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What changed in Healthcare Realty Trust Inc's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Healthcare Realty Trust Inc's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+254 added−245 removedSource: 10-K (2025-02-19) vs 10-K (2024-02-16)

Top changes in Healthcare Realty Trust Inc's 2024 10-K

254 paragraphs added · 245 removed · 189 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

31 edited+4 added−7 removed38 unchanged
Biggest changeExamples of significant legislation or regulatory action recently proposed, enacted, or in the process of implementation include: • the expansion of Medicaid benefits and health insurance exchanges established by the Affordable Care Act, whereby individuals and small businesses purchase health insurance with assistance from federal subsidies; • various state legislature proposals for state-funded single-payer health insurance and a limit on allowable rates of reimbursement to healthcare providers; • the implementation of quality control, cost containment, and value-based payment system reforms for Medicaid and Medicare, such as expansion of pay-for-performance criteria, bundled provider payments, accountable care organizations, comparative effectiveness research, and lower payments for hospital readmissions; • ongoing evaluation of and transition toward value-based reimbursement models for Medicare payments to physicians as designated under MACRA; • annual regulatory updates to Medicare policy for healthcare providers that can broadly change reimbursement methodology under budget-neutral guidelines, with the effect of lowering payments for some services and increasing payments for others, having a varying impact, positively or negatively, on providers; • ongoing efforts to equalize Medicare payment rates across different facility-type settings, according to Section 603 of the Bipartisan Budget Act of 2015, which lowered Medicare payment rates, effective January 1, 2017, for services provided in off-campus, provider-based outpatient departments to the same level of rates for physician office settings; • the continued adoption by providers of federal standards for the Medicare Promoting Interoperability Program; • reforms to the physician self-referral laws, commonly referred to as the Stark Law, as adjusted in 2020 in order to promote the transition toward value-based, coordinated care among providers, although clear intent to boost referrals could still yield provider penalties; • consideration of broad reforms to Medicare and Medicaid, including a significant expansion of Medicare coverage to the greater U.S. population; • more stringent regulatory criteria by which federal antitrust agencies evaluate the potential for anti-competitive practices as a result of mergers and acquisitions of health systems and physicians; • regulations requiring the publication of hospital prices for certain services, as well as hospitals’ negotiated rates with insurers for these services; 4 • limits on price increases in pharmaceutical drugs and the cost to Medicare beneficiaries, including the potential for setting prices according to an international standard; and • the prohibition of “surprise billing,” or high payment rates charged to consumers for out-of-network physician services.
Biggest changeExamples of significant legislation or regulatory action recently proposed, enacted, or in the process of implementation include: • federal legislative proposals that would prohibit payments from federal healthcare programs to healthcare providers that sell assets to REITs or use assets as collateral for loans from REITs; • state legislation and legislative proposals that (i) prohibit licensure of certain healthcare facilities leased from REITs, (ii) require additional government oversight and approval of healthcare provider transactions involving a change in control or sales of assets, including real estate, and (iii) impose public reporting requirements on ownership and control of healthcare provider entities; • the expansion or reduction of, or the decision in some states not to expand, Medicaid benefits and health insurance exchange subsidies established by the Affordable Care Act, whereby individuals and small businesses purchase health insurance with assistance from federal subsidies; • various state legislature proposals for state-funded single-payer health insurance and a limit on allowable rates of reimbursement to healthcare providers; • the implementation of quality control, cost containment, and value-based payment system reforms for Medicaid and Medicare, such as expansion of pay-for-performance criteria, bundled provider payments, accountable care organizations, comparative effectiveness research, and lower payments for hospital readmissions; • ongoing evaluation of and transition toward value-based reimbursement models for Medicare payments to physicians as designated under MACRA; 4 • annual regulatory updates to Medicare policy for healthcare providers that can broadly change reimbursement methodology under budget-neutral guidelines, with the effect of lowering payments for some services and increasing payments for others, having a varying impact, positively or negatively, on providers; • ongoing efforts to equalize Medicare payment rates across different facility-type settings, according to Section 603 of the Bipartisan Budget Act of 2015, which lowered Medicare payment rates, effective January 1, 2017, for services provided in off-campus, provider-based outpatient departments to the same level of rates for physician office settings; • the continued adoption by providers of federal standards for the Medicare Promoting Interoperability Program; • reforms to the physician self-referral laws, commonly referred to as the Stark Law, as adjusted in 2020 in order to promote the transition toward value-based, coordinated care among providers, although clear intent to boost referrals could still yield provider penalties; • consideration of broad reforms to Medicare and Medicaid impacting eligibility and reimbursement; • more stringent regulatory criteria by which federal antitrust agencies evaluate the potential for anti-competitive practices as a result of mergers and acquisitions of health systems and physicians; • state and federal regulations requiring increased scrutiny of healthcare-related transactions, particularly those involving REITs and private equity firms; • regulations requiring the publication of hospital prices for certain services, as well as hospitals’ negotiated rates with insurers for these services; • limits on price increases in pharmaceutical drugs and the cost to Medicare beneficiaries, including the potential for setting prices according to an international standard; and • the prohibition of “surprise billing,” or high payment rates charged to consumers for out-of-network physician services.
Operations of the properties owned, developed or managed by the Company are and will continue to be subject to numerous federal, state, and local environmental laws, ordinances and regulations, including those relating to the following: the generation, segregation, handling, packaging and disposal of medical wastes; air quality requirements related to operations of generators, incineration devices, or sterilization equipment; facility siting and construction; disposal of non-medical wastes and ash from incinerators; and underground storage tanks.
Operations of the properties owned, developed or managed by the Company are and will continue to be subject to numerous federal, state, and local environmental laws, ordinances and regulations, including those relating to the following: the generation, segregation, handling, packaging and disposal of medical wastes; air quality requirements related to operations of generators, incineration devices, or sterilization equipment; facility siting and construction; 5 disposal of non-medical wastes and ash from incinerators; and underground storage tanks.
Available Information The Company makes available to the public free of charge through its website the Company’s Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after the Company electronically files such reports with, or furnishes such reports to, the SEC.
Available Information The Company makes available to the public free of charge through its website the Company’s Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after the Company electronically files such reports with, or furnishes such reports to, the Securities and Exchange Commission ("SEC").
To retain talented employees who contribute to the Company’s strategic objectives, we offer an attractive set of employee benefits, including: • Health benefits and 401(k) starting on the first day of employment; • Dollar-for-dollar match on 401(k) contributions up to $2,800, encouraging higher employee savings; • 100% of long-term disability and life insurance premiums paid; and • Tuition reimbursement up to $3,000 annually for any employee pursuing higher education.
To retain talented employees who contribute to the Company’s strategic objectives, we offer an attractive set of employee benefits, including: • Health benefits and 401(k) eligibility starting on the first day of employment; • Dollar-for-dollar match on 401(k) contributions up to $2,800, encouraging higher employee savings; • 100% of long-term disability and life insurance premiums paid; and • Tuition reimbursement up to $3,000 annually for any employee pursuing higher education.
As we implement our strategy and pursue our objectives, the Company’s actions are guided by our Sustainability Principles and Policies, to ensure continuous improvement and long-term success. Our Sustainability Principles and Policies include: a. Integration : Embed and integrate leading environmental, social and governance practices designed to enhance portfolio performance into the Company’s daily operations. b.
As we implement our strategy and pursue our objectives, the Company’s actions are guided by our Sustainability Principles and Policies, to ensure continuous improvement and long-term success. Our Sustainability Principles and Policies include: 6 a. Integration : Embed and integrate leading environmental, social and governance practices designed to enhance portfolio performance into the Company’s daily operations. b.
However, the Company has not seen a material impact from site-neutral Medicare payment policy, positively or negatively. The Company cannot predict the amount of benefit from these measures or if other federal health policy will ultimately require cuts to reimbursement rates for services provided in other settings.
However, the Company has not seen a material impact from site-neutral Medicare payment policy, positively or negatively. The Company cannot predict the amount of benefit or loss from these measures or if other federal health policy will ultimately require cuts to reimbursement rates for services provided in other settings.
Implementation of MACRA, and the ongoing debate over the most effective payment system to use to promote value-based reimbursement, along with its budget-neutrality rule that requires 3 any increases in payments to be offset by decreases, present the industry and its individual participants with uncertainty and financial risk.
Implementation of MACRA, and the ongoing debate over the most effective payment system to use to promote value-based reimbursement, along with its budget-neutrality rule that requires any increases in payments to be offset by decreases, present the industry and its individual participants with uncertainty and financial risk.
Item 1. Business The Company is a self-managed and self-administered real estate investment trust (“REIT”) that owns, leases, manages, acquires, finances, develops and redevelops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. The Company operates so as to qualify as a REIT for federal income tax purposes.
Item 1. Business Healthcare Realty Trust Incorporated is a self-managed and self-administered real estate investment trust (“REIT”) that owns, leases, manages, acquires, finances, develops and redevelops income-producing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. The Company operates so as to qualify as a REIT for federal income tax purposes.
Changes from year to year in reimbursement methodology, rates and other regulatory requirements may cause the profitability of providing care to Medicare and Medicaid patients to decline, which could adversely affect tenants' ability to make lease payments to the Company. The Centers for Medicare and Medicaid Services continued to adjust Medicare payment rates in 2023 to implement site-neutral payment policies.
Changes from year to year in reimbursement methodology, rates and other regulatory requirements may cause the profitability of providing care to Medicare and Medicaid patients to decline, which could adversely affect tenants' ability to make lease payments to the Company. 3 The Centers for Medicare and Medicaid Services continued to adjust Medicare payment rates in 2024 to implement site-neutral payment policies.
More information regarding the Company’s Sustainability Principles and Policies and ESG performance can be found in the Company’s 2023 Corporate Responsibility Report on its website ( www.healthcarerealty.com ).
More information regarding the Company’s Sustainability Principles and Policies and ESG performance can be found in the Company’s 2024 Corporate Responsibility Report on its website ( www.healthcarerealty.com ).
Additional information regarding employee and community engagement is available in the 2023 Corporate Responsibility Report, which is posted on the Company's website ( www.healthcarerealty.com ).
Additional information regarding employee and community engagement is available in the 2024 Corporate Responsibility Report, which is posted on the Company's website ( www.healthcarerealty.com ).
See the Company's discussion regarding the 2023 acquisition, joint venture and disposition activity in Note 5 to the Consolidated Financial Statements and development activity in Note 15 to the Consolidated Financial Statements. Also, please refer to the Company's discussion in "Trends and Matters Impacting Operating Results" as part of Item 7.
See the Company's discussion regarding the 2024 joint venture and disposition activity in Note 5 to the Consolidated Financial Statements and development activity in Note 15 to the Consolidated Financial Statements. Also, please refer to the Company's discussion in "Trends and Matters Impacting Operating Results" as part of Item 7.
The Company expects to meet its liquidity needs through cash on hand, cash flows from operations, property dispositions, equity and debt issuances in the public or private markets and borrowings under commercial credit facilities. Business Strategy The Company owns and operates properties that facilitate the delivery of healthcare services in primarily outpatient settings.
The Company expects to meet its liquidity needs through cash on hand, cash flows from operations, asset sales and joint venture contributions, equity and debt issuances in the public or private markets and borrowings under commercial credit facilities. Business Strategy The Company owns and operates properties that facilitate the delivery of healthcare services in primarily outpatient settings.
There was one property excluded from the table above that was classified as held for sale as of December 31, 2023. 2 Includes one real estate property held in a consolidated joint venture. 3 Investments in financing receivables, net includes an investment of $115.2 million in a single-tenant net lease property in San Diego, CA related to a sale-leaseback transaction. 4 Financing lease right-of-use assets includes a multi-tenant lease property in Columbus, OH related to a sale-leaseback transaction totaling $15.8 million, of which $8.4 million was accounted for as an imputed lease arrangement as required under ASC 842, Leases.
There were three properties excluded from the table above that were classified as held for sale as of December 31, 2024. 2 Includes two real estate properties held in consolidated joint ventures. 1 3 Investments in financing receivables, net includes an investment of $116.3 million in a single-tenant net lease property in San Diego, CA related to a sale-leaseback transaction. 4 Financing lease right-of-use assets includes a multi-tenant lease property in Columbus, OH related to a sale-leaseback transaction totaling $15.6 million, of which $8.2 million was accounted for as an imputed lease arrangement as required under ASC 842, Leases.
The consolidated company operates under the name “Healthcare Realty Trust Incorporated” and its shares of class A common stock, $0.01 par value per share, trade under the ticker symbol “HR”.
The combined company operates under the name “Healthcare Realty Trust Incorporated” and its shares of class A common stock, $0.01 par value per share, trade on the New York Stock Exchange under the ticker symbol “HR”.
The Company had a weighted average ownership interest of approximately 43% in 33 real estate properties held in unconsolidated joint ventures as of December 31, 2023. The Company provided leasing and property management services to 93% of its portfolio nationwide as of December 31, 2023.
The Company had a weighted average ownership interest of approximately 31% in 63 real estate properties held in unconsolidated joint ventures as of December 31, 2024. The Company provided leasing and property management services to 92% of its portfolio nationwide as of December 31, 2024.
These laws and regulations establish, among other things, requirements for state licensure and criteria for medical tenants to participate in government-sponsored reimbursement programs, including the Medicare and Medicaid programs. The Company's leases generally require the tenant to comply with all applicable laws relating to the tenant's use and occupation of the leased premises.
Medical tenants are subject to state and federal laws and regulations that establish, among other things, requirements for participation in government-sponsored reimbursement programs, including the Medicare and Medicaid programs. The Company's leases generally require the tenant to comply with all applicable laws relating to the tenant's use and occupation of the leased premises.
Real Estate Properties The Company had gross investments of approximately $13.4 billion in 655 consolidated real estate properties, construction in progress, redevelopments, financing receivables, financing lease right-of-use assets, land held for development and corporate property as of December 31, 2023.
Real Estate Properties The Company had gross investments of approximately $11.8 billion in 589 consolidated real estate properties, construction in progress, redevelopments, financing receivables, financing lease right-of-use assets, land held for development and corporate property as of December 31, 2024.
The Company cannot predict whether any proposals, rulings, or legislation will be fully implemented, adopted, repealed, or amended, or what effect, whether positive or negative, such developments might have on the Company's business.
The Company cannot predict whether any proposals, rulings, or legislation will be fully implemented, adopted, repealed, or amended, or what effect, whether positive or negative, such developments might have on the Company's business. Such proposals, rulings, or legislation could have a material adverse effect on the Company's business and results of operations.
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. 2023 Investment Activity In 2023, the Company acquired two medical office buildings.
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. 2 2024 Investment Activity In 2024, the Company completed no property acquisitions.
The Company calculates the capitalization rate for dispositions as the in-place cash net operating income divided by the sales price. In 2023, the Company funded $112.2 million toward development and redevelopment of properties.
The weighted average capitalization rate for these sales was 6.6%. The Company calculates the capitalization rate for dispositions as the in-place cash net operating income divided by the sales price. In 2024, the Company funded $150.6 million toward development and redevelopment of properties.
As of December 31, 2023, the Company employed 584 people. Our employees are comprised of accountants, maintenance engineers, property managers, leasing personnel, architects, administrative staff, an investments team, and the corporate management team. By supporting, recognizing, and investing in our employees, we believe that we are able to attract and retain the highest quality talent.
Our employees are comprised of accountants, maintenance engineers, property managers, leasing personnel, architects, administrative staff, an investments team, and the corporate management team. By supporting, recognizing, and investing in our employees, we believe that we are able to attract and retain the highest quality talent. We are committed to fostering, cultivating, and preserving a culture of diversity and inclusion.
We are committed to fostering, cultivating, and preserving a culture of diversity and inclusion. We embrace employee differences in race, color, religion, sex, sexual orientation, national origin, age, disability, veteran status, and other characteristics that make our employees unique.
We embrace employee differences in race, color, religion, sex, sexual orientation, national origin, age, disability, veteran status, and other characteristics that make our employees unique.
These proposals, individually or in the aggregate, could significantly change the delivery of healthcare services, either nationally or at the state level, if implemented.
These proposals, individually or in the aggregate, could significantly change the delivery of healthcare services and limit the ability of the Company and other REITs to own and lease certain healthcare facilities, either nationally or at the state level, if implemented.
The table below details the Company’s lease expirations as of December 31, 2023, excluding the Company's unconsolidated joint ventures, financing receivables, assets held for sale and right-of-use assets.
Expiring Leases As of December 31, 2024, the weighted average remaining years to expiration pursuant to the Company’s leases was approximately 4.2 years, with expirations through 2052. The table below details the Company’s lease expirations as of December 31, 2024, excluding the Company's unconsolidated joint ventures, financing receivables, assets held for sale and right-of-use assets.
In addition, the terms of the Company’s leases do not give the Company control over the operational activities of its tenants or healthcare operators, nor will the Company monitor the tenants or healthcare operators with respect to environmental matters. 5 Human Capital Resources We believe our employees are a critical component to the achievement of our business objectives and recognition as a trusted owner and operator of medical office properties.
In addition, the terms of the Company’s leases do not give the Company control over the operational activities of its tenants or healthcare operators, nor will the Company monitor the tenants or healthcare operators with respect to environmental matters.
The following table details the Company's owned properties by facility type as of December 31, 2023: December 31, 2023 Dollars and square feet in thousands GROSS INVESTMENT SQUARE FEET NUMBER OF PROPERTIES OCCUPANCY 1 Medical office/outpatient 2 $ 12,160,240 35,677 630 87.1 % Inpatient 439,464 934 15 89.9 % Office 467,182 1,631 8 96.2 % 13,066,886 38,242 653 87.5 % Construction in progress 60,727 Land held for development 59,871 Investments in financing receivables, net 3,4 122,602 160 1 100.0 % Financing lease right-of-use assets 4 82,209 72 1 83.7 % Corporate property 6,772 Total real estate investments 13,399,067 38,474 655 87.6 % Unconsolidated joint ventures 5 340,644 1,837 33 87.2 % Total investments $ 13,739,711 40,311 688 87.5 % 1 The occupancy column represents the percentage of total rentable square feet leased (including month-to-month and holdover leases).
The following table details the Company's owned properties by facility type as of December 31, 2024: December 31, 2024 Dollars and square feet in thousands INVESTMENT SQUARE FEET NUMBER OF PROPERTIES OCCUPANCY 1 Medical office/outpatient 2 $ 10,656,096 31,919 565 87.4 % Inpatient 438,074 934 15 95.3 % Office 426,690 1,357 6 97.4 % 11,520,860 34,210 586 88.0 % Construction in progress 31,978 101 1 Land held for development 52,408 Investments in financing receivables, net 3,4 123,671 160 1 100.0 % Financing lease right-of-use assets 4 77,343 45 1 68.5 % Corporate property 4,450 Total real estate investments 11,810,710 34,516 589 88.0 % Unconsolidated joint ventures 5 473,122 4,030 63 89.8 % Total investments $ 12,283,832 38,546 652 88.2 % 1 The occupancy column represents the percentage of total rentable square feet leased (including month-to-month and holdover leases).
The remaining $7.4 million was accounted for as a financing arrangement and is included in investments in financing receivables, net. 5 Gross investment includes the Company's pro rata share of unconsolidated joint ventures, net of mortgage notes payable.
The remaining $7.4 million was accounted for as a financing arrangement and is included in investments in financing receivables, net. 5 Represents the Company's equity investment in unconsolidated joint ventures. Square feet have not been adjusted by the Company's ownership percentage. Financial Concentrations The Company’s real estate portfolio is leased to a diverse tenant base.
Square feet have not been adjusted by the Company's ownership percentage. 1 Financial Concentrations The Company’s real estate portfolio is leased to a diverse tenant base. For the year ended December 31, 2023, the Company did not have any tenants that accounted for 10% or more of the Company’s consolidated revenues.
For the year ended December 31, 2024, the Company did not have any tenants that accounted for 10% or more of the Company’s consolidated revenues. See Note 3 to the Consolidated Financial Statements for additional information regarding the Company's gross investments by geographic market.
These transactions yielded net cash proceeds of $687.6 million, net of $36.9 million of closing costs and related adjustments, $58.7 million in Company financed notes and $3.8 million of retained joint venture interests. The 2 weighted average capitalization rate for these sales was 6.5%.
The Company disposed of 67 properties in 2024 for sales prices totaling $1.5 billion, including 30 properties contributed into two unconsolidated 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.
EXPIRATION YEAR NUMBER OF LEASES LEASED SQUARE FEET PERCENTAGE OF LEASED SQUARE FEET 2024 (1) 1,610 6,081,500 18.2 % 2025 1,096 4,567,388 13.6 % 2026 1,061 4,086,806 12.2 % 2027 856 4,216,127 12.6 % 2028 835 3,732,888 11.1 % 2029 402 2,051,552 6.1 % 2030 367 2,531,991 7.6 % 2031 252 1,198,077 3.6 % 2032 295 2,139,548 6.4 % 2033 203 1,123,683 3.4 % Thereafter 203 1,750,005 5.2 % 7,180 33,479,565 100.0 % 1 Includes 189 leases totaling 397,188 square feet that expired prior to December 31, 2023, and were on month-to-month terms.
EXPIRATION YEAR NUMBER OF LEASES LEASED SQUARE FEET PERCENTAGE OF LEASED SQUARE FEET 2025 (1) 1,418 5,264,353 17.5 % 2026 1,029 3,947,479 13.1 % 2027 1,071 4,553,597 15.1 % 2028 814 3,400,507 11.3 % 2029 804 3,548,010 11.8 % 2030 351 2,213,933 7.4 % 2031 315 1,606,677 5.3 % 2032 290 1,891,102 6.3 % 2033 179 765,997 2.5 % 2034 197 1,109,560 3.7 % Thereafter 197 1,803,299 6.0 % 6,665 30,104,514 100.0 % 1 Includes 109 leases totaling 257,954 square feet that expired prior to December 31, 2024, and were on month-to-month terms.
Removed
As described in the Explanatory Note 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.
Added
On July 20, 2022, pursuant to that certain Agreement and Plan of Merger dated as of February 28, 2022, by and among Healthcare Realty Trust Incorporated, a Maryland corporation (now known as HRTI, LLC, a Maryland limited liability company) (“Legacy HR”), Healthcare Trust of America, Inc., a Maryland corporation (now known as Healthcare Realty Trust Incorporated) (“Legacy HTA”), Healthcare Trust of America Holdings, LP, a Delaware limited partnership (now known as Healthcare Realty Holdings, L.P.) (the “OP”), and HR Acquisition 2, LLC, a Maryland limited liability company (“Merger Sub”), Merger Sub merged with and into Legacy HR, with Legacy HR continuing as the surviving entity and a wholly-owned subsidiary of Legacy HTA (the “Merger”).
Removed
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.
Added
For purposes of this Annual Report on Form 10-K, references to “Healthcare Realty Trust”, the “Company”, “we”, “us”, and “our” are to Legacy HTA after giving effect to the Merger and, unless the context requires otherwise, to its consolidated subsidiaries, including the OP. Additionally, any references to the “Company” for periods prior to the Merger are to Legacy HR.
Removed
See Note 3 to the Consolidated Financial Statements for additional information regarding the Company's gross investments by geographic market. Expiring Leases As of December 31, 2023, the weighted average remaining years to expiration pursuant to the Company’s leases was approximately 4.2 years, with expirations through 2052.
Added
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.
Removed
The total purchase price of the acquisitions was $43.0 million and the weighted average capitalization rate for these investments was 6.5%. The Company disposed of 39 properties in 2023 for sales prices totaling $787.0 million, including a regional corporate office and one property contributed into a joint venture in which the Company maintains a non-controlling interest.
Added
Human Capital Resources We believe our employees are a critical component to the achievement of our business objectives and recognition as a trusted owner and operator of medical office properties. As of December 31, 2024, the Company employed 550 people.
Removed
In addition, we are committed to supporting the performance and career development of all employees, from encouraging staff accountants to sit for the CPA exam to supporting our maintenance engineers in earning various certifications. As owners and operators of medical real estate, we recognize the value of health and wellbeing among our own employees.
Removed
As we have for many years, Healthcare Realty provides corporate employees with gym membership discounts to encourage fitness. In addition, we offer monthly wellness challenges and resources that provide our employees with tools to enhance their wellbeing.
Removed
The Company's unsecured credit facility (described in more detail herein) contains a sustainability-linked provision that can reduce borrowing costs if the Company meets certain metrics relating to green building certifications. The 6 Company met the metrics in 2023 and, as a result, will save one basis point on the cost of its borrowings under the unsecured credit facility in 2024.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

52 edited+17 added−5 removed134 unchanged
Biggest changeThe Company is subject to certain risks associated with the development and redevelopment of properties including the following: • The construction of properties generally requires various government and other approvals that may not be received when expected, or at all, which could delay or preclude commencement of construction; 9 • Opportunities that the Company pursued but later abandoned could result in the expensing of pursuit costs, which could impact the Company’s consolidated results of operations; • Construction costs could exceed original estimates, which could impact the building’s profitability to the Company; • Operating expenses could be higher than forecasted; • Time required to initiate and complete the construction of a property and to lease up a completed property may be greater than originally anticipated, thereby adversely affecting the Company’s cash flow and liquidity; • Occupancy rates and rents of a completed development property may not be sufficient to make the property profitable to the Company; and • Favorable capital sources to fund the Company’s development and redevelopment activities may not be available when needed.
Biggest changeThe Company is subject to certain risks associated with the development and redevelopment of properties including the following: • The construction of properties generally requires various government and other approvals that may not be received when expected, or at all, which could delay or preclude commencement of construction; • The development, construction or expansion of healthcare facilities in certain states may require a certificate of need approval prior to commencing such projects or allowing tenants to occupy and operate on the property; • Opportunities that the Company pursued but later abandoned could result in the expensing of pursuit costs, which could impact the Company’s consolidated results of operations; • Construction costs could exceed original estimates, which could impact the building’s profitability to the Company; • Operating expenses could be higher than forecasted; • Time required to initiate and complete the construction of a property and to lease up a completed property may be greater than originally anticipated, thereby adversely affecting the Company’s cash flow and liquidity; • Occupancy rates and rents of a completed development or redevelopment property may not be sufficient to make the property profitable to the Company; and • Favorable capital sources to fund the Company’s development and redevelopment activities may not be available when needed. 10 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 .
These risks, as well as the risks described in Item 1 under the headings “Competition,” “Government Regulation,” “Legislative Developments,” and “Environmental Matters,” and in Item 7 under the heading “Disclosure Regarding Forward-Looking Statements,” should be carefully considered before making an investment decision regarding the Company.
These risks, as well as the risks described in Item 1 under the headings “Competition,” “Government Regulation,” “Legislative Developments,” and “Environmental Matters,” and in Item 7 under the heading “Disclosure Regarding Forward-Looking Statements,” should be carefully considered before making an investment decision regarding the 7 Company.
This may be the result of various factors, including, but not limited to: changes in the economy; the availability and 7 cost of capital at favorable rates; increases in property taxes, utilities and other operating expenses; changes to facility-related healthcare regulations; changes in interest rates; competition for quality assets; negative developments in the operating results or financial condition of the Company's tenants, including, but not limited to, their ability to pay rent; the Company's ability to reposition or sell facilities with profitable results; the Company's ability to re-lease space at similar rates as vacancies occur; the Company's ability to timely reinvest proceeds from the sale of assets at similar yields; government regulations affecting tenants' Medicare and Medicaid reimbursement rates and operational requirements; unanticipated difficulties and/or expenditures relating to future acquisitions and developments; changes in rules or practices governing the Company's financial reporting; and other legal and operational matters.
This may be the result of various factors, including, but not limited to: changes in the economy; the availability and cost of capital at favorable rates; increases in property taxes, utilities and other operating expenses; changes to facility-related healthcare regulations; changes in interest rates; competition for quality assets; negative developments in the operating results or financial condition of the Company's tenants, including, but not limited to, their ability to pay rent; the Company's ability to reposition or sell facilities with profitable results; the Company's ability to re-lease space at similar rates as vacancies occur; the Company's ability to timely reinvest proceeds from the sale of assets at similar yields; government regulations affecting tenants' Medicare and Medicaid reimbursement rates and operational requirements; unanticipated difficulties and/or expenditures relating to future acquisitions and developments; changes in rules or practices governing the Company's financial reporting; and other financial, legal and operational matters.
A security breach or other significant disruption involving the Company's IT network and related systems could: • disrupt the proper functioning of the Company's networks and systems and therefore the Company's operations and/or those of certain tenants; • result in misstated financial reports, violations of loan covenants, missed reporting deadlines, and/or missed permitting deadlines; • result in the Company's inability to properly monitor its compliance with the rules and regulations regarding the Company's qualification as a REIT; • result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, or otherwise valuable information of the Company or others, which others could use to compete against the Company or which could expose it to damage claims by third parties for disruption, destructive, or otherwise harmful purposes or outcomes; • result in the Company's inability to maintain the building systems relied upon by its tenants for the efficient use of their leased space; • require significant management attention and resources to remedy any damages that result; • subject the Company to claims for breach of contract, damages, credits, penalties, or termination of leases or other agreements; or • damage the Company's reputation among its tenants and investors generally.
A security breach or other significant disruption involving the Company's IT network and related systems could: • disrupt the proper functioning of the Company's networks and systems and therefore the Company's operations and/or those of certain tenants; • result in misstated financial reports, violations of loan covenants, missed reporting deadlines, and/or missed permitting deadlines; • result in the Company's inability to properly monitor its compliance with the rules and regulations regarding the Company's qualification as a REIT; • result in loss, theft, or misappropriation of Company funds, or funds held by tenants or other parties; • result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive, or otherwise valuable information of the Company or others, which others could use to compete against the Company or which could expose it to damage claims by third parties for disruption, destructive, or otherwise harmful purposes or outcomes; • result in the Company's inability to maintain the building systems relied upon by its tenants for the efficient use of their leased space; • require significant management attention and resources to remedy any damages that result; • subject the Company to claims for breach of contract, damages, credits, penalties, or termination of leases or other agreements; or • damage the Company's reputation among its tenants and investors generally.
Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, there can be no assurance that the Company can comply in all cases with the safe harbor or that it will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of 20 business.
Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, there can be no assurance that the Company can comply in all cases with the safe harbor or that it will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business.
The Company's credit ratings could be downgraded. If the Company's credit ratings are downgraded or other negative action is taken, the Company could be required, among other things, to pay additional interest and fees on borrowings under the Unsecured Credit Facility. 15 Increases in interest rates could have a material adverse effect on the Company's cost of capital.
The Company's credit ratings could be downgraded. If the Company's credit ratings are downgraded or other negative action is taken, the Company could be required, among other things, to pay additional interest and fees on borrowings under the Unsecured Credit Facility. Increases in interest rates could have a material adverse effect on the Company's cost of capital.
Any such refinancing could also impose tighter financial ratios and other covenants that restrict the Company's ability to take actions that could otherwise be in its best interest, such as funding new development activity, making opportunistic acquisitions, or paying dividends.
Any such refinancing could also impose tighter financial 15 ratios and other covenants that restrict the Company's ability to take actions that could otherwise be in its best interest, such as funding new development activity, making opportunistic acquisitions, or paying dividends.
Moreover, if the Company were 12 required to repurchase units for cash at a time when it did not have sufficient cash to fund the repurchase, the Company might be required to sell one or more of its properties to raise funds to satisfy this obligation.
Moreover, if the Company were required to repurchase units for cash at a time when it did not have sufficient cash to fund the repurchase, the Company might be required to sell one or more of its properties to raise funds to satisfy this obligation.
The federal income tax rules that affect REITs are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations.
The federal income tax rules that affect REITs are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent 21 revisions to regulations and interpretations.
If the contributor required the Company to repurchase units for cash pursuant to such a provision, it would limit the Company's liquidity and, thus, its ability to use cash to make other investments, satisfy other obligations or make distributions to stockholders.
If the contributor required the Company to repurchase units for cash pursuant to such a provision, it would limit the Company's liquidity and, thus, 13 its ability to use cash to make other investments, satisfy other obligations or make distributions to stockholders.
The exercise of these purchase options 8 exposes the Company to reinvestment risk and a reduction in investment return. Certain properties subject to purchase options may be purchased at rates of return above the rates of return the Company expects to achieve with new investments.
The exercise of these purchase options exposes the Company to reinvestment risk and a reduction in investment return. Certain properties subject to purchase options may be purchased at rates of return above the rates of return the Company expects to achieve with new investments.
In the event 16 that we recognize a significant gain from the cash settlement of a forward equity agreement, we might be unable to satisfy the gross income requirements applicable to REITs under the Internal Revenue Code.
In the event that we recognize a significant gain from the cash settlement of a forward equity agreement, we might be unable to satisfy the gross income requirements applicable to REITs under the Internal Revenue Code.
In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve energy efficiency of our existing properties and could require the Company to spend more on development and redevelopment properties without a corresponding increase in revenue. 11 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 .
In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve energy efficiency of our existing properties and could require the Company to spend more on development and redevelopment properties without a corresponding increase in revenue. 12 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 .
In addition, under these circumstances, the Company has the right to redeem such stock. 19 In addition, certain provisions of the MGCL applicable to the Company may have the effect of inhibiting or deterring a third party from making a proposal to acquire the Company or of delaying or preventing a change of control under circumstances that otherwise could provide Company stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including: • provisions under Subtitle 8 of Title 3 of the MGCL that permit the Board of Directors, without stockholders’ approval and regardless of what is currently provided in the Company's Articles of Incorporation or bylaws, to implement certain takeover defenses; • “business combination” provisions that, subject to limitations, prohibit certain business combinations, asset transfers and equity security issuances or reclassifications between the Company and an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the Company's outstanding voting stock or an affiliate or associate of the Company who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the Company's then outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose supermajority voting requirements unless certain minimum price conditions are satisfied; and • “control share” provisions that provide that holders of “control shares” of the Company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by Company stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
In addition, certain provisions of the MGCL applicable to the Company may have the effect of inhibiting or deterring a third party from making a proposal to acquire the Company or of delaying or preventing a change of control under circumstances that otherwise could provide Company stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including: • provisions under Subtitle 8 of Title 3 of the MGCL that permit the Board of Directors, without stockholders’ approval and regardless of what is currently provided in the Company's Articles of Incorporation or bylaws, to implement certain takeover defenses; 20 • “business combination” provisions that, subject to limitations, prohibit certain business combinations, asset transfers and equity security issuances or reclassifications between the Company and an “interested stockholder” (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the Company's outstanding voting stock or an affiliate or associate of the Company who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the Company's then outstanding stock) or an affiliate of an interested stockholder for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter may impose supermajority voting requirements unless certain minimum price conditions are satisfied; and • “control share” provisions that provide that holders of “control shares” of the Company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights except to the extent approved by Company stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
As of December 31, 2023, the Company had weighted average annual fixed rent escalators of 2.82% with its wholly-owned and consolidated properties. The Company’s real estate investments are illiquid and the Company may not be able to sell properties strategically targeted for disposition .
As of December 31, 2024, the Company had weighted average annual fixed rent escalators of 2.82% with its wholly-owned and consolidated properties. The Company’s real estate investments are illiquid and the Company may not be able to sell properties strategically targeted for disposition .
The Company owns 36 properties in California, representing 7.1% of its total revenue. From time to time, proposals have been made to reduce the beneficial impact of Proposition 13 , particularly with respect to commercial property, which would include medical office buildings.
The Company owns 31 properties in California, representing 7.1% of its total revenue. From time to time, proposals have been made to reduce the beneficial impact of Proposition 13 , particularly with respect to commercial property, which would include medical office buildings.
In such an event, the Company cannot be certain that the Company would be able to replace the coverage at similar or otherwise favorable terms. The Company has obtained title insurance policies for each of its properties, typically in an amount equal to its original price.
In such an event, the Company cannot be certain that the Company would be able to replace the coverage at similar or otherwise favorable terms. The Company has obtained title insurance policies for each of its properties, typically in an amount equal to its purchase price.
The Company’s continued qualification as a REIT will depend on the Company’s satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other 18 requirements on a continuing basis.
The Company’s continued qualification as a REIT will depend on the Company’s satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other 19 requirements on a continuing basis.
The risks and uncertainties described below are not the only ones facing the Company, and there may be additional risks that the Company does not presently know of or that the Company currently considers not likely to have a material impact.
The risks and uncertainties described in Item 1 and below are not the only ones facing the Company, and there may be additional risks that the Company does not presently know of or that the Company currently considers not likely to have a material impact.
The stockholders of the Company may not receive dividends at the same rate they received previously for various reasons, including the following: (i) the Company may not have enough cash to pay such dividends due to changes in the Company's cash requirements, capital spending plans, cash flow or financial position; (ii) decisions on whether, when and in what amounts to make any future distributions will remain at all times entirely at the discretion of the Board of Directors, which reserves the right to change the Company's current dividend practices at any time and for any reason; (iii) the Company may desire to retain cash to maintain or improve its credit ratings; and (iv) the amount of dividends that the Company's subsidiaries may distribute to the Company may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.
The stockholders of the Company may not receive dividends at the same rate they received previously for various reasons, including the following: (i) the Company may not have enough cash to pay such dividends due to changes in the Company's cash requirements, capital spending plans, cash flow or financial position; (ii) decisions on whether, when and in what amounts to make any future distributions will remain at all times entirely at the discretion of the Board of Directors, which reserves the right to change the Company's current dividend practices at any time and for any reason; (iii) reduction of outstanding indebtedness; and (iv) the amount of dividends that the Company's subsidiaries may distribute to the Company may be subject to restrictions imposed by state law, restrictions that may be imposed by state regulators, and restrictions imposed by the terms of any current or future indebtedness that these subsidiaries may incur.
The healthcare service industry may be affected by the following: • transition to value-based care and reimbursement of providers; • competition among healthcare providers; • consolidation among healthcare providers, health insurers, hospitals and health systems; • a rise in government-funded health insurance coverage; • pressure on providers' operating profit margins from lower reimbursement rates, lower admissions growth, and higher expense growth; • availability of capital; • credit downgrades; • liability insurance expense; • rising pharmaceutical drug expense; 17 • regulatory and government reimbursement uncertainty related to the Medicare and Medicaid programs; • a trend toward government regulation of pharmaceutical pricing; • government regulation of hospitals' and health insurers' pricing transparency; • federal court decisions on cases challenging the legality of the Affordable Care Act, in whole or in part; • site-neutral rate-setting for Medicare services across different care settings; • disruption in patient volume and revenue from pandemics, such as COVID-19; • trends in the method of delivery of healthcare services, such as telehealth; • heightened health information technology security standards and the meaningful use of electronic health records by healthcare providers; and • potential tax law changes affecting providers.
The healthcare service industry may be affected by the following: • transition to value-based care and reimbursement of providers; • competition among healthcare providers; • consolidation among healthcare providers, health insurers, hospitals and health systems; • a rise in government-funded health insurance coverage; • pressure on providers' operating profit margins from lower reimbursement rates, lower admissions growth, and higher expense growth; • availability of capital; • credit downgrades; • liability insurance expense; • rising pharmaceutical drug expense; • regulatory and government reimbursement uncertainty related to the Medicare and Medicaid programs; • a trend toward government regulation of pharmaceutical pricing; 18 • government regulation of hospitals' and health insurers' pricing transparency; • federal court decisions on cases challenging the legality of the Affordable Care Act, in whole or in part; • site-neutral rate-setting for Medicare services across different care settings; • disruption in patient volume and revenue from pandemics, such as COVID-19; • trends in the method of delivery of healthcare services, such as telehealth; • heightened health information technology security standards and the meaningful use of electronic health records by healthcare providers; • potential tax law changes affecting providers; and • state and federal regulations that provide for heightened scrutiny of healthcare transactions involving REITs and private equity firms.
As a ground lessee, the Company is also exposed to the risk of reversion of the property upon expiration of the ground lease term, or an earlier breach by the Company of the ground lease, which may have a material adverse effect on the Company’s consolidated financial condition and results of operations.
As a ground lessee, the Company is also exposed to the risk of reversion of the property upon expiration of the ground lease term, or an earlier breach by the Company of the ground lease, which may have a material adverse effect on the Company’s consolidated financial condition and results of operations. 11 The Company may experience uninsured or underinsured losses .
The Company had approximately $111.1 million, or 0.83%, of real estate property investments that were subject to purchase options held by lessees that were exercisable as of December 31, 2023. Other properties have purchase options that will become exercisable after 2023. Properties with purchase options exercisable in 2023 produced aggregate net operating income of approximately $10.6 million in 2023.
The Company had approximately $111.4 million, or 0.94%, of real estate property investments that were subject to purchase options held by lessees that were exercisable as of December 31, 2024. Other properties have purchase options that will become exercisable after 2024. Properties with purchase options exercisable in 2024 produced aggregate net operating income of approximately $10.6 million in 2024.
For example, proposed legislation to address climate change could increase utility and other costs of operating the Company's properties. Future laws or regulations may impose significant environmental liability. Additionally, tenant or other operations in the vicinity of the Company's properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect the Company's properties.
For example, enacted or proposed legislation to address climate change could increase utility and other costs of operating the Company's properties. Future laws or regulations may impose significant environmental liability. Additionally, operations of tenants or other parties in the vicinity of the Company's properties, such as the presence of underground storage tanks, may affect the Company's properties.
Approximately 95% of leases have increases that are based upon fixed percentages and approximately 5% of leases have increases based on the Consumer Price Index. To the extent fixed percentage increases lag behind inflation and operating expense growth, the Company's performance, growth, and profitability would be negatively impacted.
Approximately 96% of leases have increases that are based upon fixed percentages and approximately 4% of leases have increases based on the Consumer Price Index ("CPI"). To the extent fixed percentage increases lag behind inflation and operating expense growth, the Company's performance, growth, and profitability would be negatively impacted.
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. As of December 31, 2023, the Company had approximately $5.3 billion of outstanding indebtedness excluding discounts, premiums and debt issuance costs.
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. As of December 31, 2024, the Company had approximately $ 4.9 billion of outstanding indebtedness excluding discounts, premiums and debt issuance costs.
The Company may experience uninsured or underinsured losses . The Company carries comprehensive liability insurance and property insurance covering its owned and managed properties. A portion of the property insurance is provided by a wholly-owned captive insurance company. In addition, tenants under single-tenant leases are required to carry property insurance covering the Company’s interest in the buildings.
The Company carries comprehensive liability insurance and property insurance covering its owned and managed properties. A portion of the property insurance is provided by a wholly-owned captive insurance company. In addition, tenants under single-tenant leases are required to carry property insurance covering the Company’s interest in the buildings.
However, these policies may be for amounts less than the current or future values of our properties. In such an event, if there is a title defect relating to any of the Company's properties, it could lose some of the capital invested in and anticipated profits from such property.
However, the coverage provided by this insurance may be for amounts less than the current or future values of our properties. In such an event, if there is a title defect relating to any of the Company's properties, it could lose some of the capital invested in and anticipated profits from such property.
These ground leases contain provisions that may limit the Company’s ability to lease, sell, or finance these properties . As of December 31, 2023, the Company had 232 properties that were held under ground leases, representing an aggregate gross investment of approximately $5.4 billion.
These ground leases contain provisions that may limit the Company’s ability to lease, sell, or finance these properties . As of December 31, 2024, the Company had 215 properties that were held under ground leases, representing an aggregate gross investment of approximately $5.0 billion.
During 2020, all of the states and cities in which the Company owns properties, manages properties, and/or has development or redevelopment projects instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of businesses that may continue to operate, and/or restrictions on the types of construction projects that may continue.
For example, during the COVID-19 pandemic, all of the states and cities in which the Company owns properties, manages properties, and/or has development or redevelopment projects instituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of businesses that may continue to operate, and/or restrictions on the types of construction projects that may continue.
In addition, the deterioration of economic conditions, including supply chain constraints, as a result of the pandemic may ultimately decrease occupancy levels and average rent per square foot across the Company's portfolio as tenants reduce or defer their spending.
In addition, the deterioration of economic conditions, including supply chain constraints, that could result from another 14 pandemic may ultimately decrease occupancy levels and average rent per square foot across the Company's portfolio as tenants reduce or defer their spending.
The extent of the COVID-19 pandemic’s effect, or the effect of new virus variants or of another pandemic in the future, on the Company's operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the availability and effectiveness of vaccines, and the effect of government requirements or recommendations, all of which are uncertain and difficult to predict.
The effect of any new variants of existing viruses or of another pandemic in the future on the Company's operational and financial performance will depend on future developments, including the duration, spread and intensity of the outbreak, the availability and effectiveness of vaccines, and the effect of government requirements or recommendations, all of which are uncertain and difficult to predict.
As a result, a number of the Company's tenants temporarily closed their offices or clinical space or operated on a reduced basis in response to government requirements or recommendations. The COVID-19 pandemic also caused severe economic, market and other disruptions worldwide.
As a result, a number of the Company's tenants temporarily closed their offices or clinical space or operated on a reduced basis in response to government requirements or recommendations. Pandemics can cause and have caused severe economic, market and other disruptions worldwide.
Even if the relief provisions apply, we will be subject to a 100% tax on the greater of (i) the excess of 75% of our gross income (excluding gross income from prohibited transactions) over the amount of such income attributable to sources that qualify under the 75% test or (ii) the excess of 95% of our gross income (excluding gross income from prohibited transactions) over the amount of such gross income attributable to sources that qualify under the 95% test, multiplied in either case by a fraction intended to reflect our profitability.
In that case, we may be able to rely upon the relief provisions under the Internal Revenue Code in order to avoid the loss of our REIT status. 17 Even if the relief provisions apply, we will be subject to a 100% tax on the greater of (i) the excess of 75% of our gross income (excluding gross income from prohibited transactions) over the amount of such income attributable to sources that qualify under the 75% test or (ii) the excess of 95% of our gross income (excluding gross income from prohibited transactions) over the amount of such gross income attributable to sources that qualify under the 95% test, multiplied in either case by a fraction intended to reflect our profitability.
There can be no assurance that the Company's access to capital and other sources of funding will not become constrained, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.
There can be no assurance that a similar situation in the future would not affect the Company's access to capital and other sources of funding, which could adversely affect the availability and terms of future borrowings, renewals or refinancings.
As of December 31, 2023, the Company had investment concentrations of greater than 5% of its total investments in the Dallas, TX (8.7%), Houston, TX (5.6%), and Seattle, WA (5.3%) markets.
As of December 31, 2024, the Company had investment concentrations of greater than 5% of its total investments in the Dallas, TX (8.5%), Houston, TX (5.4%), and Seattle, WA (5.2%) markets.
A high level of indebtedness would require the Company to dedicate a substantial portion of its cash flows from operations to service debt, thereby reducing the funds available to implement the Company's business strategy and to make distributions to stockholders.
The Company has approximately $1.5 billion of combined debt maturities in 2025 and 2026. A high level of indebtedness would require the Company to dedicate a substantial portion of its cash flows from operations to service debt, thereby reducing the funds available to implement the Company's business strategy and to make distributions to stockholders.
A portion of the Company’s leases will expire over the course of any year. For more specific information concerning the Company’s expiring leases, see "Expiring Leases" in the "Trends and Matters Impacting Operating Results" as part of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report.
A portion of the Company’s leases will expire over the course of any year. For more specific information concerning the Company’s expiring leases, see "Expiring Leases" in Item 1 and in the "Trends and Matters Impacting Operating Results" as part of Item 7.
The Company incurred impairment charges of $149.7 million in 2023, associated with completed or planned disposition activity. The Company may determine in future periods that an impairment has occurred in the value of one or more of its real estate properties or other assets.
The Company incurred impairment charges of $249.9 million in 2024, associated with completed or planned disposition activity. Additionally, the Company recorded a goodwill impairment of $250.5 million in 2024. The Company may determine in future periods that an impairment has occurred in the value of one or more of its real estate properties or other assets.
During 2023, the Federal Reserve continued to raise interest rates in an effort to curb inflation. Further increases in interest rates will increase interest costs on any new debt and existing variable rate debt. Such increases in the cost of capital could adversely impact our ability to finance operations, acquire and develop properties, and refinance existing debt.
Any increases in interest rates will increase interest costs on any new debt and existing variable rate debt. Such increases in the cost of capital could adversely impact our ability to 16 finance operations, acquire and develop properties, and refinance existing debt.
The Company’s ground lease agreements with 10 hospitals and health systems typically contain restrictions that limit building occupancy to physicians on the medical staff of an affiliated hospital and prohibit tenants from providing services that compete with the services provided by the affiliated hospital.
The weighted average remaining term of the Company's ground leases is approximately 63.6 years, including renewal options. The Company’s ground lease agreements with hospitals and health systems typically contain restrictions that limit building occupancy to physicians on the medical staff of an affiliated hospital and prohibit tenants from providing services that compete with the services provided by the affiliated hospital.
The Company may structure acquisitions of property in exchange for limited partnership units of the OP on terms that could limit its liquidity or flexibility . The Company may acquire properties by issuing limited partnership units of the OP in exchange for a property owner contributing property to the Company.
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 .
A foreclosure on one or more of the Company's properties could have a material adverse effect on the Company’s consolidated financial condition and results of operations. 14 The Company generally does not intend to reserve funds to retire existing debt upon maturity.
A foreclosure on one or more of the Company's properties could have a material adverse effect on the Company’s consolidated financial condition and results of operations. The Company may not be able to repay, refinance, or extend any or all of our debt at maturity or upon any acceleration.
Future acquisitions could require the Company to issue equity securities, incur debt or other contingent liabilities or amortize expenses related to other intangible assets, any of which could adversely impact the Company’s consolidated financial condition or results of operations. In addition, equity or debt financing required for such acquisitions may not be available at favorable times or rates.
The Company regularly pursues potential transactions to acquire, develop or redevelop real estate assets. Future acquisitions could require the Company to issue equity securities, incur debt or other contingent liabilities or amortize expenses related to other intangible assets, any of which could adversely impact the Company’s consolidated financial condition or results of operations.
The Company may not be able to repay, refinance, or extend any or all of our debt at maturity or upon any acceleration. If any refinancing is done at higher interest rates, the increased interest expense could adversely affect the Company's financial condition and results of operations.
If any refinancing is done at higher interest rates, the increased interest expense could adversely affect the Company's financial condition and results of operations.
Certain of the Company’s properties are special purpose healthcare facilities and may not be easily adaptable to other uses . Some of the Company’s properties are specialized medical facilities.
Further, the Company may be required to make significant capital expenditures to renovate or reconfigure space or make significant leasing concessions to attract new tenants. 9 Certain of the Company’s properties are special purpose healthcare facilities and may not be easily adaptable to other uses . Some of the Company’s properties are specialized medical facilities.
These conditions could adversely affect the Company’s revenues and could increase allowances for losses and result in impairment charges, which could decrease net income attributable to common stockholders and equity and reduce cash flows from operations. Owning real estate and indirect interests in real estate is subject to inherent risks .
These conditions could adversely affect the Company’s revenues and could increase allowances for losses and result in impairment charges, which could decrease net income attributable to common stockholders and equity and reduce cash flows from operations. The Company's results of operations have been and will continue to be impacted negatively by the Steward Health and Prospect Medical bankruptcies .
As of December 31, 2023, the Company had investments of $311.5 million in unconsolidated joint ventures with unrelated third parties comprised of 33 properties and two parking garages.
As of December 31, 2024, the Company had investments of $473.1 million in unconsolidated joint ventures with unrelated third parties comprised of 63 properties and seven parking garages. In addition, the Company had investments of $97.6 million in two consolidated joint ventures with developments that were completed in the fourth quarter of 2024.
Pandemics, such as COVID-19, 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 . The COVID-19 pandemic had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets.
Stockholders of the Company do not have a contractual or other legal right to dividends that have not been authorized by the Board of Directors. 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 .
Such an agreement would prevent the Company from selling those properties, even if market conditions would allow such a sale to be favorable to the Company.
Such an agreement would prevent the Company from selling those properties, or require the Company to indemnify the contributor for taxes if the Company did sell the properties.
In addition, the Company had an investment of $30.1 million in one operating consolidated joint venture, as well as investments of $58.1 million in three consolidated joint ventures with developments in various stages of construction. The Company may acquire, develop, or redevelop additional properties in joint ventures with unrelated third parties.
The Company may acquire, develop, or redevelop additional properties in joint ventures with unrelated third parties.
The Company may not be able to re-let space on terms that are favorable to the Company or at all. Further, the Company may be required to make significant capital expenditures to renovate or reconfigure space or make significant leasing concessions to attract new tenants.
Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report. The Company may not be able to re-let space on terms that are favorable to the Company or at all.
Removed
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 regularly pursues potential transactions to acquire, develop or redevelop real estate assets.
Added
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.
Removed
The weighted average remaining term of the Company's ground leases is approximately 64.9 years, including renewal options.
Added
Prior to the bankruptcy filing, Steward leased approximately 593,000 square feet of space from the Company, accounting for approximately 2.0% of the Company’s rental revenue. 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.
Removed
Stockholders of the Company do not have a contractual or other legal right to dividends that have not been authorized by the Board of Directors. 13 The Company previously incurred and may continue to incur substantial expenses related to the Merger .
Added
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.
Removed
The Company incurred substantial expenses in connection with completing the Merger and integrating the business, operations, networks, systems, technologies, policies and procedures of the two companies, including severance costs. While the integration of the two companies is largely complete, the Company could still incur significant expenses as it operates and refines the combined portfolios of the companies.
Added
The total annual revenue associated with the rejected leases was approximately $13.0 million. 8 The Company will pursue claims for outstanding rent of approximately $2.3 million against Steward in the bankruptcy court.
Removed
In that case, we may be able to rely upon the relief provisions under the Internal Revenue Code in order to avoid the loss of our REIT status.
Added
However, there can be no assurance that the Company will recover unpaid rent from Steward be able to timely relet space related to rejected leases at similar rental rates, or otherwise offset lost revenue from Steward Health. On January 11, 2025, Prospect Medical Holdings filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Added
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 rental revenue. The Company moved to cash basis accounting for these leases and recorded a revenue reduction of $0.7 million in the fourth quarter.
Added
There can be no assurance that the Company will recover unpaid rent from Prospect or be able to timely relet space related to any rejected leases. Owning real estate and indirect interests in real estate is subject to inherent risks .
Added
In addition, equity or debt financing required for such acquisitions may not be available at favorable times or rates.
Added
The Company has acquired and may in the future acquire properties by issuing limited partnership units of the OP in exchange for a property owner contributing property to the Company.
Added
Pandemics can have repercussions across regional and global economies and financial markets.
Added
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.
Added
The success of the Company's business depends, in part, on the leadership and performance of its executive and senior management team and key employees and the ability to maintain appropriate staffing levels across the Company.
Added
Failure to attract, retain and motivate highly qualified employees, or failure to develop and implement a viable succession plan, could result in loss of institutional knowledge or important skill sets. Further, an ineffective culture could significantly impact the Company's performance and adversely affect its business.
Added
Rising labor costs, increased competition for talent, and a tight labor market may make it difficult for the Company to hire skilled and unskilled employees to meet staffing needs. The Company's former Chief Executive Officer departed the Company in the second half of 2024. The Company's board of directors is currently conducting a search for a chief executive officer.
Added
While the board is actively engaged in the process and is utilizing a reputable national search firm, there can be no assurances as to the timing of the appointment of a CEO. Uncertainty concerning the appointment of a CEO could affect the Company's stock performance and its ability to attract, retain, and motivate key personnel needed to execute operational priorities.
Added
During 2024, the Federal Reserve mainly kept interest rates constant and in the latter part of the year actually decreased rates by a total of 100 basis points with the easing of inflation. However, if inflation climbs again, the Federal Reserve may again raise interest rates.
Added
In addition, under these circumstances, the Company has the right to redeem such stock.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

5 edited+1 added−1 removed7 unchanged
Biggest changeThe Company also engages with third parties on an as-needed basis to advise and assist in managing cybersecurity risks.
Biggest changeHe has expanded the Company's cybersecurity program over the last several years resulting in a robust enterprise security posture focused on preventing cybersecurity incidents, while simultaneously increasing the Company's system resilience in an effort to minimize the business impact if an incident should occur. 22 The Company also engages with third parties on an as-needed basis to advise and assist in managing cybersecurity risks.
The Company’s Chief Technology Officer reports to the Executive Vice President – Operations. In addition, as discussed in more detail below, any cybersecurity incident is reported to the Company’s legal department.
The Company’s Chief Technology Officer reports to the Company’s Executive Vice President and Chief Administrative Officer. In addition, as discussed in more detail below, any cybersecurity incident is reported to the Company’s legal department.
While the 21 Company’s Executive Vice President – Operations and the members of its legal department do not have a technology services background, we believe that the Company’s Chief Technology Officer and technology services team possess the requisite background and experience to effectively manage the Company’s cybersecurity needs.
Although the Company’s Executive Vice President and Chief Administrative Officer and the members of its legal department do not have a technology services background, we believe that the Company’s Chief Technology Officer and technology services team possess the requisite background and experience to effectively manage the Company’s cybersecurity needs.
Procedures for addressing cybersecurity incidents include reporting incidents up to senior management, including the Company’s legal department for analysis. If a cybersecurity incident were determined to be material, the Company’s disclosure committee would address appropriate public disclosures.
Procedures for addressing cybersecurity incidents include reporting incidents up to senior management, including the Company’s legal department for analysis. If a cybersecurity incident were determined to be material by the Company's legal department, the Company’s Audit Committee would be informed promptly and the Company’s disclosure committee would address appropriate public disclosures.
As noted above, management regularly reports to the Audit Committee regarding the current cyber threat environment and the controls and procedures meant to address such risks. If a cybersecurity incident were determined to be material, the Audit Committee would be informed promptly.
As noted above, management regularly reports to the Audit Committee regarding the current cyber threat environment and the controls and procedures meant to address such risks. The Company carries cyber risk insurance, but there can be no assurance that losses from a cybersecurity incident would not exceed the insurance coverage.
Removed
The Company carries cyber risk insurance, but there can be no assurance that losses from a cybersecurity incident would not exceed the insurance coverage. The Company is subject to risks associated with cybersecurity threats.
Added
The Company's Chief Technology Officer has extensive information technology and program management experience from service in the government and private and public Fortune 100 companies.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities During the year ended December 31, 2023, the Company withheld and canceled shares of Company common stock to satisfy employee tax withholding obligations payable upon the vesting of non-vested shares, as follows: PERIOD TOTAL NUMBER OF SHARES PURCHASED AVERAGE PRICE PAID per share TOTAL NUMBER OF SHARES purchased as part of publicly announced plans or programs MAXIMUM NUMBER OF SHARES that may yet be purchased under the plans or programs February 1 - February 28 38,632 $ 21.71 — — December 1 - December 31 87,453 15.97 — — Total 126,085 $ 18.84 Authorization to Repurchase Common Stock On May 31, 2023, the Company’s Board of Directors authorized the repurchase of up to $500 million of outstanding shares of the Company’s common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints, and other customary conditions.
Biggest changePLAN CATEGORY NUMBER OF SECURITIES TO BE ISSUED upon exercise of outstanding options, warrants, and rights WEIGHTED AVERAGE EXERCISE PRICE of outstanding options, warrants, and rights NUMBER OF SECURITIES REMAINING AVAILABLE for future issuance under equity compensation plans (excluding securities reflected in the first column) Equity compensation plans approved by security holders — — 6,140,496 Equity compensation plans not approved by security holders — — — Total — — 6,140,496 Issuer Purchases of Equity Securities During the year ended December 31, 2024, the Company withheld and canceled shares of Company common stock to satisfy employee tax withholding obligations payable upon the vesting of non-vested shares, as follows: PERIOD TOTAL NUMBER OF SHARES PURCHASED AVERAGE PRICE PAID per share TOTAL NUMBER OF SHARES purchased as part of publicly announced plans or programs MAXIMUM NUMBER OF SHARES that may yet be purchased under the plans or programs February 1 - February 28 8,228 $ 16.31 — — October 1 - October 31 93,965 17.16 December 1 - December 31 383,016 18.14 — — Total 485,209 $ 17.92 Authorization to Repurchase Common Stock During 2024, the Company repurchased shares of its common stock under repurchase authorizations as follows: PERIOD TOTAL NUMBER OF SHARES PURCHASED (1) (2) AVERAGE PRICE PAID per share TOTAL NUMBER OF SHARES purchased as part of publicly announced plans or programs (2) MAXIMUM NUMBER (or Approximate DOLLAR VALUE) OF SHARES that may yet be purchased under the plans or programs (1) Prior Authorizations April 1 - April 30 2,966,764 $ 14.07 2,966,764 May 1 - May 31 7,536,692 15.94 7,536,692 June 1 - June 30 6,738,781 16.44 6,738,781 July 1 - July 31 1,296,985 16.82 1,296,985 August 1 - August 31 3,055,197 17.56 3,055,197 September 1 - September 30 4,140,669 17.97 4,140,669 October 1 - October 31 1,380,000 17.54 1,380,000 October 29, 2024 Authorized Shares $ 300,000,000 November 1 - November 30 1,554,958 17.22 1,554,958 273,224,084 December 1 - December 31 2,124,204 17.07 2,124,204 236,957,114 Total 30,794,250 $ 16.56 30,794,250 $ 236,957,114 1 On May 31, 2023, the Company's Board of Directors authorized the repurchase of up to $500.0 million of outstanding shares of the Company's common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints, and other customary conditions.
The comparison assumes $100 was invested on December 31, 2018, in the Company's common stock and in each of the indexes and assumes reinvestment of dividends, as applicable. The Company's data for periods prior to the closing of the Merger is the stock performance of Legacy HR.
The comparison assumes $100 was invested on December 31, 2019, in the Company's common stock and in each of the indexes and assumes reinvestment of dividends, as applicable. The Company's data for periods prior to the closing of the Merger is the stock performance of Legacy HR.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Shares of the Company’s common stock are traded under the symbol “HR.” As of December 31, 2023, there were 2,167 stockholders of record. 22 Future dividends will be declared and paid at the discretion of the Board of Directors.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Shares of the Company’s common stock are traded on the New York Stock Exchange under the symbol “HR.” As of December 31, 2024, there were 2,009 stockholders of record. Future dividends will be declared and paid at the discretion of the Board of Directors.
Equity Compensation Plan Information The following table provides information as of December 31, 2023, about the Company’s common stock that may be issued as restricted stock and upon the exercise of options, warrants and rights under the Company’s existing compensation plans, including the Amended and Restated 2006 Incentive Plan.
The Company’s ability to pay dividends is dependent upon its ability to generate funds from operations and cash flows, and to make accretive new investments. 23 Equity Compensation Plan Information The following table provides information as of December 31, 2024, about the Company’s common stock that may be issued as restricted stock and upon the exercise of options, warrants and rights under the Company’s existing compensation plans, including the Amended and Restated 2006 Incentive Plan.
As of the date of this report, the Company has not repurchased any shares of its common stock under this authorization. 23 Stock Performance Graph The following graph provides a comparison of the Company's cumulative total shareholder return with the Russell 3000 Index and cumulative total returns of FTSE NAREIT All Equity REITs Index for the period from December 31, 2018, through December 31, 2023.
As of December 31, 2024, the Company was authorized to repurchase an additional $237.0 million of the Company's common stock. 24 Stock Performance Graph The following graph provides a comparison of the Company's cumulative total shareholder return with the Russell 3000 Index and cumulative total returns of FTSE NAREIT All Equity REITs Index for the period from December 31, 2019 through December 31, 2024.
The Company is not obligated under this authorization to repurchase any specific number of shares. This authorization supersedes all previous stock repurchase authorizations.
The Company is not obligated under this authorization to repurchase any specific number of shares. 2 Repurchases of common stock in April 2024 were made under the May 31, 2023 $500.0 million stock repurchase authorization. May 2024 through October 2024 were repurchased under the April 30, 2024 $500.0 million stock repurchase authorization.
Removed
The Company’s ability to pay dividends is dependent upon its ability to generate funds from operations and cash flows, and to make accretive new investments.
Added
On April 30, 2024, the Company's Board of Directors authorized the repurchase of up to $500.0 million of outstanding shares of the Company's common stock, superseding the previous stock repurchase authorization.
Removed
PLAN CATEGORY NUMBER OF SECURITIES TO BE ISSUED upon exercise of outstanding options, warrants, and rights 1 WEIGHTED AVERAGE EXERCISE PRICE of outstanding options, warrants, and rights 1 NUMBER OF SECURITIES REMAINING AVAILABLE for future issuance under equity compensation plans (excluding securities reflected in the first column) Equity compensation plans approved by security holders 155,613 — 8,102,861 Equity compensation plans not approved by security holders — — — Total 155,613 — 8,102,861 1 The outstanding options relate only to Legacy HR's 2000 Employee Stock Purchase Plan (the "Legacy HR Employee Stock Purchase Plan"), which was terminated in November 2022.
Added
On October 29, 2024, the Company's Board of Directors authorized the repurchase of up to $300.0 million of outstanding shares of the Company's common stock, superseding the previous stock repurchase authorization. The stock repurchase authorization expires on October 28, 2025, and the Company may suspend or terminate repurchases at any time without prior notice.
Removed
No new options will be issued under the Legacy HR Employee Stock Purchase Plan and existing options will expire in March 2024.
Added
November and December 2024 repurchases were repurchased under the October 29, 2024 $300.0 million stock repurchase authorization.
Removed
The Company is unable to ascertain with specificity the number of securities to be issued upon exercise of outstanding rights under the Legacy HR Employee Stock Purchase Plan or the weighted average exercise price of outstanding rights under that plan.
Removed
The Legacy HR Employee Stock Purchase Plan provides that shares of common stock may be purchased at a per share price equal to 85% of the fair market value of the common stock at the beginning of the offering period or a purchase date applicable to such offering period, whichever is lower.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

90 edited+38 added−37 removed94 unchanged
Biggest changeYEAR ENDED DECEMBER 31, Amounts in thousands, except per share data 2023 2022 2021 Net (loss) income attributable to common stockholders $ (278,261) $ 40,897 $ 66,659 Net (loss) income attributable to common stockholders per diluted share 1 $ (0.74) $ 0.15 $ 0.45 Gain on sales of real estate assets (77,546) (270,271) (55,940) Impairments 149,717 54,427 17,101 Real estate depreciation and amortization 738,526 459,211 208,155 Non-controlling income from operating partnership units (3,426) (5) — Proportionate share of unconsolidated joint ventures 18,116 12,722 5,541 FFO adjustments $ 825,387 $ 256,084 $ 174,857 FFO adjustments per common share - diluted 8 $ 2.15 $ 1.01 $ 1.22 FFO attributable to common stockholders $ 547,126 $ 296,981 $ 241,516 FFO attributable to common stockholders per common share - diluted 7 $ 1.43 $ 1.17 $ 1.68 Acquisition and pursuit costs 2 2,026 3,229 3,930 Merger-related costs 3 (1,952) 103,380 — Merger-related fair value of debt instruments 42,885 21,248 — Lease intangible amortization 860 1,028 162 Allowance for credit losses 4 8,599 — — Non-routine legal costs/forfeited earnest money received 175 771 (35) Debt financing costs (62) 3,145 283 Severance costs 1,445 — — Unconsolidated JV normalizing items 5 389 330 225 Normalized FFO adjustments $ 54,365 $ 133,131 $ 4,565 Normalized FFO adjustments per common share - diluted 8 $ 0.14 $ 0.52 $ 0.03 Normalized FFO attributable to common stockholders $ 601,491 $ 430,112 $ 246,081 Normalized FFO attributable to common stockholders per common share - diluted 8 $ 1.57 $ 1.69 $ 1.71 Non-real estate depreciation and amortization 2,566 2,217 2,397 Non-cash interest expense amortization 6 4,968 5,129 3,182 Provision for bad debt, net 3,163 516 73 Straight-line rent income, net (32,592) (20,124) (4,303) Share-based compensation 13,791 14,294 10,729 Unconsolidated JV non-cash items 7 (1,034) (1,206) (1,357) Normalized FFO adjusted for non-cash items $ 592,353 $ 430,938 $ 256,802 2nd Generation tenant improvements (66,081) (33,620) (26,363) Leasing commissions paid (36,391) (22,929) (11,742) Capital expenditures (49,343) (48,913) (19,582) Maintenance capital expenditures (151,815) (105,462) (57,687) FAD $ 440,538 $ 325,476 $ 199,115 FFO weighted average common shares outstanding - diluted 8 383,381 254,622 143,618 40 1 Potential common shares are not included in the computation of diluted earnings per share when a loss exists as the effect would be an antidilutive per share amount. 2 Acquisition and pursuit costs include third-party and travel costs related to the pursuit of acquisitions and developments. 3 Includes costs incurred related to the Merger.
Biggest changeYEAR ENDED DECEMBER 31, Amounts in thousands, except per share data 2024 2023 2022 Net (loss) income attributable to common stockholders $ (654,485) $ (278,261) $ 40,897 Net (loss) income attributable to common stockholders per diluted share 1 $ (1.81) $ (0.74) $ 0.15 Gain on sales of real estate assets (104,684) (77,546) (270,271) Impairment of real estate properties 249,909 149,717 54,427 Real estate depreciation and amortization 690,988 738,526 459,211 Non-controlling loss from operating partnership units (9,149) (3,426) (5) Unconsolidated JV depreciation and amortization 20,678 18,116 12,722 FFO adjustments $ 847,742 $ 825,387 $ 256,084 FFO adjustments per common share - diluted $ 2.29 $ 2.15 $ 1.01 FFO attributable to common stockholders $ 193,257 $ 547,126 $ 296,981 FFO attributable to common stockholders per common share - diluted $ 0.52 $ 1.43 $ 1.17 — Transaction costs 3,122 2,026 3,229 Merger-related costs 2 — (1,952) 103,380 Lease intangible amortization (2,054) 860 1,028 Non-routine legal costs/forfeited earnest money received 1,077 175 771 Debt financing costs 237 (62) 3,145 Restructuring and severance-related charges 29,852 1,445 — Credit losses and gains (losses) on other assets, net 3 59,707 8,599 — Impairment of goodwill 250,530 — — Merger-related fair value of debt instruments 40,667 42,885 21,248 Unconsolidated JV normalizing items 4 390 389 330 Normalized FFO adjustments $ 383,528 $ 54,365 $ 133,131 Normalized FFO adjustments per common share - diluted $ 1.04 $ 0.14 $ 0.52 Normalized FFO attributable to common stockholders $ 576,785 $ 601,491 $ 430,112 Normalized FFO attributable to common stockholders per common share - diluted $ 1.56 $ 1.57 $ 1.69 Non-real estate depreciation and amortization 1,478 2,566 2,217 Non-cash interest amortization, net 5 5,101 4,968 5,129 Rent reserves, net 714 3,163 516 Straight-line rent, net (27,254) (32,592) (20,124) Stock-based compensation 14,036 13,791 14,294 Unconsolidated JV non-cash items 6 (923) (1,034) (1,206) Normalized FFO adjusted for non-cash items $ 569,937 $ 592,353 $ 430,938 2nd generation tenant improvements (69,445) (66,081) (33,620) Leasing commissions paid (47,450) (36,391) (22,929) Building capital (33,934) (49,343) (48,913) FAD $ 419,108 $ 440,538 $ 325,476 FFO weighted average common shares outstanding - diluted 7 369,767 383,381 254,622 1 Potential common shares are not included in diluted earnings per share when a loss exists as the effect would be antidilutive. 2 Includes costs incurred related to the Merger.
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.
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; 27 • 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.
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. 26 Overview The Company owns and operates properties that facilitate the delivery of healthcare services in primarily outpatient settings.
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.
The Company assigns a useful life to its owned properties based on many factors, including the age and condition of the property when acquired. 46 Revenue Recognition The Company's primary source of revenue is rental income derived from non-cancelable leases. When a lease is executed, the terms and conditions of the lease are assessed to determine the appropriate accounting classification.
The Company assigns a useful life to its owned properties based on many factors, including the age and condition of the property when acquired. Revenue Recognition The Company's primary source of revenue is rental income derived from non-cancelable leases. When a lease is executed, the terms and conditions of the lease are assessed to determine the appropriate accounting classification.
FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, deferred financing fees amortization, share-based compensation expense and provision for bad debts, net; and subtracting straight-line rent income, net of expense, and maintenance capital expenditures, including second generation tenant improvements, capital expenditures and leasing commissions paid.
FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, deferred financing fees amortization, share-based compensation expense 40 and provision for bad debts, net; and subtracting straight-line rent income, net of expense, and maintenance capital expenditures, including second generation tenant improvements, capital expenditures and leasing commissions paid.
The Company believes that by excluding the effect of depreciation, 39 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 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 cannot, 27 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.
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.
The overhead load factors are computed to absorb that portion of indirect employee costs (payroll and benefits, training, and similar costs) that are attributable to the productive time the employee incurs working directly on projects. The employees in the Company’s 43 development departments who work on these projects maintain and report their hours, by project.
The overhead load factors are computed to absorb that portion of indirect employee costs (payroll and benefits, training, and similar costs) that are attributable to the productive time the employee incurs working directly on projects. The employees in the Company’s development departments who work on these projects maintain and report their hours, by project.
Management's Discussion and Analysis of Financial Condition and Results of Operations Disclosure Regarding Forward-Looking Statements This report and other materials the Company have 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.
Management's Discussion and Analysis of Financial Condition and Results of Operations 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.
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% to 20% of the leases in its portfolio will expire each year.
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.
An impairment charge is recognized for any initial adjustment of the property's or disposal group's carrying amount to its fair value less estimated costs to sell in the period the held for sale criteria are 45 met.
An impairment charge is recognized for any initial adjustment of the property's or disposal group's carrying amount to its fair value less estimated costs to sell in the period the held for sale criteria are met.
Management believes the following paragraphs in this section describe the application of critical accounting policies and estimates by management to arrive at the critical accounting estimates reflected in the Consolidated Financial Statements. The Company’s accounting policies are more fully discussed in Note 1 to the Consolidated Financial Statements.
Management believes the following paragraphs in this section describe the application of critical accounting policies and estimates by management to arrive at the critical accounting estimates reflected in the Consolidated Financial 44 Statements. The Company’s accounting policies are more fully discussed in Note 1 to the Consolidated Financial Statements.
Alternatively, the Company may 44 explore disposing of an operating real estate property but without specific intent to sell the property and without the property meeting the criteria to be classified as held for sale (see discussion below).
Alternatively, the Company may explore disposing of an operating real estate property but without specific intent to sell the property and without the property meeting the criteria to be classified as held for sale (see discussion below).
Any remaining excess purchase price is then allocated to the tangible and intangible assets based on their relative fair values. The identifiable tangible and intangible assets are then subject to depreciation and amortization.
Any remaining excess purchase price is then allocated 47 to the tangible and intangible assets based on their relative fair values. The identifiable tangible and intangible assets are then subject to depreciation and amortization.
Important factors that could cause management to review for impairment include significant underperformance of an asset relative to historical or expected operating results; significant changes in the Company's use of assets or the strategy for its overall business; plans to sell an asset before its depreciable life has ended; the expiration of a significant portion of leases in a property; or significant negative economic trends or negative industry trends for the Company or its operators.
Important factors that could cause management to review for impairment include significant underperformance of an asset relative to historical or expected operating results; significant changes in the Company's use of assets or the strategy for its overall business; plans to sell an asset before its useful life has ended; the expiration of a significant portion of leases in a property; or significant negative economic trends or negative industry trends for the Company or its operators.
The amounts shown represent fair value adjustments. 4 As of December 31, 2023, 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.
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.
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 2024.
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.
Several items impact cash flows from operating activities including, but not limited to, cash generated from property operations, merger-related costs, 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.
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.
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 31 liens or encumbrances. As of December 31, 2023, the Company was in compliance with the financial covenant provisions under all of its various debt instruments.
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.
When a derivative instrument is initiated, the Company will assess its intended use of the derivative instrument and may elect a hedging relationship and apply hedge accounting. As required by the accounting literature, the Company will formally document the hedging relationship for all derivative instruments prior to or contemporaneous with entering into the derivative instrument. 47
When a derivative instrument is initiated, the Company will assess its intended use of the derivative instrument and may elect a hedging relationship and apply hedge accounting. As required by the accounting literature, the Company will formally document the hedging relationship for all derivative instruments prior to or contemporaneous with entering into the derivative instrument. 48
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 8% of its lease portfolio.
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.
As of December 31, 2023, with the exception of one finance lease, all of the Company's leases, where the Company is the lessor, are classified as operating leases. Operating leases are recognized on the straight-line basis over the term of the related lease, including periods where a tenant is provided a rent concession.
As of December 31, 2024, with the exception of one finance lease, all of the Company's leases, where the Company is the lessor, are classified as operating leases. Operating leases are recognized on the straight-line basis over the term of the related lease, including periods where a tenant is provided a rent concession.
Debt Activity Below is a summary of the significant debt financing activity for the year ended December 31, 2023. See Note 10 to the Consolidated Financial Statements for additional information on financing activities.
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.
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.
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.
Merger Combined Same Store Cash NOI Cash NOI and Merger Combined 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 Net Operating Income ("NOI") and Same Store Cash NOI Cash NOI and Same Store Cash NOI are key performance indicators. Management considers these to be supplemental measures that allow investors, analysts and Company management to measure unlevered property-level operating results. The Company defines Cash NOI as rental income, interest from financing receivables less property operating expenses.
As a percentage of cash net operating income, 2023 and 2022 capital expenditures were 5.8% and 8.5%, 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.
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.
First Generation Tenant Improvements & Planned Capital Expenditures for Acquisitions First generation tenant improvements and planned capital expenditures for acquisition spending totaled $38.7 million and $46.4 million for the years ended December 31, 2023 and 2022, respectively. First generation tenant improvements include build out costs related to suite space in shell condition.
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.
The Company is in negotiations with eight of the tenants and expects the leases to be renewed or the building to be immediately backfilled. The Company expects the tenants of two of these single-tenant buildings to vacate the buildings upon lease expiration.
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.
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, leasing commission amortization, and cash lease termination fees. Cash NOI is historical and not necessarily indicative of future results. Merger Combined Same Store Cash NOI compares Cash NOI for stabilized properties.
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.
As described in the Explanatory Note 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.
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.
Also, as of December 31, 2023, 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 37.5% (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 3.2 times (cannot be less than 1.5 times).
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).
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 the building's operating and capital expenses, comprise 5%.
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.
The Company also had unencumbered real estate assets with a gross book value of approximately $13.2 billion at December 31, 2023, 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 also had unencumbered real estate assets with a gross book value of approximately $11.7 billion at 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.
In addition, the Company expensed costs related to the pursuit of developments totaling $0.8 million, $2.2 million and $1.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.
In addition, the Company expensed costs related to the 45 pursuit of developments totaling $1.1 million, $0.8 million, and $2.2 million for the years ended December 31, 2024, 2023 and 2022, respectively.
The effect of any required adjustment is reflected in income from continuing operations at the date of the decision not to sell. The Company recorded impairment charges totaling $149.7 million for the year ended December 31, 2023 related to real estate properties and other long-lived assets.
The effect of any required adjustment is reflected in income from continuing operations at the date of the decision not to sell. The Company recorded impairment charges totaling $249.9 million for the year ended December 31, 2024 related to real estate properties and other long-lived assets.
As of December 31, 2023 and 2022, the Company's Consolidated Balance Sheets include capitalized pursuit costs relating to potential developments totaling $6.2 million and $4.3 million, respectively. The Company expensed costs related to the pursuit of acquisitions totaling $0.8 million, $1.0 million and $2.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
As of December 31, 2024 and 2023, the Company's Consolidated Balance Sheets include capitalized pursuit costs relating to potential developments totaling $4.9 million and $6.2 million, respectively. The Company expensed costs related to the pursuit of acquisitions and dispositions totaling $1.7 million, $0.8 million and $1.0 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Approximately $0.6 million is not expected to recur in subsequent quarters in 2024. 36 Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The Company’s consolidated results of operations for 2023 compared to 2022 were significantly impacted by the Merger, acquisitions, dispositions, gain on sales and impairment charges recorded on real estate properties, and capital markets transactions.
Approximately $0.8 million is not expected to recur in subsequent quarters in 2025. Results of Operations 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.
Depreciation of Real Estate Assets and Amortization of Related Intangible Assets As of December 31, 2023, the Company had gross investments of approximately $12.1 billion in depreciable real estate assets and related intangible assets. When real estate assets and related intangible assets are acquired or placed in service, they must be depreciated or amortized.
Depreciation of Real Estate Assets and Amortization of Related Intangible Assets As of December 31, 2024, the Company had gross investments of approximately $10.5 billion in depreciable real estate assets and related intangible assets. When real estate assets and related intangible assets are acquired or placed in service, they must be depreciated or amortized.
In-place leases have a weighted average lease term of 8.5 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 2023 quarterly tenant retention statistics ranged from 74% to 79%.
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%.
Security Deposits and Letters of Credit As of December 31, 2023, the Company held approximately $38.5 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.
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.
As of December 31, 2023, the Company had commitments of approximately $222.4 million that are expected to be spent on tenant improvements throughout the portfolio, excluding development properties currently under construction.
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.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The Company's discussion regarding the comparison of the year ended December 31, 2022 compared to the year ended December 31, 2021 was previously disclosed beginning on page 39 of the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023, and is incorporated herein by reference.
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.
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 $47.7 million, or $1.24 per square foot, in capital expenditures in 2023 and $48.9 million, or $1.21 per square foot, in capital expenditures in 2022.
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.
For the year ended December 31, 2023, Merger costs are net of a refund of $17.8 million for transfer taxes paid during the year ended December 31, 2022. 4 For the year ended December 31, 2023, includes a $5.2 million credit allowance for a mezzanine loan included in "Impairment of real estate and credit loss reserves" on the Statement of Operations and $3.4 million reserve included in “Rental Income” on the Statement of Operations for previously deferred rent and straight line rent for three skilled nursing facilities. 5 Includes the Company's proportionate share of acquisition and pursuit costs related to unconsolidated joint ventures. 6 Includes the amortization of deferred financing costs, discounts and premiums, and non-cash financing receivable amortization. 7 Includes the Company's proportionate share of straight-line rent, net related to unconsolidated joint ventures. 8 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 397,168, 748,385, and 907,393 for the years ended December 31, 2023, 2022, and 2021, respectively.
For the year ended December 31, 2023, includes a $5.2 million credit allowance for a mezzanine loan included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations and $3.4 million reserve included in “Rental Income” on the Statement of Operations for previously deferred rent and straight line rent for three skilled nursing facilities. 4 Includes the Company's proportionate share of lease intangible amortization related to unconsolidated joint ventures. 5 Includes the amortization of deferred financing costs, discounts and premiums, and non-cash financing receivable amortization. 6 Includes the Company's proportionate share of straight-line rent, net related to unconsolidated joint ventures. 42 7 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 556,201, 397,168, and 748,385 for the years ended December 31, 2024, 2023, and 2022, respectively.
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, property dispositions or through proceeds from the Unsecured Credit Facility.
To the extent additional investments are not funded by these sources, the 28 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.
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; • 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; • 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; • Many of the Company’s leases are dependent on the viability of associated health systems.
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.
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 $63.5 million in 2023, or 7.7% of total cash net operating income. In 2022, this spending totaled $33.6 million, or 5.8% of total cash net operating income.
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.
Operating Activities Cash flows provided by operating activities for the two years ended December 31, 2023 and 2022 were $499.8 million and $272.7 million, respectively.
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.
Investing Activities A summary of the significant transactions impacting investing activities for the year ended December 31, 2023 is listed below. See Note 5 to the Consolidated Financial Statements for more detail on these 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.
The first and second generation tenant overage amount amortized to rent, including interest, totaled approximately $8.4 million in 2023, $7.5 million in 2022, and $5.9 million in 2021. 34 Second generation, multi-tenant tenant improvement commitments in 2023 for renewals averaged $1.78 per square foot per lease year, ranging quarterly from $1.64 to $1.89.
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.
Second generation, multi-tenant tenant improvement commitments in 2023 for new leases 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.
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.
Single-Tenant Leases As of December 31, 2023, the Company had a total of 125 single-tenant buildings, with a weighted average lease term of 11.4 years and a weighted average remaining lease term of 5.2 years. Twenty-one single-tenant buildings have leases that expire in 2024. Eleven of these leases have been renewed.
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.
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 may structure acquisitions of property in exchange for limited partnership units of the OP on terms that could limit its liquidity or flexibility; • The Company cannot assure you that it will be able to continue paying dividends at or above the rates previously paid; • The Company previously incurred and may continue to incur substantial expenses related to the Merger; and 25 • Pandemics, such as COVID-19, 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.
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; 26 • 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.
Debt Management The Company maintains a conservative and flexible capital structure that allows it to fund new investments and operate its existing portfolio. The Company has approximately $70.8 million of mortgage notes payable, most of which were assumed when the Company acquired properties. The Company has approximately $24.1 million of mortgage notes payable that will mature in 2024.
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.
As of December 31, 2023, 99.5% of the Company’s principal balances were due after 2024, including extension options.
As of December 31, 2024, 68.4% of the Company’s principal balances were due after 2026, including extension options.
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 2023, this spending totaled $63.5 million, or 7.7% of total cash net operating income. 35 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.
Additional information about the amount and basis for determination of the purchase price is detailed in the table below (dollars in thousands): YEAR EXERCISABLE NUMBER OF PROPERTIES GROSS REAL ESTATE INVESTMENT AS OF DECEMBER 31, 2023 1 Current 2 6 $ 111,074 2024 — — 2025 5 93,813 2026 6 181,696 2027 4 110,537 2028 5 134,227 2029 3 81,855 2030 — — 2031 4 108,936 2032 2 24,629 2033 — — 2034 and thereafter 3 9 320,771 Total 44 $ 1,167,538 1 Purchase option prices are based on fair market value components that are determined by an appraisal process, except for three properties totaling $45.3 million with stated prices or prices based on fixed capitalization rates. 2 These purchase options have been exercisable for an average of 13.9 years. 3 Includes two medical office buildings that are recorded in the line item Investment in financing receivable, net on the Company's Consolidated Balance Sheet.
Additional information about the amount and basis for determination of the purchase price is detailed in the table below (dollars in thousands): YEAR EXERCISABLE NUMBER OF PROPERTIES GROSS REAL ESTATE INVESTMENT AS OF DECEMBER 31, 2024 1 Current 2 6 $ 111,399 2025 5 99,970 2026 6 173,761 2027 4 112,305 2028 5 136,814 2029 3 82,026 2030 — — 2031 4 106,839 2032 2 23,848 2033 — — 2034 — — 2035 and thereafter 3 9 326,103 Total 44 $ 1,173,065 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 wi th stated prices or prices based on fixed capitalization rates. 2 These purchase options have been exercisable for an average of 15.1 years. 3 Includes two medical outpatient properties tha t are recorded in the line item Investment in financing receivable, net on the Company's Consolidated Balance Sheet.
Impairment of Real Estate Assets and Credit Loss Reserves 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.
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.
The Company has approximately $1.1 billion in real estate properties that are subject to purchase options that will become exercisable after 2023.
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 billion in real estate properties that are subject to purchase options that will become exercisable after 2024.
Other operating income increased $3.7 million, or 27.3%, from the prior year primarily as a result of income from transient parking and management fees assumed with the Merger.
Other operating income increased $1.7 million, or 9.8%, from the prior year primarily as a result of income from management fees.
The impairment charges related to 31 properties sold and six additional properties associated with planned disposition activity in 2024. The Company recorded impairment charges of $54.4 million in 2022.
The impairment charges related to 51 properties sold and 13 additional properties associated with planned disposition activity in 2025. The Company recorded impairment charges of $149.7 million in 2023.
Interest Expense Interest expense increased $111.9 million for the year ended December 31, 2023 compared to the prior year.
Interest Expense Interest expense decreased $16.2 million for the year ended December 31, 2024 compared to the prior year.
The Company will repay mortgages with cash on hand or borrowings under the Unsecured Credit Facility. See additional information in Liquidity and Capital Resources - Financing Activities. Impact of Inflation The Company is subject to the risk of inflation as most of its revenues are derived from long-term leases.
See additional information in “Liquidity and Capital Resources - Financing Activities” above. 37 Impact of Inflation The Company is subject to the risk of inflation as most of its revenues are derived from long-term leases.
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.
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. 41 The table below reconciles net income attributable to common stockholders to FFO, Normalized FFO and FAD attributable to common stockholders for the years ended December 31, 2024, 2023, and 2022.
Capital Funding In 2023, the Company incurred capital expenditures totaling $262.1 million for the following: • $112.2 million toward development and redevelopment of properties; • $38.7 million toward first generation tenant improvements and planned capital expenditures for acquisitions; • $63.5 million toward second generation tenant improvements; and • $47.7 million toward capital expenditures.
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.
Expenses Property operating expenses increased $156.4 million, or 45.5%, from the prior year primarily as a result of the following activity: • Impact from the Merger resulted in an increase of $130.9 million. • Acquisitions in 2022 and 2023 resulted in an increase of $8.9 million. • Increases in portfolio operating expenses as follows: ◦ Utilities expense of $7.0 million; ◦ Administrative, leasing commissions, and other legal expense of $5.7 million; ◦ Maintenance and repair expense of $4.9 million; ◦ Janitorial expense of $1.9 million; and ◦ Security expense of $0.1 million. • Dispositions in 2022 and 2023 resulted in a decrease of $1.7 million. • Property tax expense decreased $1.0 million. • Insurance expense decreased $0.3 million.
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. 38 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.
In addition, the Company continued to see strong quarterly weighted average rental rate growth for renewing leases ("cash leasing spread") and expects the majority of its renewal rates to increase between 3.0% and 4.0%. In 2023, cash leasing spreads averaged 2.6%.
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%.
The Company has 94.9% of leases that provide for fixed base rent increases and 5.1% that provide for Consumer Price Index-based rent increases as of December 31, 2023.
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.
These transactions yielded net cash proceeds of $687.6 million, net of $36.9 million of closing costs and related adjustments, $58.7 million in Company financed notes and $3.8 million of retained joint venture interests. The weighted average capitalization rate for these properties was 6.5%.
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.
The following table details the Company's debt balances as of December 31, 2023: PRINCIPAL BALANCE CARRYING BALANCE 1 WEIGHTED YEARS TO MATURITY 2 CONTRACTUAL RATE EFFECTIVE RATE Senior Notes due 2025 $ 250,000 $ 249,484 1.3 3.88 % 4.12 % Senior Notes due 2026 3 600,000 579,017 2.6 3.50 % 4.94 % Senior Notes due 2027 3 500,000 483,727 3.5 3.75 % 4.76 % Senior Notes due 2028 300,000 297,429 4.0 3.63 % 3.85 % Senior Notes due 2030 3 650,000 575,443 6.1 3.10 % 5.30 % Senior Notes due 2030 299,500 296,780 6.2 2.40 % 2.72 % Senior Notes due 2031 299,785 295,832 7.2 2.05 % 2.25 % Senior Notes due 2031 3 800,000 649,521 7.2 2.00 % 5.13 % Total Senior Notes Outstanding 3,699,285 3,427,233 4.9 2.97 % 4.43 % $1.5 billion unsecured credit facility 4 — — 3.8 SOFR + 0.95% 6.31 % $350 million unsecured term loan 350,000 349,798 1.6 SOFR + 1.05% 6.39 % $200 million unsecured term loan 200,000 199,903 2.4 SOFR + 1.05% 6.39 % $150 million unsecured term loan 150,000 149,643 2.4 SOFR + 1.05% 6.39 % $300 million unsecured term loan 3 300,000 299,958 2.8 SOFR + 1.05% 6.39 % $200 million unsecured term loan 3 200,000 199,502 3.5 SOFR + 1.05% 6.39 % $300 million unsecured term loan 300,000 298,288 4.0 SOFR + 1.05% 6.39 % Mortgage notes payable 70,752 70,534 2.0 4.17 % 4.15 % Total Outstanding Notes and Bonds Payable $ 5,270,037 $ 4,994,859 4.0 3.96 % 5.02 % 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 following details the amount and rate of each swap as of such date (dollars in thousands): 31 EXPIRATION AMOUNT WEIGHTED AVERAGE RATE May 2026 $ 275,000 3.74 % June 2026 150,000 3.83 % December 2026 150,000 3.84 % June 2027 200,000 4.27 % December 2027 300,000 3.93 % Total $ 1,075,000 3.92 % The following table details the Company's debt balances as of December 31, 2024: PRINCIPAL BALANCE CARRYING BALANCE 1 WEIGHTED YEARS TO MATURITY 2 CONTRACTUAL RATE EFFECTIVE RATE Senior Notes due 2025 $ 250,000 $ 249,868 0.3 3.88 % 4.12 % Senior Notes due 2026 3 600,000 586,824 1.6 3.50 % 4.94 % Senior Notes due 2027 3 500,000 488,104 2.5 3.75 % 4.76 % Senior Notes due 2028 300,000 298,029 3.0 3.63 % 3.85 % Senior Notes due 2030 3 650,000 586,028 5.1 3.10 % 5.30 % Senior Notes due 2030 299,500 297,190 5.2 2.40 % 2.72 % Senior Notes due 2031 299,785 296,343 6.2 2.05 % 2.25 % Senior Notes due 2031 3 800,000 667,233 6.2 2.00 % 5.13 % Total Senior Notes Outstanding 3,699,285 3,469,619 2.97 % 4.44 % $1.5 billion unsecured credit facility 4 — — 2.8 SOFR + 0.94% 5.30 % $200 million unsecured term loan 200,000 199,896 1.4 SOFR + 1.04% 5.59 % $150 million unsecured term loan 150,000 149,790 1.4 SOFR + 1.04% 5.59 % $300 million unsecured term loan 3 300,000 299,981 1.8 SOFR + 1.04% 5.59 % $200 million unsecured term loan 3 200,000 199,641 2.5 SOFR + 1.04% 5.59 % $300 million unsecured term loan 300,000 298,708 3.0 SOFR + 1.04% 5.59 % Mortgage notes payable 45,279 45,136 1.3 4.04 % 4.17 % Total Outstanding Notes and Bonds Payable $ 4,894,564 $ 4,662,771 3.59 % 4.72 % 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.
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. 35 Purchase Options The Company had approximately $111.1 million in real estate properties as of December 31, 2023 that were subject to exercisable purchase options.
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. 36 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.
Operating Leases As of December 31, 2023, the Company was obligated to make rental payments under operating lease agreements consisting primarily of ground leases related to 157 real estate investments, excluding those ground leases the Company has prepaid.
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.
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 2023 and 2022 were 4.3% and 4.0%, respectively.
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.
The components of interest expense are as fol lows: CHANGE Dollars in thousands 2023 2022 $ % Contractual interest $ 208,305 $ 118,085 $ 90,220 76.4 % Net discount/premium accretion 38,941 18,227 20,714 113.6 % Debt issuance costs amortization 5,588 4,256 1,332 31.3 % Amortization of interest rate swap settlement 168 168 — — % Amortization of treasury hedge settlement 427 427 — — % Fair value derivative 4,412 4,057 355 8.8 % Interest cost capitalization (2,961) (1,409) (1,552) 110.1 % Interest on lease liabilities 3,704 2,880 824 28.6 % Total interest expense $ 258,584 $ 146,691 $ 111,893 76.3 % Contractual interest increased $90.2 million, or 76.4%, primarily as a result of the following activity: • Senior notes and unsecured term loans assumed in the Merger accounted for an increase of approximately $54.7 million. • New unsecured term loans executed with the amended credit facility accounted for an increase of approximately $30.1 million. • The Company's Unsecured Term Loans due 2024 and due 2026, accounted for an increase of approximately $11.9 million. • The Unsecured Credit Facility accounted for an increase of approximately $10.4 million. • Active interest rate derivatives accounted for a decrease of $16.6 million. • Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.3 million.
The components of interest expense are as fol lows: CHANGE Dollars in thousands 2024 2023 $ % Contractual interest $ 196,392 $ 208,305 $ (11,913) (5.7) % Net discount/premium accretion 41,050 38,941 2,109 5.4 % Debt issuance costs amortization 4,769 5,588 (819) (14.7) % Amortization of interest rate swap settlement 168 168 — — % Amortization of treasury hedge settlement 427 427 — — % Fair value derivative 187 4,412 (4,225) (95.8) % Interest cost capitalization (4,295) (2,961) (1,334) 45.1 % Interest on lease liabilities 3,727 3,704 23 0.6 % Total interest expense $ 242,425 $ 258,584 $ (16,159) (6.2) % 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 account ed 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. 39 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.
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.
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. 32 Supplemental Guarantor Information The OP has issued unsecured notes described in Note 10 to the Company's Consolidated Financial Statements included in this report.
Mortgage Activity The following table details the mortgage note repayment activity for the year ended December 31, 2023: (dollars in millions) TRANSACTION DATE PRINCIPAL BORROWING (REPAYMENT) ENCUMBERED SQUARE FEET CONTRACTUAL INTEREST RATE Debt assumptions: Colorado Springs, CO 7/28/2023 $ 5.6 42,770 4.50 % Mortgages repaid at maturity: Atlanta, GA 8/1/2023 $ (9.8) 66,984 3.31 % Lakewood, CO 12/1/2023 (6.6) 93,992 4.51 % Total repayments $ (16.4) 160,976 3.79 % Subsequent Activity (dollars in millions) TRANSACTION DATE PRINCIPAL REPAYMENT ENCUMBERED SQUARE FEET CONTRACTUAL INTEREST RATE Mortgages repaid at maturity: West Hills, CA 1/5/2024 $ (11.3) 63,012 4.77 % Atlanta, GA 2/1/2024 (5.6) 40,324 4.12 % Total repayments $ (16.9) 103,336 4.55 % Term Loans On April 26, 2023, the Company exercised the first of its two one-year extension options for the $350 million delayed-draw term loan facility, extending the initial maturity date of July 20, 2023 to July 20, 2024.
Mortgage Activity The following table details the mortgage note repayment activity for the year ended December 31, 2024: (dollars in millions) TRANSACTION DATE PRINCIPAL BORROWING (REPAYMENT) ENCUMBERED SQUARE FEET CONTRACTUAL INTEREST RATE Mortgages repaid at maturity: West Hills, CA 1/6/2024 $ (11.3) 63,012 4.77 % Atlanta, GA 2/1/2024 (5.6) 40,324 4.12 % Minnesota 9/1/2024 (7.0) 64,143 4.15 % Total repayments $ (23.9) 167,479 4.44 % 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.
The Company disposed of 39 properties in 2023 for sales prices totaling $787.0 million, including a regional corporate office and one property contributed into a joint venture in which the Company maintains a non-controlling interest.
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.
As of December 31, 2023, recently acquired properties were included in the merger combined same store pool after the Company owned the property for eight full quarters. Newly developed properties have been included in the merger combined same store pool eight full quarters after substantial completion.
Any recently acquired property will be included in the same store pool once the Company has owned the property for eight full quarters. Newly-developed or redeveloped properties will be included in the same store pool eight full quarters after substantial completion. The following table reflects the Company's Same Store Cash NOI for the years ended December 31, 2024 and 2023.
Other Income (Expense) Other income (expense), as an expense increased $400.7 million, or 621.1%, from the prior year mainly due to the following activity: Gain on Sales of Real Estate Properties Gain on sales of real estate properties totaling approximately $77.5 million and $270.3 million are associated with the sales of 12 and ten real estate properties during 2023 and 2022, respectively.
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.
In 2022, these commitments averaged $1.76 per square foot per lease year, ranging quarterly from $1.46 to $1.90. In 2021, these commitments averaged $1.53 per square foot per lease year, ranging quarterly from $1.27 to $1.87.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+2 added−1 removed0 unchanged
Biggest changeIMPACT ON EARNINGS AND CASH FLOW Dollars in thousands OUTSTANDING PRINCIPAL BALANCE as of Dec. 31, 2023 CALCULATED ANNUAL INTEREST ASSUMING 10% INCREASE in market interest rates ASSUMING 10% DECREASE in market interest rates Variable Rate Debt Unsecured Credit Facility $ — $ — $ — $ — Unsecured Term Loan due 2024 350,000 22,372 (2,237) 2,237 Unsecured Term Loan due 2024 200,000 12,784 (1,278) 1,278 Unsecured Term Loan due 2025 300,000 19,176 (1,918) 1,918 Unsecured Term Loan due 2026 150,000 9,588 (959) 959 Unsecured Term Loan due 2027 200,000 12,784 (1,278) 1,278 Unsecured Term Loan due 2028 300,000 19,176 (1,918) 1,918 $ 1,500,000 $ 95,880 $ (9,588) $ 9,588 The Company has outstanding interest rate swaps to help mitigate its risk related to variable rate debt.
Biggest changeIMPACT ON EARNINGS AND CASH FLOW Dollars in thousands OUTSTANDING PRINCIPAL BALANCE as of Dec. 31, 2024 CALCULATED ANNUAL INTEREST ASSUMING 10% INCREASE in market interest rates ASSUMING 10% DECREASE in market interest rates Variable Rate Debt Unsecured Credit Facility $ — $ — $ — $ — Unsecured Term Loan due 2025 200,000 11,180 (1,118) 1,118 Unsecured Term Loan due 2025 300,000 16,770 (1,677) 1,677 Unsecured Term Loan due 2026 150,000 8,385 (839) 839 Unsecured Term Loan due 2027 200,000 11,180 (1,118) 1,118 Unsecured Term Loan due 2028 300,000 16,770 (1,677) 1,677 $ 1,150,000 $ 64,285 $ (6,429) $ 6,429 The Company has outstanding interest rate swaps to help mitigate its risk related to variable rate debt.
The fair value presented is based on Level 2 inputs defined as model-derived valuations in which significant inputs and significant value drivers are observable in active markets. 48
The fair value presented is based on Level 2 inputs defined as model-derived valuations in which significant inputs and significant value drivers are observable in active markets. 49
As of December 31, 2023, the Company h ad $1.3 billion of interest rate swaps at a weighted average rate of 3.49% . See Note 11 to the Consolidated Financial Statements for more information regarding the Company's interest rate swaps.
As of December 31, 2024, the Company h ad $1.1 billion of interest rate swaps at a weighted average rate of 3.92% . See Note 11 to the Consolidated Financial Statements for more information regarding the Company's interest rate swaps.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk in the form of changing interest rates on its debt. Management uses regular monitoring of market conditions and analysis techniques to manage this risk. As of December 31, 2023, $3.5 billion of the Company’s $5.0 billion of outstanding debt bore interest at fixed rates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk in the form of changing interest rates on its debt. Management uses regular monitoring of market conditions and analysis techniques to manage this risk.
The following table provides information regarding the sensitivity of certain of the Company’s financial instruments, as described above, to market conditions and changes resulting from changes in interest rates. For purposes of this analysis, sensitivity is demonstrated based on hypothetical 10% changes in the underlying market interest rates.
For purposes of this analysis, sensitivity is demonstrated based on hypothetical 10% changes in the underlying market interest rates.
Removed
FAIR VALUE Dollars in thousands CARRYING VALUE as of Dec. 31, 2023 2 DEC. 31, 2023 2 ASSUMING 10% INCREASE in market interest rates ASSUMING 10% DECREASE in market interest rates DEC. 31, 2022 1 Fixed Rate Debt Senior Notes due 2025 $ 249,484 $ 244,233 $ 244,527 $ 243,909 $ 241,413 Senior Notes due 2026 579,017 581,556 582,919 580,141 570,139 Senior Notes due 2027 483,727 483,590 485,102 482,048 473,450 Senior Notes due 2028 297,429 282,200 283,207 281,170 271,058 Senior Notes due 2030 575,443 577,702 580,777 574,583 560,723 Senior Notes due 2030 296,780 249,124 250,490 247,728 236,219 Senior Notes due 2031 295,832 235,894 237,394 234,366 219,321 Senior Notes due 2031 649,521 649,347 653,508 645,118 611,392 Mortgage Notes Payable 70,534 69,058 69,157 68,959 80,913 Total Fixed Rate Debt $ 3,497,767 $ 3,372,704 $ 3,387,081 $ 3,358,022 $ 3,264,628 1 Fair values as of December 31, 2022, represent fair values of obligations that were outstanding as of that date, and do not reflect the effect of any subsequent changes in principal balances and/or additions or extinguishments of instruments. 2 Balances are presented net of discounts and debt issuance costs and including premiums.
Added
As of December 31, 2024 , $3.5 billion of the Company’s $4.7 billion carrying value of debt bore interest at fixed rates, excluding the interest rate swaps. The following table provides information regarding the sensitivity of certain of the Company’s financial instruments, as described above, to market conditions and changes resulting from changes in interest rates.
Added
FAIR VALUE Dollars in thousands CARRYING VALUE as of Dec. 31, 2024 1 DEC. 31, 2024 1 ASSUMING 10% INCREASE in market interest rates ASSUMING 10% DECREASE in market interest rates DEC. 31, 2023 Fixed Rate Debt Senior Notes due 2025 $ 249,868 $ 250,605 $ 250,515 $ 250,679 $ 244,233 Senior Notes due 2026 586,824 595,052 594,141 595,919 581,556 Senior Notes due 2027 488,104 494,909 493,756 496,037 483,590 Senior Notes due 2028 298,029 290,349 289,532 291,144 282,200 Senior Notes due 2030 586,028 590,648 587,926 593,321 577,702 Senior Notes due 2030 297,190 258,718 257,480 259,924 249,124 Senior Notes due 2031 296,343 244,270 242,884 245,622 235,894 Senior Notes due 2031 667,233 659,624 655,870 663,292 649,347 Mortgage Notes Payable 45,136 44,251 44,196 44,305 69,058 Total Fixed Rate Debt $ 3,514,755 $ 3,428,426 $ 3,416,300 $ 3,440,243 $ 3,372,704 1 Balances are presented net of discounts and debt issuance costs and including premiums.

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