# Healthcare Realty Trust Inc: Form 10-Q for the period ended Jun 30, 2024

- Company: [Healthcare Realty Trust Inc](/companies/hr.md) (CIK 1360604)
- Form: 10-Q
- Filed: 2024-08-02
- Accepted by EDGAR: Aug 2, 2024, 06:32 ET
- Period: 2024-06-30
- Accession: 0001360604-24-000093
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1360604/000136060424000093/hr-20240630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1360604/000136060424000093/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-04-01 to 2024-06-30 | $4.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2024-01-01 to 2024-06-30 | $8.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Interest expense | 3 months, 2024-04-01 to 2024-06-30 | $62.5m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 6 months, 2024-01-01 to 2024-06-30 | $123.5m | us-gaap:InterestExpenseNonoperating |
| Net income | 3 months, 2024-04-01 to 2024-06-30 | −$143.8m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2024-01-01 to 2024-06-30 | −$454.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.39 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.22 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-04-01 to 2024-06-30 | −$0.39 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2024-01-01 to 2024-06-30 | −$1.22 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-04-01 to 2024-06-30 | 372,477,299 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2024-01-01 to 2024-06-30 | 375,962,033 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2024-01-01 to 2024-06-30 | $244.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2024-01-01 to 2024-06-30 | $235.6m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 6 months, 2024-01-01 to 2024-06-30 | $321.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-06-30 | $41.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-06-30 | $11.80bn | us-gaap:Assets |
| Total liabilities | at 2024-06-30 | $5.83bn | us-gaap:Liabilities |
| Long-term debt | at 2024-06-30 | $5.15bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2024-06-30 | $5.89bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,090 characters.

The following discussion and analysis should be read together with the Consolidated Financial Statements and related Notes thereto included in Item 1 of this Quarterly Report on Form 10-Q. Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2023, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Unless stated otherwise or the context otherwise requires, references to the "Company," "we," "us," and "our" are to Healthcare Realty Trust and, unless the context requires otherwise, its consolidated subsidiaries, including the OP.

### Disclosure Regarding Forward-Looking Statements

*This report and other materials the Company has filed or may file with the SEC, as well as information included in oral statements or other written statements made, or to be made, by management of the Company, contain, or will contain, disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could," "budget" and other comparable terms. These forward-looking statements are based on the Company's current plans, objectives, estimates, expectations and intentions and inherently involve significant risks and uncertainties. Such risks and uncertainties include, among other things, the following: the Company’s expected results may not be achieved; failure to realize the expected benefits of the Merger; risks related to future opportunities and plans for the Company, including the uncertainty of expected future financial performance and results of the Company; the possibility that, if the Company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial analysts or investors, the market price of the Company’s common stock could decline; pandemics or other health crises, such as COVID-19; increases in interest rates; the availability and cost of capital at expected rates; competition for quality assets; negative developments in the operating results or financial condition of the Company's tenants, including, but not limited to, their ability to pay rent; the Company's ability to reposition or sell facilities with profitable results; the Company's ability to release space at similar rates as vacancies occur; the Company's ability to renew expiring leases; government regulations affecting tenants' Medicare and Medicaid reimbursement rates and operational requirements; unanticipated difficulties and/or expenditures relating to future acquisitions and developments; changes in rules or practices governing the Company's financial reporting; the Company may be required under purchase options to sell properties and may not be able to reinvest the proceeds from such sales at rates of return equal to the return received on the properties sold; uninsured or underinsured losses related to casualty or liability; the incurrence of impairment charges on its real estate properties or other assets; other legal and operational matters; and other risks and uncertainties affecting the Company, including those described from time to time under the caption “Risk Factors” and elsewhere in the Company’s filings and reports with the SEC, including the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Moreover, other risks and uncertainties of which the Company is not currently aware may also affect the Company's forward-looking statements and may cause actual results and the timing of events to differ materially from those anticipated. The forward-looking statements made in this communication are made only as of the date hereof or as of the dates indicated in the forward-looking statements, even if they are subsequently made available by the Company on its website or otherwise. The Company undertakes no obligation to update or supplement any forward-looking statements to reflect actual results, new information, future events, changes in its expectations or other circumstances that exist after the date as of which the forward-looking statements were made, except as required by law.*

*Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports, including, without limitation, estimates and projections regarding the performance of development projects the Company is pursuing.*

*For a detailed discussion of the Company’s risk factors, please refer to the Company's filings with the SEC, including this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.*

### Liquidity and Capital Resources

### Sources and Uses of Cash

The Company’s primary sources of cash include rent receipts from its real estate portfolio based on contractual arrangements with its tenants, proceeds from the sales of real estate properties, joint ventures, and proceeds from public or private debt or equity offerings. As of June 30, 2024, the Company had $1.3 billion available to be drawn on its unsecured credit facility ("Unsecured Credit Facility") and available cash.

The Company expects to continue to meet its liquidity needs, including funding additional investments, paying dividends, and funding debt service, through cash flows from operations and liquidity sources, including the Unsecured Credit Facility. Management believes that the Company's liquidity and sources of capital are adequate to satisfy its cash requirements. The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.

### Investing Activities

Cash flows provided by investing activities for the six months ended June 30, 2024 were approximately $151.4 million. Below is a summary of the investing activities.

#### Dispositions

The Company disposed of or contributed to a joint venture 25 properties during the six months ended June 30, 2024 for a total sales price of $464.9 million, generating cash proceeds of $378.7 million, net of joint venture contributions, including $96.0 million of proceeds that were held in escrow at June 30, 2024. The following table details these dispositions for the six months ended June 30, 2024:

*Dollars in thousands*

|  | Date Disposed | Sale Price | Square Footage |
| --- | --- | ---: | ---: |
| Albany, NY | 4/1/24 | $725 | 14,800 |
| San Angelo, TX | 4/12/24 | 5,085 | 24,580 |
| Houston, TX | 5/20/24 | 250 | 37,040 |
| Multiple 1 | 5/23/24 | 284,348 | 556,274 |
| Denver, CO | 5/30/24 | 19,000 | 37,130 |
| Austin, TX 1 | 6/6/24 | 54,858 | 129,879 |
| Minneapolis, MN | 6/21/24 | 1,082 | 50,291 |
| Greensboro/Raleigh, NC 2 | 6/28/24 | 99,518 | 309,424 |
| **Total** |  | $464,866 | $1,159,418 |

1The 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 and Austin, TX; two medical outpatient properties in Los Angeles and four 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.

2The Company sold seven MOB properties in Greensboro, NC and two MOB properties in Raleigh, NC to a single buyer in a single transaction.

#### Investment in Unconsolidated Joint Venture

During the six months ended June 30, 2024, the Company's investment in an unconsolidated joint venture in which it holds a 20% interest increased by $66.5 million relating to the retained ownership from the MOB properties contributed to the joint venture.

#### Capital Expenditures

During the six months ended June 30, 2024, the Company incurred capital costs totaling $140.7 million for the following:

- $44.1 million toward active development and redevelopment of properties;
- $22.3 million toward completed development and redevelopment of properties;
- $24.4 million toward first generation tenant improvements and planned capital expenditures for acquisitions;
- $32.0 million toward second generation tenant improvements; and
- $17.9 million toward building capital.

#### Real Estate Notes Receivable

On June 24, 2024, the Company's mezzanine loans totaling $54.1 million in Texas matured. As of the date of these financial statements, the outstanding principal and interest on these loans had not been repaid. 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. The Company expects to extend the maturity of the mezzanine loans concurrent with this arrangement.

Additionally, during the three months ended June 30, 2024, the Company placed one of its real estate notes receivable with a principal balance of $20.5 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.

### Financing Activities

Cash flows used in financing activities for the six months ended June 30, 2024 were approximately $379.6 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 June 30, 2024, the Company had outstanding interest rate derivatives totaling $1.1 billion to hedge the one-month term Secured Overnight Financing Rate ("SOFR"). The following 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 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 square foot property in Georgia.

In June 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.

### 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 98.6% 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 $254.3 million for the six months ended June 30, 2023 to $244.3 million for the six months ended June 30, 2024. Items impacting cash flows from operations include, but are not limited to, cash generated from property operations, interest payments and the timing of the payment of invoices and other expenses.

The Company may, from time to time, sell properties and redeploy cash from property sales into new investments or to repay indebtedness. The income from the new investments or reduction in interest expense could be less than the income from properties sold which would adversely affect the Company's results of operations and cash flows.

### Trends and Matters Impacting Operating Results

Management monitors factors and trends important to the Company and the REIT industry to gauge the potential impact on Company operations. In addition to the matters discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, some of the factors and trends that management believes may impact future operations of the Company are outlined below.

### Economic and Market Conditions

Rising interest rates and increased volatility in the capital markets have increased the Company’s cost and availability of debt and equity capital. Limited availability and increases in the cost of capital could adversely impact the Company’s ability to finance operations and acquire and develop properties. To the extent the Company’s tenants experience increased costs or financing difficulties due to the economic and market conditions, they may be unable or unwilling to make payments or perform their obligations when due. Additionally, increased interest rates may also result in less liquid property markets, limiting the Company’s ability to sell existing assets or obtain joint venture capital.

### Expiring Leases

The Company expects that approximately 15% of its leases will expire each year in the ordinary course of business. There are 793 multi-tenant leases totaling 2.5 million square feet that will expire during the remainder of 2024. Approximately 70.1% of the leases expiring during the remainder of 2024 are for space in buildings located on or adjacent to hospital campuses, are distributed throughout the portfolio, and are not concentrated with any one tenant, health system or market area. The Company typically expects to retain 75% to 90% of tenants upon expiration, and the retention ratio for the first six months of the year was within this range.

### Operating Expenses

The Company historically has experienced increases in property taxes throughout its portfolio as a result of increasing assessments and tax rates levied across the country. The Company continues its efforts to appeal property tax increases and manage the impact of the increases. In addition, the Company historically has incurred variability in portfolio utilities expense based on seasonality, with the first and third quarters usually reflecting greater amounts. The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement. As of June 30, 2024, leases for approximately 92% 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 64% 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 JUNE 30, 2024 1 |
| --- | ---: | ---: |
| Current 2 | 6 | $111,223 |
| 2025 | 3 | 79,839 |
| 2026 | 6 | 173,636 |
| 2027 | 4 | 110,598 |
| 2028 | 5 | 135,435 |
| 2029 | 3 | 81,835 |
| 2030 | — | — |
| 2031 | 4 | 106,063 |
| 2032 | 2 | 23,417 |
| 2033 | — | — |
| 2034 and thereafter 3 | 11 | 342,681 |
| **Total** | 44 | $1,164,727 |

1Includes three properties totaling $45.4 million with stated purchase prices or prices based on fixed capitalization rates.

2These purchase options have been exercisable for an average of 14.4 years.

3Includes two medical office buildings that are recorded in the line item Investment in financing receivable, net on the Company's Condensed Consolidated Balance Sheets.

### Non-GAAP Financial Measures and Key Performance Indicators

Management considers certain non-GAAP financial measures and key performance indicators to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors, as well as reconciliations of these measures to the most directly comparable GAAP financial measures.

The non-GAAP financial measures and key performance indicators presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income, as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's historical consolidated operating results, these measures should be examined in conjunction with net income and cash flows from operations as presented in the Condensed Consolidated Financial Statements and other financial data included elsewhere in this Quarterly Report on Form 10-Q.

### Funds from Operations ("FFO"), Normalized FFO and Funds Available for Distribution ("FAD")

FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization, impairment, and after adjustments for unconsolidated partnerships and joint ventures.”

In addition to FFO, the Company presents Normalized FFO and FAD. Normalized FFO is presented by adding to FFO acquisition-related costs, acceleration of debt issuance costs, debt extinguishment costs and other Company-defined normalizing items to evaluate operating performance. FAD is presented by adding to Normalized FFO non-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.

The table below reconciles net income to FFO, Normalized FFO and FAD for the three and six months ended June 30, 2024 and 2023:

*Amounts in thousands, except per share data*

|  | THREE MONTHS ENDED JUNE 30, 2024 | 2023 | SIX MONTHS ENDED JUNE 30, 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Net loss attributable to common stockholders** | $(143,780) | $(82,759) | $(454,616) | $(169,884) |
| **Net loss attributable to common stockholders per diluted share 1** | $(0.39) | $(0.22) | $(1.22) | $(0.45) |
| Gain on sales of real estate properties | (33,431) | (7,156) | (33,453) | (8,162) |
| Impairment of real estate properties | 120,917 | 55,215 | 136,854 | 81,442 |
| Real estate depreciation and amortization | 177,350 | 185,003 | 358,511 | 371,112 |
| Non-controlling loss from operating partnership units | (2,077) | (1,027) | (6,355) | (2,094) |
| Proportionate share of unconsolidated joint ventures | 4,818 | 4,412 | 9,386 | 9,253 |
| FFO adjustments | $267,577 | $236,447 | $464,943 | $451,551 |
| FFO adjustments per common share - diluted | $0.71 | $0.62 | $1.22 | $1.18 |
| **FFO attributable to common stockholders** | $123,797 | $153,688 | $10,327 | $281,667 |
| **FFO attributable to common stockholders per common share - diluted** | $0.33 | $0.40 | $0.03 | $0.73 |
| Transaction costs | 431 | 669 | 826 | 956 |
| Merger-related costs | — | (15,670) | — | (10,815) |
| Merger-related fair value of debt instruments | 10,064 | 10,554 | 20,169 | 21,418 |
| Lease intangible amortization | 129 | 240 | 304 | 386 |
| Non-routine legal costs/forfeited earnest money received | 465 | 275 | 465 | 275 |
| Credit losses and gains on other assets, net 2 | 8,525 | — | 8,525 | 8,599 |
| Impairment of goodwill | — | — | 250,530 | — |
| Unconsolidated JV normalizing items 3 | 89 | 93 | 176 | 210 |
| Normalized FFO adjustments | $19,703 | $(3,839) | $280,995 | $21,029 |
| Normalized FFO adjustments per common share - diluted | $0.05 | $(0.01) | $0.74 | $0.05 |
| **Normalized FFO attributable to common stockholders** | $143,500 | $149,849 | $291,322 | $302,696 |
| **Normalized FFO attributable to common stockholders per common share - diluted** | $0.38 | $0.39 | $0.77 | $0.79 |
| Non-real estate depreciation and amortization | 313 | 802 | 798 | 1,406 |
| Non-cash interest amortization 4 | 1,267 | 1,618 | 2,543 | 2,300 |
| Rent reserves, net | 1,261 | (54) | 1,110 | 1,317 |
| Straight-line rent, net | (6,799) | (8,005) | (14,432) | (16,251) |
| Stock-based compensation | 3,383 | 3,924 | 6,944 | 7,669 |
| Unconsolidated JV non-cash items 5 | (148) | (316) | (270) | (598) |
| **Normalized FFO adjusted for non-cash items** | $142,777 | $147,818 | $288,015 | $298,539 |
| 2nd generation TI | (12,287) | (17,236) | (32,491) | (26,118) |
| Leasing commissions paid | (10,012) | (5,493) | (25,227) | (12,506) |
| Building capital | (12,835) | (8,649) | (18,198) | (17,595) |
| **FAD** | $107,643 | $116,440 | $212,099 | $242,320 |
| **FFO weighted average common shares outstanding - diluted 6** | 376,556 | 383,409 | 379,979 | 383,372 |

1Potential common shares are not included in diluted earnings per share when a loss exists as the effect would be antidilutive.

2For the three and six months ended June 30, 2024, includes a $4.9 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 $11.2 million credit loss reserve on a note receivable included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations. For the six months ended June 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.

3Includes the Company's proportionate share of lease intangible amortization related to unconsolidated joint ventures.

4Includes the amortization of deferred financing costs, discounts and premiums, and non-cash financing receivable amortization.

5Includes the Company's proportionate share of straight-line rent, net related to unconsolidated joint ventures.

6The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 420,687 and 442,263, respectively, for the three months ended June 30, 2024 and 2023, and the dilutive impact of 3,657,682 and 3,669,454 OP units outstanding for the three and six months ended June 30, 2024, respectively.

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

Cash NOI and Same Store Cash NOI are key performance indicators. Management considers these to be supplemental measures that allow investors, analysts and Company management to measure unlevered property-level operating results. The Company defines Cash NOI as rental income, interest from financing receivables less property operating expenses. Cash NOI excludes non-cash items such as above and below market lease intangibles, straight-line rent, lease inducements, financing receivable amortization, tenant improvement amortization and leasing commission amortization. The Company also excludes cash lease termination fees. Cash NOI is historical and not necessarily indicative of future results.

Same Store Cash NOI compares Cash NOI for stabilized properties. Stabilized properties are properties that have been included in operations for the duration of the year-over-year comparison period presented. Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale or intended for sale, properties undergoing redevelopment, and newly-redeveloped or developed properties.

The Company utilizes the redevelopment classification for properties where management has approved a change in strategic direction for such properties through the application of additional resources including an amount of capital expenditures significantly above routine maintenance and capital improvement expenditures.

Any recently acquired property will be included in the same store pool once the Company has owned the property for five full quarters. Newly-developed or redeveloped properties will be included in the same store pool five full quarters after substantial completion.

The following table reflects the Company's Same Store Cash NOI for the six months ended June 30, 2024 and 2023:

*Dollars in thousands*

|  | NUMBER OF PROPERTIES 2024 | GROSS INVESTMENT at June 30, 2024 2023 | SAME STORE CASH NOI for the six months ended June 30, |  |
| --- | ---: | ---: | ---: | ---: |
| Same store properties | 600 | $11,932,206 | $365,569 | $356,489 |
| Joint venture same store properties | 33 | 353,727 | $9,686 | $9,277 |

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 six months ended June 30, 2024 and 2023:

### Reconciliation of Same Store Cash NOI

*SAME STORE RECONCILIATION*

*Dollars in thousands*

|  | SIX MONTHS ENDED JUNE 30, 2024 | 2023 |
| --- | ---: | ---: |
| Net loss | $(461,157) | $(171,804) |
| Other expense | 484,276 | 207,225 |
| General and administrative expense | 28,788 | 30,399 |
| Depreciation and amortization expense | 351,596 | 367,671 |
| Other expenses 1 | 9,953 | (4,029) |
| Straight-line rent, net | (12,199) | (16,249) |
| Joint venture properties | 10,462 | 9,726 |
| Other revenue 2 | (12,439) | (5,725) |
| **Cash NOI** | 399,280 | 417,214 |
| Cash NOI not included in same store | (24,025) | (51,448) |
| **Same store cash NOI** | 375,255 | 365,766 |
| Same store joint venture properties | (9,686) | (9,277) |
| **Same store cash NOI (excluding JVs)** | $365,569 | $356,489 |

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

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

#### Reconciliation of Same Store Properties

*Dollars and square feet in thousands*

|  | AS OF JUNE 30, 2024 PROPERTY COUNT | GROSS INVESTMENT 1 | SQUARE FEET | OCCUPANCY |
| --- | ---: | ---: | ---: | ---: |
| Same store properties | 600 | $11,932,206 | 34,906 | 89.6% |
| Joint venture same store properties | 33 | 353,727 | 1,913 | 86.0% |
| Wholly owned and joint venture acquisitions | 14 | 114,104 | 882 | 98.8% |
| Development completions | 4 | 97,968 | 335 | 66.9% |
| Redevelopments | 18 | 445,754 | 1,503 | 53.5% |
| Planned dispositions | 4 | 60,076 | 191 | 29.8% |
| **Total** | 673 | $13,003,835 | 39,730 | 87.8% |
| Joint venture properties | 45 | 424,284 | 2,636 | 89.6% |
| **Total owned real estate properties** | 628 | $12,579,551 | 37,094 | 87.6% |

1Excludes 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 June 30, 2024 Compared to Three Months Ended June 30, 2023

The Company’s results of operations for the three months ended June 30, 2024 compared to the same period in 2023 were impacted by acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

### Revenues

Rental income decreased $21.5 million, or 6.5%, for the three months ended June 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 $18.8 million.
- Acquisitions in 2023 contributed $0.3 million.
- Leasing activity, including contractual rent increases, contributed $2.5 million.
- Reversed revenue related to the Steward Health Care System LLC ("Steward") bankruptcy resulted in a decrease of $5.5 million, including $2.6 million of straight-line rent.

### Expenses

Property operating expenses decreased $7.7 million, or 6.1%, for the three months ended June 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 $8.3 million.
- Acquisitions in 2023 resulted in an increase of $0.1 million.
- Increases in portfolio operating expenses as follows:
- Administrative, leasing commissions, and other legal expense of $2.3 million; and
- Janitorial expense of $0.2 million.
- Decreases in portfolio operating expenses as follows:
- Utilities expense of $0.8 million;
- Maintenance and repair expense of $1.0 million; and
- Property taxes of $0.2 million.

General and administrative expenses decreased approximately $1.5 million, or 9.5%, for the three months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

- Decrease in payroll and payroll related expenses of approximately $0.5 million.
- Decrease in non-cash compensation incentive expense of $0.4 million.
- Decrease in travel expense of $0.5 million.
- Increase in cash compensation incentive expense of $0.5 million.
- Other decreases including legal and other administrative costs of $0.6 million.

Merger-related costs for the three months ended June 30, 2023 included a net reduction in legal and consulting fees as a result of a refund related to state transfer taxes.

Depreciation and amortization expense decreased $9.7 million, or 5.3%, for the three months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

- Acquisitions in 2023 resulted in an increase of $0.2 million.
- Various building and tenant improvement expenditures resulted in an increase of $11.6 million.
- Dispositions in 2023 and 2024 resulted in a decrease of $11.5 million.
- Assets that became fully depreciated resulted in a decrease of $10.0 million.

### Other Income (Expense)

#### Gains on sale of real estate properties and other assets

In the second quarter of 2024, the Company recognized gains on sale of real estate properties and other assets of approximately $38.3 million. In the second quarter of 2023, the Company recognized gains on sale of real estate properties of approximately $7.2 million.

#### Interest expense

Interest expense decreased $2.9 million, or 4.4%, for the three months ended June 30, 2024 compared to the prior year period. The components of interest expense are as follows:

*Dollars in thousands*

|  | THREE MONTHS ENDED JUNE 30, 2024 | 2023 | CHANGE $% |  |
| --- | ---: | ---: | ---: | ---: |
| Contractual interest | $50,956 | $52,766 | $(1,810) | (3.4)% |
| Net discount/premium accretion | 10,198 | 9,649 | 549 | 5.7% |
| Debt issuance costs amortization | 1,186 | 1,562 | (376) | (24.1)% |
| Amortization of interest rate swap settlement | 42 | 42 | — | —% |
| Amortization of treasury hedge settlement | 107 | 107 | — | —% |
| Fair value derivative | — | 997 | (997) | (100.0)% |
| Interest cost capitalization | (974) | (712) | (262) | 36.8% |
| Interest on lease liabilities | 942 | 923 | 19 | 2.1% |
| **Total interest expense** | $62,457 | $65,334 | $(2,877) | (4.4)% |

Contractual interest expense decreased $1.8 million, or 3.4%, for the three months ended June 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 $1.1 million.
- The Unsecured Credit Facility accounted for a decrease of approximately $3.3 million as a result of a decreased weighted average balance outstanding.
- Active interest rate derivatives accounted for a decrease of $1.2 million, while expired interest rate derivatives accounted for an increase of $1.9 million.
- Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.3 million.

#### Impairment of real estate properties and credit loss reserves

In the second quarter of 2024, the Company recognized impairments totaling $10.2 million on 15 properties sold and $110.7 million on 17 properties with changes in the expected holding periods. In addition, the Company recorded $11.2 million in credit loss reserves relates to notes receivables. In the second quarter of 2023, the Company recognized impairments totaling $55.2 million primarily as a result of four properties with changes in the expected holding periods.

#### 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.

### Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

The Company’s results of operations for the six months ended June 30, 2024 compared to the same period in 2023 were impacted by acquisitions, developments, dispositions, gains on sale, and capital markets transactions.

### Revenues

Rental income decreased $27.6 million, or 4.2%, for the six months ended June 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 $34.0 million.
- Acquisitions in 2023 contributed $1.4 million.
- Leasing activity, including contractual rent increases, contributed $11.2 million.
- Reversed revenue related to the Steward bankruptcy resulted in a decrease of $6.2 million, including straight-line rent of $2.7 million.

### Expenses

Property operating expenses decreased $8.6 million, or 3.5%, for the six months ended June 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 $16.1 million.
- Acquisitions in 2023 resulted in an increase of $0.7 million.
- Increases in portfolio operating expenses as follows:
- Administrative, leasing commissions, and other legal expense of $2.6 million;
- Maintenance and repair expense of $1.1 million;
- Utilities expense of $1.0 million;
- Compensation expense of $1.0 million;
- Janitorial expense of $0.9 million; and
- Security expense of $0.2 million.

General and administrative expenses decreased approximately $1.6 million, or 5.3%, for the six months ended June 30, 2024 compared to the prior year period primarily as a result of the following activity:

- Decrease in payroll and payroll related expenses of approximately $1.7 million.
- Increase in non-cash compensation incentive expense of $1.2 million.
- Other decreases including legal and other administrative costs of $1.1 million.

Merger-related costs for the six months ended June 30, 2023 included a net reduction in legal and consulting fees as a result of a refund related to state transfer taxes.

Depreciation and amortization expense decreased $16.1 million, or 4.4%, for the six months ended June 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 $23.3 million.
- Acquisitions in 2023 resulted in an increase of $0.9 million.
- Various building and tenant improvement expenditures resulted in an increase of $24.3 million.
- Assets that became fully depreciated resulted in a decrease of $18.0 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 six months ended June 30, 2024 and 2023 totaled $38.4 million and $8.2 million, respectively.

#### Interest expense

Interest expense decreased $5.6 million, or 4.3%, for the six months ended June 30, 2024 compared to the prior year period. The components of interest expense are as follows:

*Dollars in thousands*

|  | SIX MONTHS ENDED JUNE 30, 2024 | 2023 | CHANGE $% |  |
| --- | ---: | ---: | ---: | ---: |
| Contractual interest | $100,414 | $103,533 | $(3,119) | (3.0)% |
| Net discount/premium accretion | 20,265 | 19,240 | 1,025 | 5.3% |
| Debt issuance costs amortization | 2,392 | 3,037 | (645) | (21.2)% |
| Amortization of interest rate swap settlement | 84 | 84 | — | —% |
| Amortization of treasury hedge settlement | 213 | 213 | — | —% |
| Fair value derivative | 178 | 2,426 | (2,248) | (92.7)% |
| Interest cost capitalization | (1,916) | (1,282) | (634) | 49.5% |
| Interest on lease liabilities | 1,880 | 1,841 | 39 | 2.1% |
| **Total interest expense** | $123,510 | $129,092 | $(5,582) | (4.3)% |

Contractual interest expense decreased $3.1 million, or 3.0%, for the six months ended June 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 $4.4 million.
- The Unsecured Credit Facility accounted for a decrease of approximately $7.3 million as a result of a decreased weighted average balance outstanding.
- Active interest rate derivatives accounted for a decrease of $3.5 million, while expired interest rate derivatives accounted for an increase of $4.0 million.
- Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.7 million.

#### Impairment of real estate properties and credit loss reserves

During the six months ended June 30, 2024, the Company recognized impairments totaling $136.9 million on 15 properties sold and 18 properties with changes in the expected holding periods, including one property reclassified to held for sale. In addition, the Company recorded $11.2 million in credit loss reserves relates to notes receivables. During the six months ended June 30, 2023, the Company recognized impairments totaling $86.6 million relating to five properties that were sold, one land parcel that was sold, three properties reclassified to held for sale and four additional properties with changes in the expected holding periods. In addition, the Company recorded $5.2 million in credit loss reserves related to notes receivables.

#### Impairment of Goodwill

During the three months ended March 31, 2024, the Company determined that the carrying value of its single reporting unit exceeded estimated fair value and therefore recorded a $250.5 million full impairment of its goodwill, which is recorded as a non-cash charge in “Impairment of goodwill” in the consolidated statements of operations. See Note 1 to the Condensed Consolidated Financial Statements accompanying this report for more details.

#### Equity loss from unconsolidated joint ventures

The Company recognized its proportionate share of losses from its unconsolidated joint ventures. These losses are primarily attributable to non-cash depreciation expense. See Note 2 to the Condensed Consolidated Financial Statements accompanying this report for more details regarding the Company's unconsolidated joint ventures.

## Market risk

As filed, 442 characters.

The Company is exposed to market risk in the form of changing interest rates on its debt and mortgage notes. Management uses regular monitoring of market conditions and analysis techniques to manage this risk. During the six months ended June 30, 2024, there were no material changes in the quantitative and qualitative disclosures about market risks presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

## Controls and procedures

As filed, 1,237 characters.

### Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports it files or submits under the Exchange Act.

### Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 3,347 characters.

In addition to the other information set forth in this report and the risk factor discussed below, an investor should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect the Company’s business, financial condition or future results. The risks, as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems immaterial also may materially adversely affect the Company’s business, financial condition, operating results or cash flows.

### Risk Factors Relating to the Company

### Operational Risks

***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 revenues are subject to the financial strength of its tenants and associated health systems. The Company has no operational control over the business of these tenants and associated health systems that face a wide range of economic, competitive, government reimbursement and regulatory pressures and constraints, including the loss of licensure or certification. Any slowdown in the economy, decline in the availability of financing from the capital markets, or changes in healthcare regulations may adversely affect the businesses of the Company’s tenants to varying degrees. Such conditions may further impact such tenants’ abilities to meet their obligations to the Company and, in certain cases, could lead to restructurings, disruptions, or bankruptcies of such tenants.

The Company leases to government tenants from time to time that may be subject to annual budget appropriations. If a government tenant fails to receive its annual budget appropriation, it might not be able to make its lease payments to the Company. In addition, defaults under leases with federal government tenants are governed by federal statute and not by state eviction or rent deficiency laws.

The conditions described above could adversely affect the Company’s revenues and could increase allowances for losses and result in impairment charges, which could decrease net income attributable to common stockholders and equity and reduce cash flows from operations. For example, Steward leases approximately 580,000 square feet of space from the Company, accounting for approximately 1.6% of the Company’s total in-place annualized base rent. On May 6, 2024, Steward announced that it had filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. The bankruptcy filing by Steward has delayed the Company’s efforts to collect past due balances under its leases with Steward and may ultimately preclude collection of these amounts. Further, two of the leases have been rejected in bankruptcy and additional leases could be rejected. Steward owes the Company approximately $3.0 million in prepetition rent. There can be no assurance that Steward will meet its financial obligations to the Company or that the Company will be able to timely re-let spaces for which leases have been rejected.

Filed Aug 2, 2024.
Source: SEC EDGAR, the filing index for accession 0001360604-24-000093. Last ingested by Listed: Oct 29, 2026, 17:10 ET. No prices; not investment advice.