What changed in this filing

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Item 1A. Risk Factors

2025-02-19 compared with 2024-02-16 · 73 added, 43 removed, 344 unchanged (25% of the section changed)

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and risks relating to government regulations.

These risks, as well as the risks described in Item 1 under the headings “Competition,” “Government Regulation,” “Legislative Developments,” and “Environmental Matters,” and in Item 7 under the heading “Disclosure Regarding Forward-Looking Statements,” should be carefully considered before making an investment decision regarding the Company.

The risks and uncertainties described below are not the only ones facing the Company, and there may be additional risks that the Company does not presently know of or that the Company currently considers not likely to have a material impact.

The risks and uncertainties described in Item 1 and below are not the only ones facing the Company, and there may be additional risks that the Company does not presently know of or that the Company currently considers not likely to have a material impact.

If any of the events underlying the following risks actually occurred, the Company’s business, consolidated financial condition, operating results and cash flows, including distributions to the Company's stockholders, could suffer, and the trading price of its common stock could decline.

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changes in the economy;

the availability and

cost of capital at favorable rates;

the availability and cost of capital at favorable rates;

increases in property taxes, utilities and other operating expenses;

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changes in rules or practices governing the Company's financial reporting;

and other legal and operational matters.

and other financial, legal and operational matters.

The Company may from time to time decide to sell properties and may be required under purchase options to sell certain properties.

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These conditions 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 equity and reduce cash flows from operations.

The Company's results of operations have been and will continue to be impacted negatively by the Steward Health and Prospect Medical bankruptcies .

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, accounting for approximately 2.0% of the Company’s rental revenue.

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.

Leases for approximately 349,000 square feet in buildings in Florida and Massachusetts were rejected by Steward.

The total annual revenue associated with the rejected leases was approximately $13.0 million.

The Company will pursue claims for outstanding rent of approximately $2.3 million against Steward in the bankruptcy court.

However, there can be no assurance that the Company will recover unpaid rent from Steward be able to timely relet space related to rejected leases at similar rental rates, or otherwise offset lost revenue from Steward Health.

On January 11, 2025, Prospect Medical Holdings filed petitions for relief under Chapter 11 of the U.S.

Bankruptcy Code in the U.S.

Bankruptcy Court for the Northern District of Texas.

Prospect leases approximately 80,912 square feet of space from the Company, accounting for approximately $2.9 million of annual rental revenue.

The Company moved to cash basis accounting for these leases and recorded a revenue reduction of $0.7 million in the fourth quarter.

There can be no assurance that the Company will recover unpaid rent from Prospect or be able to timely relet space related to any rejected leases.

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

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The Company incurred impairment charges of $249.9 million in 2024, associated with completed or planned disposition activity.

Additionally, the Company recorded a goodwill impairment of $250.5 million in 2024.

The Company may determine in future periods that an impairment has occurred in the value of one or more of its real estate properties or other assets.

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Properties with purchase options exercisable in 2024 produced aggregate net operating income of approximately $10.6 million in 2024.

The exercise of these purchase options

exposes the Company to reinvestment risk and a reduction in investment return.

The exercise of these purchase options exposes the Company to reinvestment risk and a reduction in investment return.

Certain properties subject to purchase options may be purchased at rates of return above the rates of return the Company expects to achieve with new investments.

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A portion of the Company’s leases will expire over the course of any year.

For more specific information concerning the Company’s expiring leases, see "Expiring Leases" in the "Trends and Matters Impacting Operating Results" as part of Item 7.

For more specific information concerning the Company’s expiring leases, see "Expiring Leases" in Item 1 and in the "Trends and Matters Impacting Operating Results" as part of Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report.

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The Company receives a significant portion of its revenues by leasing assets subject to fixed rent escalations.

Approximately 95% of leases have increases that are based upon fixed percentages and approximately 5% of leases have increases based on the Consumer Price Index.

Approximately 96% of leases have increases that are based upon fixed percentages and approximately 4% of leases have increases based on the Consumer Price Index ("CPI").

To the extent fixed percentage increases lag behind inflation and operating expense growth, the Company's performance, growth, and profitability would be negatively impacted.

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• The construction of properties generally requires various government and other approvals that may not be received when expected, or at all, which could delay or preclude commencement of construction;

• The development, construction or expansion of healthcare facilities in certain states may require a certificate of need approval prior to commencing such projects or allowing tenants to occupy and operate on the property;

• Opportunities that the Company pursued but later abandoned could result in the expensing of pursuit costs, which could impact the Company’s consolidated results of operations;

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• Time required to initiate and complete the construction of a property and to lease up a completed property may be greater than originally anticipated, thereby adversely affecting the Company’s cash flow and liquidity;

• Occupancy rates and rents of a completed development property may not be sufficient to make the property profitable to the Company;

• Occupancy rates and rents of a completed development or redevelopment property may not be sufficient to make the property profitable to the Company;

• Favorable capital sources to fund the Company’s development and redevelopment activities may not be available when needed.

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The weighted average remaining term of the Company's ground leases is approximately 63.6 years, including renewal options.

The Company’s ground lease agreements with

hospitals and health systems typically contain restrictions that limit building occupancy to physicians on the medical staff of an affiliated hospital and prohibit tenants from providing services that compete with the services provided by the affiliated hospital.

The Company’s ground lease agreements with hospitals and health systems typically contain restrictions that limit building occupancy to physicians on the medical staff of an affiliated hospital and prohibit tenants from providing services that compete with the services provided by the affiliated hospital.

Ground leases may also contain consent requirements or other restrictions on sale or assignment of the Company’s leasehold interest, including rights of first offer and first refusal in favor of the lessor.

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In such an event, the Company cannot be certain that the Company would be able to replace the coverage at similar or otherwise favorable terms.

The Company has obtained title insurance policies for each of its properties, typically in an amount equal to its original price.

However, these policies may be for amounts less than the current or future values of our properties.

The Company has obtained title insurance policies for each of its properties, typically in an amount equal to its purchase price.

However, the coverage provided by this insurance may be for amounts less than the current or future values of our properties.

In such an event, if there is a title defect relating to any of the Company's properties, it could lose some of the capital invested in and anticipated profits from such property.

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• result in the Company's inability to properly monitor its compliance with the rules and regulations regarding the Company's qualification as a REIT;

• result in loss, theft, or misappropriation of Company funds, or funds held by tenants or other parties;

• result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, or otherwise valuable information of the Company or others, which others could use to compete against the Company or which could expose it to damage claims by third parties for disruption, destructive, or otherwise harmful purposes or outcomes;

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Although the Company carries cyber risk insurance, losses could exceed insurance coverage available and any or all of the foregoing could have a material adverse effect on the Company's consolidated financial condition and results of operations.

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

The Company may acquire properties by issuing limited partnership units of the OP in exchange for a property owner contributing property to the Company.

The Company has structured and may in the future structure acquisitions of property in exchange for limited partnership units of the OP on terms that could limit its liquidity or flexibility .

The Company has acquired and may in the future acquire properties by issuing limited partnership units of the OP in exchange for a property owner contributing property to the Company.

If the Company continues to enter into such transactions in order to induce the contributors of such properties to accept units of the OP rather than cash in exchange for their properties, it may be necessary for the Company to provide additional incentives.

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The Company may, however, enter into additional contractual arrangements with contributors of property under which it would agree to repurchase a contributor’s units for shares of the Company's common stock or cash, at the option of the contributor, at set times.

If the contributor required the Company to repurchase units for cash pursuant to such a provision, it would limit the Company's liquidity and, thus, its ability to use cash to make other investments, satisfy other obligations or make distributions to stockholders.

Moreover, if the Company were

required to repurchase units for cash at a time when it did not have sufficient cash to fund the repurchase, the Company might be required to sell one or more of its properties to raise funds to satisfy this obligation.

If the contributor required the Company to repurchase units for cash pursuant to such a provision, it would limit the Company's liquidity and, thus,

its ability to use cash to make other investments, satisfy other obligations or make distributions to stockholders.

Moreover, if the Company were required to repurchase units for cash at a time when it did not have sufficient cash to fund the repurchase, the Company might be required to sell one or more of its properties to raise funds to satisfy this obligation.

Furthermore, the Company might agree that if distributions the contributor received as a limited partner in the OP did not provide the contributor with an established return level, then upon redemption of the contributor’s units the Company would pay the contributor an additional amount necessary to achieve that return.

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Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to the OP, the Company might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares.

Such an agreement would prevent the Company from selling those properties, even if market conditions would allow such a sale to be favorable to the Company.

Such an agreement would prevent the Company from selling those properties, or require the Company to indemnify the contributor for taxes if the Company did sell the properties.

Healthcare Realty Trust is a holding company with no direct operations and, as such, it relies on funds received from the OP to pay liabilities, and the interests of its stockholders will be structurally subordinated to all liabilities and obligations of the OP and its subsidiaries .

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(ii) decisions on whether, when and in what amounts to make any future distributions will remain at all times entirely at the discretion of the Board of Directors, which reserves the right to change the Company's current dividend practices at any time and for any reason;

(iii) the Company may desire to retain cash to maintain or improve its credit ratings;

(iii) reduction of outstanding indebtedness;

and (iv) the amount of dividends that the Company's subsidiaries may distribute to the Company may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.

Stockholders of the Company do not have a contractual or other legal right to dividends that have not been authorized by the Board of Directors.

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

The Company incurred substantial expenses in connection with completing the Merger and integrating the business, operations, networks, systems, technologies, policies and procedures of the two companies, including severance costs.

While the integration of the two companies is largely complete, the Company could still incur significant expenses as it operates and refines the combined portfolios of the companies.

Pandemics, such as COVID-19, and measures intended to prevent their spread or mitigate their severity could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition .

The COVID-19 pandemic had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets.

During 2020, all of the states and cities in which the Company owns properties, manages properties, and/or has development or redevelopment projects instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of businesses that may continue to operate, and/or restrictions on the types of construction projects that may continue.

Pandemics, and measures intended to prevent their spread or mitigate their severity could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition .

Pandemics can have repercussions across regional and global economies and financial markets.

For example, during the COVID-19 pandemic, all of the states and cities in which the Company owns properties, manages properties, and/or has development or redevelopment projects instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of businesses that may continue to operate, and/or restrictions on the types of construction projects that may continue.

As a result, a number of the Company's tenants temporarily closed their offices or clinical space or operated on a reduced basis in response to government requirements or recommendations.

The COVID-19 pandemic also caused severe economic, market and other disruptions worldwide.

There can be no assurance that the Company's access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.

In addition, the deterioration of economic conditions, including supply chain constraints, as a result of the pandemic may ultimately decrease occupancy levels and average rent per square foot across the Company's portfolio as tenants reduce or defer their spending.

The extent of the COVID-19 pandemic’s effect, or the effect of new virus variants or of another pandemic in the future, on the Company's operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the availability and effectiveness of vaccines, and the effect of government requirements or recommendations, all of which are uncertain and difficult to predict.

Pandemics can cause and have caused severe economic, market and other disruptions worldwide.

There can be no assurance that a similar situation in the future would not affect the Company's access to capital and other sources of funding, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.

In addition, the deterioration of economic conditions, including supply chain constraints, that could result from another

pandemic may ultimately decrease occupancy levels and average rent per square foot across the Company's portfolio as tenants reduce or defer their spending.

The effect of any new variants of existing viruses or of another pandemic in the future on the Company's operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the availability and effectiveness of vaccines, and the effect of government requirements or recommendations, all of which are uncertain and difficult to predict.

The Company's success depends, in part, on its ability to attract and retain talented employees.

The loss of any one of the Company's key personnel or the inability to maintain appropriate staffing could adversely impact the Company's business.

The success of the Company's business depends, in part, on the leadership and performance of its executive and senior management team and key employees and the ability to maintain appropriate staffing levels across the Company.

Failure to attract, retain and motivate highly qualified employees, or failure to develop and implement a viable succession plan, could result in loss of institutional knowledge or important skill sets.

Further, an ineffective culture could significantly impact the Company's performance and adversely affect its business.

Rising labor costs, increased competition for talent, and a tight labor market may make it difficult for the Company to hire skilled and unskilled employees to meet staffing needs.

The Company's former Chief Executive Officer departed the Company in the second half of 2024.

The Company's board of directors is currently conducting a search for a chief executive officer.

While the board is actively engaged in the process and is utilizing a reputable national search firm, there can be no assurances as to the timing of the appointment of a CEO.

Uncertainty concerning the appointment of a CEO could affect the Company's stock performance and its ability to attract, retain, and motivate key personnel needed to execute operational priorities.

Risks relating to our capital structure and financings

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Covenants under the Fourth Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 20, 2022, among Healthcare Realty Trust, the OP, and Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders that are party thereto, as amended ("Unsecured Credit Facility"), and the indentures governing the OP's senior notes permit the Company to incur substantial, additional debt, and the Company may borrow additional funds, which may include secured borrowings or additional instances of notes by the OP that are fully guaranteed by Healthcare Realty Trust.

The Company has approximately $1.5 billion of combined debt maturities in 2025 and 2026.

A high level of indebtedness would require the Company to dedicate a substantial portion of its cash flows from operations to service debt, thereby reducing the funds available to implement the Company's business strategy and to make distributions to stockholders.

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A foreclosure on one or more of the Company's properties could have a material adverse effect on the Company’s consolidated financial condition and results of operations.

The Company generally does not intend to reserve funds to retire existing debt upon maturity.

The Company may not be able to repay, refinance, or extend any or all of our debt at maturity or upon any acceleration.

If any refinancing is done at higher interest rates, the increased interest expense could adversely affect the Company's financial condition and results of operations.

Any such refinancing could also impose tighter financial ratios and other covenants that restrict the Company's ability to take actions that could otherwise be in its best interest, such as funding new development activity, making opportunistic acquisitions, or paying dividends.

Any such refinancing could also impose tighter financial

ratios and other covenants that restrict the Company's ability to take actions that could otherwise be in its best interest, such as funding new development activity, making opportunistic acquisitions, or paying dividends.

Covenants in the Company’s debt instruments limit its operational flexibility, and a breach of these covenants could materially affect the Company’s consolidated financial condition and results of operations.

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Increases in interest rates could have a material adverse effect on the Company's cost of capital.

During 2023, the Federal Reserve continued to raise interest rates in an effort to curb inflation.

Further increases in interest rates will increase interest costs on any new debt and existing variable rate debt.

Such increases in the cost of capital could adversely impact our ability to finance operations, acquire and develop properties, and refinance existing debt.

During 2024, the Federal Reserve mainly kept interest rates constant and in the latter part of the year actually decreased rates by a total of 100 basis points with the easing of inflation.

However, if inflation climbs again, the Federal Reserve may again raise interest rates.

Any increases in interest rates will increase interest costs on any new debt and existing variable rate debt.

Such increases in the cost of capital could adversely impact our ability to

finance operations, acquire and develop properties, and refinance existing debt.

Additionally, increased interest rates may also result in less liquid property markets, limiting our ability to sell existing assets.

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The Company has entered into joint venture agreements that limit its flexibility with respect to jointly owned properties and expects to enter into additional such agreements in the future.

As of December 31, 2023, the Company had investments of $311.5 million in unconsolidated joint ventures with unrelated third parties comprised of 33 properties and two parking garages.

In addition, the Company had an investment of $30.1 million in one operating consolidated joint venture, as well as investments of $58.1 million in three consolidated joint ventures with developments in various stages of construction.

As of December 31, 2024, the Company had investments of $473.1 million in unconsolidated joint ventures with unrelated third parties comprised of 63 properties and seven parking garages.

In addition, the Company had investments of $97.6 million in two consolidated joint ventures with developments that were completed in the fourth quarter of 2024.

The Company may acquire, develop, or redevelop additional properties in joint ventures with unrelated third parties.

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federal income tax treatment of any cash settlement payment we receive is uncertain.

that we recognize a significant gain from the cash settlement of a forward equity agreement, we might be unable to satisfy the gross income requirements applicable to REITs under the Internal Revenue Code.

In the event that we recognize a significant gain from the cash settlement of a forward equity agreement, we might be unable to satisfy the gross income requirements applicable to REITs under the Internal Revenue Code.

In that case, we may be able to rely upon the relief provisions under the Internal Revenue Code in order to avoid the loss of our REIT status.

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• potential tax law changes affecting providers;

• state and federal regulations that provide for heightened scrutiny of healthcare transactions involving REITs and private equity firms.

These trends, among others, can adversely affect the economic performance of some or all of the tenants and, in turn, negatively affect the lease revenues and the value of the Company’s property investments.

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Compliance with new laws or regulations or stricter interpretation of existing laws may require the Company to incur significant expenditures.

For example, proposed legislation to address climate change could increase utility and other costs of operating the Company's properties.

For example, enacted or proposed legislation to address climate change could increase utility and other costs of operating the Company's properties.

Future laws or regulations may impose significant environmental liability.

Additionally, tenant or other operations in the vicinity of the Company's properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect the Company's properties.

Additionally, operations of tenants or other parties in the vicinity of the Company's properties, such as the presence of underground storage tanks, may affect the Company's properties.

There are various local, state, and federal fire, health, life-safety, and similar regulations with which the Company may be required to comply and that may subject us to liability in the form of fines or damages for noncompliance.

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The Company may be subject to the prohibited transaction tax equal to 100% of net gain upon the disposition of real property.

Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, there can be no assurance that the Company can comply in all cases with the safe harbor or that it will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of

Consequently, the Company may choose not to engage in certain sales of its properties or may conduct such sales through a taxable REIT subsidiary, which would be subject to federal and state income taxation.

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The federal income tax rules that affect REITs are constantly under review by persons involved in the legislative process, the IRS and the U.S.

Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations.

Treasury Department, which results in statutory changes as well as frequent

revisions to regulations and interpretations.

Revisions in federal tax laws and interpretations thereof could cause the Company to change its investments and commitments and affect the tax considerations of an investment in the Company.

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

What changed 10-K

Item 1A. Risk Factors