Healthcare Realty Trust Inc 10-Q

Item 1A. Risk Factors In addition to the other information set forth in this report and the risk factor discussed below, an investor should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect the Company’s business, financial condition or future results. The risks, as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems immaterial also may materially adversely affect the Company’s business, financial condition, operating results or cash flows. Risk Factors Relating to the Company Operational Risks 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. The Company’s revenues are subject to the financial strength of its tenants and associated health systems. The Company has no operational control over the business of these tenants and associated health systems that face a wide range of economic, competitive, government reimbursement and regulatory pressures and constraints, including the loss of licensure or certification. Any slowdown in the economy, decline in the availability of financing from the capital markets, or changes in healthcare regulations may adversely affect the businesses of the Company’s tenants to varying degrees. Such conditions may further impact such tenants’ abilities to meet their obligations to the Company and, in certain cases, could lead to restructurings, disruptions, or bankruptcies of such tenants. The Company leases to government tenants from time to time that may be subject to annual budget appropriations. If a government tenant fails to receive its annual budget appropriation, it might not be able to make its lease payments to the Company. In addition, defaults under leases with federal government tenants are governed by federal statute and not by state eviction or rent deficiency laws. The conditions described above could adversely affect the Company’s revenues and could increase allowances for losses and result in impairment charges, which could decrease net income attributable to common stockholders and 34 Table of Contents equity and reduce cash flows from operations. For example, Steward leases approximately 580,000 square feet of space from the Company, accounting for approximately 1.6% of the Company’s total in-place annualized base rent. On May 6, 2024, Steward announced that it had filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. The bankruptcy filing by Steward has delayed the Company’s efforts to collect past due balances under its leases with Steward and may ultimately preclude collection of these amounts. Further, two of the leases have been rejected in bankruptcy and additional leases could be rejected. Steward owes the Company approximately $3.0 million in prepetition rent. There can be no assurance that Steward will meet its financial obligations to the Company or that the Company will be able to timely re-let spaces for which leases have been rejected.