Healthcare Realty Trust Inc: Form 10-Q for the period ended Sep 30, 2026

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;
• 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 the 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;
• 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, 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 September 30, 2026, the Company had $1.6 billion available to be drawn on the Delayed Draw Term Loan and 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.

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 decreased from $324.8 million for the nine months ended September 30, 2025 to $317.3 million for the nine months ended September 30, 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.

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 nine months ended September 30, 2026 were approximately $113.7 million and cash flows provided by investing activities for the nine months ended September 30, 2025 were $184.3 million. Below is a summary of the investing activities.

Acquisitions

The Company had the following real estate acquisition activity for the nine months ended September 30, 2026:

Dollars in thousands

1. Represents a condominium unit fully leased by Novant Health under a long-term lease in an existing building, bringing the Company's ownership to 93%.

Dispositions

The Company disposed of 10 properties and four land parcels during the nine months ended September 30, 2026 for a total sales price of $81.3 million, generating net proceeds of $74.8 million after closing credits. The following table details these dispositions for the nine months ended September 30, 2026:

Dollars in thousands

1Includes two medical outpatient properties.

Subsequent Disposition Activity

On October 22, 2026, the Company sold one medical office building, comprising 59,427 square feet, and a garage in Atlanta, GA for a total purchase price of $36.0 million.

Capital Expenditures

During the nine months ended September 30, 2026, the Company incurred capital costs totaling $159.5 million for the following:

• $53.8 million toward development and redevelopment of properties;
• $62.1 million toward first generation tenant improvements and planned capital expenditures for acquisitions;
• $25.3 million toward second generation tenant improvements; and
• $18.3 million toward building capital.

Investment in Unconsolidated Joint Venture

During the nine months ended September 30, 2026, the Company contributed $47.9 million, of which $41.7 million related to property acquisitions, to existing joint ventures in which it holds a 20% interest.

Subsequent Joint Venture Acquisition Activity

On October 16, 2026, an unconsolidated joint venture where the Company owns 20% acquired one property for a purchase price of $17.5 million, for which the Company contributed $3.5 million.

On October 22, 2026, an unconsolidated joint venture where the Company owns 20% acquired two properties for a total purchase price of $51.7 million, for which the Company contributed $10.3 million.

Real Estate Notes Receivable

In April 2026, the Company entered into a mezzanine loan agreement to provide funding up to $6.3 million for a future development. As of September 30, 2026, $3.4 million of funding has been provided.

In April 2026, the Company received $45.2 million upon maturity of a mortgage loan. In September 2026, the Company received $6.7 million upon the payoff of a mortgage loan.

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 nine months ended September 30, 2026 and September 30, 2025, were approximately $212.3 million and $534.5 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.

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 September 30, 2026, the Company had a principal balance of $347.5 million outstanding.

On May 7, 2026, the OP issued $700.0 million of 3.00% 2032 Exchangeable Senior Notes. The proceeds from the offering were primarily used to repay the Company’s $600 million of Senior Notes that were due to mature in August 2026. In connection with the offering of the 2032 Exchangeable Senior Notes, the Company and the OP entered into the 2032 Capped Calls with an initial cap price of $27.41 per share. A portion of the proceeds from the 2032 Exchangeable Senior Notes was used to pay the premiums of the 2032 Capped Calls of approximately $28.9 million, which was recorded as a reduction to stockholders' equity. See Note 4 to the Condensed Consolidated Financial Statements in this report for more information.

On May 15, 2026, the Company and the OP (as borrower) entered into a term loan agreement (the "Term Loan Agreement”), which provides for a $400.0 million senior unsecured delayed draw term loan facility (the “Delayed Draw Term Loan”). The Term Loan Agreement has an accordion feature to increase the Delayed Draw Term Loan or add one or more new tranches of term loans up to an additional aggregate amount not to exceed $100.0 million, subject to the satisfaction of certain conditions and the receipt of additional commitments from existing or new lenders. The scheduled maturity date of the Delayed Draw Term Loan is May 15, 2029. Term loans outstanding under the Delayed Draw Term Loan will accrue interest at an annual rate equal to (a) the applicable margin, plus (b) at the OP’s option, (x) the base rate, (y) a forward-looking term rate based on the secured overnight financing rate (“SOFR”) as administered by the Federal Reserve Bank of New York (“Term SOFR”) or (z) a daily rate determined by reference to SOFR (“Daily Simple SOFR”), subject to a floor of, in the case of base rate, 1.00% and in the case of Term SOFR and Daily Simple SOFR, 0.00%. The applicable margin under the Delayed Draw Term Loan ranges from 0.00% to 0.550% for base rate loans and 0.675% to 1.550% for Term SOFR or Daily Simple SOFR loans, in each case, based on the non-credit enhanced, senior unsecured long-term debt ratings of the OP. Deferred financing costs incurred as a result of the transaction totaled approximately $4.1 million and are recorded as an other asset on the condensed consolidated balance sheet. As of September 30, 2026, no borrowings were outstanding under the Delayed Draw Term Loan.

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. In May 2026, the Company had four interest rate swaps with a total notional value of $100.0 million mature.

As of September 30, 2026, the Company had two outstanding interest rate derivatives with notional values totaling $400.0 million to hedge the one-month term Secured Overnight Financing Rate ("SOFR") at a rate of 3.32%. As of September 30, 2026, both of these swaps were designated as cash flow hedges.

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% of its leases will expire each year in the ordinary course of business. There are 146 multi-tenant and single-tenant leases totaling 0.4 million square feet that will expire during the remainder of 2026. Approximately 73% 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 nine 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 expenses based on seasonality, with the first and third quarters usually reflecting greater amounts. The effects of these operating expense increases are mitigated in leases that have provisions for operating expense reimbursement. As of September 30, 2026, 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):

1Purchase option prices are based on fair market value components that are determined by an appraisal process, except for four properties totaling $118.6 million with stated prices or prices based on fixed capitalization rates.

2These purchase options have been exercisable for an average of approximately 11.6 years.

3Includes one medical outpatient property that is 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 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 interest amortization, and stock-based compensation expense; and subtracting maintenance capital expenditures, including second generation tenant improvements and leasing commissions 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 loss to FFO, Normalized FFO and FAD for the three and nine months ended September 30, 2026 and 2025:

Amounts in thousands, except per share data

1Potential 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 722,102 and 472,119, respectively, for the three months ended September 30, 2026 and 2025, and the dilutive impact of 4,229,701 and 4,251,499 OP Units outstanding for the three and nine months ended September 30, 2026, 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 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 nine months ended September 30, 2026 and 2025:

Dollars in thousands

The following tables reconcile net loss to Same Store NOI and the same store property metrics to the total owned real estate portfolio for the nine months ended September 30, 2026 and 2025:

Reconciliation of Same Store Cash NOI

Dollars in thousands

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

Dollars and square feet in thousands

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 September 30, 2026, Compared to Three Months Ended September 30, 2025

The Company’s results of operations for the three months ended September 30, 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 $9.8 million, or 3.4%, for the three months ended September 30, 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 $28.7 million.
• Leasing activity resulted in an increase of $15.6 million.
• A property reclassifying from an investment in financing receivable to building and improvements resulted in an increase of $2.1 million.
• Developments completed in 2025 resulted in an increase of $1.2 million.

Interest income decreased $2.4 million, or 67.7%, for the three months ended September 30, 2026, compared to the prior year period primarily as a result of a property reclassifying from an investment in financing receivable to building and improvements of $1.9 million. An additional decrease is due to notes receivables payoffs, net of new notes receivables, of approximately $0.5 million.

Other operating income increased $1.0 million, or 14.9%, for the three months ended September 30, 2026, 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 $5.2 million, or 4.8%, for the three months ended September 30, 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 $11.4 million.
• Property tax expense resulted in a decrease of $0.5 million
• Increases in portfolio operating expenses as follows:
• Maintenance and repair expense of $2.6 million;
• Administrative and other legal costs of $1.2 million;
• Compensation expense of $1.2 million;
• Utilities expense of $0.9 million;
• Janitorial expense of $0.4 million; and
• Insurance expense of $0.1 million.
• Developments completed in 2025 resulted in an increase of $0.3 million.

General and administrative expenses decreased approximately $9.3 million, or 42.9%, for the three months ended September 30, 2026, compared to the prior year period primarily as a result of the following activity:

• Decrease in restructuring and severance-related charges of $11.1 million;
• Decrease in cash compensation expense of $0.2 million;
• Increase in non-cash incentive based cash compensation expense of $1.1 million; and
• Increases in other items including legal and other administrative costs of $0.9 million.

Depreciation and amortization expense decreased $15.5 million, or 10.8%, for the three months ended September 30, 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 $11.2 million.
• Assets that became fully depreciated resulted in a decrease of $15.2 million.
• Leasing costs amortization resulted in an increase of $2.1 million.
• Various building and tenant improvement expenditures resulted in an increase of $8.0 million.
• Developments completed in 2025 resulted in an increase of $0.8 million.

Other Income (Expense)

Gains on sale of real estate properties and other assets

In the three months ended September 30, 2026, the Company recognized gains on sale of real estate properties and other assets of approximately $2.5 million. In the three months ended September 30, 2025, the Company recognized gains on sale of real estate properties and other assets of approximately $76.8 million.

Interest expense

Interest expense decreased $7.8 million, or 14.8%, for the three months ended September 30, 2026, compared to the prior year period. The components of interest expense are as follows:

Dollars in thousands

Contractual interest expense decreased $8.9 million, or 20.4%, for the three months ended September 30, 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 $8.4 million as a result of a decreased aggregate balance.
• Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.2 million.
• The commercial paper program and unsecured credit facility accounted for a net decrease of approximately $1.0 million.
• The impact of interest rate swaps accounted for an increase of $0.7 million.

Debt extinguishment costs

In the third quarter of 2025, the Company recorded approximately $0.3 million in debt extinguishment costs related to the renewal of its Unsecured Credit Facility.

Interest and other income (expense)

In the third quarter of 2025, the Company reclassified approximately $2.8 million from AOCI to other expense related to ineffectiveness on eight interest rate swaps. See Note 5 to the Condensed Consolidated Financial Statements in this report for more details regarding the Company's derivative accounting.

Impairment of real estate properties and credit loss reserves

In the third quarter of 2026, the Company recognized impairments totaling $16.2 million on properties sold and properties with changes in the expected holding periods. In the third quarter of 2025, the Company recognized impairments totaling $104.4 million on properties sold and properties with changes in the expected holding periods.

Equity income 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 in this report for more details regarding the Company's unconsolidated joint ventures.

Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025

The Company’s results of operations for the nine months ended September 30, 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 $47.6 million, or 5.5%, for the nine months ended September 30, 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 $93.4 million.
• Leasing activity, including contractual rent increases, resulted in an increase of $41.1 million.
• A property reclassifying from an investment in financing receivable to buildings and improvements resulted in an increase of $2.1 million.
• Developments completed in 2025 resulted in an increase of $2.6 million.

Interest income decreased $2.6 million, or 24.0%, for the nine months ended September 30, 2026, compared to the prior year period primarily as a result of a property reclassifying from an investment in financing receivable to buildings and improvements of $1.6 million and notes receivables payoffs, net of new notes receivables, of approximately $1.0 million.

Other operating income increased $3.4 million, or 16.7%, for the nine months ended September 30, 2026, 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 $20.3 million, or 6.3%, for the nine months ended September 30, 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 $35.9 million.
• Increases in portfolio operating expenses as follows:
• Maintenance and repair expense of $3.7 million;
• Compensation expense of $3.5 million;
• Utilities expense of $3.4 million;
• Administrative and other legal expense of $2.4 million;
• Property tax expense of $0.9 million;
• Janitorial expense of $0.7 million;
• Insurance expense of $0.2 million; and
• Security expense of $0.1 million.
• Developments completed in 2025 resulted in an increase of $0.7 million.

General and administrative expenses decreased approximately $14.6 million, or 24.9%, for the nine months ended September 30, 2026 compared to the prior year period primarily as a result of the following activity:

• Decrease in restructuring and severance-related charges of $12.4 million.
• Decrease in cash compensation expense of $2.6 million.
• Other decreases include legal and other administrative costs of $2.1 million.
• Increase in non-cash compensation expense of $2.5 million.

Depreciation and amortization expense decreased $68.0 million, or 15.0%, for the nine months ended September 30, 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 $49.8 million.
• Assets that became fully depreciated resulted in a decrease of $48.5 million.
• Leasing costs amortization resulted in an increase of $6.9 million.
• Developments completed in 2025 resulted in an increase of $0.9 million.
• Various building and tenant improvement expenditures resulted in an increase of $22.5 million.

Other Income (Expense)

Gains on sale of real estate properties and other assets

Gains on the sale of real estate properties and other assets for the nine months ended September 30, 2026 and 2025 totaled $17.0 million and $99.7 million, respectively.

Interest expense

Interest expense decreased $26.9 million, or 16.7%, for the nine months ended September 30, 2026 compared to the prior year period. The components of interest expense are as follows:

Dollars in thousands

Contractual interest expense decreased $27.5 million, or 21.0%, for the nine months ended September 30, 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 $2.6 million.
• The unsecured term loan repayments accounted for a decrease of approximately $24.4 million.
• Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.6 million.
• Repayments of the 2025 and 2026 Senior Notes and the 2032 Exchangeable Senior Notes borrowing resulted in a net decrease of $2.3 million.
• The impact of interest rate swaps accounted for an increase of $2.0 million.
• The commercial paper program and unsecured credit facility accounted for a net increase of approximately $0.4 million.

Debt extinguishment costs

During the nine months ended September 30, 2026, the Company recorded approximately $1.7 million in debt extinguishment costs related to the repayment of the Senior Notes due 2026.

During the nine months ended September 30, 2025, the Company recorded approximately $0.3 million in debt extinguishment costs related to the renewal of its Unsecured Credit Facility.

Interest and other income (expense)

During the nine months ended September 30, 2025, the Company reclassified approximately $2.8 million from AOCI to other expense related to ineffectiveness on eight interest rate swaps. See Note 5 to the Condensed Consolidated Financial Statements in this report for more details regarding the Company's derivative accounting.

Impairment of real estate properties and credit loss recoveries (reserves)

During the nine months ended September 30, 2026, the Company recognized real estate impairments totaling $58.9 million on properties sold and properties with changes in the expected holding periods, net of a $1.0 million credit loss recovery on one of its previously settled mortgage notes receivable. During the nine months ended September 30, 2025, the Company recognized impairments totaling $255.4 million on properties sold and properties with changes in the expected holding periods. In addition, the Company recorded $1.5 million in credit loss reserves relating to a mortgage notes receivable and a $1.9 million fair value adjustment for an equity investment in other assets.

Equity income 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 in this report for more details regarding the Company's unconsolidated joint ventures.

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 nine months ended September 30, 2026, 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, 2025.

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.

There have been no material changes to our risk factors and other risks and uncertainties as described in Part I, "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.