Healthcare Realty Trust Inc 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read together with the Consolidated Financial Statements and related Notes thereto included in Item 1 of this Quarterly Report on Form 10-Q. 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 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 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 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," "budget" and other comparable terms. These forward-looking statements are based on the Company's current plans, objectives, estimates, expectations and intentions and inherently involve significant risks and uncertainties. Such risks and uncertainties include, among other things, the following: the Company’s expected results may not be achieved; failure to realize the expected benefits of the Merger; risks related to future opportunities and plans for the Company, including the uncertainty of expected future financial performance and results of the Company; 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; increases in interest rates; the availability and cost of capital at expected rates; competition for quality assets; negative developments in the operating results or financial condition of the Company's tenants, including, but not limited to, their ability to pay rent; the Company's ability to reposition or sell facilities with profitable results; the Company's ability to release space at similar rates as vacancies occur; the Company's ability to renew expiring leases; government regulations affecting tenants' Medicare and Medicaid reimbursement rates and operational requirements; unanticipated difficulties and/or expenditures relating to future acquisitions and developments; changes in rules or practices governing the Company's financial reporting; the Company may be required under purchase options to sell properties and may not be able to reinvest the proceeds from such sales at rates of return equal to the return received on the properties sold; uninsured or underinsured losses related to casualty or liability; the incurrence of impairment charges on its real estate properties or other assets; other legal and operational matters; and other risks and uncertainties affecting the Company, including those described from time to time under the caption “Risk Factors” and elsewhere in the Company’s filings and reports with the SEC, including the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Moreover, other risks and uncertainties of which the Company is not currently aware may also affect the Company's forward-looking statements and may cause actual results and the timing of events to differ materially from those anticipated. The forward-looking statements made in this communication are made only as of the date hereof or as of the dates indicated in the forward-looking statements, even if they are subsequently made available by the Company on its website or otherwise. The Company undertakes no obligation to update or supplement any forward-looking statements to reflect actual results, new information, future events, changes in its expectations or other circumstances that exist after the date as of which the forward-looking statements were made, except as required by law. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports, including, without limitation, estimates and projections regarding the performance of development projects the Company is pursuing. For a detailed discussion of the Company’s risk factors, please refer to the Company's filings with the SEC, including this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. Liquidity and Capital Resources Sources and Uses of Cash 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 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. Management believes that the Company's liquidity and sources of capital are adequate to 24 Table of Contents 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. Investing Activities 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. Dispositions 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 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 Multiple 1 5/23/24 284,348 556,274 Denver, CO 5/30/24 19,000 37,130 Austin, TX 1 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 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 Multiple 1 8/23/24 118,000 266,782 Multiple 3 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, 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 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 1. The Company provided seller financing of approximately $9.6 million in connection with this sale. 2. The Company sold a medical outpatient property that was included in a consolidated joint venture in which the Company held a 63% ownership interest. 25 Table of Contents Investment in Unconsolidated 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 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; • $34.6 million toward completed development and redevelopment of properties; • $39.2 million toward first generation tenant improvements and planned capital expenditures for acquisitions; • $48.8 million toward second generation tenant improvements; and • $24.7 million toward building capital. Real Estate Notes Receivable 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. 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 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 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 AVERAGE RATE May 2026 $ 275,000 3.74 % June 2026 150,000 3.83 % December 2026 150,000 3.84 % June 2027 200,000 4.27 % December 2027 300,000 3.93 % $ 1,075,000 3.92 % 26 Table of Contents 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. The mortgage note encumbered a 63,012 square foot property in California. 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. The mortgage note encumbered a 40,324 squ are foot property in Georgia . 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 The OP has issued unsecured notes described in Note 4 to the Company's Condensed Consolidated Financial Statements included in this report. All unsecured notes are fully and unconditionally guaranteed by the Company, and the OP is 98.5% owned by the Company. Effective January 4, 2021, the Securities and Exchange Commission (the “SEC”) adopted amendments to the financial disclosure requirements which permit subsidiary issuers of obligations guaranteed by the parent to omit separate financial statements if the consolidated financial statements of the parent company have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent. Accordingly, as permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, the Company has excluded the summarized financial information for the OP because the assets, liabilities, and results of operations of the OP are not materially different than the corresponding amounts in the Company's consolidated financial statements and management believes such summarized financial information would be repetitive and would not provide incremental value to investors. Operating Activities 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. The Company may, from time to time, sell properties and redeploy cash from property sales into new investments or to repay indebtedness. The income from the new investments or reduction in interest expense could be less than the income from properties sold which would adversely affect the Company's results of operations and cash flows. 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 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 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. 27 Table of Contents Expiring Leases The Company expects that approximately 15% o f its leases will expire each year in the ordinary course of business. 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 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 The Company historically has experienced increases in property taxes throughout its portfolio as a result of increasing assessments and tax rates levied across the country. The Company continues its efforts to appeal property tax increases and manage the impact of the increases. In addition, the Company historically has incurred variability in portfolio utilities expense based on seasonality, with the first and third quarters usually reflecting greater amounts. The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement. 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. 28 Table of Contents Purchase Options Information about the Company's unexercised purchase options and the amount and basis for determination of the purchase price is detailed in the table below (dollars in thousands): YEAR EXERCISABLE NUMBER OF PROPERTIES GROSS REAL ESTATE INVESTMENT AS OF SEPTEMBER 30, 2024 1 Current 2 6 $ 111,393 2025 5 99,799 2026 6 173,721 2027 4 110,660 2028 5 136,397 2029 3 81,844 2030 — — 2031 4 106,779 2032 2 23,541 2033 — — 2034 and thereafter 3 9 323,999 Total 44 $ 1,168,133 1 Includes three properties totaling $45.4 million with stated purchase prices or prices based on fixed capitalization rates. 2 These purchase options have been exercisable for an average of 14.7 years. 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 Management considers certain non-GAAP financial measures and key performance indicators to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors, as well as reconciliations of these measures to the most directly comparable GAAP financial measures. The non-GAAP financial measures and key performance indicators presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income, as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's historical consolidated operating results, these measures should be examined in conjunction with net income and cash flows from operations as presented in the Condensed Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q. Funds from Operations ("FFO"), Normalized FFO and Funds Available for Distribution ("FAD") 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.” In addition to FFO, the Company presents Normalized FFO and FAD. 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- 29 Table of Contents 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. The Company's definition of these terms may not be comparable to that of other real estate companies as they may have different methodologies for computing these amounts. FFO, Normalized FFO and FAD should not be considered as an alternative to net income as an indicator of the Company's financial performance or to cash flow from operating activities as an indicator of the Company's liquidity. FFO, Normalized FFO and FAD should be reviewed in connection with GAAP financial measures. Management believes FFO, Normalized FFO, FFO per common share, Normalized FFO per share and FAD ("Non-GAAP Measures") provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, primarily depreciation and amortization expense. 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 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 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. For these reasons, management deems it appropriate to disclose and discuss these Non-GAAP Measures. However, none of these measures represent cash generated from operating activities determined in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs. 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. 30 Table of Contents 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 Net loss attributable to common stockholders $ (93,023) $ (67,844) $ (547,639) $ (237,728) Net loss attributable to common stockholders per diluted share 1 $ (0.26) $ (0.18) $ (1.49) $ (0.63) Gain on sales of real estate properties (39,148) (48,811) (72,601) (56,974) Impairment of real estate properties 37,632 56,873 174,486 138,314 Real estate depreciation and amortization 167,821 185,143 526,332 556,255 Non-controlling loss from operating partnership units (1,372) (841) (7,727) (2,935) Unconsolidated JV depreciation and amortization 5,378 4,421 14,764 13,674 FFO adjustments $ 170,311 $ 196,785 $ 635,254 $ 648,334 FFO adjustments per common share - diluted $ 0.47 $ 0.51 $ 1.70 $ 1.69 FFO attributable to common stockholders $ 77,288 $ 128,941 $ 87,615 $ 410,606 FFO attributable to common stockholders per common share - diluted $ 0.21 $ 0.34 $ 0.23 $ 1.07 Transaction costs 719 769 1,545 1,725 Merger-related costs — 7,450 — (3,366) 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 46,600 — 55,125 8,599 Impairment of goodwill — — 250,530 — Merger-related fair value of debt instruments 10,184 10,667 30,353 32,085 Unconsolidated JV normalizing items 3 101 90 277 300 Normalized FFO adjustments $ 64,761 $ 19,127 $ 345,756 $ 40,156 Normalized FFO adjustments per common share - diluted $ 0.18 $ 0.05 $ 0.92 $ 0.10 Normalized FFO attributable to common stockholders $ 142,049 $ 148,068 $ 433,371 $ 450,762 Normalized FFO attributable to common stockholders per common share - diluted $ 0.39 $ 0.39 $ 1.16 $ 1.18 Non-real estate depreciation and amortization 276 475 1,075 1,881 Non-cash interest amortization, net 4 1,319 1,402 3,862 3,703 Rent reserves, net (27) 442 1,083 1,759 Straight-line rent, net (5,771) (8,470) (20,203) (24,720) Stock-based compensation 4,064 2,556 11,008 10,224 Unconsolidated JV non-cash items 5 (376) (231) (646) (828) Normalized FFO adjusted for non-cash items $ 141,534 $ 144,242 $ 429,550 $ 442,781 2nd generation TI (16,951) (21,248) (49,443) (47,366) Leasing commissions paid (10,266) (8,907) (35,493) (21,413) Building capital (7,389) (14,354) (25,587) (31,949) FAD $ 106,928 $ 99,733 $ 319,027 $ 342,053 FFO weighted average common shares outstanding - diluted 6 363,370 383,428 374,414 383,390 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 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. 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. 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. 31 Table of Contents Cash Net Operating Income ("NOI") and Same Store Cash NOI Cash NOI and 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, 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 and leasing commission amortization. The Company also excludes cash lease termination fees. Cash NOI is historical and not necessarily indicative of future results. 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 or intended for sale, properties undergoing redevelopment, and newly-redeveloped or developed properties. 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. Any recently acquired property will be included in the same store pool once the Company has owned the property for five full quarters. 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 nine months ended September 30, 2024 and 2023: NUMBER OF PROPERTIES GROSS INVESTMENT at September 30, 2024 SAME STORE CASH NOI for the nine months ended September 30, Dollars in thousands 2024 2023 Same store properties 579 $ 11,450,154 $ 526,130 $ 511,834 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 nine months ended September 30, 2024 and 2023: Reconciliation of Same Store Cash NOI SAME STORE RECONCILIATION NINE MONTHS ENDED SEPTEMBER 30, Dollars in thousands 2024 2023 Net loss $ (555,692) $ (240,408) Other expense 589,933 281,846 General and administrative expense 48,913 43,796 Depreciation and amortization expense 514,821 550,661 Other expenses 1 16,388 8,513 Straight-line rent, net (17,971) (24,720) Joint venture properties 16,939 14,418 Other revenue 2 (20,773) (12,171) Cash NOI 592,558 621,935 Cash NOI not included in same store (53,253) (97,456) Same store cash NOI 539,305 524,479 Same store joint venture properties (13,175) (12,645) Same store cash NOI (excluding JVs) $ 526,130 $ 511,834 1. Includes transaction 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. 32 Table of Contents Reconciliation of Same Store Properties AS OF SEPTEMBER 30, 2024 Dollars and square feet in thousands PROPERTY COUNT GROSS INVESTMENT 1 SQUARE FEET OCCUPANCY Same store properties 579 $ 11,450,154 33,298 89.9 % Joint venture same store properties 29 321,109 1,636 89.8 % Wholly owned and joint venture acquisitions 25 171,013 1,622 94.8 % Development completions 3 97,988 329 65.7 % Redevelopments 21 478,346 1,639 57.6 % Planned dispositions 3 48,470 144 26.4 % Total 660 $ 12,567,080 38,668 88.3 % Joint venture properties 55 461,748 3,263 89.1 % Total owned real estate properties 605 $ 12,105,332 35,405 88.3 % 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. Results of Operations 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. Revenues 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 resulted in an increase of $0.1 million. • Leasing activity, including contractual rent increases, resulted in an increase of $3.1 million. Expenses 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. • Acquisitions in 2023 resulted in an increase of $0.1 million. • Increases in portfolio operating expenses as follows: ◦ Leasing commissions expense of $1.4 million; and ◦ Utilities expense of $1.3 million. • Decreases in portfolio operating expenses as follows: ◦ Property taxes of $1.6 million; ◦ Maintenance and repair expense of $0.7 million; ◦ Compensation expense of $0.5 million; and ◦ 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. 33 Table of Contents ◦ 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. • Dispositions in 2023 and 2024 resulted in a decrease of $13.2 million. • 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 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 $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 SEPTEMBER 30, CHANGE Dollars in thousands 2024 2023 $ % Contractual interest $ 49,307 $ 53,911 $ (4,604) (8.5) % Net discount/premium accretion 10,327 9,785 542 5.5 % Debt issuance costs amortization 1,227 1,338 (111) (8.3) % Amortization of interest rate swap settlement 42 42 — — % Amortization of treasury hedge settlement 107 107 — — % Fair value derivative — 988 (988) (100.0) % Interest cost capitalization (1,295) (795) (500) 62.9 % Interest on lease liabilities 934 928 6 0.6 % Total interest expense $ 60,649 $ 66,304 $ (5,655) (8.5) % 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. • Active interest rate derivatives accounted for a decrease of $0.5 million, while expired interest rate derivatives accounted for an increase of $2.1 million. • Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.4 million. Impairment of real estate properties and credit loss reserves 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 34 Table of Contents 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 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. 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. Revenues 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 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. Expenses 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. • Acquisitions in 2023 resulted in an increase of $0.6 million. • Increases in portfolio operating expenses as follows: ◦ Leasing commission, administrative, and other legal expenses of $3.9 million; ◦ Utilities expense of $2.1 million; ◦ Janitorial expense of $0.4 million; and ◦ Security expense of $0.3 million. • Decreases in portfolio operating expenses as follows: ◦ Property tax expense of $2.4 million; ◦ Maintenance and repair expense of $0.7 million; and ◦ 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. • 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. 35 Table of Contents 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. • Acquisitions in 2023 resulted in an increase of $0.8 million. • Various building and tenant improvement expenditures resulted in an increase of $31.6 million. • Assets that became fully depreciated resulted in a decrease of $29.2 million. Other Income (Expense) Gains on sale of real estate properties and other assets 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 $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: NINE MONTHS ENDED SEPTEMBER 30, CHANGE Dollars in thousands 2024 2023 $ % Contractual interest $ 149,712 $ 157,443 $ (7,731) (4.9) % Net discount/premium accretion 30,592 29,025 1,567 5.4 % Debt issuance costs amortization 3,619 4,376 (757) (17.3) % Amortization of interest rate swap settlement 126 126 — — % Amortization of treasury hedge settlement 320 320 — — % Fair value derivative 187 3,414 (3,227) (94.5) % Interest cost capitalization (3,211) (2,077) (1,134) 54.6 % Interest on lease liabilities 2,814 2,770 44 1.6 % Total interest expense $ 184,159 $ 195,397 $ (11,238) (5.8) % 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. • The Unsecured Credit Facility accounted for a decrease of approximately $11.1 million as a result of a decreased weighted average balance outstanding. • Active interest rate derivatives accounted for a decrease of $4.1 million, while expired interest rate derivatives accounted for an increase of $6.1 million. • Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $1.1 million. Impairment of real estate properties and credit loss reserves 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. 36 Table of Contents Impairment of Goodwill 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. 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.