What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-16 compared with 2023-03-01 · 279 added, 326 removed, 488 unchanged (55% of the section changed)

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Disclosure Regarding Forward-Looking Statements

This report and other materials the Company has filed or may file with the SEC, as well as information included in oral statements or other written statements made, or to be made, by senior management of the Company, contain, or will contain, disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could” and other comparable terms.

This report and other materials the Company have filed or may file with the SEC, as well as information included in oral statements or other written statements made, or to be made, by senior management of the Company, contain, or will contain, disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could” and other comparable terms.

These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties that could materially affect the Company’s current plans and expectations and future financial condition and results.

Such risks and uncertainties as more fully discussed in Item 1A “Risk Factors” of this report and in other reports filed by the Company with the SEC from time to time include, among other things, the following:

Merger and Integration Risks

• The Company incurred substantial expenses related to the Merger;

• 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 Company may be unable 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 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.

Risk relating to our business and operations

Risks relating to our business and operations

• The Company's expected results may not be achieved;

• The Company’s revenues depend on the ability of its tenants under its leases to generate sufficient income from their operations to make rental payments to the Company;

• 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;

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

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• If the Company is unable to promptly re-let its properties, if the rates upon such re-letting are significantly lower than the previous rates or if the Company is required to undertake significant expenditures or make significant leasing concessions to attract new tenants, then the Company’s business, consolidated financial condition and results of operations would be adversely affected;

• Certain of the Company’s properties are special purpose healthcare facilities and may not be easily adaptable to other uses;

• The Company has, and in the future may have more, exposure to fixed rent escalators, which could lag behind inflation and the growth in operating expenses such as real estate taxes, utilities, insurance, and maintenance expense;

• 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 may make material acquisitions and undertake developments and redevelopments that may involve the expenditure of significant funds and may not perform in accordance with management’s expectations;

• The Company is exposed to risks associated with geographic concentration;

• Many of the Company’s leases are dependent on the viability of associated health systems.

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• The Company faces risks associated with security breaches through cyber attacks, cyber intrusions, or otherwise, as well as other significant disruptions of its information technology networks and related systems;

• The Company may structure acquisitions of property in exchange for limited partnership units of the OP on terms that could limit its liquidity or flexibility;

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

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

• 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.

Risks relating to our capital structure and financings

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• If the Company fails to remain qualified as a REIT, the Company will be subject to significant adverse consequences, including adversely affecting the value of its common stock;

• 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;

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

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Immediately following the Merger, Legacy HTA changed its name to “Healthcare Realty Trust Incorporated.” For accounting purposes, the Merger was treated as a “reverse acquisition” in which Legacy HR was considered the acquirer.

Accordingly, the information discussed in this section reflects, for periods prior to the closing of the Merger, the financial condition and results of operations of Legacy HR, and for periods from the closing of the Merger, that of the consolidated company.

This section is organized in the following sections:

This section is organized into the following sections:

• Liquidity and Capital Resources;

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The Company monitors its liquidity and capital resources and considers several indicators in its assessment of capital markets for financing acquisitions and other operating activities.

The Company considers, among other factors, its leverage ratios and lending covenants, dividend payout percentages, interest rates, underlying treasury rate, debt market spreads and cost of equity capital to compare its operations to its peers and to help identify areas in which the Company may need to focus its attention.

The Company considers, among other factors, its leverage ratios and lending covenants, dividend payout percentages, interest rates, underlying treasury rates, debt market spreads and cost of equity capital to compare its operations to its peers and to help identify areas in which the Company may need to focus its attention.

Sources and Uses of Cash

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To the extent additional investments are not funded by these sources, the Company will fund its investment activity generally through equity or debt issuances either in the public or private markets, property dispositions or through proceeds from the Unsecured Credit Facility.

The Company expects to continue to meet its liquidity needs, including capital for additional investments, tenant improvement allowances, operating and finance lease payments, paying dividends, and funding debt service, through

cash on hand, cash flows from operations and the cash flow sources addressed above.

See Note 4 to the Consolidated Financial Statements for additional discussion of operating and financing lease payment obligations.

See "Trends and Matters Impacting Operating Results" for additional information regarding the Company's sources and uses of cash.

Dividends paid by the Company for the year ended December 31, 2022 were funded from cash flows from operations and the Unsecured Credit Facility, as cash flows from operations were not adequate to fully fund dividends, primarily as a result of merger-related costs paid during 2022.

The Company expects that cash flows from property operations will generate sufficient cash flows such that dividends for the full year 2023 can be funded by cash flows from operations or other sources of liquidity described above.

The Company also had unencumbered real estate assets with a gross book value of approximately $13.2 billion at December 31, 2023, of which a portion could serve as collateral for secured mortgage financing.

The Company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements.

The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.

The Company cannot,

however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.

The Company has exposure to variable interest rates and its common stock price is impacted by the volatility in the stock markets.

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Investing Activities

A summary of the significant transactions impacting investing activities for the twelve months ended December 31, 2022 is listed below.

A summary of the significant transactions impacting investing activities for the year ended December 31, 2023 is listed below.

See Note 5 to the Consolidated Financial Statements for more detail on these activities.

The following table details the acquisitions for the year ended December 31, 2022:

Dollars in thousands ASSOCIATED HEALTH SYSTEM/TENANCY 1

DATE ACQUIRED PURCHASE PRICE SQUARE FOOTAGE MILES TO CAMPUS

Texas Health Resources 2/11/2022 $ 8,175 18,000 0.19

San Francisco, CA 3

Kaiser/Sutter Health 3/7/2022 114,000 166,396 0.90 to 3.30

Atlanta, GA Wellstar Health 4/7/2022 6,912 21,535 0.00

Denver, CO Centura Health 4/13/2022 6,320 12,207 2.40

The following table details the Company's real estate acquisition activity for the year ended December 31, 2023:

Dollars in thousands DATE ACQUIRED PURCHASE PRICE MORTGAGE NOTES PAYABLE, NET CASH

CONSIDERATION 1

ESTATE OTHER 2

SQUARE FOOTAGE

Tampa, FL 3/10/23 $ 31,500 $ — $ 30,499 $ 30,596 $ (97) 115,867

Colorado Springs, CO 7/28/23 11,450 (5,284) 6,024 11,416 (108) 42,770

Centura Health 4/13/2022 13,680 25,800 0.80 to 1.70

Seattle, WA UW Medicine 4/28/2022 8,350 13,256 0.05

Houston, TX CommonSpirit 4/28/2022 36,250 76,781 1.70

Los Angeles, CA Cedars-Sinai Health Systems 4/29/2022 35,000 34,282 0.11

Oklahoma, OK Mercy Health 4/29/2022 11,100 34,944 0.18

Raleigh, NC 3

WakeMed/None 5/31/2022 27,500 85,113 0.25 to 12.30

BayCare Health 6/9/2022 18,650 55,788 0.23

Seattle, WA Evergreen Health 8/1/2022 4,850 10,593 0.24

Raleigh, NC WakeMed Health 8/9/2022 3,783 11,345 0.24

Jacksonville, FL Ascension Health 8/9/2022 18,195 34,133 0.03

Atlanta, GA Wellstar Health 8/10/2022 11,800 43,496 0.11

Denver, CO Centura Health 8/11/2022 14,800 34,785 2.10

Raleigh, NC Duke Health 8/18/2022 11,375 31,318 0.19

Nashville, TN Ascension Health 9/15/2022 21,000 61,932 0.80

Austin, TX HCA Healthcare 9/29/2022 5,450 15,000 0.03

Jacksonville, FL 2

Ascension Health 10/12/2022 3,600 6,200 0.10

Houston, TX Memorial Hermann Health 11/21/2022 5,500 28,369 0.00

Ascension Health 12/28/2022 888 2,219 0.01

Denver, CO None 12/28/2022 16,400 39,692 3.01

Total investments in real estate $ 403,578 863,184

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.

2 Represents a single-tenant property.

3 Includes three properties.

4 Includes two properties.

5 The Company acquired additional ownership in an existing building bringing the Company's ownership to 71.4%.

2022 Joint Venture Acquisitions

The following table details the joint venture acquisitions for the year ended December 31, 2022:

Dollars in thousands ASSOCIATED HEALTH SYSTEM/TENANCY 1

DATE ACQUIRED PURCHASE PRICE SQUARE FOOTAGE MILES TO CAMPUS COMPANY OWNERSHIP %

San Francisco, CA 2

MarinHealth/Kaiser 3/7/2022 $ 67,175 110,865 0.00 to 3.30 50 %

Los Angeles, CA 3

Valley Presbyterian Health 3/7/2022 33,800 103,259 1.30 50 %

Total Joint Venture acquisitions $ 100,975 214,124

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.

2 Includes three properties.

3 Includes two properties.

Total real estate acquisitions $ 42,950 $ (5,284) $ 36,523 $ 42,012 $ (205) 158,637

1 Cash consideration excludes prorations of revenue and expense due to/from seller at the time of the acquisition.

2 Includes other assets acquired, liabilities assumed, and intangibles recognized at acquisition.

Capital Funding

In 2022, the Company funded $189.7 million toward the following expenditures:

In 2023, the Company incurred capital expenditures totaling $262.1 million for the following:

• $112.2 million toward development and redevelopment of properties;

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The following table details the dispositions for the year ended December 31, 2023:

Dollars in thousands DATE

DISPOSED SALES PRICE SQUARE FOOTAGE

Loveland, CO 1, 6

2/24/2022 $ 84,950 150,291

San Antonio, TX 1

Dollars in thousands DATE DISPOSED SALE PRICE CLOSING ADJUSTMENTS COMPANY-FINANCED NOTES NET PROCEEDS NET REAL ESTATE INVESTMENT OTHER (INCLUDING RECEIVABLES) 1

GAIN/(IMPAIRMENT) SQUARE FOOTAGE

Tampa/Miami, FL 2

1/12/23 $ 93,250 $ (5,875) $ — 87,375 $ 87,302 $ (888) $ 961 224,037

1/30/23 19,210 (141) — 19,069 18,986 43 40 36,691

Louis, MO 2/10/23 350 (18) — 332 398 — (66) 6,500

Los Angeles, CA 3/23/23 21,000 (526) — 20,474 20,610 52 (188) 37,165

Los Angeles, CA 4

3/30/23 75,000 (8,079) (45,000) 21,921 88,624 (803) (20,900) 147,078

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5/12/23 3,300 (334) — 2,966 3,268 — (302) —

Albany, NY 6/30/23 10,000 (1,229) — 8,771 2,613 (1,040) 7,198 40,870

Houston, TX 8/2/23 8,320 (285) — 8,035 4,567 194 3,274 57,170

Atlanta, GA 8/22/23 25,140 (66) — 25,074 23,226 (536) 2,386 55,195

Dallas, TX 9/15/23 115,000 (1,504) — 113,496 64,183 6,094 43,219 161,264

Houston, TX 9/18/23 250 (24) — 226 1,998 — (1,772) 52,040

Chicago, IL 9/27/23 59,950 (870) — 59,080 74,710 (380) (15,250) 104,912

Evansville, IN 6

11/13/23 18,500 (63) — 18,437 17,807 (149) 779 260,520

Indianapolis, IN 3

Houston, TX 12/1/23 4,100 (6) — 4,094 3,486 — 608 83,223

Charleston, SC 7

12/15/23 6,200 (401) — 5,799 3,415 — 2,384 15,014

Dallas, TX 12/20/23 43,295 (764) — 42,531 33,882 (3,782) 12,431 77,827

Los Angeles, CA 12/21/23 19,000 (1,311) — 17,689 17,787 — (98) 104,377

Tucson, AZ 8,9

12/22/23 43,230 (3,770) (6,000) 33,460 39,786 (26) (300) 215,471

Houston, TX 10/21/2022 32,000 134,910

College Station, TX 11/10/2022 49,177 122,942

El Paso, TX 12/22/2022 55,326 110,465

Atlanta, GA 5

Miami, FL 12/22/23 18,250 (756) — 17,494 17,354 643 (503) 48,000

Sebring, FL 12/27/23 9,500 (81) — 9,419 10,438 (512) (507) 38,949

Boston, MA 12/28/23 117,197 (2,079) — 115,118 107,803 9,828 (2,513) 161,254

Jacksonville/Orlando/Miami, FL 10

12/29/23 77,000 (8,678) (7,700) 60,622 65,839 (294) 2,777 354,500

Louis, MO 12/28/2022 18,000 69,394

Total dispositions $ 787,042 $ (36,860) $ (58,700) $ 691,482 $ 708,082 $ 8,444 $ 33,658 2,282,057

1 Includes two properties.

2 Includes four properties.

3 Includes five properties.

4 Includes six properties.

5 Includes nine properties.

6 The Company deferred the tax gain through a 1031 exchange and reinvested the proceeds.

7 Values and square feet are represented at 100%.

The Company retained a 20% ownership interest in the joint venture that purchased these properties.

8 Values and square feet are represented at 100%.

The Company retained a 40% ownership interest in the joint venture that purchased these properties.

Subsequent Dispositions

On January 12, 2023, the Company disposed of two medical office buildings, one in Tampa, Florida and one in Miami, Florida, with a combined total of 224,037 square feet for an aggregate purchase price of $93.3 million.

On January 30, 2023, the Company disposed of a 36,691 square foot medical office building in Dallas, Texas for a purchase price of $19.2 million.

The Company retained a 40% ownership interest in the joint venture that purchased this property.

On February 10, 2023, the Company disposed of a 6,500 square foot medical office building in St.

Louis, Missouri for a purchase price of $0.4 million.

1 Includes straight-line rent receivables, leasing commissions and lease inducements.

2 Includes two properties sold in two separate transactions to the same buyer on the same date.

3 The Company sold this property to a joint venture in which it retained a 40% interest.

Sales price and square footage reflect the total sales price paid by the joint venture and total square footage of the property.

4 The Company entered into a mortgage loan agreement with the buyer for $45.0 million.

5 The Company sold a land parcel totaling 0.34 acres.

6 Includes five properties sold in three separate transactions to the same buyer on the same date.

7 The Company sold a corporate office in Charleston, SC that was 100% occupied by the Company.

8 Includes 12 properties sold in one transaction to the same buyer.

9 The Company entered into a mezzanine loan agreement with the buyer for $6.0 million.

10 Includes three properties sold in one transaction to the same buyer.

The Company entered into a separate note receivable for $7.7 million related to this sale.

Financing Activities

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As of December 31, 2023, $750.0 million remained available for issuance under the current ATM offering program.

Legacy HR's ATM agreements are no longer in effect following the Merger on July 20, 2022.

All of the activity in the following table was conducted pre-merger under the Legacy HR at-the-market program:

WEIGHTED AVERAGE SALE PRICE

per share SHARES PRICED SHARES SETTLED SHARES REMAINING TO BE SETTLED NET PROCEEDS

2022 $ 31.73 — 727,400 — $ 22.3

Debt Activity

Below is a summary of the significant debt financing activity for the twelve months ended December 31, 2022.

Below is a summary of the significant debt financing activity for the year ended December 31, 2023.

See Note 10 to the Consolidated Financial Statements for additional information on financing activities.

Mortgage Payoffs

The following table details the mortgage note repayment activity for the twelve months ended December 31, 2022:

Mortgage Activity

The following table details the mortgage note repayment activity for the year ended December 31, 2023:

(dollars in millions) TRANSACTION DATE PRINCIPAL BORROWING (REPAYMENT) ENCUMBERED SQUARE FEET CONTRACTUAL INTEREST RATE

Debt assumptions:

Colorado Springs, CO 7/28/2023 $ 5.6 42,770 4.50 %

Mortgages repaid at maturity:

Atlanta, GA 8/1/2023 $ (9.8) 66,984 3.31 %

Lakewood, CO 12/1/2023 (6.6) 93,992 4.51 %

Total repayments $ (16.4) 160,976 3.79 %

Subsequent Activity

(dollars in millions) TRANSACTION DATE PRINCIPAL REPAYMENT ENCUMBERED SQUARE FEET CONTRACTUAL INTEREST RATE

Repayments in full:

Los Angeles, CA 2/18/2022 $ (11.0) 56,762 4.70 %

Loveland, CO 2/24/2022 (5.8) 80,153 6.17 %

$ (16.8) 136,915 5.21 %

Exchange Offer

In connection with the Merger, the OP offered to exchange all validly tendered and accepted notes of each series previously issued by Legacy HR (the “Old HR Notes”) for (i) up to $250,000,000 of 3.875% Senior Notes due 2025 (the “2025 Notes”), (ii) up to $300,000,000 of 3.625% Senior Notes due 2028 (the “2028 Notes”), (iii) up to $300,000,000 of 2.400% Senior Notes due 2030 (the “2030 Notes”) and (iv) up to $300,000,000 of 2.050% Senior Notes due 2031 to be issued by the OP (the “2031 Notes” and, collectively, the “New HR Notes”) and solicited consents from holders of the Old HR Notes to amend the indenture governing the Old HR Notes to eliminate substantially all of the restrictive covenants in such indenture (the “Exchange Offers”).

The New HR Notes were issued pursuant to an indenture dated July 22, 2022, among the OP, Legacy HTA and U.S.

Bank Trust Company, National Association, as trustee, as supplemented by the first supplemental indenture, dated as of July 22, 2022, the second supplemental indenture, dated as of July 22, 2022, the third supplemental indenture, dated as of July 22, 2022 and the fourth supplemental indenture, dated as of July 22, 2022.

Legacy HTA guaranteed the New HR Notes pursuant to (i) a guarantee of the 2025 Notes, (ii) a guarantee of the 2028 Notes, (iii) a guarantee of the 2030 Notes, and (iv) a guarantee of the 2031 Notes, each dated July 22, 2022.

Legacy HTA and the OP filed a registration statement on Form S-4 (File No.

333-265593) relating to the issuance of the New HR Notes with the Securities and Exchange Commission (the “SEC”) on June 14, 2022, which was declared effective by the SEC on June 28, 2022.

The following sets forth the results of the Exchange Offers:

Series of Old HR Notes Tenders and Consents Received as of the Expiration Date Percentage of Total Outstanding Principal Amount of Such Series of Old HR Notes

3.875 % Senior Notes due 2025

$235,016,000 94.01 %

3.625 % Senior Notes due 2028

$290,246,000 96.75 %

2.400 % Senior Notes due 2030

$297,507,000 99.17 %

2.050 % Senior Notes due 2031

$298,858,000 99.62 %

Senior Notes Assumed with the Merger

In connection with the Merger, the Company assumed senior notes ("Legacy Senior Notes") that were originated on various dates prior to the date of the Merger by the OP (formerly, Healthcare Trust of America Holdings, LP).

These notes are all fully and unconditionally guaranteed by the Company and have semi-annual payment requirements.

In addition, the Legacy Senior Notes carry customary restrictive financial covenants, including limitations on our ability to incur additional indebtedness and requirements to maintain a pool of unencumbered assets.

In addition, the corresponding indentures provide for the ability to redeem the Legacy Senior Notes, subject to certain "make whole" call provisions.

The Legacy Senior Notes assumed by the Company consist of the following:

COUPON PRINCIPAL OUTSTANDING AS OF

Dollars in thousands FACE VALUE 12/31/2022 12/31/2021

Senior Notes due 2026 3.50% $ 600,000 $ 600,000 $ —

Senior Notes due 2027 3.75% 500,000 500,000 —

Senior Notes due 2030 3.10% 650,000 650,000 —

Senior Notes due 2031 2.00% 800,000 800,000 —

$ 2,550,000 $ 2,550,000 $ —

Credit Facilities

In connection with the effectiveness of the Merger, Legacy HR (in a limited capacity), Legacy HTA and the OP entered into the Fourth Amended and Restated Credit and Term Loan Agreement (the “Unsecured Credit Facility”) with Wells Fargo Bank, National Association, as Administrative Agent;

Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., and Citibank, N.A., as Joint Book Runners;

Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A., U.S.

Bank National Association, Citibank, N.A., The Bank of Nova Scotia, Capital One, National Association, U.S.

Bank National Association, and PNC Capital Markets LLC, as Joint Lead Arrangers;

and the other lenders named therein.

The Unsecured Credit Facility restructured the parties’ existing bank facilities and added additional borrowing capacities for the Company following the Merger.

The OP is the borrower under the Unsecured Credit Facility (in such capacity, the “Borrower”).

• Legacy HR’s existing $700.0 million revolving credit facility under the Amended and Restated Credit Agreement, dated as of May 31, 2019 (as amended, restated, replaced, supplemented, or otherwise modified from time to time prior to July 20, 2022, the “Existing HR Revolving Credit Agreement”), by and among Legacy HR, the lenders party thereto from time to time and their assignees, as lenders, and Wells Fargo Bank, National Association, as the administrative agent (the “WF Administrative Agent”), was terminated, all outstanding obligations in respect thereof were deemed paid in full and all commitments thereunder were permanently reduced to zero and terminated.

• Legacy HR’s existing $200.0 million term loan facility and existing $150.0 million term loan facility under the Amended and Restated Term Loan Agreement, dated as of May 31, 2019 (as amended, restated, replaced, supplemented, or otherwise modified from time to time prior to July 20, 2022, the “Existing HR Term Loan Agreement”), by and among Legacy HR, the lenders party thereto from time to time and their assignees, as lenders, and the WF Administrative Agent, in each, case, were deemed continued and assumed by the Borrower under the Unsecured Credit Facility, and the Existing HR Term Loan Agreement was terminated.

◦ The existing $200.0 million term loan facility was amended to:

(a) conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility;

(b) include two one-year extension options, resulting in a latest final maturity in May 2026;

and (c) reprice to align with the pricing for the Borrower’s other term loan facilities under the Unsecured Credit Facility;

◦ The existing $150.0 million term loan facility was amended to conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility, and the existing maturity in June 2026 remains unchanged under the Unsecured Credit Facility.

• Legacy HTA’s and the OP’s existing $1.0 billion revolving credit facility was upsized to $1.5 billion (the “Revolver”) pursuant to the Unsecured Credit Facility.

The Revolver currently matures in October 2025, and the Unsecured Credit Facility adds an additional one-year extension option for the Revolver, for a total of two one-year extension options.

• Legacy HTA’s and the OP’s existing $300.0 million term loan facility was deemed continued pursuant to the Unsecured Credit Facility and was amended to conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility.

The existing maturity in October 2025 remains unchanged under the Unsecured Credit Facility.

• Legacy HTA’s and the OP’s existing $200.0 million term loan facility was deemed continued pursuant to the Unsecured Credit Facility and was amended to (a) conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility;

(b) extend the maturity from January 2024 to July 20, 2027;

and (c) reprice to align with the pricing for the Borrower’s other term loan facilities under the Unsecured Credit Facility.

• The Unsecured Credit Facility provides for a new $350.0 million delayed-draw term loan facility that is available to be drawn for 12 months after July 20, 2022 and has an initial maturity date of July 20, 2023, with two one-year extension options.

As of December 31, 2022, the $350.0 million Unsecured Credit Facility was drawn in full.

The terms of any delayed draw term loans funded thereunder conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility, and the pricing for such delayed draw term loans aligns with the pricing for the Borrower’s other term loan facilities under the Unsecured Credit Facility.

• The Unsecured Credit Facility provides for a new $300.0 million term loan facility that was funded on July 20, 2022 and has a maturity date of January 20, 2028, with no extension options.

The terms of such term loan facility conform to the terms of the Borrower’s other term loan facilities under the Unsecured Credit Facility, and the pricing for such term loan facility aligns with the pricing for the Borrower’s other term loan facilities under the Unsecured Credit Facility.

$1.125 Billion Asset Sale Term Loan

The Company completed its draw of the $1.125 billion asset sale term loan on July 19, 2022.

The principal balance as of September 30, 2022 was $423.0 million and was fully repaid on December 30, 2022.

Mortgages repaid at maturity:

West Hills, CA 1/5/2024 $ (11.3) 63,012 4.77 %

Atlanta, GA 2/1/2024 (5.6) 40,324 4.12 %

Total repayments $ (16.9) 103,336 4.55 %

On April 26, 2023, the Company exercised the first of its two one-year extension options for the $350 million delayed-draw term loan facility, extending the initial maturity date of July 20, 2023 to July 20, 2024.

An extension fee of $0.4 million (0.125% of the committed funds) was paid and will be amortized over the extension term.

Interest Rate Swaps

The Company has outstanding interest rate derivatives totaling $1.2 billion to hedge one-month SOFR.

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

EXPIRATION DATE AMOUNT WEIGHTED

January 31, 2023 $ 300,000 1.42 %

As of December 31, 2023, the Company had outstanding interest rate derivatives totaling approximately $1.3 billion to hedge one-month SOFR.

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

EXPIRATION AMOUNT WEIGHTED

January 2024 200,000 1.21 %

May 2026 275,000 3.74 %

June 2026 150,000 3.83 %

December 2026 150,000 3.84 %

2 unchanged sentences

$ 1,275,000 3.49 %

2023 Interest Rate Swap Activity

On February 16, 2023, the Company entered into a swap transaction with a notional amount of $50.0 million and a fixed rate of 4.16%.

The swap agreement has an effective date of March 1, 2023 and a termination date of June 1, 2026.

On March 28, 2023, the Company entered into a swap transaction with a notional amount of $100.0 million and a fixed rate of 3.67%.

The swap agreement has an effective date of April 3, 2023 and a termination date of June 1, 2026.

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.

On November 9, 2023, the Company entered into a swap transaction with a notional amount of $75.0 million and a fixed rate of 4.54%.

The swap agreement has an effective date of December 1, 2023 and a termination date of May 31, 2026.

The following table details the Company's debt balances as of December 31, 2023:

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— — 3.8 SOFR + 0.95% 6.31 %

$350 million unsecured term loan 5

350,000 349,114 2.6 SOFR + 1.05% 5.17 %

$350 million unsecured term loan 350,000 349,798 1.6 SOFR + 1.05% 6.39 %

$200 million unsecured term loan 200,000 199,903 2.4 SOFR + 1.05% 6.39 %

$300 million unsecured term loan 3

300,000 299,936 3.8 SOFR + 1.05% 5.17 %

$150 million unsecured term loan 150,000 149,643 2.4 SOFR + 1.05% 6.39 %

$300 million unsecured term loan 3

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200,000 199,502 3.5 SOFR + 1.05% 6.39 %

$300 million unsecured term loan 300,000 298,288 4.0 SOFR + 1.05% 6.39 %

Mortgage notes payable 70,752 70,534 2.0 4.17 % 4.15 %

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3 Debt instruments assumed as part of the Merger with Legacy HTA on July 20, 2022.

Amounts shown represent fair value adjustments.

4 As of December 31, 2022, the Company had $385.0 million borrowed under the Unsecured Credit Facility with a remaining borrowing capacity of $1.1 billion.

5 On July 20, 2022, the Company entered into the Unsecured Credit Facility which included a $1.5 billion revolving credit facility, replacing Legacy HR's $700.0 million credit facility.

The amounts shown represent fair value adjustments.

4 As of December 31, 2023, the Company had no outstanding borrowings under the Unsecured Credit Facility with a remaining borrowing capacity of $1.5 billion.

Debt Covenant Information

The Company’s various debt agreements contain certain representations, warranties, and financial and other covenants customary in such debt agreements.

Among other things, these provisions require the Company to maintain certain financial ratios and impose certain limits on the Company’s ability to incur indebtedness and create liens or encumbrances.

Among other things, these provisions require the Company to maintain certain financial ratios and impose certain limits on the Company’s ability to incur indebtedness and create

liens or encumbrances.

As of December 31, 2023, the Company was in compliance with the financial covenant provisions under all of its various debt instruments.

As of December 31, 2023, 99.5% of the Company’s principal balances were due after 2024, including extension options.

Also, as of December 31, 2022, the Company's incurrence of total debt as defined in the senior notes due 2030 and 2031 [debt divided by (total assets less intangibles and accounts receivable)] was approximately 38.4% (cannot be greater than 60%) and debt service coverage [interest expense divided by (net income plus interest expense, taxes, depreciation and amortization, gains and impairments)] was approximately 3.1 times (cannot be less than 1.5x).

Also, as of December 31, 2023, the Company's incurrence of total debt as defined in the senior notes [debt divided by (total assets less intangibles and accounts receivable)] was approximately 37.5% (cannot be greater than 60%) and debt service coverage [interest expense divided by (net income plus interest expense, taxes, depreciation and amortization, gains and impairments)] was approximately 3.2 times (cannot be less than 1.5 times).

The Company plans to manage its capital structure to maintain compliance with its debt covenants consistent with its current profile.

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Management monitors factors and trends important to the Company and the REIT industry in order to gauge their potential impact on the operations of the Company.

Discussed below are some of the factors and trends that management believes may impact future operations of the Company.

Discussed below are some of the factors and trends that management believes may impact the future operations of the Company.

Economic and Market Conditions

Rising interest rates and increased volatility in the capital markets have increased the Company’s cost and availability of debt and equity capital.

Limited availability and increases in the cost of capital could adversely impact the Company’s ability to finance operations and acquire and develop properties.

To the extent the Company’s tenants experience increased costs or financing difficulties due to the economic and market conditions, they may be unable or unwilling to make payments or perform their obligations when due.

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.

Given volatility in its stock price, 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 indicated goodwill was not impaired as of December 31, 2023, 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.

Acquisitions and Dispositions

In 2022, the Company invested in 33 medical office buildings through acquisitions and investments in joint ventures.

In 2023, the Company acquired two medical office buildings.

The total purchase price of the acquisitions was $43.0 million and the weighted average capitalization rate for these investments was 6.5%.

The following bullets provide further detail of the 2022 acquisition activity.

• The Company (exclusive of joint ventures) acquired 28 medical office buildings for purchase prices totaling $403.6 million, resulting in cash consideration paid of $399.2 million.

• Through joint ventures, the Company acquired interests in five medical office buildings for purchase prices totaling $101.0 million, resulting in cash consideration paid of $99.2 million.

The Company funded 50% of the consideration for these acquisitions.

The Company disposed of 44 properties in 2022 for sales prices totaling $1.2 billion, including 10 properties contributed into joint ventures in which the Company maintained a non-controlling interest.

These transactions yielded net cash proceeds of $1.1 billion, net of $45.7 million of closing costs and related adjustments and $48.9 million of retained joint venture interests.

The Company disposed of 39 properties in 2023 for sales prices totaling $787.0 million, including a regional corporate office and one property contributed into a joint venture in which the Company maintains a non-controlling interest.

These transactions yielded net cash proceeds of $687.6 million, net of $36.9 million of closing costs and related adjustments, $58.7 million in Company financed notes and $3.8 million of retained joint venture interests.

The weighted average capitalization rate for these properties was 6.5%.

The Company calculates the capitalization rate for dispositions as the in-place cash net operating income divided by the sales price.

The net proceeds of these sales was used to repay the $1.125 billion asset sale term loan.

See the Company's discussion of the 2022 acquisition and disposition activity in Note 5 to the Consolidated Financial Statements.

See the Company's discussion of its 2023 acquisition and disposition activity in Note 5 to the Consolidated Financial Statements.

Development and Redevelopment Activity

The table below details the Company’s development and redevelopment activity as of December 31, 2022.

The table below details the Company’s activity related to its active development and redevelopment projects as of December 31, 2023.

The information included in the table below represents management’s estimates and expectations at December 31, 2023, which are subject to change.

The Company’s disclosures regarding certain projections or estimates of completion dates may not reflect actual results.

The Company’s disclosures regarding certain projections or estimates may not reflect actual results.

ESTIMATED REMAINING FUNDINGS ESTIMATED TOTAL INVESTMENT APPROXIMATE SQUARE FEET

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Raleigh, NC 1 19,766 33,392 19,208 52,600 120,694

Orlando, FL 1 1,470 1,470 $ 24,430 25,900 45,000

Phoenix, AZ 1 21,341 21,341 32,659 54,000 101,000

Total $ 69,125 $ 124,743 $ 90,857 $ 215,600 484,454

Redevelopment Activity

Tacoma, WA 1 $ 7,930 $ 12,253 $ 247 $ 12,500 56,000

Dallas, TX 1 4,672 12,132 5,368 17,500 217,114

Washington, DC 3 7,918 10,776 10,424 21,200 259,290

Houston, TX 3 4,698 5,683 24,317 30,000 314,861

Charlotte, NC 2 3,627 3,890 14,810 18,700 169,135

Washington, DC 1 4,270 4,783 5,295 10,078 57,323

Total $ 20,513 $ 25,132 $ 54,846 $ 79,978 800,609

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The Company funded an additional $22.6 million related to ongoing tenant improvements at previously completed projects.

The Company is in the planning stages with several health systems and developers regarding new development and redevelopment opportunities and expects one or more to begin in 2023.

The Company is in the planning stages with several health systems and developers regarding new development and redevelopment opportunities and one or more could begin in 2024.

Total costs to develop or redevelop a typical medical office building can vary depending on the scope of the project, market rental terms, parking configuration, building amenities, asset type and geographic location.

The Company’s disclosures regarding projections or estimates of completion dates and leasing may not be indicative of actual results.

The Company’s disclosures regarding certain estimates or projections may not be indicative of actual results.

Security Deposits and Letters of Credit

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Expiring Leases

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

The Company expects that approximately 15% to 20% of the leases in its portfolio will expire each year.

In-place leases have a weighted average lease term of 8.5 years and a weighted average remaining lease term of 4.2 years.

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Of those leases, 74% are in on-campus buildings, which, in our experience, tend to have high tenant retention rates between 75% to 90%.

See additional information regarding expiring single-tenant leases under the heading "Single-Tenant Leases" below.

The Company continues to emphasize its contractual rent increases for in-place leases.

As of December 31, 2022 and 2021, the Company's contractual rental rate growth averaged 2.68% and 2.87% for in-place leases.

As of December 31, 2023 and 2022, the Company's contractual rental rate growth averaged 2.82% and 2.77%, respectively, for in-place leases.

In addition, the Company continued to see strong quarterly weighted average rental rate growth for renewing leases ("cash leasing spread") and expects the majority of its renewal rates to increase between 3.0% and 4.0%.

In 2022, for all properties, including both Legacy HR and Legacy HTA, cash leasing spreads averaged 3.3%.

In 2023, cash leasing spreads averaged 2.6%.

In a further effort to maximize revenue growth and reduce its exposure to key expenses such as taxes and utilities, the Company carefully manages its balance of lease types.

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In either case, such overages are amortized by the Company as rental income over the term of the lease.

Interest earned on tenant overages is included in other operating income in the Company's Consolidated Statements of Income.

Interest earned on tenant overages is included in other operating income in the Company's Consolidated Statements of Operations.

The first and second generation tenant overage amount amortized to rent, including interest, totaled approximately $8.4 million in 2023, $7.5 million in 2022, and $5.9 million in 2021.

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In addition, the Company pays its leasing employees incentive compensation when leases are executed that meet certain leasing thresholds.

External leasing commissions are amortized to property operating expense, and internal leasing costs are amortized to general and administrative expense in the Company's Consolidated Statements of Income.

In 2023, the Company paid leasing commissions of approximately $35.9 million, or $0.93 per square foot.

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Single-Tenant Leases

As of December 31, 2022, the Company had a total of 141 single-tenant leases, with a weighted average lease term of 12.1 years and a weighted average remaining lease term of 5.6 years.

Thirteen single-tenant leases expire in 2023.

Three of these have been renewed.

The Company is in negotiations with five of the tenants and expects the leases to renew.

One building was sold on February 10, 2023.

The remaining four leases are expected to be sold or not renew during 2023.

As of December 31, 2023, the Company had a total of 125 single-tenant buildings, with a weighted average lease term of 11.4 years and a weighted average remaining lease term of 5.2 years.

Twenty-one single-tenant buildings have leases that expire in 2024.

Eleven of these leases have been renewed.

The Company is in negotiations with eight of the tenants and expects the leases to be renewed or the building to be immediately backfilled.

The Company expects the tenants of two of these single-tenant buildings to vacate the buildings upon lease expiration.

One of these buildings is part of a planned redevelopment and the other is expected to be leased or sold.

The expected lost revenue from these expirations in 2024 is $3.8 million.

Operating Leases

As of December 31, 2023, the Company was obligated to make rental payments under operating lease agreements consisting primarily of ground leases related to 157 real estate investments, excluding those ground leases the Company has prepaid.

At December 31, 2022, the Company had 242 properties totaling 17.8 million square feet that were held under ground leases with a remaining weighted average term of 64.4 years, including renewal options.

As of December 31, 2023, the Company had 232 properties totaling 16.9 million square feet that were held under ground leases with a remaining weighted average term of 64.9 years, including renewal options.

These ground leases typically have initial terms of 50 to 75 years with one or more renewal options extending the terms to 75 to 100 years, with expiration dates through 2119.

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Additional information about the amount and basis for determination of the purchase price is detailed in the table below (dollars in thousands):

NUMBER OF PROPERTIES GROSS REAL ESTATE INVESTMENT AS OF DECEMBER 31, 2022

YEAR EXERCISABLE MOB INPATIENT FAIR MARKET

VALUE METHOD 1

NON FAIR MARKET

VALUE METHOD 2

3 2 $ 100,366 $ — $ 100,366

2023 2 — 36,171 — 36,171

2024 — — — — —

2025 6 1 88,412 44,459 132,871

YEAR EXERCISABLE NUMBER OF PROPERTIES GROSS REAL ESTATE INVESTMENT AS OF DECEMBER 31, 2023 1

2025 5 93,813

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2034 and thereafter 3

10 — 334,634 — 334,634

Total 44 $ 1,167,538

1 The purchase option price includes a fair market value component that is determined by an appraisal process.

2 Includes properties with stated purchase prices or prices based on fixed capitalization rates.

1 Purchase option prices are based on fair market value components that are determined by an appraisal process, except for three properties totaling $45.3 million with stated prices or prices based on fixed capitalization rates.

2 These purchase options have been exercisable for an average of 13.9 years.

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The Company has approximately $70.8 million of mortgage notes payable, most of which were assumed when the Company acquired properties.

In 2023, the Company has approximately $34.3 million of mortgage notes payable that will mature or are able to be repaid without penalty.

The Company has approximately $24.1 million of mortgage notes payable that will mature in 2024.

The Company will repay mortgages with cash on hand or borrowings under the Unsecured Credit Facility.

See additional information in Liquidity and Capital Resources - Financing Activities.

Impact of Inflation

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General and administrative expenses will fluctuate quarter-to-quarter.

In the first quarter of each year, general and administrative expense includes increases for certain expenses such as payroll taxes and healthcare savings account fundings.

In the first quarter of each year, general and administrative expense include increases for certain expenses such as payroll taxes and healthcare savings account fundings.

The Company expects these customary expenses to increase by approximately $0.9 million in the first quarter of 2024.

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The Company’s consolidated results of operations for 2023 compared to 2022 were significantly impacted by the Merger, acquisitions, dispositions, gain on sales and impairment charges recorded on real estate properties, and capital markets transactions.

Rental income increased $387.1 million, or 74.4%, to approximately $907.5 million compared to $520.3 million in the prior year and is comprised of the following:

Rental income increased $401.7 million, or 44.3%, to approximately $1.3 billion compared to $907.5 million in the prior year as a result of the following:

• Impact from the Merger contributed $377.0 million.

• Acquisitions in 2022 and 2023 contributed $19.4 million.

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• Dispositions in 2022 and 2023 resulted in a decrease of $16.2 million.

• Impact from the Merger contributed $345.2 million.

Interest income increased $7.3 million, or 173.9%, from the prior year period and is comprised of the following activity:

• Two financing receivables acquired during 2021 contributed $3.9 million.

• Interest from notes receivables assumed in the Merger totaling $3.4 million.

Interest income increased $5.7 million, or 49.3%, from the prior year primarily as result of notes receivables assumed in the Merger and notes receivables entered into with a buyer upon disposition of properties during 2023.

Other operating income increased $3.7 million, or 27.3%, from the prior year primarily as a result of income from transient parking and management fees assumed with the Merger.

Property operating expenses increased $156.4 million, or 45.5%, from the prior year primarily as a result of the following activity:

• Impact from the Merger resulted in an increase of $130.9 million.

• Acquisitions in 2022 and 2023 resulted in an increase of $8.9 million.

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◦ Utilities expense of $7.0 million;

◦ Compensation of $2.3 million;

◦ Leasing commission amortization of $1.9 million;

◦ Janitorial expense of $1.2 million;

◦ Administrative, leasing commissions, and other legal expense of $5.7 million;

◦ Maintenance and repair expense of $4.9 million;

◦ Property tax of $0.6 million;

◦ Security of $0.5 million;

◦ Administrative and other legal expense of $0.5 million;

◦ Insurance expense of $0.4 million.

◦ Janitorial expense of $1.9 million;

◦ Security expense of $0.1 million.

• Dispositions in 2022 and 2023 resulted in a decrease of $1.7 million.

• Impact from the Merger resulted in an increase of $111.9 million.

• Property tax expense decreased $1.0 million.

• Insurance expense decreased $0.3 million.

General and administrative expenses increased approximately $5.7 million, or 10.8%, from the prior year primarily as a result of the following activity:

• Compensation expense increased $6.3 million, including $3.5 million of non-cash expense.

• Net increases, including professional fees, audit services, travel and other administrative costs of $4.9 million.

• Impact from the Merger resulted in an increase of $7.4 million.

Merger-related costs totaled $103.4 million consisting primarily of legal, consulting, and banking services incurred in connection with the Merger.

• Net increases, primarily due to impacts from the Merger, including professional fees, audit services, insurance, travel and other administrative costs, of $5.6 million.

• Payroll and related expenses of $1.5 million, of which $1.3 million was related to severance.

• Decrease in non-cash compensation incentive expense of $1.4 million.

The Company incurred Merger-related costs of $(2.0) million and $103.4 million, respectively, for the years ended December 31, 2023 and 2022, which were included within Merger-related costs in results of operations.

The Merger-related costs primarily consisted of legal, consulting, severance, and banking services, and for the year ended December 31, 2023, included a refund of $17.8 million for transfer taxes paid during the year ended December 31, 2022.

Depreciation and amortization expense increased $277.6 million, or 61.3%, from the prior year primarily as a result of the following activity:

• Acquisitions in 2021 and 2022 resulted in increases of $25.9 million.

• Various building and tenant improvement expenditures caused increases of $10.1 million.

• Dispositions in 2021 and 2022 resulted in decreases of $7.8 million.

• Assets that became fully depreciated resulted in decreases of $10.4 million.

• Impact from the Merger, including purchase accounting fair value adjustments, resulted in an increase of $251.2 million.

• Acquisitions in 2022 and 2023 resulted in an increase of 9.8 million.

• Various building and tenant improvement expenditures caused an increase of $28.3 million.

• Dispositions in 2022 and 2023 resulted in a decrease of $1.1 million.

• Assets that became fully depreciated resulted in a decrease of $10.6 million.

Other Income (Expense)

Other income (expense), increased $79.6 million, or 527.6%, from the prior year mainly due to the following activity:

Other income (expense), as an expense increased $400.7 million, or 621.1%, from the prior year mainly due to the following activity:

Gain on Sales of Real Estate Properties

Gain on sales of real estate properties totaling approximately $270.3 million and $55.9 million are associated with the sales of 10 and 12 real estate properties during 2022 and 2021, respectively.

Gain on sales of real estate properties totaling approximately $77.5 million and $270.3 million are associated with the sales of 12 and ten real estate properties during 2023 and 2022, respectively.

Interest Expense

Interest expense increased $111.9 million for the year ended December 31, 2023 compared to the prior year.

The components of interest expense are as follows:

The components of interest expense are as fol lows:

Dollars in thousands 2023 2022 $ %

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Amortization of treasury hedge settlement 427 427 — — %

Fair value derivative 4,057 — 4,057 N/A

Fair value derivative 4,412 4,057 355 8.8 %

Interest cost capitalization (2,961) (1,409) (1,552) 110.1 %

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• Senior notes and unsecured term loans assumed in the Merger accounted for an increase of approximately $54.7 million.

• New unsecured term loans executed with the Unsecured Credit Facility accounted for an increase of approximately $9.9 million.

• The Unsecured Credit Facility accounted for an increase of approximately $15.4 million due to an increased weighted average balance outstanding and an increase in the weighted average interest rate.

• New unsecured term loans executed with the amended credit facility accounted for an increase of approximately $30.1 million.

• The Company's Unsecured Term Loans due 2024 and due 2026, accounted for an increase of approximately $11.9 million.

• The Unsecured Credit Facility accounted for an increase of approximately $10.4 million.

• Active interest rate derivatives accounted for a decrease of $16.6 million.

• Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.3 million.

Loss on extinguishment of debt

The Company recognized a loss on early extinguishment of debt in 2022 of approximately $2.4 million, primarily related to the amendment of the Unsecured Credit Facility and the early extinguishment of two mortgage notes payable.

Impairment of Real Estate Assets

Impairment of Real Estate Assets and Credit Loss Reserves

Impairment of real estate assets in 2023 totaling approximately $149.7 million is associated with completed or planned disposition activity.

Impairment of real estate assets in 2021 totaling approximately $17.1 million in 2021 is associated with the sales of five real estate properties and one redevelopment property.

Additionally, the Company recorded $5.2 million of credit loss reserves on its mortgage notes receivable.

Impairment of real estate assets in 2022 totaling approximately $54.4 million is associated with completed or planned disposition activity.

Equity income (loss) from unconsolidated joint ventures

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

The Company's discussion regarding the comparison of the year ended December 31, 2021 compared to the year ended December 31, 2020 was previously disclosed beginning on page 38 of Legacy HR's Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 16, 2022, and is incorporated herein by reference.

The Company's discussion regarding the comparison of the year ended December 31, 2022 compared to the year ended December 31, 2021 was previously disclosed beginning on page 39 of the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023, and is incorporated herein by reference.

Non-GAAP Financial Measures and Key Performance Indicators

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FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts (“NAREIT”).

NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to “net income (computed in accordance with GAAP), excluding gains (or losses)

from sales of property, plus depreciation and amortization, impairment, and after adjustments for unconsolidated partnerships and joint ventures.”

NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization, impairment, and after adjustments for unconsolidated partnerships and joint ventures.”

In addition to FFO, the Company presents Normalized FFO and FAD.

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However, real estate values instead have historically risen or fallen with market conditions.

The Company believes that by excluding the effect of depreciation, amortization, impairments and gains or losses from sales of real estate, all of which are based on historical costs and which may be of limited relevance in evaluating current performance, Non-GAAP Measures can facilitate comparisons of operating performance between periods.

The Company believes that by excluding the effect of depreciation,

amortization, impairments and gains or losses from sales of real estate, all of which are based on historical costs, and which may be of limited relevance in evaluating current performance, Non-GAAP Measures can facilitate comparisons of operating performance between periods.

The Company reports Non-GAAP Measures because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs.

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Amounts in thousands, except per share data 2023 2022 2021

Net income attributable to common stockholders $ 40,897 $ 66,659 $ 72,195

Net (loss) income attributable to common stockholders $ (278,261) $ 40,897 $ 66,659

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

$ (0.74) $ 0.15 $ 0.45

Gain on sales of real estate assets (77,546) (270,271) (55,940)

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Proportionate share of unconsolidated joint ventures 18,116 12,722 5,541

FFO adjustments $ 825,387 $ 256,084 $ 174,857

FFO adjustments per common share - diluted 8

$ 2.15 $ 1.01 $ 1.22

FFO attributable to common stockholders $ 547,126 $ 296,981 $ 241,516

FFO attributable to common stockholders per common share - diluted 7

$ 1.43 $ 1.17 $ 1.68

Acquisition and pursuit costs 2

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Merger-related costs 3

Fair value of debt instruments 21,248 — —

Lease intangible amortization 3

(1,952) 103,380 —

Merger-related fair value of debt instruments 42,885 21,248 —

Lease intangible amortization 860 1,028 162

Allowance for credit losses 4

Non-routine legal costs/forfeited earnest money received 175 771 (35)

Debt financing costs (62) 3,145 283

3,145 283 21,920

Severance costs 1,445 — —

Unconsolidated JV normalizing items 5

Normalized FFO adjustments $ 54,365 $ 133,131 $ 4,565

Normalized FFO adjustments per common share - diluted 8

$ 0.14 $ 0.52 $ 0.03

Normalized FFO attributable to common stockholders $ 601,491 $ 430,112 $ 246,081

Normalized FFO attributable to common stockholders per common share - diluted 8

$ 1.57 $ 1.69 $ 1.71

Non-real estate depreciation and amortization 2,566 2,217 2,397

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Share-based compensation 13,791 14,294 10,729

Proportionate share of unconsolidated joint ventures (1,206) (1,357) 27

Unconsolidated JV non-cash items 7

(1,034) (1,206) (1,357)

Normalized FFO adjusted for non-cash items $ 592,353 $ 430,938 $ 256,802

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Maintenance capital expenditures (151,815) (105,462) (57,687)

FAD attributable to common stockholders $ 325,476 $ 199,115 $ 178,579

FFO per common share - diluted $ 1.17 $ 1.68 $ 1.46

Normalized FFO per common share - diluted $ 1.69 $ 1.71 $ 1.65

Weighted average common shares outstanding - diluted 7

FAD $ 440,538 $ 325,476 $ 199,115

FFO weighted average common shares outstanding - diluted 8

383,381 254,622 143,618

1 Potential common shares are not included in the computation of diluted earnings per share when a loss exists as the effect would be an antidilutive per share amount.

2 Acquisition and pursuit costs include third-party and travel costs related to the pursuit of acquisitions and developments.

2 Non-routine legal costs include expenses related to disputes with a contractor and a tenant relating to a violation of use restrictions.

Forfeited earnest money received related to a disposition that did not close.

3 Includes above or below market lease intangibles that are identified upon building acquisitions.

4 Amount for 2020 includes the loss on extinguishment of debt on the extinguishment of the Senior Notes due 2023 of $21.5 million and double interest incurred on the timing of issuance of the Senior Notes due 2031 and the redemption of the Senior Notes due 2023 of $0.4 million.

3 Includes costs incurred related to the Merger.

For the year ended December 31, 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 year ended December 31, 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.

6 Includes the amortization of deferred financing costs, discounts and premiums, and non-cash financing receivable amortization.

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 397,168, 748,385, and 907,393 for the years ended December 31, 2023, 2022, and 2021, respectively.

Same Store Cash NOI

Cash NOI and same store cash NOI are key performance indicators.

Management considers same store cash NOI a supplemental measure because it allows investors, analysts and Company management to measure unlevered property-level operating results.

Cash NOI excludes general and administrative expenses, interest expense, depreciation and amortization, gains and losses from property sales, property management fees and other revenues and expenses not specifically related to the property portfolio.

Cash NOI also excludes non-cash items such as straight-line rent, above and below market lease intangibles, leasing commission amortization, lease inducements,

and tenant improvement amortization.

The Company also excludes cash lease termination fees.

Same store NOI is historical and not necessarily indicative of future results.

Same Store Cash NOI compares Cash NOI for stabilized properties.

Merger Combined Same Store Cash NOI

Cash NOI and Merger Combined Same Store Cash NOI are key performance indicators.

Management considers these to be supplemental measures that allow investors, analysts and Company management to measure unlevered property-level operating results.

The Company defines Cash NOI as rental income plus interest from financing receivables, less property operating expenses.

Cash NOI excludes non-cash items such as above and below market lease intangibles, straight-line rent, lease inducements, financing receivable amortization, tenant improvement amortization, leasing commission amortization, and cash lease termination fees.

Cash NOI is historical and not necessarily indicative of future results.

Merger Combined Same Store Cash NOI compares Cash NOI for stabilized properties.

Stabilized properties are properties that have been included in operations for the duration of the year-over-year comparison period presented.

Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale, properties undergoing redevelopment, and newly redeveloped or developed properties.

Legacy HTA properties that met the same store criteria are included in both periods shown, on a proforma basis, as if they were owned by the Company for the full analysis period.

Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale or intended for sale, properties undergoing redevelopment, and newly redeveloped or developed properties.

Legacy HTA properties that met the same store criteria are included in both periods shown as if they were owned by the Company for the full analysis period.

The Legacy HR same store pool represented approximately 35% of the NOI of the combined company at the time of the Merger.

Management believes that continued reporting of the same store portfolio of only the pre-Merger accounting acquirer (i.e., Legacy HR) offered little value to the investor who was seeking to understand the operating performance and growth potential of the combined company.

The Company was provided access to the underlying financial statements of Legacy HTA (which financial statements had been audited or, in the case of interim periods, reviewed) and other detailed information about each property, such as the acquisition date.

Based on this available information, the Company was able to consistently apply its same store definition across the combined portfolio, resulting in approximately 85% of the combined portfolio being represented in the same store presentation.

The Company utilizes the redevelopment classification for properties where management has approved a change in strategic direction for such properties through the application of additional resources including an amount of capital expenditures significantly above routine maintenance and capital improvement expenditures.

These properties are described in additional detail in Note 6 to the Condensed Consolidated Financial Statements included elsewhere in this report.

The Company's same store calculation included 593 properties with a gross investment of $11.9 billion.

Cash NOI for the years ended December 31, 2022 and 2021 was $722.6 million and $705.0 million, respectively, resulting in year-over-year growth of 2.5%.

The following tables reconcile same store cash NOI to the respective line items in the Consolidated Statements of Income and the same store property count to the total owned real estate portfolio:

Reconciliation of Same Store Cash NOI

As of December 31, 2023, recently acquired properties were included in the merger combined same store pool after the Company owned the property for eight full quarters.

Newly developed properties have been 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 years ended December 31, 2023 and 2022.

NUMBER OF PROPERTIES GROSS INVESTMENT

at December 31, 2023 MERGER COMBINED SAME STORE CASH NOI for the year ended December 31,

Dollars in thousands 2023 2022

Merger combined same store properties 597 $ 12,088,929 $ 726,574 $ 707,385

Joint venture merger combined same store properties 18 $ 227,064 $ 12,150 $ 11,523

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 years ended December 31, 2023 and 2022:

Reconciliations of Legacy HR and Merger Combined Same Store Cash NOI

MERGER COMBINED SAME STORE RECONCILIATION

YEAR ENDED DECEMBER 31,

Dollars in thousands 2022 2021 PERCENTAGE GROWTH

Net income attributable to common stockholders $ 40,897 $ 66,659

Other income (expense) (64,519) 15,089

Dollars in thousands 2023 2022

Net (loss) income attributable to common stockholders $ (278,261) $ 40,897

Other expense (income) 336,227 (64,519)

General and administrative expense 58,405 52,734

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12,653 120,576

Straight-line rent revenue (23,498) (5,801)

Straight-line rent revenue, net (32,592) (23,498)

Joint venture properties 19,176 15,222

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(20,311) (16,577)

Cash NOI 577,917 327,159 76.6 %

826,006 577,917

Pre-Merger Legacy HTA NOI — 280,421

Proforma Cash NOI 859,697 824,513 4.3 %

Cash NOI 826,006 858,338

Cash NOI not included in same store (87,282) (139,430)

Same store and redevelopment cash NOI

Merger combined same store cash NOI, including joint ventures 738,724 718,908

Same store joint venture properties (12,150) (11,523)

Wholly-owned merger combined same store cash NOI $ 726,574 $ 707,385

1 Includes acquisition and pursuit costs, Merger-related costs, rent reserves, above and below market ground lease intangible amortization, leasing commission amortization and ground lease straight-line rent expense.

2 Includes management fee income, interest, above and below market lease intangible amortization, lease inducement amortization, lease terminations and tenant improvement overage amortization.

LEGACY HR SAME STORE RECONCILIATION

YEAR ENDED DECEMBER 31,

Dollars in thousands 2023 2022

Net (loss) income attributable to common stockholders $ (278,261) $ 40,897

Other expense (income) 336,227 (64,519)

General and administrative expense 58,405 52,734

Depreciation and amortization expense 730,709 453,082

Other expenses 1

12,653 120,576

Redevelopment NOI (9,743) (17,737) (45.1) %

Same store cash NOI $ 722,563 $ 704,953 2.5 %

1 Includes acquisition and pursuit costs, bad debt, above and below market ground lease intangible amortization, leasing commission amortization, non-cash adjustments for financing receivables and ground lease straight-line rent.

Straight-line rent revenue, net (32,592) (23,498)

Joint venture properties 19,176 15,222

Other revenue 2

(20,311) (16,577)

826,006 577,917

Cash NOI not included in same store (482,779) (250,066)

Legacy HR same store cash NOI, including joint ventures 343,227 327,851

Legacy HR same store joint venture properties (7,745) (7,275)

Legacy HR same store cash NOI 3

$ 335,482 $ 320,576

2 Includes management fee income, interest, above and below market lease intangible amortization, lease inducement amortization, lease terminations and tenant improvement overage amortization.

Reconciliation of Same Store Property Count

3 Legacy HR same store cash NOI includes 240 properties.

Reconciliation of Merger Combined Same Store Properties

AS OF DECEMBER 31, 2023

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FEET OCCUPANCY

Same store properties 593 $ 11,933,696 35,227 89.3 %

Acquisitions 74 1,259,600 3,399 87.1 %

Merger combined same store properties

597 $ 12,088,929 35,298 89.2 %

Joint venture same store properties 18 227,064 1,225 87.3 %

Wholly owned and joint venture acquisitions 47 591,462 1,788 90.9 %

Development completions 5 120,425 403 67.0 %

Redevelopment 15 307,229 1,314 59.4 %

Total owned real estate properties 688 $ 13,673,370 40,350 87.8 %

1 Gross investment excludes land held for development, construction in progress, corporate property, and investment in financing receivables.

Gross investment also includes a $8.7 million imputed lease included in the financing lease right-of-use assets.

Redevelopments 16 415,763 1,369 54.8 %

Planned Dispositions 5 66,674 228 25.4 %

Total 688 $ 13,510,317 40,311 87.5 %

Joint venture properties 2

34 359,635 1,949 86.2 %

Total wholly-owned real estate properties 654 $ 13,150,682 38,362 87.6 %

1 Excludes assets held for sale, construction in progress, land held for development, corporate property and financing lease right-of-use assets unrelated to an imputed lease arrangement as a result of a sale leaseback transaction.

2 Includes one property held in a consolidated joint venture.

Application of Critical Accounting Policies to Accounting Estimates

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All material intercompany accounts and transactions have been eliminated.

Merger-Related Accounting Acquirer Determination

The Merger was considered a reverse acquisition where Legacy HR was considered the accounting acquirer even though Legacy HTA was the legal issuer of equity interests in connection with the Merger.

Legacy HR was identified as the accounting acquirer after consideration of various indicators outlined in Accounting Standards Codification, Topic 805 as they apply to the specific facts and circumstances of the Merger.

The strongest factors supporting the treatment of Legacy HR as the accounting acquirer included that the executive team of the consolidated Company will be comprised of then-current Legacy HR senior management (with none of the then-current Legacy HTA executives expected to retain their current positions after the Merger) and the thirteen member board of directors of the consolidated company would be comprised of all nine members of the Legacy HR Board serving immediately prior to the effective time of the Merger and four members selected by Legacy HTA.

Capitalization of Costs

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Capitalized interest is calculated using the weighted average interest rate of the Company's unsecured debt or the interest rate on project specific debt, if applicable.

Company’s overhead costs are based on overhead load factors that are charged to a project based on direct time incurred.

The Company’s overhead costs are based on overhead load factors that are charged to a project based on direct time incurred.

The Company computes the overhead load factors annually for its acquisition and development departments, which have employees who are involved in the projects.

The overhead load factors are computed to absorb that portion of indirect employee costs (payroll and benefits, training, and similar costs) that are attributable to the productive time the employee incurs working directly on projects.

The employees in the Company’s development departments who work on these projects maintain and report their hours, by project.

The employees in the Company’s

development departments who work on these projects maintain and report their hours, by project.

Employee costs that are administrative, such as vacation time, sick time, or general and administrative time, are expensed in the period incurred.

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If necessary and considered appropriate, management would record an additional reserve at that time.

Capitalized pursuit costs, net of the reserve, are carried in other assets in the Company’s Consolidated Balance Sheets, and any reserve recorded is charged to acquisition and pursuit costs on the Consolidated Statements of Income.

All pursuit costs will ultimately be written off to expense or capitalized as part of the constructed real estate asset.

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In addition, the Company expensed costs related to the pursuit of developments totaling $0.8 million, $2.2 million and $1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Furthermore, the Company expensed costs related to the Merger totaling $103.4 million for the year ended December 31, 2022.

Furthermore, the Company expensed costs related to the Merger totaling $(2.0) million, including a refund of $17.8 million for transfer taxes paid during the year ended December 31, 2022, and $103.4 million for the years ended December 31, 2023 and 2022, respectively.

Valuation of Long-Lived Assets Held and Used, Unconsolidated Joint Ventures, Intangible Assets and Goodwill

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In addition, at least annually, the Company assesses whether there were indicators, including property operating performance, changes in anticipated holding period and general market conditions, that the value of the Company’s investments, including unconsolidated joint ventures, may have been impaired.

The investment’s value would have

been impaired only if management’s estimate of the fair value of the Company’s investment was less than its carrying value.

The investment’s value would have been impaired only if management’s estimate of the fair value of the Company’s investment was less than its carrying value.

To the extent impairment had occurred, a loss would have been recognized for the excess of its carrying amount over its fair value.

The Company may, from time to time, be approached by a third party with interest in purchasing one or more of the Company's operating real estate properties that was otherwise not for sale.

Alternatively, the Company may explore disposing of an operating real estate property but without specific intent to sell the property and without the property meeting the criteria to be classified as held for sale (see discussion below).

In such cases, the Company and a potential buyer typically negotiate a letter of intent followed by a purchase and sale agreement that includes a due diligence time line for completion of customary due diligence procedures.

The Company may, from time to time, be approached by a third party with an interest in purchasing one or more of the Company's operating real estate properties that were otherwise not for sale.

Alternatively, the Company may

explore disposing of an operating real estate property but without specific intent to sell the property and without the property meeting the criteria to be classified as held for sale (see discussion below).

In such cases, the Company and a potential buyer typically negotiate a letter of intent followed by a purchase and sale agreement that includes a due diligence timeline for completion of customary due diligence procedures.

Anytime throughout this period the transaction could be terminated by the parties.

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The Company's reviews are performed as of December 31 of each year.

The Company's 2022 goodwill asset was $223.2 million after giving effect to the Merger.

The 2021 review indicated that no impairment had occurred with respect to the Company's $3.5 million goodwill asset.

The 2023 and 2022 reviews indicated that no impairment had occurred with respect to the Company's goodwill asset of $250.5 million and $223.2 million, respectively.

Long-Lived Assets to be Disposed of by Planned Sale

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A property or disposal group classified as held for sale is initially measured at the lower of its carrying amount or fair value less estimated costs to sell.

An impairment charge is recognized for any initial adjustment of the property's or disposal group's carrying amount to its fair value less estimated costs to sell in the period the held for sale criteria are met.

The fair value less estimated costs to sell the property (disposal group) should be assessed each reporting period it remains classified as held for sale.

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The Company recorded impairment charges totaling $149.7 million for the year ended December 31, 2023 related to real estate properties and other long-lived assets.

The impairment charges related to 12 properties sold and three additional properties associated with completed or planned disposition activity in 2022.

The impairment charges related to 31 properties sold and six additional properties associated with planned disposition activity in 2024.

The Company recorded impairment charges of $54.4 million in 2022.

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When a lease is executed, the terms and conditions of the lease are assessed to determine the appropriate accounting classification.

As of December 31, 2022, all of the Company's leases, where the Company is the lessor, are classified as operating leases.

As of December 31, 2023, with the exception of one finance lease, all of the Company's leases, where the Company is the lessor, are classified as operating leases.

Operating leases are recognized on the straight-line basis over the term of the related lease, including periods where a tenant is provided a rent concession.

Operating expense recoveries, which includes reimbursements for building specific operating expenses, are recognized as revenue in the period in which the related expenses are incurred.

Operating expense recoveries, which include reimbursements for building specific operating expenses, are recognized as revenue in the period in which the related expenses are incurred.

The Company generally expects that collectability is probable at lease commencement.

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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 7. Management’s Discussion and Analysis