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Merger with HTA | 9 Months Ended
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Sep. 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 ratio | 1.00 |
Implied shares of Legacy HR Common Stock issued | 228,520,990 |
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. Final Purchase Price Allocation The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Closing Date:
Dollars in thousands | PRELIMINARY AMOUNTS RECOGNIZED ON THE CLOSING DATE | CUMULATIVE MEASUREMENT PERIOD ADJUSTMENTS | AMOUNTS RECOGNIZED ON THE CLOSING DATE (as adjusted)
ASSETS |  |  |
Real estate investments |  |  |
Land | $ | 985,926 |  | $ | 18,359 |  | $ | 1,004,285 |
Buildings and improvements | 6,960,418 |  | (119,135) |  | 6,841,283 |
Lease intangible assets(a) | 831,920 |  | 1,839 |  | 833,759 |
Financing lease right-of-use assets | 9,874 |  | 3,146 |  | 13,020 |
Construction in progress | 10,071 |  | (6,744) |  | 3,327 |
Land held for development | 46,538 |  | — |  | 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 ventures | 67,892 |  | — |  | 67,892 |
Cash and cash equivalents | 26,034 |  | 11,403 |  | 37,437 |
Restricted cash | 1,123,647 |  | (1,247) |  | 1,122,400 |
Operating lease right-of-use assets | 198,261 |  | 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 sale | 28,677 |  | (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 are final and 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. Based on the final purchase price allocation of fair value, 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. During the third quarter of 2023, the Company experienced a sustained decline in the price per share of its common stock, which it identified as an indicator of goodwill impairment. As a result, the Company performed an interim goodwill evaluation. The fair value of the Company’s single reporting unit was estimated using a combination of discounted cash flow models and earnings multiples techniques. The quantitative assessment as of September 30, 2023 indicated goodwill was not impaired. Merger-related Costs The Company incurred Merger-related costs of $7.5 million and $(3.4) million, respectively, during the three and nine months ended September 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 for the nine months ended September 30, 2023 including a refund of $17.8 million for transfer taxes paid during the year ended December 31, 2022.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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