HEALTHCARE REALTY TRUST INCORPORATED (NYSE:HR) Files An 8-K Entry into a Material Definitive Agreement

HEALTHCARE REALTY TRUST INCORPORATED (NYSE:HR) Files An 8-K Entry into a Material Definitive AgreementItem 1.01. Entry into a Material Definitive Agreement

On August8, 2017, Healthcare Realty Trust Incorporated (the "Company") entered into 15 separate purchase agreements and a master transaction agreement (the "Master Transaction Agreement" and together with the separate purchase agreements, the “Purchase Agreements”) with Meadows & Ohly, LLC and certain of its affiliated companies (“Meadows & Ohly”) to acquire 15 medical office buildings in the Atlanta, Georgia market (the “Atlanta Portfolio”) for an aggregate purchase price of $612.5 million (plus closing costs, due diligence costs, legal fees, and other transaction costs) (the “Atlanta Transaction”). Each of the 15 properties in the Atlanta Portfolio is held by a separate limited partnership in which an affiliate of Meadows & Ohly serves as the general partner. The Atlanta Portfolio totals 1.3 million square feet, is 96% leased, and is expected to generate a cash yield of 4.9% in 2018. Fourteen of the medical office buildings are located on land leased from the associated health systems to long-term ground leases.

Fourteen of the properties in the Atlanta Portfolio are subject to rights of first offer in favor of the ground lessor, which if exercised, could remove certain of the properties from the Atlanta Transaction. Under the Purchase Agreements, if properties having a value of $300 million or more are removed from the Atlanta Transaction as a result of the exercise of rights of first offer, or if Meadows and Ohly fails to obtain partnership approval for the sale of properties having an aggregate purchase price of $300 million or more, the Company may terminate the Master Transaction Agreement and all, but not less than all, of the remaining Purchase Agreements. In addition, the Purchase Agreements provide that if 50% or more of the properties on a single hospital campus are excluded from the Atlanta Transaction because of the exercise of rights of first offer, the remaining value of all properties on the campus are included in the calculation of the $300 million thresholds referenced above.

to the Purchase Agreements, the Company deposited earnest money in the amount of $6.1 million into escrow at the time of execution of the Purchase Agreements. The Company is obligated to deposit an additional $3.1 million in earnest money following the expiration of the inspection period under the Purchase Agreements. The inspection period for the purposes of each purchase agreement shall mean the period ending at 5:00 p.m. Eastern Standard Time on the later of (i) September 5, 2017, or (ii) the date which is 15 days following the date on which the last of the third party reports is received by the Company, but in no event shall the inspection period extend past September 18, 2017.

The Purchase Agreements are cross-defaulted, meaning that a default by either party under one agreement is a default under all the agreements.

The Purchase Agreements provide that the Company will assume mortgages secured by seven of the properties with remaining balances equal to approximately $90.8 million in the aggregate and will incur prepayment costs of approximately $1.7 million in connection with the prepayment of two mortgages maturing in 2018. The Company will pay customary loan assumption fees to the lenders under the assumed mortgages. The loan assumptions are subject to approval by the lenders and the Company and the lenders reaching agreement on certain loan modifications.

One of the buildings in the Atlanta Transaction is under construction and is expected to be completed in September 2017. The Purchase Agreements provide that the Company will provide interim mortgage financing of $67.0 million for this building and the Company expects to purchase the building approximately 12 months from substantial completion. An additional $3.3 million will be paid by the Company at the time of purchase. The interest rate on the mortgage note will be 4.8%.

The Purchase Agreements provide for an outside closing date of December 29, 2017. The Company expects that the properties in the Atlanta Portfolio will be acquired in multiple closings during the third and fourth quarter of 2017.

Closing under the Purchase Agreements is subject to various conditions, including, without limitation, approval by a majority of the limited partners in each selling limited partnership, the waiver of rights of first offer in favor of the respective health system for 14 of the properties, the accuracy of the representations and warranties, the receipt of ground lessor and tenant estoppel certificates, and the satisfaction of pre-closing covenant obligations of the parties. There can be no assurance that the closing conditions will be satisfied or waived, or that defaults or other events will not delay or prevent the closings. Further, there can be no assurance that the Atlanta Transaction will close on the contemplated terms, with the proposed number of properties, or at all. The Atlanta Transaction is not conditioned on the Company's ability to obtain financing.

At closing, the Company will enter into property management and leasing agreements with Meadows & Ohly for 10-year terms for each of the properties in the Atlanta Portfolio. These agreements provide that Meadows & Ohly will manage, lease and provide tenant improvement services for each of the buildings. In addition, the management agreements provide that Meadows & Ohly will not lease or manage competitive properties within a 1-mile radius of any property purchased by the Company to the Atlanta Transaction, except for properties that are 50% leased by a hospital and properties for which the Company received a right of first offer under the terms of the management agreement. Closing under the Purchase Agreements is also conditioned on the Company entering into property management agreements with Meadows & Ohly for three year terms for certain other properties already owned by the Company totaling 1.0 million square feet. These properties are currently being managed in-house by the Company. Under these property management agreements, Meadows & Ohly will manage the

properties and tenant improvement services, but will not lease the properties. As a condition to closing under the Purchase Agreement, the Company must obtain the consent of the ground landlord necessary to permit Meadows & Ohly to manage certain of these properties. The Company believes that the terms of these management agreements are consistent with market terms and conditions for third-party management agreements of these types. There can be no assurances that the consent of the ground landlord can be obtained.

A copy of the Master Transaction Agreement and the Purchase Agreement for one of the properties are filed as Exhibits 2.1 and 2.2 hereto, and are incorporated by reference herein. The Company is filing only one of the 15 individual Purchase Agreements in reliance on the instructions to Item 601 of Regulation S-K. The 15 Purchase Agreements are substantially identical in all material respects. A schedule of the omitted contracts is set forth in the Exhibit Index below.

Cautionary Note Regarding Forward-Looking Statements

This Current Report on Form 8-K, the exhibits hereto, and other materials the Company has filed or may file with the SEC, as well as information included in oral statements or other written statements made, or to be made, by senior management of the Company, contain, or will contain, disclosures which are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could” and other comparable terms. These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties that could significantly affect the Company’s current plans and expectations and future financial condition and results. Such risks and uncertainties include, among other things, the following:

Other risks, uncertainties and factors that could cause actual results to differ materially from those projected are detailed from time to time in reports filed by the Company with the SEC, including Forms 8-K, 10-Q and 10-K (including those identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016).

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. Investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this prospectus supplement and the accompanying prospectus or the Company’s filings and reports.

Item 7.01 Regulation FD Disclosure

On August8, 2017, the Company issued a press release announcing the Atlanta Transaction. A copy of this press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety.

Item 9.01. Financial Statements and Exhibits

The following historical financial information about the Atlanta Portfolio is filed with this report:

The acquisition of the Atlanta Portfolio is subject to the closing conditions discussed in Item 1.01 in this Current Report on Form 8-K. The Atlanta Portfolio will be acquired from unrelated third parties and is considered probable of closing. The Company is not aware, after reasonable inquiry, of any material factors relating to the operations of the Atlanta Portfolio, other than as disclosed herein, that would cause the reported historical financial information not to be necessarily indicative of future operating results. Material factors considered by the Company relating to the operations of the properties in assessing the acquisition of the Atlanta Portfolio are described elsewhere in this Current Report on Form 8-K

The following pro forma financial information is filed with this report:

(d) Exhibits

The following exhibits are filed with this report:

2.1Master Transaction Agreement, dated as of August 8, 2017, by and among Meadows & Ohly, LLC and its affiliated entities listed in the Agreement as sellers and Healthcare Realty Trust Incorporated, as purchaser.

2.2That certain Purchase and Sale Agreement dated as of August 8, 2017 by and between Kennestone Outpatient Pavilion, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

23.1 Consent of Independent Registered Public Accounting Firm.

99.1Press release announcing the Atlanta Transaction, issued August 8, 2017.

Schedule of Omitted Exhibits

The following exhibits are omitted from this filing in accordance with Item 601 of Regulation S-K. The agreements in this schedule are substantially identical to Exhibit 2.2 in all material respects.

1.Purchase and Sale Agreement dated as of August 8, 2017 by and between Kennestone Cancer Center, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

2.Purchase and Sale Agreement dated as of August 8, 2017 by and between Kennestone Physicians Center I, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

3.Purchase and Sale Agreement dated as of August 8, 2017 by and between Kennestone Physicians Center II, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

4.Purchase and Sale Agreement dated as of August 8, 2017 by and between Douglas Physicians Center, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

5.Purchase and Sale Agreement dated as of August 8, 2017 by and between Douglas Physicians Center II, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

6.Purchase and Sale Agreement dated as of August 8, 2017 by and between Paulding Physicians Center, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

7.Purchase and Sale Agreement dated as of August 8, 2017 by and between Paulding Outpatient Pavilion, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

8.Purchase and Sale Agreement dated as of August 8, 2017 by and between Vinings Health Park, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

9.Purchase and Sale Agreement dated as of August 8, 2017 by and between Piedmont Physicians Plaza, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

10.Purchase and Sale Agreement dated as of August 8, 2017 by and between Piedmont Medical Plaza, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

11.Purchase and Sale Agreement dated as of August 8, 2017 by and between 340 Exchange Boulevard, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

12.Purchase and Sale Agreement dated as of August 8, 2017 by and between Gwinnett 500 Building, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

13.Purchase and Sale Agreement dated as of August 8, 2017 by and between Gwinnett Physicians Center, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

14.Purchase and Sale Agreement dated as of August 8, 2017 by and between Hudgens Professional Building, L.P., as seller and Healthcare Realty Trust Incorporated, as purchaser.

Independent Auditor’s Report

Board of Directors and Stockholders

Healthcare Realty Trust Incorporated

Nashville, TN

We have audited the accompanying Combined Historical Statement of Revenues and Certain Direct Operating Expenses of the 14 medical office buildings (the “Atlanta Portfolio”) to be acquired to a Master Transaction Agreement and separate purchase and sale agreements, between Healthcare Realty Trust Incorporated, Meadows & Ohly, LLC and certain of its affiliates and the related notes (the “Combined Statement”) for the year ended December 31, 2016.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the Combined Statement in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Combined Statement that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the Combined Statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Combined Statement is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Combined Statement. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Combined Statement, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the Combined Statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Combined Statement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the Combined Statement referred to above presents fairly, in all material respects, the revenues and certain direct operating expenses, of the Atlanta Portfolio for the year ended December 31, 2016, in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

The accompanying Combined Statement was prepared for the purpose of complying with Rule 3-14 of the U.S. Securities and Exchange Commission Regulation S-X, as described in Note 2, and is not intended to be a complete presentation of the Atlanta Portfolio's revenues and expenses. Our opinion is not modified with respect to this matter.

/s/ BDO USA, LLP

Nashville, Tennessee

August8, 2017

Atlanta Portfolio

Combined Historical Statements of Revenues and Certain Direct Operating Expenses

(Dollars in thousands)

See accompanying notes to the Combined Historical Statements of Revenues and Certain Direct Operating Expenses.

Note 1 – Operating Properties

The properties of Meadows & Ohly, LLC and certain of its affiliated companies (“Meadows & Ohly”) listed below (the "Atlanta Portfolio") are part of a pending acquisition by a subsidiary of Healthcare Realty Trust Incorporated (the “Company”) that is considered probable as of the issuance date of these Combined Historical Statements of Revenues and Certain Direct Operating Expenses for the six months ended June 30, 2017 and year ended December 31, 2016 (“Combined Statement”). to the purchase agreements that were executed on August8, 2017, the Company will acquire 14 medical office properties that were in service at December 31, 2016 and provide interim financing for a property that was under construction at December 31, 2016.

The following table details the properties included in the Combined Statement for the year ended December 31, 2016 as well as the development property that is excluded from the Combined Statement:

Note 2 – Basis of Presentation

The accompanying Combined Statement has been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended. The revenues and certain direct operating expenses are combined due to the common management of each of the properties in the Atlanta Portfolio by Meadows & Ohly. The Combined Statement is not representative of the actual results of operations of the Atlanta Portfolio for the year ended December 31, 2016, due to the exclusion of the following expenses, which may not be comparable to the proposed future operations of the Atlanta Portfolio:

The Company has made a number of estimates and assumptions relating to the reporting and disclosure of revenues and certain expenses during the reporting period to prepare the Combined Statement in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates.

Note 3 – Revenues

The Atlanta Portfolio properties contain medical office space occupied under various lease agreements with tenants. All leases are accounted for as operating leases. Rental income is recognized as earned over the life of the lease agreements on a straight-line basis. Some of the leases include provisions under which the Atlanta Portfolio are reimbursed for common area maintenance and other operating costs, real estate taxes, and insurance. Revenue related to these reimbursed costs is recognized in the period the applicable costs are incurred and billed to tenants to the lease agreements. Included in rental income is $4.3 million of operating expense reimbursements for the year ended December 31, 2016 and $2.4 million for the six months ended June 30, 2017 (unaudited). Certain leases contain renewal options at various periods at various rental rates.

Future minimum lease payments due under the non-cancelable operating leases at December 31, 2016 are shown in the table below (in thousands). The table excludes future minimum lease payments related to the one building that was under construction at December 31, 2016:

Revenue Concentrations

Rental income from WellStar Health System and Piedmont Healthcare represented 33.2% and 14.0%, respectively, of the total combined revenues for the year ended December 31, 2016.

Note 4 – Certain Direct Operating Expenses

Certain direct operating expenses include only those costs expected to be comparable to the proposed future operations of the Atlanta Portfolio. Certain direct operating expenses include real estate taxes, insurance, utilities, janitorial, repairs and maintenance, landscaping, management fees, ground lease rent and other expenses which are charged to operations as incurred. For the year ended December 31, 2016, real estate tax expense was $2.7 million and $1.3 million (unaudited) for the six months ended June 30, 2017. Utility expense for the year ended December 31, 2016 was $2.4 million and $1.2 million (unaudited) for the six months ended June 30, 2017.

Note 5 – Operating Leases

Note 6 – Related Party Transactions

The combined historical statement of revenues and certain direct operating expenses for the six months ended June 30, 2017 and the year ended December 31, 2016 include payments of approximately $0.5 million and $1.0 million to Meadows & Ohly for property management services for the six months ended June 30, 2017 and the year ended December 31, 2016, respectively.

Note 7 – Unaudited Interim Statement

The combined historical statement of revenues and certain direct operating expenses for the six months ended June 30, 2017 is unaudited. All adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation (in accordance with Basis of Presentation described in Note 2) have been made to the accompanying unaudited amounts for the six months ended June 30, 2017. The revenues and certain direct operating expenses for the unaudited interim period presented are not necessarily indicative of the full year results of operations.

Note 8 – Subsequent Events

The Company evaluated subsequent events through August8, 2017, the date the Combined Statements were available to be issued.

The Unaudited Pro Forma Condensed Consolidated Financial Statements (including notes thereto) are qualified in their entirety by reference to and should be read in conjunction with the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2017, the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and the financial statements included in Item 9.01(a) of this Current Report on Form 8-K.

The accompanying Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2017, reflects the financial position of the Company as if the transactions described in the Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements had been completed on June 30, 2017.

The accompanying Unaudited Pro Forma Condensed Consolidated Statements of Income for the six months ended June 30, 2017 and the twelve months ended December 31, 2016, present the results of operations of the Company as if the transactions described in the Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements had been completed on January 1, 2016.

These accompanying Unaudited Pro Forma Condensed Consolidated Financial Statements have been prepared to comply with Article 11 of Regulation S-X, as promulgated by the SEC and are presented for illustrative purposes only. They are subject to a number of estimates, assumptions, and other uncertainties, and do not purport to be indicative of the actual results of operations that would have occurred had the acquisitions reflected therein in fact occurred on the dates specified, nor do such financial statements purport to be indicative of the results of operations that may be achieved in the future. In addition, the Unaudited Pro Forma Condensed Consolidated Financial Statements include pro forma allocations of the purchase price of the properties discussed in the accompanying notes based upon preliminary estimates of the fair value of the assets acquired and liabilities assumed in connection with the acquisitions and are subject to change. See "Cautionary Note Regarding Forward Looking Statements" in this Current Report on Form 8-K and the description of other risks, uncertainties and factors that could cause actual results to differ materially from those projected that are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and as may be updated from time to time in other reports filed by the Company with the SEC, including Forms 8-K and 10-Q.

Healthcare Realty Trust Incorporated

Unaudited Pro Forma Condensed Consolidated Balance Sheet

As of June 30, 2017

(dollars in thousands)

Healthcare Realty Trust Incorporated

Unaudited Pro Forma Condensed Consolidated Statement of Income

For the Year Ended December 31, 2016

(dollars in thousands, except per share data)

Healthcare Realty Trust Incorporated

Unaudited Pro Forma Condensed Consolidated Statement of Income

For the Six Months Ended June 30, 2017

(dollars in thousands, except per share data)

The Unaudited Pro Forma Condensed Consolidated Statements of Income adjustments for the six months ended June 30, 2017 and the year ended December 31, 2016 assume that the Atlanta Transaction had been completed on January 1, 2016. The Company’s estimates and valuations included in these Unaudited Pro Forma Condensed Financial Statements are based on estimates and assumptions as of the date of this report.

The unaudited pro forma information set forth below reflects the Company’s historical information, as adjusted to give effect to the following transactions:

borrowings of approximately $299.0 million at an average rate of 2.8% and 2.9% for the six months ended June 30, 2017 and twelve months ended December 31, 2016, respectively.

HEALTHCARE REALTY TRUST INC ExhibitEX-2.1 2 exhibit21-mo8xk.htm EXHIBIT 2.1 Exhibit Exhibit 2.1MASTER TRANSACTION AGREEMENTTHIS MASTER TRANSACTION AGREEMENT (this “Master Agreement”) is made by and among (1) THE ENTITIES LISTED ON EXHIBIT A AS A “SELLER” (each a “Seller”,…To view the full exhibit click here
About HEALTHCARE REALTY TRUST INCORPORATED (NYSE:HR)
Healthcare Realty Trust Incorporated is a self-managed and self-administered real estate investment trust (REIT). The Company owns, acquires, manages, finances and develops real estate properties associated primarily with the delivery of outpatient healthcare services across the United States. It provides property management services for approximately 140 healthcare-related properties, totaling over 9.8 million square feet. The Company’s tenant mix includes over 30 physician specialties, as well as surgery, imaging, cancer and diagnostic centers. The Company has approximately two buildings under construction and over two buildings in redevelopment. The Company’s tenant leases include Medical office/outpatient, Inpatient and Other. The Company invests in healthcare-related mortgages located in the United States. It also provides management, leasing and development services, and capital for the construction of new facilities, as well as for the acquisition of existing properties.