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Item 1A. Risk Factors

2024-02-16 compared with 2023-03-01 · 72 added, 95 removed, 315 unchanged (35% of the section changed)

The following are some of the risks and uncertainties that could negatively affect the Company’s consolidated financial condition, results of operations, business and prospects.

These risk factors are grouped into four categories:

risks relating to the Company's merger and integration of Legacy HR and Legacy HTA businesses;

These risk factors are grouped into three categories:

risks relating to the Company’s business and operations;

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and risks relating to government regulations.

These risks, as well as the risks described in Item 1 under the headings “Competition,” “Government Regulation,” “Legislative Developments,” and “Environmental Matters,” and in Item 7 under the heading “Disclosure Regarding Forward-Looking Statements,” should be carefully considered before making an investment decision regarding the

The risks and uncertainties described below are not the only ones facing the Company, and there may be additional risks that the Company does not presently know of or that the Company currently considers not likely to have a material impact.

If any of the events underlying the following risks actually occurred, the Company’s business, consolidated financial condition, operating results and cash flows, including distributions to the Company's stockholders, could suffer, and the trading price of its common stock could decline.

Merger and Integration Risks

The Company incurred substantial expenses related to the Merger .

The Company incurred substantial expenses in connection with completing the Merger and expects to incur substantial expenses integrating the business, operations, networks, systems, technologies, policies and procedures of the two companies, including severance costs.

In addition, there are a large number of systems that must be integrated, including billing, management information, asset management, accounting and finance, payroll and benefits, lease administration and regulatory compliance.

Although the Company assumed that a certain level of transaction and integration expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of its integration expenses.

The transaction and integration expenses associated with the Merger could, particularly in the near term, exceed the savings that the Company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the businesses.

The Company may be unable to integrate the businesses of Legacy HR and Legacy HTA successfully and realize the anticipated synergies and related benefits of the Merger or do so within the anticipated timeframe .

The Merger involved the combination of two companies that operated as independent public companies.

The Company is devoting significant management attention and resources to integrate the business practices and operations of Legacy HR and Legacy HTA.

Potential difficulties the Company may encounter in the integration process include the following:

the inability to successfully combine the businesses of Legacy HR and Legacy HTA in a manner that permits the Company to achieve the cost savings anticipated to result from the Merger, which would result in the anticipated benefits of the Merger not being realized in the timeframe currently anticipated or at all;

the complexities associated with managing the combined businesses out of different locations and integrating personnel from the two companies;

the additional complexities of combining two companies with different histories, cultures, markets and tenant bases;

the failure to retain key employees of the Company;

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Merger.

For all these reasons, you should be aware that it is possible that the integration process could result in the distraction of the Company's management, the disruption of the Company's ongoing business or inconsistencies in the Company's services, standards, controls, procedures and policies, any of which could adversely affect the ability of the Company to maintain relationships with tenants, health systems, vendors and employees or to achieve the anticipated benefits of the Merger, or could otherwise adversely affect the business and financial results of the Company.

The Company may be unable to retain key employees .

The success of the Company depends in part upon its ability to retain key employees.

Key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Company following the Merger or for other reasons.

Accordingly, no assurance can be given that the Company will be able to retain key employees.

The trading price of shares of common stock of the Company may be affected by factors different from those that affected the price of shares of Legacy HR's common stock or Legacy HTA’s common stock before the Merger .

The results of operations of the Company, as well as the trading price of the shares of common stock of the Company, may be affected by factors different from those that affected Legacy HR's or Legacy HTA's results of operations and the trading prices of their respective shares of common stock.

These factors include:

(i) a greater number of shares of common stock of the Company outstanding;

(ii) different stockholders;

(iii) different businesses;

and (iv) different assets and capitalizations.

In addition, the Company may take actions in the future—such as a share split, reverse share split, stock repurchases, or reclassification—that could affect the trading price of its shares of common stock.

Accordingly, the historical trading prices and financial results of Legacy HR and Legacy HTA may not be indicative of these matters for the Company after the Merger.

The Company cannot assure you that it will be able to continue paying dividends at or above the rates paid by Legacy HR and Legacy HTA .

The stockholders of the Company may not receive dividends at the same rate they received dividends as stockholders of Legacy HR and stockholders of Legacy HTA for various reasons, including the following:

(i) the Company may not have enough cash to pay such dividends due to changes in the Company's cash requirements, capital spending plans, cash flow or financial position;

(ii) decisions on whether, when and in which amounts to make any future distributions will remain at all times entirely at the discretion of the Board of Directors of the Company, which reserves the right to change the Company's current dividend practices at any time and for any reason;

(iii) the Company may desire to retain cash to maintain or improve its credit ratings;

and (iv) the amount of dividends that the Company's subsidiaries may distribute to the Company may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.

Stockholders of the Company do not have contractual or other legal right to dividends that have not been authorized by the Board of Directors of the Company.

Risk relating to our business and operations

Risks relating to our business and operations

The Company's expected results may not be achieved.

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changes in the economy;

the availability and cost of capital at favorable rates;

the availability and

cost of capital at favorable rates;

increases in property taxes, utilities and other operating expenses;

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The Company has no operational control over the business of these tenants and associated health systems who face a wide range of economic, competitive, government reimbursement and regulatory pressures and constraints, including the loss of licensure or certification.

Any slowdown in the economy, decline in the availability of financing from the

capital markets, and changes in healthcare regulations may adversely affect the businesses of the Company’s tenants to varying degrees.

Any slowdown in the economy, decline in the availability of financing from the capital markets, and changes in healthcare regulations may adversely affect the businesses of the Company’s tenants to varying degrees.

Such conditions may further impact such tenants’ abilities to meet their obligations to the Company and, in certain cases, could lead to restructurings, disruptions, or bankruptcies of such tenants.

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These conditions could adversely affect the Company’s revenues and could increase allowances for losses and result in impairment charges, which could decrease net income attributable to common stockholders and equity and reduce cash flows from operations.

Pandemics, such as COVID-19 and other pandemics that may occur in the future, and measures intended to prevent their spread or mitigate their severity could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition.

The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets.

During 2020, all of the states and cities in which the Company owns properties, manages properties, and/or has development or redevelopment projects instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of businesses that may continue to operate, and/or restrictions on the types of construction projects that may continue.

As a result, a number of the Company's tenants temporarily closed their offices or clinical space or operated on a reduced basis in response to government requirements or recommendations.

The COVID-19 pandemic also caused, and may continue to cause, severe economic, market and other disruptions worldwide.

There can be no assurance that the Company's access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.

In addition, the deterioration of economic conditions, including supply chain constraints, as a result of the pandemic may ultimately decrease occupancy levels and average rent per square foot across the Company's portfolio as tenants reduce or defer their spending.

The extent of the COVID-19 pandemic’s effect, or the effect of new virus variants or of another pandemic in the future, on the Company's operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the availability and effectiveness of vaccines, and the effect of government requirements or recommendations, all of which are uncertain and difficult to predict.

Owning real estate and indirect interests in real estate is subject to inherent risks .

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The Company performs an impairment review on its real estate properties every year.

In addition, the Company assesses the potential for impairment of identifiable intangible assets and long-lived assets, including real estate properties, whenever events occur or a change in circumstances indicates that the recorded value might not be fully recoverable.

In addition, the Company assesses the potential for impairment of identifiable intangible assets and long-lived assets, including real estate properties and goodwill, whenever events occur or a change in circumstances indicates that the recorded value might not be fully recoverable.

The decision to sell a property also requires the Company to assess the potential for impairment.

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Properties with purchase options exercisable in 2023 produced aggregate net operating income of approximately $10.6 million in 2023.

The exercise of these purchase options exposes

the Company to reinvestment risk and a reduction in investment return.

The exercise of these purchase options

exposes the Company to reinvestment risk and a reduction in investment return.

Certain properties subject to purchase options may be purchased at rates of return above the rates of return the Company expects to achieve with new investments.

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To the extent fixed percentage increases lag behind inflation and operating expense growth, the Company's performance, growth, and profitability would be negatively impacted.

As of December 31, 2022, the Company had weighted average annual fixed rent escalators of 2.77%.

As of December 31, 2023, the Company had weighted average annual fixed rent escalators of 2.82% with its wholly-owned and consolidated properties.

The Company’s real estate investments are illiquid and the Company may not be able to sell properties strategically targeted for disposition .

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The Company is exposed to risks associated with geographic concentration .

As of December 31, 2022, the Company had investment concentrations of greater than 5% of its total investments in the Dallas, Texas (9.2%), Houston, Texas (5.6%), and Seattle, Washington (5.0%) markets.

As of December 31, 2023, the Company had investment concentrations of greater than 5% of its total investments in the Dallas, TX (8.7%), Houston, TX (5.6%), and Seattle, WA (5.3%) markets.

These concentrations increase the exposure to adverse conditions that might affect these markets, including natural disasters, local economic conditions, local real estate market conditions, increased competition, state and local regulation (including property taxes) and other localized events or conditions.

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Most of the Company’s properties on or adjacent to hospital campuses are largely dependent on the viability of the health system’s campus where they are located, whether or not the hospital or health system is a tenant in such properties.

The viability of these health systems depends on factors such as the quality and mix of healthcare services provided, competition, demographic trends in the surrounding community, market position and growth potential.

The viability of these health systems depends on factors such as the quality and mix of healthcare services provided, competition, payor mix, demographic trends in the surrounding community, market position and growth potential.

If one of these hospitals is unable to meet its financial obligations, is unable to compete successfully, or is forced to close or relocate, the Company’s properties on or near such hospital campus could be adversely impacted.

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The weighted average remaining term of the Company's ground leases is approximately 64.9 years, including renewal options.

The Company’s ground lease agreements with hospitals and health systems typically contain restrictions that limit building occupancy to physicians on the medical staff of an affiliated hospital and prohibit tenants from providing services that compete with the services provided by the affiliated hospital.

Ground leases may also contain consent requirements or other restrictions on sale or

assignment of the Company’s leasehold interest, including rights of first offer and first refusal in favor of the lessor.

The Company’s ground lease agreements with

hospitals and health systems typically contain restrictions that limit building occupancy to physicians on the medical staff of an affiliated hospital and prohibit tenants from providing services that compete with the services provided by the affiliated hospital.

Ground leases may also contain consent requirements or other restrictions on sale or assignment of the Company’s leasehold interest, including rights of first offer and first refusal in favor of the lessor.

These ground lease provisions may limit the Company’s ability to lease, sell, or obtain mortgage financing secured by such properties which, in turn, could adversely affect the income from operations or the proceeds received from a sale.

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Although the Company makes efforts to maintain the security and integrity of these types of IT networks and related systems, it has experienced breaches.

While breaches to date have not had a material

impact, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that these security measures will be effective or that future attempted security breaches or disruptions would not be successful or damaging.

Even the most well protected information, networks, systems, and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and may not be detected.

Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventive measures, and it is therefore impossible to entirely mitigate the risk.

While breaches to date have not had a material impact, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that these security measures will be effective or that future attempted security breaches or disruptions would not be successful or damaging.

A security breach or other significant disruption involving the Company's IT network and related systems could:

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• result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, or otherwise valuable information of the Company or others, which others could use to compete against the Company or which could expose it to damage claims by third parties for disruption, destructive, or otherwise harmful purposes or outcomes;

• result in the Company's inability to maintain the building systems relied upon by the its tenants for the efficient use of their leased space;

• result in the Company's inability to maintain the building systems relied upon by its tenants for the efficient use of their leased space;

• require significant management attention and resources to remedy any damages that result;

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If the contributor required the Company to repurchase units for cash pursuant to such a provision, it would limit the Company's liquidity and, thus, its ability to use cash to make other investments, satisfy other obligations or make distributions to stockholders.

Moreover, if the Company were required to repurchase units for cash at a time when it did not have sufficient cash to fund the repurchase, the Company might be required to sell one or more of its properties to raise funds to satisfy this obligation.

Moreover, if the Company were

required to repurchase units for cash at a time when it did not have sufficient cash to fund the repurchase, the Company might be required to sell one or more of its properties to raise funds to satisfy this obligation.

Furthermore, the Company might agree that if distributions the contributor received as a limited partner in the OP did not provide the contributor with an established return level, then upon redemption of the contributor’s units the Company would pay the contributor an additional amount necessary to achieve that return.

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Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to the OP, the Company might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares.

Such an agreement would prevent

the Company from selling those properties, even if market conditions would allow such a sale to be favorable to the Company.

Such an agreement would prevent the Company from selling those properties, even if market conditions would allow such a sale to be favorable to the Company.

Healthcare Realty Trust is a holding company with no direct operations and, as such, it relies on funds received from the OP to pay liabilities, and the interests of its stockholders will be structurally subordinated to all liabilities and obligations of the OP and its subsidiaries.

Substantially all of Healthcare Realty Trust's assets are held through the OP, which holds substantially all of its assets through subsidiaries.

Healthcare Realty Trust does not have, apart from its interest in the OP, any independent operations.

Substantially all of Healthcare Realty Trust's cash flow is dependent upon cash distributions from the OP.

As a result, Healthcare Realty Trust relies on distributions from the OP to pay any dividends that may be declared on its shares of Class A common stock.

Healthcare Realty Trust also relies on distributions from the OP to meet its other obligations, including any tax liability on taxable income allocated to it from the OP.

In addition, because Healthcare Realty Trust is a holding company, stockholder claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of the OP and its subsidiaries.

In the event of a bankruptcy, liquidation, or reorganization of Healthcare Realty Trust, its assets and those of the OP and its subsidiaries will be available to satisfy the claims of stockholders only after all of Healthcare Realty Trust's and the OP’s and its subsidiaries’ liabilities and obligations have been paid in full.

The Company cannot assure you that it will be able to continue paying dividends at or above the rates previously paid .

The stockholders of the Company may not receive dividends at the same rate they received previously for various reasons, including the following:

(i) the Company may not have enough cash to pay such dividends due to changes in the Company's cash requirements, capital spending plans, cash flow or financial position;

(ii) decisions on whether, when and in what amounts to make any future distributions will remain at all times entirely at the discretion of the Board of Directors, which reserves the right to change the Company's current dividend practices at any time and for any reason;

(iii) the Company may desire to retain cash to maintain or improve its credit ratings;

Stockholders of the Company do not have a contractual or other legal right to dividends that have not been authorized by the Board of Directors.

The Company previously incurred and may continue to incur substantial expenses related to the Merger .

The Company incurred substantial expenses in connection with completing the Merger and integrating the business, operations, networks, systems, technologies, policies and procedures of the two companies, including severance costs.

While the integration of the two companies is largely complete, the Company could still incur significant expenses as it operates and refines the combined portfolios of the companies.

Pandemics, such as COVID-19, and measures intended to prevent their spread or mitigate their severity could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition .

The COVID-19 pandemic had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets.

During 2020, all of the states and cities in which the Company owns properties, manages properties, and/or has development or redevelopment projects instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of businesses that may continue to operate, and/or restrictions on the types of construction projects that may continue.

As a result, a number of the Company's tenants temporarily closed their offices or clinical space or operated on a reduced basis in response to government requirements or recommendations.

The COVID-19 pandemic also caused severe economic, market and other disruptions worldwide.

Risks relating to our capital structure and financings

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As of December 31, 2023, the Company had approximately $5.3 billion of outstanding indebtedness excluding discounts, premiums and debt issuance costs.

Covenants under the Fourth Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 20, 2022, among the Company, the OP, and Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders that are party thereto, as amended ("Unsecured Credit Facility"), and the indentures governing the Company's senior notes permit the Company to incur substantial, additional debt, and the Company may borrow additional funds, which may include secured borrowings.

Covenants under the Fourth Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 20, 2022, among Healthcare Realty Trust, the OP, and Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders that are party thereto, as amended ("Unsecured Credit Facility"), and the indentures governing the OP's senior notes permit the Company to incur substantial, additional debt, and the Company may borrow additional funds, which may include secured borrowings or additional instances of notes by the OP that are fully guaranteed by Healthcare Realty Trust.

A high level of indebtedness would require the Company to dedicate a substantial portion of its cash flows from operations to service debt, thereby reducing the funds available to implement the Company's business strategy and to make distributions to stockholders.

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• limit the Company’s ability to adjust rapidly to changing market conditions in the event of a downturn in general economic conditions or in the real estate and/or healthcare industries;

• limit the Company's ability to adjust rapidly to changing market conditions in the event of a downturn in general economic conditions or in the real estate and/or healthcare industries;

• impair the Company’s ability to obtain additional debt financing or require potentially dilutive equity to fund obligations and carry out its business strategy;

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Covenants in the Company’s debt instruments limit its operational flexibility, and a breach of these covenants could materially affect the Company’s consolidated financial condition and results of operations.

The terms of the Unsecured Credit Facility, the indentures governing the Company’s outstanding senior notes and other debt instruments that the Company may enter into in the future are subject to customary financial and operational covenants.

The terms of the Unsecured Credit Facility, the indentures governing the OP’s outstanding senior notes (which are fully and unconditionally guaranteed by Healthcare Realty Trust) and other debt instruments that the Company may enter into in the future are subject to customary financial and operational covenants.

These provisions include, among other things:

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Increases in interest rates could have a material adverse effect on the Company's cost of capital.

During 2022, the Federal Reserve began, and is expected to continue, to raise interest rates in an effort to curb inflation.

Increases in interest rates will increase interest cost on new and existing variable rate debt.

During 2023, the Federal Reserve continued to raise interest rates in an effort to curb inflation.

Further increases in interest rates will increase interest costs on any new debt and existing variable rate debt.

Such increases in the cost of capital could adversely impact our ability to finance operations, acquire and develop properties, and refinance existing debt.

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As of December 31, 2023, the Company had investments of $311.5 million in unconsolidated joint ventures with unrelated third parties comprised of 33 properties and two parking garages.

The Company may acquire, develop, or

redevelop additional properties in joint ventures with unrelated third parties.

In addition, the Company had an investment of $30.1 million in one operating consolidated joint venture, as well as investments of $58.1 million in three consolidated joint ventures with developments in various stages of construction.

The Company may acquire, develop, or redevelop additional properties in joint ventures with unrelated third parties.

In such investments, the Company is subject to risks that may not be present in its other forms of ownership, including:

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federal income tax treatment of the cash that the Company might receive from cash settlement of a forward equity agreement is unclear and could jeopardize the Company's ability to meet the REIT qualification requirements.

In the event that we elect to settle any forward equity agreement for cash and the settlement price is below the applicable forward equity price, we would be entitled to receive a cash payment from the relevant forward purchaser.

The Company has utilized and, in the future, may utilize forward equity agreements to secure pricing for equity capital needed at a later time.

The Company currently has no forward equity agreements outstanding.

I n the event that we enter into forward equity agreements in the future and elect to settle any such forward equity agreement for cash and the settlement price is below the applicable forward equity price, we would be entitled to receive a cash payment from the relevant forward purchaser.

Under Section 1032 of the Internal Revenue Code, generally, no gains and losses are recognized by a corporation in dealing in its own shares, including pursuant to a "securities futures contract" (as defined in the Internal Revenue Code, by reference to the Exchange Act).

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federal income tax treatment of any cash settlement payment we receive is uncertain.

In the event that we recognize a significant gain from the cash settlement of a forward equity agreement, we might be unable to satisfy the gross income requirements applicable to REITs under the Internal Revenue Code.

that we recognize a significant gain from the cash settlement of a forward equity agreement, we might be unable to satisfy the gross income requirements applicable to REITs under the Internal Revenue Code.

In that case, we may be able to rely upon the relief provisions under the Internal Revenue Code in order to avoid the loss of our REIT status.

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Real property taxes on the Company's properties may increase as its properties are reassessed by taxing authorities or as property tax rates change.

For example, a current California law commonly referred to as Proposition 13 generally limits annual real estate tax increases on California properties to 2% of assessed value.

For example, a current California law commonly referred to as Proposition 13 generally limits annual real estate tax increases on California properties to 2% of assessed value at the date of acquisition.

Accordingly, the assessed value and resulting property tax the Company pays is less than it would be if the properties were assessed at current values.

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The healthcare service industry may be affected by the following:

• disruption in patient volume and revenue from pandemics, such as COVID-19;

• trends in the method of delivery of healthcare services, such as telehealth;

• transition to value-based care and reimbursement of providers;

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• site-neutral rate-setting for Medicare services across different care settings;

• disruption in patient volume and revenue from pandemics, such as COVID-19;

• trends in the method of delivery of healthcare services, such as telehealth;

• heightened health information technology security standards and the meaningful use of electronic health records by healthcare providers;

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Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or private parties.

Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including asbestos-containing materials.

Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials.

Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances.

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Even a technical or inadvertent violation could jeopardize the Company’s REIT qualification.

The Company’s continued qualification as a REIT will depend on the Company’s satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis.

The Company’s continued qualification as a REIT will depend on the Company’s satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other

requirements on a continuing basis.

In addition, the Company’s ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which the Company has no control or only limited influence, including in cases where the Company owns an equity interest in an entity that is classified as a partnership for U.S.

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Further, dividends paid to the Company’s stockholders would not be deductible by the Company in computing its taxable income.

Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to the Company’s stockholders, which in turn could have an adverse impact on the value of, and trading prices for, the Company’s

common stock.

In addition, in such event the Company would no longer be required to pay dividends to maintain REIT status, which could adversely affect the value of the Company’s common stock.

In addition, in such an event the Company would no longer be required to pay dividends to maintain REIT status, which could adversely affect the value of the Company’s common stock.

Unless the Company were entitled to relief under certain provisions of the Internal Revenue Code, the Company also would continue to be disqualified from taxation as a REIT for the four taxable years following the year in which the Company failed to qualify as a REIT.

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For more specific information on state income taxes paid, see Note 16 to the Consolidated Financial Statements.

The Company’s articles of incorporation, as well as provisions of the Maryland General Corporation Law ("MGCL"), contain limits and restrictions on transferability of the Company’s common stock which may have adverse effects on the value of the Company’s common stock.

The Company’s articles of incorporation, as well as provisions of the MGCL, contain limits and restrictions on transferability of the Company’s common stock which may have adverse effects on the value of the Company’s common stock.

In order to qualify as a REIT, no more than 50% of the value of the Company’s outstanding shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year.

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• “control share” provisions that provide that holders of “control shares” of the Company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by Company stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

Pursuant to a resolution adopted by the Board of Directors, the Company is prohibited from classifying the Board under Subtitle 8 unless stockholders entitled to vote generally in the election of directors approve a proposal to repeal such resolution by the affirmative of a majority of the votes cast on the matter.

In the case of the business combination provisions of the MGCL, the Board of Directors has adopted a resolution providing that any business

combination between the Company and any other person is exempted from this statute, provided that such business combination is first approved by the Board of Directors.

Pursuant to a resolution adopted by the Board of Directors, the Company is prohibited from classifying the Board of Directors under Subtitle 8 unless stockholders entitled to vote generally in the election of directors approve a proposal to repeal such resolution by the affirmative of a majority of the votes cast on the matter.

In the case of the business combination provisions of the MGCL, the Board of Directors has adopted a resolution providing that any business combination between the Company and any other person is exempted from this statute, provided that such business combination is first approved by the Board of Directors.

This resolution, however, may be altered or repealed in whole or in part at any time.

In the case of the control share provisions of the MGCL, the Company has opted out of these provisions pursuant to a provision in its bylaws.

The Company may, however, by amendment to its bylaws, opt in to the control share provisions of the MGCL.

The Company may, however, by amendment to its bylaws, opt into the control share provisions of the MGCL.

The Company may also choose to adopt other takeover defenses in the future.

Any such actions could deter a transaction that may otherwise be in the interest of Company stockholders.

These restrictions on transfer of the Company’s shares could have adverse effects on the value of the Company’s common stock.

These restrictions on the transfer of the Company’s shares could have adverse effects on the value of the Company’s common stock.

Complying with the REIT requirements may cause the Company to forego otherwise attractive opportunities.

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In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business.

The Company may be subject to the prohibited transaction tax equal to 100% of net gain upon a disposition of real property.

Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, there can be no assurance that the Company can comply in all cases with the safe harbor or that it will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business.

The Company may be subject to the prohibited transaction tax equal to 100% of net gain upon the disposition of real property.

Consequently, the Company may choose not to engage in certain sales of its properties or may conduct such sales through a taxable REIT subsidiary, which would be subject to federal and state income taxation.

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As state and municipal governments seek new ways to raise revenue, other jurisdictions may implement new real estate transfer taxes or increase existing transfer tax rates.

Increases in such tax rates can impose significant additional transaction costs on sales of commercial real estate and may reduce the value of the Company’s properties at sale by the amount of the new or increased tax.

Unresolved Staff Comments

Increases in such tax rates can impose significant additional transaction costs on sales of commercial real estate and may reduce the value of the Company’s properties for sale by the amount of the new or increased tax.

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 1A. Risk Factors