allow sales under its at-the-market equity offering program of up to an aggregate of $500.0 million of common stock. The Company sold ~~4,694,624~~1,268,237 shares under the Company's ~~at-the-market~~at-the market equity offering program ~~from January 1, 2019 through October 31, 2019.~~during the nine months ended September 30, 2020. The sales generated ~~$153.7~~$39.9 million in net proceeds at prices to the public ranging from ~~$32.01~~$30.50 to ~~$33.77~~$36.15 per share (weighted average of ~~$33.31~~$31.86 per share). The sales occurred during the following time periods:

•During the first quarter of ~~2019,~~2020, the Company sold ~~135,265~~196,250 shares generating ~~$4.3~~approximately $7.0 million in net proceeds at prices to the public ranging from ~~$32.01~~$33.00 to ~~$32.86~~$36.15 per share (weighted average of ~~$32.36~~$36.09 per share).

~~NaN shares were sold in~~•During the second quarter of ~~2019.~~

~~During the third quarter of 2019,~~2020, the Company sold ~~2,191,522~~1,071,987 shares generating ~~$71.6~~approximately $32.9 million in net proceeds at prices to the public ranging from ~~$32.62~~$30.50 to ~~$33.77~~$31.29 per share (weighted average of ~~$33.15~~$31.08 per share).

~~During October 2019,~~In addition, the Company ~~sold 2,367,837~~has entered into 3 forward equity agreements totaling 3.6 million shares ~~generating $78.2 million in net proceeds~~ at ~~prices to~~a weighted average price of $31.30 per share:

•In the ~~public ranging from $33.17 to $33.74~~second quarter of 2020, the Company entered into a forward equity agreement for a total of 1,579,371 shares at a weighted average price of $31.66 per share, ~~(weighted~~subject to adjustments as provided in the forward equity agreements. This agreement matures in June 2021.

•In the third quarter of 2020, the Company entered into a forward equity agreement for a total of 764,472 shares at a weighted average price of ~~$33.52~~$31.84 per ~~share).~~share, subject to adjustments as provided in the forward equity agreements. This agreement matures in July 2021.

•In the fourth quarter of 2020, the Company entered into a forward equity agreement for a total of 1,235,129 shares at a weighted average price of $30.52 per share, subject to adjustments as provided in the forward equity agreements. This agreement matures in October 2021.

~~The~~After taking into account the forward equity contracts discussed above, the Company ~~had 1,174,073 authorized shares~~has approximately $347.6 million remaining available to be sold under the current sales agreements asat the date of ~~October 31, 2019.~~

this filing.

Common Stock Dividends

During the nine months ended September 30, ~~2019,~~2020, the Company declared and paid common stock dividends totaling $0.90 per share. On ~~October 29, 2019,~~November 3, 2020, the Company declared a quarterly common stock dividend in the amount of $0.30 per share payable on ~~November 29, 2019~~December 1, 2020 to stockholders of record on November ~~14, 2019.~~16, 2020.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Earnings Per Common Share

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

During the nine months ended September 30, 2020, the Company entered into forward sale agreements to sell approximately 2.3 million shares of common stock through the Company's at-the-market equity offering program. The Company considered the accounting guidance governing financial instruments and derivatives to account for these agreements and concluded that it was not a liability as it did not embody obligations to repurchase our shares of common stock nor did it embody obligations to issue a variable number of shares for which the monetary value was predominately fixed, varying with something other than the fair value of the shares, or varying inversely in relation to the shares. In addition, the Company evaluated whether the agreements met the derivative and hedging guidance scope exception to be accounted for as an equity instrument and concluded that the agreements can be classified as equity.

The Company used the treasury method to determine the dilution from the forward equity agreements during the period of time prior to settlement. The number of weighted-average shares outstanding used in the computation of earnings per common share for the three and nine months ended September 30, 2020 included the effect from the assumed issuance of 2.3 million shares of common stock pursuant to the settlement of the forward equity agreements at the contractual price, less the assumed repurchase of the common stock at the average market price using the proceeds of approximately $72.7 million, adjusted for costs to borrow. For the three and nine months ended September 30, 2020, 137,757 and 51,133 weighted-average incremental shares of common stock were excluded from the computation of weighted-average common shares outstanding - diluted, as the impact was anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.


	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
Dollars in thousands, except per share data	2020		2019		2020		2019
Weighted average common shares outstanding
Weighted average common shares outstanding	136,048,781		129,865,985		135,393,798		128,348,638
Non-vested shares	(1,739,364)		(1,775,911)		(1,731,658)		(1,777,743)
Weighted average common shares outstanding - basic	134,309,417		128,090,074		133,662,140		126,570,895

Weighted average common shares outstanding - basic	134,309,417		128,090,074		133,662,140		126,570,895
Dilutive effect of forward equity shares	0		0		0		0
Dilutive effect of employee stock purchase plan	47,810		78,610		74,029		85,690
Weighted average common shares outstanding - diluted	134,357,227		128,168,684		133,736,169		126,656,585

Net Income	$	8,230	$	2,601	$	88,058	$	11,975
Dividends paid on nonvested share-based awards	(522)		(534)		(1,561)		(1,603)
Net income applicable to common stockholders	$	7,708	$	2,067	$	86,497	$	10,372





Basic earnings per common share - net income	$	0.06	$	0.02	$	0.65	$	0.08


Diluted earnings per common share - net income	$	0.06	$	0.02	$	0.65	$	0.08

Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands, except per share data) 2019 2018 2019 2018
Weighted average Common Shares outstanding
Weighted average Common Shares outstanding 129,865,985
125,233,462
128,348,638
125,206,342
Nonvested shares (1,775,911 ) (1,933,653 ) (1,777,743 ) (1,925,589 )
Weighted average Common Shares outstanding—Basic 128,090,074
123,299,809
126,570,895
123,280,753
Weighted average Common Shares outstanding—Basic 128,090,074
123,299,809
126,570,895
123,280,753
Dilutive effect of employee stock purchase plan 78,610
52,147
85,690
54,763
Weighted average Common Shares outstanding—Diluted 128,168,684
123,351,956
126,656,585
123,335,516
Net Income $ 2,601
$ 6,548
$ 11,975
$ 53,456
Dividends paid on nonvested share-based awards (534 ) (580 ) (1,603 ) (1,740 )
Net income applicable to common stockholders $ 2,067
$ 5,968
$ 10,372
$ 51,716
Basic earnings per common share - Net income $ 0.02
$ 0.05
$ 0.08
$ 0.42
Diluted earnings per common share - Net income $ 0.02
$ 0.05
$ 0.08
$ 0.42

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, cont.

Incentive Plans

A summary of the activity under the Company's share-based incentive plans for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 is included in the table below.

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Share-based awards, beginning of period 1,778,134
1,938,100
1,769,863
1,907,645
Granted —
—
89,767
107,751
Vested ⁽¹⁾
(204,548 ) (5,051 ) (286,044 ) (82,347 )
Share-based awards, end of period 1,573,586
1,933,049
1,573,586
1,933,049


	THREE MONTHS ENDED SEPTEMBER 30,		NINE MONTHS ENDED SEPTEMBER 30,
	2020	2019	2020	2019
Share-based awards, beginning of period	1,739,258	1,778,134	1,754,066	1,769,863
Granted	188	0	79,025	89,767
Vested 1	0	(204,548)	(93,645)	(286,044)

Share-based awards, end of period	1,739,446	1,573,586	1,739,446	1,573,586

~~______~~


~~(1)~~	~~The Company's former Executive Chairman, David R. Emery, died on September 30, 2019 resulting in the accelerated vesting of 204,548 outstanding nonvested share-based awards.~~

1The Company's former Executive Chairman, David R. Emery, died on September 30, 2019 resulting in the accelerated vesting of 204,548 outstanding nonvested share-based awards.

During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company withheld ~~100,036~~23,563 and ~~22,555~~100,036 shares of common stock, respectively, from participants to pay estimated withholding taxes related to shares that vested.

In addition to the share-based incentive plans, the Company maintains the 2000 Employee Stock Purchase Plan (the "Purchase Plan"). A summary of the activity under the Purchase Plan for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 is included in the table below.

Three Months Ended September 30, Nine Months Ended September 30,
2019 2018 2019 2018
Outstanding and exercisable, beginning of period 363,218
350,535
328,533
318,100
Granted —
—
235,572
203,836
Exercised (9,927 ) (2,531 ) (28,943 ) (13,236 )
Forfeited (11,762 ) (9,583 ) (51,559 ) (34,489 )
Expired —
—
(142,074 ) (135,790 )
Outstanding and exercisable, end of period 341,529
338,421
341,529
338,421


	THREE MONTHS ENDED SEPTEMBER 30,		NINE MONTHS ENDED SEPTEMBER 30,
	2020	2019	2020	2019
Outstanding and exercisable, beginning of period	361,719	363,218	332,659	328,533
Granted	0	0	212,716	235,572
Exercised	(3,504)	(9,927)	(17,871)	(28,943)
Forfeited	(6,659)	(11,762)	(36,154)	(51,559)
Expired	0	0	(139,794)	(142,074)
Outstanding and exercisable, end of period	351,556	341,529	351,556	341,529

Note 8. Fair Value of Financial Instruments

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

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

•Borrowings under the Unsecured Credit Facility and the Term ~~Loan~~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 Consolidated Balance Sheets at fair value. Fair value is estimated by utilizing pricing models that consider forward yield curves and discount rates.

The table below details the fair values and carrying values for notes and bonds payable at September 30, ~~2019~~2020 and December 31, ~~2018.~~2019.


	September 30, 2020				December 31, 2019
Dollars in millions	CARRYING VALUE		FAIR VALUE		CARRYING VALUE		FAIR VALUE
Notes and bonds payable 1	$	1,554.4	$	1,621.7	$	1,414.1	$	1,425.8

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

September 30, 2019 December 31, 2018
(Dollars in millions) Carrying Value Fair Value Carrying Value Fair Value
Notes and bonds payable ⁽¹⁾
$ 1,443.9
$ 1,468.5
$ 1,346.0
$ 1,326.5

~~______~~


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

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Disclosure Regarding Forward-Looking Statements

This report and other materials the Company has filed or may file with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made, or to be made, by management of the Company, contain, or will contain, disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could," "budget" and other comparable terms. These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties, including the duration and scope of the COVID-19 pandemic; the impact of the COVID-19 pandemic on occupancy rates for the Company's properties, actions governments take in response to the COVID-19 pandemic, including the introduction of public health measures and other regulations affecting the Company’s properties and the operations of the Company and its tenants; the effects of health and safety measures adopted by the Company and its tenants related to the COVID-19 pandemic; the impact of the COVID-19 pandemic on the operations, business and financial condition of the Company and its tenants; general economic uncertainty in key markets as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth; the status of capital markets, including availability and cost of capital; and the risks described in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, that could significantly affect the Company’s current plans and expectations and future financial condition and results.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports, including, without limitation, estimates and projections regarding the performance of development projects the Company is pursuing.

For a detailed discussion of the Company’s risk factors, please refer to the Company’s filings with the Securities and Exchange Commission, including this report, its Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019, and the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.

COVID-19 Update

In response to the COVID-19 pandemic, 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. 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. Many of these restrictions have been lifted, but could be reimposed. In response to these disruptions, the Company provided some of its tenants with deferred rent arrangements. Through November 2, 2020, the Company has collected more than 99% of second and third quarter 2020 aggregate tenant billings. The Company has collected 96% of total scheduled deferral payments in the third quarter of 2020. In addition, the Company has remaining various forms of rent deferrals outstanding representing approximately $1.2 million, or less than 1% of second and third quarter 2020 aggregate tenant billings. The tenant deferral agreements generally require the deferred amounts to be repaid by the fourth quarter of 2020.

If tenants are unable to timely repay, or repay at all, deferred rent, if they request additional rent deferrals or abatements, decide not to renew leases, or renew leases at lower cash leasing spreads (See “Expiring Leases” below), the impact on the Company’s results of operations and financial condition could be material. In the second quarter of 2020, the Company recognized an approximately $0.7 million general reserve against the deferred rent balance. Following positive collection trends in the third quarter of 2020, the Company released approximately $0.3 million of the general reserve. As of September 30, 2020, the Company had a remaining general reserve of $0.4 million against an approximate $1.7 million deferred rent balance.

Table of Contents

At September 30, 2020, the Company had available $882.6 million in liquidity (See “Sources and Uses of Cash” and “Financing Activities” below) and no significant debt maturities prior to 2023. In addition, the Company has entered into forward equity agreements that have expected proceeds of up to approximately $112.0 million, before the costs of borrowing, that can be settled at the Company's election anytime through October 2021. The COVID-19 pandemic has affected the availability and cost of capital and may continue to do so for some time. Management believes that the Company currently has adequate liquidity to operate its business without significant disruption. However, if the pandemic continues to have an impact on the availability and cost of capital, the Company’s business could be materially affected.

Liquidity and Capital Resources

Sources and Uses of Cash

The Company’s primary sources of cash include rent receipts from its real estate portfolio based on contractual arrangements with its tenants, ~~and sponsors,~~ borrowings under the Company's Unsecured Credit Facility and Term Loan, proceeds from the sales of real estate properties and proceeds from public or private debt or equity offerings.

As of September 30, 2020, the Company had $700.0 million available to be drawn on its Unsecured Credit Facility and $182.6 million in cash and restricted cash. In addition, the Company has entered into forward equity agreements that have expected proceeds of up to approximately $112.0 million, before the costs of borrowing, that can be settled at the Company's election anytime through October 2021.

The Company expects to continue to meet its liquidity needs, including funding additional investments, paying dividends, and funding debt service, through ~~cash on hand,~~ cash flows from operations and the cash flow sources described above. The Company had unencumbered real estate assets with a gross book value of approximately ~~$3.9~~$4.1 billion at September 30, ~~2019,~~2020, of which a portion could serve as collateral for secured mortgage financing. The Company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements. The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.

Investing Activities

Cash flows used in investing activities for the nine months ended September 30, ~~2019~~2020 were approximately ~~$322.5~~$259.9 million. Below is a summary of significant investing activities.

~~2019~~2020 Acquisitions

The following table details the Company's acquisitions for the nine months ended September 30, ~~2019:~~2020:


Dollars in millions	HEALTH SYSTEM AFFILIATION	DATE ACQUIRED	PURCHASE PRICE		SQUARE FOOTAGE	CAP RATE		MILES TO CAMPUS
Los Angeles, CA	MemorialCare Health	1/3/20	$	42.0	86,986	5.3	%	0.14
Atlanta, GA	Wellstar Health System	2/13/20	12.0		64,624	5.6	%	0.10
Raleigh, NC	WakeMed Health	2/25/20	6.3		15,964	6.7	%	0.04
Colorado Springs, CO	None	3/9/20	8.2		34,210	6.5	%	1.60
Denver, CO 1	UCHealth	3/13/20	33.5		136,994	6.1	%	0.24
San Diego, CA	Palomar Health	7/1/20	16.7		46,083	5.9	%	0.04
Los Angeles, CA	Cedars-Sinai/Huntington	7/17/20	35.0		49,785	5.4	%	0.11
Seattle, WA	MultiCare Health System	7/23/20	11.0		21,309	5.6	%	0.06
Atlanta, GA	Wellstar Health System	7/31/20	20.5		48,145	6.2	%	0.13
Houston, TX	Memorial Hermann Health	9/24/20	11.0		40,235	5.6	%	0.03
Los Angeles, CA	Providence St. Joseph Health	9/28/20	14.0		24,252	5.6	%	0.03

Total real estate acquisitions			$	210.2	568,587	5.7	%
Land acquisition 2			1.6		—
Land acquisition 3			1.0		—
			$	212.8	568,587

1Includes three properties.

2The Company acquired land parcels under four existing buildings (previously ground leased with the hospital system).

3The Company acquired a land parcel under an existing building (previously ground leased). The building and land were disposed September 30, 2020.

(Dollars in millions) Health System Affiliation Date
Acquired Purchase Price
Square
Footage
Cap Rate
Miles to Campus
Washington, D.C. ⁽¹⁾
Inova Health 3/28/19 $ 46.0
158,338
5.2 % 0.00
Indianapolis, IN Indiana University Health 3/28/19 47.0
143,499
5.1 % 0.00
Atlanta, GA Piedmont Healthcare 4/2/19 28.0
47,963
5.7 % 0.14
Dallas, TX Baylor Scott & White Health 6/10/19 17.0
89,990
6.2 % 0.01
Seattle, WA MultiCare Health System 6/11/19 7.7
29,870
6.9 % 0.20
Seattle, WA UW Medicine 6/14/19 19.0
47,255
5.8 % 0.27
Seattle, WA UW Medicine 6/28/19 30.5
78,288
5.7 % 0.35
Houston, TX Houston Methodist 8/1/19 13.5
29,903
5.7 % 0.00
Oklahoma City, OK Integris Health 9/26/19 4.1
28,542
6.3 % 0.02
Los Angeles, CA ⁽¹⁾
Huntington Hospital 9/30/19 61.1
115,634
5.2 % 0.05
$ 273.9
769,282
5.5 %

~~______~~


~~(1)~~	~~Includes two properties.~~

Table of Contents

Subsequent ~~Acquisitions~~Acquisition

~~On October 31, 2019, the Company acquired a 48,192 square foot medical office building in Dallas, Texas for a purchase price of $20.1 million.~~

~~Capital Funding~~

~~During the nine months ended September 30, 2019, the Company funded the following:~~

~~$21.6 million toward development and redevelopment of properties;~~

~~$10.9 million toward first generation tenant improvements and planned capital expenditures for acquisitions;~~

~~$16.6 million toward second generation tenant improvements; and~~

~~$12.0 million toward capital expenditures.~~

~~2019~~ 2020Dispositions

The Company disposed of ~~six~~three properties during the nine months ended September 30, ~~2019~~2020 for a total sales price of ~~$15.2~~$249.5 million, including cash proceeds of ~~$14.1~~$249.3 million and ~~$1.1~~$0.2 million of closing costs and related adjustments. The following table details these dispositions for the nine months ended September 30, ~~2019:~~2020:


Dollars in millions	Date Disposed	Sales Price		Square Footage	3Q 2020 NOI		Disposition Cap Rate		Property Type
Springfield, MO	7/30/20	$	138.0	186,000	$	0.8	7.5	%	SF
Oklahoma City, OK	7/30/20	106.5		200,000	0.6		7.5	%	MOB
Miami, FL	9/30/20	5.0		26,000	—		3.9	%	MOB
Total dispositions		$	249.5	412,000	$	1.4	7.4	%

(Dollars in millions) Date Disposed Sales Price Square Footage 3Q 2019 NOI Disposition Cap Rate Property Type (1)
Tucson, AZ ⁽²⁾
4/9/2019 $ 13.0
67,345
NA
6.2 % MOB
Virginia Beach, VA 8/1/2019 1.3
10,000
$ 0.0
12.2 % MOB
San Antonio, TX 8/28/2019 0.9
10,138
0.0
3.0 % MOB
Total dispositions $ 15.2
87,483
$ 0.0
6.5 %
1MOB = Medical office building; SF = Surgical facility

~~______~~


~~(1)~~	~~MOB = Medical office building~~


~~(2)~~	~~Includes three off-campus medical office buildings and one on-campus medical office building sold to a single purchaser.~~

~~Subsequent Disposition~~Capital Funding

~~On October 25, 2019,~~During the nine months ended September 30, 2020, the Company ~~disposed~~funded the following:

•$17.3 million toward development and redevelopment of a 90,123 square foot inpatient rehabilitation facility located in Erie, Pennsylvania following the ground lessor's exercise of a purchase option. The purchase price, determined by an appraisal process, was $14.0properties;

•$14.2 million toward first generation tenant improvements and ~~the Company's net investment in the building as of September 30, 2019 was approximately $1.3 million.~~planned capital expenditures for acquisitions;

•$17.4 million toward second generation tenant improvements; and

•$12.8 million toward capital expenditures.

Financing Activities

Cash flows provided by financing activities for the nine months ended September 30, ~~2019~~2020 were approximately ~~$167.4~~$30.3 million. Inflows from equity related to the Company's common stock issuances and net borrowings totaled ~~$302.5~~$160.5 million, net of issuance costs incurred. Aggregate cash outflows totaled approximately ~~$135.1~~$130.2 million primarily associated with dividends paid to common stockholders. See Notes 4 and 7 to the Condensed Consolidated Financial Statements for more information about capital markets and financing activities.

Common Stock Issuances

On February 14, 2020, the Company entered into sales agreements with six investment banks to allow sales under its at-the-market equity offering program of up to an aggregate of $500.0 million of common stock. The Company sold ~~4,694,624~~1,268,237 shares under the Company's ~~at-the-market~~at-the market equity offering program ~~from January 1, 2019 through October 31, 2019.~~during the nine months ended September 30, 2020. The sales generated ~~$153.7~~$39.9 million in net proceeds at prices to the public ranging from ~~$32.01~~$30.50 to ~~$33.77~~$36.15 per share (weighted average of ~~$33.31~~$31.86 per share). The sales occurred during the following time periods:

~~No shares were sold in~~•During the second ~~quarter.~~

~~During the third~~ quarter of ~~2019,~~2020, the Company sold ~~2,191,522~~1,071,987 shares generating ~~$71.6~~approximately $32.9 million in net proceeds at prices to the public ranging from ~~$32.62~~$30.50 to ~~$33.77~~$31.29 per share (weighted average of ~~$33.15~~$31.08 per share).

~~During October 2019,~~In addition, the Company ~~sold 2,367,837~~ has entered into three forward equity agreements totaling 3.6 million shares ~~generating $78.2 million in net proceeds~~ at ~~prices to~~a weighted average price of $31.30 per share:

Table of Contents

•In the third quarter of 2020, the Company entered into a forward equity agreement for a total of 764,472 shares at a weighted average priceof ~~$33.52~~$31.84 per ~~share).~~share, subject to adjustments as provided in the forward equity agreements. This agreement matures in July 2021.

this filing.

Debt Activity

On March 4, 2020, the Company issued $300.0 million of Senior Notes due 2030 in a registered public offering. The Senior Notes due 2030 bear interest at 2.40%, payable semi-annually on March 15 and September 15, beginning September 15, 2020, and are due on March 15, 2030, unless redeemed earlier by the Company. The notes were issued at a discount of approximately $1.0 million and the Company incurred approximately $2.8 million in debt issuance costs. Concurrent with this transaction, the Company settled two treasury rate locks for $4.3 million. Inclusive of the discount, debt issuance costs and settlement of the treasury rate locks, the effective interest rate was 2.71%. The Senior Notes due 2030 have various financial covenants that are required to be met on a quarterly and annual basis.

On May 29, 2020, the Company borrowed $150.0 million from its unsecured term loan due 2026.

On ~~May 31, 2019,~~June 25, 2020, the Company ~~amended and restated its Unsecured Credit Facility to extend the maturity date from July 2020 to May 2023. Amounts outstanding under the Unsecured Credit Facility bear~~repaid in full three mortgage notes bearing interest at ~~LIBOR plus an applicable margin, which depends on the Company's credit ratings ranging from 0.775% to 1.45% (currently 0.90%). In addition, the Company pays a facility fee~~rates of 5.63%, 6.63% and 6.88% per annum ~~on the aggregate amount~~with outstanding principal of ~~commitments ranging from 0.125% to 0.30% (currently 0.20%). In connection with the amendment, the Company paid up front fees to the lenders~~$0.5 million, $2.8 million, and ~~other costs of approximately $3.5~~$7.0 million, ~~which were capitalized and will be amortized over the term of the Unsecured Credit Facility.~~

~~Also, on May 31, 2019, the Company amended and restated its Term Loan with~~respectively. The mortgage notes encumbered a syndicate of lenders. The amended agreement extended the maturity date of the Company's unsecured term loan due 2022 to May 2024 and increased the loan amount from $150.0 million to $200.0 million. In addition, the amended agreement added a $150.0 million seven-year term loan facility due June 2026. The Term Loan due 2024 bears interest at LIBOR plus an applicable margin ranging from 0.85% to 1.65% (1.00% at September 30, 2019) based upon the Company's unsecured debt ratings. The Term Loan due 2026 has a delayed draw feature that allows the Company up to nine months to draw against the commitments. As of September 30, 2019, no loans were outstanding under the Term Loan due 2026. Loans outstanding under the Term Loan due 2026 will bear interest at a rate equal to LIBOR plus a margin ranging from 1.45% to 2.40% (1.60% at September 30, 2019). Committed amounts that remain undrawn are subject to a ticking fee ranging from 0.125% to 0.30% per annum (0.20% at September 30, 2019). In connection with the amendment, the Company paid up front fees to the lenders of approximately $1.8 million, of which $1.0 million were capitalized and will be amortized over the respective term of the Term Loans and $0.8 million were expensed during the second quarter of 2019.

60,476 square foot property in Minnesota.

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


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

Subsequent Debt Activity

On October 1, 2020, the Company repaid in full a mortgage note payable bearing interest at a rate of 5.47% per annum with an outstanding principal of $4.2 million. The mortgage note encumbered a 40,171 square foot property in Georgia.

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Effective Date Amount Weighted Average Rate Expiration Date
December 18, 2017 $ 25,000
2.18 % December 16, 2022
February 1, 2018 50,000
2.46 % December 16, 2022
May 1, 2019 50,000
2.33 % May 1, 2026
June 3, 2019 50,000
2.13 % May 1, 2026
$ 175,000
2.29 %
On October 2, 2020, the Company issued $300.0 million of Senior Notes due 2031 in a registered public offering. The Senior Notes due 2031 bear interest at 2.05%, payable semi-annually on March 15 and September 15, beginning March 15, 2021, and are due on March 15, 2031, unless redeemed earlier by the Company. The notes were issued at a discount of approximately $2.4 million and the Company incurred approximately $2.8 million in debt issuance costs. Inclusive of the discount and debt issuance costs, the effective interest rate was 2.24%. The Senior Notes due 2031 have various financial covenants that are required to be met on a quarterly and annual basis.

On October 19, 2020, the Company redeemed its Senior Notes due 2023. The aggregate redemption price of $270.5 million consisted of outstanding principal of $250.0 million, accrued interest of $0.1 million, and a "make-whole" amount of approximately $20.4 million for the early extinguishment of debt. The unaccreted discount and unamortized costs on these notes of $1.1 million was written off upon redemption. In October 2020, the Company recognized a loss on early extinguishment of debt of approximately $21.5 million related to this redemption.

Operating Activities

Cash flows provided by operating activities increased from ~~$150.7 million for the nine months ended September 30, 2018 to~~ $158.5 million for the nine months ended September 30, ~~2019.~~2019 to $411.6 million for the nine months ended September 30, 2020. Items impacting cash flows from operations include, but are not limited to, cash generated from property operations, interest payments and the timing related to the payment of invoices and other expenses. Also included in operating cash flows was approximately $244.4 million of proceeds from the dispositions of sale-type lease properties.

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

Off-Balance Sheet Arrangements

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

New Accounting Pronouncements

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

Trends and Matters Impacting Operating Results

Management monitors factors and trends important to the Company and the REIT industry to gauge the potential impact on the operations of the Company. In addition to the matters discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, below are some of the factors and trends that management believes may impact future operations of the Company.

COVID-19 Pandemic

For information on the ways that the COVID-19 pandemic is impacting the Company and its tenants, see "COVID-19 Update" above.

Expiring Leases

The Company expects that approximately 15% to 20% of the leases in its multi-tenanted portfolio will expire each year in the ordinary course of business. There are ~~204~~211 leases totaling ~~0.7~~0.8 million square feet in the Company's multi-tenant portfolio that will expire during the remainder of ~~2019.~~2020. Approximately ~~95%~~85% of the leases expiring in ~~2019~~2020 are in buildings located on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area. The Company typically expects to retain 75% to 90% of multi-tenant property tenants upon expiration, and the retention ratio for the first nine months of the year has been within this range.

~~Included~~Previously included in the ~~2019~~2020 lease expirations ~~is a lease for~~was a 111,000 square foot fitness center ~~with~~leased by Baylor Scott & White ~~that has been extended for an additional 90 days to December 31, 2019. This~~Health. The fitness center is located in a 217,000 square foot on-campus medical office building. A new operator, Cowboys Fit, executed an approximately 14-year lease for a reconfigured 52,000 square foot fitness center.

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Baylor has executed a temporary lease at a reduced rental rate to continue to operate the existing fitness center until the construction of the new center is complete. Once the Baylor lease expires, the remaining 59,000 square feet is expected to be redeveloped into clinical space. In addition, the Company plans to upgrade the common areas, bathrooms, and the exterior of the building.

Previously included in the 2020 lease expirations was the July 31 expiration of a 62,000 square foot office lease. A telecommunication company occupied three floors of a 145,000 square foot office building and vacated upon expiration of the lease. The Company ~~is currently in~~recognized revenue of approximately $0.1 million related to this lease ~~negotiations with a fitness center operator for approximately half of the space and is exploring options to convert any remaining space to clinical use.~~

~~The Company had two single-tenant net leased, on-campus inpatient rehabilitation facilities with lease terms that expired~~ in the third quarter of ~~2019.~~2020. The ~~tenant exercised~~Company intends to reposition the property, converting the vacated space from full floor to multi-tenant configurations. The Company has begun marketing the space and has executed a ~~five-year renewal for one of these facilities at~~10,000 square foot lease.

The Company had an 83,000 square foot, single-tenant net leased, on-campus medical office building with a lease rate 7.6% greater than the previous lease rate. The other facility was sold to the ground lessor on October 25, 2019, as a result of its exercise of a purchase option, at a price of $14.0 million. Rent from this property represented 0.8% of total cash net operating income ("NOI") for the trailing twelve months ended September 30, 2019.

~~Property Operating Agreement Expirations~~

On February 28, 2019, the Company’s remaining property operating agreement between the Company and a sponsoring health system expired. This agreement contractually obligated the sponsoring health system to provide to the Company a minimum return on the Company’s investmentterm that expired in the ~~property in exchange for the right to be involved in the operating decisions~~second quarter of the property, including tenancy. If the minimum return was not achieved through normal operations of the property, the Company calculated and accrued to property lease guaranty revenue, each quarter, any shortfalls due from the sponsor under the terms of the property operating agreement.2020. The Company ~~recognized $0.1 million~~has been in ~~property~~discussions about a long-term lease ~~guaranty revenue during~~renewal, but given the ~~first quarter of 2019 related~~COVID-19 pandemic, executed a 6-month extension through December 31, 2020 to ~~this~~allow more time to finalize a long-term lease agreement.

Operating Expenses

The Company has historically experienced increases in property taxes throughout its portfolio as a result of increasing assessments and tax rates levied across the country. The Company continues its efforts to appeal property tax increases and manage the impact of the increases. In addition, the Company has historically incurred variability in portfolio utilities expense based on seasonality, with the first and third quarters usually reflecting greater amounts. The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement. As of September 30, ~~2019,~~2020, leases for ~~88%~~89% of the Company's multi-tenant leased square footage allow for some recovery of operating expenses, with ~~32%~~31% having modified gross lease structures and ~~56%~~58% having net lease structures.

Purchase Options

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


	NUMBER OF PROPERTIES		GROSS REAL ESTATE INVESTMENT AS OF SEPTEMBER 30, 2020
YEAR EXERCISABLE	MOB	INPATIENT	FAIR MARKET VALUE METHOD 1		NON FAIR MARKET VALUE METHOD 2		TOTAL
Current 3	3	1	$	96,865	$	—	$	96,865
2021	1	—	—		14,984		14,984
2022	—	—	—		—		—
2023	—	—	—		—		—
2024	—	—	—		—		—
2025	4	—	48,165		19,459		67,624
2026	—	—	—		—		—
2027	—	—	—		—		—
2028	1	—	43,961		—		43,961
2029	1	—	26,494		—		26,494
2030 and thereafter	4	—	101,118		—		101,118
Total	14	1	$	316,603	$	34,443	$	351,046

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

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

3These purchase options have been exercisable for an average of 12.1 years.

Number of Properties Gross Real Estate Investment as of September 30, 2019
Year Exercisable MOB Inpatient
Fair Market Value Method ⁽¹⁾

Non Fair Market Value Method ⁽²⁾

Total
Current ⁽³⁾
3
1
$ 95,921
$ —
$ 95,921
2020 —
—
—
—
—
2021 1
—
—
14,984
14,984
2022 —
—
—
—
—
2023 —
—
—
—
—
2024 —
—
—
—
—
2025 5
1
47,986
221,929
269,915
2026 —
—
—
—
—
2027 —
—
—
—
—
2028 1
—
43,904
—
43,904
2029 and thereafter 5
—
125,963
—
125,963
Total 15
2
$ 313,774
$ 236,913
$ 550,687

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~~(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. These properties have purchase prices that are on average 17% greater than the Company's current gross investment.


~~(3)~~	~~These purchase options have been exercisable for an average of 11.1 years.~~

Non-GAAP Financial Measures and Key Performance Indicators

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

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

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

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

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

Management believes FFO, Normalized FFO, FFO per share, Normalized FFO per share and FAD ("Non-GAAP Measures") provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, primarily depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization, impairments and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, Non-GAAP Measures can facilitate comparisons of operating performance between periods. The Company reports Non-GAAP Measures because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs. For these reasons, management deems it appropriate to disclose and discuss these Non-GAAP Measures. However, none of these measures represent cash generated from operating activities determined in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs. Further, these measures should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow from operating activities as a measure of liquidity. The table below reconciles net income to FFO, Normalized FFO and FAD for the three and nine months ended September 30, 2020 and 2019.

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	THREE MONTHS ENDED SEPTEMBER 30,				NINE MONTHS ENDED SEPTEMBER 30,
Amounts in thousands, except per share data	2020		2019		2020		2019
Net income	$	8,230	$	2,601	$	88,058	$	11,975
(Gain) on sales of real estate assets	(2,177)		(200)		(70,395)		(5,065)
Impairment of real estate assets	—		—		—		5,610
Real estate depreciation and amortization	48,295		45,926		145,564		133,993
FFO attributable to common stockholders	$	54,348	$	48,327	$	163,227	$	146,513
Acquisition and pursuit costs 1	440		501		1,621		1,227
Lease intangible amortization	(35)		5		694		143
Accelerated Stock Awards	—		2,854		—		2,854
Debt financing costs	—		—		—		760
Normalized FFO attributable to common stockholders	$	54,753	$	51,687	$	165,542	$	151,497
Non-real estate depreciation and amortization	785		838		2,430		2,430
Non-cash interest expense amortization 2	934		727		2,715		2,136
Provision for bad debt, net	(144)		(32)		718		43
Straight-line rent, net	(535)		(379)		(1,577)		(650)
Stock-based compensation 3	2,445		2,375		7,449		7,386
Normalized FFO adjusted for non-cash items	$	58,238	$	55,216	$	177,277	$	162,842
2nd generation TI	(5,323)		(6,114)		(17,368)		(16,564)
Leasing commissions paid	(1,999)		(2,697)		(7,081)		(6,359)
Capital additions	(4,580)		(3,543)		(12,827)		(11,998)
FAD	$	46,336	$	42,862	$	140,001	$	127,921
FFO per common share - diluted	$	0.40	$	0.37	$	1.21	$	1.15
Normalized FFO per common share - diluted	$	0.41	$	0.40	$	1.23	$	1.19
FFO weighted average common shares outstanding - diluted 4	135,159		129,015		134,537		127,424

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

2Includes the amortization of deferred financing costs, discounts and premiums.

3The Company's former Executive Chairman, David R. Emery, died on September 30, 2019 resulting in a $2.9 million charge for the acceleration of his outstanding nonvested share-based awards and ~~2018:~~

Three Months Ended September 30, Nine Months Ended September 30,
(Amounts in thousands, except per share data) 2019 2018 2019 2018
Net Income $ 2,601
$ 6,548
$ 11,975
$ 53,456
Gain on sales of real estate assets (200 ) (1,288 ) (5,065 ) (30,879 )
Impairment of real estate assets —
—
5,610
—
Real estate depreciation and amortization 45,926
42,723
133,993
123,475
Total adjustments 45,726
41,435
134,538
92,596
FFO Attributable to Common Stockholders $ 48,327
$ 47,983
$ 146,513
$ 146,052
Acquisition and pursuit costs ⁽¹⁾
501
141
1,227
538
Lease intangible amortization ⁽²⁾
5
—
143
—
Accelerated stock awards ⁽³⁾
2,854
70
2,854
70
Forfeited earnest money received —
—
—
(466 )
Debt financing costs —
—
760
—
Normalized FFO Attributable to Common Stockholders $ 51,687
$ 48,194
$ 151,497
$ 146,194
Non-real estate depreciation and amortization 838
845
2,430
2,494
Non-cash interest expense amortization ⁽⁴⁾
727
661
2,136
1,959
Provision for bad debt, net (32 ) (62 ) 43
42
Straight-line rent, net (379 ) (413 ) (650 ) (2,426 )
Stock-based compensation 2,375
2,605
7,386
8,020
Normalized FFO adjusted for non-cash items $ 55,216
$ 51,830
$ 162,842
$ 156,283
2nd generation TI (6,114 ) (6,950 ) (16,564 ) (20,572 )
Leasing commissions paid (3,017 ) (1,139 ) (7,101 ) (4,937 )
Capital additions (3,543 ) (6,229 ) (11,998 ) (17,530 )
FAD $ 42,542
$ 37,512
$ 127,179
$ 113,244
FFO per Common Share—Diluted $ 0.37
$ 0.39
$ 1.15
$ 1.18
Normalized FFO per Common Share—Diluted $ 0.40
$ 0.39
$ 1.19
$ 1.18
FFO weighted average common shares outstanding - Diluted ⁽⁵⁾
129,015
124,192
127,424
124,051

~~_____~~associated taxes.


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

~~(2)~~

The Company adopted the 2018 NAREIT FFO White Paper Restatement during the first quarter of 2019. This amended definition specifically includes the impact of acquisition related market lease intangible amortization in the calculation of NAREIT FFO. The Company historically included this amortization in the real estate depreciation and amortization line item which is added back in the calculation of NAREIT FFO. Prior periods were not restated for the adoption.


~~(3)~~	The Company's former Executive Chairman, David R. Emery, died on September 30, 2019 resulting in a $2.9 million charge for the acceleration of his outstanding nonvested share-based awards and associated taxes. The third quarter of 2018 includes a revaluation adjustment recorded in connection with an officer retirement.


~~(4)~~	~~Includes the amortization of deferred financing costs, discounts and premiums.~~


~~(5)~~	The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 846,327 and 839,883 and 767,479 and 715,491, respectively, for the three and nine months ended September 30, 2019 and 2018.

4The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 801,382 and 800,370, respectively for the three and nine months ended September 30, 2020.

Cash NOI and Same Store Cash NOI

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

Same Store Cash NOI compares Cash NOI for stabilized properties. Stabilized properties are properties that have been included in operations for the duration of the year-over-year comparison period presented and include redevelopment projects. Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale, reposition properties and newly developed properties. The Company utilizes the reposition classification for properties experiencing a shift in strategic direction. Such a shift can occur for a variety of reasons, including a substantial change in the use of the asset, a change in strategy or closure of a neighboring hospital, or significant property damage. Such properties may require enhanced management, leasing, capital needs or a disposition strategy that differs from the rest of the portfolio. To identify properties exhibiting these reposition characteristics, the Company applies the following Company-defined criteria:

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

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

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•Properties with negative net operating income that is expected to last at least two quarters.

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

During the third quarter of 2020, the Company's reposition pool increased by one property to a total of 11 properties. Two properties were reclassified from reposition to held for sale, two properties were reclassified into reposition pursuant to the Company-defined criteria outlined above and one property that is undergoing a shift in strategic direction as a significant portion of the building is being repurposed from fitness space to clinical space was reclassified from same store to reposition . This 217,000 square foot on-campus medical office building included a 111,000 square foot fitness center previously leased by Baylor Scott & White Health. A new operator, Cowboys Fit, executed an approximately 14-year lease for a reconfigured 52,000 square foot fitness center. Baylor has executed a temporary lease for the remaining 59,000 square feet at a reduced rental rate to continue to operate the existing fitness center until the construction of the new center is complete. Once the Baylor lease expires, the remaining 59,000 square feet is expected to be redeveloped into clinical space. In addition, the Company plans to upgrade the common areas, bathrooms, and the exterior of the building.

The following table reflects the Company's same store cash NOI for the three months ended September 30, ~~2019~~2020 and ~~2018.~~

2019.

Same Store Cash NOI for the
Three Months Ended September 30,
(Dollars in thousands) Number of Properties Gross Investment at September 30, 2019 2019 2018
Multi-tenant Properties 149
$ 3,004,110
$ 54,128
$ 52,898
Single-tenant Net Lease Properties 14
461,845
10,471
10,327
Total 163
$ 3,465,955
$ 64,599
$ 63,225


	NUMBER OF PROPERTIES	GROSS INVESTMENT at September 30, 2020		SAME STORE CASH NOI for the three months ended September 30,
Dollars in thousands	NUMBER OF PROPERTIES	GROSS INVESTMENT at September 30, 2020		2020		2019
Multi-tenant properties	156	$	3,237,143	$	57,663	$	56,317
Single-tenant net lease properties	12	257,229		6,033		5,870
Total	168	$	3,494,372	$	63,696	$	62,187

The following tables reconcile net income to same store NOI and the same store property metrics to the total owned real estate portfolio for the three months ended September 30, ~~2019~~2020 and ~~2018:~~2019:

Reconciliation of Same Store Cash NOI:
Three Months Ended September 30,
(Dollars in thousands) 2019 2018
Net income $ 2,601
$ 6,548
Other income (expense) 13,981
12,135
General and administrative expense 10,802
8,504
Depreciation and amortization expense 45,137
42,061
Other expenses⁽¹⁾
2,462
1,855
Straight-line rent revenue (770 ) (802 )
Other revenue⁽²⁾
(1,608 ) (1,173 )
Cash NOI 72,605
69,128
Cash NOI not included in same store (8,006 ) (5,903 )
Same store cash NOI 64,599
63,225
Reposition NOI 222
361
Same store and reposition cash NOI $ 64,821
$ 63,586

~~_____~~


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


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

Reconciliation of Same Store Cash NOI


	THREE MONTHS ENDED SEPTEMBER 30,
Dollars in thousands	2020		2019
Net income	$	8,230	$	2,601


Other income (expense)	11,969		13,981
General and administrative expense	7,299		10,802
Depreciation and amortization expense	47,143		45,137
Other expenses 1	2,737		2,462
Straight-line rent revenue	(915)		(770)
Other revenue 2	(3,062)		(1,726)
Cash NOI	73,401		72,487
Cash NOI not included in same store	(9,705)		(10,300)
Same store cash NOI	63,696		62,187
Reposition NOI	1,358		1,660
Same store and reposition cash NOI	$	65,054	$	63,847

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

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

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Reconciliation of Same Store Properties:
As of September 30, 2019
Property Count Gross Investment Square Feet Occupancy
Same store properties 163
$ 3,465,955
12,928,142
88.8 %
Acquisitions 30
637,827
1,935,189
90.1 %
Reposition 11
84,728
567,252
36.0 %
Total owned real estate properties 204
$ 4,188,510
15,430,583
87.0 %
Reconciliation of Same Store Properties


	AS OF SEPTEMBER 30, 2020
	PROPERTY COUNT	GROSS INVESTMENT		SQUARE FEET	OCCUPANCY
Same store properties	168	$	3,494,372	12,795,403	88.4	%
Acquisitions	31	647,974		1,667,990	91.4	%
Development completions	1	51,889		151,031	60.5	%
Reposition	11	142,381		859,004	62.1	%
Total owned real estate properties	211	$	4,336,616	15,473,428	87.0	%

Results of Operations

Three Months Ended September 30, ~~2019~~2020 Compared to Three Months Ended September 30, ~~2018~~2019

The Company’s results of operations for the three months ended September 30, ~~2019~~2020 compared to the same period in ~~2018~~2019 were impacted by acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Revenues

Total revenues increased ~~$6.3~~$5.5 million, or ~~5.6%~~4.6%, to approximately ~~$119.8~~$125.3 million for the three months ended September 30, ~~2019~~2020 compared to ~~$113.5~~$119.8 million in the prior year period. This increase is comprised of the following:

Three Months Ended September 30, Change
(Dollars in thousands) 2019 2018 $ %
Property operating $ 105,805
$ 99,367
$ 6,438
6.5 %
Single-tenant net lease 11,165
11,283
(118 ) (1.0 )%
Straight-line rent 770
802
(32 ) (4.0 )%
Rental income 117,740
111,452
6,288
5.6 %
Other operating 2,059
2,010
49
2.4 %
Total Revenues $ 119,799
$ 113,462
$ 6,337
5.6 %


	THREE MONTHS ENDED SEPTEMBER 30,				CHANGE
Dollars in thousands	2020		2019		$		%
Property operating	$	114,921	$	105,805	$	9,116	8.6	%
Single-tenant net lease	7,548		11,165		(3,617)		(32.4)	%
Straight-line rent	915		770		145		18.8	%
Rental income	123,384		117,740		5,644		4.8	%
Other operating	1,868		2,059		(191)		(9.3)	%
Total revenues	$	125,252	$	119,799	$	5,453	4.6	%

Property operating revenue increased ~~$6.4~~$9.1 million, or ~~6.5%~~8.6%, from the prior year period primarily as a result of the following activity:

•Acquisitions in ~~2018~~2019 and ~~2019~~2020 contributed ~~$5.2~~$7.4 million.

•A development completed in 2020 contributed $0.8 million.

•Leasing activity, including contractual rent increases, contributed ~~$2.5~~$1.4 million.

•Dispositions in ~~2018~~2019 and ~~2019~~2020 resulted in a decrease of ~~$1.3~~$0.5 million.

Single-tenant net lease revenue decreased ~~$0.1~~$3.6 million, or ~~1.0%~~32.4%, from the prior year period primarily as a result of the following activity:

•Dispositions in ~~2018~~2019 and 2020 resulted in a decrease of ~~$0.3~~$3.8 million.

•An acquisition in 2020 contributed $0.1 million.

•Leasing activity ~~including contractual rent increases,~~ contributed ~~$0.2~~$0.1 million.

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Straight-line rent revenue ~~was consistent with~~increased $0.1 million or 18.8% from the prior year period primarily as a result of the following activity:

•Acquisitions in ~~2018~~2019 and ~~2019~~2020 contributed ~~$0.3~~$0.4 million.

•A development completed in 2020 contributed $0.1 million.

•Leasing, ~~activity and~~including contractual rent increases, resulted in a decrease of $0.3 million.

•Dispositions in 2019 and 2020 resulted in a decrease of $0.1 million.

Other operating income decreased $0.2 million or 9.3% from the prior year period primarily due to a reduction in variable parking revenue.

Expenses

Property operating expenses increased ~~$2.6~~$3.4 million, or ~~6.0%~~7.3%, for the three months ended September 30, ~~2019~~2020 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in ~~2018~~2019 and ~~2019~~2020 resulted in an increase of ~~$2.3~~$3.1 million.

~~Maintenance and repair expense~~•A development completed in 2020 resulted in an increase of ~~$0.4~~$0.2 million.

•Increases in portfolio operating expenses as follows:

•Portfolio property tax ~~increased $0.4 million.~~expense of $0.6 million;

•Janitorial expenses of $0.2 million; and

•Portfolio insurance expense ~~increased $0.2~~of $0.1 million.

•Maintenance and repair expense decreased $0.3 million.

•Utilities expense decreased $0.1 million.

•Dispositions in ~~2018~~2019 and ~~2019~~2020 resulted in a decrease of ~~$0.7~~$0.4 million.

General and administrative expenses ~~increased~~decreased approximately ~~$2.3~~$3.5 million, or ~~27.0%~~32.4%, for the three months ended September 30, ~~2019~~2020 compared to the prior year period primarily as a result of the ~~following:~~following activity:

•The Company's former Executive Chairman, David R. Emery, died on September 30, 2019 resulting in a $2.9 million charge for the three months ended September 30, 2019 because of the acceleration of his outstanding nonvested share-based awards and associated taxes.

~~Office rent decreased $0.3 million due to the acquisition~~•Decrease in performance-based awards of ~~the Company's headquarters.~~approximately $0.2 million.

~~Compensation~~•Decrease in travel expense ~~decreased $0.3~~of $0.4 million.

Depreciation and amortization expense increased ~~$3.1~~$2.0 million, or ~~7.3%~~4.4%, for the three months ended September 30, ~~2019~~2020 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in ~~2018~~2019 and ~~2019~~2020 and a development in 2020 resulted in an increase of ~~$3.4~~$4.2 million.

•Various building and tenant improvement expenditures resulted in an increase of ~~$2.6~~$2.8 million.

•Dispositions in ~~2018~~2019 and ~~2019~~2020 resulted in a decrease of ~~$1.5~~$1.6 million.

•Assets that became fully depreciated resulted in a decrease of ~~$1.4~~$3.4 million.

Other income ~~(expense)~~(Expense)

Gains on sale of real estate properties

In the third quarter of 2020, the Company recognized a gain of approximately $2.2 million on the sale of one property.

In the third quarter of 2019, the Company recognized gains of approximately $0.2 million on the sale of two properties.

Interest expense

~~In the third quarter~~

Table of ~~2018, the Company recorded gains of approximately $1.3 million on the sale of one property.~~Contents

Interest expense ~~increased $0.7 million, or 5.3%,~~did not change significantly for the three months ended September 30, ~~2019~~2020 compared to the prior year period. The components of interest expense are as follows:

Three Months Ended September 30, Change
(Dollars in thousands) 2019 2018 $ %
Contractual interest $ 13,605
$ 13,016
$ 589
4.5 %
Net discount/premium accretion 72
8
64
800.0 %
Deferred financing costs amortization 613
611
2
0.3 %
Interest rate swap amortization 42
42
—
— %
Interest cost capitalization (347 ) (213 ) (134 ) 62.9 %
Right-of-use assets financing amortization 196
—
196
— %
Total interest expense $ 14,181
$ 13,464
$ 717
5.3 %


	THREE MONTHS ENDED SEPTEMBER 30,				CHANGE
Dollars in thousands	2020		2019		$		%
Contractual interest	$	13,182	$	13,605	$	(423)	(3.1)	%
Net discount/premium accretion	102		72		30		41.7	%
Deferred financing costs amortization	683		613		70		11.4	%
Interest rate swap amortization	42		42		—		—	%
Treasury hedge amortization	107		—		107		—	%
Interest cost capitalization	(207)		(347)		140		(40.3)	%
Right-of-use assets financing amortization	245		196		49		25.0	%
Total interest expense	$	14,154	$	14,181	$	(27)	(0.2)	%

Contractual interest expense ~~increased $0.6~~decreased $0.4 million, or ~~4.5%~~3.1%, primarily due to the following activity:

•The ~~Unsecured Credit Facility balance~~Senior Notes due 2030 accounted for an increase of $1.8 million.

•The Term Loan due 2024 and the initial funding of the Term Loan due 2026, net of swaps, accounted for an increase of approximately ~~$0.5~~$0.4 million.

•The ~~Term Loan due 2024 balance~~Unsecured Credit Facility principal and ~~interest~~ rate ~~increase accounted for an increase of $0.5 million.~~

~~Mortgage notes repayments~~decreases accounted for a decrease of approximately ~~$0.4~~$2.3 million.

~~Results of Operations~~

•Mortgage note assumptions and repayments accounted for a net decrease of $0.3 million.

Nine Months Ended September 30, ~~2019~~2020 Compared to Nine Months Ended September 30, ~~2018~~2019

The Company’s results of operations for the nine months ended September 30, ~~2019~~2020 compared to the same period in ~~2018~~2019 were impacted by acquisitions, developments, dispositions, gains on sale, ~~impairments recorded~~ and capital markets transactions.

Revenues

Total revenues increased ~~$11.6~~$25.0 million, or ~~3.4%~~7.2%, to approximately ~~$348.8~~$373.7 million for the nine months ended September 30, ~~2019~~2020 compared to ~~$337.2~~$348.8 million in the prior year period. This increase is comprised of the following:

Nine Months Ended September 30, Change
(Dollars in thousands) 2019 2018 $ %
Property operating $ 307,606
$ 291,079
$ 16,527
5.7 %
Single-tenant net lease 33,348
36,569
(3,221 ) (8.8 )%
Straight-line rent 1,833
3,599
(1,766 ) (49.1 )%
Rental income 342,787
331,247
11,540
3.5 %
Other operating 5,987
5,973
14
0.2 %
Total Revenues $ 348,774
$ 337,220
$ 11,554
3.4 %


	NINE MONTHS ENDED SEPTEMBER 30,				CHANGE
Dollars in thousands	2020		2019		$		%
Property operating	$	337,144	$	307,606	$	29,538	9.6	%
Single-tenant net lease	28,519		33,348		(4,829)		(14.5)	%
Straight-line rent	2,722		1,833		889		48.5	%
Rental income	368,385		342,787		25,598		7.5	%
Other operating	5,364		5,987		(623)		(10.4)	%
Total revenues	$	373,749	$	348,774	$	24,975	7.2	%

Property operating revenue increased ~~$16.5~~$29.5 million, or ~~5.7%~~9.6%, from the prior year period primarily as a result of the following activity:

•Acquisitions in ~~2018~~2019 and ~~2019~~2020 contributed ~~$12.3~~$24.5 million.

•A development completed in 2020 contributed $1.6 million.

•Leasing activity, including contractual rent increases, contributed ~~$7.8~~$5.6 million.

•Dispositions in ~~2018~~2019 and ~~2019~~2020 resulted in a decrease of ~~$3.6~~$2.2 million.

Single-tenant net lease revenue decreased ~~$3.2~~$4.8 million, or ~~8.8%~~14.5%, from the prior year period primarily as a result of the following activity:

•Dispositions in ~~2018~~2019 and 2020 resulted in a decrease of ~~$4.0~~$5.2 million.

•Leasing activity, including contractual ~~rent~~ increases, contributed ~~$0.8~~$0.4 million.

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Straight-line rent revenue ~~decreased $1.8~~increased $0.9 million or ~~49.1%,~~48.5% from the prior year period primarily asdue to acquisitions in 2019 and 2020 and a ~~result of~~development in 2020 totaling $1.2 million, partially offset by 2019 and 2020 dispositions totaling $0.3 million.

Other operating income decreased $0.6 million or 10.4% from the ~~following activity:~~

~~Acquisitions~~prior year period primarily due to a reduction in ~~2018 and 2019 contributed $0.6 million.~~

~~Dispositions in 2018 and 2019 resulted in a decrease of $0.1 million.~~

~~Leasing activity and contractual rent increases resulted in a decrease of $2.3 million.~~

variable parking revenue.

Expenses

Property operating expenses increased ~~$6.1~~$12.5 million, or ~~4.8%~~9.4%, for the nine months ended September 30, ~~2019~~2020 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in ~~2018~~2019 and ~~2019~~2020 resulted in an increase of ~~$5.7~~$10.8 million.

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

•Increases in portfolio operating expenses as follows:

•Portfolio property tax ~~increased $1.6 million.~~expense of $1.9 million;

~~Maintenance and repair expense increased $1.0 million.~~•Compensation related expenses of $0.3 million;

•Administration and legal fees of $0.3 million;

•Portfolio insurance expense ~~increase $0.8~~of $0.5 million;

•Portfolio security expense of $0.3 million; and

•Portfolio janitorial expense of $0.2 million.

•Utilities expense ~~decreased $0.9 million.~~

~~Dispositions in 2018 and 2019~~ resulted in a decrease of ~~$2.1~~$0.6 million.

•Maintenance and repair expense resulted in a decrease of $0.6 million.

•Increase in intangible amortization expense totaling $0.7 million.

•Dispositions in 2019 and 2020 resulted in a decrease of $1.7 million.

General and administrative expenses ~~increased~~decreased approximately ~~$1.2~~$3.7 million, or ~~4.5%~~13.5%, for the nine months ended September 30, ~~2019~~2020 compared to the prior year period primarily ~~as a result of the following:~~due to travel expense.

•The Company's former Executive Chairman, David R. Emery, died on September 30, 2019 resulting in a $2.9 million charge for the nine months ended September 30, 2019 because of the acceleration of his outstanding nonvested share-based awards and associated taxes.

~~Compensation~~•Decrease in incentive-based awards of approximately $0.6 million.

•Decrease in travel expense ~~increased $0.2~~of $0.6 million.

~~Performance-based~~•Increase in compensation expense ~~resulted in a decrease~~ of ~~$0.9~~approximately $0.4 million.

~~Office rent decreased $0.7 million as a result of the acquisition of the Company's headquarters.~~

~~Other net decreases, including telecommunication lines, travel and other administrative, of $0.3 million.~~

Depreciation and amortization expense increased ~~$10.0~~$10.6 million, or ~~8.2%~~8.1%, for the nine months ended September 30, ~~2019~~2020 compared to the prior year period primarily as a result of the following activity:

•Acquisitions in ~~2018~~2019 and ~~2019~~2020 and a development in 2020 resulted in an increase of ~~$9.1~~$15.3 million.

•Various building and tenant improvement expenditures resulted in an increase of ~~$8.2~~$7.8 million.

•Dispositions in ~~2018~~2019 and ~~2019~~2020 resulted in a decrease of ~~$3.5~~$3.7 million.

•Assets that became fully depreciated resulted in a decrease of ~~$3.8~~$8.8 million.

Other income (expense)

~~For~~Gains on sale of real estate properties

Gains on sale of real estate properties totaling approximately $70.4 million and $5.1 million are associated with the three and six real estate properties during 2020 and 2019, respectively.

Interest expense

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Interest expense increased $0.9 million, or 2.3%, for the nine months ended September 30, 2020 compared to the prior year period. The components of interest expense are as follows:


	NINE MONTHS ENDED SEPTEMBER 30,				CHANGE
Dollars in thousands	2020		2019		$		%
Contractual interest	$	40,031	$	40,091	$	(60)	(0.1)	%
Net discount/premium accretion	358		174		184		105.7	%
Deferred financing costs amortization	2,003		1,835		168		9.2	%
Interest rate swap amortization	126		126		—		—	%
Treasury hedge amortization	229		—		229		—	%
Interest cost capitalization	(913)		(999)		86		(8.6)	%
Right-of-use assets financing amortization	722		392		330		84.2	%
Total interest expense	$	42,556	$	41,619	$	937	2.3	%

Contractual interest expense decreased $0.1 million, or 0.1%, primarily due to the following activity:

•Senior Notes due 2030 accounted for an increase of approximately $3.9 million.

•The Term Loan due 2024 and the initial funding of the Term Loan due 2026, net of swaps, accounted for an increase of approximately $1.2 million.

•The Unsecured Credit Facility principal and rate decrease accounted for a decrease of approximately $4.7 million.

•Mortgage note assumptions and repayments accounted for a net decrease of $0.5 million.

Impairment of real estate assets

Impairment of real estate assets totaling approximately $5.6 million is associated with the sales of two real estate properties during 2019.

Interest and other income (expense)

In 2019, the Company recorded gains of approximately $5.1 million on the sale of six properties. For the nine months ended September 30, 2018, the Company recorded gains of approximately $30.9 million on the sale of 13 properties including a gain recognized on the non-monetary exchange in the second quarter of 2018.

~~In the second quarter of 2019, the Company recorded $5.6 million of impairment charges related to two properties.~~

~~In the second quarter of 2019, the Company recorded~~expensed approximately $0.8 million of debt issuance costs as a result of the Term Loan ~~modifications. See Note 4 to the Company's Condensed Consolidated Financial Statements for additional information regarding the Term Loan~~ modification.

~~In the first quarter of 2018, the Company recorded $0.5 million of other income related to the termination fee of a purchase and sale agreement.~~

~~Interest expense increased $2.4 million, or 6.2%, for the nine months ended September 30, 2019 compared to the prior year period. The components of interest expense are as follows:~~

Nine Months Ended September 30, Change
(Dollars in thousands) 2019 2018 $ %
Contractual interest $ 40,091
$ 37,927
2,164
5.7 %
Net discount/premium accretion 175
10
165
1,650.0 %
Deferred financing costs amortization 1,834
1,823
11
0.6 %
Interest rate swap amortization 126
126
—
— %
Interest cost capitalization (999 ) (684 ) (315 ) 46.1 %
Right-of-use assets financing amortization 392
—
392
— %
Total interest expense $ 41,619
$ 39,202
$ 2,417
6.2 %

~~Contractual interest expense increased $2.2 million, or 5.7%, primarily due to the following activity:~~

~~The Unsecured Credit Facility balance and interest rate increases accounted for an increase of approximately $2.2 million.~~

~~The Term Loan due 2024 balance and interest rate increases accounted for an increase of $0.9 million.~~

~~Mortgage notes repayments accounted for a decrease of approximately $0.9 million.~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk in the form of changing interest rates on its debt and mortgage notes. Management uses regular monitoring of market conditions and analysis techniques to manage this risk. During the nine months ended September 30, ~~2019,~~2020, there were no material changes in the quantitative and qualitative disclosures about market risks presented in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

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Changes in Internal Control over Financial Reporting

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

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PART ~~II—~~II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

In addition to the other information set forth in this report, an investor should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, and the Company's quarterly reports on the Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 which could materially affect the Company’s business, financial condition or future results. The risks, as described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, and the Company's quarterly reports on the Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems immaterial also may materially, adversely affect the Company’s business, financial condition, operating results or cash flows.

The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition.

The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.

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. 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. Many of these restrictions were lifted during the second quarter of 2020, but could be reimposed.

Through November 2, 2020, the Company has collected more than 99% of second and third quarter 2020 aggregate tenant billings. The Company has collected 96% of total scheduled deferral payments in the third quarter of 2020. In addition, the Company has remaining various forms of rent deferrals outstanding representing approximately $1.2 million, or less than 1% of second and third quarter 2020 aggregate tenant billings.

The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. There can be no assurance that conditions in the bank lending, capital and other financial markets will not continue to deteriorate as a result of the pandemic, or that the Company's access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings. In addition, the deterioration of economic conditions as a result of the pandemic may ultimately decrease occupancy levels and average rent per square foot across the Company's portfolio as tenants reduce or defer their spending.

The extent of the COVID-19 pandemic’s effect on the Company's operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, all of which are uncertain and difficult to predict. Due to the speed with which the situation is developing, the Company is not able at this time to estimate the effect of these factors on its business, but the adverse impact on the business, results of operations,

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financial condition and cash flows could be material. Moreover, many risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.

Settlement provisions contained in a forward equity agreement could result in substantial dilution to the Company's earnings per share and return on equity or result in substantial cash payment obligations.

The Company has outstanding forward equity agreements and may enter into additional forward equity agreements in the future. Forward equity agreements typically provide that the relevant forward purchaser will have the right to accelerate that particular forward equity agreement (with respect to all or any portion of the transaction under that particular forward equity agreement that the relevant forward purchaser determines is affected by such event) and require us to settle on a date specified by the relevant forward purchaser if:

•the relevant forward purchaser is unable to establish, maintain or unwind its hedge position with respect to that particular forward equity agreement;

•a termination event occurs as a result of us declaring a dividend or distribution on our common stock with a cash value in excess of a specified amount per calendar quarter, or with an ex-dividend date prior to the anticipated ex-dividend date for such cash dividend;

•an extraordinary event (as such term is defined in that particular forward equity agreement and which includes certain mergers and tender offers and the delisting of our common stock) occurs or our board of directors votes to approve or there is a public announcement of, in either case, any action that, if consummated, would constitute such an extraordinary event; or

•certain other events of default, termination events, or other specified events occur, including, among other things, any material misrepresentation made by us in connection with entering into that particular forward equity agreement, or a nationalization, a bankruptcy termination event or a change in law (as such terms are defined in that particular forward equity agreement).

A forward purchaser’s decision to exercise its right to accelerate the settlement of a particular forward equity agreement will be made irrespective of the Company's need for capital. In such cases, we could be required to issue and deliver shares of common stock under the physical settlement provisions of that particular forward equity agreement or, if we so elect and the forward purchaser so permits our election, net share settlement provisions of that particular forward equity agreement irrespective of our capital needs, which would result in dilution to our earnings per share and return on equity.

We expect that settlement of any forward equity agreement will generally occur no later than the date specified in the particular forward equity agreement, which will generally be no later than twelve months following the trade date of that forward equity agreement. However, any forward equity agreement may be settled earlier than that specified date in whole or in part at our option. We expect that each forward equity agreement will be physically settled by delivery of shares of common stock unless we elect to cash settle or net share settle a particular forward equity agreement. Upon physical settlement or, if we so elect, net share settlement of a particular forward equity agreement, delivery of shares of common stock in connection with such physical settlement or net share settlement will result in dilution to our earnings per share and return on equity. If we elect cash settlement or net share settlement with respect to all or a portion of the shares of common stock underlying a particular forward equity agreement, we expect that the relevant forward purchaser (or an affiliate thereof) will purchase a number of shares of common stock necessary to satisfy its or its affiliate’s obligation to return the shares of common stock borrowed from third parties in connection with sales of shares of common stock under that forward equity agreement, adjusted in the case of net share settlement by any shares deliverable by or to us under the forward equity agreement. In addition, the purchase of shares of common stock in connection with the relevant forward purchaser or its affiliate unwinding its hedge positions could cause the price of shares of common stock to increase over such time (or prevent a decrease over such time), thereby increasing the amount of cash we would owe to the relevant forward purchaser (or decreasing the amount of cash that the relevant forward purchaser would owe us) upon a cash settlement of the relevant forward equity agreement or, in the event of net share settlement, increasing the number of shares of common stock we would deliver to the relevant forward purchaser (or decreasing the number of shares of common stock that the relevant forward purchaser would deliver to us).

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The forward equity price that we expect to receive upon physical settlement of a particular forward equity agreement will be subject to adjustment on a daily basis based on a floating interest rate factor equal to a specified daily rate less a spread and will be decreased based on amounts related to expected dividends on shares of common stock during the term of the particular forward equity agreement. If the specified daily rate is less than the spread on any day, the interest factor will result in a daily reduction of the applicable forward equity price. If the market value of shares of common stock, determined in accordance with the terms of the relevant forward equity agreement, during the relevant valuation period under the particular forward equity agreement is above the applicable forward equity price, in the case of cash settlement, we would pay the relevant forward purchaser under that particular forward equity agreement an amount in cash equal to the difference or, in the case of net share settlement, we would deliver to the relevant forward purchaser a number of shares of common stock having a value, determined in accordance with the terms of the relevant forward equity agreement, equal to the difference. Thus, we could be responsible for a potentially substantial cash payment in the case of cash settlement of a particular forward equity agreement. If the market value of the Company’s common stock, determined in accordance with the terms of the relevant forward equity agreement, during the relevant valuation period under that particular forward equity agreement is below the applicable forward equity price, in the case of cash settlement, we would be paid the difference in cash by the relevant forward purchaser under that particular forward equity agreement or, in the case of net share settlement, we would receive from the relevant forward purchaser a number of shares of common stock having a value equal to the difference.

The U.S. federal income tax treatment of the cash that we 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.

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. Under Section 1032 of the Internal Revenue Code of 1986, as amended (the "Code"), generally, no gains and losses are recognized by a corporation in dealing in its own shares, including pursuant to a "securities futures contract" (as defined in the Code, by reference to the Securities Exchange Act of 1934, as amended). Although we believe that any amount received by us in exchange for our stock would qualify for the exemption under Section 1032 of the Code, because it is not entirely clear whether a forward equity agreement qualifies as a "securities futures contract," the U.S. federal income tax treatment of any cash settlement payment we receive is uncertain. 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 Code. In that case, we may be able to rely upon the relief provisions under the Code in order to avoid the loss of our REIT status. Even if the relief provisions apply, we will be subject to a 100% tax on the greater of (i) the excess of 75% of our gross income (excluding gross income from prohibited transactions) over the amount of such income attributable to sources that qualify under the 75% test or (ii) the excess of 95% of our gross income (excluding gross income from prohibited transactions) over the amount of such gross income attributable to sources that qualify under the 95% test, multiplied in either case by a fraction intended to reflect our profitability. In the event that these relief provisions were not available, we could lose our REIT status under the Code.

In case of our bankruptcy or insolvency, any forward equity agreements will automatically terminate, and we would not receive the expected proceeds from any forward sale of shares of the Company’s common stock.

If we file for or consent to a proceeding seeking a judgment in bankruptcy or insolvency or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or we or a regulatory authority with jurisdiction over us presents a petition for our winding-up or liquidation, and we consent to such a petition, any forward equity agreements that are then in effect will automatically terminate. If any such forward equity agreement so terminates under these circumstances, we would not be obligated to deliver to the relevant forward purchaser any shares of common stock not previously delivered, and the relevant forward purchaser would be discharged from its obligation to pay the applicable forward equity price per share in respect of any shares of common stock not previously settled under the applicable forward equity agreement. 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.

Table of Contents

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

During the three months ended September 30, 2019, the Company withheld shares of Company common stock to satisfy employee tax withholding obligations payable upon the vesting of nonvested stock, 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
July 1 - July 31 —
$ —
—
—
August 1 - August 31 —
—
—
—
September 1 - September 30 80,490
33.50
—
—
Total 80,490

Authorized Repurchases of Equity Securities by the Issuer

On ~~April 30, 2019,~~May 5, 2020, the Company’s Board of Directors authorized the repurchase of up to $50 million of outstanding shares of the Company’s common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints, and other customary conditions. The Company is not obligated under this authorization to repurchase any specific number of shares. This authorization supersedes all previous stock repurchase authorizations. As of the date of this report, the Company has not repurchased any shares of its common stock under this authorization.

Table of Contents

Item 6. Exhibits



~~Exhibit~~EXHIBIT				~~Description~~
	DESCRIPTION
Exhibit 3.1				Second Articles of Amendment and Restatement of the Company, as amended⁽¹⁾ 1

Exhibit 3.2			Amended and Restated Bylaws of the Company, as amended ⁽¹⁾1

Exhibit 4.1			Specimen Stock Certificate ⁽²⁾2

Exhibit 4.2			Indenture, dated as of May 15, 2001, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company , as trustee (as successor to the trustee named therein) ⁽³⁾3

Exhibit 4.3			Fifth Supplemental Indenture, dated March 26, 2013, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company , as Trustee (as successor to the trustee named therein)⁽⁴⁾4

Exhibit 4.4			Form of 3.75% Senior Notes due 2023 (set forth in Exhibit B to the Fifth Supplemental Indenture filed as Exhibit 4.3 thereto)⁽⁴⁾ 4

Exhibit 4.5			Sixth Supplemental Indenture, dated April 24, 2015, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company , as Trustee (as successor to the trustee named therein)⁽⁵⁾5

Exhibit 4.6			Form of 3.875% Senior Notes due 2025 (set forth in Exhibit B to the Sixth Supplemental Indenture filed as Exhibit 4.5 thereto)⁽⁵⁾ 5

Exhibit 4.7			Seventh Supplemental Indenture, dated December 11, 2017, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company , as Trustee. ⁽⁸⁾6

Exhibit 4.8			Form of 3.625% Senior Note due 2028 (set forth in Exhibit B to the Seventh Supplemental Indenture filed as Exhibit 4.7 hereto). ⁽⁶⁾6
Exhibit 4.9		Eighth Supplemental Indenture, dated March 18, 2020, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company , as Trustee.7
Exhibit 4.10		Form of 2.400% Senior Note due 2030 (set forth in Exhibit B to the Eighth Supplemental Indenture filed as Exhibit 4.9 hereto).7
Exhibit 4.11		Ninth Supplemental Indenture, dated October 2 , 2020, by and between the Company and Truist Bank, formally known as Branch Banking and Trust Company , as Trustee.8
Exhibit 4.12		Form of 2.050% Senior Note due 2031 (set forth in Exhibit B to the Ninth Supplemental Indenture filed as Exhibit 4.11 hereto).8
Exhibit 31.1				Certification of the Chief Executive Officer of Healthcare Realty Trust Incorporated pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

Exhibit 31.2			Certification of the Chief Financial Officer of Healthcare Realty Trust Incorporated pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

Exhibit 32			Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

Exhibit 101.INS			The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH			XBRL Taxonomy Extension Schema Document (furnished electronically herewith)

Exhibit 101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document (furnished electronically herewith)

Exhibit 101.LAB			XBRL Taxonomy Extension Labels Linkbase Document (furnished electronically herewith)

Exhibit 101.DEF			XBRL Taxonomy Extension Definition Linkbase Document (furnished electronically herewith)

Exhibit 101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document (furnished electronically herewith)

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


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


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


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


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


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


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

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

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

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

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

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

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

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

Table of Contents

SIGNATURE

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



				HEALTHCARE REALTY TRUST INCORPORATED

		By:	~~By:~~	/s/ J. CHRISTOPHER DOUGLAS
				J. Christopher Douglas
			Executive Vice President and Chief Financial Officer

~~Date:~~	November 4, ~~2019~~	2020



PART I - FINANCIAL INFORMATION				~~Page~~
~~Part I—Financial Information~~
Item 1.1	Financial Statements		1
		Condensed Consolidated Balance Sheets		1
		Condensed Consolidated Statements of Income		2
		Condensed Consolidated Statements of Comprehensive Income (Loss)		3
		Condensed Consolidated Statements of Equity		4
		Condensed Consolidated Statements of Cash Flows		6
		Notes to the Condensed Consolidated Financial Statements		7
Item 2.2		Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3.3		Quantitative and Qualitative Disclosures about Market Risk		3233
Item 4.4		Controls and Procedures		3233

PART II - OTHER INFORMATION
~~Part II—Other Information~~
Item 1.1	Legal Proceedings		3335
Item ~~1A.~~1A		Risk Factors		3335
Item 2.2		Unregistered Sales of Equity and Use of Proceeds		3338
Item 6. 6		Exhibits		3439

~~Signature~~SIGNATURE				3540



	(Unaudited)
	September 30, 2019			December 31, 2018
ASSETS
Real estate properties:
Land	$	267,803		$	230,206
Buildings, improvements and lease intangibles	3,915,308			3,675,415
Personal property	10,899			10,696
Construction in progress	44,041			33,107
Land held for development	24,647			24,647
	4,262,698			3,974,071
Less accumulated depreciation and amortization	(1,106,387		)	(1,015,174		)
Total real estate properties, net	3,156,311			2,958,897
Cash and cash equivalents	11,809			8,381
Assets held for sale, net	5,289			9,272
Operating lease right-of-use assets	126,711			—
Financing lease right-of-use assets	9,063			—
Other assets, net	181,975			214,697
Total assets	$	3,491,158		$	3,191,247
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and bonds payable	$	1,443,919		$	1,345,984
Accounts payable and accrued liabilities	75,094			80,411
Liabilities of properties held for sale	300			587
Operating lease liabilities	91,356			—
Financing lease liabilities	14,305			—
Other liabilities	61,023			47,623
Total liabilities	1,685,997			1,474,605
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value per share; 50,000 shares authorized; none issued and outstanding	—			—
Common stock, $.01 par value per share; 300,000 shares authorized; 131,368 and 125,279 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively	1,314			1,253
Additional paid-in capital	3,379,572			3,180,284
Accumulated other comprehensive loss	(8,470		)	(902		)
Cumulative net income attributable to common stockholders	1,100,094			1,088,119
Cumulative dividends	(2,667,349		)	(2,552,112		)
Total stockholders' equity	1,805,161			1,716,642
Total liabilities and stockholders' equity	$	3,491,158		$	3,191,247



(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
Type of Revenue	2019		2018		2019		2018
Parking income	$	1,935	$	1,752	$	5,538	$	5,197
Rental lease guaranty	—		168		128		488
Management fee income	69		68		201		205
Miscellaneous	55		22		120		83
	$	2,059	$	2,010	$	5,987	$	5,973



(Dollars in millions)	Type ⁽¹⁾	Date Acquired	Purchase Price		Cash Consideration⁽²⁾		Real Estate		Other ⁽³⁾			Square Footage (Unaudited)
Washington, D.C. ⁽⁴⁾	MOB	3/28/19	$	46.0	$	45.9	$	50.2	$	(4.3	)	158,338
Indianapolis, IN ⁽⁵⁾	MOB	3/28/19	47.0		44.8		43.7		1.1			143,499
Atlanta, GA	MOB	4/2/19	28.0		28.0		28.0		—			47,963
Dallas, TX	MOB	6/10/19	17.0		16.7		17.0		(0.3		)	89,990
Seattle, WA	MOB	6/11/19	7.7		7.8		7.8		—			29,870
Seattle, WA	MOB	6/14/19	19.0		19.1		19.5		(0.4		)	47,255
Seattle, WA	MOB	6/28/19	30.5		30.4		30.6		(0.2		)	78,288
Houston, TX	MOB	8/1/19	13.5		13.5		13.5		—			29,903
Oklahoma City, OK	MOB	9/26/19	4.1		4.1		4.1		—			28,542
Los Angeles, CA ⁽⁶⁾	MOB	9/30/19	61.1		60.9		61.8		(0.9		)	115,634
			$	273.9	$	271.2	$	276.2	$	(5.0	)	769,282



2019	$	91,501
2020	340,549
2021	292,541
2022	252,315
2023	210,559
2024 and thereafter	572,767
	$	1,760,232



2019	$	326,441
2020	279,211
2021	235,660
2022	201,072
2023	163,978
2024 and thereafter	476,673
	$	1,683,035



	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost
Operating lease expense	$	1,169	$	3,448
Variable lease expense	845		2,380
Finance lease cost
Amortization of right-of-use assets	51		101
Interest on lease liabilities	196		392
Total lease expense	$	2,261	$	6,321

Other information
Operating cash flows outflows related to operating leases	$	1,313	$	5,461
Financing cash flows outflows related to financing leases	$	107	$	249
Right-of-use assets obtained in exchange for new finance lease liabilities	$	—	$	14,294

Weighted-average remaining lease term (excluding renewal options) - operating leases	49.7
Weighted-average remaining lease term (excluding renewal options) -finance leases	70.1
Weighted-average discount rate - operating leases	5.7%
Weighted-average discount rate - finance leases	5.5%



2019	$	5,288
2020	5,260
2021	5,238
2022	5,207
2023	5,224
2024 and thereafter	323,533
	$	349,750



	Maturity Dates	Balance as of				Effective Interest Rate as of
(Dollars in thousands)	Maturity Dates	September 30, 2019		December 31, 2018		September 30, 2019
$700 million Unsecured Credit Facility	5/23	$	322,000	$	262,000	2.92	%
$200 million Unsecured Term Loan Facility, net of issuance costs ⁽¹⁾	5/24	198,957		149,183		3.29	%
$150 million Unsecured Term Loan due 2026 ⁽²⁾	6/26	—		—		N/A
Senior Notes due 2023, net of discount and issuance costs	4/23	248,434		248,117		3.95	%
Senior Notes due 2025, net of discount and issuance costs ⁽³⁾	5/25	248,460		248,278		4.08	%
Senior Notes due 2028, net of discount and issuance costs	1/28	295,536		295,198		3.84	%
Mortgage notes payable, net of discounts and issuance costs and including premiums	7/20-5/40	130,532		143,208		4.81	%
		$	1,443,919	$	1,345,984



Derivative Instrument	Number of Instruments	Notional Amount (in millions)
Interest rate swaps	8	$175.0



	Gain (Loss) Recognized in AOCI on Derivative						(Gain) Loss Reclassified from AOCI into Income
	Nine Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			2019			2018
Interest rate swaps	$	(7,642	)	$	1,403	Interest expense	$	(52	)	$	243
Settled interest rate swaps	—			—		Interest expense	126			126
	$	(7,642	)	$	1,403	Total interest expense	$	74		$	369



	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share data)	2019			2018			2019			2018
Weighted average Common Shares outstanding
Weighted average Common Shares outstanding	129,865,985			125,233,462			128,348,638			125,206,342
Nonvested shares	(1,775,911		)	(1,933,653		)	(1,777,743		)	(1,925,589		)
Weighted average Common Shares outstanding—Basic	128,090,074			123,299,809			126,570,895			123,280,753
Weighted average Common Shares outstanding—Basic	128,090,074			123,299,809			126,570,895			123,280,753
Dilutive effect of employee stock purchase plan	78,610			52,147			85,690			54,763
Weighted average Common Shares outstanding—Diluted	128,168,684			123,351,956			126,656,585			123,335,516
Net Income	$	2,601		$	6,548		$	11,975		$	53,456
Dividends paid on nonvested share-based awards	(534		)	(580		)	(1,603		)	(1,740		)
Net income applicable to common stockholders	$	2,067		$	5,968		$	10,372		$	51,716
Basic earnings per common share - Net income	$	0.02		$	0.05		$	0.08		$	0.42
Diluted earnings per common share - Net income	$	0.02		$	0.05		$	0.08		$	0.42



Effective Date	Amount		Weighted Average Rate		Expiration Date
December 18, 2017	$	25,000	2.18	%	December 16, 2022
February 1, 2018	50,000		2.46	%	December 16, 2022
May 1, 2019	50,000		2.33	%	May 1, 2026
June 3, 2019	50,000		2.13	%	May 1, 2026
	$	175,000	2.29	%



				Same Store Cash NOI for the
				Three Months Ended September 30,
(Dollars in thousands)	Number of Properties	Gross Investment at September 30, 2019		2019		2018
Multi-tenant Properties	149	$	3,004,110	$	54,128	$	52,898
Single-tenant Net Lease Properties	14	461,845		10,471		10,327
Total	163	$	3,465,955	$	64,599	$	63,225

Reconciliation of Same Store Cash NOI:

	Three Months Ended September 30,
(Dollars in thousands)	2019			2018
Net income	$	2,601		$	6,548
Other income (expense)	13,981			12,135
General and administrative expense	10,802			8,504
Depreciation and amortization expense	45,137			42,061
Other expenses⁽¹⁾	2,462			1,855
Straight-line rent revenue	(770		)	(802		)
Other revenue⁽²⁾	(1,608		)	(1,173		)
Cash NOI	72,605			69,128
Cash NOI not included in same store	(8,006		)	(5,903		)
Same store cash NOI	64,599			63,225
Reposition NOI	222			361
Same store and reposition cash NOI	$	64,821		$	63,586

Reconciliation of Same Store Properties:

	As of September 30, 2019
	Property Count	Gross Investment		Square Feet	Occupancy
Same store properties	163	$	3,465,955	12,928,142	88.8	%
Acquisitions	30	637,827		1,935,189	90.1	%
Reposition	11	84,728		567,252	36.0	%
Total owned real estate properties	204	$	4,188,510	15,430,583	87.0	%



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
July 1 - July 31	—	$	—	—	—
August 1 - August 31	—	—		—	—
September 1 - September 30	80,490	33.50		—	—
Total	80,490

(State or other jurisdiction of ~~incorporation~~
Incorporation or organization)

(I.R.S. Employer
Identification No.)