What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-01 compared with 2024-10-30 · 136 added, 235 removed, 219 unchanged (63% of the section changed)

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.

The following discussion and analysis should be read together with the Condensed 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, 2024, 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.

Unless stated otherwise or the context otherwise requires, references to the "Company," "we," "us," and "our" are to Healthcare Realty Trust and 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:

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 senior 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” and other comparable terms.

These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties that could materially affect the Company’s current plans and expectations and future financial condition and results.

Such risks and uncertainties as more fully discussed in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 and in other reports filed by the Company with the SEC from time to time include, among other things, the following:

Risks relating to our business and operations

• 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.

• The Company’s revenues depend on the ability of its tenants under its leases to generate sufficient income from their operations to make rental payments to the Company;

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

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

• The Company may incur impairment charges on its real estate properties or other assets;

• The Company has properties subject to purchase options that expose it to reinvestment risk and reduction in expected investment returns;

• If the Company is unable to promptly re-let its properties, if the rates upon such re-letting are significantly lower than the previous rates or if the Company is required to undertake significant expenditures or make significant leasing concessions to attract new tenants, then the Company’s business, consolidated financial condition and results of operations would be adversely affected;

• Certain of the Company’s properties are special purpose healthcare facilities and may not be easily adaptable to other uses;

• The Company has, and in the future may have more, exposure to fixed rent escalators, which could lag behind inflation and the growth in operating expenses such as real estate taxes, utilities, insurance, and maintenance expense;

• The Company’s real estate investments are illiquid and the Company may not be able to sell properties strategically targeted for disposition;

• The Company is subject to risks associated with the development and redevelopment of properties;

• The Company may make material acquisitions and undertake developments and redevelopments that may involve the expenditure of significant funds and may not perform in accordance with management’s expectations;

• The Company is exposed to risks associated with geographic concentration;

• Many of the Company’s leases are dependent on the viability of associated health systems.

Revenue concentrations relating to these leases expose the Company to risks related to the financial condition of the associated health systems;

• Many of the Company’s properties are held under ground leases.

These ground leases contain provisions that may limit the Company’s ability to lease, sell, or finance these properties;

• The Company may experience uninsured or underinsured losses;

• Damage from catastrophic weather and other natural events, whether caused by climate change or otherwise, could result in losses to the Company;

• The Company faces risks associated with security breaches through cyber attacks, cyber intrusions, or otherwise, as well as other significant disruptions of its information technology networks and related systems;

• 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;

• 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

• The Company cannot assure you that it will be able to continue paying dividends at or above the rates previously paid;

• 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;

• 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.

Risks relating to our capital structure and financings

• The Company has incurred significant debt obligations and may incur additional debt and increase leverage in the future;

• 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;

• If lenders under the Unsecured Credit Facility fail to meet their funding commitments, the Company’s operations and consolidated financial position would be negatively impacted;

• The unavailability of equity and debt capital, volatility in the credit markets, increases in interest rates, or changes in the Company’s debt ratings could have an adverse effect on the Company’s ability to meet its debt payments, make dividend payments to stockholders or engage in acquisition and development activity;

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

• The Company's swap agreements may not effectively reduce its exposure to changes in interest rates;

• 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;

federal income tax treatment of the cash that the Company might receive from cash settlement of a forward equity agreement is unclear and could jeopardize the Company's ability to meet the REIT qualification requirements;

• In case of our bankruptcy or insolvency, any forward equity agreements will automatically terminate, and the Company would not receive the expected proceeds from any forward sale of shares of its common stock.

Risks relating to government regulations

• The Company's property taxes could increase due to reassessment or property tax rate changes;

• Trends in the healthcare service industry may negatively affect the demand for the Company’s properties, lease revenues and the values of its investments;

• The costs of complying with governmental laws and regulations may adversely affect the Company's results of operations;

• Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code;

• If the Company fails to remain qualified as a REIT, the Company will be subject to significant adverse consequences, including adversely affecting the value of its common stock;

• The Company’s articles of incorporation, as well as provisions of the MGCL, contain limits and restrictions on transferability of the Company’s common stock which may have adverse effects on the value of the Company’s common stock;

• Complying with the REIT requirements may cause the Company to forego otherwise attractive opportunities;

• The prohibited transactions tax may limit the Company's ability to sell properties;

• New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for the Company to qualify as a REIT;

• New and increased transfer tax rates may reduce the value of the Company’s properties.

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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

1 unchanged sentence

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.

As of March 31, 2025, the Company had $1.4 billion available to be drawn on its unsecured credit facility ("Unsecured Credit Facility") and available cash.

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

Management believes that the Company's liquidity and sources of capital are adequate to

satisfy its cash requirements.

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

The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.

Dividends paid by the Company for the three months ended March 31, 2025 were funded from cash flows from operations and the Unsecured Credit Facility, as cash flows from operations were not adequate to fully fund dividends, primarily as a result of the timing of interest payments.

The Company expects that cash flows from operations will generate sufficient cash flows during 2025 such that dividends for the full year 2025 can be funded by cash flows from operations or other sources of liquidity described above.

Investing Activities

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

Cash flows used in investing activities for the three months ended March 31, 2025, were approximately $38.8 million.

Below is a summary of the investing activities.

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:

The Company disposed of four properties during the three months ended March 31, 2025 for a total sales price of $28.1 million, generating net proceeds of $16.4 million after seller financing and closing credits.

The following table details these dispositions for the three months ended March 31, 2025:

Dollars in thousands Date Disposed Sale Price Square Footage

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

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

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

5/23/24 284,348 556,274

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

6/6/24 54,858 129,879

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

Greensboro/Raleigh, NC 2

6/28/24 99,518 309,424

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

Boston, MA 2/7/25 $ 4,500 30,304

2/14/25 8,600 69,715

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 2

3/20/25 15,000 127,933

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 $ 28,100 $ 227,952

1 Includes two medical outpatient properties.

2 The Company provided seller financing of approximately $5.4 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 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;

During the three months ended March 31, 2025, the Company incurred capital costs totaling $67.9 million for the following:

• $33.4 million toward development and redevelopment of properties;

• $13.2 million toward first generation tenant improvements and planned capital expenditures for acquisitions;

2 unchanged sentences

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.

In January 2025, the Company received $14.9 million as payment towards the principal balance of its mortgage loan maturing on December 2, 2024.

In March 2025, the Company executed a mezzanine loan receivable agreement with a maximum loan commitment of $8.5 million.

As of March 31, 2025, no amount was funded under this agreement.

In April 2025, a mortgage loan receivable of $37.7 million maturing in February 2026 was repaid in full.

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.

Cash flows used in financing activities for the three months ended March 31, 2025 were approximately $52.1 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").

As of March 31, 2025, 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):

7 unchanged sentences

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.

During the first quarter of 2025, the Company repaid $25.0 million of the $200 million Unsecured Term Loan due May 2025 and $10.0 million of the $300 million Unsecured Term Loan.

Subsequent Debt Activity

On April 8, 2025, the Company exercised its second of two options to extend the maturity date of the $200 million Unsecured Term Loan due May 2025 to January 2026 for a fee of approximately $0.1 million.

The existing $200 million term loan facility was amended to include a four-month extension option, resulting in a latest final maturity in May 2026.

On May 1, 2025, the Company repaid its Senior Notes due 2025 at maturity including $250 million of principal and $4.8 million of accrued interest.

Supplemental Guarantor Information

4 unchanged sentences

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.

Cash flows provided by operating activities decreased from $76.2 million for the three months ended March 31, 2024 to $47.8 million for the three months ended March 31, 2025.

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.

13 unchanged sentences

Approximately 74.2% of the leases expiring during the remainder of 2025 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.

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

Prospect Medical

On January 11, 2025, Prospect Medical Holdings (“Prospect”) 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.

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 revenue.

The Company moved to cash basis accounting for these leases and recorded a reserve of $0.7 million in the fourth quarter of 2024.

While it is early in the bankruptcy proceedings and the Company is in discussions with Prospect regarding its leases with the Company, there can be no assurance that the Company will recover unpaid rent from Prospect.

Through March 2025, the Company received rent payments of approximately $0.7 million.

Additionally, the Company received payment of approximately $0.3 million for April rent.

Operating Expenses

1 unchanged sentence

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.

In addition, the Company historically has incurred variability in portfolio utilities expenses 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.

As of March 31, 2025, leases for approximately 91% of the Company's total leased square footage allow for some recovery of operating expenses, with approximately 28% 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

SEPTEMBER 30, 2024 1

2025 5 99,799

MARCH 31, 2025 1

2026 5 142,893

13 unchanged sentences

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.

5 unchanged sentences

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 nine months ended September 30, 2024 and 2023:

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

The table below reconciles net income to FFO, Normalized FFO and FAD for the three months ended March 31, 2025, and 2024:

THREE MONTHS ENDED MARCH 31,

Amounts in thousands, except per share data 2025 2024

12 unchanged sentences

FFO attributable to common stockholders per common share - diluted 2

$ 0.35 $ (0.30)

Transaction costs 1,011 395

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

Lease intangible amortization (228) 175

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

Debt financing costs — (62) — (62)

Non-routine legal costs 77 —

Restructuring and severance-related charges 502 —

Credit losses and gains on other assets, net 2

46,600 — 55,125 8,599

Credit losses and losses on other assets, net 3

Impairment of goodwill — 250,530

1 unchanged sentence

Unconsolidated JV normalizing items 4

101 90 277 300

Normalized FFO adjustments $ 13,948 $ 261,292

5 unchanged sentences

Non-cash interest amortization, net 5

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

Rent reserves, net 94 (151)

2 unchanged sentences

Unconsolidated JV non-cash items 6

(376) (231) (646) (828)

Normalized FFO adjusted for non-cash items $ 135,186 $ 145,240

6 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 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.

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

3 For the three months ended March 31, 2025, represents a $1.9 million loss on other assets included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations.

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

1 unchanged sentence

6 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.

7 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 317,511 and 254,261, respectively, for the three months ended March 31, 2025 and 2024, and the dilutive impact of 3,665,625 OP units outstanding for the three months ended March 31, 2025.

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

1 unchanged sentence

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.

The Company defines Cash NOI as rental income plus 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.

4 unchanged sentences

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.

The Company utilizes the redevelopment classification for properties where management has approved a change in strategic direction 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:

The following table reflects the Company's Same Store Cash NOI for the three months ended March 31, 2025 and 2024:

NUMBER OF PROPERTIES GROSS INVESTMENT

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

as of March 31, 2025 SAME STORE CASH NOI for the three months ended March 31,

Dollars in thousands 2025 2024

1 unchanged sentence

Joint venture same store properties 30 329,955 $ 4,400 $ 4,517

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:

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 three months ended March 31, 2025 and 2024:

Reconciliation of Same Store Cash NOI

SAME STORE RECONCILIATION

NINE MONTHS ENDED SEPTEMBER 30,

THREE MONTHS ENDED MARCH 31,

Dollars in thousands 2025 2024

13 unchanged sentences

Same store cash NOI (excluding JVs) $ 167,542 $ 163,578

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.

Includes transaction costs, rent reserves, above and below market ground lease intangible amortization, leasing commission amortization and ground lease straight-line rent expense.

Includes management fee income, interest, above and below market lease intangible amortization, lease inducement amortization, lease terminations and tenant improvement overage amortization.

Reconciliation of Same Store Properties

AS OF SEPTEMBER 30, 2024

AS OF MARCH 31, 2025

Dollars and square feet in thousands PROPERTY COUNT GROSS INVESTMENT 1

6 unchanged sentences

Redevelopments 30 790,099 2,423 72.2 %

Planned dispositions 3 48,470 144 26.4 %

Total 648 $ 12,132,212 38,263 88.3 %

3 unchanged sentences

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.

Rental income decreased $26.8 million, or 8.1%, for the three months ended September 30, 2024 compared to the prior year period.

Three Months Ended March 31, 2025, Compared to Three Months Ended March 31, 2024

The Company’s results of operations for the three months ended March 31, 2025, compared to the same period in 2024 were impacted by developments, dispositions, gains on sale, and capital markets transactions.

Rental income decreased $29.2 million, or 9.2%, for the three months ended March 31, 2025, compared to the prior year period.

This decrease is primarily comprised of the following:

• Dispositions in 2024 and 2025 resulted in a decrease of $38.7 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.

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:

• Leasing activity resulted in an increase of $7.7 million.

• Developments completed in 2024 resulted in an increase of $1.8 million.

Other operating income increased $2.2 million, or 52.4%, for the three months ended March 31, 2025, compared to the prior year period primarily as a result of income from management fees related to unconsolidated joint ventures.

Property operating expenses decreased $6.1 million, or 5.1%, for the three months ended March 31, 2025, compared to the prior year period primarily as a result of the following activity:

• Dispositions in 2024 and 2025 resulted in a decrease of $13.7 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;

◦ Utilities expense of $1.3 million.

• Decreases in portfolio operating expenses as follows:

◦ Property taxes of $1.6 million;

◦ Maintenance and repair expense of $2.0 million;

◦ Leasing commissions and other administrative and legal expenses of $1.5 million;

◦ Property taxes of $1.4 million;

◦ Compensation expense of $1.3 million;

◦ Utilities expense of $0.7 million;

◦ Janitorial expense of $0.2 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.

• Developments completed in 2024 resulted in an increase of $0.5 million.

General and administrative expenses decreased approximately $1.3 million, or 8.5%, for the three months ended March 31, 2025, compared to the prior year period primarily as a result of the following activity:

• Decreases in the following expenses:

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

◦ Travel expenses of $0.5 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:

◦ Non-cash compensation incentive expense of $0.5 million;

◦ Cash incentive compensation expense of $0.3 million;

◦ Other decreases including legal and other administrative costs of $0.5 million.

• Increases related to restructuring and severance-related charges of $0.5 million.

Depreciation and amortization expense decreased $27.2 million, or 15.2%, for the three months ended March 31, 2025, 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 $7.4 million.

1 unchanged sentence

• Assets that became fully depreciated resulted in a decrease of $15.2 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

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.

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.

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;

◦ 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;

◦ 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.

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.

• Developments completed in 2024 resulted in an increase of $0.5 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.

In the first quarter of 2025, the Company recognized gains on sale of real estate properties and other assets of approximately $2.9 million.

In the first quarter of 2024, the Company had no real estate dispositions.

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.

Interest expense decreased $6.2 million, or 10.2%, for the three months ended March 31, 2025, compared to the prior year period.

The components of interest expense are as follows:

NINE MONTHS ENDED SEPTEMBER 30, CHANGE

THREE MONTHS ENDED MARCH 31, CHANGE

Dollars in thousands 2025 2024 $ %

8 unchanged sentences

Total interest expense $ 54,812 $ 61,054 $ (6,242) (10.2) %

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.

Contractual interest expense decreased $6.6 million, or 13.3%, for the three months ended March 31, 2025, compared to the prior year period primarily as a result of the following activity:

• The unsecured term loans accounted for a decrease of approximately $9.2 million due to a decreased aggregate balance.

• The Unsecured Credit Facility accounted for a decrease of approximately $0.4 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.

• Active interest rate derivatives accounted for an increase of $2.8 million, while expired interest rate derivatives accounted for an increase of $0.3 million.

• Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.1 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.

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.

In the first quarter of 2025, the Company recognized impairments totaling $5.4 million on four properties sold and $4.8 million on three properties with changes in the expected holding periods.

In addition, the Company recorded a $1.9 million fair value adjustment for an equity investment in other assets.

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

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.

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

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.

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