x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 62 – 1507028 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
3310 West End Avenue | ||
Suite 700 | ||
Nashville, Tennessee 37203 | ||
(Address of principal executive offices) | ||
(615) 269-8175 | ||
(Registrant’s telephone number, including area code) |
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 x No o | ||||
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 and post such files). Yes x No o | ||||
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 x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | Emerging growth company o |
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. o | ||||
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x |
Page | ||
(Unaudited) | |||||||
September 30, 2018 | December 31, 2017 | ||||||
ASSETS | |||||||
Real estate properties: | |||||||
Land | $ | $ | |||||
Buildings, improvements and lease intangibles | |||||||
Personal property | |||||||
Construction in progress | |||||||
Land held for development | |||||||
Less accumulated depreciation and amortization | ( | ) | ( | ) | |||
Total real estate properties, net | |||||||
Cash and cash equivalents | |||||||
Assets held for sale, net | |||||||
Other assets, net | |||||||
Total assets | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Liabilities: | |||||||
Notes and bonds payable | $ | $ | |||||
Accounts payable and accrued liabilities | |||||||
Liabilities of properties held for sale | |||||||
Other liabilities | |||||||
Total liabilities | |||||||
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; 125,237 and 125,132 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively | |||||||
Additional paid-in capital | |||||||
Accumulated other comprehensive income (loss) | ( | ) | |||||
Cumulative net income attributable to common stockholders | |||||||
Cumulative dividends | ( | ) | ( | ) | |||
Total stockholders' equity | |||||||
Total liabilities and stockholders' equity | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
REVENUES | |||||||||||||||
Rental income | $ | $ | $ | $ | |||||||||||
Other operating | |||||||||||||||
EXPENSES | |||||||||||||||
Property operating | |||||||||||||||
General and administrative | |||||||||||||||
Acquisition and pursuit costs | |||||||||||||||
Depreciation and amortization | |||||||||||||||
Bad debts, net of recoveries | ( | ) | |||||||||||||
OTHER INCOME (EXPENSE) | |||||||||||||||
Gain (loss) on sales of real estate assets | ( | ) | |||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Impairment of real estate assets | ( | ) | — | ( | ) | ||||||||||
Interest and other income, net | |||||||||||||||
( | ) | ( | ) | ( | ) | ( | ) | ||||||||
NET INCOME | $ | $ | $ | $ | |||||||||||
Basic earnings per common share | $ | $ | $ | $ | |||||||||||
Diluted earnings per common share | $ | $ | $ | $ | |||||||||||
Weighted average common shares outstanding - basic | |||||||||||||||
Weighted average common shares outstanding - diluted | |||||||||||||||
Dividends declared, per common share, during the period | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
NET INCOME | $ | $ | $ | $ | |||||||||||
Other comprehensive income: | |||||||||||||||
Interest rate swaps: | |||||||||||||||
Reclassification adjustments for losses included in net income (interest expense) | |||||||||||||||
Gains arising during the period on interest rate swaps | — | — | |||||||||||||
Total other comprehensive income | |||||||||||||||
COMPREHENSIVE INCOME | $ | $ | $ | $ |
Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Cumulative Net Income | Cumulative Dividends | Total Stockholders’ Equity | ||||||||||||||||||
Balance at December 31, 2017 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||
Issuance of common stock | — | — | — | — | |||||||||||||||||||
Common stock redemptions | — | ( | ) | — | — | — | ( | ) | |||||||||||||||
Share-based compensation | — | — | — | ||||||||||||||||||||
Net income | — | — | — | — | |||||||||||||||||||
Reclassification adjustments for losses included in net income (interest expense) | — | — | — | — | |||||||||||||||||||
Gains arising during the period on interest rate swaps | — | — | — | — | |||||||||||||||||||
Dividends to common stockholders ($0.90 per share) | — | — | — | — | ( | ) | ( | ) | |||||||||||||||
Balance at September 30, 2018 | $ | $ | $ | $ | $ | ( | ) | $ |
Nine Months Ended September 30, | |||||||
2018 | 2017 | ||||||
OPERATING ACTIVITIES | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | |||||||
Other amortization | |||||||
Share-based compensation | |||||||
Amortization of straight-line rent receivable | ( | ) | ( | ) | |||
Amortization of straight-line rent liability | |||||||
Gain on sales of real estate assets | ( | ) | ( | ) | |||
Impairment of real estate assets | — | ||||||
Equity from unconsolidated joint ventures (income) | ( | ) | — | ||||
Distributions from unconsolidated joint ventures | — | ||||||
Provision for bad debts, net | |||||||
Changes in operating assets and liabilities: | |||||||
Other assets | ( | ) | ( | ) | |||
Accounts payable and accrued liabilities | ( | ) | |||||
Other liabilities | ( | ) | |||||
Net cash provided by operating activities | |||||||
INVESTING ACTIVITIES | |||||||
Acquisitions of real estate | ( | ) | ( | ) | |||
Development of real estate | ( | ) | ( | ) | |||
Additional long-lived assets | ( | ) | ( | ) | |||
Proceeds from sales of real estate | |||||||
Proceeds from notes receivable repayments | |||||||
Net cash used in investing activities | ( | ) | ( | ) | |||
FINANCING ACTIVITIES | |||||||
Net borrowings (repayments) on unsecured credit facility | ( | ) | |||||
Repayments of notes and bonds payable | ( | ) | ( | ) | |||
Dividends paid | ( | ) | ( | ) | |||
Net proceeds from issuance of common stock | |||||||
Common stock redemptions | ( | ) | ( | ) | |||
Debt issuance and assumption costs | ( | ) | ( | ) | |||
Net cash (used in) provided by financing activities | ( | ) | |||||
Increase in cash and cash equivalents | |||||||
Cash and cash equivalents at beginning of period | |||||||
Cash and cash equivalents at end of period | $ | $ | |||||
Supplemental Cash Flow Information: | |||||||
Interest paid | $ | $ | |||||
Invoices accrued for construction, tenant improvements and other capitalized costs | $ | $ | |||||
Mortgage notes payable assumed upon acquisition (adjusted to fair value) | $ | $ | |||||
Capitalized interest | $ | $ |
(in thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
Type of Revenue | 2018 | 2017 | 2018 | 2017 | ||||||||||||
Parking income | $ | $ | $ | $ | ||||||||||||
Rental lease guaranty | ||||||||||||||||
Management fee income | ||||||||||||||||
Miscellaneous | ||||||||||||||||
$ | $ | $ | $ |
Three months ended September 30, 2017 | Nine months ended September 30, 2017 | ||||||||||||||
(in thousands) | As Previously Reported | As Reclassified | As Previously Reported | As Reclassified | |||||||||||
EXPENSES | |||||||||||||||
Property operating expense | $ | $ | $ | $ | |||||||||||
Bad debt, net | |||||||||||||||
OTHER INCOME (EXPENSE) | |||||||||||||||
Gain on sales of properties | ( | ) | ( | ) | |||||||||||
INCOME FROM CONTINUING OPERATIONS | $ | $ | $ | $ | |||||||||||
DISCONTINUED OPERATIONS | |||||||||||||||
Income (loss) from discontinued operations | $ | $ | $ | ( | ) | $ | |||||||||
Gain on sales of properties | |||||||||||||||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | $ | $ | $ | ( | ) | $ |
Three months ended September 30, 2017 | Nine months ended September 30, 2017 | ||||||||||||||
(in thousands) | As Reported | As Reclassified | As Reported | As Reclassified | |||||||||||
REVENUES | |||||||||||||||
Rental income | $ | $ | $ | $ | |||||||||||
Other operating | |||||||||||||||
$ | $ | $ | $ | ||||||||||||
OTHER INCOME (EXPENSE) | |||||||||||||||
Interest and other income, net | $ | $ | $ | $ | |||||||||||
NET INCOME | $ | $ | $ | $ |
(Dollars in millions) | Type (1) | Date Acquired | Purchase Price | Mortgage Notes Payable Assumed (2) | Cash Consideration(3) | Real Estate | Other (4) | Square Footage (Unaudited) | ||||||||||||||||||
Seattle, Washington | MOB | $ | $ | $ | $ | $ | ||||||||||||||||||||
Denver, Colorado (5) | MOB, OFC | ( | ) | ( | ) | |||||||||||||||||||||
Oklahoma City, Oklahoma | MOB | ( | ) | |||||||||||||||||||||||
Seattle, Washington | MOB | ( | ) | |||||||||||||||||||||||
Denver, Colorado | MOB | |||||||||||||||||||||||||
$ | $ | ( | ) | $ | $ | $ | ( | ) |
(1) | MOB = medical office building; OFC = office |
(2) | The mortgage note payable assumed in the acquisition does not reflect the fair value premium totaling $ |
(3) | Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition. |
(4) | Includes other assets acquired, liabilities assumed, intangibles recognized at acquisition and fair value adjustments on debt assumed. |
(5) | Includes |
(Dollars in millions) | Type (1) | Date Disposed | Sales Price | Closing Adjustments | Net Proceeds | Net Real Estate Investment | Other (including receivables) (2) | Gain | Square Footage (Unaudited) | |||||||||||||||||||||
Virginia (3) (4) | MOB, OFC | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||
Michigan (3) (5) | SNF | ( | ) | |||||||||||||||||||||||||||
Missouri | MOB | ( | ) | |||||||||||||||||||||||||||
Total dispositions | $ | $ | ( | ) | $ | $ | $ | $ |
(1) | MOB = medical office building; OFC = office; SNF = skilled nursing facility |
(2) | Includes straight-line rent receivables and leasing commissions. |
(3) | Previously classified as held for sale. |
(4) | Includes |
(5) |
• | The Company reclassified |
• | In April 2018, the Company sold |
• | In June 2018, the Company sold |
(Dollars in thousands) | September 30, 2018 | December 31, 2017 | |||||
Balance Sheet data: | |||||||
Land | $ | $ | |||||
Buildings, improvements and lease intangibles | |||||||
Personal property | |||||||
Accumulated depreciation | ( | ) | ( | ) | |||
Real estate assets held for sale, net | |||||||
Other assets, net | |||||||
Assets held for sale, net | $ | $ | |||||
Accounts payable and accrued liabilities | $ | $ | |||||
Other liabilities | |||||||
Liabilities of properties held for sale | $ | $ |
Maturity Dates | Balance as of | Effective Interest Rate as of | ||||||||||
(Dollars in thousands) | September 30, 2018 | December 31, 2017 | September 30, 2018 | |||||||||
Unsecured Credit Facility | 7/20 | $ | $ | % | ||||||||
Unsecured Term Loan Facility, net of issuance costs (1) | 12/22 | % | ||||||||||
Senior Notes due 2023, net of discount and issuance costs | 4/23 | % | ||||||||||
Senior Notes due 2025, net of discount and issuance costs (2) | 5/25 | % | ||||||||||
Senior Notes due 2028, net of discount and issuance costs | 1/28 | % | ||||||||||
Mortgage notes payable, net of discounts and issuance costs and including premiums | 12/18-5/40 | % | ||||||||||
$ | $ |
(1) | The effective interest rate includes the impact of interest rate swaps on $ |
(2) |
Derivative Instrument | Number of Instruments | Notional Amount (in millions) | |||
Interest rate swaps | $ |
Asset Derivatives | |||||
Balance at September 30, 2018 | |||||
(Dollars in thousands) | Balance Sheet Location | Fair Value | |||
Derivatives designated as hedging instruments | |||||
Interest rate swaps | Other assets | $ | |||
Total derivatives designated as hedging instruments | $ |
Amount of Gain Recognized in OCI on Derivative | Amount of Loss Reclassified from OCI into Income | ||||||||||
(Dollars in thousands) | 2018 | 2018 | 2017 | ||||||||
Interest rate products | $ | Interest expense | $ | $ | |||||||
Settled interest rate swaps | Interest expense | ||||||||||
$ | Total interest expense | $ | $ |
September 30, 2018 | December 31, 2017 | ||||
Balance, beginning of period | |||||
Issuance of common stock | |||||
Nonvested share-based awards, net of withheld shares | |||||
Balance, end of period |
Forward-starting Interest Rate Swaps | ||||||||
(Dollars in thousands) | 2018 | 2017 | ||||||
Beginning balance | $ | ( | ) | $ | ( | ) | ||
Gains arising during the period related to active interest rate swaps | ||||||||
Amounts reclassified from accumulated other comprehensive (income) loss | ||||||||
Net accumulated other comprehensive income | ||||||||
Ending balance | $ | $ | ( | ) |
Details about accumulated other comprehensive income (loss) components | Amount reclassified from accumulated other comprehensive income (loss) | Affected line item in the statement where net income is presented | ||||
(Dollars in thousands) | ||||||
Amounts reclassified from accumulated other comprehensive income (loss) related to settled interest rate swaps | $ | Interest Expense | ||||
Amounts reclassified from accumulated other comprehensive income (loss) related to current interest rate swaps | Interest Expense | |||||
$ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(Dollars in thousands, except per share data) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Weighted average Common Shares outstanding | |||||||||||||||
Weighted average Common Shares outstanding | |||||||||||||||
Nonvested shares | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Weighted average Common Shares outstanding—Basic | |||||||||||||||
Weighted average Common Shares outstanding—Basic | |||||||||||||||
Dilutive effect of employee stock purchase plan | |||||||||||||||
Weighted average Common Shares outstanding—Diluted | |||||||||||||||
Net Income | $ | $ | $ | $ | |||||||||||
Dividends paid on nonvested share-based awards | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Net income applicable to common stockholders | $ | $ | $ | $ | |||||||||||
Basic earnings per common share - Net income | $ | $ | $ | $ | |||||||||||
Diluted earnings per common share - Net income | $ | $ | $ | $ |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||
Share-based awards, beginning of period | |||||||||||
Granted | |||||||||||
Vested | ( | ) | ( | ) | ( | ) | |||||
Share-based awards, end of period |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||
Outstanding and exercisable, beginning of period | |||||||||||
Granted | |||||||||||
Exercised | ( | ) | ( | ) | ( | ) | ( | ) | |||
Forfeited | ( | ) | ( | ) | ( | ) | ( | ) | |||
Expired | ( | ) | ( | ) | |||||||
Outstanding and exercisable, end of period |
September 30, 2018 | December 31, 2017 | ||||||||||||||
(Dollars in millions) | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||
Notes and bonds payable (1) | $ | $ | $ | $ |
(1) |
(Dollars in millions) | Health System Affiliation | Date Acquired | Purchase Price | Mortgage Notes Payable Assumed | Square Footage | Cap Rate | Hospital Campus Location (1) | |||||||||||||
Seattle, Washington | Overlake Health | 5/4/18 | $ | 7.8 | $ | — | 13,314 | 5.0 | % | ADJ | ||||||||||
Denver, Colorado (2) | CHI | 5/18/18 | 25.0 | (8.0 | ) | 187,861 | 6.4 | % | ADJ | |||||||||||
Oklahoma City, Oklahoma | Integris Health | 5/21/18 | 11.4 | — | 82,647 | 5.9 | % | ADJ | ||||||||||||
Seattle, Washington | MultiCare Health | 6/29/18 | 26.2 | — | 86,942 | 5.7 | % | On | ||||||||||||
Denver, Colorado | CHI | 8/24/18 | 4.1 | — | 17,084 | 6.0 | % | ADJ | ||||||||||||
$ | 74.5 | $ | (8.0 | ) | 387,848 | 5.9 | % |
(1) | On = Located on a hospital campus; ADJ = adjacent to a hospital campus. The Company defines an adjacent property as being no more than 0.25 miles from a hospital campus. |
(2) | Includes two properties (a medical office building and an office building). |
(Dollars in millions) | Nine Months Ended September 30, 2018 | |||
Redevelopment and development | $ | 28.7 | ||
1st generation tenant improvements & planned capital expenditures for acquisitions | 9.7 | |||
2nd generation tenant improvements | 20.6 | |||
Capital expenditures | 17.5 | |||
Total capital funding | $ | 76.5 |
(Dollars in millions) | Date Disposed | Sales Price | Square Footage | 3Q 2018 NOI | Disposition Cap Rate | Property Type (1) | ||||||||||||
Virginia (2) | 4/26/18 | $ | 46.2 | 460,881 | $ | — | 13.3 | % | MOB, OFC | |||||||||
Michigan (3) | 6/27/18 | 9.5 | 121,672 | — | 25.5 | % | SNF | |||||||||||
Missouri | 8/30/18 | 9.8 | 70,893 | 0.1 | 4.3 | % | MOB | |||||||||||
Total dispositions | $ | 65.5 | 653,446 | $ | 0.1 | 13.7 | % |
(1) | MOB = medical office building; OFC = office; SNF = skilled nursing facility |
(2) | Includes seven properties, comprised of five single-tenant net lease buildings and two multi-tenant buildings. These buildings were sold pursuant to the exercise of a fixed-price purchase option. |
(3) | Includes five skilled nursing facilities. Sales price includes $0.5 million of forfeited earnest money from a prior terminated transaction. |
Gross Real Estate Investment as of September 30, 2018 | |||||||||||||||
Year Exercisable | Number of Properties | Fair Market Value Method (1) | Non Fair Market Value Method (2) | Total | |||||||||||
Current | 4 | $ | 95,569 | $ | — | $ | 95,569 | ||||||||
2019 | 1 | 21,355 | — | 21,355 | |||||||||||
2020 | — | — | — | — | |||||||||||
2021 | 1 | — | 14,984 | 14,984 | |||||||||||
2022 | — | — | — | — | |||||||||||
2023 | — | — | — | — | |||||||||||
2024 | — | — | — | — | |||||||||||
2025 | 5 | 19,760 | 221,929 | 241,689 | |||||||||||
2026 | — | — | — | — | |||||||||||
2027 | — | — | — | — | |||||||||||
2028 and thereafter | 4 | 119,165 | — | 119,165 | |||||||||||
Total | 15 | $ | 255,849 | $ | 236,913 | $ | 492,762 |
(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. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
(Amounts in thousands, except per share data) | 2018 | 2017 | 2018 | 2017 | |||||||||||
Net Income | $ | 6,548 | $ | 3,173 | $ | 53,456 | $ | 60,243 | |||||||
(Gain) loss on sales of real estate assets | (1,288 | ) | 7 | (30,879 | ) | (39,525 | ) | ||||||||
Impairment of real estate assets | — | 5,059 | — | 5,387 | |||||||||||
Real estate depreciation and amortization | 42,723 | 36,478 | 123,475 | 107,453 | |||||||||||
Total adjustments | 41,435 | 41,544 | 92,596 | 73,315 | |||||||||||
FFO Attributable to Common Stockholders | $ | 47,983 | $ | 44,717 | $ | 146,052 | $ | 133,558 | |||||||
Acquisition and pursuit costs (1) | 141 | 507 | 538 | 1,878 | |||||||||||
Revaluation of awards upon retirement | 70 | — | 70 | — | |||||||||||
Forfeited earnest money received | — | — | (466 | ) | — | ||||||||||
Normalized FFO Attributable to Common Stockholders | $ | 48,194 | $ | 45,224 | $ | 146,194 | $ | 135,436 | |||||||
Non-real estate depreciation and amortization | 1,506 | 1,388 | 4,453 | 4,112 | |||||||||||
Provision for bad debt, net | (62 | ) | 4 | 42 | 175 | ||||||||||
Straight-line rent, net | (413 | ) | (1,156 | ) | (2,426 | ) | (4,374 | ) | |||||||
Stock-based compensation | 2,605 | 2,429 | 8,020 | 7,496 | |||||||||||
Total non-cash items | 3,636 | 2,665 | 10,089 | 7,409 | |||||||||||
2nd generation TI | (6,950 | ) | (4,481 | ) | (20,572 | ) | (13,438 | ) | |||||||
Leasing commissions paid | (1,139 | ) | (1,826 | ) | (4,937 | ) | (4,394 | ) | |||||||
Capital additions | (6,229 | ) | (4,203 | ) | (17,530 | ) | (12,390 | ) | |||||||
FAD | $ | 37,512 | $ | 37,379 | $ | 113,244 | $ | 112,623 | |||||||
FFO per Common Share—Diluted | $ | 0.39 | $ | 0.37 | $ | 1.18 | $ | 1.14 | |||||||
Normalized FFO per Common Share—Diluted | $ | 0.39 | $ | 0.38 | $ | 1.18 | $ | 1.16 | |||||||
FFO weighted average common shares outstanding - Diluted (2) | 124,192 | 120,081 | 124,051 | 117,109 |
(1) | Acquisition and pursuit costs include third party and travel costs related to the pursuit of acquisitions and developments. |
(2) | Diluted weighted average common shares outstanding for the three and nine months ended September 30, 2018 includes the dilutive effect of nonvested share-based awards outstanding of 839,990 and 715,562, respectively. |
• | 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 |
• | Properties with negative net operating income that is expected to last at least two quarters. |
Same Store Cash NOI for the | ||||||||||||||
Three Months Ended September 30, | ||||||||||||||
(Dollars in thousands) | Number of Properties | Gross Investment at September 30, 2018 | 2018 | 2017 | ||||||||||
Multi-tenant Properties | 145 | $ | 2,833,607 | $ | 51,508 | $ | 49,995 | |||||||
Single-tenant Net Lease Properties | 15 | 482,727 | 10,967 | 10,578 | ||||||||||
Total | 160 | $ | 3,316,334 | $ | 62,475 | $ | 60,573 |
Reconciliation of Same Store Cash NOI: | |||||||
Three Months Ended September 30, | |||||||
(Dollars in thousands) | 2018 | 2017 | |||||
Net income | $ | 6,548 | $ | 3,173 | |||
Other (income) expense | 12,135 | 18,819 | |||||
General and administrative expense | 8,504 | 8,021 | |||||
Depreciation and amortization expense | 42,061 | 35,873 | |||||
Other expenses (1) | 1,855 | 1,922 | |||||
Straight-line rent revenue | (802 | ) | (1,332 | ) | |||
Other revenue (2) | (1,173 | ) | (1,327 | ) | |||
Cash NOI | 69,128 | 65,149 | |||||
Cash NOI not included in same store | (6,653 | ) | (4,576 | ) | |||
Same store cash NOI | $ | 62,475 | $ | 60,573 |
(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, mortgage interest income, above and below market lease intangible amortization, lease inducement amortization, lease terminations and tenant improvement overage amortization. |
Reconciliation of Same Store Property Count: | ||
Property Count as of September 30, 2018 | ||
Same Store Properties | 160 | |
Acquisitions | 26 | |
Development Conversion | 1 | |
Reposition | 14 | |
Total Owned Real Estate Properties | 201 |
Three Months Ended September 30, | Change | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | $ | % | ||||||||||
Property operating | $ | 99,367 | $ | 90,935 | $ | 8,432 | 9.3 | % | ||||||
Single-tenant net lease | 11,283 | 12,811 | (1,528 | ) | (11.9 | )% | ||||||||
Straight-line rent | 802 | 1,332 | (530 | ) | (39.8 | )% | ||||||||
Rental income | 111,452 | 105,078 | 6,374 | 6.1 | % | |||||||||
Other operating | 2,010 | 1,947 | 63 | 3.2 | % | |||||||||
Total Revenues | $ | 113,462 | $ | 107,025 | $ | 6,437 | 6.0 | % |
• | Acquisitions and developments in 2017 and 2018 contributed $7.3 million. |
• | Leasing activity, including contractual rent increases, contributed $1.7 million. |
• | The conversion of one property to single-tenant net lease resulted in a decrease of $0.2 million. |
• | Dispositions in 2017 and 2018 resulted in a decrease of $0.4 million. |
• | Dispositions in 2018 resulted in a decrease of $2.1 million. |
• | Leasing activity including contractual rent increases contributed $0.4 million. |
• | An acquisition in 2017 resulted in an increase of $0.1 million. |
• | The conversion of one property from multi-tenant resulted in an increase of $0.1 million. |
• | Acquisitions and developments in 2017 and 2018 resulted in an increase of $3.0 million. |
• | Portfolio property tax increases of $0.5 million. |
• | Compensation expense increased $0.3 million. |
• | Dispositions in 2017 and 2018 and resulted in a decrease of $0.3 million. |
• | Acquisitions and developments in 2017 and 2018 resulted in an increase of $5.2 million. |
• | Various building and tenant improvement expenditures resulted in an increase of $3.0 million. |
• | Dispositions in 2017 and 2018 resulted in a decrease of $0.6 million. |
• | Assets that became fully depreciated resulted in a decrease of $1.4 million. |
Three Months Ended September 30, | Change | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | $ | % | ||||||||||
Contractual interest | $ | 13,016 | $ | 13,603 | $ | (587 | ) | (4.3 | )% | |||||
Net discount/premium accretion | 8 | 44 | (36 | ) | (81.8 | )% | ||||||||
Deferred financing costs amortization | 611 | 615 | (4 | ) | (0.7 | )% | ||||||||
Interest rate swap amortization | 42 | 42 | — | — | % | |||||||||
Interest cost capitalization | (213 | ) | (197 | ) | (16 | ) | 8.1 | % | ||||||
Total interest expense | $ | 13,464 | $ | 14,107 | $ | (643 | ) | (4.6 | )% |
• | The Company's unsecured senior notes due 2021 ("Senior Notes due 2021") were repaid in the fourth quarter of 2017 and accounted for a decrease of $5.8 million. |
• | The Company's unsecured senior notes due 2028 ("Senior Notes due 2028") were issued in the fourth quarter of 2017 and accounted for an increase of $2.7 million. |
• | The Unsecured Credit Facility balance and interest rate increases accounted for an increase of approximately $1.8 million. |
• | The Company's unsecured term loan due 2022 (the "Unsecured Term Loan") interest rate increase accounted for an increase of $0.3 million. |
• | Mortgage notes assumed upon acquisition of real properties accounted for an increase of $0.4 million. |
Nine Months Ended September 30, | Change | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | $ | % | ||||||||||
Property operating | $ | 291,079 | $ | 266,485 | $ | 24,594 | 9.2 | % | ||||||
Single-tenant net lease | 36,569 | 39,819 | (3,250 | ) | (8.2 | )% | ||||||||
Straight-line rent | 3,599 | 4,867 | (1,268 | ) | (26.1 | )% | ||||||||
Rental income | 331,247 | 311,171 | 20,076 | 6.5 | % | |||||||||
Other operating | 5,973 | 5,816 | 157 | 2.7 | % | |||||||||
Total Revenues | $ | 337,220 | $ | 316,987 | $ | 20,233 | 6.4 | % |
• | Acquisitions and developments in 2017 and 2018 contributed $20.9 million. |
• | Leasing activity, including contractual rent increases, contributed $5.9 million. |
• | Dispositions in 2017 and 2018 resulted in a decrease of $1.9 million. |
• | The conversion of one property to single-tenant net lease resulted in a decrease of $0.3 million. |
• | Dispositions in 2017 and 2018 resulted in a decrease of $5.1 million. |
• | Acquisitions in 2017 resulted in an increase of $0.5 million. |
• | Leasing activity, including contractual rent increases, contributed $1.1 million. |
• | The conversion of one property from multi-tenant resulted in an increase of $0.2 million. |
• | Net leasing activity, including contractual rent increases, resulted in a decrease of $1.7 million. |
• | Dispositions in 2017 and 2018 resulted in a decrease of $0.3 million. |
• | Acquisitions and developments in 2017 and 2018 resulted in an increase of $0.7 million. |
• | Acquisitions and developments in 2017 and 2018 resulted in an increase of $8.8 million. |
• | Increases in portfolio operating expenses as follows: |
◦ | property tax of approximately $1.4 million; |
◦ | maintenance and repair expense of approximately $0.3 million; |
◦ | janitorial expense of approximately $0.3 million; |
◦ | compensation-related expenses of approximately $1.0 million; and |
◦ | other expenses of $0.3 million. |
• | Dispositions in 2017 and 2018 resulted in a decrease of $0.9 million. |
• | Utilities expense decreased $0.2 million. |
• | Acquisitions and developments in 2017 and 2018 resulted in an increase of $14.6 million. |
• | Various building and tenant improvement expenditures resulted in an increase of $8.8 million. |
• | Dispositions in 2017 and 2018 resulted in a decrease of $2.7 million. |
• | Assets that became fully depreciated resulted in a decrease of $4.1 million. |
Nine Months Ended September 30, | Change | |||||||||||||
(Dollars in thousands) | 2018 | 2017 | $ | % | ||||||||||
Contractual interest | $ | 37,927 | $ | 41,259 | $ | (3,332 | ) | (8.1 | )% | |||||
Net discount/premium accretion | 10 | 149 | (139 | ) | (93.3 | )% | ||||||||
Deferred financing costs amortization | 1,823 | 1,840 | (17 | ) | (0.9 | )% | ||||||||
Interest rate swap amortization | 126 | 127 | (1 | ) | (0.8 | )% | ||||||||
Interest cost capitalization | (684 | ) | (681 | ) | (3 | ) | 0.4 | % | ||||||
Total interest expense | $ | 39,202 | $ | 42,694 | $ | (3,492 | ) | (8.2 | )% |
• | The Senior Notes due 2021 were repaid in the fourth quarter of 2017 and accounted for a decrease of $17.3 million. |
• | The Senior Notes due 2028 were issued in the fourth quarter of 2017 and accounted for an increase of $8.2 million. |
• | Unsecured Credit Facility balance and interest rate increases accounted for an increase of approximately $3.6 million. |
• | Unsecured Term Loan interest rate increase accounted for an increase of $1.1 million. |
• | Mortgage notes assumed upon acquisition of real properties accounted for an increase of $1.3 million, offset by Mortgage notes repayments decrease of approximately $0.2 million. |
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 | 1,359 | $ | 29.04 | — | — | ||||
August 1 - August 31 | — | — | — | — | |||||
September 1 - September 30 | — | — | — | — | |||||
Total | 1,359 |
Exhibit | Description | |
Exhibit 4.1 | Specimen Stock Certificate (3) | |
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) |
(1) | Filed as an exhibit to the Company's Form 8-K filed May 5, 2017 and hereby incorporated by reference. |
(2) | Filed as an exhibit to the Company's Form 10-Q for the quarter ended June 30, 2015 and hereby incorporated by reference. |
(3) | 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. |
(4) | Filed as an exhibit to the Company's Form 8-K filed May 17, 2001 and hereby incorporated as reference. |
(5) | Filed as an exhibit to the Company's Form 8-K filed March 26, 2013 and hereby incorporated by reference. |
(6) | Filed as an exhibit to the Company's Form 8-K filed April 24, 2015 and hereby incorporated by reference. |
(7) | Filed as an exhibit to the Company’s Form 8-K filed December 11, 2017 and hereby incorporated by reference. |
HEALTHCARE REALTY TRUST INCORPORATED | |||
By: | /s/ J. CHRISTOPHER DOUGLAS | ||
J. Christopher Douglas Executive Vice President and Chief Financial Officer | |||
Date: | November 1, 2018 |
1. | I have reviewed this quarterly report on Form 10-Q of Healthcare Realty Trust Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 1, 2018 | |
/s/ TODD J. MEREDITH | ||
Todd J. Meredith | ||
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Healthcare Realty Trust Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | November 1, 2018 | |
/s/ J. CHRISTOPHER DOUGLAS | ||
J. Christopher Douglas | ||
Executive Vice President and Chief Financial Officer |
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | November 1, 2018 | |
/s/ TODD J. MEREDITH | ||
Todd J. Meredith | ||
President and Chief Executive Officer | ||
/s/ J. CHRISTOPHER DOUGLAS | ||
J. Christopher Douglas | ||
Executive Vice President and Chief Financial Officer |
Document and Entity Information - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Oct. 26, 2018 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | HEALTHCARE REALTY TRUST INCORPORATED | |
Entity Central Index Key | 0000899749 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 125,237,283 | |
Entity Emerging Growth Company | false | |
Entity Small Business | false |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, authorized shares | 50,000,000 | 50,000,000 |
Preferred stock, issued shares | 0 | 0 |
Preferred stock, outstanding shares | 0 | 0 |
Common stock, par value (dollars per share) | $ 0.01 | $ 0.01 |
Common stock, authorized shares | 300,000,000 | 300,000,000 |
Common stock, issued shares | 125,237,000 | 125,132,000 |
Common stock, outstanding shares | 125,237,000 | 125,132,000 |
Condensed Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
REVENUES | ||||
Rental income | $ 111,452 | $ 105,078 | $ 331,247 | $ 311,171 |
Other operating | 2,010 | 1,947 | 5,973 | 5,816 |
Revenues | 113,462 | 107,025 | 337,220 | 316,987 |
EXPENSES | ||||
Property operating | 44,135 | 40,628 | 127,691 | 116,663 |
General and administrative | 8,504 | 8,021 | 25,977 | 24,720 |
Acquisition and pursuit costs | 141 | 507 | 538 | 1,878 |
Depreciation and amortization | 42,061 | 35,873 | 121,764 | 105,148 |
Bad debts, net of recoveries | (62) | 4 | 42 | 175 |
Total Expenses | 94,779 | 85,033 | 276,012 | 248,584 |
OTHER INCOME (EXPENSE) | ||||
Gain (loss) on sales of real estate assets | 1,288 | (7) | 30,879 | 39,525 |
Interest expense | (13,464) | (14,107) | (39,202) | (42,694) |
Impairment of real estate assets | 0 | (5,059) | (5,387) | |
Interest and other income, net | 41 | 354 | 571 | 396 |
Total other income (expense) | (12,135) | (18,819) | (7,752) | (8,160) |
NET INCOME | $ 6,548 | $ 3,173 | $ 53,456 | $ 60,243 |
Basic earnings per common share (in dollars per share) | $ 0.05 | $ 0.02 | $ 0.42 | $ 0.50 |
Diluted earnings per common share (in dollars per share) | $ 0.05 | $ 0.02 | $ 0.42 | $ 0.50 |
Weighted average common shares outstanding - basic (in shares) | 123,299,809 | 119,098,149 | 123,280,753 | 116,180,979 |
Weighted average common shares outstanding - diluted (in shares) | 123,351,956 | 119,181,391 | 123,335,516 | 116,277,239 |
Dividends declared, per common share, during the period (in dollars per share) | $ 0.30 | $ 0.30 | $ 0.90 | $ 0.90 |
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Statement of Comprehensive Income [Abstract] | ||||
NET INCOME | $ 6,548 | $ 3,173 | $ 53,456 | $ 60,243 |
Interest rate swaps: | ||||
Reclassification adjustments for losses included in net income (interest expense) | 95 | 43 | 369 | 127 |
Gains arising during the period on interest rate swaps | 374 | 1,403 | ||
Total other comprehensive income | 469 | 43 | 1,772 | 127 |
COMPREHENSIVE INCOME | $ 7,017 | $ 3,216 | $ 55,228 | $ 60,370 |
Condensed Consolidated Statement of Equity (Unaudited) (Parenthetical) |
9 Months Ended |
---|---|
Sep. 30, 2018
$ / shares
| |
Statement of Stockholders' Equity [Abstract] | |
Dividend per share to common Stockholders (in dollars per share) | $ 0.90 |
Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2018, the Company had gross investments of approximately $3.9 billion in 201 real estate properties located in 27 states totaling approximately 14.8 million square feet. The Company provided leasing and property management services to approximately 11.1 million square feet nationwide. 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, 2017. 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, 2017. 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, 2018 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. 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. 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. See the New Accounting Pronouncements section below for additional information. 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:
The Company’s three 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. Reclassifications Condensed Consolidated Statements of Income Certain reclassifications have been made on the Company's Condensed Consolidated Statements of Income. After the adoption of Accounting Standards Update ("ASU") 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," the Company's dispositions have not met the updated definition to be reported as discontinued operations. The Company had some residual impact from properties that were identified as discontinued operations prior to the adoption of ASU 2014-08. These amounts are considered immaterial and have been reclassified for the prior year presentation on the Company's Condensed Consolidated Statements of Income.
New Accounting Pronouncements Accounting Standards Update No. 2014-09 and No. 2015-14 In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers," a comprehensive new revenue recognition standard that supersedes most existing revenue recognition guidance, including sales of real estate. This standard's core principle is that a company will recognize revenue when it transfers goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods and services. However, leasing contracts, representing the major source of the Company's revenues, are not within the scope of the new standard and will continue to be accounted for under other standards. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606); Deferral of the Effective Date." This standard was effective for the Company for annual and interim periods beginning after December 15, 2017 with early adoption permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year. The Company adopted this standard by using the full retrospective adoption method beginning on January 1, 2018. The Company's revenue-producing contracts are primarily leases that are not within the scope of this standard. As a result, the adoption of this standard did not have a material impact on the timing and measurement of the Company's leasing revenues. The Company has determined that parking income, rental lease guaranty income and management fee income are within the scope of Topic 606. However, these items were determined to have the same pattern of revenue recognition that the Company had historically recognized. The Company reclassified these amounts along with all other items that are accounted for within the scope of Topic 606 into the Other operating line item on the Company's Condensed Consolidated Statements of Income. This line item historically contained the revenue associated with rental lease guaranty income, management fee income and other non-lease revenue. The Company reclassified parking income from rental income to other operating income. The following table represents the impact of the adoption of this standard on the Company's Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017:
Accounting Standards Update No. 2016-02, No. 2018-01 and No. 2018-11 In February 2016, the FASB issued ASU 2016-02, "Leases." In January 2018, the FASB issued ASU 2018-01, "Leases - Land Easement Practical Expedient for Transition to Topic 842," and in July 2018, the FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases" and ASU 2018-11, "Leases - Targeted Improvements." These accounting standard updates are collectively referred to as "Topic 842." Topic 842 provides several practical expedients that the Company expects to elect. 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, and (b) the 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. 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 will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the income statement. The Company expects that most of the leases where the Company is the lessee will be recorded on the Company's balance sheet as operating leases. These leases are primarily ground leases, but also include the Company's corporate office lease, management office leases in third party buildings and certain copier and postage machine leases. The impact to the Company's Consolidated Balance Sheets has not yet been determined. The Company is in the process of working with consultants to determine the appropriate discount rate required to calculate the present value of the future lease payments for ground leases that have lease terms longer than typical secured financing allows. 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, will be accounted for under Topic 606 and separated from the lease payments. However, the Company will elect the lessor practical expedient allowing the Company to not separate these components when certain conditions are met. The Company does not expect a material impact from the adoption of Topic 842 related to leases where the Company is the lessor. The new standard is effective for the Company on January 1, 2019. Topic 842 provides two transition alternatives. The Company expects to choose the optional transition method available to apply the guidance in Accounting Standards Codification Topic 840 in the comparative periods presented in the year Topic 842 is adopted. Topic 842 includes extensive quantitative and qualitative disclosures as compared to Topic 840, Leases, for both lessees and lessors. The Company is continuing to evaluate the impact from the adoption of this new standard on the Consolidated Financial Statements and related notes. Accounting Standards Update No. 2016-13 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. This standard is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted. The Company is in the initial stages of evaluating the impact from the adoption of this new standard on the Consolidated Financial Statements and related notes. 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 not expect a material impact on the Consolidated Financial Statements and related notes from the adoption of this standard. Accounting Standards Update No. 2017-05 In February 2017, the FASB issued ASU 2017-05, "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets." This update defines an in-substance nonfinancial asset, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sales of real estate, removes exceptions to the financial asset derecognition model and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The Company adopted this standard as of January 1, 2018 on the full retrospective adoption method. The adoption of this standard did not have a material impact to the Consolidated Financial Statements and related notes. Accounting Standards Update No. 2017-09 In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation - Scope of Modification Accounting." This update provides guidance about which changes to the terms and conditions of share-based awards require an entity to apply modification accounting in Topic 718. The Company adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact to the Consolidated Financial Statements and related notes.
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Real Estate Investments |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Investments | Real Estate Investments 2018 Acquisitions The following table details the Company's acquisitions for the nine months ended September 30, 2018:
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2018 Dispositions The following table details the Company's dispositions for the nine months ended September 30, 2018:
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Non-monetary Exchange On June 29, 2018, the Company completed the swap of a non-revenue producing garage that was built by the Company in 2012 located in Denver, Colorado for 20.5 acres of land adjacent to the Catholic Health Initiative’s St. Anthony Hospital campus. A portion of this land, approximately 4.6 acres, has been allocated to an existing medical office building that was developed by the Company in 2017. This building is located on land previously ground leased from the hospital. The remaining land has been recorded in land held for development. The land acquired was appraised for $5.8 million. The Company had a net investment of $3.9 million in the parking garage and recognized a gain of $1.9 million in connection with this transaction. Assets Held for Sale As of December 31, 2017, the Company had eight properties classified as held for sale. The following changes to assets held for sale have occurred during 2018:
As of September 30, 2018, the Company had one property remaining classified as held for sale. The table below reflects the assets and liabilities of the properties classified as held for sale as of September 30, 2018 and December 31, 2017:
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Notes and Bonds Payable |
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Notes and Bonds Payable | Notes and Bonds Payable The table below details the Company’s notes and bonds payable.
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(2) 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 income (loss) on the Company's Condensed Consolidated Balance Sheets.
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Derivative Financial Instruments |
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Derivative Financial Instruments | 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) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in Accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of September 30, 2018, the Company had four outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet The table below presents the fair value of the Company's derivative financial instruments, as well as their classification on the Condensed Consolidated Balance Sheet as of September 30, 2018.
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 Accumulated Other Comprehensive Income (Loss) ("OCI") during the nine months ended September 30, 2018 and 2017 related to the Company's outstanding interest rate swaps.
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. |
Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 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 is redeveloping a medical office building in Charlotte, North Carolina, which includes a 38,000 square foot vertical expansion. As of September 30, 2018, the Company has funded approximately $9.2 million on the redevelopment of this property. The project is expected to be completed in the first 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, 2018, the Company has funded approximately $18.0 million on the development. The Company expects the project to be completed in the second quarter of 2019.
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Stockholders' Equity | 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, 2018 and the year ended December 31, 2017:
At-The-Market Equity Offering Program No shares were sold under the Company's At-the-Market Equity Offering Program during the nine months ended September 30, 2018. The Company had 5,868,697 authorized shares remaining available to be sold under the current sales agreements as of October 26, 2018. Common Stock Dividends During the nine months ended September 30, 2018, the Company declared and paid common stock dividends totaling $0.90 per share. On October 30, 2018, the Company declared a quarterly common stock dividend in the amount of $0.30 per share payable on November 30, 2018 to stockholders of record on November 15, 2018. Accumulated Other Comprehensive Income (Loss) As of September 30, 2018, the Company had four outstanding interest rate swaps to hedge the variable cash flows associated with existing variable-rate debt. The Company continues to amortize the 2015 settlement of forward-starting interest rate swaps that were entered into in connection with the issuance of the Company's Senior Notes due 2025. This amount will be reclassified out of OCI impacting net income over the 10-year term of the associated senior note issuance. See Note 4 for more information regarding the Company's derivative instruments. The following table represents the changes in balances of each component and the amounts reclassified out of OCI related to the Company during the nine months ended September 30, 2018 and 2017:
The following table represents the details regarding the reclassifications from OCI during the nine months ended September 30, 2018:
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. The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2018 and 2017.
Incentive Plans A summary of the activity under the Company's share-based incentive plans for the three and nine months ended September 30, 2018 and 2017 is included in the table below.
During the nine months ended September 30, 2018 and 2017, the Company withheld 22,555 and 16,581 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, 2018 and 2017 is included in the table below.
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Fair Value of Financial Instruments |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | 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 due 2020 and unsecured term loan facility due 2022 - 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, 2018 and December 31, 2017.
______ (1) Level 2 – model-derived valuations in which significant inputs and significant value drivers are observable in active markets.
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Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Overview | Business OverviewHealthcare 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, 2018, the Company had gross investments of approximately $3.9 billion in 201 real estate properties located in 27 states totaling approximately 14.8 million square feet. The Company provided leasing and property management services to approximately 11.1 million square feet nationwide. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation | 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, 2017. All material intercompany transactions and balances have been eliminated in consolidation. |
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Use of Estimates in the Condensed Consolidated Financial Statements | Use of Estimates in the Condensed Consolidated Financial StatementsPreparation 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. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue from Contracts with Customers (Topic 606) | 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. See the New Accounting Pronouncements section below for additional information. 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:
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New Accounting Pronouncements | New Accounting Pronouncements Accounting Standards Update No. 2014-09 and No. 2015-14 In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, "Revenue from Contracts with Customers," a comprehensive new revenue recognition standard that supersedes most existing revenue recognition guidance, including sales of real estate. This standard's core principle is that a company will recognize revenue when it transfers goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods and services. However, leasing contracts, representing the major source of the Company's revenues, are not within the scope of the new standard and will continue to be accounted for under other standards. In August 2015, the FASB issued ASU No. 2015-14, "Revenue from Contracts with Customers (Topic 606); Deferral of the Effective Date." This standard was effective for the Company for annual and interim periods beginning after December 15, 2017 with early adoption permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year. The Company adopted this standard by using the full retrospective adoption method beginning on January 1, 2018. The Company's revenue-producing contracts are primarily leases that are not within the scope of this standard. As a result, the adoption of this standard did not have a material impact on the timing and measurement of the Company's leasing revenues. The Company has determined that parking income, rental lease guaranty income and management fee income are within the scope of Topic 606. However, these items were determined to have the same pattern of revenue recognition that the Company had historically recognized. The Company reclassified these amounts along with all other items that are accounted for within the scope of Topic 606 into the Other operating line item on the Company's Condensed Consolidated Statements of Income. This line item historically contained the revenue associated with rental lease guaranty income, management fee income and other non-lease revenue. The Company reclassified parking income from rental income to other operating income. The following table represents the impact of the adoption of this standard on the Company's Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017:
Accounting Standards Update No. 2016-02, No. 2018-01 and No. 2018-11 In February 2016, the FASB issued ASU 2016-02, "Leases." In January 2018, the FASB issued ASU 2018-01, "Leases - Land Easement Practical Expedient for Transition to Topic 842," and in July 2018, the FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases" and ASU 2018-11, "Leases - Targeted Improvements." These accounting standard updates are collectively referred to as "Topic 842." Topic 842 provides several practical expedients that the Company expects to elect. 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, and (b) the 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. 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 will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the income statement. The Company expects that most of the leases where the Company is the lessee will be recorded on the Company's balance sheet as operating leases. These leases are primarily ground leases, but also include the Company's corporate office lease, management office leases in third party buildings and certain copier and postage machine leases. The impact to the Company's Consolidated Balance Sheets has not yet been determined. The Company is in the process of working with consultants to determine the appropriate discount rate required to calculate the present value of the future lease payments for ground leases that have lease terms longer than typical secured financing allows. 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, will be accounted for under Topic 606 and separated from the lease payments. However, the Company will elect the lessor practical expedient allowing the Company to not separate these components when certain conditions are met. The Company does not expect a material impact from the adoption of Topic 842 related to leases where the Company is the lessor. The new standard is effective for the Company on January 1, 2019. Topic 842 provides two transition alternatives. The Company expects to choose the optional transition method available to apply the guidance in Accounting Standards Codification Topic 840 in the comparative periods presented in the year Topic 842 is adopted. Topic 842 includes extensive quantitative and qualitative disclosures as compared to Topic 840, Leases, for both lessees and lessors. The Company is continuing to evaluate the impact from the adoption of this new standard on the Consolidated Financial Statements and related notes. Accounting Standards Update No. 2016-13 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. This standard is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted. The Company is in the initial stages of evaluating the impact from the adoption of this new standard on the Consolidated Financial Statements and related notes. 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 not expect a material impact on the Consolidated Financial Statements and related notes from the adoption of this standard. Accounting Standards Update No. 2017-05 In February 2017, the FASB issued ASU 2017-05, "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets." This update defines an in-substance nonfinancial asset, unifies guidance related to partial sales of nonfinancial assets, eliminates rules specifically addressing the sales of real estate, removes exceptions to the financial asset derecognition model and clarifies the accounting for contributions of nonfinancial assets to joint ventures. The Company adopted this standard as of January 1, 2018 on the full retrospective adoption method. The adoption of this standard did not have a material impact to the Consolidated Financial Statements and related notes. Accounting Standards Update No. 2017-09 In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation - Scope of Modification Accounting." This update provides guidance about which changes to the terms and conditions of share-based awards require an entity to apply modification accounting in Topic 718. The Company adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact to the Consolidated Financial Statements and related notes.
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Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of revenue | Below is a detail of the amounts by category:
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Schedule of reclassifications | These amounts are considered immaterial and have been reclassified for the prior year presentation on the Company's Condensed Consolidated Statements of Income.
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Impact of Adoption of New Accounting Standard | The following table represents the impact of the adoption of this standard on the Company's Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017:
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Real Estate Investments (Tables) |
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Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of acquisitions | The following table details the Company's acquisitions for the nine months ended September 30, 2018:
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Summary of dispositions | The following table details the Company's dispositions for the nine months ended September 30, 2018:
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(5) Includes five skilled nursing facilities. Sales price includes $0.5 million of forfeited earnest money from a prior terminated transaction.
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Assets held for sale | The table below reflects the assets and liabilities of the properties classified as held for sale as of September 30, 2018 and December 31, 2017:
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Notes and Bonds Payable (Tables) |
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Schedule of Debt | The table below details the Company’s notes and bonds payable.
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Derivative Financial Instruments (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Cash Flow Hedges Included in Accumulated Other Comprehensive Income (Loss) | As of September 30, 2018, the Company had four outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
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Schedule of Derivative Instruments in Statement of Financial Position, Fair Value | 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, 2018.
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Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss) | The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income (Loss) ("OCI") during the nine months ended September 30, 2018 and 2017 related to the Company's outstanding interest rate swaps.
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Stockholders' Equity (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of beginning and ending common stock outstanding | The following table provides a reconciliation of the beginning and ending shares of common stock outstanding for the nine months ended September 30, 2018 and the year ended December 31, 2017:
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Schedule of accumulated other comprehensive income (loss) | The following table represents the changes in balances of each component and the amounts reclassified out of OCI related to the Company during the nine months ended September 30, 2018 and 2017:
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Reclassification out of Accumulated Other Comprehensive Income | The following table represents the details regarding the reclassifications from OCI during the nine months ended September 30, 2018:
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Earnings (loss) per share | The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2018 and 2017.
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Summary of the activity under the Incentive Plan | A summary of the activity under the Company's share-based incentive plans for the three and nine months ended September 30, 2018 and 2017 is included in the table below.
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Summary of employee stock purchase plan activity | A summary of the activity under the Purchase Plan for the three and nine months ended September 30, 2018 and 2017 is included in the table below.
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Fair Value of Financial Instruments (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value and carrying values for notes and bonds payable, mortgage notes receivable, and notes receivable | The table below details the fair values and carrying values for notes and bonds payable at September 30, 2018 and December 31, 2017.
______ (1) Level 2 – model-derived valuations in which significant inputs and significant value drivers are observable in active markets.
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Summary of Significant Accounting Policies (Details) ft² in Millions, $ in Billions |
Sep. 30, 2018
USD ($)
ft²
state
property
|
---|---|
Business Overview: | |
Gross investment amount, total | $ | $ 3.9 |
Number of real estate properties | property | 201 |
Number of states that the Company owns real estate in, whole units | state | 27 |
Square footage of owned real estate properties | 14.8 |
Approximate square feet for which Nationwide property management services provided by company | 11.1 |
Summary of Significant Accounting Policies - Revenue Recognition (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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Disaggregation of Revenue [Line Items] | ||||
Other operating | $ 2,010 | $ 1,947 | $ 5,973 | $ 5,816 |
Parking Income | ||||
Disaggregation of Revenue [Line Items] | ||||
Other operating | 1,752 | 1,669 | 5,197 | 4,907 |
Rental Lease Guaranty | ||||
Disaggregation of Revenue [Line Items] | ||||
Other operating | 168 | 168 | 488 | 545 |
Management Fee Income | ||||
Disaggregation of Revenue [Line Items] | ||||
Other operating | 68 | 70 | 205 | 237 |
Miscellaneous | ||||
Disaggregation of Revenue [Line Items] | ||||
Other operating | $ 22 | $ 40 | $ 83 | $ 127 |
Summary of Significant Accounting Policies - Reclassifications (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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Reclassifications [Line Items] | ||||
Property operating expense | $ 44,135 | $ 40,628 | $ 127,691 | $ 116,663 |
Bad debts, net of recoveries | (62) | 4 | 42 | 175 |
Gain on sales of properties | 1,288 | (7) | 30,879 | 39,525 |
INCOME FROM CONTINUING OPERATIONS | $ 6,548 | 3,173 | $ 53,456 | 60,243 |
Income (loss) from discontinued operations | 0 | 0 | ||
Gain on sales of properties | 0 | 0 | ||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | 0 | 0 | ||
As Previously Reported | ||||
Reclassifications [Line Items] | ||||
Property operating expense | 40,626 | 116,644 | ||
Bad debts, net of recoveries | 14 | 185 | ||
Gain on sales of properties | (7) | 39,519 | ||
INCOME FROM CONTINUING OPERATIONS | 3,165 | 60,247 | ||
Income (loss) from discontinued operations | 8 | (9) | ||
Gain on sales of properties | 0 | 5 | ||
INCOME (LOSS) FROM DISCONTINUED OPERATIONS | $ 8 | $ (4) |
Summary of Significant Accounting Policies - Impact of Adoption of New Accounting Standard (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
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New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Rental income | $ 111,452 | $ 105,078 | $ 331,247 | $ 311,171 |
Other operating | 2,010 | 1,947 | 5,973 | 5,816 |
Revenues | 113,462 | 107,025 | 337,220 | 316,987 |
Interest and other income, net | 41 | 354 | 571 | 396 |
NET INCOME | $ 6,548 | 3,173 | $ 53,456 | 60,243 |
As Reported | ||||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||||
Rental income | 106,561 | 315,519 | ||
Other operating | 392 | 1,249 | ||
Revenues | 106,953 | 316,768 | ||
Interest and other income, net | 426 | 616 | ||
NET INCOME | $ 3,173 | $ 60,243 |
Real Estate Investments - Assets Held for Sale (Details) $ in Millions |
3 Months Ended | ||||
---|---|---|---|---|---|
Jun. 27, 2018
USD ($)
property
|
Apr. 26, 2018
USD ($)
building
property
|
Mar. 31, 2018
property
|
Sep. 30, 2018
property
|
Dec. 31, 2017
property
|
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Business Combinations [Abstract] | |||||
Number of properties held for sale | 1 | 8 | |||
Number of properties reclassified to held for sale | 5 | ||||
Gain on disposition of property | $ | $ 5.4 | $ 22.3 | |||
Number of properties exercising purchase option | 5 | 7 | |||
Number of single-tenant net leased buildings | building | 5 | ||||
Number of multi-tenant buildings | building | 2 |
Derivative Financial Instruments - Derivative Instruments Designated as Cash Flow Hedges (Details) $ in Millions |
Sep. 30, 2018
USD ($)
swap_agreement
|
---|---|
Derivative [Line Items] | |
Number of instruments | 4 |
Cash Flow Hedging | Designated as Hedging Instrument | Interest Rate Swap | |
Derivative [Line Items] | |
Number of instruments | 4 |
Notional amount | $ | $ 75.0 |
Derivative Financial Instruments - Fair Value of Derivative Instruments on the Balance Sheet (Details) - Designated as Hedging Instrument - Interest Rate Swap $ in Thousands |
Sep. 30, 2018
USD ($)
|
---|---|
Derivative [Line Items] | |
Asset derivatives | $ 1,579 |
Other assets | |
Derivative [Line Items] | |
Asset derivatives | $ 1,579 |
Derivative Financial Instruments - Effect of Cash Flow Hedging on AOCI (Details) - Cash Flow Hedging - Designated as Hedging Instrument - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Derivative [Line Items] | ||
Amount of Gain Recognized in OCI on Derivative | $ 1,403 | |
Interest Rate Products | ||
Derivative [Line Items] | ||
Amount of Gain Recognized in OCI on Derivative | 1,403 | |
Settled Interest Rate Swaps | ||
Derivative [Line Items] | ||
Amount of Gain Recognized in OCI on Derivative | 0 | |
Interest Expense | ||
Derivative [Line Items] | ||
Amount of Loss Reclassified from OCI into Income | 369 | $ 127 |
Interest Expense | Interest Rate Products | ||
Derivative [Line Items] | ||
Amount of Loss Reclassified from OCI into Income | 243 | 0 |
Interest Expense | Settled Interest Rate Swaps | ||
Derivative [Line Items] | ||
Amount of Loss Reclassified from OCI into Income | $ 126 | $ 127 |
Derivative Financial Instruments - Additional Information (Details) $ in Millions |
Sep. 30, 2018
USD ($)
|
---|---|
Active Interest Rate Swap | |
Derivative Instruments, Gain (Loss) [Line Items] | |
Interest rate cash flow hedge gain (loss) to be reclassified to interest expense during the next 12 months | $ 0.2 |
Settled Interest Rate Swap | |
Derivative Instruments, Gain (Loss) [Line Items] | |
Interest rate cash flow hedge gain (loss) to be reclassified to interest expense during the next 12 months | $ (0.2) |
Commitments and Contingencies - Construction Activity (Details) $ in Millions |
Sep. 30, 2018
USD ($)
ft²
|
---|---|
Other Commitments [Line Items] | |
Approximate Square Feet | 14,800,000 |
Medical Office Building Expansion | NORTH CAROLINA | |
Other Commitments [Line Items] | |
Approximate Square Feet | 38,000 |
Medical Office Building | NORTH CAROLINA | |
Other Commitments [Line Items] | |
Total amount funded | $ | $ 9.2 |
Medical Office Building | COLORADO | |
Other Commitments [Line Items] | |
Approximate Square Feet | 151,000 |
Total amount funded | $ | $ 18.0 |
Stockholders' Equity - Reconciliation of beginning and ending common stock outstanding (Details) - shares |
9 Months Ended | |
---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Reconciliation of the beginning and ending common stock outstanding | ||
Balance, beginning of period | 125,132,000 | |
Balance, end of period | 125,237,000 | |
Common Stock | ||
Reconciliation of the beginning and ending common stock outstanding | ||
Balance, beginning of period | 125,131,593 | 116,416,900 |
Issuance of common stock | 20,395 | 8,395,607 |
Nonvested share-based awards, net of withheld shares | 85,196 | 319,086 |
Balance, end of period | 125,237,184 |
Stockholders' Equity (Stock Transactions - Narrative) (Details) - $ / shares |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Oct. 30, 2018 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
Oct. 26, 2018 |
|
Class of Stock [Line Items] | ||||||
Dividends declared per common share, during the period (in dollars per share) | $ 0.30 | $ 0.30 | $ 0.90 | $ 0.90 | ||
At The Market Equity Offering Program | ||||||
Class of Stock [Line Items] | ||||||
Issuance of common stock (shares) | 0 | |||||
Subsequent Event | ||||||
Class of Stock [Line Items] | ||||||
Dividends declared per common share, during the period (in dollars per share) | $ 0.30 | |||||
Subsequent Event | At The Market Equity Offering Program | ||||||
Class of Stock [Line Items] | ||||||
Number of authorized shares remaining under offering program (shares) | 5,868,697 |
Stockholders' Equity - Changes in accumulated other comprehensive income (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018
USD ($)
swap_agreement
|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2018
USD ($)
swap_agreement
|
Sep. 30, 2017
USD ($)
|
|
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Number of instruments | swap_agreement | 4 | 4 | ||
Period for reclassification out of AOCI | 10 years | |||
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward] | ||||
Beginning balance | $ 1,789,883 | |||
Total other comprehensive income | $ 469 | $ 43 | 1,772 | $ 127 |
Ending balance | 1,740,252 | 1,740,252 | ||
Forward-starting Interest Rate Swaps | ||||
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward] | ||||
Beginning balance | (1,299) | (1,401) | ||
Gains arising during the period related to active interest rate swaps | 1,403 | 0 | ||
Amounts reclassified from accumulated other comprehensive (income) loss | 369 | 127 | ||
Total other comprehensive income | 1,772 | 127 | ||
Ending balance | $ 473 | $ (1,274) | $ 473 | $ (1,274) |
Stockholders' Equity - Computation of basic and diluted earnings (loss) per common share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Weighted average Common Shares outstanding | ||||
Weighted average Common Shares outstanding | 125,233,462 | 120,895,835 | 125,206,342 | 117,981,159 |
Nonvested shares | (1,933,653) | (1,797,686) | (1,925,589) | (1,800,180) |
Weighted average Common Shares—Basic | 123,299,809 | 119,098,149 | 123,280,753 | 116,180,979 |
Dilutive effect of employee stock purchase plan | 52,147 | 83,242 | 54,763 | 96,260 |
Weighted average Common Shares outstanding—Diluted | 123,351,956 | 119,181,391 | 123,335,516 | 116,277,239 |
Net Income | $ 6,548 | $ 3,173 | $ 53,456 | $ 60,243 |
Dividends paid on nonvested share-based awards | (580) | (538) | (1,740) | (1,609) |
Net income applicable to common stockholders | $ 5,968 | $ 2,635 | $ 51,716 | $ 58,634 |
Basic earnings per common share (in dollars per share) | $ 0.05 | $ 0.02 | $ 0.42 | $ 0.50 |
Diluted earnings per common share (in dollars per share) | $ 0.05 | $ 0.02 | $ 0.42 | $ 0.50 |
Stockholders' Equity - Summary of activity under stock-based incentive plans (Details) - Stock Incentive Plan - shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Summary of the activity under the incentive plans | ||||
Share-based awards, beginning of period | 1,938,100 | 1,797,686 | 1,907,645 | 1,786,497 |
Granted (shares) | 0 | 0 | 107,751 | 103,615 |
Vested (shares) | (5,051) | 0 | (82,347) | (92,426) |
Share-based awards, end of period | 1,933,049 | 1,797,686 | 1,933,049 | 1,797,686 |
Restricted Stock | ||||
Summary of the activity under the incentive plans | ||||
Shares withheld to pay estimated withholding taxes | 22,555 | 16,581 |
Stockholders' Equity - Summary of activity under Employee Stock Purchase Plan (Details) - Employee Stock Purchase Plan - shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2018 |
Sep. 30, 2017 |
Sep. 30, 2018 |
Sep. 30, 2017 |
|
Summary of the Employee Stock Purchase Plan activity | ||||
Outstanding and exercisable, beginning of period (shares) | 350,535 | 344,572 | 318,100 | 316,321 |
Granted (shares) | 0 | 0 | 203,836 | 206,824 |
Exercised (shares) | (2,531) | (5,452) | (13,236) | (24,482) |
Forfeited (shares) | (9,583) | (9,291) | (34,489) | (36,524) |
Expired (shares) | 0 | 0 | (135,790) | (132,310) |
Outstanding and exercisable, end of period (shares) | 338,421 | 329,829 | 338,421 | 329,829 |
Fair Value of Financial Instruments (Details) - USD ($) $ in Millions |
Sep. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Carrying Value | ||
Derivative [Line Items] | ||
Notes and bonds payable | $ 1,344.8 | $ 1,283.9 |
Fair Value | ||
Derivative [Line Items] | ||
Notes and bonds payable | $ 1,300.2 | $ 1,269.7 |
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