What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-07 · 161 added, 74 removed, 240 unchanged (49% of the section changed)

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Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2023, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Unless stated otherwise or the context otherwise requires, references to "Healthcare Realty Trust" are to Legacy HTA after giving effect to the Merger and references to the "Company," "we," "us," and "our" are to Healthcare Realty Trust and, unless the context requires otherwise, its consolidated subsidiaries, including the OP.

Unless stated otherwise or the context otherwise requires, references to the "Company," "we," "us," and "our" are to Healthcare Realty Trust and, unless the context requires otherwise, its consolidated subsidiaries, including the OP.

Disclosure Regarding Forward-Looking Statements

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

As of March 31, 2024, the Company had $1.4 billion available to be drawn on its unsecured credit facility ("Unsecured Credit Facility") and available cash.

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

Unsecured Credit Facility.

Management believes that the Company's liquidity and sources of capital are adequate to satisfy its cash requirements.

As of June 30, 2024, the Company had $1.3 billion available to be drawn on its unsecured credit facility ("Unsecured Credit Facility") and available cash.

Management believes that the Company's 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.

Dividends paid by the Company for the three months ended March 31, 2024 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 the timing of interest payments.

The Company expects that cash flows from property operations will generate sufficient cash flows such that dividends for the full year 2024 can be funded by cash flows from operations or other sources of liquidity described above.

Investing Activities

Cash flows used in investing activities for the three months ended March 31, 2024 were approximately $58.6 million.

Cash flows provided by investing activities for the six months ended June 30, 2024 were approximately $151.4 million.

Below is a summary of the investing activities.

The Company had no acquisitions for the three months ended March 31, 2024.

The Company had no real estate dispositions during the three months ended March 31, 2024.

Subsequent to March 31, 2024, the Company disposed of two medical outpatient buildings totaling 39,000 square feet for $5.8 million.

The two properties were held for sale as of March 31, 2024.

The Company disposed of or contributed to a joint venture 25 properties during the six months ended June 30, 2024 for a total sales price of $464.9 million, generating cash proceeds of $378.7 million, net of joint venture contributions, including $96.0 million of proceeds that were held in escrow at June 30, 2024.

The following table details these dispositions for the six months ended June 30, 2024:

Dollars in thousands Date Disposed Sale Price Square Footage

Albany, NY 4/1/24 $ 725 14,800

San Angelo, TX 4/12/24 5,085 24,580

Houston, TX 5/20/24 250 37,040

5/23/24 284,348 556,274

Denver, CO 5/30/24 19,000 37,130

6/6/24 54,858 129,879

Minneapolis, MN 6/21/24 1,082 50,291

Greensboro/Raleigh, NC 2

6/28/24 99,518 309,424

Total $ 464,866 $ 1,159,418

1 The Company contributed the following medical outpatient properties to a joint venture in which the Company retained 20% ownership:

one in each of Raleigh, NC, New York, NY, Philadelphia, PA, Atlanta, GA and Austin, TX;

two medical outpatient properties in Los Angeles and four in Seattle, WA.

Sale price and square footage reflect the total sale price paid by the joint venture and total square footage of the property.

2 The Company sold seven MOB properties in Greensboro, NC and two MOB properties in Raleigh, NC to a single buyer in a single transaction.

Investment in Unconsolidated Joint Venture

During the six months ended June 30, 2024, the Company's investment in an unconsolidated joint venture in which it holds a 20% interest increased by $66.5 million relating to the retained ownership from the MOB properties contributed to the joint venture.

Capital Expenditures

During the three months ended March 31, 2024, the Company incurred capital expenditures totaling $58.6 million for the following:

During the six months ended June 30, 2024, the Company incurred capital costs totaling $140.7 million for the following:

• $44.1 million toward active development and redevelopment of properties;

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• $32.0 million toward second generation tenant improvements;

• $5.3 million toward capital expenditures.

• $17.9 million toward building capital.

Real Estate Notes Receivable

On June 24, 2024, the Company's mezzanine loans totaling $54.1 million in Texas matured.

As of the date of these financial statements, the outstanding principal and interest on these loans had not been repaid.

On July 15, 2024, the senior lender on the construction loan associated with the underlying project provided notice of foreclosure proceedings to the borrower.

The borrower is in negotiations with a third party to provide financing that will repay the senior lender.

The Company expects to extend the maturity of the mezzanine loans concurrent with this arrangement .

Additionally, during the three months ended June 30, 2024, the Company placed one of its real estate notes receivable with a principal balance of $20.5 million on non-accrual status.

The Company determined that the risk of credit loss was no longer remote and recorded a credit loss reserve of $11.2 million.

Financing Activities

Cash flows used in financing activities for the three months ended March 31, 2024 were approximately $17.1 million.

Cash flows used in financing activities for the six months ended June 30, 2024 were approximately $379.6 million.

See Notes 4 and 7 to the Condensed Consolidated Financial Statements accompanying this report for more information about capital markets and financing activities.

Debt Activity

As of March 31, 2024, the Company had outstanding interest rate derivatives totaling $1.1 billion to hedge one-month Term SOFR.

As of June 30, 2024, the Company had outstanding interest rate derivatives totaling $1.1 billion to hedge the one-month term Secured Overnight Financing Rate ("SOFR").

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

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$ 1,075,000 3.92 %

Changes in Mortgage Notes Payable

Changes in Debt Structure

During the first quarter of 2024, the Company repaid in full at maturity a mortgage note payable bearing interest at a rate of 4.77% per annum with an outstanding principal balance of $11.3 million.

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Additionally, the Company repaid in full at maturity a mortgage note payable bearing interest at a rate of 4.12% per annum with an outstanding principal balance of $5.6 million.

T he mortgage note encumbered a 40,324 squ are foot property in Georgia .

The mortgage note encumbered a 40,324 squ are foot property in Georgia .

In June 2024, the Company repaid $100 million of the $350 million Unsecured Term Loan and exercised its second option to extend the maturity date for one year to July 2025 for a fee of approximately $0.3 million.

Supplemental Guarantor Information

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Operating Activities

Cash flows provided by operating activities increased from $69.2 million for the three months ended March 31, 2023 to $76.2 million for the three months ended March 31, 2024.

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

Cash flows provided by operating activities decreased from $254.3 million for the six months ended June 30, 2023 to $244.3 million for the six months ended June 30, 2024.

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

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

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Trends and Matters Impacting Operating Results

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

In addition to the matters discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, below are some of the factors and trends that management believes may impact future operations of the Company.

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

In addition to the matters discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, some of the factors and trends that management believes may impact future operations of the Company are outlined below.

Economic and Market Conditions

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

There are 1,146 leases totaling 3.

5 million square feet that will expire during the remainder of 2024.

Approximately 75% of t he leases expiring during the remainder of 2024 are for space in buildings located on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area.

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

There are 793 multi-tenant leases totaling 2.5 million square feet that will expire during the remainder of 2024.

Approximately 70.1% of the leases expiring during the remainder of 2024 are for space in buildings located on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area.

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

Operating Expenses

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

As of March 31, 2024, leases for approximatel y 92% of the Company's total leased square footage allow for some recovery of operating expenses, with approxima tely 28% h aving modified gross lease structures and approxima tely 64% h aving net lease structures.

As of June 30, 2024, leases for approximately 92% o f the Company's total leased square footage allow for some recovery of operating expenses, with approxima tely 28% ha ving modified gross lease structures and approxima tely 64% hav ing net lease structures.

Purchase Options

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YEAR EXERCISABLE NUMBER OF PROPERTIES GROSS REAL ESTATE INVESTMENT AS OF

MARCH 31, 2024 1

JUNE 30, 2024 1

2025 3 79,839

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2 These purchase options have been exercisable for an average of 14.4 years.

3 Includes two medical office buildings that are recorded in the line item Investment in financing receivable, net on the Company's Condensed Consolidated Balance Sheet.

3 Includes two medical office buildings that are recorded in the line item Investment in financing receivable, net on the Company's Condensed Consolidated Balance Sheets.

Non-GAAP Financial Measures and Key Performance Indicators

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Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time.

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

However, real estate values 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.

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

The table below reconciles net income to FFO, Normalized FFO and FAD for the three months ended March 31, 2024 and 2023.

THREE MONTHS ENDED MARCH 31,

The table below reconciles net income to FFO, Normalized FFO and FAD for the three and six months ended June 30, 2024 and 2023:

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

Amounts in thousands, except per share data 2024 2023 2024 2023

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FFO attributable to common stockholders per common share - diluted $ 0.33 $ 0.40 $ 0.03 $ 0.73

$ (0.30) $ 0.33

Transaction costs 431 669 826 956

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Lease intangible amortization 129 240 304 386

Allowance for credit losses 4

Non-routine legal costs/forfeited earnest money received 465 275 465 275

Credit losses and gains on other assets, net 2

8,525 — 8,525 8,599

Impairment of goodwill — — 250,530 —

Unconsolidated JV normalizing items 3

89 93 176 210

Normalized FFO adjustments $ 19,703 $ (3,839) $ 280,995 $ 21,029

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Non-cash interest amortization 4

1,267 1,618 2,543 2,300

Rent reserves, net 1,261 (54) 1,110 1,317

Straight-line rent, net (6,799) (8,005) (14,432) (16,251)

Share-based compensation 3,562 3,745

Stock-based compensation 3,383 3,924 6,944 7,669

Unconsolidated JV non-cash items 5

(148) (316) (270) (598)

Normalized FFO adjusted for non-cash items $ 142,777 $ 147,818 $ 288,015 $ 298,539

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Leasing commissions paid (10,012) (5,493) (25,227) (12,506)

Capital additions (5,363) (8,946)

Building capital (12,835) (8,649) (18,198) (17,595)

FAD $ 107,643 $ 116,440 $ 212,099 $ 242,320

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376,556 383,409 379,979 383,372

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 For the three months ended March 31, 2024, basic weighted average common shares outstanding was the denominator used in the per share calculation.

3 Includes costs incurred related to the Merger.

4 For the three months ended March 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.

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

2 For the three and six months ended June 30, 2024, includes a $4.9 million gain on sale of corporate assets included in "Gains on sales of real estate and other assets" on the Statement of Operations, a $2.2 million straight line rent reversed included in "Rental income" on the Statement of Operations, and a $11.2 million credit loss reserve on a note receivable included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations.

For the six months ended June 30, 2023, includes a $5.2 million credit allowance for a mezzanine loan included in "Impairment of real estate properties 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.

3 Includes the Company's proportionate share of lease intangible amortization related to unconsolidated joint ventures.

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

5 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 254,261 and 401,937, respectively, for the three months ended March 31, 2024 and 2023, and the diluted impact of 3,681,225 OP Units outstanding for the three months ended March 31, 2024.

6 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 420,687 and 442,263, respectively, for the three months ended June 30, 2024 and 2023, and the dilutive impact of 3,657,682 and 3,669,454 OP units outstanding for the three and six months ended June 30, 2024, respectively.

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

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Newly-developed or redeveloped properties will be included in the same store pool five full quarters after substantial completion.

The following table reflects the Company's Same Store Cash NOI for the three months ended March 31, 2024 and 2023.

The following table reflects the Company's Same Store Cash NOI for the six months ended June 30, 2024 and 2023:

NUMBER OF PROPERTIES GROSS INVESTMENT

at March 31, 2024 SAME STORE CASH NOI for the three months ended March 31,

at June 30, 2024 SAME STORE CASH NOI for the six months ended June 30,

Dollars in thousands 2024 2023

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Joint venture same store properties 33 353,727 $ 9,686 $ 9,277

The following tables reconcile net income to Same Store NOI and the same store property metrics to the total owned real estate portfolio for the three months ended March 31, 2024 and 2023:

The following tables reconcile net loss to Same Store NOI and the same store property metrics to the total owned real estate portfolio for the six months ended June 30, 2024 and 2023:

Reconciliation of Same Store Cash NOI

SAME STORE RECONCILIATION

THREE MONTHS ENDED MARCH 31,

SIX MONTHS ENDED JUNE 30,

Dollars in thousands 2024 2023

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Other expenses 1

9,953 (4,029)

Straight-line rent, net (12,199) (16,249)

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Reconciliation of Same Store Properties

AS OF MARCH 31, 2024

AS OF JUNE 30, 2024

Dollars and square feet in thousands PROPERTY COUNT GROSS INVESTMENT 1

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Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

The Company’s results of operations for the three months ended March 31, 2024 compared to the same period in 2023 were impacted by acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income decreased $6.0 million, or 1.9%, for the three months ended March 31, 2024 compared to the prior year period.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

The Company’s results of operations for the three months ended June 30, 2024 compared to the same period in 2023 were impacted by acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income decreased $21.5 million, or 6.5%, for the three months ended June 30, 2024 compared to the prior year period.

This decrease is primarily comprised of the following:

• Dispositions in 2023 and 2024 resulted in a decrease of $18.8 million.

• Acquisitions in 2023 contributed $0.3 million.

• Leasing activity, including contractual rent increases, contributed $2.5 million.

• Dispositions in 2023 resulted in a decrease of $15.4 million.

Other operating income decreased $0.4 million, or 9.2%, for the three months ended March 31, 2024 compared to the prior year period primarily as a result of variable parking and management fees.

Property operating expenses decreased $1.0 million, or 0.8%, for the three months ended March 31, 2024 compared to the prior year period primarily as a result of the following activity:

• Reversed revenue related to the Steward Health Care System LLC ("Steward") bankruptcy resulted in a decrease of $5.5 million, including $2.6 million of straight-line rent.

Property operating expenses decreased $7.7 million, or 6.1%, for the three months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

• Dispositions in 2023 and 2024 resulted in a decrease of $8.3 million.

• Acquisitions in 2023 resulted in an increase of $0.1 million.

• Increases in portfolio operating expenses as follows:

◦ Utilities expense of $2.0 million;

◦ Administrative, leasing commissions, and other legal expense of $2.3 million;

◦ Janitorial expense of $0.2 million.

• Decreases in portfolio operating expenses as follows:

• Utilities expense of $0.8 million;

• Maintenance and repair expense of $1.0 million;

• Property taxes of $0.2 million.

◦ Janitorial expense of $0.7 million;

◦ Insurance expense of $0.2 million.

• Decrease in compensation expense of $1.5 million.

• Dispositions in 2023 resulted in a decrease of $8.4 million.

General and administrative expenses decreased approximately $0.1 million, or 1.0%, for the three months ended March 31, 2024 compared to the prior year period primarily as a result of the following activity:

General and administrative expenses decreased approximately $1.5 million, or 9.5%, for the three months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

• Decrease in payroll and payroll related expenses of approximately $0.5 million.

• Decrease in non-cash compensation incentive expense of $0.4 million.

• Decrease in travel expense of $0.5 million.

• Increase in cash compensation incentive expense of $0.5 million.

• Other decreases including legal and other administrative costs of $0.6 million.

Merger-related costs for the three months ended June 30, 2023 included a net reduction in legal and consulting fees as a result of a refund related to state transfer taxes.

Depreciation and amortization expense decreased $9.7 million, or 5.3%, for the three months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

• Acquisitions in 2023 resulted in an increase of $0.2 million.

• Various building and tenant improvement expenditures resulted in an increase of $11.6 million.

• Dispositions in 2023 and 2024 resulted in a decrease of $11.5 million.

• Assets that became fully depreciated resulted in a decrease of $10.0 million.

Other Income (Expense)

Gains on sale of real estate properties and other assets

In the second quarter of 2024, the Company recognized gains on sale of real estate properties and other assets of approximately $38.3 million.

In the second quarter of 2023, the Company recognized gains on sale of real estate properties of approximately $7.2 million.

Interest expense

Interest expense decreased $2.9 million, or 4.4%, for the three months ended June 30, 2024 compared to the prior year period.

The components of interest expense are as follows:

THREE MONTHS ENDED JUNE 30, CHANGE

Dollars in thousands 2024 2023 $ %

Contractual interest $ 50,956 $ 52,766 $ (1,810) (3.4) %

Net discount/premium accretion 10,198 9,649 549 5.7 %

Debt issuance costs amortization 1,186 1,562 (376) (24.1) %

Amortization of interest rate swap settlement 42 42 — — %

Amortization of treasury hedge settlement 107 107 — — %

Fair value derivative — 997 (997) (100.0) %

Interest cost capitalization (974) (712) (262) 36.8 %

Interest on lease liabilities 942 923 19 2.1 %

Total interest expense $ 62,457 $ 65,334 $ (2,877) (4.4) %

Contractual interest expense decreased $1.8 million, or 3.4%, for the three months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

• The Unsecured Term Loans accounted for an increase of approximately $1.1 million.

• The Unsecured Credit Facility accounted for a decrease of approximately $3.3 million as a result of a decreased weighted average balance outstanding.

• Active interest rate derivatives accounted for a decrease of $1.2 million, while expired interest rate derivatives accounted for an increase of $1.9 million.

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

Impairment of real estate properties and credit loss reserves

In the second quarter of 2024, the Company recognized impairments totaling $10.2 million on 15 properties sold and $110.7 million on 17 properties with changes in the expected holding periods.

In addition, the Company recorded $11.2 million in credit loss reserves relates to notes receivables.

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

Equity loss from unconsolidated joint ventures

The Company recognized its proportionate share of losses from its unconsolidated joint ventures.

These losses are primarily attributable to non-cash depreciation expense.

See Note 2 to the Condensed Consolidated Financial Statements accompanying this report for more details regarding the Company's unconsolidated joint ventures.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

The Company’s results of operations for the six months ended June 30, 2024 compared to the same period in 2023 were impacted by acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

Rental income decreased $27.6 million, or 4.2%, for the six months ended June 30, 2024 compared to the prior year period.

This decrease is primarily comprised of the following:

• Dispositions in 2023 and 2024 resulted in a decrease of $34.0 million.

• Acquisitions in 2023 contributed $1.4 million.

• Leasing activity, including contractual rent increases, contributed $11.2 million.

• Reversed revenue related to the Steward bankruptcy resulted in a decrease of $6.2 million, including straight-line rent of $2.7 million.

Property operating expenses decreased $8.6 million, or 3.5%, for the six months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

• Dispositions in 2023 and 2024 resulted in a decrease of $16.1 million.

• Acquisitions in 2023 resulted in an increase of $0.7 million.

• Increases in portfolio operating expenses as follows:

◦ Administrative, leasing commissions, and other legal expense of $2.6 million;

◦ Maintenance and repair expense of $1.1 million;

◦ Utilities expense of $1.0 million;

◦ Compensation expense of $1.0 million;

◦ Janitorial expense of $0.9 million;

◦ Security expense of $0.2 million.

General and administrative expenses decreased approximately $1.6 million, or 5.3%, for the six months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

• Decrease in payroll and payroll related expenses of approximately $1.7 million.

• Increase in non-cash compensation incentive expense of $1.2 million.

• Other decreases included legal and other administrative costs of $0.4 million.

Merger-related costs decreased $4.9 million for the three months ended March 31, 2024 compared to the prior year period primarily due to 2023 legal and consulting services in connection with the Merger.

Depreciation and amortization expense decreased $6.4 million, or 3.4%, for the three months ended March 31, 2024 compared to the prior year period primarily as a result of the following activity:

• Other decreases including legal and other administrative costs of $1.1 million.

Merger-related costs for the six months ended June 30, 2023 included a net reduction in legal and consulting fees as a result of a refund related to state transfer taxes.

Depreciation and amortization expense decreased $16.1 million, or 4.4%, for the six months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

• Dispositions in 2023 and 2024 resulted in a decrease of $23.3 million.

• Acquisitions in 2023 resulted in an increase of $0.9 million.

• Various building and tenant improvement expenditures resulted in an increase of $24.3 million.

• Dispositions in 2023 resulted in a decrease of $11.5 million.

• Assets that became fully depreciated resulted in a decrease of $18.0 million.

Other Income (Expense)

Gains on sale of real estate properties .

The Company had no real estate dispositions in the first quarter of 2024.

In the first quarter of 2023, the Company recognized gains of approximately $1.0 million primarily on the disposition of one property.

Gains on sale of real estate properties and other assets

Gains on the sale of real estate properties and other assets for the six months ended June 30, 2024 and 2023 totaled $38.4 million and $8.2 million, respectively.

Interest expense

Interest expense decreased $2.7 million, or 4.2%, for the three months ended March 31, 2024 compared to the prior year period.

Interest expense decreased $5.6 million, or 4.3%, for the six months ended June 30, 2024 compared to the prior year period.

The components of interest expense are as follows:

THREE MONTHS ENDED MARCH 31, CHANGE

SIX MONTHS ENDED JUNE 30, CHANGE

Dollars in thousands 2024 2023 $ %

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Total interest expense $ 123,510 $ 129,092 $ (5,582) (4.3) %

Contractual interest expense decreased $1.3 million, or 2.6%, for the three months ended March 31, 2024 compared to the prior year period primarily as a result of the following activity:

Contractual interest expense decreased $3.1 million, or 3.0%, for the six months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

• The Unsecured Term Loans accounted for an increase of approximately $4.4 million.

• The Unsecured Credit Facility accounted for a decrease of approximately $4.0 million due to a decreased weighted average balance outstanding.

• Active interest rate derivatives accounted for a decrease of $0.3 million.

• The Unsecured Credit Facility accounted for a decrease of approximately $7.3 million as a result of a decreased weighted average balance outstanding.

• Active interest rate derivatives accounted for a decrease of $3.5 million, while expired interest rate derivatives accounted for an increase of $4.0 million.

• Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.7 million.

Impairment of Real Estate Properties

In the first quarter of 2024, the Company recognized impairments totaling $15.9 million on four properties with changes in the expected holding periods, including one property reclassified to held for sale.

Impairment of real estate properties and credit loss reserves

During the six months ended June 30, 2024, the Company recognized impairments totaling $136.9 million on 15 properties sold and 18 properties with changes in the expected holding periods, including one property reclassified to held for sale.

In addition, the Company recorded $11.2 million in credit loss reserves relates to notes receivables.

During the six months ended June 30, 2023, the Company recognized impairments totaling $86.6 million relating to five properties that were sold, one land parcel that was sold, three properties reclassified to held for sale and four additional properties with changes in the expected holding periods.

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

Impairment of Goodwill

The Company determined that the carrying value if its single reporting unit exceeded estimated fair value and therefore recorded a $250.5 million full impairment of its goodwill, which is recorded as a non-cash charge in “Impairment of goodwill” in the consolidated statements of operations.

During the three months ended March 31, 2024, the Company determined that the carrying value of its single reporting unit exceeded estimated fair value and therefore recorded a $250.5 million full impairment of its goodwill, which is recorded as a non-cash charge in “Impairment of goodwill” in the consolidated statements of operations.

See Note 1 to the Condensed Consolidated Financial Statements accompanying this report for more details.

4 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis