What changed in this filing

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Item 1. Business

2022-03-01 compared with 2021-02-24 · 131 added, 100 removed, 331 unchanged (41% of the section changed)

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metropolitan statistical areas (“MSAs”) that we believe will provide above-average economic growth and socioeconomic benefits over the coming years.

As of December 31, 2020, we had approximately 1 million square feet of GLA in ten of our top 20 key markets and approximately 94% of our portfolio, based on GLA, is located in the top 75 MSAs, with Dallas, Houston, Boston, Tampa and Hartford/New Haven being our largest markets by investment.

As of December 31, 2021, we had approximately 1 million square feet of GLA in ten of our top 20 key markets and approximately 95% of our portfolio, based on GLA, is located in the top 75 MSAs, with Dallas, Houston, Boston, Atlanta and Miami being our largest markets by investment.

Our principal executive office is located at 16435 North Scottsdale Road, Suite 320, Scottsdale, AZ 85254, and our telephone number is (480) 998-3478.

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• For the year ended December 31, 2021, total revenue increased 3.8%, or $28.1 million, to $767.1 million, compared to $739.0 million for the year ended December 31, 2020.

• For the year ended December 31, 2020, net income increased 73.8%, or $22.7 million, to $53.5 million, compared to $30.8 million for the year ended December 31, 2019.

• For the year ended December 31, 2021, net income increased by $46.3 million, to $99.8 million, compared to $53.5 million for the year ended December 31, 2020.

• For the year ended December 31, 2021, net income attributable to common stockholders was $0.44 per diluted share, or $98.0 million, compared to $0.24 per diluted share, or $52.6 million, for the year ended December 31, 2020.

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Portfolio Performance

• For the year ended December 31, 2020, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 89.8% by GLA, and our occupancy rate was 89.1% by GLA.

• As of December 31, 2021, our leased rate (which includes leases which have been executed, but which have not yet commenced) was 89.3% by GLA, and our occupancy rate was 87.5% by GLA.

The leased rate for our Same-Property portfolio was 90.1%.

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These properties were approximately 85% leased as of closing, and are located within HTA's key markets.

• During 2020, HTA had the following development and redevelopment projects in place:

During 2020, HTA completed its initial ground-up development in Raleigh, North Carolina.

Total construction costs on this development were approximately $44 million and totaled approximately 127,000 square feet of GLA and is currently 77% leased.

◦ Developments:

During 2020, HTA continued to develop three new on-campus MOBs located in the key markets of Miami, Florida;

In addition, HTA funded approximately $80 million for MOB development projects in Texas and North Carolina, which includes funding of loan commitments and investments in development joint ventures.

• During 2021, HTA had the following development and redevelopment activity:

During 2021, HTA completed the development of three new on-campus MOBs located in the key markets of Miami, Florida;

Bakersfield, California;

and Dallas, Texas.

In total, HTA has development projects in process of approximately $110 million and totaling approximately 244,000 square feet of GLA.

They are expected to be more than 79% pre-leased upon completion.

Total construction costs on these developments were approximately $110 million and totaled approximately 245,000 square feet of GLA and are currently 78% leased.

◦ Development pipeline:

HTA's development pipeline consists of five projects in the pre-leasing process, totaling over 850,000 square feet of GLA.

These projects are located in Houston, Orlando and Raleigh and are highlighted by HTA's previously announced strategic partnership with Medistar Corporation to co-develop the Texas A&M Innovation Plaza - Horizon Tower located in Houston, Texas, a 485,000 square foot medical office and life sciences tower with anticipated costs of $215 million expected to commence construction in 2022.

◦ Redevelopments:

During 2021, HTA continued to redevelop two MOBs located in Los Angeles, California with estimated costs of approximately $22 million and totaling approximately 104,000 square feet of GLA.

• During the year ended December 31, 2020, HTA completed the disposition of one MOB for an aggregate gross sales price of $16.8 million, representing approximately 69,000 square feet of total GLA, and generating a net gain of approximately $7.6 million.

Additionally, during the year ended December 31, 2020, we sold part of our interest in undeveloped land in Miami, Florida for a gross sales price of $7.6 million, which resulted in a net gain of approximately $2.0 million.

In addition, HTA began redevelopment of one MOB located in Houston, Texas with estimated costs of approximately $7 million and 49,000 square feet of GLA.

• During the year ended December 31, 2021, HTA completed the disposition of fifteen MOBs for an aggregate gross sales price of $88.3 million, representing approximately 599,000 square feet of total GLA, and generating a net gain of approximately $39.2 million.

Capital Asset and Liquidity

• During the year ended December 31, 2021, we remained focused on positioning our balance sheet to be poised for future investments.

In September 2020, HTALP issued $800.0 million of unsecured senior notes due 2031 at 2.00% per annum, allowing us to eliminate short-term revolver borrowings and near-term debt maturities until 2023 and beyond.

In October 2021, we refinanced our $1.3 billion unsecured credit agreement, lowering borrowing costs and extending maturities to October 2025.

• As of December 31, 2021, we had total leverage, measured as debt less cash and cash equivalents to total capitalization, of 27.7%.

Total liquidity was $1.4 billion, inclusive of $1.0 billion available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, and cash and cash equivalents of $115.4 million as of December 31, 2020.

Total liquidity was $1.1 billion, inclusive of $1.0 billion available on our unsecured revolving credit facility and cash and cash equivalents of $52.4 million as of December 31, 2021.

• During 2021, HTA issued approximately 9.4 million shares of common stock under its at-the-market (“ATM”) offering program for net proceeds of approximately $251.3 million, adjusted for costs to borrow.

Approximately 9.4 million shares are expected to settle in 2021 for net proceeds of approximately $277.5 million, subject to adjustments as provided for in the applicable forward equity agreements.

• In September 2020, our Board of Directors approved a stock repurchase plan authorizing us to purchase up to $300.0 million of our common stock from time to time prior to the expiration of the plan on September 23, 2023.

As of December 31, 2020, the remaining amount of common stock available for repurchase under the stock repurchase plan was $300.0 million.

• For the year ended December 31, 2021, we declared dividends of $1.29 per share of common stock.

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• Maintain a high level of liquidity.

As of December 31, 2020, we had approximately $1.4 billion of liquidity, primarily consisting of $1.0 billion available on our unsecured revolving credit facility, $277.5 million of forward equity agreements, and $115.4 million of cash and cash equivalents.

As of December 31, 2021, we had approximately $1.1 billion of liquidity, primarily consisting of $1.0 billion available on our unsecured revolving credit facility and $52.4 million of cash and cash equivalents.

• Utilize multiple capital sources, including public debt and equity, and unsecured bank loans.

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Healthcare Sector Growth

We operate MOBs within the healthcare industry, which are benefiting from several significant macroeconomic drivers, such as an aging population, millennials beginning to form families, and an increase in the insured population.

We operate MOBs within the ever-changing healthcare industry, which is affected by population, technology, legislation and the economy.

Over the last several years, the healthcare industry has benefited from several significant macroeconomic drivers, such as an aging population, millennials beginning to form families, and an increase in the insured population.

These trends are driving growth in healthcare spending at a rate significantly faster than the rate of growth in the broader U.S.

Population Changes

population is experiencing significant aging of its population, as advancements in medical technology and changes in treatment methods enable people to live longer.

population continues to age, the share of Americans aged 65 and older is projected to represent over 20% of the population by 2030, which represents a 31% increase between 2020 and 2030.

This is expected to drive healthcare utilization higher as individuals consume more healthcare as they age.

Between 2020 and 2030, the U.S.

population over 65 years of age is projected to increase by almost 31% and total over 20% of the U.S.

Individuals of this age spend the highest amounts on healthcare, averaging more than $6,800 per individual over the age of 65 according to a 2019 Consumer Expenditure Survey.

Individuals of this age spend the highest amounts on healthcare, averaging approximately $6,700 per individual over the age of 65 according to a 2020 Consumer Expenditure Survey.

This compares to healthcare expenditures of approximately $1,400 per year for individuals 25 and under.

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As this large generation utilizes additional healthcare services, it is expected they will do so in more convenient outpatient settings, typically in MOBs.

The number of insured individuals in the U.S.

continues to increase, as the population grows and as a result of the impact of U.S.

government actions, including the Patient Protection and Affordable Care Act of 2010 (the “Affordable Care Act”).

Since 1999, the number of individuals covered by healthcare insurance in the U.S.

has increased over 24%.

In November 2020, Joseph Biden was elected President, and in January 2021, the Democratic Party obtained control of the Senate.

As a result of these electoral developments, we believe that it is unlikely that continued legislative efforts will be pursued to repeal the Affordable Care Act.

Instead, we believe that it is possible that legislation will be pursued to enhance or reform the Affordable Care Act.

We are not able to state with certainty at this time what the impact of potential legislation will be on our business.

Thus far, the removal of the individual mandate in the Tax Cuts and Jobs Act (the “TCJA”) has seen limited impact.

As a result of these factors, the healthcare sector is one of the fastest growing sectors of the U.S.

The “silver tsunami” of aging baby boomers is poised to shift demographics so much so that people aged 65 and older are projected to outnumber those under 18 by 2035.

This shift is likely to increase demand for healthcare services as well as investment in and development of medical office buildings.

For adults 65 and over, attitudes towards healthcare access tend to be characterized by tradition, loyalty and resistance to change.

This generation has shown to be least interested in virtual visits, the least likely to switch primary care physicians, and the most likely to make healthcare decisions based on hospital affiliation.

Baby boomers may also make retirement choices that affect relative demand for healthcare resources, with many expected to migrate to preferred states for retirement, including Florida, Arizona, North Carolina, California and Texas.

As America’s largest generation continues to age, Medicare also becomes part of the conversation.

Currently, the percentage of Medicare-eligible beneficiaries enrolled in Medicare Advantage is increasing at an all-time high.

By 2025, it is predicted that Medicare Advantage enrollees will reach nearly 30 million beneficiaries (40% of all Medicare patients).

Hospitals who receive payment from Medicare Advantage plans will likely invest in supplemental benefits and outpatient services in order to manage population health, avoid unnecessary hospitalizations, and thus keep costs down.

Aside from the baby boomer generation, another group whose preferences are shaping the healthcare market is the millennial generation.

For these consumers, decisions are shaped by a desire for easily accessible and affordable care.

Millennials are not brand loyal, and instead prioritize free visits and other forms of savings over quality (assuming this is standard).

They desire both after-hours access to clinics and the ability to make same-day appointments – many times also willing to consider virtual visits to receive same-day care.

Healthcare Spending

The healthcare sector is one of the fastest growing sectors of the U.S.

economy and is growing faster than GDP.

According to the latest data from 2019, Americans spent nearly $3.8 trillion, or 17.7%, of total GDP, on healthcare expenditures in 2019, an increase of 4.0% over the previous year.

According to the latest data from 2020, Americans spent over $4.1 trillion, or 19.7%, of total GDP, on healthcare expenditures in 2020, an increase of 8.7% over the previous year.

Centers for Medicare & Medicaid Services project that total healthcare expenditures will reach approximately $6.0 trillion by 2028.

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It is also driving demand for cost effective healthcare which generally takes place in outpatient settings such as MOBs.

Increases in healthcare spending may be driven by several factors, including changes in patient volumes, increases in per-patient spending, and general price increases.

Historically, all three have factored into growing healthcare spending.

However, increasing costs of new medical technology, leading to increased prices for healthcare goods and services, along with increasing Medicare enrollment, are two factors seen to play the largest role in healthcare spending projections.

Healthcare costs continue to be a burden to U.S.

families and factor into care-seeking decisions for the majority of the population.

Growth in healthcare costs has driven government legislation, consumer demand for lower-cost healthcare settings, and the increased presence of market disruptors and mergers and acquisitions in the healthcare space.

From a consumer’s perspective, shifting healthcare utilization to the lower-cost outpatient setting is an approachable option that can directly impact out-of-pocket costs.

The effects of the novel coronavirus disease (“COVID-19”) have only exacerbated this shift, with more people avoiding the hospital setting whenever possible.

Outpatient Trends

Hospitals have traditionally been central to the delivery of healthcare, with medical office buildings serving as physician office space, and for other lower acuity purposes often relative to proximity to a hospital campus.

However, volume mix is shifting toward outpatient, lower-cost sites, including those outside of hospital-controlled proprieties, due in-part to cost savings, patient preference and technological advances.

Outpatient services are expected to grow by approximately 13% over the next five years.

Medical Office Buildings

We believe hospitals will continue their focus on high-acuity care, leaving lower-acuity care and administrative work to other locations, further segmenting the care delivery space.

Going forward, outpatient facilities may be grouped to increase efficiency for patients and will also likely be spread out in retail locations that come with parking, visibility and accessibility.

Ambulatory Surgery Centers

In motion long before COVID-19 heightened regulators’ interest, the movement toward lower-cost care settings such as ambulatory surgery centers (“ASC”) will continue to be an important area of focus.

Seeking care at ASCs rather than hospitals is often more convenient for patients and allows them to be discharged within the day, which can reduce infection risk and promote an at-home recovery.

Beyond convenience, ASCs are less costly to both patients and payers, likely a strong driver of this shift in care-delivery setting.

The COVID-19 pandemic has accelerated the shift toward ASCs.

An increased focus on hospital capacity meant hospitals were pushing lower-acuity procedures to the outpatient setting to retain space for emergencies and COVID-19 cases.

At the same time, apprehension to set foot in the hospital has caused patients to seek outpatient care instead.

There were several announcements of ASC expansion and large transactions involving ASC organizations in 2021 including acquisitions by large health systems.

This shift has resulted in Medicare updating the number of reimbursable procedures that can be performed at ASCs.

Beginning in March 2022, Medicare will allow the nomination of surgical procedures to be added to the ASC covered procedures list.

This regulatory landscape, combined with other market pressures and changing preferences, results in an expected annual revenue growth rate of 6.9% for ASCs.

The expected growth of the ASC market is predicted to lead to future consolidation, acquisitions, and competition for providers.

ASCs are expected to grow in orthopedics, cardiovascular, pain management, urology, and other specialties.

Diagnostic services are expected to continue shifting from hospitals toward outpatient sites.

Due to competition, outpatient imaging and lab services can be lower-cost alternatives as compared to their equivalent hospital-based services.

For 2021, Centers for Medicare & Medicaid Services ("CMS") added eleven new procedures to the list of ambulatory surgery center covered surgical procedures.

Additionally, CMS is increasing payment rates for certain qualifying ASCs resulting in a total estimated payment increase of approximately $120 million to ASCs for 2021 compared to 2020 Medicare payments, further supporting the shift of healthcare delivery to outpatient settings.

By 2021, the volume of procedures performed in ASCs is expected to increase by 35% when compared to 2015.

Urgent Care Centers

Another change in healthcare seeking behaviors is the sustained shift from hospital emergency room visits to urgent care centers.

Much of the emphasis on this is due to a need to move non-emergent care out of the emergency room.

Because of this shift, there has been an expansion of urgent care sites into underserved markets, which can also support health systems’ strategies for patient acquisition and retaining specialist referrals.

Outside of underserved markets, on-demand or urgent care sites are considered beneficial as they may act as referral points, converting single visits to longstanding relationships .

Telehealth has become an increasingly popular means by which patients seek medical care.

COVID-19 only exacerbated pre-existing trends, with percentage of provider visits increasing from 0.3% in 2019 to 23.6% in 2020.

Since its peak in April 2020, the utilization of telehealth has since stabilized.

Additionally, based on consumer research done by McKinsey, consumers view telehealth as an important modality for their care needs, with views varying widely depending on the type of care, with primary care and other types of specialty visits continuing to be performed in a clinical setting.

Additionally, based on consumer research done by McKinsey, consumers view telehealth as an important modality for their care needs, with views varying widely depending on the type of care.

Primary care and other types of specialty visits are continuing to be performed in a clinical setting.

Because consumers were using telehealth services during the pandemic more than ever before, the number of investments in telehealth increased substantially.

Health insurance companies, pharmacy chains, tech giants, and even genetic testing companies invested in various telehealth providers, each to gain a sliver of the telehealth pie.

Trends in telehealth investment included telehealth for specific, targeted care needs, and telehealth used as one part of a broader toolkit, rather than the end goal of patient care.

Healthcare Employment

Employment in the healthcare industry has steadily increased for at least 20 years despite three recessions during that period.

Healthcare-related jobs are among the fastest growing occupations, projected to increase by 15% between 2019 and 2029, significantly higher than the general U.S.

Healthcare-related jobs are among the fastest growing occupations, projected to increase by more than 16% between 2020 and 2030, double the general U.S.

employment growth projection of 8%, according to the Bureau of Labor Statistics.

Additionally, the Bureau of Labor Statistics projects ten out of the top twenty occupations with the highest growth for workers will be in the healthcare sector.

We expect the increased growth in the healthcare industry will correspond with a growth in demand for MOBs and other facilities that serve the healthcare industry.

Although employment in the healthcare sector is projected to grow, COVID-19 has had a significant impact on healthcare staffing, with exhaustion, burnout, stress and anxiety commonly reported among healthcare workers.

Labor is the greatest expense category for healthcare organizations, and labor disruptions such as those exacerbated by the pandemic can be time consuming and costly to address.

While employment in many healthcare settings has gradually increased back to pre-pandemic levels, not all jobs are returning at the same pace.

Outpatient settings have seen employment gains that have more-than made up for pandemic job losses, however hospital, nursing home, and residential care employment remains below pre-pandemic levels, particularly in nursing and residential care facilities.

As we continue into 2022, healthcare employment and hiring will continue to be impacted by the same shifts we are seeing across the workforce – workers are choosing positions that match their desired work environment, schedule, location, and intensity.

COVID-19 Impacts

The COVID-19 pandemic had a dramatic impact on the healthcare industry, upending long-held beliefs on consumer preferences and the regulatory environment.

While it is unclear whether pandemic-era changes will remain permanent, the shifting care setting, demographic shifts, and medical staffing challenges are important matters to consider with respect to the healthcare industry as a whole.

COVID-19 had a significant influence on how, when and where patients seek care.

As telehealth utilization rose among many, others elected to defer preventative or other non-COVID-19 related clinical care.

As the demand for healthcare begins to equalize with an eventual, more permanent shift back to non-COVID-19 related care, we expect there to be a longer-term increase in utilization.

Medical Office Building Supply and Demand

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There is significant opportunity to expand within the industry given the lack of institutional ownership compared to other real estate sectors.

• Healthcare delivery continues to shift to outpatient settings driven by technological advancements, shifting consumer preferences and lower costs.

For 2021, Centers for Medicare & Medicaid Services ("CMS") added eleven new procedures to the list of ambulatory surgery center covered surgical procedures.

Additionally, CMS is increasing payment rates for certain qualifying ambulatory surgery centers resulting in a total estimated payment increase of approximately $120 million to ambulatory surgery centers for 2021 compared to 2020 Medicare payments, further supporting the shift of healthcare delivery to outpatient settings.

By 2021, the volume of procedures performed in ambulatory surgery centers is expected to increase by 35% when compared to 2015.

• An increase in medical office visits due to the overall rise in healthcare utilization, which in turn has driven hiring within the healthcare sector.

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We believe these larger groups are generally credit-worthy and provide stability and long-term value for MOBs.

• Consistent and reliable occupancy has insulated the medical office sector from volatility that can be disruptive to other industries.

Even through the early months of COVID-19, when non-emergency outpatient services were temporarily suspended, occupancy remained strong.

According to data from Revista, quarterly weighted average occupancy rates have averaged 91.6% from 2019 to 2021.

Additionally, during 2020, owners of medical office space collected more than 95% of rent due, according to data collected by Revista.

• Construction of new MOBs relative to the overall MOB supply continues to be constrained, with new market participants experiencing significant costly barriers to entry in markets in which we invest.

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In addition, new development is primarily focused on off campus locations and in markets with growing populations.

Medical Office Buildings and COVID-19

During 2020, the novel coronavirus ("COVID-19") pandemic had a dramatic impact on the delivery of outpatient care.

In response to state and local restrictions and in an effort to accommodate community mitigation measures, many healthcare practices postponed elective visits and increased their use of telemedicine.

While the evolution of healthcare delivery began prior to the pandemic, we believe COVID-19 has highlighted the need for dynamic healthcare providers with the ability to shift with changes in market conditions.

In addition, we believe that the pandemic has accelerated the shift in medical care towards lower-cost outpatient settings.

Although outpatient visits fell by approximately 60% in the spring of 2020, by late summer 2020, many restrictions on travel and nonessential services were lifted.

By September 2020, outpatient visits had rebounded, returning to pre-pandemic levels.

However, future impacts to market dynamics as a result of the COVID-19 pandemic are not certain at this time.

PORTFOLIO OF PROPERTIES

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Buildings Number of

States GLA (1)

Total GLA Annualized Base Rent (1)(2)

Percent of Annualized Base Rent

States Annualized Base Rent (1)(2)

Percent of Annualized Base Rent GLA (1)

Percent of Total GLA

Medical Office Buildings

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Weighted Average Remaining Lease Term (2)

Total Leased GLA (3)

Percent of Leased GLA Annualized Base Rent (3)(4)

Percent of Annualized Base Rent

Annualized Base Rent (3)(4)

Percent of Annualized Base Rent Total Leased GLA (3)

Percent of Leased GLA

Baylor Scott & White Health 5 23,797 4.1 % $ 827 3.6 %

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Community Health Systems 7 7,944 1.4 385 1.7

Emblem Health 14 281 1.2 7,462 1.3

CommonSpirit Health 8 7,884 1.3 356 1.5

Emblem Health 13 7,649 1.3 281 1.2

Trinity Health 6 7,227 1.2 288 1.2

Harbin Clinic 6 7,225 1.2 316 1.4

United Health Group 4 6,426 1.1 279 1.2

Mercy Health 6 6,226 1.1 190 0.8

Trinity Health 6 247 1.1 6,468 1.2

Community Health Network 3 289 1.3 6,258 1.1

173,216 29.6 % $ 6,712 28.9 %

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As of December 31, 2021, our portfolio was concentrated in key markets that we believe are strategic based on demographic trends, projected demand for healthcare and overall asset management efficiencies.

Key Markets Investment (1)

Percent of Investment Total GLA (1)

Percent of Portfolio Annualized Base Rent (1)(2)

Percent of Annualized Base Rent

Key Markets Annualized Base Rent (1)(2)

Percent of Annualized Base Rent Total GLA (1)

Percent of Portfolio Investment (1)

Percent of Investment

Dallas, TX $ 57,240 9.8 % 2,209 8.5 % $ 914,237 11.7 %

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Boston, MA 36,346 6.2 965 3.7 397,693 5.1

Tampa, FL 347,764 4.6 954 3.8 24,566 4.4

Hartford/New Haven, CT 347,104 4.6 1,165 4.6 25,218 4.5

Atlanta, GA 338,886 4.5 1,120 4.4 24,911 4.4

Orange County/Los Angeles, CA 326,070 4.4 719 2.8 17,202 3.1

Miami, FL 31,417 5.4 1,327 5.1 358,449 4.6

Atlanta, GA 27,290 4.7 1,208 4.6 361,600 4.6

Indianapolis, IN 26,901 4.6 1,396 5.4 281,768 3.6

Phoenix, AZ 25,218 4.3 1,313 5.0 267,781 3.4

Denver, CO 265,807 3.6 607 2.4 12,024 2.1

New York, NY 256,144 3.4 615 2.4 15,621 2.8

Chicago, IL 231,178 3.1 454 1.8 13,675 2.4

Charlotte, NC 214,887 2.9 922 3.6 18,535 3.3

Hartford/New Haven, CT 25,215 4.3 1,187 4.5 347,104 4.4

Tampa, FL 24,548 4.2 954 3.7 347,764 4.4

Raleigh, NC 20,743 3.5 885 3.4 250,858 3.2

Pittsburgh, PA 20,063 3.4 1,094 4.2 148,612 1.9

Charlotte, NC 18,220 3.1 927 3.6 216,037 2.8

Orange County/Los Angeles, CA 17,285 3.0 718 2.7 326,070 4.2

New York, NY 16,019 2.7 615 2.4 256,144 3.3

Albany, NY 14,955 2.6 833 3.2 170,071 2.2

Austin, TX 164,425 2.2 409 1.6 9,172 1.6

Chicago, IL 13,706 2.4 454 1.7 231,178 3.0

Denver, CO 13,471 2.3 608 2.3 265,807 3.4

Orlando, FL 12,667 2.2 513 2.0 156,300 2.0

Pittsburgh, PA 148,612 2.0 1,094 4.3 19,901 3.6

Austin, TX 9,182 1.6 409 1.6 164,425 2.1

El Paso, TX 9,039 1.5 476 1.8 121,409 1.5

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Changes in these laws and regulations could negatively affect the ability of our tenants to satisfy their contractual obligations, including making lease payments to us.

Healthcare Legislation.

In March 2010, President Obama signed the Affordable Care Act (the “ACA”) into law.

The ACA, along with other healthcare reform efforts, has resulted in comprehensive healthcare reform in the U.S.

The laws are intended to reduce the number of individuals in the U.S.

without health insurance and significantly change the means by which healthcare is organized, delivered and reimbursed.

The ACA expanded reporting requirements and responsibilities related to facility ownership and management, patient safety, quality of care, and certain financial transactions, including payments by the pharmaceutical and medical industry to doctors and teaching hospitals.

In the ordinary course of their businesses, our tenants may be regularly subjected to inquiries, investigations and audits by federal and state agencies that oversee these laws and regulations.

If they do not comply with the additional reporting requirements and responsibilities, our tenants’ ability to participate in federal healthcare programs may be adversely affected.

Moreover, there may be other aspects of the comprehensive healthcare reform legislation for which regulations have not yet been adopted, which, depending on how they are implemented, could adversely affect our tenants and their ability to meet their lease obligations to us.

The ACA has faced numerous judicial, legislative and executive challenges.

Although there continue to be judicial challenges to the ACA, the Supreme Court has thus far upheld the ACA, including in their June 25, 2015 ruling on King v.

However, President Trump and Congressional Republicans promised they would seek the repeal of the ACA.

While no full repeal bills have passed both chambers of Congress, the 2017 Tax Cuts and Jobs Act eliminated the tax penalty associated with a key provision of the ACA known as the “individual mandate” beginning January 1, 2019.

On December 14, 2018, a Texas federal district court judge, in the case of Texas v.

Azar, declared the ACA unconstitutional, reasoning that the individual mandate tax penalty was essential to and not severable from the remainder of the ACA.

The case was appealed to the U.S.

Court of Appeals for the Fifth Circuit.

On December 18, 2019, the U.S.

Court of Appeals for the Fifth Circuit ruled that the ACA’s “individual mandate” was unconstitutional but sent the case back to the District Court for further analysis of whether the entire ACA is also rendered unconstitutional.

In November 2020, Joseph Biden was elected President, and in January 2021, the Democratic Party obtained control of the Senate.

As a result of these electoral developments, we believe it is unlikely that continued legislative efforts will be pursued to repeal the ACA.

Instead, we believe it is possible that legislation will be pursued to enhance or reform the ACA.

We are not able to state with certainty at this time what the impact of potential legislation will be on our business.

Healthcare Reform.

The current wave of healthcare reform launched with the ACA in 2010.

The ACA expanded health insurance coverage through tax subsidies and federal health insurance programs, individual and employer mandates for health insurance coverage, and the creation of health insurance exchanges (federal and state marketplaces).

The Biden administration has indicated that it will maintain and build upon the ACA and has suggested proposals that would include the adoption of a national public health insurance option (“Medicare for all”), increasing the value of current tax credits related to insurance premiums, and expanding coverage to low-income individuals.

Reimbursement Programs.

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Further, the U.S.

Supreme Court held in

2012 that states could not be required to expand their Medicaid programs, which has resulted in some states deciding not to expand their Medicaid programs.

Supreme Court held in 2012 that states could not be required to expand their Medicaid programs, which has resulted in some states deciding not to expand their Medicaid programs.

In some other cases, states have enacted or are considering enacting measures designed to reduce their Medicaid expenditures and to make changes to private healthcare insurance.

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Although their impact is difficult to predict, these laws, initiatives and CMS rules may adversely impact medical providers’ reimbursement and our tenants’ ability to make rent payments to us.

In November 2020, Joseph Biden was elected President, and in January 2021, the Democratic Party obtained control of the Senate.

At this time, we are not able to state with certainty what the impact of any potential legislation may have on our business.

Fraud and Abuse Laws.

There are various federal and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from, or are in a position to make referrals in connection with, government-sponsored healthcare programs, including the Medicare and Medicaid programs.

Additionally, the ACA includes program integrity provisions that both create new authorities and expand existing authorities for federal and state governments to address fraud, waste and abuse in federal healthcare programs.

Additionally, the ACA includes program integrity provisions that both create new authorities and expand existing authorities for federal and state governments

to address fraud, waste and abuse in federal healthcare programs.

Our lease arrangements with certain tenants may also be subject to these fraud and abuse laws.

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Some of our medical properties and our tenants may require a license, multiple licenses, a certificate of need (“CON”), or other certification to operate.

Failure to obtain a license, CON, other certification, or loss of a required license, CON, or some other certification would prevent a facility from operating in the manner intended by

Failure to obtain a license, CON, other certification, or loss of a required license, CON, or some other certification would prevent a facility from operating in the manner intended by the tenant.

This event could adversely affect our tenants’ ability to make rent payments to us.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business