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 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 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 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; • 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; 21 Table of Contents • 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; and • 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; • The U.S. 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; and • 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; 22 Table of Contents • 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; and • 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. 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 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. 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 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. Dispositions 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 Boston, MA 2/7/25 $ 4,500 30,304 Denver, CO 1 2/14/25 8,600 69,715 Houston, TX 2 3/20/25 15,000 127,933 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. 23 Table of Contents Capital Expenditures 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; • $14.7 million toward second generation tenant improvements; and • $6.6 million toward building capital. Real Estate Notes Receivable 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 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 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): 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 % Changes in Debt Structure 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. 24 Table of Contents 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 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 98.7% 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 $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. 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, 2024, 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. Expiring Leases The Company expects that approximately 15% o f its leases will expire each year in the ordinary course of business. There are 1,072 multi-tenant and single-tenant leases totaling 3.9 million square feet that will expire during the remainder of 2025. 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 three months of the year was within this range. 25 Table of Contents 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 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 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 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 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 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 MARCH 31, 2025 1 Current 2 9 $ 167,466 2026 5 142,893 2027 4 114,352 2028 5 136,698 2029 3 82,076 2030 — — 2031 4 106,607 2032 2 24,041 2033 — — 2034 — — 2035 and thereafter 3 9 326,237 Total 41 $ 1,100,370 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 17.9 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 26 Table of Contents 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-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. 27 Table of Contents 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 Net loss attributable to common stockholders $ (44,873) $ (310,836) Net loss attributable to common stockholders per diluted share 1 $ (0.13) $ (0.82) Gain on sales of real estate properties (2,904) (22) Impairment of real estate properties 10,145 15,937 Real estate depreciation and amortization 155,288 181,161 Non-controlling loss from operating partnership units (599) (4,278) Unconsolidated JV depreciation and amortization 6,717 4,568 FFO adjustments $ 168,647 $ 197,366 FFO adjustments per common share - diluted $ 0.48 $ 0.51 FFO attributable to common stockholders $ 123,774 $ (113,470) FFO attributable to common stockholders per common share - diluted 2 $ 0.35 $ (0.30) Transaction costs 1,011 395 Lease intangible amortization (228) 175 Non-routine legal costs 77 — Restructuring and severance-related charges 502 — Credit losses and losses on other assets, net 3 1,936 — Impairment of goodwill — 250,530 Merger-related fair value of debt instruments 10,446 10,105 Unconsolidated JV normalizing items 4 204 87 Normalized FFO adjustments $ 13,948 $ 261,292 Normalized FFO adjustments per common share - diluted $ 0.04 $ 0.68 Normalized FFO attributable to common stockholders $ 137,722 $ 147,822 Normalized FFO attributable to common stockholders per common share - diluted $ 0.39 $ 0.39 Non-real estate depreciation and amortization 222 485 Non-cash interest amortization, net 5 1,217 1,277 Rent reserves, net 94 (151) Straight-line rent, net (6,844) (7,633) Stock-based compensation 3,028 3,562 Unconsolidated JV non-cash items 6 (253) (122) Normalized FFO adjusted for non-cash items $ 135,186 $ 145,240 2nd generation TI (14,885) (20,204) Leasing commissions paid (11,394) (15,215) Building capital (6,687) (5,363) FAD $ 102,220 $ 104,458 FFO weighted average common shares outstanding - diluted 7 353,522 383,413 1 Potential common shares are not included in diluted earnings per share when a loss exists as the effect would be antidilutive. 2 For the three 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. 5 Includes the amortization of deferred financing costs, discounts and premiums, and non-cash financing receivable amortization. 6 Includes the Company's proportionate share of straight-line rent, net related to unconsolidated joint ventures. 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. 28 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 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. 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 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 three months ended March 31, 2025 and 2024: NUMBER OF PROPERTIES GROSS INVESTMENT as of March 31, 2025 SAME STORE CASH NOI for the three months ended March 31, Dollars in thousands 2025 2024 Same store properties 555 $ 10,737,532 $ 167,542 $ 163,578 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 three months ended March 31, 2025 and 2024: Reconciliation of Same Store Cash NOI SAME STORE RECONCILIATION THREE MONTHS ENDED MARCH 31, Dollars in thousands 2025 2024 Net loss $ (45,389) $ (315,220) Other expense 63,893 327,646 General and administrative expense 13,530 14,787 Depreciation and amortization expense 150,969 178,119 Other expenses 1 7,564 4,727 Straight-line rent, net (6,844) (7,633) Joint venture properties 8,282 4,958 Other revenue 2 (9,907) (7,006) Cash NOI 182,098 200,378 Cash NOI not included in same store (10,156) (32,283) Same store cash NOI 171,942 168,095 Same store joint venture properties (4,400) (4,517) Same store cash NOI (excluding JVs) $ 167,542 $ 163,578 1. Includes transaction 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. 29 Table of Contents Reconciliation of Same Store Properties AS OF MARCH 31, 2025 Dollars and square feet in thousands PROPERTY COUNT GROSS INVESTMENT 1 SQUARE FEET OCCUPANCY Same store properties 555 $ 10,737,532 31,744 89.3 % Joint venture same store properties 30 329,955 1,673 89.1 % Wholly owned and joint venture acquisitions 30 181,677 2,193 94.3 % Development completions 3 92,949 230 55.3 % Redevelopments 30 790,099 2,423 72.2 % Total 648 $ 12,132,212 38,263 88.3 % Joint venture properties 65 615,819 4,254 88.0 % Total owned real estate properties 583 $ 11,516,393 34,009 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 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. Revenues 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. • 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. Expenses 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. • Increases in portfolio operating expenses as follows: ◦ 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; and ◦ Janitorial expense 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: ◦ Travel expenses of $0.5 million; 30 Table of Contents ◦ Non-cash compensation incentive expense of $0.5 million; ◦ Cash incentive compensation expense of $0.3 million; and ◦ 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. • Dispositions in 2024 and 2025 resulted in a decrease of $19.9 million. • Assets that became fully depreciated resulted in a decrease of $15.2 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 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 $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: THREE MONTHS ENDED MARCH 31, CHANGE Dollars in thousands 2025 2024 $ % Contractual interest $ 42,885 $ 49,458 $ (6,573) (13.3) % Net discount/premium accretion 10,590 10,067 523 5.2 % Debt issuance costs amortization 1,129 1,207 (78) (6.5) % Amortization of interest rate swap settlement 42 42 — — % Amortization of treasury hedge settlement 107 107 — — % Fair value derivative — 177 (177) (100.0) % Interest cost capitalization (857) (942) 85 (9.0) % Interest on lease liabilities 916 938 (22) (2.3) % Total interest expense $ 54,812 $ 61,054 $ (6,242) (10.2) % 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 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 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. 31 Table of Contents Equity loss from unconsolidated joint ventures 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.