Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report.
Competition
The Company competes for the acquisition and development of real estate properties with private investors, healthcare providers, other REITs, real estate partnerships and financial institutions, among others. The business of acquiring and developing new healthcare facilities is highly competitive and is subject to price, construction and operating costs, and other competitive pressures. Some of the Company's competitors may have lower costs of capital.
The financial performance of all of the Company’s properties is subject to competition from similar properties. The extent to which the Company’s properties are utilized depends upon several factors, including the number of physicians using or referring patients to an associated healthcare facility, healthcare employment, competitive systems of healthcare delivery, and the area’s population, size and composition. Private, federal and state health insurance programs and other laws and regulations may also have an effect on the utilization of the properties.
Government Regulation
The facilities owned by the Company are utilized by medical tenants which are required to comply with extensive regulation and legislation at the federal, state and local levels, including, but not limited to, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "Affordable Care Act"), the Bipartisan Budget Act of 2015, the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”), and laws intended to combat fraud, waste and abuse such as the Anti-Kickback Statute, Stark Law and False Claims Act, and laws intended to protect the privacy and security of patient information, such as the Health Insurance Portability and Accountability Act of 1996. 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. Although lease payments to the Company are not directly affected by these laws and regulations, changes in these programs or the loss by a tenant of its license or ability to participate in government-sponsored reimbursement programs could have a material adverse effect on the tenant's ability to make lease payments to the Company.
Government healthcare programs have increased over time as a significant percentage of the U.S. population’s health insurance coverage. The Medicare and Medicaid programs are highly regulated and subject to frequent evaluation and change. 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 2025 to implement site-neutral payment policies. These changes have lowered Medicare payments for services delivered in off-campus hospital outpatient departments in an effort to lessen reimbursement disparity in off-campus medical office and outpatient facilities. The Company’s medical office buildings that are located on hospital campuses could become more valuable as hospital tenants will keep their higher Medicare rates for on-campus outpatient services. 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. The Company cannot predict the degree to which these changes, or changes to federal healthcare programs in general, may affect the economic performance of some or all of the Company's tenants, positively or negatively.
Since 2018, physicians have been required to report patient data on quality and performance measures that began to affect their Medicare payments in 2020. 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. The Company cannot predict the degree to which any such changes may affect the economic performance of the Company's tenants or, indirectly, the Company.
Legislative Developments
Taxation of Dividends
The Tax Cuts and Jobs Act of 2017 (“TCJA”) generally allows a deduction for individuals equal to 20% of certain income from pass-through entities, including ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income). In addition, the deduction for ordinary REIT dividends is not subject to the wage and tax basis limitations applicable to the deduction for other qualifying pass-through income. The TCJA was a far-reaching and complex revision to the existing U.S. federal income tax laws. Many provisions of this act, such as the 20% deduction mentioned above, that were set to expire at the end of 2025 have been permanently extended as a result of the passing of the One Big Beautiful Bill Act of 2025 (“OBBBA”) that was signed into law on July 4, 2025.
Healthcare
Each year, legislative proposals for health policy are introduced in Congress and state legislatures, and regulatory changes are proposed and enacted by government agencies. 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. Examples 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;
• 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.
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.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and regulations, an owner of real property (such as the Company) may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, under, or disposed of in connection with such property, as well as certain other potential costs (including government fines and injuries to persons and adjacent property) relating to hazardous or toxic substances. Most, if not all, of these laws, ordinances and regulations contain stringent enforcement provisions including, but not limited to, the authority to impose substantial administrative, civil, and criminal fines and penalties upon violators. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances, and liability may be imposed on the owner in connection with the activities of a tenant or operator of the property. The cost of any required remediation, removal, fines or personal or property damages and the owner’s liability therefore could exceed the value of the property and/or the aggregate assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner’s ability to sell or lease such property or to borrow using such property as collateral. A property can also be negatively impacted either through physical contamination, or by virtue of an adverse effect on value, from contamination that has or may have emanated from other properties.
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. Certain properties owned, developed or managed by the Company contain, and others may contain or at one time may have contained, underground storage tanks that are or were used to store waste oils, petroleum products or other hazardous substances. Such underground storage tanks can be the source of releases of hazardous or toxic materials. Operations of nuclear medicine departments at some properties also involve the use and handling, and subsequent disposal of, radioactive isotopes and similar materials, activities which are closely regulated by the Nuclear Regulatory Commission and state regulatory agencies. In addition, several of the Company's properties were built during the period that asbestos was commonly used in building construction and other such facilities may be acquired by the Company in the future. The presence of such materials could result in significant costs in the event that any asbestos-containing materials requiring immediate removal and/or encapsulation are located in or on any facilities or in the event of any future renovation activities.
The Company has had environmental site assessments conducted on substantially all of the properties that it currently owns. These site assessments are limited in scope and provide only an evaluation of potential environmental conditions associated with the property, not compliance assessments of ongoing operations. While it is the Company’s policy to seek indemnification from tenants relating to environmental liabilities or conditions, even
where leases do contain such provisions, there can be no assurance that the tenant will be able to fulfill its indemnification obligations. 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.
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, 2025, the Company employed 539 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. 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.
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.
Additional information regarding employee and community engagement is available in the 2025 Corporate Responsibility Report, which is posted on the Company's website ( www.healthcarerealty.com ).
Environment, Social, and Governance (“ESG”)
Our goal is to create long-term value for all stakeholders, including our employees and investors who expect responsible financial and environmental stewardship, and for our healthcare system partners who rely on the Company to provide well-operated facilities that allow them to effectively serve and care for their local communities.
We seek to help healthcare professionals deliver the best care by providing the highest level of service in the most desirable outpatient settings. Our ESG objectives include full integration of our sustainability strategy, improved transparency and reporting, enhanced operational frameworks, and continued stakeholder engagement.
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. Impact : Drive positive impact across the Company while mitigating risk and creating long-term value for stakeholders, including our tenants, investors, employees, and the communities in which we live, work and invest.
c. Integrity : Conduct business with integrity, respect and excellence, earning the right to be a preferred provider of outpatient medical properties.
The Company’s Board of Directors is committed to overseeing the integration of our ESG principles throughout the Company. In addition, the Company's incentive program for named executive officers includes ESG performance measures.
To more effectively track and communicate the Company’s ESG performance, we have adopted various frameworks and methodologies, including participation in the annual GRESB Assessment; reporting disclosures in alignment with the Sustainability Accounting Standards Board; establishing goals and key performance indicators under the
Sustainable Development Goals, and we are working toward expanding our climate risk and resiliency strategies in alignment with the Task Force on Climate-Related Disclosure.
More information regarding the Company’s Sustainability Principles and Policies and ESG performance can be found in the Company’s 2025 Corporate Responsibility Report on its website ( www.healthcarerealty.com ).
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"). The Company’s website address is www.healthcarerealty.com .
Corporate Governance Principles
The Company has adopted Corporate Governance Principles relating to the conduct and operations of the Board of Directors. The Corporate Governance Principles are posted on the Company’s website ( www.healthcarerealty.com ) and are available in print to any stockholder who requests a copy.
Committee Charters
The Board of Directors has an Audit Committee, Compensation and Human Capital Committee, and Nominating and Corporate Governance Committee. The Board of Directors has adopted written charters for each committee, which are posted on the Company’s website ( www.healthcarerealty.com ) and are available in print to any stockholder who requests a copy.
Executive Officers
Information regarding the executive officers of the Company is set forth in Part III, Item 10 of this report and is incorporated herein by reference.
Item 1A. Risk Factors
The following are some of the risks and uncertainties that could negatively affect the Company’s consolidated financial condition, results of operations, business and prospects. These risk factors are grouped into three categories: risks relating to the Company’s business and operations; risks relating to the Company’s capital structure and financings; and risks relating to government regulations.
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. 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. If any of the events underlying the following risks actually occurred, the Company’s business, consolidated financial condition, operating results and cash flows, including distributions to the Company's stockholders, could suffer, and the trading price of its common stock could decline.
Risks relating to our business and operations
The Company's expected results may not be achieved.
The Company's expected results may not be achieved, and actual results may differ materially from expectations. 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.
The Company may from time to time decide to sell properties and may be required under purchase options to sell certain properties. The Company may not be able to reinvest the proceeds from sales at rates of return equal to the return received on the properties sold. Uncertain market conditions could result in the Company selling properties at unfavorable prices or at losses in the future.
The Company’s revenues depend on the ability of its tenants under its leases to generate sufficient income from their operations to make rental payments to the Company .
The Company’s revenues are subject to the financial strength of its tenants and associated health systems. The Company has no operational control over the business of these tenants and associated health systems who face a wide range of economic, competitive, government reimbursement and regulatory pressures and constraints, including the loss of licensure or certification. Any slowdown in the economy, decline in the availability of financing from the capital markets, and changes in healthcare regulations may adversely affect the businesses of the Company’s tenants to varying degrees. Such conditions may further impact such tenants’ abilities to meet their obligations to the Company and, in certain cases, could lead to restructurings, disruptions, or bankruptcies of such tenants. The Company leases to government tenants from time to time that may be subject to annual budget appropriations. If a government tenant fails to receive its annual budget appropriation, it might not be able to make its lease payments to the Company. In addition, defaults under leases with federal government tenants are governed by federal statute and not by state eviction or rent deficiency laws. 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 Prospect Medical bankruptcy .
As previously disclosed, Prospect Medical Holdings (“Prospect”) filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in January of 2025. Prospect leased approximately 80,912 square feet of space from the Company. In October 2025, a subsidiary of Hartford HealthCare (“Hartford Health”) was selected as the successful bidder for the Prospect assets associated with the Company’s Prospect leases. The Company signed direct leases with Hartford Heath totaling 65,477 square feet effective January 1, 2026 and retained certain sublet in additional spaces. There is no assurance that the Company will be able to timely relet the remaining Prospect leased space that was not assumed by Hartford Health.
Owning real estate and indirect interests in real estate is subject to inherent risks .
The Company’s operating performance and the value of its real estate assets are subject to the risk that if its properties do not generate revenues sufficient to meet its operating expenses, including debt service, the Company’s cash flow and ability to pay dividends to stockholders will be adversely affected.
The Company may incur impairment charges on its real estate properties or other assets .
The Company performs an impairment review on its real estate properties every year. In addition, the Company assesses the potential for impairment of identifiable intangible assets and long-lived assets, including real estate properties and goodwill, whenever events occur or a change in circumstances indicates that the recorded value might not be fully recoverable. The decision to sell a property also requires the Company to assess the potential for impairment. The Company incurred impairment charges of $361.1 million in 2025, related to completed or planned dispositions, changes in holding periods or changes in property use. 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. In such an event, the Company may be required to recognize an impairment which could have a material adverse effect on the Company’s consolidated financial condition and results of operations.
The Company has properties subject to purchase options that expose it to reinvestment risk and reduction in expected investment returns .
The Company had approximately $55.7 million, or 0.54%, of real estate property investments that were subject to purchase options held by lessees that were exercisable as of December 31, 2025. Other properties have purchase
options that will become exercisable after 2025. Properties with purchase options exercisable in 2025 produced aggregate net operating income of approximatel y $7.2 million in 2025. 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. If the Company is unable to reinvest the sale proceeds at rates of return equal to the return received on the properties that are sold, it may experience a decline in lease revenues and profitability and a corresponding material adverse effect on the Company’s consolidated financial condition and results of operations.
For more specific information concerning the Company’s purchase options, see “Purchase Options” in the “Trends and Matters Impacting Operating Results” as a part of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report.
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 .
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. 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. 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.
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. If the Company or the Company’s tenants terminate the leases for these properties or the Company’s tenants lose their regulatory authority to operate such properties, the Company may not be able to locate suitable replacement tenants to lease the properties for their specialized uses. Alternatively, the Company may be required to spend substantial amounts to adapt the properties to other uses. Any loss of revenues and/or additional capital expenditures occurring as a result may have a material adverse effect on the Company’s consolidated financial condition and results of operations.
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 receives a significant portion of its revenues by leasing assets subject to fixed rent escalations. 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. As of December 31, 2025, the Company had weighted average annual fixed rent escalators of 2.93% 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 .
Because real estate investments are relatively illiquid, the Company’s ability to adjust its portfolio promptly in response to economic or other conditions is limited. Certain significant expenditures generally do not change in response to economic or other conditions, including debt service (if any), real estate taxes, and operating and maintenance costs. This combination of variable revenue and relatively fixed expenditures may result in reduced earnings and could have an adverse effect on the Company’s financial condition. In addition, the Company may not be able to sell properties targeted for disposition, including properties held for sale, due to adverse market conditions. This may negatively affect, among other things, the Company’s ability to sell properties on favorable terms, execute its operating strategy, repay debt, or pay dividends.
The Company is subject to risks associated with the development and redevelopment of properties .
The Company expects development and redevelopment of properties will continue to be a key component of its growth plans. The 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.
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. 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’s acquired, developed, redeveloped and existing real estate properties may not perform in accordance with management’s expectations because of many factors including the following:
• The Company’s purchase price for acquired facilities may be based upon a series of market or building-specific judgments which may be incorrect;
• The costs of any maintenance or improvements for properties might exceed estimated costs;
• The Company may incur unexpected costs in the acquisition, construction or maintenance of real estate assets that could impact its expected returns on such assets; and
• Leasing may not occur at all, within expected time frames or at expected rental rates.
Further, the Company can give no assurance that acquisition, development and redevelopment opportunities that meet management’s investment criteria will be available when needed or anticipated.
The Company is exposed to risks associated with geographic concentration .
As of December 31, 2025, the Company had investment concentrations of greater than 5% of its total investments in the Dallas, TX (9.5%), Seattle, WA (6.1%), Houston, TX (6.0%), and Charlotte, NC (5.4%) markets. These concentrations increase the exposure to adverse conditions that might affect these markets, including natural disasters, local economic conditions, local real estate market conditions, increased competition, state and local regulation (including property taxes) and other localized events or conditions.
Many of the Company’s leases are dependent on the viability of associated health systems. Revenue concentrations relating to these leases expose the Company to risks related to the financial condition of the associated health systems .
Most of the Company’s properties on or adjacent to hospital campuses are largely dependent on the viability of the health system’s campus where they are located, whether or not the hospital or health system is a tenant in such
properties. The viability of these health systems depends on factors such as the quality and mix of healthcare services provided, competition, payor mix, demographic trends in the surrounding community, market position and growth potential. If one of these hospitals is unable to meet its financial obligations, is unable to compete successfully, or is forced to close or relocate, the Company’s properties on or near such hospital campus could be adversely impacted.
Many of the Company’s properties are held under ground leases. These ground leases contain provisions that may limit the Company’s ability to lease, sell, or finance these properties .
As of December 31, 2025, the Company had 168 properties that were held under ground leases, representing an aggregate gross investment of approximately $4.2 billion. The weighted average remaining term of the Company's ground leases is approximately 60.6 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. Ground leases may also contain consent requirements or other restrictions on sale or assignment of the Company’s leasehold interest, including rights of first offer and first refusal in favor of the lessor. These ground lease provisions may limit the Company’s ability to lease, sell, or obtain mortgage financing secured by such properties which, in turn, could adversely affect the income from operations or the proceeds received from a sale. 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.
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. Some types of losses may be uninsurable or too expensive to insure against. Insurance companies, including the captive insurance company, limit or exclude coverage against certain types of losses, such as losses due to named windstorms, terrorist acts, earthquakes, toxic mold, and losses without direct physical loss, such as business interruptions occurring from pandemics. Accordingly, the Company may not have sufficient insurance coverage against certain types of losses and may experience decreases in the insurance coverage available. Should an uninsured loss or a loss in excess of insured limits occur, the Company could lose all or a portion of the capital it has invested in a property, as well as the anticipated future revenue from the property. In such an event, the Company might remain obligated for any mortgage debt or other financial obligation related to the property. Further, if any of the Company's insurance carriers were to become insolvent, the Company would be forced to replace the existing coverage with another suitable carrier, and any outstanding claims would be at risk for collection. 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. 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.
The Company cannot give assurance that material losses in excess of insurance proceeds will not occur in the future.
Damage from catastrophic weather and other natural events, whether caused by climate change or otherwise, could result in losses to the Company .
Many of our properties are located in areas susceptible to revenue loss, cost increase, or damage caused by severe weather conditions or natural disasters such as wildfires, hurricanes, earthquakes, tornadoes and floods. The Company could experience losses to the extent that such damages exceed insurance coverage, cause an increase in insurance premiums, and/or a decrease in demand for properties located in such areas. In the event that climate change causes such catastrophic weather or other natural events to increase broadly or in localized areas, such costs and damages could increase above historic expectations. 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.
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 faces risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails, persons inside the Company, or persons with access to systems inside the Company, and other significant disruptions of the Company's information technology ("IT") networks and related systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. The Company's IT networks and related systems are essential to the operation of its business and its ability to perform day-to-day operations (including managing building systems) and, in some cases, may be critical to the operations of certain of our tenants. Although the Company makes efforts to maintain the security and integrity of these types of IT networks and related systems, it has experienced breaches. While breaches to date have not had a material impact, and we have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that these security measures will be effective or that future attempted security breaches or disruptions would not be successful or damaging.
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 the Company carries cyber risk insurance, losses could exceed insurance coverage available and any or all of the foregoing could have a material adverse effect on the Company's consolidated financial condition and results of operations.
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 .
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. If the Company continues to enter into such transactions in order to induce the contributors of such properties to accept units of the OP rather than cash in exchange for their properties, it may be necessary for the Company to provide additional incentives. For instance, the OP's limited partnership agreement provides that any holder of units may exchange limited partnership units on a one-for-one basis for shares of common stock or, at the Company's option, cash equal to the value of an equivalent number of shares of the Company's common stock. The Company may, however, enter into additional contractual
arrangements with contributors of property under which it would agree to repurchase a contributor’s units for shares of the Company's common stock or cash, at the option of the contributor, at set times. 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. 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. Furthermore, the Company might agree that if distributions the contributor received as a limited partner in the OP did not provide the contributor with an established return level, then upon redemption of the contributor’s units the Company would pay the contributor an additional amount necessary to achieve that return. Such a provision could further negatively impact our liquidity and flexibility. Finally, in order to allow a contributor of a property to defer taxable gain on the contribution of property to the OP, the Company might agree not to sell a contributed property for a defined period of time or until the contributor exchanged the contributor’s units for cash or shares. 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.
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 .
Substantially all of Healthcare Realty Trust's assets are held through the OP, which holds substantially all of its assets through subsidiaries. Healthcare Realty Trust does not have, apart from its interest in the OP, any independent operations. Substantially all of Healthcare Realty Trust's cash flow is dependent upon cash distributions from the OP. As a result, Healthcare Realty Trust relies on distributions from the OP to pay any dividends that may be declared on its shares of Class A common stock. Healthcare Realty Trust also relies on distributions from the OP to meet its other obligations, including any tax liability on taxable income allocated to it from the OP. In addition, because Healthcare Realty Trust is a holding company, stockholder claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of the OP and its subsidiaries. In the event of a bankruptcy, liquidation, or reorganization of Healthcare Realty Trust, its assets and those of the OP and its subsidiaries will be available to satisfy the claims of stockholders only after all of Healthcare Realty Trust's and the OP’s and its subsidiaries’ liabilities and obligations have been paid in full.
The Company cannot assure you that it will be able to continue paying dividends at or above the rates previously paid .
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.
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 .
Pandemics can have repercussions across regional and global economies and financial markets. 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. 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. 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. In addition, the deterioration of economic conditions, including supply chain constraints, that could result from another 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 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.
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.
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. 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. 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.
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, 2025, the Company had approximately $4.1 billion of outstanding indebtedness excluding discounts, premiums and debt issuance costs. Covenants under the Fifth Amended and Restated Revolving Credit and Term Loan Agreement dated as of July 25, 2025, among Healthcare Realty Trust, the OP, and Wells Fargo Bank, National Association, as Administrative Agent, and the other lenders that are party thereto, as amended ("Unsecured Credit Facility"), and the indentures governing the OP's senior notes permit the Company to incur substantial, additional debt, and the Company may borrow additional funds, which may include secured borrowings or additional instances of notes by the OP that are fully guaranteed by Healthcare Realty Trust. The Company has approximately $1.3 billion of combined debt maturities in 2026 and 2027. 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 high level of indebtedness could also:
• limit the Company’s ability to adjust rapidly to changing market conditions in the event of a downturn in general economic conditions or in the real estate and/or healthcare industries;
• impair the Company’s ability to obtain additional debt financing or require potentially dilutive equity to fund obligations and carry out its business strategy; and
• result in a downgrade of the rating of the Company’s debt securities by one or more rating agencies, which would increase the costs of borrowing under the Unsecured Credit Facility and the cost of issuance of new debt securities, among other things.
In addition, from time to time, the Company secures mortgage financing or assumes mortgages to partially fund its investments. If the Company is unable to meet its mortgage payments, then the encumbered properties could be foreclosed upon or transferred to the mortgagee with a consequent loss of income and asset value. 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. 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. 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.
Covenants in the Company’s debt instruments limit its operational flexibility, and a breach of these covenants could materially affect the Company’s consolidated financial condition and results of operations.
The terms of the Unsecured Credit Facility, the indentures governing the OP’s outstanding senior notes (which are fully and unconditionally guaranteed by Healthcare Realty Trust) and other debt instruments that the Company may enter into in the future are subject to customary financial and operational covenants. These provisions include, among other things: a limitation on the incurrence of additional indebtedness; limitations on mergers, investments, acquisitions, redemptions of capital stock, and transactions with affiliates; and maintenance of specified financial ratios. The Company’s continued ability to incur debt and operate its business is subject to compliance with these covenants, which limit operational flexibility. Breaches of these covenants could result in defaults under applicable debt instruments, even if payment obligations are satisfied. Financial and other covenants that limit the Company’s operational flexibility, as well as defaults resulting from a breach of any of these covenants in its debt instruments, could have a material adverse effect on the Company’s consolidated financial condition and results of operations.
If lenders under the Unsecured Credit Facility fail to meet their funding commitments, the Company’s operations and consolidated financial position would be negatively impacted.
Access to external capital on favorable terms is critical to the Company’s success in growing and maintaining its portfolio. If financial institutions within the Unsecured Credit Facility were unwilling or unable to meet their respective funding commitments to the Company, any such failure would have a negative impact on the Company’s operations, consolidated financial condition and ability to meet its obligations, including the payment of dividends to stockholders.
The unavailability of equity and debt capital, volatility in the credit markets, increases in interest rates, or changes in the Company’s debt ratings could have an adverse effect on the Company’s ability to meet its debt payments, make dividend payments to stockholders or engage in acquisition and development activity.
A REIT is required by the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), to make dividend distributions, thereby retaining less of its capital for growth. As a result, a REIT typically requires new capital to invest in real estate assets. However, there may be times when the Company will have limited access to capital from the equity and/or debt markets. Changes in the Company’s debt ratings could have a material adverse effect on its interest costs and financing sources. The Company’s debt rating can be materially influenced by a number of factors including, but not limited to, acquisitions, investment decisions, and capital management activities. In recent years, the capital and credit markets have experienced volatility and at times have limited the availability of funds. The Company’s ability to access the capital and credit markets may be limited by these or other factors, which could have an impact on its ability to refinance maturing debt, fund dividend payments and operations, acquire healthcare properties and complete development and redevelopment projects. If the Company is unable to refinance or extend principal payments due at maturity of its various debt instruments, its cash flow may not be sufficient to repay maturing debt or make dividend payments to stockholders. If the Company defaults in paying any of its debts or satisfying its debt covenants, it could experience cross-defaults among debt instruments, the debts could be accelerated, and the Company could be forced to liquidate assets for less than the values it would otherwise receive.
Further, the Company obtains credit ratings from various credit-rating agencies based on their evaluation of the Company's credit. These agencies' ratings are based on a number of factors, some of which are not within the Company's control. In addition to factors specific to the Company's financial strength and performance, the rating agencies also consider conditions affecting REITs generally. 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.
During 2025, the Federal Reserve mainly kept interest rates constant and in the latter part of the year actually decreased rates by a total of 75 basis points with the easing of inflation. However, if inflation climbs again, the Federal Reserve may again raise interest rates. 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 finance operations, acquire and develop properties, and refinance existing debt. Additionally, increased interest rates may also result in less liquid property markets, limiting our ability to sell existing assets.
The Company's swap agreements may not effectively reduce its exposure to changes in interest rates.
The Company enters into swap agreements from time to time to manage some of its exposure to interest rate volatility. These swap agreements involve risks, such as the risk that counterparties may fail to honor their obligations under these arrangements. In addition, these arrangements may not be effective in reducing the Company’s exposure to changes in interest rates. When the Company uses forward-starting interest rate swaps, there is a risk that it will not complete the long-term borrowing against which the swap is intended to hedge. If such events occur, the Company’s consolidated financial condition and results of operations may be adversely affected. See Note 10 to the Consolidated Financial Statements for additional information on the Company's interest rate swaps.
The Company has entered into joint venture agreements that limit its flexibility with respect to jointly owned properties and expects to enter into additional such agreements in the future.
As of December 31, 2025, the Company had investments of $453.6 million in unconsolidated joint ventures with unrelated third parties comprised of 61 properties, excluding held for sale properties, and seven parking garages. The Company may acquire, develop, or redevelop additional properties in joint ventures with unrelated third parties. In such investments, the Company is subject to risks that may not be present in its other forms of ownership, including:
• joint venture partners could have financing and investment goals or strategies that are different than those of the Company, including terms and strategies for such investment and what levels of debt place on the venture;
• the parties to a joint venture could reach an impasse on certain decisions, which could result in unexpected costs, including costs associated with litigation or arbitration;
• a joint venture partner's actions might have the result of subjecting the property or the Company to liabilities in excess of those contemplated;
• joint venture partners could have investments that are competitive with the Company's properties in certain markets;
• interests in joint ventures are often illiquid and the Company may have difficulty exiting such an investment, or may have to exit at less than fair market value;
• joint venture partners may be structured differently than the Company for tax purposes and there could be conflicts relating to the Company's REIT status; and
• joint venture partners could become insolvent, fail to fund capital contributions, or otherwise fail to fulfill their obligations as a partner, which could require the Company to invest more capital into such ventures than anticipated.
The U.S. federal income tax treatment of the cash that the Company might receive from cash settlement of a forward equity agreement is unclear and could jeopardize the Company's ability to meet the REIT qualification requirements.
The Company has utilized and, in the future, may utilize forward equity agreements to secure pricing for equity capital needed at a later time. The Company currently has no forward equity agreements outstanding. I n the event that we enter into forward equity agreements in the future and elect to settle any such forward equity agreement for cash and the settlement price is below the applicable forward equity price, we would be entitled to receive a cash payment from the relevant forward purchaser. Under Section 1032 of the Internal Revenue Code, generally, no gains and losses are recognized by a corporation in dealing with its own shares, including pursuant to a "securities futures contract" (as defined in the Internal Revenue Code, by reference to the Exchange Act). Although we believe that any amount received by us in exchange for our stock would qualify for the exemption under Section 1032 of the Internal
Revenue Code, because it is not entirely clear whether a forward equity agreement qualifies as a "securities futures contract," the U.S. federal income tax treatment of any cash settlement payment we receive is uncertain. 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 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. 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 the event that these relief provisions were not available, we could lose our REIT status under the Internal Revenue Code.
In the event of our bankruptcy or insolvency, any forward equity agreements will automatically terminate, and the Company would not receive the expected proceeds from any forward sale of shares of its common stock.
If we file for or consent to a proceeding seeking a judgment in bankruptcy or insolvency or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or we or a regulatory authority with jurisdiction over us presents a petition for our winding-up or liquidation, and we consent to such a petition, any forward equity agreements that are then in effect will automatically terminate. If any such forward equity agreement so terminates under these circumstances, we would not be obligated to deliver to the relevant forward purchaser any shares of common stock not previously delivered, and the relevant forward purchaser would be discharged from its obligation to pay the applicable forward equity price per share in respect of any shares of common stock not previously settled under the applicable forward equity agreement. Therefore, to the extent that there are any shares of common stock with respect to which any forward equity agreement has not been settled at the time of the commencement of any such bankruptcy or insolvency proceedings, we would not receive the relevant forward equity price per share in respect of those shares of common stock.
Risks relating to government regulations
The Company's property taxes could increase due to reassessment or property tax rate changes.
Real property taxes on the Company's properties may increase as its properties are reassessed by taxing authorities or as property tax rates change. In addition, the Company could incur significant costs associated with an appeal of any of these assessments. For example, a current California law commonly referred to as Proposition 13 generally limits annual real estate tax increases on California properties to 2% of assessed value at the date of acquisition. Accordingly, the assessed value and resulting property tax the Company pays is less than it would be if the properties were assessed at current values. The Company owns 31 properties in California, representing 9.1% 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. If such an initiative passed, it could end or reduce the beneficial effect of Proposition 13 for the Company's properties, and property tax expense could have increase substantially, adversely affecting the Company's cash flow from operations and net income.
Trends in the healthcare service industry, including the impact of the One Big Beautiful Bill Act passed during 2025 that is subject of ongoing analysis, may negatively affect the demand for the Company’s properties, lease revenues and the values of its investments.
The 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;
• 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.
These trends, among others, can adversely affect the economic performance of some or all of the tenants and, in turn, negatively affect the lease revenues and the value of the Company’s property investments.
The costs of complying with governmental laws and regulations may adversely affect the Company's results of operations.
All real property and the operations conducted on real property are subject to federal, state, and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on tenants, owners, or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may hinder the Company's ability to sell, rent, or pledge such property as collateral for future borrowings.
Compliance with new laws or regulations or stricter interpretation of existing laws may require the Company to incur significant expenditures. 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. There are various local, state, and federal fire, health, life-safety, and similar regulations with which the Company may be required to comply and that may subject us to liability in the form of fines or damages for noncompliance. Any expenditures, fines, or damages that the Company must pay would adversely affect its results of operations.
Discovery of previously undetected environmentally hazardous conditions may adversely affect the Company's financial condition and results of operations. Under various federal, state, and local environmental laws and regulations, a current or previous property owner or operator may be liable for the cost to remove or remediate hazardous or toxic substances on such property. These costs could be significant. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require significant expenditures or prevent the Company from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances. The cost of defending against claims of liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could adversely affect the Company's financial condition and results of operations.
Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code.
Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue Code for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize the Company’s REIT qualification. 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 requirements on a continuing basis. In addition, the Company’s ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which the Company has no control or only limited influence, including in cases where the Company owns an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.
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 intends to operate in a manner that will allow it to continue to qualify as a REIT for federal income tax purposes. Although the Company believes that it qualifies as a REIT, it cannot provide any assurance that it will continue to qualify as a REIT for federal income tax purposes. The Company’s continued qualification as a REIT will depend on the satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. The Company’s ability to satisfy the asset tests depends upon the characterization and fair market values of its assets. The Company’s compliance with the REIT income and quarterly asset requirements also depends upon the Company’s ability to successfully manage the composition of the Company’s income and assets on an ongoing basis. Accordingly, there can be no assurance that the Internal Revenue Service (“IRS”) will not contend that the Company has operated in a manner that violates any of the REIT requirements.
If the Company were to fail to qualify as a REIT in any taxable year, the Company would be subject to federal income tax on its taxable income at regular corporate rates and possibly increased state and local taxes (and the Company might need to borrow money or sell assets in order to pay any such tax). Further, dividends paid to the Company’s stockholders would not be deductible by the Company in computing its taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to the Company’s stockholders, which in turn could have an adverse impact on the value of the Company’s common stock. In addition, in such an event the Company would no longer be required to pay dividends to maintain REIT status, which could adversely affect the value of the Company’s common stock. Unless the Company were entitled to relief under certain provisions of the Internal Revenue Code, the Company also would continue to be disqualified from taxation as a REIT for the four taxable years following the year in which the Company failed to qualify as a REIT.
Even if the Company remains qualified for taxation as a REIT, the Company is subject to certain federal, state and local taxes on its income and assets, including taxes on any undistributed taxable income, and state or local income, franchise, property and transfer taxes. These tax liabilities would reduce the Company’s cash flow and could adversely affect the value of the Company’s common stock. For more specific information on state income taxes paid, see Note 15 to the Consolidated Financial Statements.
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.
In order to qualify as a REIT, no more than 50% of the value of the Company’s outstanding shares may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year. To assist in complying with this REIT requirement, the Company’s articles of incorporation contain provisions restricting share transfers where the transferee would, after such transfer, own more than 9.8% either in number or value of the outstanding stock of the Company. If, despite this prohibition, stock is acquired increasing a transferee’s ownership to over 9.8% in value of the outstanding stock, the stock in excess of this 9.8% in value is deemed to be held in trust for transfer at a price that does not exceed what the purported transferee paid for the stock, and, while held in trust, the stock is not entitled to receive dividends or to vote. In addition, under these circumstances, the Company has the right to redeem such stock.
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.
Pursuant to a resolution adopted by the Board of Directors, the Company is prohibited from classifying the Board of Directors under Subtitle 8 unless stockholders entitled to vote generally in the election of directors approve a proposal to repeal such resolution by the affirmative of a majority of the votes cast on the matter. In the case of the business combination provisions of the MGCL, the Board of Directors has adopted a resolution providing that any business combination between the Company and any other person is exempted from this statute, provided that such business combination is first approved by the Board of Directors. This resolution, however, may be altered or repealed in whole or in part at any time. In the case of the control share provisions of the MGCL, the Company has opted out of these provisions pursuant to a provision in its bylaws. The Company may, however, by amendment to its bylaws, opt into the control share provisions of the MGCL. The Company may also choose to adopt other takeover defenses in the future. Any such actions could deter a transaction that may otherwise be in the interest of Company stockholders.
These restrictions on the transfer of the Company’s shares could 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.
To qualify as a REIT for federal income tax purposes, the Company must continually satisfy tests concerning, among other things, the sources of its income, the nature of its assets, the amounts it distributes to its stockholders and the ownership of its stock. The Company may be unable to pursue investments that would be otherwise advantageous to the Company in order to satisfy the source-of-income or distribution requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder the Company’s ability to make certain attractive investments.
The prohibited transactions tax may limit the Company's ability to sell properties.
A REIT's net gain from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The Company may be subject to the prohibited transaction tax equal to 100% of net gain upon the disposition of real property. 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. Consequently, the Company may choose not to engage in certain sales of its properties or may conduct such sales through a taxable REIT subsidiary, which would be subject to federal and state income taxation.
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.
The present federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the federal income tax treatment of an investment in the Company. 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. Revisions in federal tax laws and interpretations thereof could cause the Company to change its investments and commitments and affect the tax considerations of an investment in the Company. There can be no assurance that new legislation, regulations, administrative interpretations or court decisions will not change the tax laws significantly with respect to the Company’s qualification as a REIT or with respect to the federal income tax consequences of qualification.
New and increased transfer tax rates may reduce the value of the Company’s properties.
In recent years, several cities in which the Company owns assets have increased transfer tax rates. These include Boston, Los Angeles, San Francisco, Seattle, and Washington, D.C. In 2022, Los Angeles increased its transfer tax rate from 0.45% to 5.5% on sales of real properties greater than $10 million in value, effective April 1, 2023. In 2020, San Francisco increased it transfer tax rate to 6% for sales in excess of $25 million in value. Also in 2020, the State of Washington increased its transfer tax rate from 1.28% to 3% on sales in excess of $3 million in value; the combined state and local transfer tax rate in Seattle/King County, Washington is 3.5% on sales above $3 million. As state and municipal governments seek new ways to raise revenue, other jurisdictions may implement new real estate transfer taxes or increase existing transfer tax rates. Increases in such tax rates can impose significant additional transaction costs on sales of commercial real estate and may reduce the value of the Company’s properties for sale by the amount of the new or increased tax.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
The Company annually reviews its overall risk profile with the Audit Committee and full Board of Directors. Assessing, identifying and managing material risks from cybersecurity threats are integrated into the Company’s overall risk management processes.
The Audit Committee of the Company’s Board of Directors has oversight in the management of risks associated with cybersecurity. The Audit Committee is briefed regularly on cybersecurity matters, including meeting with the Company’s head of technology at least annually and receiving a memorandum quarterly regarding cybersecurity. In addition, the Audit Committee discusses cybersecurity with other members of management and the internal audit staff at each quarterly meeting. The Audit Committee reports to the full Board of Directors quarterly regarding cybersecurity.
Management of the Company plays an integral role in assessing and managing risks from cybersecurity threats. The Company has a dedicated technology services department, led by the Company’s head of technology. The Company also has an in-house internal audit staff that is involved in risk management of cybersecurity threats. The Company solicits input from key employees regarding the overall risk environment, including cybersecurity threats. The Company requires all employees to complete cybersecurity training semi-annually and periodically facilitates penetration tests on the Company's systems.
The Company’s head of technology reports to the Company’s Executive Vice President and Chief Operating Officer. In addition, as discussed in more detail below, any cybersecurity incident is reported to the Company’s legal department.
Although the Company’s Executive Vice President and Chief Operating Officer and the members of its legal department do not have a technology services background, we believe that the Company’s head of technology and technology services team possess the requisite background and experience to effectively manage the Company’s cybersecurity needs.
The Company also engages with third parties on an as-needed basis to advise and assist in managing cybersecurity risks. When the Company utilizes third-party services that include web-based platforms or data collection stored on third-party servers, it reviews the service provider’s SOC1 attestation reports on internal controls and inquires regarding controls and procedures utilized by such third parties with respect to cybersecurity of the Company’s data.
The Company has in place a cybersecurity incident response plan. 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.
The Company carries cyber risk insurance, but there can be no assurance that losses from a cybersecurity incident would not exceed the insurance coverage.
Although the Company has not experienced a cybersecurity incident that materially affected or, to the Company’s knowledge, is reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition, the Company has, from time to time, experienced threats to and breaches of its data and systems. 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. These risks are described in more detail under Item 1A. Risk Factors.
Item 2. Properties
In addition to the properties described in Item 1. “Business,” in Note 2 to the Consolidated Financial Statements, and in Schedule III of Item 15 of this Annual Report on Form 10-K, the Company leases office space from unrelated third parties from time to time. The Company owns its corporate headquarters located at 3310 West End Avenue in Nashville, Tennessee.
Item 3. Legal Proceedings
The Company is not aware of any pending or threatened litigation that, if resolved against the Company, would have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
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, 2025, there were 1,863 stockholders of record.
Future dividends will be declared and paid at the discretion of the Board of Directors. 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.
Equity Compensation Plan Information
The following table provides information as of December 31, 2025, 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.
PLAN 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
Equity compensation plans not approved by security holders
Total
Issuer Purchases of Equity Securities
During the year ended December 31, 2025, 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 (or Approximate DOLLAR VALUE) OF SHARES
that may yet be purchased
under the plans or programs
January 1 - January 31
February 1 - February 28
March 1 - March 31
April 1 - April 30
May 1 - May 31
June 1 - June 30
July 1 - July 31
August 1 - August 31
September 1 - September 30
October 1 - October 31
November 1 - November 30
December 1 - December 31
Total
Authorization to Repurchase Common Stock
On October 28, 2025, 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 $300.0 million stock repurchase authorization. The stock repurchase authorization expires on October 27, 2026, and the Company may suspend or terminate repurchases at any time without prior notice. Under the Maryland General Corporation Law, outstanding shares of common stock acquired by a corporation become authorized but unissued shares, which may be re-issued. As of December 31, 2025, the Company had $500.0 million remaining under its current share repurchase authorization.
Subsequent Activity
In January 2026, the Company repurchased 2.9 million shares of its common stock at an average price of $17.27 per share for a total of $50.0 million resulting in $450.0 million of authorized share repurchases remaining.
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, 2020 through December 31, 2025. The comparison assumes $100 was invested on December 31, 2020, 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 July 20, 2022, is the stock performance of Healthcare Realty Trust Incorporated (now known as HRTI, LLC) ("Legacy HR"), which merged into Healthcare Trust of America, Inc. (now known as Healthcare Realty Trust Incorporated)(the "Merger").
Item 6. [Reserved]
Item 7. 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. These forward-looking statements are based on the current plans and expectations of management and are subject to a number of risks and uncertainties that could materially affect the Company’s current plans and expectations and future financial condition and results. Such risks and uncertainties as more fully discussed in Item 1A “Risk Factors” of this report and in other reports filed by the Company with the SEC from time to time include, among other things, the following:
Risks relating to our business and operations
• The Company's expected results may not be achieved;
• The Company’s revenues depend on the ability of its tenants under its leases to generate sufficient income from their operations to make rental payments to the Company;
• The Company's results of operations have been and will continue to be impacted negatively by the Prospect Medical bankruptcy;
• Owning real estate and indirect interests in real estate is subject to inherent risks;
• The Company may incur impairment charges on its real estate properties or other assets;
• The Company has properties subject to purchase options that expose it to reinvestment risk and reduction in expected investment returns;
• If the Company is unable to promptly re-let its properties, if the rates upon such re-letting are significantly lower than the previous rates or if the Company is required to undertake significant expenditures or make significant leasing concessions to attract new tenants, then the Company’s business, consolidated financial condition and results of operations would be adversely affected;
• Certain of the Company’s properties are special purpose healthcare facilities and may not be easily adaptable to other uses;
• The Company has, and in the future may have more exposure to fixed rent escalators, which could lag behind inflation and the growth in operating expenses such as real estate taxes, utilities, insurance, and maintenance expense;
• The Company’s real estate investments are illiquid and the Company may not be able to sell properties strategically targeted for disposition;
• The Company is subject to risks associated with the development and redevelopment of properties;
• The Company may make material acquisitions and undertake developments and redevelopments that may involve the expenditure of significant funds and may not perform in accordance with management’s expectations;
• The Company is exposed to risks associated with geographic concentration;
• Many of the Company’s leases are dependent on the viability of associated health systems. Revenue concentrations relating to these leases expose the Company to risks related to the financial condition of the associated health systems;
• Many of the Company’s properties are held under ground leases. These ground leases contain provisions that may limit the Company’s ability to lease, sell, or finance these properties;
• The Company may experience uninsured or underinsured losses;
• Damage from catastrophic weather and other natural events, whether caused by climate change or otherwise, could result in losses to the Company;
• The Company faces risks associated with security breaches through cyber attacks, cyber intrusions, or otherwise, as well as other significant disruptions of its information technology networks and related systems;
• The Company has structured and may in the future structure acquisitions of property in exchange for limited partnership units of the OP on terms that could limit its liquidity or flexibility;
• Healthcare Realty Trust is a holding company with no direct operations and, as such, it relies on funds received from the OP to pay liabilities, and the interests of its stockholders will be structurally subordinated to all liabilities and obligations of the OP and its subsidiaries
• The Company cannot assure you that it will be able to continue paying dividends at or above the rates previously paid;
• Pandemics and measures intended to prevent their spread or mitigate their severity could have a material adverse effect on the Company's business, results of operations, cash flows and financial condition; and
• The Company's success depends, in part, on its ability to attract and retain talented employees. The loss of any one of the Company's key personnel or the inability to maintain appropriate staffing could adversely impact the Company's business.
Risks relating to our capital structure and financings
• The Company has incurred significant debt obligations and may incur additional debt and increase leverage in the future;
• Covenants in the Company’s debt instruments limit its operational flexibility, and a breach of these covenants could materially affect the Company’s consolidated financial condition and results of operations;
• If lenders under the Unsecured Credit Facility fail to meet their funding commitments, the Company’s operations and consolidated financial position would be negatively impacted;
• The unavailability of equity and debt capital, volatility in the credit markets, increases in interest rates, or changes in the Company’s debt ratings could have an adverse effect on the Company’s ability to meet its debt payments, make dividend payments to stockholders or engage in acquisition and development activity;
• Increases in interest rates could have a material adverse effect on the Company's cost of capital;
• The Company's swap agreements may not effectively reduce its exposure to changes in interest rates;
• The Company has entered into joint venture agreements that limit its flexibility with respect to jointly owned properties and expects to enter into additional such agreements in the future;
• The U.S. federal income tax treatment of the cash that the Company might receive from cash settlement of a forward equity agreement is unclear and could jeopardize the Company's ability to meet the REIT qualification requirements; and
• In the event of our bankruptcy or insolvency, any forward equity agreements will automatically terminate, and the Company would not receive the expected proceeds from any forward sale of shares of its common stock.
Risks relating to government regulations
• The Company's property taxes could increase due to reassessment or property tax rate changes;
• Trends in the healthcare service industry, including the impact of the One Big Beautiful Bill Act passed during 2025 that is subject of ongoing analysis, may negatively affect the demand for the Company’s properties, lease revenues and the values of its investments;
• The costs of complying with governmental laws and regulations may adversely affect the Company's results of operations;
• Qualifying as a REIT involves highly technical and complex provisions of the Internal Revenue Code;
• If the Company fails to remain qualified as a REIT, the Company will be subject to significant adverse consequences, including adversely affecting the value of its common stock;
• The Company’s articles of incorporation, as well as provisions of the MGCL, contain limits and restrictions on transferability of the Company’s common stock which may have adverse effects on the value of the Company’s common stock;
• Complying with the REIT requirements may cause the Company to forego otherwise attractive opportunities;
• The prohibited transactions tax may limit the Company's ability to sell properties;
• New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for the Company to qualify as a REIT; and
• New and increased transfer tax rates may reduce the value of the Company’s properties.
The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports, including, without limitation, estimates and projections regarding the performance of development projects the Company is pursuing.
Overview
The Company owns and operates properties that facilitate the delivery of healthcare services in primarily outpatient settings. To execute its strategy, the Company engages in a broad spectrum of integrated services including leasing, management, acquisition, financing, development and redevelopment of such properties. The Company seeks to generate stable, growing income and lower the long-term risk profile of its portfolio of properties by focusing on facilities primarily located on or near the campuses of acute care hospitals associated with leading health systems. The Company seeks to reduce financial and operational risk by owning properties in high-growth markets with a broad tenant mix that includes over 30 physician specialties, as well as surgery, imaging, cancer, and diagnostic centers.
This section is organized into the following sections:
• Liquidity and Capital Resources;
• Trends and Matters Impacting Operating Results;
• Results of Operations;
• Non-GAAP Financial Measures and Key Performance Indicators; and
• Application of Critical Accounting Policies to Accounting Estimates.
Liquidity and Capital Resources
The Company monitors its liquidity and capital resources and considers several indicators in its assessment of capital markets for financing acquisitions and other operating activities. The Company considers, among other factors, its leverage ratios and lending covenants, dividend payout percentages, interest rates, underlying treasury rates, debt market spreads and cost of equity capital to compare its operations to its peers and to help identify areas in which the Company may need to focus its attention.
Sources and Uses of Cash
The Company's revenues are derived from its real estate property portfolio based on contractual arrangements with its tenants. These sources of revenue represent the Company's primary source of liquidity to fund its dividends and its operating expenses, including interest incurred on debt, principal payments on debt, general and administrative costs, capital expenditures and other expenses incurred in connection with managing its existing portfolio and investing in additional properties. To the extent additional investments are not funded by these sources, the Company will fund its investment activity generally through equity or debt issuances either in the public or private markets, asset sales and joint venture contributions or through proceeds from the Unsecured Credit Facility.
The Company expects to continue to meet its liquidity needs, including capital for additional investments, tenant improvement allowances, operating and finance lease payments, paying dividends, and funding debt service, through cash on hand, cash flows from operations and the cash flow sources addressed above. See Note 3 to the Consolidated Financial Statements for additional discussion of operating and financing lease payment obligations. See "Trends and Matters Impacting Operating Results" for additional information regarding the Company's sources and uses of cash.
The Company also had unencumbered real estate assets with a gross book value of approximately $10.4 billion at December 31, 2025, of which a portion could serve as collateral for secured mortgage financing. The Company believes that its liquidity and sources of capital are adequate to satisfy its cash requirements. The Company cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet its liquidity needs.
The Company has exposure to variable interest rates and its common stock price is impacted by the volatility in the stock markets. However, the Company’s leases, which provide its main source of income and cash flow, have terms of approximately one to 20 years and have lease rates that generally increase on an annual basis at fixed rates or based on consumer price indices.
Operating Activities
Cash flows provided by operating activities for the two years ended December 31, 2025 and 2024 were $457.1 million and $501.6 million, respectively. Several items impact cash flows from operating activities including, but not limited to, cash generated from property operations, interest payments and the timing related to the payment of invoices and other expenses and receipt of tenant rent.
The Company may, from time to time, sell properties and redeploy cash from property sales into new investments. To the extent revenues related to the properties being sold exceed income from these new investments, the Company's consolidated results of operations and cash flows could be adversely affected.
See "Trends and Matters Impacting Operating Results" for additional information regarding the Company's operating activities.
Investing Activities
A summary of the significant transactions impacting investing activities for the year ended December 31, 2025 is listed below. See Note 4 to the Consolidated Financial Statements for more detail on these activities.
Capital Funding
In 2025, the Company incurred capital expenditures totaling $308.8 million for the following:
• $136.6 million toward development and redevelopment of properties;
• $90.2 million toward first generation tenant improvements;
• $46.9 million toward second generation tenant improvements; and
• $35.1 million toward capital expenditures.
See "Trends and Matters Impacting Operating Results" below for more detail.
Real Estate Notes Receivable
In 2025, the Company had the following activity on its real estate notes receivables:
• In January 2025, the Company received $14.9 million as payment towards the principal balance of its mortgage loan that matured on December 2, 2024.
• In March 2025, the Company provided seller financing of $5.4 million in connection with the sale of a real estate property in Houston, Texas.
• In March 2025, the Company executed a mezzanine loan receivable agreement with a maximum loan commitment of $8.5 million. As of December 31, 2025, the Company had funded the full $8.5 million under this agreement.
• In April 2025, a mortgage loan receivable of $37.7 million maturing in February 2026 was repaid in full.
• In December 2025, the Company received $5.8 million as payment towards the principal balance of its mortgage loan that matured on December 22, 2024,
• In December 2025, the Company provided seller financing of $6.4 million in connection with the sale of a real estate property in Houston, Texas.
See Note 1 to the Consolidated Financial Statements accompanying this report for more information about real estate notes receivable and allowance for credit losses.
Dispositions
The following table details the Company's asset sales for the year ended December 31, 2025:
Dollars in thousands
DATE DISPOSED
SALE PRICE
CLOSING ADJUSTMENTS
COMPANY-FINANCED MORTGAGE NOTES
NET PROCEEDS
NET REAL ESTATE INVESTMENT
OTHER
GAIN/(IMPAIR-MENT)
SQUARE FOOTAGE
Boston, MA
Denver, CO 1
Houston, TX 2
Boston, MA
Boston, MA
Jacksonville, FL
Yakima, WA 1
Houston, TX
South Bend, IN
Milwaukee, WI 1
Naples, FL
New York, NY
Boston, MA
Lakeland, FL 3
Salem, OR
Milwaukee, WI 1
Tampa, FL
Dallas, TX 3
Chicago, IL
Columbus, OH 4
Miami, FL
New Haven, CT
Des Moines, IA
Jacksonville, FL 1
Richmond, VA 5
Boston, MA
Atlanta, GA
Multiple 6
Memphis, TN
Phoenix, AZ
Phoenix, AZ
Houston, TX 7
Total Dispositions
1 Includes two medical outpatient properties.
2 The Company provided seller financing of approximately $5.4 million in connection with this sale.
3 Includes four medical outpatient properties.
4 Includes three medical outpatient properties.
5 Includes six medical outpatient properties.
6 The Company sold six MOBs in El Paso, TX, four MOBs in Indianapolis, IN, two MOBs in each of Chicago, IL, Cincinnati, OH, Des Moines, IA, Fort Wayne, IN, Minneapolis, MN and Pittsburgh, PA; and one MOB in each of Detroit, MI, Las Vegas, NV and Salt Lake City, UT to a single buyer in a single transaction.
7 The Company provided seller financing of approximately $6.4 million in connection with this sale.
Subsequent Dispositions
On January 14, 2026, the Company disposed of a 60,039 square foot medical outpatient building in Atlanta, Georgia for $21.9 million.
Financing Activities
Common Stock Repurchases
During 2025, the Company did not repurchase any shares of its common stock. As of December 31, 2025, the Company had $500.0 million remaining under its current share repurchase authorization.
Subsequent Repurchase Activity
In January 2026, the Company repurchased 2.9 million shares of its common stock at an average price of $17.27 per share for a total of $50.0 million resulting in $450.0 million of authorized share repurchases remaining.
At-The-Market Equity Offering Program
On December 17, 2025, the Company renewed its ATM equity offering program to sell shares of the Company's common stock from time to time in at-the-market sales transactions. The Company entered into equity distribution agreements with various sales agents having an aggregate offering price of up to $1.0 billion. As of December 31, 2025, there has been no activity under the program.
Debt Activity
Below is a summary of the significant debt financing activity for the year ended December 31, 2025. See Note 9 to the Consolidated Financial Statements for additional information on financing activities.
Mortgage Activity
During the year ended December 31, 2025, the Company repaid in full a mortgage note payable bearing interest at a rate of 4.25% that encumbered a 45,157 square foot property in California.
Senior Notes
During the year ended December 31, 2025 , the Company repaid its Senior Notes due 2025 at maturity including $250 million of principal and $4.8 million of accrued interest.
Term Loans
During the year ended December 31, 2025, the Company repaid the $300 million Unsecured Term Loan due January 2026, the $200 million Unsecured Term Loan due January 2026, and the $150 million Unsecured Term Loan due June 2026 and recorded approximately $0.5 million of accelerated amortization expense included in the loss on extinguishment of debt.
Interest Rate Swaps
As of December 31, 2025, the Company had seven outstanding interest rate derivatives totaling $500 million to hedge one-month Secured Overnight Financing Rate (“SOFR”). The following details the amount and rate of each swap as of such date (dollars in thousands):
EXPIRATION DATE
NOTIONAL AMOUNT
WEIGHTED
AVERAGE RATE
May 2026
December 2026
June 2027
December 2027
Total
The following table details the Company's debt balances as of December 31, 2025:
PRINCIPAL BALANCE
CARRYING BALANCE 1
WEIGHTED YEARS TO MATURITY 2
CONTRACTUAL RATE
EFFECTIVE RATE
Senior Notes due 2026
Senior Notes due 2027
Senior Notes due 2028
Senior Notes due 2030
Senior Notes due 2030
Senior Notes due 2031
Senior Notes due 2031
Total Senior Notes Outstanding
$1.5 billion unsecured credit facility
SOFR + 0.84%
$200 million unsecured term loan
SOFR + 0.94%
$300 million unsecured term loan
SOFR + 0.94%
Mortgage notes payable
Total Outstanding Notes and Bonds Payable
1 Balances are reflected net of discounts and debt issuance costs and include premiums.
2 Includes extension options.
Subsequent Debt Activity
In February 2026, the Company entered into a commercial paper dealer agreement to issue short-term commercial paper notes up to $600.0 million, with maturities up to 364 days. The program is back-stopped by the Unsecured Credit Facility. The notes will be issued at par less a discount representing an interest factor, or if interest bearing, at par.
Debt Covenant Information
The Company’s various debt agreements contain certain representations, warranties, and financial and other covenants customary in such debt agreements. Among other things, these provisions require the Company to maintain certain financial ratios and impose certain limits on the Company’s ability to incur indebtedness and create liens or encumbrances. As of December 31, 2025, the Company was in compliance with the financial covenant provisions under all of its various debt instruments.
As of December 31, 2025, 72.5% of the Company’s principal balances were due after 2027, including extension options. Also, as of December 31, 2025, 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 35.8% (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 3.5 times (cannot be less than 1.5 times).
The Company plans to manage its capital structure to maintain compliance with its debt covenants consistent with its current profile. Downgrades in ratings by the rating agencies could have a material adverse impact on the Company’s cost and availability of capital, which could in turn have a material adverse impact on consolidated results of operations, liquidity and/or financial condition.
Supplemental Guarantor Information
The OP has issued unsecured notes described in Note 9 to the Company's Consolidated Financial Statements included in this report. All unsecured notes are fully and unconditionally guaranteed by the Company, and the OP is 98.6% owned by the Company. Effective January 4, 2021, the Securities and Exchange Commission (the “SEC”) adopted amendments to the financial disclosure requirements which permit subsidiary issuers of obligations guaranteed by the parent to omit separate financial statements if the consolidated financial statements of the parent company have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent.
Accordingly, as permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, the Company has excluded the summarized financial information for the OP because the assets, liabilities, and results of operations of the OP are not materially
different than the corresponding amounts in the Company's Consolidated Financial Statements and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.
Trends and Matters Impacting Operating Results
Management monitors factors and trends important to the Company and the REIT industry in order to gauge their potential impact on the operations of the Company. Discussed below are some of the factors and trends that management believes may impact the future operations of the Company.
Economic and Market Conditions
Rising interest rates and increased volatility in the capital markets have increased the Company’s cost and availability of debt and equity capital. Limited availability and increases in the cost of capital could adversely impact the Company’s ability to finance operations and acquire and develop properties. To the extent the Company’s tenants experience increased costs or financing difficulties due to the economic and market conditions, they may be unable or unwilling to make payments or perform their obligations when due. Additionally, increased interest rates may also result in less liquid property markets, limiting the Company’s ability to sell existing assets or obtain joint venture capital.
Acquisitions and Dispositions
The Company had no real estate acquisition activity for the year ended December 31, 2025.
The Company disposed of 70 properties in 2025 for sales prices totaling approximately $1.1 billion. These transactions yielded net cash proceeds of approximately $1.0 billion, net of approximately $77.6 million of closing costs and related adjustments, and $11.8 million in Company financed notes. The weighted average capitalization rate for these sales was 6.7%. The Company calculates the capitalization rate for dispositions as the in-place cash net operating income divided by the sales price.
See the Company's discussion of its 2025 disposition activity in Note 4 to the Consolidated Financial Statements.
Development and Redevelopment Activity
The table below details the Company’s activity related to its active development and redevelopment projects as of December 31, 2025. The information included in the table below represents management’s estimates and expectations at December 31, 2025, which are subject to change. The Company’s disclosures regarding certain projections or estimates may not reflect actual results.
ESTIMATED REMAINING FUNDINGS
ESTIMATED TOTAL INVESTMENT
APPROXIMATE SQUARE FEET
Dollars in thousands
NUMBER OF PROPERTIES
TOTAL FUNDED DURING THE YEAR
TOTAL AMOUNT FUNDED
Development Activity
Raleigh, NC
Fort Worth, TX
Total
Redevelopment Activity
Charlotte, NC
Houston, TX
White Plains, NY
Charlotte, NC
Washington, DC
Seattle, WA
Raleigh, NC
Houston, TX
Denver, CO
Port St. Lucie, FL
Dallas, TX
Denver, CO
Other
Total
For previously completed development and redevelopment projects, during 2025, the Company funded an additional $38.7 million related to ongoing tenant improvements.
The Company regularly consults with health systems and developers regarding long-term future new development opportunities. In addition, the Company continually evaluates its portfolio for accretive redevelopment opportunities.
Security Deposits and Letters of Credit
As of December 31, 2025, the Company held approximately $36.7 million in letters of credit and security deposits for the benefit of the Company in the event the obligated tenant fails to perform under the terms of its respective lease. Generally, the Company may, at its discretion and upon notification to the tenant, draw upon these instruments if there are any defaults under the leases.
Expiring Leases
The Company expects that approximately 15% of the leases in its portfolio will expire each year. In-place leases have a weighted average lease term of 8.3 years and a weighted average remaining lease term of 4.4 years. Demand for well-located real estate with complementary practice types and services remains consistent, and the Company's 2025 quarterly tenant retention statistics ranged from 77% to 80%. In 2026, the Company has 1,130 leases totaling 3.6 million square feet in its multi-tenant portfolio that are scheduled to expire. See additional information regarding expiring single-tenant leases under the heading "Single-Tenant Leases" below.
The Company seeks contractual rent increases for in-place leases. As of December 31, 2025 and 2024, the Company's contractual rental rate growth averaged 2.90% and 2.83%, 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 2025, cash leasing spreads averaged 2.7%.
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. Modified gross or base year leases, in which the Company and tenant both pay a share of operating expenses, comprise 30% of the Company's leased portfolio. Net leases, in which tenants pay substantially all operating expenses, total 58% of the leased portfolio. Absolute net leases, in which tenants pay substantially all of the building's operating and capital expenses, comprise 4%.
Prospect Medical
As previously disclosed, Prospect filed petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in January of 2025. Prospect leased approximately 80,912 square feet of space from the Company. In October of 2025, a subsidiary of Hartford Health was selected as the successful bidder for the Prospect assets associated with the Company’s Prospect leases. The Company signed direct leases with Hartford Heath totaling 65,477 square feet effective January 1, 2026 and retained certain sublet in additional spaces. There is no assurance that the Company will be able to timely relet the remaining Prospect leased space that was not assumed by Hartford Health.
Capital Expenditures
Capital expenditures are long-term investments made to maintain and improve the physical and aesthetic attributes of the Company's owned properties. Examples of such improvements include, but are not limited to, material changes to, or the full replacement of, major building systems (exterior facade, building structure, roofs, elevators, mechanical systems, electrical systems, energy management systems, upgrades to existing systems for improved efficiency) and common area improvements (furniture, signage and artwork, bathroom fixtures and finishes, exterior landscaping, parking lots or garages). These additions are capitalized into the gross investment of a property and then depreciated over their estimated useful lives, typically ranging from 7 to 20 years. Capital expenditures specifically do not include recurring maintenance expenses, whether direct or indirect, related to the upkeep and maintenance of major building systems or common area improvements. Capital expenditures also do not include improvements related to a specific tenant suite, unless the improvement is part of a major building system or common area improvement.
The Company invested $35.1 million, or $1.07 per square foot, in capital expenditures in 2025 and $32.5 million, or $0.94 per square foot, in capital expenditures in 2024. As a percentage of cash net operating income, 2025 and 2024 capital expenditures were 4.8% and 4.1%, respectively. For a reconciliation of cash net operating income, see "Same Store Cash NOI" in the "Non-GAAP Financial Measures and Key Performance Indicators" section as part of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in Part II of this report.
Tenant Improvements
The Company may invest in tenant improvements for the purpose of refurbishing or renovating tenant space. The Company categorizes these expenditures into first and second generation tenant improvements. As of December 31, 2025, the Company had commitments of approximately $161.8 million that are expected to be spent on tenant improvements throughout the portfolio, excluding development properties currently under construction.
First Generation Tenant Improvements
First generation tenant improvements totaled $90.2 million and $52.4 million for the years ended December 31, 2025 and 2024, respectively. First generation tenant improvements include build out costs related to suite space in shell condition.
Second Generation Tenant Improvements
Second generation tenant improvements spending totaled $46.9 million in 2025, or 6.4% of total cash net operating income. In 2024, this spending totaled $68.4 million, or 8.7% of total cash net operating income.
If the cost of a tenant improvement project exceeds a tenant improvement allowance, the Company generally offers the tenant the option to finance the excess over the lease term with interest or to reimburse the overage to the Company in a lump sum. In either case, such overages are amortized by the Company as rental income over the term of the lease. Interest earned on tenant overages is included in other operating income in the Company's Consolidated Statements of Operations. The first and second generation tenant overage amount amortized to rent, including interest, totaled approximately $10.0 million in 2025, $7.8 million in 2024, and $8.4 million in 2023.
Second generation tenant improvement commitments in 2025 for renewals averaged $2.22 per square foot per lease year, ranging quarterly from $1.66 to $3.13. In 2024, these commitments averaged $2.14 per square foot per lease year, ranging quarterly from $1.80 to $2.39. In 2023, these commitments averaged $1.78 per square foot per lease year, ranging quarterly from $1.64 to $1.89.
Second generation tenant improvement commitments in 2025 for new leases averaged $6.91 per square foot per lease year, ranging quarterly from $6.08 to $7.60. In 2024, these commitments averaged $7.22 per square foot per lease year, ranging quarterly from $6.93 to $7.34. In 2023, these commitments averaged $5.69 per square foot per lease year, ranging quarterly from $4.44 to $7.11.
Leasing Commissions
In certain markets, the Company may pay leasing commissions to real estate brokers who represent either the Company or prospective tenants, with commissions generally equating to 4% to 6% of the gross lease value for new leases and 2% to 4% of the gross lease value for renewal leases. In addition, the Company pays its leasing employees incentive compensation when leases are executed that meet certain leasing thresholds. External leasing commissions are amortized to property operating expense, and internal leasing costs are amortized to general and administrative expense in the Company's Consolidated Statements of Operations.
In 2025, the Company paid leasing commissions of approximately $54.8 million, or $1.67 per square foot. 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. As a percentage of total cash net operating income, leasing commissions paid for 2025, 2024 and 2023 were 7.5%, 6.0% and 4.3%, respectively. The amount of leasing commissions amortized over the term of the applicable leases totaled $25.9 million, $21.2 million and $13.8 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Rent Abatements
Rent abatements, which generally take the form of deferred rent, are sometimes used to help induce a potential tenant to lease space in the Company's properties. Such abatements, when made, are amortized by the Company on a straight-line basis against rental income over the lease term. Rent abatements for 2025 totaled approximately $20.9 million, or $0.72 per square foot. Rent abatements for 2024 totaled approximately $16.0 million, or $0.46 per square foot. Rent abatements for 2023 totaled approximately $14.3 million, or $0.37 per square foot.
Single-Tenant Leases
As of December 31, 2025, the Company had a total of 102 single-tenant buildings, with a weighted average lease term of 11.6 years and a weighted average remaining lease term of 5.7 years.
Ten single-tenant buildings have leases that expire in 2026. Four of the buildings have been renewed. The Company is in negotiations with tenants in six of these buildings and expects the leases to be renewed or the building to be backfilled.
Operating Leases
As of December 31, 2025, the Company was obligated to make rental payments under operating lease agreements consisting primarily of ground leases related to 108 real estate investments, excluding those ground leases the Company has prepaid. As of December 31, 2025, the Company had 168 properties totaling 12.4 million square feet that were held under ground leases with a remaining weighted average term of 60.6 years, including renewal options. These ground leases typically have initial terms of 40 to 99 years with expiration dates through 2119.
Purchase Options
The Company had approximately $55.7 million in real estate properties as of December 31, 2025, that were subject to exercisable purchase options. The Company has approximate ly $1.0 billion in real estate properties that are subject to purchase options that will become exercisable after 2025. 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, 2025 1
Current 2
2036 and thereafter 3
Total
1 Purchase option prices are based on fair market value components that are determined by an appraisal process, except for two properties totaling $ 62.9 million w i th stated prices or prices based on fixed capitalization rates.
2 These purchase options have been exercisable for an average of 21.5 years.
3 Includes two medical outpatient properties that are recorded in the line item Investment in financing receivable, net on the Company's Consolidated Balance Sheet.
Debt Management
The Company maintains a flexible capital structure that allows it to fund new investments and operate its existing portfolio. The Company has approximately $28.9 million of mortgage notes payable, maturing in 2026, most of which were assumed when the Company acquired properties. The Company will repay mortgages with cash on hand or borrowings under the Unsecured Credit Facility. The Company had $1.3 billion of outstanding debt that matures in 2026 and 2027. See additional information in “Liquidity and Capital Resources - Financing Activities” above.
Impact of Inflation
The Company is subject to the risk of inflation as most of its revenues are derived from long-term leases. Most of the Company's leases provide for fixed increases in base rents or increases based on the Consumer Price Index and require the tenant to pay all or some portion of increases in operating expenses. The Company believes that these provisions mitigate the impact of inflation. However, there can be no assurance that the Company's ability to increase rents or recover operating expenses will keep pace with inflation. The Company's leases have a weighted average lease term remaining of approximately 4.4 years. As of December 31, 2025 , 96% of the Company's leases provide for fixed base rent increases and 4% provide for Consumer Price Index-based rent increases.
New Accounting Pronouncements
See Note 1 to the Consolidated Financial Statements for information on new accounting standards including both standards that the Company adopted during the year and those that have not yet been adopted. The Company continues to evaluate the impact of the new standards that have not yet been adopted.
Results of Operations
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
The Company’s consolidated results of operations for 2025 compared to 2024 were impacted by developments, dispositions, gain on sales and impairment charges recorded on real estate properties, and capital markets transactions.
Revenues
Rental income decreased $94.7 million, or 7.7%, as a result of the following:
• Dispositions in 2024 and 2025 resulted in a decrease of $130.8 million.
• Leasing activity, including contractual rent increases, resulted in an increase of $28.3 million.
• Developments completed in 2024 and 2025 resulted in an increase of $7.8 million.
Interest income decreased $2.1 million, or 12.9%, for the year ended December 31, 2025, compared to the prior year primarily as a result of the repayment and maturity of note receivables, partially offset by the addition of new mortgages receivables.
Other operating income increased $9.1 million, or 47.3%, for the year ended December 31, 2025, compared to the prior year primarily as a result of income from management fees related to unconsolidated joint ventures and managed properties.
Expenses
Property operating expenses decreased $24.4 million, or 5.1%, from the prior year primarily as a result of the following activity:
• Dispositions in 2024 and 2025 resulted in a decrease of $45.5 million.
• Developments completed in 2024 and 2025 resulted in an increase of $2.0 million.
• Increases in portfolio operating expenses as follows:
◦ Administrative, leasing commissions, and other legal expenses of $7.3 million;
◦ Compensation expense of $4.8 million;
◦ Utilities expense of $3.6 million;
◦ Maintenance and repair expense of $2.1 million; and
◦ Janitorial expense of $1.3 million.
General and administrative expenses decreased approximately $10.6 million, or 12.7%, from the prior year primarily as a result of the following activity:
• Decrease in payroll and payroll related expenses of approximately $4.1 million.
• Decrease in restructuring and severance-related charges of $3.5 million.
• Decrease in Director fees and non-cash incentive compensation of $1.3 million.
• Other decreases include legal and other administrative costs of $3.0 million.
• Increase in cash incentive compensation expense of $0.9 million.
• Increase in non-cash incentive compensation of $0.4 million.
Depreciation and amortization expense decreased $111.2 million, or 16.5%, from the prior year primarily as a result of the following activity:
• Dispositions in 2024 and 2025 resulted in a decrease of $81.1 million.
• Assets that became fully depreciated resulted in a decrease of $60.1 million.
• Developments completed in 2024 and 2025 resulted in an increase of $2.2 million.
• Various building and tenant improvement expenditures resulted in an increase of $27.8 million.
Other Income (Expense)
Other income (expense), as an expense decreased $355.0 million, or 50.9%, 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, 2025 and 2024 totaled $235.4 million and $109.8 million, respectively.
Interest Expense
Interest expense decreased $33.4 million for the year ended December 31, 2025 compared to the prior year. The components of interest expense are as follows:
CHANGE
Dollars in thousands
Contractual interest
Net discount/premium accretion
Debt issuance costs amortization
Amortization of interest rate swap settlement
Amortization of treasury hedge settlement
Fair value derivative
Interest cost capitalization
Interest on lease liabilities
Total interest expense
Contractual interest decreased $27.4 million, or 13.9%, primarily as a result of the following activity:
• The unsecured term loans accounted for a decrease of approximately $18.5 million.
• The unsecured term loan repayments accounted for a decrease of approximately $15.1 million.
• The Unsecured Credit Facility accounted for an increase of approximately $3.0 million as a result of an increased weighted average balance outstanding.
• Active interest rate swaps accounted for an increase of $9.7 million, while expired interest rate swaps accounted for an increase of $0.3 million.
• Mortgage note repayments, net of assumptions, accounted for a decrease of approximately $0.3 million.
• The repayment of the Senior Note due 2025 accounted for a decrease of $6.5 million.
Debt extinguishment costs
During the year ended December 31, 2025, the Company recorded approximately $0.5 million in debt extinguishment costs related to the Unsecured Credit Facility, which replaced the Company's prior credit facility.
Impairment of Real Estate Assets and Credit Loss Reserves
During the year ended December 31, 2025, the Company recognized impairments totaling $361.1 million related to completed or planned dispositions, changes in holding periods or changes in property use. In addition, the Company recorded $1.6 million in credit loss reserves relating to a mortgage notes receivable and a $1.9 million fair value adjustment for an equity investment in other assets.
Impairment of real estate assets in 2024 totaling approximately $249.9 million related to completed or planned dispositions, changes in holding periods or changes in property use. 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 Goodwill
There was no goodwill impairment in 2025. During the first quarter of 2024, the Company determined that the carrying value of its single reporting unit exceeded estimated fair value and therefore recorded a $250.5 million full impairment of its goodwill, which is recorded as a non-cash charge in “Impairment of goodwill” in the consolidated
statements of operations. See Note 1 to the Consolidated Financial Statements accompanying this report for more details.
Equity income (loss) from unconsolidated joint ventures
The Company recognized its proportionate share of losses from its unconsolidated joint ventures. The losses are primarily attributable to non-cash depreciation expense. See Note 4 for more details regarding the Company's unconsolidated joint ventures.
Interest and other income (expense)
During 2025, the Company recorded approximately $4.3 million from Accumulated other comprehensive income ("AOCI") to other expense related to ineffectiveness and subsequent termination of eight interest rate swaps. See Note 10 to the Consolidated Financial Statements in this report for more details regarding the Company's derivative accounting.
In addition, the Company recognized income of approximately $0.8 million primarily due to a Federal ERC program (Employee Retention Credit) providing cash payment for employee retention during the COVID-19 pandemic totaling $4.4 million, net of a charge for a merger-related transfer tax charge that was finalized during the fourth quarter of 2025 totaling $3.6 million.
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
The Company's discussion regarding the comparison of the year ended December 31, 2024 compared to the year ended December 31, 2023 was previously disclosed beginning on page 38 of the Company's Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 19, 2025, and is incorporated herein by reference.
Non-GAAP Financial Measures and Key Performance Indicators
Management considers certain non-GAAP financial measures and key performance indicators to be useful supplemental measures of the Company's operating performance. A non-GAAP financial measure is generally defined as one that purports to measure financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable measure determined in accordance with GAAP. Set forth below are descriptions of the non-GAAP financial measures management considers relevant to the Company's business and useful to investors, as well as reconciliations of these measures to the most directly comparable GAAP financial measures.
The non-GAAP financial measures and key performance indicators presented herein are not necessarily identical to those presented by other real estate companies due to the fact that not all real estate companies use the same definitions. These measures should not be considered as alternatives to net income, as indicators of the Company's financial performance, or as alternatives to cash flow from operating activities as measures of the Company's liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of the Company's needs. Management believes that in order to facilitate a clear understanding of the Company's historical consolidated operating results, these measures should be examined in conjunction with net income and cash flows from operations as presented in the Consolidated Financial Statements and other financial data included elsewhere in this Annual Report on Form 10-K.
Funds from Operations ("FFO"), Normalized FFO and Funds Available for Distribution ("FAD")
FFO and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to “net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus depreciation and amortization, impairment, and after adjustments for unconsolidated partnerships and joint ventures.”
In addition to FFO, the Company presents Normalized FFO and FAD. Normalized FFO is presented by adding to FFO acquisition-related costs, acceleration of debt issuance costs, debt extinguishment costs and other Company-defined normalizing items to evaluate operating performance. FAD is presented by adding to Normalized FFO non-real estate depreciation and amortization, 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. The Company's definition of these terms may not be comparable to that of other real estate companies as they may have different methodologies for computing these amounts. FFO, Normalized FFO, and FAD should not be considered as an alternative to net income as an indicator of the Company's financial performance or to cash flow from operating activities as an indicator of the Company's liquidity. FFO, Normalized FFO, and FAD should be reviewed in connection with GAAP financial measures.
Management believes FFO, Normalized FFO, FFO per share, Normalized FFO per share and FAD ("Non-GAAP Measures") provide an understanding of the operating performance of the Company’s properties without giving effect to certain significant non-cash items, primarily gains on sales of real estate, impairments and depreciation and amortization expense. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. The Company believes that by excluding the effect of depreciation, amortization, impairments and gains or losses from sales of real estate, all of which are based on historical costs, and which may be of limited relevance in evaluating current performance, Non-GAAP Measures can facilitate comparisons of operating performance between periods. The Company reports Non-GAAP Measures because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs. For these reasons, management deems it appropriate to disclose and discuss these Non-GAAP Measures. However, none of these measures represent cash generated from operating activities determined in accordance with GAAP and are not necessarily indicative of cash available to fund cash needs. Further, these measures should not be considered as an alternative to net income as an indicator of the Company’s operating performance or as an alternative to cash flow from operating activities as a measure of liquidity.
The table below reconciles net income attributable to common stockholders to FFO, Normalized FFO and FAD attributable to common stockholders for the years ended December 31, 2025, 2024, and 2023.
YEAR ENDED DECEMBER 31,
Amounts in thousands, except per share data
Net loss attributable to common stockholders
Net loss attributable to common stockholders per diluted share 1
Gain on sales of real estate assets
Impairment of real estate properties
Real estate depreciation and amortization
Non-controlling loss from operating partnership units
Unconsolidated JV depreciation, amortization and impairment
FFO adjustments
FFO adjustments per common share - diluted
FFO attributable to common stockholders
FFO attributable to common stockholders per common share - diluted
Transaction costs
Merger-related costs
Lease intangible amortization
Non-routine tax and legal matters
Debt financing costs 2
Restructuring and severance-related charges
Credit losses and gains (losses) on other assets, net 3
Impairment of goodwill
Merger-related fair value of debt instruments
Unconsolidated JV normalizing items 4
Normalized FFO adjustments
Normalized FFO adjustments per common share - diluted
Normalized FFO attributable to common stockholders
Normalized FFO attributable to common stockholders per common share - diluted
Non-real estate depreciation and other amortization, net
Non-cash interest amortization, net 5
Rent reserves, net
Straight-line rent, net
Stock-based compensation
Unconsolidated JV non-cash items 6
Normalized FFO adjusted for non-cash items
2nd generation tenant improvements
Leasing commissions paid
Building capital
FAD
FFO weighted average common shares outstanding - diluted 7
1 Potential common shares are not included in diluted earnings per share when a loss exists as the effect would be antidilutive.
2 For the year ended December 31, 2025, includes loss on debt extinguishment, loss on derivatives, and legal fees related to the Unsecured Credit Facility, which replaced the Company's prior credit facility.
3 For the year ended December 31, 2025, includes $1.6 million credit loss reserves on two mortgage note receivables and a $1.9 million loss on other assets included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations. For the year ended December 31, 2024, includes $59.6 million in credit loss reserves, net of recoveries on four notes receivable included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations, $5.1 million gain on sale of other assets included in "Gains on sales of real estate and other assets" on the Statement of Operations, $4.1 million loss on other asset included in "Impairment of real estate properties and credit loss reserves" on the Statement of Operations, and a $1.1 million straight line rent reversal included in "Rental income" on the Statement of Operations. 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 normalizing items related to unconsolidated joint ventures such as lease intangibles and transaction costs.
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.
7 The Company utilizes the treasury stock method which includes the dilutive effect of nonvested share-based awards outstanding of 426,098, 556,201 and 397,168 for the years ended December 31, 2025, 2024, and 2023, respectively.
Cash Net Operating Income ("NOI") and Same Store Cash NOI
Cash NOI and Same Store Cash NOI are key performance indicators. Management considers these to be supplemental measures that allow investors, analysts and Company management to measure unlevered property-level operating results. The Company defines Cash NOI as rental income, interest from financing receivables less property operating expenses. Cash NOI excludes non-cash items such as above and below market lease intangibles, straight-line rent, lease inducements, financing receivable amortization, tenant improvement amortization and leasing commission amortization. The Company also excludes cash lease termination fees. Cash NOI is historical and not necessarily indicative of future results.
Same Store Cash NOI compares Cash NOI for stabilized properties. Stabilized properties are properties that have been included in operations for the duration of the year-over-year comparison period presented. Accordingly, stabilized properties exclude properties that were recently acquired or disposed of, properties classified as held for sale or intended for sale, properties undergoing redevelopment, and newly-redeveloped or developed properties.
The Company utilizes the redevelopment classification for properties where management has approved a change in strategic direction for such properties through the application of additional resources including an amount of capital expenditures significantly above routine maintenance and capital improvement expenditures.
Any recently acquired property will be included in the same store pool once the Company has owned the property for 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, 2025 and 2024.
NUMBER OF PROPERTIES
GROSS INVESTMENT
at December 31, 2025
SAME STORE CASH NOI for the year ended December 31
Dollars in thousands
Same store properties
Joint venture same store properties
The following tables reconcile net loss to Same Store NOI and the same store property metrics to the total owned real estate portfolio for the years ended December 31, 2025 and 2024:
Reconciliation of Same Store Cash NOI
YEAR ENDED DECEMBER 31,
Dollars in thousands
Net loss
Other expense
General and administrative expense
Depreciation and amortization expense
Other expenses 1
Straight-line rent, net
Joint venture properties
Other revenue 2
Cash NOI
Cash NOI not included in same store
Same store cash NOI
Same store joint venture properties
Same store cash NOI (excluding JVs)
1. Includes transaction costs, rent reserves, above and below market ground lease intangible amortization, leasing commission amortization, non-cash adjustments for financing receivables, and ground lease straight-line rent.
2. Includes management fee income, interest, above and below market lease intangible amortization, lease inducement amortization, lease termination fees, deferred financing cost amortization and principal related to investment in financing receivable, and tenant improvement overage amortization.
Reconciliation of Same Store Properties
AS OF DECEMBER 31, 2025
Dollars and square feet in thousands
PROPERTY COUNT
GROSS INVESTMENT 1
SQUARE
FEET
OCCUPANCY
Same store properties
Joint venture same store properties
Wholly owned and joint venture acquisitions
Wholly owned and joint venture re/development completions
Wholly owned and joint venture re/developments
Total
Joint venture properties
Total wholly-owned real estate properties
1 Excludes assets held for sale, construction in progress, land held for development, corporate property and financing lease right-of-use assets unrelated to an imputed lease arrangement as a result of a sale leaseback transaction.
Application of Critical Accounting Policies to Accounting Estimates
The Company’s Consolidated Financial Statements are prepared in accordance with GAAP and the rules and regulations of the SEC. In preparing the Consolidated Financial Statements, management is required to exercise judgment and make assumptions that impact the carrying amount of assets and liabilities and the reported amounts of revenues and expenses reflected in the Consolidated Financial Statements.
Management routinely evaluates the estimates and assumptions used in the preparation of its Consolidated Financial Statements. These regular evaluations consider historical experience and other reasonable factors and use the seasoned judgment of management personnel. Management has reviewed the Company’s critical accounting policies with the Audit Committee of the Board of Directors.
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.
Principles of Consolidation
The Company’s Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, joint ventures, and partnerships where the Company controls the operating activities. All material intercompany accounts and transactions have been eliminated.
Capitalization of Costs
GAAP generally allows for the capitalization of various types of costs. The rules and regulations on capitalizing costs and the subsequent depreciation or amortization of those costs versus expensing them in the period incurred vary depending on the type of costs and the reason for capitalizing the costs.
Direct costs of development and redevelopment projects generally include construction costs, professional services such as architectural and legal costs, travel expenses, and land acquisition costs as well as other types of fees and expenses. These costs are capitalized as part of the basis of an asset to which such costs relate. Indirect costs include capitalized interest and overhead costs. Indirect costs are capitalized during construction and on the unoccupied space in a property for up to one year after the space is ready for its intended use. Capitalized interest is calculated using the weighted average interest rate of the Company's unsecured debt or the interest rate on project specific debt, if applicable. The Company’s overhead costs are based on overhead load factors that are charged to a project based on direct time incurred. The Company computes the overhead load factors annually for its employees who are involved in the projects. 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 who work on these projects maintain and report their hours, by project. Employee costs that are administrative, such as vacation time, sick time, or general and administrative time, are expensed in the period incurred.
Acquisition-related costs include finder’s fees, advisory, legal, accounting, valuation, other professional or consulting fees, and certain general and administrative costs. Acquisition-related costs are expensed in the period incurred for acquisitions accounted for as a business combination under Accounting Standards Codification Topic 805, Business Combinations . These costs associated with asset acquisitions are capitalized in accordance with GAAP.
Management’s judgment is also exercised in determining whether costs that have been previously capitalized to a project should be reserved for or written off if or when the project is abandoned or circumstances otherwise change that would call the project’s viability into question. The Company follows a standard and consistently applied policy of classifying pursuit activity as well as reserving for these types of costs based on their classification.
The Company classifies its pursuit projects into two categories relating to development. The first category includes pursuits of developments that have a remote chance of producing new business. Costs for these projects are expensed in the period incurred. The second category includes those pursuits of developments that are either probable or highly probable to result in a project or contract. Since the Company believes it is probable that these pursuits will result in a project or contract, it capitalizes these costs in full and records no reserve.
Each quarter, all capitalized pursuit costs are again reviewed for viability or a change in classification, and a management decision is made as to whether any additional reserve is deemed necessary. If necessary and considered appropriate, management would record an additional reserve at that time. Capitalized pursuit costs, net of the reserve, are carried in other assets in the Company’s Consolidated Balance Sheets, and any reserve recorded is charged to acquisition and pursuit costs on the Consolidated Statements of Operations. All pursuit costs will ultimately be written off to expense or capitalized as part of the constructed real estate asset.
As of December 31, 2025 and 2024, the Company's Consolidated Balance Sheets include capitalized pursuit costs relating to potential developments totaling $5.0 million and $4.9 million, respectively. The Company expensed costs related to the pursuit of acquisitions and dispositions totaling $1.0 million, $1.7 million and $0.8 million for the years ended December 31, 2025, 2024 and 2023, respectively. In addition, the Company expensed costs related to the pursuit of developments totaling $1.0 million, $1.1 million, and $0.8 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Valuation of Long-Lived Assets Held and Used, Unconsolidated Joint Ventures, Intangible Assets and Goodwill
Long-Lived Assets Held and Used
The Company assesses the potential for impairment of identifiable intangible assets and long-lived assets, primarily real estate properties, whenever events occur or a change in circumstances indicates that the carrying value might not be recoverable. 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. In addition, the Company reviews for possible impairment of those assets subject to purchase options and those impacted by casualties, such as tornadoes and hurricanes.
In addition, at least annually, the Company assesses whether there were indicators, including property operating performance, changes in anticipated holding period and general market conditions, that the value of the Company’s investments, including unconsolidated joint ventures, may have been impaired. The investment’s value would have been impaired only if management’s estimate of the fair value of the Company’s investment was less than its carrying value. To the extent impairment had occurred, a loss would have been recognized for the excess of its carrying amount over its fair value.
The Company may, from time to time, be approached by a third party with an interest in purchasing one or more of the Company's operating real estate properties that were otherwise not for sale. 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). In such cases, the Company and a potential buyer typically negotiate a letter of intent followed by a purchase and sale agreement that includes a due diligence timeline for completion of customary due diligence procedures. Anytime throughout this period the transaction could be terminated by the parties. The Company views the execution of a purchase and sale agreement as a circumstance that warrants an impairment assessment and must include its best estimates of the impact of a potential sale in the recoverability test discussed in more detail below.
A property value is considered impaired only if management's estimate of current and projected (undiscounted and unleveraged) operating cash flows of the property is less than the net carrying value of the property. These estimates of future cash flows include only those that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the property based on its estimated remaining useful life. These estimates, including the useful life determination which can be affected by any potential sale of the property, are based on management's assumptions about its use of the property. Therefore, significant judgment is involved in estimating the current and projected cash flows.
When the Company executes a purchase and sale agreement for a held and used property, the Company performs the cash flow estimation described above. This assessment gives consideration to all available information, including an assessment of the likelihood the potential transaction will be consummated under the terms and conditions set forth in the purchase and sale agreement. Management will re-evaluate the recoverability of the property if and when significant changes occur as the transaction proceeds toward closing. Normally sale transactions will close within 15 to 30 days after the due diligence period expires. Upon expiration of the due diligence period, management will again re-evaluate the recoverability of the property, updating its assessment based on the status of the potential sale.
Whenever management determines that the carrying value of an asset that has been tested may not be recoverable, then an impairment charge would be recognized to the extent the current carrying value exceeds the current fair value of the asset. Significant judgment is also involved in making a determination of the estimated fair value of the asset.
The Company also performs an annual goodwill impairment review. The Company's reviews are typically performed as of December 31 of each year. In 2025, a review was not necessary as the Company's goodwill asset had a zero balance. During the first quarter of 2024, the Company experienced a sustained decline in the price per share of its common stock, which was identified as an indicator of goodwill impairment. As a result, a goodwill evaluation was performed. As of the measurement date, the Company's current operations are carried out through a single reporting unit that had a carrying value of approximately $12.0 billion. The Company determined that the carrying value
exceeded estimated fair value and therefore an impairment of goodwill was recorded. The Company recorded a $250.5 million full impairment of its goodwill, which is recorded as a non-cash charge in “Impairment of goodwill” in the Consolidated Statement of Operations for the year ended December 31, 2024.
Long-Lived Assets to be Disposed of by Planned Sale
From time-to-time management affirmatively decides to sell certain real estate properties under a plan of sale. The Company reclassifies the property or disposal group as held for sale when all the following criteria for a qualifying plan of sale are met:
• Management, having the authority to approve the action, commits to a plan to sell the property or disposal group;
• The property or disposal group is available for immediate sale (i.e., a seller currently has the intent and ability to transfer the property or disposal group to a buyer) in its present condition, subject only to conditions that are usual and customary for sales of such properties or disposal groups;
• An active program to locate a buyer and other actions required to complete the plan to sell have been initiated;
• The sale of the property or disposal group is probable (i.e., likely to occur) and the transfer is expected to qualify for recognition as a completed sale within one year, with certain exceptions;
• The property or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
• Actions necessary to complete the plan indicate that it is unlikely significant changes to the plan will be made or that the plan will be withdrawn.
A property or disposal group classified as held for sale is initially measured at the lower of its carrying amount or fair value less estimated costs to sell. 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. The fair value less estimated costs to sell the property (disposal group) should be assessed each reporting period it remains classified as held for sale. Depreciation ceases as long as a property is classified as held for sale.
If circumstances arise that were previously considered unlikely and a subsequent decision not to sell a property classified as held for sale were to occur, the property is reclassified as held and used. The property is measured at the time of reclassification at the lower of its (a) carrying amount before it was classified as held for sale, adjusted for any depreciation expense or impairment losses that would have been recognized had the property been continuously classified as held and used or (b) fair value at the date of the subsequent decision not to sell. 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 $361.1 million and $249.9 million, respectively, for the years ended December 31, 2025 and December 31, 2024, related to real estate properties sold and properties with changes in the expected holding periods.
Valuation of Asset Acquisitions
As described in more detail in Note 1 to the Consolidated Financial Statements, when the Company acquires real estate properties with in-place leases, the cost of the acquisition must be allocated between the acquired tangible real estate assets “as if vacant” and any acquired intangible assets. Such intangible assets could include above- (or below-) market in-place leases and at-market in-place leases, which could include the opportunity costs associated with absorption period rentals, direct costs associated with obtaining new leases such as tenant improvements, leasing commissions and customer relationship assets. With regard to the elements of estimating the “as if vacant” values of the property and the intangible assets, including the absorption period, occupancy increases during the absorption period, tenant improvement amounts, and leasing commission percentages, the Company uses the same absorption period and occupancy assumptions for similar property types. 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.
Depreciation of Real Estate Assets and Amortization of Related Intangible Assets
As of December 31, 2025, the Company had gross investments of approximately $9.1 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. Management’s judgment involves determining which depreciation method to use, estimating the economic life of the building and improvement components of real estate assets, and estimating the value of intangible assets acquired when real estate assets are purchased that have in-place leases.
With respect to the building components, there are several depreciation methods available under GAAP. Some methods record relatively more depreciation expense on an asset in the early years of the asset’s economic life, and relatively less depreciation expense on the asset in the later years of its economic life. The straight-line method of depreciating real estate assets is the method the Company follows because, in the opinion of management, it is the method that most accurately and consistently allocates the cost of the asset over its estimated life. 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. As of December 31, 2025, 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. Operating expense recoveries, which include reimbursements for building specific operating expenses, are recognized as revenue in the period in which the related expenses are incurred. The Company generally expects that collectability is probable at lease commencement. If the assessment of collectability changes after the lease commencement date and Rental income is not considered probable, Rental income is recognized on a cash basis and all previously recognized uncollectible Rental income is reversed in the period in which it is determined not to be probable of collection. In addition to the lease-specific collectability assessment performed under Topic 842, the Company may also apply a general reserve ("provision for bad debt"), as a reduction to Rental income, for its portfolio of operating lease receivables.
The Company also recognizes certain revenue based on the guidance in Topic 606 and is based on the five-step model to account for revenue arising from contracts with customers. The Company's primary source of revenue associated with Topic 606 relates to parking revenue and management fee income.
Derivative Instruments
Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the derivative instrument with the recognition of the changes in the fair-value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transaction in a cash flow hedge. The accounting for a derivative requires that the Company make judgments in determining the nature of the derivatives and their effectiveness, including ones regarding the likelihood that a forecasted transaction will take place. These judgments could materially affect our consolidated financial statements.
The Company may enter into a derivative instrument to manage interest rate risk from time to time. 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.
