What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-08 · 116 added, 90 removed, 346 unchanged (37% of the section changed)

4 unchanged sentences

Such risks and uncertainties include, among other things, the following:

the Company’s expected results may not be achieved;

failure to realize the expected benefits of the Merger;

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The Company’s primary sources of cash include rent receipts from its real estate portfolio based on contractual arrangements with its tenants, proceeds from the sales of real estate properties, joint ventures, and proceeds from public or private debt or equity offerings.

As of June 30, 2023, the Company had $1.1 billion available to be drawn on its Unsecured Credit Facility and $35.9 million in cash.

As of September 30, 2023, the Company had $1.3 billion available to be drawn on its Unsecured Credit Facility and $24.7 million in cash.

The Company expects to continue to meet its liquidity needs, including funding additional investments, paying dividends, and funding debt service, through cash flows from operations and liquidity sources, including the Unsecured Credit Facility.

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Investing Activities

Cash flows used in investing activities for the six months ended June 30, 2023 were approximately $6.1 million.

Cash flows provided by investing activities for the nine months ended September 30, 2023 were approximately $112.5 million.

Below is a summary of significant investing activities.

The following table details the Company's sole acquisition for the six months ended June 30, 2023:

The following table details the Company's acquisition activity for the nine months ended September 30, 2023:

Dollars in thousands ASSOCIATED HEALTH SYSTEM/TENANCY 1

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Tampa, FL BayCare Health 3/10/23 $ 31,500 115,867 0.06

1 Includes buildings located on-campus, adjacent and off-campus that are anchored by healthcare systems or located within two miles of a hospital campus.

Subsequent to June 30, 2023, the Company acquired the following property:

Dollars in thousands ASSOCIATED HEALTH SYSTEM/TENANCY 1

DATE ACQUIRED PURCHASE PRICE SQUARE FOOTAGE MILES TO CAMPUS

Colorado Springs, CO UC Health 7/28/23 11,450 42,770 1.30

The Company disposed of seven properties during the six months ended June 30, 2023 for a total sales price of $222.1 million, including cash proceeds of $160.9 million.

The following table details these dispositions for the six months ended June 30, 2023:

Total real estate acquisitions $ 42,950 158,637

1 Includes buildings located on-campus, adjacent and off-campus that are anchored by healthcare systems or located within two miles of a hospital campus.

In the third quarter of 2023, the Company acquired a parcel of land previously under a ground lease for $0.8 million and an additional interest in an operating property for $0.6 million.

The Company disposed of 12 properties during the nine months ended September 30, 2023 for a total sales price of $430.8 million, including cash proceeds of $366.8 million.

The following table details these dispositions for the nine months ended September 30, 2023:

Dollars in thousands Date Disposed Sales Price Square Footage

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Albany, NY 6/30/23 10,000 40,870

Houston, TX 8/2/23 8,320 57,170

Atlanta, GA 8/22/23 25,142 55,195

Dallas, TX 9/15/23 115,000 161,264

Houston, TX 9/18/23 250 52,040

Chicago, IL 9/27/23 59,950 104,912

Total dispositions $ 430,772 922,922

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4 The Company sold a land parcel totaling 0.34 acres.

Subsequent to June 30, 2023, the Company disposed of the following property:

Dollars in thousands DATE DISPOSED SALES PRICE SQUARE FOOTAGE

Houston, TX 8/2/23 $ 8,320 57,170

Capital Expenditures

During the six months ended June 30, 2023, the Company incurred capital expenditures totaling $113.2 million for the following:

• $49.0 million toward the development and redevelopment of properties;

During the nine months ended September 30, 2023, the Company incurred capital expenditures totaling $188.1 million for the following:

• $70.7 million toward active development and redevelopment of properties;

• $9.2 million toward completed development and redevelopment of properties;

• $32.1 million toward first generation tenant improvements and planned capital expenditures for acquisitions;

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Financing Activities

Cash flows used in financing activities for the six months ended June 30, 2023 were approximately $273.2 million.

Cash flows used in financing activities for the nine months ended September 30, 2023 were approximately $521.3 million.

See Notes 5 and 8 to the Condensed Consolidated Financial Statements accompanying this report for more information about capital markets and financing activities.

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At-The-Market Equity Offering Program

The Company has equity distribution agreements with various sales agents with respect to our ATM offering program of common stock with an aggregate sales amount of up to $750.0 million.

As of June 30, 2023, $750.0 million remained available for issuance under our current ATM offering program.

The Company has equity distribution agreements with various sales agents with respect to our ATM equity offering program of common stock with an aggregate sales amount of up to $750.0 million.

As of September 30, 2023, $750.0 million remained available for issuance under our current ATM equity offering program.

Debt Activity

As of June 30, 2023, the Company had outstanding interest rate derivatives totaling $1.0 billion to hedge one-month Term SOFR.

As of September 30, 2023, the Company had outstanding interest rate derivatives totaling $1.0 billion to hedge one-month Term SOFR.

The following details the amount and rate of each swap (dollars in thousands):

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$ 1,000,000 3.17 %

During the third quarter of 2023, the Company assumed a mortgage note payable of $5.6 million in connection with the acquisition of a 42,770 square foot property in Colorado Springs, Colorado.

The note bears interest at a rate of 4.5% per annum and matures on April 1, 2026.

Additionally, the Company repaid in full at maturity a mortgage note payable bearing interest at a rate of 3.31% per annum with an outstanding principal of $9.8 million.

The mortgage note encumbered a 66,984 square foot property in Marietta, Georgia.

Subsequent Debt Activity

On August 1, 2023, the Company repaid in full at maturity a mortgage note payable bearing interest at a rate of 3.31% per annum with an outstanding principal of $9.8 million.

The mortgage note encumbered a 66,984 square foot property in Georgia.

On October 19, 2023, the Company entered into two swap transactions totaling $100.0 million.

The notional amounts were $50.0 million each with fixed rates of 4.71% and 4.67%.

The swap agreements have effective dates of November 1, 2023 and termination dates of June 1, 2027 and December 1, 2027, respectively.

On October 23, 2023, the Company entered into two swap transactions totaling $100.0 million with an aggregate fixed rate of 4.73%.

The swap agreements have effective dates of November 1, 2023 and termination dates of May 31, 2026.

Operating Activities

Cash flows provided by operating activities increased from $114.1 million for the six months ended June 30, 2022 to $254.3 million for the six months ended June 30, 2023.

Items impacting cash flows from operations include, but are not limited to, cash generated from property operations, interest payments and the timing related to the payment of invoices and other expenses.

The Company may, from time to time, sell properties and redeploy cash from property sales into new investments.

To the extent revenues related to the properties being sold exceed income from these new investments, the Company's results of operations and cash flows could be adversely affected.

Cash flows provided by operating activities increased from $126.7 million for the nine months ended September 30, 2022 to $372.5 million for the nine months ended September 30, 2023.

Items impacting cash flows from operations include, but are not limited to, the Merger, cash generated from property operations, interest payments and the timing related to the payment of invoices and other expenses.

The Company may, from time to time, sell properties and redeploy cash from property sales into new investments or to repay indebtedness.

The income from the new investments or reduction in interest expense could be less than the income from properties sold which would adversely affect the Company's results of operations and cash flows.

Trends and Matters Impacting Operating Results

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Additionally, increased interest rates may also result in less liquid property markets, limiting the Company’s ability to sell existing assets or obtain joint venture capital.

The Company reviews goodwill for impairment annually as of December 31 of each year or whenever events or changes in circumstances indicate that an impairment may exist.

During the third quarter of 2023, management identified qualitative factors indicating that an impairment may exist, including the sustained decrease in stock price.

As a result, the Company performed a quantitative assessment, and the fair value of the Company’s single reporting unit was estimated using a combination of discounted cash flow models and earnings multiples techniques.

The determination of fair value using the discounted cash flow model technique requires the use of estimates and assumptions related to revenue and expense growth rates, capitalization rates, discount rates, capital expenditures and working capital levels.

The determination of fair value using the earnings multiples technique requires assumptions to be made in relation to maintainable earnings and earnings multipliers.

These forecasts and assumptions are highly subjective, and while we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our financial results.

Although the quantitative assessment as of September 30, 2023 indicated goodwill was not impaired, given the results of our quantitative assessment, the Company is at risk for future goodwill impairment because it is reasonably possible that, among other factors, continual stock price volatility and downward pressure on the Company's market capitalization could have a material impact on one or more of the estimates and assumptions used to evaluate goodwill.

Expiring Leases

The Company expects that approximately 15% of its leases will expire each year in the ordinary course of business.

The Company expects that approximately 15% o f its leases will expire each year in the ordinary course of business.

There are 476 leases totaling 1.2 million square feet that will expire during the remainder of 2023.

Approximately 76% of the leases expiring during the remainder of 2023 are for space in buildings located on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area.

The Company typically expects to retain 75% to 90% of tenants upon expiration, and the retention ratio for the first six months of the year was within this range.

Approximately 73% of t he leases expiring during the remainder of 2023 are for space in buildings located on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area.

The Company typically expects to retain 75% to 90% of tenants upon expiration, and the retention ratio for the first nine months of the year was within this range.

Operating Expenses

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The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement.

As of June 30, 2023, leases for approximately 92% of the Company's total leased square footage allow for some recovery of operating expenses, with approximately 27% having modified gross lease structures and approximately 65% having net lease structures.

As of September 30, 2023, leases for approximatel y 92% of the Company's total leased square footage allow for some recovery of operating expenses, with approximately 27% having modified gross lease structures and approximately 65% having net lease structures.

Purchase Options

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YEAR EXERCISABLE NUMBER OF PROPERTIES GROSS REAL ESTATE INVESTMENT AS OF

JUNE 30, 2023 1

SEPTEMBER 30, 2023 1

2025 6 105,251

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Normalized FFO is presented by adding to FFO acquisition-related costs, acceleration of debt issuance costs, debt extinguishment costs and other Company-defined normalizing items to evaluate operating performance.

FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, non-cash financing receivable amortization, loan origination cost amortization, deferred financing fees amortization, stock-based compensation expense and rent reserves, net;

FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, non-cash financing receivable amortization, loan origination cost

amortization, deferred financing fees amortization, stock-based compensation expense and rent reserves, net;

and subtracting maintenance capital expenditures, including second generation tenant improvements and leasing commissions paid and straight-line rent income, net of expense.

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However, none of these measures represent cash generated from operating activities determined in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs.

Further, these measures should not be considered as an

alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow from operating activities as a measure of liquidity.

The table below reconciles net income to FFO, Normalized FFO and FAD for the three and six months ended June 30, 2023 and 2022.

THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,

Further, these measures should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow from operating activities as a measure of liquidity.

The table below reconciles net income to FFO, Normalized FFO and FAD for the three and nine months ended September 30, 2023 and 2022.

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,

Amounts in thousands, except per share data 2023 2022 2023 2022

Net (loss) income attributable to common stockholders $ (67,844) $ 28,304 $ (237,728) $ 76,661

Net (loss) income attributable to common stockholders per share 1

Net (loss) income attributable to common stockholders per diluted share 1

$ (0.18) $ 0.08 $ (0.63) $ 0.35

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Real estate depreciation and amortization 185,143 159,643 556,255 272,634

Non-controlling income from operating partnership units (1,027) — (2,094) —

Non-controlling (loss) income from operating partnership units (841) 377 (2,935) 377

Proportionate share of unconsolidated joint ventures 4,421 3,526 13,674 8,702

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Straight-line rent, net (8,470) (7,715) (24,720) (10,251)

Stock-based compensation 3,924 3,356 7,669 7,055

Share-based compensation 2,556 3,666 10,224 10,721

Unconsolidated JV non-cash items 7

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3 Includes costs incurred related to the Merger.

For the three and six months ended June 30, 2023, merger costs are net of a refund of $17.8 million for transfer taxes paid during the year ended December 31, 2022.

4 For the six months ended June 30, 2023, includes a $5.2 million credit allowance for a mezzanine loan included in "Impairment of real estate and credit loss reserves" on the Statement of Operations and $3.4 million reserve included in “Rental Income” on the Statement of Operations for previously deferred rent and straight line rent for three skilled nursing facilities.

For the nine months ended September 30, 2023, merger costs are net of a refund of $17.8 million for transfer taxes paid during the year ended December 31, 2022.

4 For the nine months ended September 30, 2023, includes a $5.2 million credit allowance for a mezzanine loan included in "Impairment of real estate and credit loss reserves" on the Statement of Operations and $3.4 million reserve included in “Rental Income” on the Statement of Operations for previously deferred rent and straight line rent for three skilled nursing facilities.

5 Includes the Company's proportionate share of acquisition and pursuit costs related to unconsolidated joint ventures.

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7 Includes the Company's proportionate share of straight-line rent, net related to unconsolidated joint ventures.

8 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 442,263 and 806,310, respectively, for the three months ended June 30, 2023 and 2022, and the diluted impact of 4,042,993 OP units outstanding for the three and six months ended June 30, 2023.

8 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 432,597 and 426,940, respectively, for the three and nine months ended September 30, 2023, and the diluted impact of 4,042,993 OP units outstanding for the three and nine months ended September 30, 2023.

Cash Net Operating Income ("NOI") and Merger Combined Same Store Cash NOI

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Newly developed or redeveloped properties will be included in the merger combined same store pool eight full quarters after substantial completion.

The following table reflects the Company's Merger Combined Same Store Cash NOI for the six months ended June 30, 2023 and 2022.

The following table reflects the Company's Merger Combined Same Store Cash NOI for the nine months ended September 30, 2023 and 2022.

NUMBER OF PROPERTIES GROSS INVESTMENT

at June 30, 2023 MERGER COMBINED SAME STORE CASH NOI for the six months ended June 30,

at September 30, 2023 MERGER COMBINED SAME STORE CASH NOI for the nine months ended September 30,

Dollars in thousands 2023 2022

Merger combined same store properties 584 $ 11,868,621 $ 538,486 $ 524,066

The following tables reconcile net income to Merger Combined Same Store NOI and the merger combined same store property metrics to the total owned real estate portfolio for the six months ended June 30, 2023 and 2022:

Joint venture same store properties 12 185,274 $ 7,617 $ 7,138

The following tables reconcile net income to Merger Combined Same Store NOI and the merger combined same store property metrics to the total owned real estate portfolio for the nine months ended September 30, 2023 and 2022:

Reconciliations of Legacy HR and Merger Combined Same Store Cash NOI

MERGER COMBINED SAME STORE RECONCILIATION

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

Dollars in thousands 2023 2022

Net (loss) income attributable to common stockholders $ (237,728) $ 76,661

Other income (expense) 207,225 (21,814)

Other expense (income) 281,846 (111,291)

General and administrative expense 43,796 38,317

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Cash NOI not included in same store (75,832) (115,478)

Same store joint venture properties (7,617) (7,138)

Merger combined same store cash NOI $ 538,486 $ 524,066

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LEGACY HR SAME STORE RECONCILIATION

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

Dollars in thousands 2023 2022

Net (loss) income attributable to common stockholders $ (237,728) $ 76,661

Other income (expense) 207,225 (21,814)

Other expense (income) 281,846 (111,291)

General and administrative expense 43,796 38,317

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Reconciliation of Merger Combined Same Store Properties

AS OF JUNE 30, 2023

AS OF SEPTEMBER 30, 2023

Dollars and square feet in thousands PROPERTY COUNT GROSS INVESTMENT 1

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Merger combined same store properties

Acquisitions 62 1,087,583 2,878 87.3 %

584 $ 11,868,621 34,798 89.2 %

Joint venture same store properties 12 185,274 998 87.9 %

Wholly owned and joint venture acquisitions 72 977,461 2,895 90.2 %

Development completions 5 151,775 405 73.3 %

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Planned Dispositions 8 137,017 582 71.1 %

Total 697 $ 13,728,464 41,046 87.6 %

Joint venture properties 34 358,015 1,949 86.9 %

Total owned real estate properties 663 $ 13,370,449 39,097 87.6 %

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Results of Operations

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

The Company’s results of operations for the three months ended June 30, 2023 compared to the same period in 2022 were impacted by the Merger, acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income increased $189.0 million, or 134.4%, for the three months ended June 30, 2023 compared to the prior year period.

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

The Company’s results of operations for the three months ended September 30, 2023 compared to the same period in 2022 were impacted by the Merger, acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income increased $34.4 million, or 11.5%, for the three months ended September 30, 2023 compared to the prior year period.

This increase is primarily comprised of the following:

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• Impact from the Merger contributed $27.3 million.

Interest income increased $2.3 million, or 116.3%, for the three months ended June 30, 2023 compared to the prior year period primarily as a result of notes receivables assumed in the Merger and a note receivable entered into with a buyer upon disposition of a property in the first quarter of 2023.

Other operating income increased $1.5 million, or 54.5%, for the three months ended June 30, 2023 compared to the prior year period primarily as a result of variable parking and asset management fees assumed in the Merger.

Property operating expenses increased $68.4 million, or 120.0%, for the three months ended June 30, 2023 compared to the prior year period primarily as a result of the following activity:

Interest income increased $0.9 million, or 26.7%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of a note receivable entered into with a buyer upon disposition of a property in the first quarter of 2023.

Other operating income increased $0.6 million, or 14.9%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of variable parking and management fees.

Property operating expenses increased $19.2 million, or 17.0%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

• Acquisitions in 2022 and 2023 resulted in an increase of $1.8 million.

• Increases in portfolio operating expenses as follows:

◦ Maintenance and repair expense of $1.1 million;

◦ Utilities expense of $1.6 million;

◦ Administrative, leasing commissions, and other legal expense of $0.7 million;

◦ Maintenance and repair expense of $0.5 million;

◦ Property taxes of $0.5 million;

◦ Janitorial expense of $0.4 million;

◦ Insurance expense of $0.5 million.

• Compensation expense decreased $0.5 million.

• Property taxes decreased $0.1 million.

◦ Security expense of $0.2 million.

• Insurance expense decreased $0.4 million.

• Dispositions in 2022 and 2023 resulted in a decrease of $5.2 million.

• Impact from the Merger resulted in an increase of $19.1 million.

General and administrative expenses increased approximately $4.9 million, or 46.7%, for the three months ended June 30, 2023 compared to the prior year period primarily as a result of the following activity:

General and administrative expenses decreased approximately $3.3 million, or 20.0%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

• Decrease in payroll and payroll related expenses of approximately $3.1 million.

• Decrease in cash compensation incentive expense of $0.6 million.

• Travel and related expenses increased $0.7 million.

• Net increases, primarily due to impacts from the Merger along with professional fees, audit services, insurance and other administrative costs, of $5.3 million.

Merger-related costs decreased $22.8 million, or 321.2%, for the three months ended June 30, 2023 compared to the prior year period primarily due to a reduction in legal and consulting services in connection with the Merger including a refund related to state transfer taxes.

Depreciation and amortization expense increased $127.5 million, or 228.7%, for the three months ended June 30, 2023 compared to the prior year period primarily as a result of the following activity:

• Decrease in non-cash compensation incentive expense of $1.0 million.

• Net increases, primarily due to impacts from the Merger, including professional fees, audit services, insurance and other administrative costs, of $1.4 million.

Merger-related costs decreased $72.0 million, or 90.6%, for the three months ended September 30, 2023 compared to the prior year period primarily due to a reduction in legal and consulting services in connection with the Merger including a refund of $17.8 million related to state transfer taxes.

Depreciation and amortization expense increased $24.9 million, or 15.7%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

• Acquisitions in 2022 and 2023 resulted in an increase of $1.5 million.

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Gains on sale of real estate properties

In the second quarter of 2023, the Company recognized gains of approximately $7.2 million.

In the second quarter of 2022, the Company recognized gains of approximately $8.5 million.

In the third quarter of 2023, the Company recognized gains of approximately $48.8 million.

In the third quarter of 2022, the Company recognized gains of approximately $143.9 million.

Interest expense

Interest expense increased $49.8 million, or 320.3%, for the three months ended June 30, 2023 compared to the prior year period.

Interest expense increased $13.3 million, or 25.0%, for the three months ended September 30, 2023 compared to the prior year period.

The components of interest expense are as follows:

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

Dollars in thousands 2023 2022 $ %

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Total interest expense $ 66,304 $ 53,044 $ 13,260 25.0 %

Contractual interest expense increased $38.8 million, or 278.3%, for the three months ended June 30, 2023 compared to the prior year period primarily as a result of the following activity:

Contractual interest expense increased $11.9 million, or 28.3%, for the three months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

• Senior notes and unsecured term loans assumed in the Merger accounted for an increase of approximately $3.3 million.

• New unsecured term loans executed with the amended credit facility accounted for an increase of approximately $8.4 million.

• The Company's Unsecured Term Loan due 2024 and 2026 accounted for an increase of approximately $3.8 million.

• The Company's Unsecured Term Loans due 2024 and 2026 accounted for an increase of approximately $2.7 million.

• The Unsecured Credit Facility accounted for an increase of approximately $2.0 million due to an increased weighted average balance outstanding and an increase in the weighted average interest rate.

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Impairment of Real Estate Properties

In the second quarter of 2023, the Company recognized impairments totaling $55.2 million primarily due to four properties with changes in the expected holding periods.

In the third quarter of 2023, the Company recognized impairments totaling $56.9 million primarily due to the sale of two properties, 12 properties classified into held for sale, and six properties with changes in the expected holding periods.

Equity loss from unconsolidated joint ventures

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See Note 3 to the Condensed Consolidated Financial Statements accompanying this report for more details regarding the Company's unconsolidated joint ventures.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

The Company’s results of operations for the six months ended June 30, 2023 compared to the same period in 2022 were impacted by the Merger, acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income increased $374.7 million, or 134.2%, for the six months ended June 30, 2023 compared to the prior year period.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

The Company’s results of operations for the nine months ended September 30, 2023 compared to the same period in 2022 were impacted by the Merger, acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income increased $409.1 million, or 70.8%, for the nine months ended September 30, 2023 compared to the prior year period.

This increase is primarily comprised of the following:

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Other operating income increased $4.2 million, or 45.7%, from the prior year period primarily as a result of variable parking and asset management fees assumed in the Merger.

Property operating expenses increased $133.0 million, or 116.2%, for the six months ended June 30, 2023 compared to the prior year period primarily as a result of the following activity:

Property operating expenses increased $152.1 million, or 67.0%, for the nine months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

• Acquisitions in 2022 and 2023 resulted in an increase of $7.8 million.

1 unchanged sentence

◦ Utilities expense of $5.4 million;

◦ Maintenance and repair of $2.2 million;

◦ Administrative, leasing commissions, and other legal expense of $2.1 million;

◦ Janitorial expense of $1.5 million;

◦ Maintenance and repair expense of $1.2 million;

◦ Insurance expense of $0.3 million;

• Property tax expense decreased of $0.5 million.

• Compensation expense decreased $0.8 million.

◦ Security expense of $0.1 million.

• Dispositions in 2022 and 2023 resulted in a decrease of $9.7 million.

• Payroll expense resulted in a decrease of $1.0 million.

• Impact from the Merger resulted in an increase of $143.4 million.

General and administrative expenses increased approximately $8.8 million, or 40.9%, for the six months ended June 30, 2023 compared to the prior year period primarily as a result of the following activity:

• Incentive-based awards decreased $1.5 million.

• Net increases, impacts from the Merger including professional fees, audit services, insurance, travel and other administrative costs, of $10.3 million.

Merger-related costs decreased $24.0 million, or 181.9%, for the six months ended for the six months ended June 30, 2023 primarily due to a reduction in legal and consulting services in connection with the Merger including a refund related to state transfer taxes.

Depreciation and amortization expense increased $257.9 million, or 234.9%, for the six months ended June 30, 2023 compared to the prior year period primarily as a result of the following activity:

General and administrative expenses increased approximately $5.5 million, or 14.3%, for the nine months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

• Decrease in payroll and payroll related expenses of $1.2 million.

• Decrease in incentive-based awards of $1.1 million.

• Decrease in non-cash compensation incentive expense of $0.7 million.

• Net increases, primarily due to impacts from the Merger, including professional fees, audit services, insurance, travel and other administrative costs, of $8.5 million.

Merger-related costs decreased $96.0 million, or 103.6%, for the nine months ended September 30, 2023 primarily due to a reduction in legal and consulting services in connection with the Merger, including a refund of $17.8 million related to state transfer taxes.

Depreciation and amortization expense increased $282.8 million, or 105.6%, for the nine months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

• Acquisitions in 2022 and 2023 resulted in an increase of $9.3 million.

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Gains on sale of real estate properties

Gains on the sale of real estate properties for the six months ended June 30, 2023 and 2022 totaled $8.2 million and $53.3 million, respectively.

Gains on the sale of real estate properties for the nine months ended September 30, 2023 and 2022 totaled $57.0 million and $197.2 million, respectively.

Interest expense

Interest expense increased $99.9 million, or 342.0%, for the six months ended June 30, 2023 compared to the prior year period.

Interest expense increased $113.1 million, or 137.6%, for the nine months ended September 30, 2023 compared to the prior year period.

The components of interest expense are as follows:

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

Dollars in thousands 2023 2022 $ %

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Total interest expense $ 195,397 $ 82,248 $ 113,149 137.6 %

Contractual interest expense increased $77.1 million, or 291.4%, for the six months ended June 30, 2023 compared to the prior year period primarily as a result of the following activity:

Contractual interest expense increased $89.0 million, or 129.9%, for the nine months ended September 30, 2023 compared to the prior year period primarily as a result of the following activity:

• Senior notes and unsecured term loans assumed with the Merger accounted for an increase of approximately $55.8 million.

• New unsecured term loans executed with the amended credit facility accounted for an increase of approximately $27.3 million.

• The Company's Unsecured Term Loan due 2024 and 2026, net of swaps, accounted for an increase of approximately $7.7 million.

• The Company's Unsecured Term Loans due 2024 and 2026, net of swaps, accounted for an increase of approximately $10.4 million.

• The Unsecured Credit Facility accounted for an increase of approximately $10.1 million due to an increased weighted average balance outstanding and an increase in the weighted average interest rate.

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• Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.2 million.

Impairment of Real Estate Properties

During the six months ended June 30, 2023, the Company recognized impairments totaling $86.7 million relating to five properties that were sold, one land parcel that was sold, three properties reclassified to held for sale and four additional properties due to changes in the expected holding periods.

Impairment of Real Estate Properties and Credit Loss Reserves

During the nine months ended September 30, 2023, the Company recognized impairments totaling $138.3 million relating to six properties that were sold, one land parcel that was sold, 17 properties reclassified to held for sale and five additional properties due to changes in the expected holding periods.

In addition, the Company recorded $5.2 million in credit loss reserves related to notes receivables.

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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-Q

Item 2. Management’s Discussion and Analysis