Healthcare Realty Trust Inc

Disclosure Regarding Forward-Looking Statements

This report and other materials the Company has filed or may file with the SEC, as well as information included in oral statements or other written statements made, or to be made, by senior management of the Company, contain, or will contain, disclosures that are “forward-looking statements.” Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “target,” “intend,” “plan,” “estimate,” “project,” “continue,” “should,” “could” and other comparable terms. These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties that could materially affect the Company’s current plans and expectations and future financial condition and results. Such risks and uncertainties as more fully discussed in Item 1A “Risk Factors” of this report and in other reports filed by the Company with the SEC from time to time include, among other things, the following:

Risks relating to our business and operations

•The Company's expected results may not be achieved;

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

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

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

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

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

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

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

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

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

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

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

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

•Many of the Company’s leases are dependent on the viability of associated health systems. Revenue concentrations relating to these leases expose the Company to risks related to the financial condition of the associated health systems;

•Many of the Company’s properties are held under ground leases. These ground leases contain provisions that may limit the Company’s ability to lease, sell, or finance these properties;

•The Company may experience uninsured or underinsured losses;

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

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

•The Company has structured and may in the future structure acquisitions of property in exchange for limited partnership units of the OP on terms that could limit its liquidity or flexibility;

•Healthcare Realty Trust is a holding company with no direct operations and, as such, it relies on funds received from the OP to pay liabilities, and the interests of its stockholders will be structurally subordinated to all liabilities and obligations of the OP and its subsidiaries

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

•Pandemics, and measures intended to prevent their spread or mitigate their severity could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition; and

•The Company's success depends, in part, on its ability to attract and retain talented employees. The loss of any one of the Company's key personnel or the inability to maintain appropriate staffing could adversely impact the Company's business.

Risks relating to our capital structure and financings

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

•Covenants in the Company’s debt instruments limit its operational flexibility, and a breach of these covenants could materially affect the Company’s consolidated financial condition and results of operations;

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

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

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

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

•The Company has entered into joint venture agreements that limit its flexibility with respect to jointly owned properties and expects to enter into additional such agreements in the future;

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

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

Risks relating to government regulations

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

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

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

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

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

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

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

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

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

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

The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports, including, without limitation, estimates and projections regarding the performance of development projects the Company is pursuing.

Overview

The Company owns and operates properties that facilitate the delivery of healthcare services in primarily outpatient settings. To execute its strategy, the Company engages in a broad spectrum of integrated services including leasing, management, acquisition, financing, development and redevelopment of such properties. The Company seeks to generate stable, growing income and lower the long-term risk profile of its portfolio of properties by focusing on facilities primarily located on or near the campuses of acute care hospitals associated with leading health systems. The Company seeks to reduce financial and operational risk by owning properties in high-growth markets with a broad tenant mix that includes over 30 physician specialties, as well as surgery, imaging, cancer, and diagnostic centers.

As described in Item 1. Business above and elsewhere in this report, on July 20, 2022, Legacy HR and Legacy HTA completed a merger between the companies in which Legacy HR merged with and into a wholly-owned subsidiary of Legacy HTA, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA. Immediately following the Merger, Legacy HTA changed its name to “Healthcare Realty Trust Incorporated.” For accounting purposes, the Merger was treated as a “reverse acquisition” in which Legacy HR was considered the acquirer. Accordingly, the information discussed in this section reflects, for periods prior to the closing of the Merger, the financial condition and results of operations of Legacy HR, and for periods from the closing of the Merger, that of the Company.

This section is organized into the following sections:

•Liquidity and Capital Resources;

•Trends and Matters Impacting Operating Results;

•Non-GAAP Financial Measures and Key Performance Indicators; and

•Application of Critical Accounting Policies to Accounting Estimates.

Liquidity and Capital Resources

The Company monitors its liquidity and capital resources and considers several indicators in its assessment of capital markets for financing acquisitions and other operating activities. The Company considers, among other factors, its leverage ratios and lending covenants, dividend payout percentages, interest rates, underlying treasury rates, debt market spreads and cost of equity capital to compare its operations to its peers and to help identify areas in which the Company may need to focus its attention.

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 will 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 Unsecured Credit Facility.

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, and funding debt service, through cash on hand, cash flows from operations and the cash flow sources addressed above. See Note 4 to the Consolidated Financial Statements for additional discussion of operating and financing lease payment obligations. See "Trends and Matters Impacting Operating Results" for additional information regarding the Company's sources and uses of cash.

The Company also had unencumbered real estate assets with a gross book value of approximately$11.7 billionat December 31, 2024, of which a portion could serve as collateral for secured mortgage financing. The Company believes that its 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.

The Company has exposure to variable interest rates and its common stock price is impacted by the volatility in the stock markets. However, the Company’s leases, which provide its main source of income and cash flow, have terms of approximately one to 20 years and have lease rates that generally increase on an annual basis at fixed rates or based on consumer price indices.

Operating Activities

Cash flows provided by operating activities for the two years ended December 31, 2024 and 2023 were $501.6 million and $499.8 million, respectively. Several items impact cash flows from operating activities including, but not limited to, cash generated from property operations, interest payments and the timing related to the payment of invoices and other expenses and receipt of tenant rent.

The Company may, from time to time, sell properties and redeploy cash from property sales into new investments. To the extent revenues related to the properties being sold exceed income from these new investments, the Company's consolidated results of operations and cash flows could be adversely affected.

See "Trends and Matters Impacting Operating Results" for additional information regarding the Company's operating activities.

Investing Activities

A summary of the significant transactions impacting investing activities for the year ended December 31, 2024 is listed below. See Note 5 to the Consolidated Financial Statements for more detail on these activities.

The Company had no real estate acquisition activity for the year ended December 31, 2024.

Investment in Unconsolidated Joint Ventures

In 2024, the Company's investment in unconsolidated joint ventures increased by $172.7 million, as a result of the Company's contribution of medical outpatient properties to two joint ventures in which it holds a 20% interest.

Capital Funding

In 2024, the Company incurred capital expenditures totaling $303.9 million for the following:

•$150.6 million toward development and redevelopment of properties;

•$52.4 million toward first generation tenant improvements and planned capital expenditures for acquisitions;

•$68.4 million toward second generation tenant improvements; and

•$32.5 million toward capital expenditures.

See "Trends and Matters Impacting Operating Results" below for more detail.

Real Estate Notes Receivable

On June 24, 2024, the Company's two mezzanine loans in Texas with a total principal balance of $54.1 million matured. On July 15, 2024, the senior lender on the construction mortgage loans associated with the underlying project initiated foreclosure proceedings to the borrower. In the third quarter of 2024, the Company recorded an allowance for credit loss of $46.8 million to cover the entire carrying amount for these loans. The Company had previously placed the mezzanine loans on non-accrual status in 2023. In the fourth quarter of 2024, the underlying project was sold, and the Company received $4.0 million as consideration for its mezzanine loan interests. The Company no longer has a mezzanine loan position in connection with the project.

In 2024, the Company placed one of its real estate notes receivable with a principal balance of $31.2 million on non-accrual status. The Company determined that the risk of credit loss was no longer remote and recorded a credit loss reserve of $16.8 million including $0.5 million of accrued interest in 2024. In January 2025, the underlying real estate collateral was sold and the Company received $14.9 million towards the principal balance of this loan.

See Note 1 to the Consolidated Financial Statements accompanying this report for more information about real estate notes receivable and allowance for credit losses.

Dispositions

The following table details the Company's asset sales and joint venture contributions for the year ended December 31, 2024:

1 The Company contributed the following medical outpatient properties to a joint venture in which the Company retained 20% ownership: one in each of Raleigh, NC, New York, NY, Philadelphia, PA, Atlanta, GA, Austin, TX, Miami, FL, Denver, CO, Memphis, TN, Indianapolis, IN, and Honolulu, HI; two MOBs in Los Angeles; three MOBs in Houston, TX and Dallas, TX; and five in Seattle, WA. Sale price and square footage reflect the total sale price paid by the joint venture and total square footage of the property. The net proceeds to the Company related to these dispositions totaled $584.9 million.

2 The Company sold seven MOBs in Greensboro, NC and two non-clustered single-tenant MOBs in Raleigh, NC to a single buyer in a single transaction.

3 The Company contributed the following medical outpatient properties to a joint venture in which the Company retained 20% ownership: one in each of Dallas, TX, San Antonio, TX and Atlanta, GA; and two MOBs in each of Nashville, TN and Denver, CO. Sale price and square footage reflect the total sale price paid by the joint venture and total square footage of the property. The net proceeds to the Company related to these dispositions totaled $148.9 million.

4 The Company provided seller financing of approximately $9.6 million in connection with this sale.

5 The Company sold an MOB that was included in a consolidated joint venture in which the Company held a 63% ownership interest. Proceeds include the Company's pro-rata share of the purchase price as well as amounts due to the Company by the joint venture.

6 Includes two properties.

7 Includes three properties.

Subsequent Dispositions

On February 7, 2025, the Company disposed of a 30,304 square foot medical outpatient building in Boston, Massachusetts for $4.5 million.

On February 14, 2025, the Company disposed of two medical outpatient buildings in Denver, Colorado, with a combined total of 69,715 square feet for an aggregate purchase price of $8.6 million.

Financing Activities

Common Stock Repurchases

During 2024, the Company repurchased 30.8 million shares of its common stock at an average price of $16.56 per share for a total of $509.8 million. As of December 31, 2024, the Company had $237.0 million of authorized share repurchases remaining.

Debt Activity

Below is a summary of the significant debt financing activity for the year ended December 31, 2024. See Note 10 to the Consolidated Financial Statements for additional information on financing activities.

Mortgage Activity

The following table details the mortgage note repayment activity for the year ended December 31, 2024:

Term Loans

During 2024, the Company repaid its $350 million Unsecured Term Loan, due 2025 and recognized approximately $0.2 million of accelerated amortization expense included in the loss on extinguishment of debt.

Subsequent Activity

On January 7, 2025, the Company made a partial repayment of $25 million on its $200 million Unsecured Term Loan due 2025.

On January 14, 2025 the Company made a partial repayment of $10 million on its $300 million Unsecured Term Loan due 2025.

Interest Rate Swaps

As of December 31, 2024, the Company had outstanding interest rate derivatives totaling approximately$1.1 billion to hedge one-month Secured Overnight Financing Rate (“SOFR”). The following details the amount and rate of each swap as of such date (dollars in thousands):

The following table details the Company's debt balances as of December 31, 2024:

1 Balances are reflected net of discounts and debt issuance costs and include premiums.

2 Includes extension options.

3 Debt instruments assumed as part of the Merger with Legacy HTA on July 20, 2022. The amounts shown represent fair value adjustments.

4 As of December 31, 2024, the Company had no outstanding borrowings under the Unsecured Credit Facility with a remaining borrowing capacity of $1.5 billion.

Debt Covenant Information

The Company’s various debt agreements contain certain representations, warranties, and financial and other covenants customary in such debt agreements. Among other things, these provisions require the Company to maintain certain financial ratios and impose certain limits on the Company’s ability to incur indebtedness and create liens or encumbrances. As of December 31, 2024, the Company was in compliance with the financial covenant provisions under all of its various debt instruments.

As of December 31, 2024, 68.4% of the Company’s principal balances were due after 2026, including extension options. Also, as of December 31, 2024, the Company's incurrence of total debt as defined in the senior notes [debt divided by (total assets less intangibles and accounts receivable)] was approximately 38.0% (cannot be greater than 60%) and debt service coverage [interest expense divided by (net income plus interest expense, taxes, depreciation and amortization, gains and impairments)] was approximately 3.1 times (cannot be less than 1.5 times).

The Company plans to manage its capital structure to maintain compliance with its debt covenants consistent with its current profile. Downgrades in ratings by the rating agencies could have a material adverse impact on the Company’s cost and availability of capital, which could in turn have a material adverse impact on consolidated results of operations, liquidity and/or financial condition.

Supplemental Guarantor Information

The OP has issued unsecured notes described in Note 10 to the Company's Consolidated Financial Statements included in this report. All unsecured notes are fully and unconditionally guaranteed by the Company, and the OP is 98.7% owned by the Company. Effective January 4, 2021, the Securities and Exchange Commission (the “SEC”) adopted amendments to the financial disclosure requirements which permit subsidiary issuers of obligations guaranteed by the parent to omit separate financial statements if the consolidated financial statements of the parent company have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent.

Accordingly, as permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, the Company has excluded the summarized financial information for the OP because the assets, liabilities, and results of operations of the OP are not materially different than the corresponding amounts in the Company's Consolidated Financial Statements and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.

Trends and Matters Impacting Operating Results

Management monitors factors and trends important to the Company and the REIT industry in order to gauge their potential impact on the operations of the Company. Discussed below are some of the factors and trends that management believes may impact the future operations of the Company.

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.

Acquisitions and Dispositions

In 2024, the Company completed no property acquisitions.

The Company disposed of 67 properties in 2024 for sales prices totaling $1.5 billion, including 30 properties contributed into two joint ventures in which the Company maintains a non-controlling interest. These transactions yielded net cash proceeds of $1.2 billion, net of $67.3 million of closing costs and related adjustments and $172.7 million of retained joint venture interests. The weighted average capitalization rate for these properties was 6.6%. The Company calculates the capitalization rate for dispositions as the in-place cash net operating income divided by the sales price.

See the Company's discussion of its 2024 disposition activity in Note 5 to the Consolidated Financial Statements.

Development and Redevelopment Activity

The table below details the Company’s activity related to its active development and redevelopment projects as of December 31, 2024. The information included in the table below represents management’s estimates and expectations at December 31, 2024, which are subject to change. The Company’s disclosures regarding certain projections or estimates may not reflect actual results.

For previously completed development and redevelopment projects, during 2024, the Company funded an additional $39.2 million related to ongoing tenant improvements.

The Company maintains discussions with health systems and developers regarding long-term future new development opportunities. In addition, the Company continually evaluates its portfolio for accretive redevelopment opportunities.

Security Deposits and Letters of Credit

As of December 31, 2024, the Company held approximately $33.4 million in letters of credit and security deposits for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease. Generally, the Company may, at its discretion and upon notification to the tenant, draw upon these instruments if there are any defaults under the leases.

Expiring Leases

The Company expects that approximately 15% of the leases in its portfolio will expire each year. In-place leases have a weighted average lease term of 8.3 years and a weighted average remaining lease term of 4.2 years. Demand for well-located real estate with complementary practice types and services remains consistent, and the Company's 2024 quarterly tenant retention statistics ranged from 81% to 85%. In 2025, the Company has 1,359 leases totaling 4.3 million square feet in its multi-tenant portfolio that are scheduled to expire. See additional information regarding expiring single-tenant leases under the heading "Single-Tenant Leases" below.

The Company seeks contractual rent increases for in-place leases. As of December 31, 2024 and 2023, the Company's contractual rental rate growth averaged 2.83% and 2.82%, respectively, for in-place leases. In addition, the Company continued to see strong quarterly weighted average rental rate growth for renewing leases ("cash leasing spread"). In 2024, cash leasing spreads averaged 3.3%.

In a further effort to maximize revenue growth and reduce its exposure to key expenses such as taxes and utilities, the Company carefully manages its balance of lease types. Gross leases, wherein the Company has full exposure to all operating expenses, comprise 9% of its lease portfolio. Modified gross or base year leases, in which the Company and tenant both pay a share of operating expenses, comprise 28% of the Company's leased portfolio. Net leases, in which tenants pay substantially all operating expenses, total 59% of the leased portfolio. Absolute net leases, in which tenants pay substantially all of the building's operating and capital expenses, comprise 4%.

Steward Health

As previously disclosed, on May 6, 2024, Steward Health announced that it had filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. Prior to the bankruptcy filing, Steward leased approximately 593,000 square feet of space from the Company. Leases for six buildings in Massachusetts totaling approximately 244,000 square feet were assumed in connection with the sale of Steward’s Massachusetts hospitals on or about September 30, 2024. In October 2024, the Company received $2.2 million for prior rent owed under these assumed leases. Leases for approximately 349,000 square feet in buildings in Florida and Massachusetts were rejected by Steward. The total annual revenue associated with the rejected leases was approximately $13.0 million. The Company made significant progress re-leasing space previously occupied by Steward Health, with leases representing over 80% of the rejected Steward Health square feet.

Prospect Medical

On January 11, 2025, Prospect Medical Holdings filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Texas. Prospect leases approximately 80,912 square feet of space from the Company, accounting for approximately $2.9 million of annual revenue. The Company moved to cash basis accounting for these leases and recorded a reserve of $0.7 million in the fourth quarter. While it is early in the bankruptcy proceedings and the Company is in discussions with Prospect regarding its leases with the Company, there can be no assurance that the Company will recover unpaid rent from Prospect.

Capital Expenditures

Capital expenditures are long-term investments made to maintain and improve the physical and aesthetic attributes of the Company's owned properties. Examples of such improvements include, but are not limited to, material changes to, or the full replacement of, major building systems (exterior facade, building structure, roofs, elevators, mechanical systems, electrical systems, energy management systems, upgrades to existing systems for improved efficiency) and common area improvements (furniture, signage and artwork, bathroom fixtures and finishes, exterior landscaping, parking lots or garages). These additions are capitalized into the gross investment of a property and then depreciated over their estimated useful lives, typically ranging from 7 to 20 years. Capital expenditures specifically do not include recurring maintenance expenses, whether direct or indirect, related to the upkeep and maintenance of major building systems or common area improvements. Capital expenditures also do not include improvements related to a specific tenant suite, unless the improvement is part of a major building system or common area improvement.

The Company invested $32.5 million, or $0.94 per square foot, in capital expenditures in 2024 and $47.7 million, or $1.24 per square foot, in capital expenditures in 2023. As a percentage of cash net operating income, 2024 and 2023 capital expenditures were 4.1% and 5.8%, respectively. For a reconciliation of cash net operating income, see "Same Store Cash NOI" in the "Non-GAAP Financial Measures and Key Performance Indicators" section as part of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report.

Tenant Improvements

The Company may invest in tenant improvements for the purpose of refurbishing or renovating tenant space. The Company categorizes these expenditures into first and second generation tenant improvements. As of December 31, 2024, the Company had commitments of approximately $212.8 million that are expected to be spent on tenant improvements throughout the portfolio, excluding development properties currently under construction.

First Generation Tenant Improvements & Planned Capital Expenditures for Acquisitions

First generation tenant improvements and planned capital expenditures for acquisition spending totaled $52.4 million and $38.7 million for the years ended December 31, 2024 and 2023, respectively. First generation tenant improvements include build out costs related to suite space in shell condition. Planned capital expenditures for acquisitions include expected near-term fundings that were contemplated as part of the acquisition.

Second Generation Tenant Improvements

Second generation tenant improvements spending totaled $68.4 million in 2024, or 8.7% of total cash net operating income. In 2023, this spending totaled $63.5 million, or 7.7% of total cash net operating income.

If the cost of a tenant improvement project exceeds a tenant improvement allowance, the Company generally offers the tenant the option to finance the excess over the lease term with interest or to reimburse the overage to the Company in a lump sum. In either case, such overages are amortized by the Company as rental income over the term of the lease. Interest earned on tenant overages is included in other operating income in the Company's Consolidated Statements of Operations. The first and second generation tenant overage amount amortized to rent, including interest, totaled approximately $7.8 million in 2024, $8.4 million in 2023, and $7.5 million in 2022.

Second generation tenant improvement commitments in 2024 for renewals averaged $2.14 per square foot per lease year, ranging quarterly from $1.80 to $2.39. In 2023, these commitments averaged $1.78 per square foot per lease year, ranging quarterly from $1.64 to $1.89. In 2022, these commitments averaged $1.76 per square foot per lease year, ranging quarterly from $1.46 to $1.90.

Second generation tenant improvement commitments in 2024 for new leases averaged $7.22 per square foot per lease year, ranging quarterly from $6.93 to $7.34. In 2023, these commitments averaged $5.69 per square foot per lease year, ranging quarterly from $4.44 to $7.11. In 2022, these commitments averaged $5.74 per square foot per lease year, ranging quarterly from $4.84 to $7.07.

Leasing Commissions

In certain markets, the Company may pay leasing commissions to real estate brokers who represent either the Company or prospective tenants, with commissions generally equating to 4% to 6% of the gross lease value for new leases and 2% to 4% of the gross lease value for renewal leases. In addition, the Company pays its leasing employees incentive compensation when leases are executed that meet certain leasing thresholds. External leasing commissions are amortized to property operating expense, and internal leasing costs are amortized to general and administrative expense in the Company's Consolidated Statements of Operations.

In 2024, the Company paid leasing commissions of approximately $47.1 million, or $1.37 per square foot. In 2023, the Company paid leasing commissions of approximately $35.9 million, or $0.93 per square foot. In 2022, the Company paid leasing commissions of approximately $22.9 million, or $0.57 per square foot. As a percentage of total cash net operating income, leasing commissions paid for 2024, 2023 and 2022 were 6.0%, 4.3% and 4.0%, respectively. The amount of leasing commissions amortized over the term of the applicable leases totaled $21.2 million, $13.8 million and $11.0 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Rent Abatements

Rent abatements, which generally take the form of deferred rent, are sometimes used to help induce a potential tenant to lease space in the Company's properties. Such abatements, when made, are amortized by the Company on a straight-line basis against rental income over the lease term. Rent abatements for 2024 totaled approximately $16.0 million, or $0.46 per square foot. Rent abatements for 2023 totaled approximately $14.3 million, or $0.37 per square foot. Rent abatements for 2022 totaled approximately $14.8 million, or $0.37 per square foot.

Single-Tenant Leases

As of December 31, 2024, the Company had a total of 110 single-tenant buildings, with a weighted average lease term of 11.6 years and a weighted average remaining lease term of 5.5 years.

Twenty-two single-tenant buildings have leases that expire in 2025. Five of these leases have been renewed. The Company is in negotiations with tenants in fifteen of these buildings and expects the leases to be renewed or the building to be backfilled. The Company expects the tenants of two of these single-tenant buildings to vacate the buildings upon lease expiration. The annual base rent for leases that are not expected to renew or be backfilled in 2025 is $4.1 million.

Operating Leases

As of December 31, 2024, the Company was obligated to make rental payments under operating lease agreements consisting primarily of ground leases related to 142 real estate investments, excluding those ground leases the Company has prepaid. As of December 31, 2024, the Company had 215 properties totaling 16.1 million square feet that were held under ground leases with a remaining weighted average term of 63.6 years, including renewal options.

These ground leases typically have initial terms of 50 to 75 years with one or more renewal options extending the terms to 75 to 100 years, with expiration dates through 2119.

Purchase Options

The Company had approximately$111.4 million in real estate properties as of December 31, 2024 that were subject to exercisable purchase options. The Company has approximately $1.1 billionin real estate properties that are subject to purchase options that will become exercisable after 2024. Additional information about the amount and basis for determination of the purchase price is detailed in the table below (dollars in thousands):

1 Purchase option prices are based on fair market value components that are determined by an appraisal process, except for three properties totaling $45.4 million with stated prices or prices based on fixed capitalization rates.

2 These purchase options have been exercisable for an average of 15.1 years.

3 Includestwo medical outpatient properties that are recorded in the line item Investment in financing receivable, net on the Company's Consolidated Balance Sheet.

Debt Management

The Company maintains a flexible capital structure that allows it to fund new investments and operate its existing portfolio. The Company has approximately$45.3 million of mortgage notes payable, maturing in 2025 and 2026, most of which were assumed when the Company acquired properties. The Company will repay mortgages with cash on hand or borrowings under the Unsecured Credit Facility. The Company had $1.5 billion of outstanding debt that matures in 2025 and 2026. See additional information in “Liquidity and Capital Resources - Financing Activities” above.

Impact of Inflation

The Company is subject to the risk of inflation as most of its revenues are derived from long-term leases. Most of the Company's leases provide for fixed increases in base rents or increases based on the Consumer Price Index and require the tenant to pay all or some portion of increases in operating expenses. The Company believes that these provisions mitigate the impact of inflation. However, there can be no assurance that the Company's ability to increase rents or recover operating expenses will keep pace with inflation. The Company's leases have a weighted average lease term remaining of approximately 4.2 years. As of December 31, 2024, 95.6% of the Company's leases provide for fixed base rent increases and 4.4% provide for Consumer Price Index-based rent increases.

New Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements for information on new accounting standards including both standards that the Company adopted during the year and those that have not yet been adopted. The Company continues to evaluate the impact of the new standards that have not yet been adopted.

Other Items Impacting Operations

General and administrative expenses will fluctuate quarter-to-quarter. In the first quarter of each year, general and administrative expense include increases for certain expenses such as payroll taxes and healthcare savings account fundings. The Company expects these customary expenses to increase by approximately $0.9 million in the first quarter of 2025. Approximately $0.8 million is not expected to recur in subsequent quarters in 2025.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

The Company’s consolidated results of operations for 2024 compared to 2023 were impacted by acquisitions, developments, dispositions, gain on sales and impairment charges recorded on real estate properties, and capital markets transactions.

Revenues

Rental income decreased $76.4 million, or 5.8%, as a result of the following:

•Dispositions in 2023 and 2024 resulted in a decrease of $96.3 million.

•Acquisitions and developments in 2023 and 2024 contributed $2.3 million.

•Leasing activity, including contractual rent increases contributed $24.5 million.

•Reversed revenue related to the Steward bankruptcy resulted in a decrease of $6.2 million, including straight-line rent of $2.7 million.

•Reversed revenue related to the Prospect Medical bankruptcy resulted in a decrease of $0.7 million.

Other operating income increased $1.7 million, or 9.8%, from the prior year primarily as a result of income from management fees.

Expenses

Property operating expenses decreased $27.0 million, or 5.4%, from the prior year primarily as a result of the following activity:

•Dispositions in 2023 and 2024 resulted in a decrease of $35.9 million.

•Acquisitions and developments in 2023 and 2024 resulted in an increase of $0.8 million.

•Increases in portfolio operating expenses as follows:

◦Administrative, primarily leasing commissions, of $5.1 million;

◦Utilities of $2.7 million;

◦Property taxes of $1.9 million;

◦Security expense of $0.3 million; and

◦Janitorial expense of $0.2 million.

•Decreases in portfolio operating expenses were due to maintenance and repair expenses of $1.3 million and compensation expense of $0.8 million.

General and administrative expenses increased approximately $24.7 million, or 42.3%, from the prior year primarily as a result of the following activity:

•Increase in restructuring and severance-related charges of $28.3 million

•Decrease in payroll and payroll related expenses of approximately $2.4 million.

•Increase in cash compensation expense of $1.4 million.

•Increase in non-cash compensation incentive expense of $0.9 million.

•Other decreases including travel, legal and other administrative costs of $3.5 million.

There were no merger-related costs for the year ended December 31, 2024. Merger-related costs for the year ended December 31, 2023, included legal and consulting fees, which were offset by a refund related to state transfer taxes.

Depreciation and amortization expense decreased $55.6 million, or 7.6%, from the prior year primarily as a result of the following activity:

•Dispositions in 2023 and 2024 resulted in a decrease of $56.6 million.

•Acquisitions and developments in 2023 and 2024 resulted in an increase of $0.9 million.

•Various building and tenant improvement expenditures resulted in an increase of $39.0 million.

•Assets that became fully depreciated resulted in a decrease of $38.9 million.

Other Income (Expense)

Other income (expense), as an expense increased $361.2 million, or 107.4%, from the prior year mainly due to the following activity:

Gain on Sales of Real Estate Properties

Gains on the sale of real estate properties and other assets for the years ended December 31, 2024 and 2023 totaled $109.8 million and $77.5 million, respectively.

Interest Expense

Interest expense decreased$16.2 million for the year ended December 31, 2024 compared to the prior year. The components of interest expense are as follows:

Contractual interest decreased $11.9 million, or 5.7%, primarily as a result of the following activity:

•The Unsecured Term Loans accounted for an decrease of approximately $4.8 million, primarily due to the repayment of the $350 million Unsecured Term Loan, due 2025.

•The Unsecured Credit Facility accounted for a decrease of approximately$11.4 million.

•Active interest rate derivatives accounted for a decrease of $2.5 million, while expired interest rate derivatives accounted for an increase of $8.2 million.

•Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $1.4 million.

Impairment of Real Estate Assets and Credit Loss Reserves

Impairment of real estate assets in 2024 totaling approximately $249.9 million is associated with completed or planned disposition activity. Additionally, the Company recorded $59.5 million of credit loss reserves on its mortgage note receivables and a $4.1 million fair value adjustment for an equity investment in other assets.

Impairment of real estate assets in 2023 totaling approximately $149.7 million is associated with completed or planned disposition activity. Additionally, the Company recorded $5.2 million of credit loss reserves on its mortgage notes receivable.

Impairment of Goodwill

During the first quarter of 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 income (loss) from unconsolidated joint ventures

The Company recognizes its proportionate share of losses from its unconsolidated joint ventures. The losses are primarily attributable to non-cash depreciation expense. See Note 5 for more details regarding the Company's unconsolidated joint ventures.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The Company's discussion regarding the comparison of the year ended December 31, 2023 compared to the year ended December 31, 2022 was previously disclosed beginning on page 37 of the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 16, 2024, and is incorporated herein by reference.