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Merger with HTA
 6 Months Ended
Jun. 30, 2023
Business Combination and Asset Acquisition [Abstract]  
Merger with HTA Merger with HTA
On July 20, 2022 (the “Closing Date”), pursuant to the Agreement and Plan of Merger dated as of February 28, 2022 (the “Merger Agreement”), by and among Healthcare Realty Trust Incorporated, a Maryland corporation (now known as HRTI, LLC, a Maryland limited liability company) (“Legacy HR”), Healthcare Trust of America, Inc., a Maryland corporation (now known as Healthcare Realty Trust Incorporated) (“Legacy HTA”), the OP, and HR Acquisition 2, LLC, a Maryland limited liability company (“Merger Sub”), Merger Sub merged with and into Legacy HR, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA (the “Merger”).
On the Closing Date, each outstanding share of Legacy HR common stock, $0.01 par value per share (the “Legacy HR Common Stock”), was cancelled and converted into the right to receive one share of Legacy HTA class A common stock at a fixed ratio of 1.00 to 1.00. Per the terms of the Merger Agreement, Legacy HTA declared a special dividend of $4.82 (the “Special Dividend”) for each outstanding share of Legacy HTA class A common stock, $0.01 par value per share ( the “Legacy HTA Common Stock”), and the OP declared a corresponding distribution to the holders of its partnership units, payable to Legacy HTA stockholders and OP unitholders of record on July 19, 2022.
Immediately following the Merger, Legacy HR converted to a Maryland limited liability company and changed its name to HRTI, LLC and Legacy HTA changed its name to “Healthcare Realty Trust Incorporated”. In addition, the equity interests of Legacy HR were contributed by Legacy HTA by means of a contribution and assignment agreement to the OP, and Legacy HR became a wholly-owned subsidiary of the OP. The Company operates under the name “Healthcare Realty Trust Incorporated” and its shares of class A common stock, $0.01 par value per share, trade on the New York Stock Exchange under the ticker symbol “HR”.
For accounting purposes, the Merger was treated as a “reverse acquisition” in which Legacy HTA was considered the legal acquirer and Legacy HR was considered the accounting acquirer based on various factors, including, but not limited to: (i) the composition of the board of directors of the combined company following the Merger, (ii) the composition of senior management of the combined company following the Merger, and (iii) the premium transferred to the Legacy HTA stockholders. As a result, the historical financial statements of the accounting acquirer, Legacy HR, became the historical financial statements of the Company.
The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires, among other things, the assets acquired and the liabilities assumed and non-controlling interests, if any, to be recognized at their acquisition date fair value.
The implied consideration transferred on the Closing Date is as follows:
Dollars in thousands, except for per share data
Shares of Legacy HTA Common Stock outstanding as of July 20, 2022 as adjusted(a)
228,520,990 
Exchange ratio1.00 
Implied shares of Legacy HR Common Stock issued228,520,990 
Adjusted closing price of Legacy HR Common Stock on July 20, 2022(b)
$24.37 
Value of implied Legacy HR Common Stock issued$5,569,057 
Fair value of Legacy HTA restricted stock awards attributable to pre-Merger services(c)
7,406 
Consideration transferred$5,576,463 
(a) The number of shares of Legacy HTA Common Stock presented above was based on 228,857,717 total shares of Legacy HTA Common Stock outstanding as of the Closing Date, less 192 Legacy HTA fractional shares that were cancelled in lieu of cash and less 336,535 shares of Legacy HTA restricted stock (net of 215,764 shares of Legacy HTA restricted stock withheld). For accounting purposes, these shares were converted to Legacy HR Common Stock, at an exchange ratio of 1.00 share of Legacy HR Common Stock per share of Legacy HTA Common Stock.
(b) For accounting purposes, the fair value of Legacy HR Common Stock issued to former holders of Legacy HTA Common Stock was based on the per share closing price of Legacy HR Common Stock on July 20, 2022.
(c) Represents the fair value of Legacy HTA restricted shares which fully vested prior to the closing of the Merger or became fully vested as a result of the closing of the Merger and which are attributable to pre-combination services.
Preliminary Purchase Price Allocation
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the Closing Date:
Dollars in thousandsPRELIMINARY AMOUNTS RECOGNIZED ON THE CLOSING DATE CUMULATIVE MEASUREMENT PERIOD ADJUSTMENTSPRELIMINARY AMOUNTS RECOGNIZED ON THE CLOSING DATE
(as adjusted)
ASSETS
Real estate investments
Land $985,926 $18,359 $1,004,285 
Buildings and improvements6,960,418 (119,135)6,841,283 
Lease intangible assets(a)
831,920 1,839 833,759 
Financing lease right-of-use assets9,874 3,146 13,020 
Construction in progress10,071 (6,744)3,327 
Land held for development46,538 — 46,538 
Total real estate investments$8,844,747 $(102,535)$8,742,212 
Assets held for sale, net 707,442 (7,946)699,496 
Investments in unconsolidated joint ventures67,892 — 67,892 
Cash and cash equivalents26,034 11,403 37,437 
Restricted cash 1,123,647 (1,247)1,122,400 
Operating lease right-of-use assets198,261 16,370 214,631 
Other assets, net (b) (c)
209,163 (3,840)205,323 
Total assets acquired$11,177,186 $(87,795)$11,089,391 
LIABILITIES
Notes and bonds payable $3,991,300 $— $3,991,300 
Accounts payable and accrued liabilities 1,227,570 17,374 1,244,944 
Liabilities of assets held for sale28,677 (3,939)24,738 
Operating lease liabilities 173,948 10,173 184,121 
Financing lease liabilities 10,720 (855)9,865 
Other liabilities 203,210 (8,909)194,301 
Total liabilities assumed$5,635,425 $13,844 $5,649,269 
Net identifiable assets acquired$5,541,761 $(101,639)$5,440,122 
Non-controlling interest$110,702 $— $110,702 
Goodwill$145,404 $101,639 $247,043 
(a) The weighted average amortization period for the acquired lease intangible assets is approximately 6 years.
(b) Includes $15.9 million of contractual accounts receivable, which approximates fair value.
(c) Includes $78.7 million of gross contractual real estate notes receivable, the fair value of which was $74.8 million, and the Company preliminarily expects to collect substantially all of the real estate notes receivable proceeds as of the Closing Date.
The cumulative measurement period adjustments recorded through June 30, 2023 primarily resulted from updated valuations related to the Company’s real estate assets and liabilities and additional information obtained by the Company related to the properties acquired in the Merger and their respective tenants, and resulted in an increase to goodwill of $101.6 million.
As of June 30, 2023, the Company had not finalized the determination of fair value of certain tangible and intangible assets acquired and liabilities assumed, including, but not limited to real estate assets and liabilities, notes receivables and goodwill. As such, the assessment of fair value of assets acquired and liabilities assumed is preliminary and was based on information that was available at the time the Condensed Consolidated Financial Statements were prepared. The finalization of the purchase accounting assessment could result in material changes to the Company’s determination of the fair value of assets acquired and liabilities assumed, which will be recorded as measurement period adjustments in the period in which they are identified, up to one year from the Closing Date.
A preliminary estimate of approximately $247.0 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The recognized goodwill is attributable to expected synergies and benefits arising from the Merger, including anticipated general and administrative cost savings and potential economies of scale benefits in both tenant and vendor relationships following the closing of the Merger. None of the goodwill recognized is expected to be deductible for tax purposes.
Merger-related Costs
The Company incurred Merger-related costs of $(15.7) million and $(10.8) million, respectively, during the three and six months ended June 30, 2023, which were included within Merger-related costs in results of operations. The Merger-related costs primarily consist of legal, consulting, severance, and banking services and included a refund of $17.8 million for transfer taxes paid during the year ended December 31, 2022.
Subsequent Activity
As of the date of these financial statements, the purchase price allocation of fair value was finalized with no additional adjustments. The Company determined the final fair value of net assets acquired based on information available during the measurement period.