Commitments and Contingencies

12 Months Ended

Dec. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

Legal Proceedings

From time to time, the Company is a party to legal proceedings, lawsuits and other claims that arise in the ordinary course of the Company’s business. The Company is not aware of any legal proceedings or claims that it believes may have, individually or taken together, a material adverse effect on the Company’s financial condition, results of operations, or cash flows. The Company’s policy is to expense legal costs as they are incurred.

Subsequent to December 31, 2023, in connection with the Mergers, three lawsuits have been filed by purported stockholders of the Company against the Company, members of the Company’s Board of Directors, and, with respect to one of such lawsuits, Physicians Realty Trust, challenging the disclosures made in the Initial Filing. No loss contingency has been recorded for these matters as of December 31, 2023. The Company believes that the lawsuits and demands are without merit, but cannot predict the outcome of these proceedings or reasonably estimate any potential loss at this time.

Additionally, four lawsuits have been filed by purported shareholders of Physicians Realty Trust against Physicians Realty Trust and the members of the Physicians Realty Trust board of trustees challenging the disclosures made in the Initial Filing. The plaintiffs in each action seek, among other things, to enjoin the Mergers and the transactions contemplated by the Merger Agreement and an award of costs and attorneys’ fees. In addition to such lawsuits, Physicians Realty Trust has received correspondence from multiple purported shareholders of Physicians Realty Trust alleging deficiencies regarding the disclosures made in the Initial Filing. Additional demands and lawsuits arising out of the Mergers may be made or filed in the future.

DownREITs and Other Partnerships

In connection with the formation of DownREITs, members may contribute appreciated real estate to a DownREIT in exchange for DownREIT units. These contributions are generally tax-deferred, so that the pre-contribution gain related to the property is not taxed to the member. However, if a contributed property is later sold by the DownREIT, the unamortized pre-contribution gain that exists at the date of sale is specifically allocated and taxed to the contributing members. In many of the DownREITs, the Company has entered into indemnification agreements with those members who contributed appreciated property into the DownREIT. Under these indemnification agreements, if any of the appreciated real estate contributed by the members is sold by the DownREIT in a taxable transaction within a specified number of years, the Company will reimburse the affected members for the federal and state income taxes associated with the pre-contribution gain that is specially allocated to the affected member under the Internal Revenue Code (“make-whole payments”). These make-whole payments include a tax gross-up provision. These indemnification agreements have expirations terms that range through 2039 on a total of 29 properties.

Additionally, the Company owns a 49% interest in the Lab JV (see Note 8). If the property in the joint venture is sold in a taxable transaction, the Company is generally obligated to indemnify its joint venture partner for its federal and state income taxes associated with the gain that existed at the time of the contribution to the joint venture.

Commitments

The following table summarizes the Company’s material commitments, excluding potential success-based fees as a result of the Mergers (see Note 1), obligations as the lessee under operating leases (see Note 6), commitments to fund additional loans for senior housing redevelopment and capital expenditure projects (see Note 7), debt service obligations (see Note 10), and potential future obligations related to redeemable noncontrolling interests (see Note 12) at December 31, 2023 (in thousands):


	Amount
Development and redevelopment commitments(1)	$	151,996
Lease and other contractual commitments(2)	27,655

	$	179,651

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(1)Represents construction and other commitments as of December 31, 2023 for developments and redevelopments in progress and includes allowances for Company-owned tenant improvements that the Company has provided as a lessor.

(2)Represents the Company’s commitments, as lessor, under signed leases and contracts for operating properties as of December 31, 2023 and includes allowances for Company-owned tenant improvements and leasing commissions. Excludes allowances for Company-owned tenant improvements related to developments and redevelopments in progress for which the Company has executed an agreement with a general contractor to complete the tenant improvements (recognized in the “Development and redevelopment commitments” line).

Environmental Costs

Various environmental laws govern certain aspects of the ongoing management and operation of our facilities, including those related to presence of asbestos-containing materials. The presence of, or the failure to manage and/or remediate, such materials may adversely affect the occupancy and performance of the Company’s facilities. The Company monitors its properties for the presence of such hazardous or toxic substances and is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, financial condition, or results of operations. The Company carries environmental insurance and believes that the policy terms, conditions, limitations, and deductibles are adequate and appropriate under the circumstances, given the relative risk of loss, the cost of such coverage, and current industry practice.

General Uninsured Losses

The Company obtains various types of insurance to mitigate the impact of property, business interruption, liability, workers’ compensation, flood, windstorm, earthquake, environmental, cyber, and terrorism related losses. The Company attempts to obtain appropriate policy terms, conditions, limits, and deductibles considering the relative risk of loss, the cost of such coverage, and current industry practice. There are, however, certain types of extraordinary losses, such as those due to acts of war or other events that may be either uninsurable or not economically insurable. In addition, the Company has a large number of properties that are exposed to earthquake, flood, and windstorm occurrences for which the related insurances carry high deductibles and have limits.