What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-10-30 compared with 2024-08-02 · 143 added, 90 removed, 311 unchanged (43% of the section changed)

11 unchanged sentences

the possibility that, if the Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial analysts or investors, the market price of the Company’s common stock could decline;

pandemics or other health crises, such as COVID-19;

pandemics or other health crises;

increases in interest rates;

21 unchanged sentences

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

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

As of September 30, 2024, the Company had $1.3 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.

3 unchanged sentences

Investing Activities

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

Cash flows provided by investing activities for the nine months ended September 30, 2024 were approximately $482.1 million.

Below is a summary of the investing activities.

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:

The Company disposed of or contributed to joint ventures 41 properties during the nine months ended September 30, 2024, for a total sales price of $851.7 million, generating gross proceeds of $739.2 million, net of joint venture contributions and secured financing.

The following table details these dispositions for the nine months ended September 30, 2024:

Dollars in thousands Date Disposed Sale Price Square Footage

8 unchanged sentences

6/28/24 99,518 309,424

Albany, NY 8/2/24 6,300 180,000

Charlotte, NC 8/6/24 26,670 90,633

Charleston, SC 8/13/24 14,500 46,711

8/23/24 118,000 266,782

8/27/24 177,250 473,003

Austin, TX 9/13/24 42,281 76,246

Raleigh, NC 9/26/24 1,813 5,934

Total $ 851,680 $ 2,298,727

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.

one in each of Raleigh, NC, New York, NY, Philadelphia, PA, Atlanta, GA, Austin, TX, Houston, TX, Miami, FL, and Denver, CO;

two medical outpatient properties in Los Angeles and five 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.

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

3 The Company sold the following medical outpatient properties into a joint venture, retaining 20% ownership:

one in each of Dallas, TX, San Antonio, TX and Atlanta, GA;

and two in each of Nashville, TN and Denver, CO.

Subsequent to September 30, 2024, the Company disposed of the following properties:

Dollars in thousands Date Disposed Sale Price Square Footage

Houston, TX 1

10/3/24 $ 12,000 140,012

Greensboro, NC 10/9/24 12,514 35,373

Des Moines, IA 10/15/24 31,750 95,486

Albany, NY 10/15/24 9,500 80,676

Salt Lake City, UT 2

10/24/24 30,712 112,192

Miami, FL 10/25/24 36,789 102,186

Miami, FL 10/25/24 17,767 60,761

Total $ 151,032 $ 626,686

The Company provided seller financing of approximately $9.6 million in connection with this sale.

The Company sold a medical outpatient property that was included in a consolidated joint venture in which the Company held a 63% ownership interest.

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.

During the nine months ended September 30, 2024, the Company's investment in two unconsolidated joint ventures in which it holds a 20% interest increased by $89.6 million and $21.3 million, respectively, relating to the Company's contribution of medical outpatient properties to the joint ventures.

Capital Expenditures

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

During the nine months ended September 30, 2024, the Company incurred capital costs totaling $223.7 million for the following:

• $76.4 million toward active development and redevelopment of properties;

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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 June 24, 2024, the Company's two mezzanine loans in Texas with a total principal balance of $54.1 million matured.

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.

In the third quarter of 2024, the Company recorded an allowance for credit loss of $46.8 million to cover the entire carrying amount for these loans .

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

During the second quarter of 2024, the Company placed one of its real estate notes receivable with a principal balance of $31.2 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.

See Note 1 to the Condensed Consolidated Financial Statements accompanying this report for more information about real estate notes receivable and allowance for credit losses.

Financing Activities

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

Cash flows used in financing activities for the nine months ended September 30, 2024 were approximately $845.3 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 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):

As of September 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 table details the amount and rate of each swap (dollars in thousands):

EXPIRATION DATE AMOUNT WEIGHTED

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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.

During the second quarter of 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.

During the third quarter of 2024, the Company repaid an additional $150 million of the Unsecured Term Loan.

In October 2024, the Company repaid the remaining $100 million outstanding of the Unsecured Term Loan.

During the third quarter of 2024, the Company repaid in full at maturity, a mortgage note payable bearing interest at a rate of 4.15% per annum with an outstanding principal balance of $6.9 million.

The mortgage note encumbered a 64,143 square foot property in Minnesota.

Supplemental Guarantor Information

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Operating Activities

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.

Cash flows provided by operating activities decreased from $372.5 million for the nine months ended September 30, 2023 to $363.6 million for the nine months ended September 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.

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

There are 418 multi-tenant and single-tenant leases totaling 1.4 million square feet that will expire during the remainder of 2024.

Approximately 69.7% 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.

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

Steward Health

As previously disclosed, on May 6, 2024, Steward Health 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.

Prior to the bankruptcy filing, Steward leased approximately 593,000 square feet of space from the Company.

Leases for six buildings in Massachusetts totaling approximately 244,000 square feet were assumed in connection with the sale of Steward’s Massachusetts hospitals on or about September 30, 2024.

In October 2024, the Company received $2.2 million for prior rent owed under these assumed leases.

On October 25, 2024, leases for approximately 232,000 square feet in buildings in Florida and Massachusetts were rejected by Steward effective as of October 31, 2024, bringing the total leases rejected to 266,000 square feet.

The total base rent associated with the leases rejected is approximately $0.6 million per month and the Company expects to cover operating expenses of an additional $0.2 million per month.

The Company is in active discussions with Steward's subtenants to lease a portion of the rejected space.

The remaining Steward leases for approximately 83,000 square feet have not been rejected and are subject to continuing discussions.

While the Company remains actively engaged in these discussions, significant uncertainty remains around whether these leases will be assumed or rejected.

Operating Expenses

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

As of June 30, 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.

As of September 30, 2024, leases for approximately 92% of the Company's total leased square footage allow for some recovery of operating expenses, with approximately 29% having modified gross lease structures and approximately 63% having net lease structures.

Purchase Options

1 unchanged sentence

YEAR EXERCISABLE NUMBER OF PROPERTIES GROSS REAL ESTATE INVESTMENT AS OF

JUNE 30, 2024 1

SEPTEMBER 30, 2024 1

2025 5 99,799

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2 These purchase options have been exercisable for an average of 14.7 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 Sheets.

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

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

FAD is presented by adding to Normalized FFO non-

real estate depreciation and amortization, non-cash financing receivable amortization, loan origination cost amortization, deferred financing fees amortization, stock-based compensation expense and rent reserves, net;

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

10 unchanged sentences

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

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

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

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

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

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

6 unchanged sentences

Non-controlling loss from operating partnership units (1,372) (841) (7,727) (2,935)

Proportionate share of unconsolidated joint ventures 4,818 4,412 9,386 9,253

Unconsolidated JV depreciation and amortization 5,378 4,421 14,764 13,674

FFO adjustments $ 170,311 $ 196,785 $ 635,254 $ 648,334

5 unchanged sentences

Merger-related costs — 7,450 — (3,366)

Merger-related fair value of debt instruments 10,064 10,554 20,169 21,418

Lease intangible amortization (10) 213 294 600

Non-routine legal costs/forfeited earnest money received 306 — 771 275

Debt financing costs — (62) — (62)

Restructuring and severance-related charges 6,861 — 6,861 —

Credit losses and gains on other assets, net 2

1 unchanged sentence

Impairment of goodwill — — 250,530 —

Merger-related fair value of debt instruments 10,184 10,667 30,353 32,085

Unconsolidated JV normalizing items 3

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Non-real estate depreciation and amortization 276 475 1,075 1,881

Non-cash interest amortization 4

Non-cash interest amortization, net 4

1,319 1,402 3,862 3,703

12 unchanged sentences

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.

2 For the nine months ended September 30, 2024, includes a $5.1 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 $58.0 million credit loss reserve on three notes receivable included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations.

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

1 unchanged sentence

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

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.

6 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 760,552 and 432,597, respectively, for the three months ended September 30, 2024 and 2023, and the dilutive impact of 3,649,637 and 3,662,800 OP units outstanding for the three and nine months ended September 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 six months ended June 30, 2024 and 2023:

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

NUMBER OF PROPERTIES GROSS INVESTMENT

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

at September 30, 2024 SAME STORE CASH NOI for the nine months ended September 30,

Dollars in thousands 2024 2023

1 unchanged sentence

Joint venture same store properties 29 321,109 $ 13,175 $ 12,645

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:

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 nine months ended September 30, 2024 and 2023:

Reconciliation of Same Store Cash NOI

SAME STORE RECONCILIATION

SIX MONTHS ENDED JUNE 30,

NINE MONTHS ENDED SEPTEMBER 30,

Dollars in thousands 2024 2023

4 unchanged sentences

Other expenses 1

9,953 (4,029)

Straight-line rent, net (17,971) (24,720)

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Reconciliation of Same Store Properties

AS OF JUNE 30, 2024

AS OF SEPTEMBER 30, 2024

Dollars and square feet in thousands PROPERTY COUNT GROSS INVESTMENT 1

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Results of Operations

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.

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

The Company’s results of operations for the three months ended September 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 $26.8 million, or 8.1%, for the three months ended September 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 $30.0 million.

• Acquisitions in 2023 contributed $0.3 million.

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

• 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:

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

• Leasing activity, including contractual rent increases, resulted in an increase of $3.1 million.

Property operating expenses decreased $11.4 million, or 8.7%, for the three months ended September 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 $10.9 million.

1 unchanged sentence

• Increases in portfolio operating expenses as follows:

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

◦ Janitorial expense of $0.2 million.

• Decreases in portfolio operating expenses as follows:

◦ Leasing commissions expense of $1.4 million;

◦ Utilities expense of $1.3 million.

• Maintenance and repair expense of $1.0 million;

• Decreases in portfolio operating expenses as follows:

◦ Property taxes of $1.6 million;

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.

◦ Maintenance and repair expense of $0.7 million;

◦ Compensation expense of $0.5 million;

◦ Janitorial expense of $0.5 million.

General and administrative expenses increased approximately $6.7 million, or 50.2%, for the three months ended September 30, 2024 compared to the prior year period primarily as a result of the following activity:

• Increases from the following expenses:

◦ Restructuring and severance-related charges of $6.2 million.

◦ Non-cash compensation incentive expense of $1.6 million.

◦ Cash incentive compensation expense of $0.1 million.

◦ Legal and other administrative costs of $0.2 million.

• Decreases in the following expenses:

◦ Payroll and payroll related expenses of approximately $0.7 million.

◦ Travel expenses of $0.7 million.

There were no merger-related costs for the three months ended September 30, 2024.

Merger-related costs for the three months ended September 30, 2023, included legal and consulting services.

Depreciation and amortization expense decreased $19.8 million, or 10.8%, for the three months ended September 30, 2024 compared to the prior year period primarily as a result of the following activity:

• Various building and tenant improvement expenditures resulted in an increase of $9.9 million.

1 unchanged sentence

• Assets that became fully depreciated resulted in a decrease of $16.6 million.

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

In the third quarter of 2024, the Company recognized gains on sale of real estate properties and other assets of approximately $39.3 million.

In the third quarter of 2023, the Company recognized gains on sale of real estate properties of approximately $48.8 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.

Interest expense decreased $5.7 million, or 8.5%, for the three months ended September 30, 2024 compared to the prior year period.

The components of interest expense are as follows:

THREE MONTHS ENDED JUNE 30, CHANGE

THREE MONTHS ENDED SEPTEMBER 30, CHANGE

Dollars in thousands 2024 2023 $ %

8 unchanged sentences

Total interest expense $ 60,649 $ 66,304 $ (5,655) (8.5) %

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.

Contractual interest expense decreased $4.6 million, or 8.5%, for the three months ended September 30, 2024 compared to the prior year period primarily as a result of the following activity:

• The Unsecured Term Loans accounted for a decrease of approximately $1.9 million.

• The Unsecured Credit Facility accounted for a decrease of approximately $3.9 million as a result of a decreased weighted average balance outstanding.

2 unchanged sentences

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.

In the third quarter of 2024, the Company recognized impairments totaling $10.8 million on 13 properties sold and $26.8 million on 12 properties with changes in the expected holding periods.

In addition, the Company recorded $46.8 million in credit loss reserves relating to notes receivable.

In the third quarter of 2023, the Company

recognized impairments totaling $56.9 million primarily as a result of the sale of two properties, the classification of 12 properties as held for sale, and changes in the expected holding period of six properties.

Equity loss from unconsolidated joint ventures

2 unchanged sentences

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.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

The Company’s results of operations for the nine months ended September 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 $54.4 million, or 5.5%, for the nine months ended September 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 $61.9 million.

• Acquisitions in 2023 contributed $1.4 million.

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

• Acquisitions in 2023 resulted in an increase of $1.6 million.

• Leasing activity, including contractual rent increases, resulted in an increase of $12.1 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:

Property operating expenses decreased $20.0 million, or 5.3%, for the nine months ended September 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 $23.5 million.

1 unchanged sentence

• 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;

◦ Leasing commission, administrative, and other legal expenses of $3.9 million;

◦ Utilities expense of $2.1 million;

◦ Compensation expense of $1.0 million;

◦ Janitorial expense of $0.4 million;

◦ Security expense of $0.3 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.

• Decreases in portfolio operating expenses as follows:

◦ Property tax expense of $2.4 million;

◦ Maintenance and repair expense of $0.7 million;

◦ Compensation expense of $0.7 million.

General and administrative expenses increased approximately $5.1 million, or 11.7%, for the nine months ended September 30, 2024, compared to the prior year period primarily as a result of the following activity:

• Increase in restructuring and severance-related charges of $6.2 million

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

• 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:

• Decrease in payroll and payroll related expenses of approximately $1.0 million.

• Other decreases including travel, legal and other administrative costs of $1.5 million.

There were no merger-related costs for the nine months ended September 30, 2024.

Merger-related costs for the nine months ended September 30, 2023, included legal and consulting fees, offset by a refund related to state transfer taxes.

Depreciation and amortization expense decreased $35.8 million, or 6.5%, for the nine months ended September 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 $39.0 million.

4 unchanged sentences

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.

Gains on the sale of real estate properties and other assets for the nine months ended September 30, 2024 and 2023 totaled $77.7 million and $57.0 million, respectively.

Interest expense

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

Interest expense decreased $11.2 million, or 5.8%, for the nine months ended September 30, 2024, compared to the prior year period.

The components of interest expense are as follows:

SIX MONTHS ENDED JUNE 30, CHANGE

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

Dollars in thousands 2024 2023 $ %

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Total interest expense $ 184,159 $ 195,397 $ (11,238) (5.8) %

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:

Contractual interest expense decreased $7.7 million, or 4.9%, for the nine months ended September 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 $2.5 million.

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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.

During the nine months ended September 30, 2024, the Company recognized impairments totaling $174.5 million on 28 properties sold and 30 properties with changes in the expected holding periods, including one property reclassified to held for sale.

In addition, the Company recorded $58.0 million in credit loss reserves relates to notes receivable.

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

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

See Note 1 to the Condensed Consolidated Financial Statements accompanying this report for more details regarding the Company's notes receivable and credit loss reserves.

Impairment of Goodwill

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis