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, 2025, 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 contains disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can often 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, 2025 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 Prospect Medical bankruptcy; • 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; 23 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 Revolving 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 may 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, including the impact of the One Big Beautiful Bill Act passed during 2025 that is subject of ongoing analysis, 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; 24 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; • 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, 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 revenues are derived from its real estate property portfolio based on contractual arrangements with its tenants. These sources of revenue represent the Company's primary source of liquidity to fund its dividends and its operating expenses, including interest incurred on debt, principal payments on debt, general and administrative costs, capital expenditures and other expenses incurred in connection with managing its existing portfolio and investing in additional properties. To the extent additional investments are not funded by these sources, the Company expects to fund its investment activity generally through equity or debt issuances either in the public or private markets, asset sales and joint venture contributions or through proceeds from the Revolving Facility and Commercial Paper Program. As of March 31, 2026, the Company had $1.2 billion available to be drawn on the Revolving Facility, net of Commercial Paper Program borrowings, and available cash. The Company expects to continue to meet its liquidity needs, including capital for additional investments, tenant improvement allowances, operating and finance lease payments, paying dividends, share repurchases, and funding debt service, through cash on hand, cash flows from operations and the cash flow sources addressed above. Management believes that the Company's liquidity and sources of capital are adequate to satisfy our short and long-term 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, 2026 were funded from cash flows from operations and the Revolving 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 2026 such that dividends for the full year 2026 can be funded by cash flows from operations or other sources of liquidity described above. See Notes 4 and 7 to the Condensed Consolidated Financial Statements in this report for more information about capital markets and financing activities. Operating Activities Cash flows provided by operating activities increased from $47.8 million for the three months ended March 31, 2025 to $52.9 million for the three months ended March 31, 2026. 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. 25 Table of Contents 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. Investing Activities Cash flows used in investing activities for the three months ended March 31, 2026 and March 31, 2025, were approximately $45.3 million and $38.8 million, respectively. Below is a summary of the investing activities. Acquisitions The Company had no real estate acquisition activity for the three months ended March 31, 2026. Subsequent to March 31, 2026, the Company acquired the following property: Dollars in thousands DATE ACQUIRED PURCHASE PRICE SQUARE FOOTAGE Charlotte, NC 1 4/24/26 $ 3,670 12,418 1. Represents an additional fully leased condominium unit, by Novant Health under a long-term lease in an existing building, bringing the Company's ownership of the building to 93%. Dispositions The Company disposed of three medical outpatient properties during the three months ended March 31, 2026 for a total sales price of $33.4 million, generating net proceeds of $30.0 million after closing credits. The following table details these dispositions for the three months ended March 31, 2026: Dollars in thousands Date Disposed Sale Price Square Footage Atlanta, GA 1/14/26 $ 21,900 60,039 Oklahoma City, OK 1 3/3/26 11,500 186,301 Total $ 33,400 246,340 1 Includes two medical outpatient properties. Capital Expenditures During the three months ended March 31, 2026, the Company incurred capital costs totaling $49.1 million for the following: • $18.3 million toward development and redevelopment of properties; • $18.2 million toward first generation tenant improvements and planned capital expenditures for acquisitions; • $8.5 million toward second generation tenant improvements; and • $4.1 million toward building capital. Investment in Unconsolidated Joint Venture During the three months ended March 31, 2026, the Company invested additional funding of $18.6 million, of which $17.7 million related to a property acquisition, in existing joint ventures in which it holds a 20% interest. Real Estate Notes Receivable See Note 1 to the Condensed Consolidated Financial Statements in 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, 2026 and March 31, 2025, were approximately $7.5 million and $52.1 million, respectively. See Notes 4 and 7 to the Condensed Consolidated Financial Statements in this report for more information about capital markets and financing activities. 26 Table of Contents Debt Activity On February 12, 2026, Healthcare Realty established its inaugural commercial paper program, with a total size of up to $600 million. As of March 31, 2026, the Company had a principal balance of $251.0 million outstanding. In February 2026, the Company terminated three interest rate swaps with a total notional value of $400.0 million that were set to mature in 2026 and 2027. The Company entered into two new interest rate swaps with a total notional value of $400.0 million, at a strike price of 3.32%, that mature in January 2029. As of March 31, 2026, the Company had six outstanding interest rate derivatives totaling $500.0 million to hedge the one-month term Secured Overnight Financing Rate ("SOFR"). As of March 31, 2026, all six of these swaps were designated as cash flow hedges. The following table details the amount and rate of each swap (dollars in thousands): EXPIRATION DATE TOTAL OUTSTANDING AMOUNT WEIGHTED AVERAGE RATE May 2026 $ 100,000 2.15 % January 2029 400,000 3.32 % $ 500,000 3.09 % 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 98.8% 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. 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, 2025, some of the factors and trends that management believes may impact future operations of the Company are outlined below. Economic and Market Conditions Increased volatility in interest rates and in the capital markets have increased the Company’s cost and impacted the 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, develop, and redevelop 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 10-15% o f its leases will expire each year in the ordinary course of business. There are 768 multi-tenant and single-tenant leases totaling 2.2 million square feet that will expire during the remainder of 2026. Approximately 72% of the leases expiring during the remainder of 2026 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. 27 Table of Contents 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, 2026, leases for approximately 92% of the Company's total leased square footage allow for some recovery of operating expenses, with approximately 30% having modified gross lease structures and approximately 62% 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, 2026 1 Current 2 3 $ 55,561 2026 (remaining) 5 152,129 2027 6 171,785 2028 6 157,118 2029 3 77,658 2030 — — 2031 4 111,910 2032 2 24,874 2033 — — 2034 — — 2035 2 40,318 2036 and thereafter 3 9 345,996 Total 40 $ 1,137,349 1 Purchase option prices are based on fair market value components that are determined by an appraisal process, except fo r two p roperties totaling $42.6 million with stated prices or prices based on fixed capitalization rates. 2 These purchase options have been exercisable for an average of 21.7 years. 3 Includes two medical outpatient properties that are recorded in the line item Investment in financing receivable, net on the Company's Condensed Consolidated Balance Sheets. Non-GAAP Financial Measures and Key Performance Indicators Management considers certain non-GAAP financial measures and key performance indicators to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors, as well as reconciliations of these measures to the most directly comparable GAAP financial measures. The non-GAAP financial measures and key performance indicators presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income, as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's historical consolidated operating results, these measures should be examined in conjunction with net income and cash flows from operations as presented in the Condensed Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q. 28 Table of Contents 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 acquisition-related costs, acceleration of debt issuance costs, debt extinguishment costs, restructuring, severance 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, and stock-based compensation expense; 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. 29 Table of Contents The table below reconciles net loss to FFO, Normalized FFO and FAD for the three months ended March 31, 2026 and 2025: THREE MONTHS ENDED MARCH 31, Amounts in thousands, except per share data 2026 2025 Net loss attributable to common stockholders $ (56) $ (44,873) Net loss attributable to common stockholders per diluted share 1 $ (0.00) $ (0.13) Gain on sales of real estate properties (10,777) (2,904) Impairment of real estate properties 16 10,145 Real estate depreciation and amortization 127,921 155,288 Non-controlling loss from operating partnership units (10) (599) Unconsolidated JV depreciation and amortization 6,604 6,717 FFO attributable to common stockholders $ 123,698 $ 123,774 FFO attributable to common stockholders per common share - diluted $ 0.35 $ 0.35 Transaction costs 937 1,011 Debt financing costs 116 — Restructuring and severance-related charges 7,562 502 Merger-related fair value of debt instruments 10,991 10,446 Other 1,078 1,989 Normalized FFO attributable to common stockholders $ 144,382 $ 137,722 Normalized FFO attributable to common stockholders per common share - diluted $ 0.41 $ 0.39 Non-real estate depreciation and amortization 663 1,269 Non-cash interest amortization, net 1,367 1,217 Straight-line rent, net (10,291) (7,891) Stock-based compensation 3,927 3,028 Unconsolidated JV non-cash items (89) (253) Rent reserves, net — 94 Maintenance capex (27,101) (32,966) FAD $ 112,858 $ 102,220 FFO weighted average common shares outstanding - diluted 2 352,211 353,522 1 Potential common shares are not included in diluted earnings per share when a loss exists as the effect would be antidilutive. 2 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 493,403 and 317,511, respectively, for the three months ended March 31, 2026 and 2025, and the dilutive impact of 4,278,028 OP Units outstanding for the three months ended March 31, 2026, 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. 30 Table of Contents 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, 2026 and 2025: NUMBER OF PROPERTIES GROSS INVESTMENT as of March 31, 2026 SAME STORE CASH NOI for the three months ended March 31, Dollars in thousands 2026 2025 Same store properties 471 $ 8,984,154 $ 153,603 $ 143,475 Joint venture same store properties 58 $ 497,342 $ 7,479 $ 7,206 The following tables reconcile net income (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, 2026 and 2025: Reconciliation of Same Store Cash NOI THREE MONTHS ENDED MARCH 31, Dollars in thousands 2026 2025 Net income (loss) $ 21 $ (45,389) Other expense 31,646 63,893 General and administrative expense 17,343 13,530 Depreciation and amortization expense 128,985 156,035 Other expenses 1 2,995 2,498 Straight-line rent, net (7,896) (6,844) Joint venture properties 8,560 8,282 Other revenue 2 (11,980) (9,907) Cash NOI 169,674 182,098 Cash NOI not included in same store (8,592) (31,417) Same store cash NOI 161,082 150,681 Same store joint venture properties (7,479) (7,206) Same store cash NOI (excluding JVs) $ 153,603 $ 143,475 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 termination fees and tenant improvement overage amortization. Reconciliation of Same Store Properties AS OF MARCH 31, 2026 Dollars and square feet in thousands PROPERTY COUNT GROSS INVESTMENT 1 SQUARE FEET OCCUPANCY Same store properties 471 $ 8,984,154 26,102 92.1 % Joint venture same store properties 58 497,342 3,725 93.8 % Wholly owned and joint venture acquisitions 1 17,820 144 100.0 % Developments 2 87,595 224 60.5 % Development completions 2 53,900 107 89.6 % Redevelopments 23 822,621 2,071 69.5 % Redevelopment completions 6 156,027 510 79.9 % Total 563 $ 10,619,459 32,883 90.5 % Joint venture properties 64 627,938 4,257 90.5 % Total owned real estate properties 499 $ 9,991,521 28,626 90.5 % 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. 31 Table of Contents Results of Operations Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025 The Company’s results of operations for the three months ended March 31, 2026, compared to the same period in 2025 were impacted by developments, dispositions, gain on sales and impairment charges recorded on real estate properties, and capital markets transactions. Revenues Rental income decreased $21.3 million, or 7.4%, for the three months ended March 31, 2026, compared to the prior year period. This decrease is primarily comprised of the following: • Dispositions in 2025 and 2026 resulted in a decrease of $32.8 million. • Leasing activity resulted in an increase of $10.9 million. • Developments completed in 2025 resulted in an increase of $0.6 million. Other operating income increased $1.3 million, or 20.6%, for the three months ended March 31, 2026, compared to the prior year period primarily as a result of income from management fees. Expenses Property operating expenses decreased $9.8 million, or 9.0%, for the three months ended March 31, 2026, compared to the prior year period primarily as a result of the following activity: • Dispositions in 2025 and 2026 resulted in a decrease of $12.8 million. • Decreases in portfolio operating expenses as follows: ▪ Property tax expense of $0.2 million; and ▪ Other administrative and legal expenses of $0.2 million; • Increases in portfolio operating expenses as follows: ◦ Utilities expense of $1.5 million; ◦ Compensation expense of $0.9 million; ◦ Maintenance and repair expense of $0.7 million; and ◦ Janitorial expense of $0.1 million. • Developments completed in 2025 resulted in an increase of $0.2 million. General and administrative expenses increased approximately $3.8 million, or 28.2%, for the three months ended March 31, 2026, compared to the prior year period primarily as a result of the following activity: • Increase in restructuring and severance-related charges of $7.1 million and non-cash incentive compensation expense of $0.9 million. • Decreases in the following expenses: • Cash compensation expense of $3.1 million; ◦ Incentive based cash compensation expense of $0.4 million; and ◦ Other decreases include legal and other administrative costs of $0.7 million. Depreciation and amortization expense decreased $27.1 million, or 17.3%, for the three months ended March 31, 2026, compared to the prior year period primarily as a result of the following activity: • Dispositions in 2025 and 2026 resulted in a decrease of $19.9 million. • Assets that became fully depreciated resulted in a decrease of $17.3 million. • Various building and tenant improvement expenditures resulted in an increase of $9.8 million. • Developments completed in 2025 resulted in an increase of $0.3 million. 32 Table of Contents Other Income (Expense) Gains on sale of real estate properties and other assets In the three months ended March 31, 2026 , the Company recognized gains on sale of real estate properties and other assets of approximately $10.8 million. In the three months ended March 31, 2025, the Company recognized gains on sale of real estate properties and other assets of approximately $2.9 million. Interest expense Interest expense decreased $10.9 million, or 19.9%, for the three months ended March 31, 2026, compared to the prior year period. The components of interest expense are as follows: THREE MONTHS ENDED MARCH 31, CHANGE Dollars in thousands 2026 2025 $ % Contractual interest $ 33,619 $ 42,885 $ (9,266) (21.6) % Net discount/premium accretion 11,169 10,590 579 5.5 % Debt issuance costs amortization 1,258 1,129 129 11.4 % Amortization of interest rate swap settlement 280 42 238 566.7 % Amortization of treasury hedge settlement 107 107 — — % Interest cost capitalization (3,471) (857) (2,614) 305.0 % Interest on lease liabilities 928 916 12 1.3 % Total interest expense $ 43,890 $ 54,812 $ (10,922) (19.9) % Contractual interest expense decreased $9.3 million, or 21.6%, for the three months ended March 31, 2026, 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 as a result of a decreased aggregate balance. • The Revolving Facility accounted for an increase of approximately $1.4 million as a result of an increased weighted average balance outstanding. • The repayment of the Senior Notes due 2025 accounted for a decrease of $2.4 million. • Active interest rate swaps accounted for an increase of $0.7 million. • Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.2 million. • The commercial paper program accounted for an increase of approximately $0.4 million. Impairment of real estate properties and credit loss reserves In the first quarter of 2026, the Company recognized a $1.0 million credit loss recovery on one of its previously settled mortgage notes receivable. 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. 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 expens e. See Note 2 to the Condensed Consolidated Financial Statements in this report for more details regarding the Company's unconsolidated joint ventures.