Healthcare Realty Trust Inc Q2 FY2021 Earnings Call

Good day, and welcome to the Healthcare Trust of America, Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to David Gershenson, Chief Account Officer. Please go ahead.

Thank you. And welcome to Healthcare Trust of America second-quarter 2021 earnings call. We filed our earnings release and our financial supplement today after the close. These documents can be found in the Investor Relations section of our website or with the SEC. Please note this call is being webcast and will be available for replay for the next 90 days. We will be happy to take your questions at the conclusion of our prepared remarks. During the course of the call, we will make forward-looking statements. These forward-looking statements are based on the current beliefs of Management and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance. Therefore, our actual future results could materially differ from our current expectations. For detailed description on potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website. I will now turn the call over to Brad Blair, Chairman of Healthcare Trust of America. Brad?

Thank you, David. Good afternoon and thank you for joining us today for Healthcare Trust of America, Second Quarter 2021 Investor update call. Joining me on the call today is Peter Foss, our newly announced Chief Executive Officer, Robert Milligan, our Chief Financial Officer; and Amanda Houghton, our Executive Vice President of Asset Management. Before we discuss HTA's performance for the quarter, I first wanted to comment on the voluntary resignation of our Chairman and CEO, Scott Peters. Scott founded the Company in 2006 and directed its progress as we successfully grew to become the largest owner and operator of medical office buildings in the U.S. We are extraordinarily proud of the Company HTA has become and know that we're all very well-positioned to succeed in our next phase as the leader in this evolving sector. All of us on the Board thank Scott for his 15 years of service to HTA and wish him well on his future endeavors. As a result of this resignation, as I've said, we have appointed Peter Foss as our Chief Executive Officer to lead us during this transitionary period. Peter is an established leader and executive serving over 35 years at GE, while leading multiple divisions and spearheading key growth initiatives for the Company. He has served on HTA's Board since 2015 with the relationships and insights to partner with our strong leadership team as we execute our best existing business plans. One final thing to note. As noted in the 8-K, the Board is currently engaged in a review of several items related to the Company's Whistleblower line. These reviews are in their early stages, and at this point, we do not anticipate them having any material adverse financial impact on the Company's operation. However, we will be unable to provide any additional color on this matter at this time. I will now turn it over to Peter.

Thank you, Brad. I appreciate everyone joining us today. I've been with HTA for over six years and have seen the strength of the Company and the management team that I am now part of. This is a Company that effectively balances immediate performance with long-term investments. Throughout my time here, the Company has more than doubled in size and achieved earnings growth exceeding 20%, which is a remarkable accomplishment led by Scott Peters. As we examine the healthcare landscape, HTA is well-positioned to lead in medical office solutions as the sector evolves towards a more convenient outpatient model that is closer to consumers. We have strategically built our portfolio around scale and promising markets, while providing comprehensive services that cater to our tenants. Our strong balance sheet enables continued investment, and we have consistently demonstrated our ability to enhance both earnings and dividends. Most importantly, we have a robust leadership team that has been essential to our success. We may look to bring in additional talent to seize opportunities. The foundation here is solid. In summary, I am stepping into a well-established Company created by Scott Peters that is poised for tremendous future opportunities. Our second-quarter performance underlines this, featuring record earnings, a robust investment pipeline, and the ability to maintain our guidance and raise our dividend for the eighth consecutive year. I will now hand it over to Robert and Amanda for our operating performance report. Before I do, I want to make a couple of remarks. As a 77-year-old entering this role, I've seen a lot over the years. I was inspired yesterday watching a 63-year-old Australian win a gold medal, which made me feel younger. I find myself here today unexpectedly, but I am honored. I have a history of driving growth and employee development in organizations, and I couldn’t be happier to do this at HTA with an exceptional team that has consistently proven their ability to deliver results, having doubled the business and achieved over 20% earnings growth in the past five years. My role is to support this team in maintaining that level of performance by fostering an environment with clear goals and metrics, along with providing the necessary tools to execute those goals. My responsibility is to help this team reach its full potential. Thank you very much.

Alright, thanks, Peter. Turning to financial performance, in the second quarter, our performance remained extremely strong. Highlighted by steady portfolio performance with same-store NOI growth of 2.1%, and continued rent collections, including on our 2020 rent deferrals, of which less than $700,000 is remaining as of today to be paid through September. We had normalized FFO per share of $0.44, an increase of almost 5% versus 2020. Recurring capital expenditures of $16.6 million or approximately 13% of NOI, which included almost $2 million spend on energy efficiency projects. As a result of this performance, our normalized FAD grew almost 5% to $81 million and allowed us to announce our eighth annual dividend increase for the third quarter. We also have G&A of $10.9 million, continuing our efficient overhead at less than 10% of NOI. From an investment perspective, we remain focused on growing in our key markets through acquisitions and increasing the development while funding our growth through the use of our forward equity raised, as well as attractively priced dispositions out of non-key markets that we believe have fewer opportunities for growth over the long term. Since our last call, we have seen a significant pickup in opportunities that fit our criteria. As a result, we currently sit with $373 million in 2021 investments that we have either closed or have under exclusive contract, with first-year yields of over 6%. This includes roughly $100 million closed year-to-date as of the second quarter, with the majority of the rest expected to close in the third quarter. We have $110 million of development projects on track for completion in 2021. This includes $50 million related to projects that we substantially completed in the quarter. One with CommonSpirit in California and the second with Jackson South Hospital in Miami. We also have a $60 million project going on at HTA's Medical City Heart and Spine campus in Dallas that we expect to be completed in the third quarter. These projects will add an incremental $0.03 to $0.04 per annum upon full stabilization. We also have seen our development pipeline build with approximately $375 million of projects that are currently in the pre-leasing stage that we expect to begin and start construction on as early as the end of 2021 and into 2022. This pipeline includes five projects totaling more than 850,000 square feet of space located in our markets in Houston, Orlando, and Raleigh, with average stabilized yields over 7%. This includes the $215 million 485,000 square foot Horizon Tower located on the Texas A&M Innovation Plaza and the Texas Medical Center, the largest medical center in the world. We're also taking advantage of competitive markets for investments by strategically selling non-core assets, including a $67 million sale of the portfolio in rural East Tennessee and Southwest Virginia at very attractive pricing that will lock in double-digit annual returns since our original investment more than 10 years ago, and generating a gain on book value of approximately $33 million. We've also entered into agreement to sell two additional properties, including one that was subject to a tenant purchase option. Although these sales are expected to total approximately $30 million, they may not close until early 2022. On these specifically related to the purchase option, we took an impairment charge of approximately $17 million. Finally, we are currently in discussions to sell additional properties as we look to exit non-key markets. As a result, in total, we expect our dispositions in '21 to total as much as $125 million, with pricing between 5% up to 6.5 attractive levels as we redeploy into our higher-growth key markets. To support this growth, we maintained a very strong balance sheet with more than $1.3 billion in liquidity, and leverage of just five and a half times incorporating the forward equity we have previously raised. As a result of this performance, we're able to update and tighten our earnings guidance for 2021 to a $1.74 to a $1.78, which incorporates our view that the same store for the year will come back to a range of 2% to 2.5% with acquisitions that are increasing to $375 million to $600 million while selling between $70 million and $125 million of assets and funding the remainder with already raised capital which will keep our leverage between 5.5 and 6 times. I'll now turn it to Amanda to discuss our operations.

Thanks, Robert. Our team has remained committed to working with our tenants and health systems as they navigate the COVID pandemic and its impacts on healthcare delivery. We focused on strengthening key relationships and improving building operations and tenant quality while increasing the long-term value of our buildings. During the peak of the COVID pandemic last year, many of our health system partners pushed pause on growth and expansion plans, redirecting focus on the testing and care of the increased patient population affected by the virus. This year, and specifically the second quarter, we started to see a resumption of prior plans that had been put on hold, as well as new plans for growth. To better position ourselves to provide maximum flexibility and service to our healthcare partners, we've increased our investment in tenant space, completing 185,000 square feet of speculative move-in ready space over the last 12 months, with another 100,000 square feet anticipated in the coming 12 months. We've added to our leasing staff, building internal teams in markets like Tampa, Raleigh, Orange County, and Denver, core markets where we expect to continue to grow. From an operational performance perspective, in the second quarter, we were able to achieve same-store NOI growth of 2.1% with over 1.5% of revenue growth despite a decline in year-over-year occupancy. We signed 647,000 square feet of leases, including 150,000 square feet of new leases. We had almost 500,000 square feet of renewals that resulted in 80% retention and rent growth of 2.1%, solid results that are more in line with what we have historically achieved. Our annual escalators for new leases signed in the period were 2.8%, continuing our trend of increasing escalators towards 3% as we continue to roll our leases. TI remained efficient at $1.45 per square foot per year of term on renewals, that increased to $5.04 per square foot per year of term on new, as we have seen some inflation come through construction costs. One area of success has been in the leasing of both our development and redevelopment projects. During this period, we increased our lease rate of our Cary, North Carolina development to over 97%, a sign of strength in that market. We are also close to completing more than 70,000 square feet of redevelopment space in Denver and Houston, which will come online in the third quarter. While these do not impact our same-store performance, this lease-up is critical to our bottom-line performance. As we look at the rest of the year and into 2022, we are intently focused on growing our occupancy and believe it will start to turn in the third quarter. Our new leasing activity continues to be strong, and over half of our portfolio of vacancies is in core markets that are seeing population growth, especially coming out of COVID. Combined with focused improvements to our space and an expansion of our sales team, we believe we have good opportunities for occupancy growth over the coming quarters and years. On the expense front, we continue to show the benefit of our economies of scale and specialty service offerings. For the quarter, we were able to keep expense increases relatively limited, despite increased utilization of our property. Our same-store expenses increased just 2% despite experiencing significant utility pressure in certain jurisdictions and overall pressure in property taxes. I will now turn the call back to Peter.

Thank you, Amanda. I will now open it up for questions.

We will now begin the question-and-answer session. And the first question comes from Juan Sanabria with BMO Capital Markets. Please, go ahead.

Hi. Good afternoon. I know you probably are limited to what you can say, but I was hoping you could speak to the whistleblower allegations. And what gives you the confidence to say in the 8-K that you don't expect any material impact or material adverse impact to financials for the Company? Previously, there were allegations of smoothing on the same-store results. Is that involved in any way or form?

Certainly, Juan. Good afternoon and thank you for joining the call. We can address that. It is completely unrelated. As we have examined everything, we are still in the early stages, but at this time, we do not foresee any significant financial impact. However, it is not connected to the same-store results.

Can you delve into what it is related to in any fashion?

I don't believe we can at this time. It's too early in the process to start talking about any of the issues, the phase they're in. And we just are not at liberty to do that.

And, Peter, for you, have you looked at hiring any outside parties to look for a more permanent CEO at this point? Given your background, is it necessarily in real estate granted you have significant leadership experience? And/or have you hired any advisors in case the Company maybe has to explore other alternatives including a sale or whatnot?

We haven't done that yet, but that is our intention. Today is our first day, actually just half a day. We'll definitely start looking for a more permanent management team, whether that's through internal or external candidates. We're also planning to bring in some new talent.

Okay. And just a question for Robert. Are you comfortable with the financials you've signed off on, or given the audit committee is involved, can you speak to your comfort with historic results?

I think that's a fair question. Unfortunately, we have to be careful about what we can disclose. However, you will see that we are on track with our financial statements as we release our quarterly results. We expect this to occur as part of our regular process. Everything we do is reviewed thoroughly, both by our internal audit and external audit teams. We are confident in the financial statements we have released, which is why we included in our 8-K that we anticipate no material financial impact.

And one last question for me. Is Scott entitled to any severance package, given it seems like this is for cause?

No, they're not for cause. It's not for cause.

Okay. So he will get severance then?

No, he resigned and is not entitled to any severance.

Okay. Thank you.

In the interest of time, we ask that all people that are asking a question limit themselves to one question and one follow-up. The next question comes from Nick Joseph with Citi. Please go ahead.

It's Michael Bilerman. I'm here with Nick. I guess Brad or Peter, or both of you. It's not every day we see a founder of 15 years with over 3 million units, which is over $100 million invested in the Company, voluntarily resign and rush you guys. Peter, I admire your dedication to step up at 77 and take this job. But it's unusual to see someone walk away from the Company they founded and the team they created. Can you elaborate on his decision to resign? Does it relate to any of the whistleblower complaints that were made?

It's Peter. It is not a result of any whistleblower. It was a personal decision on Scott's part to resign, that we can't put any more information out at this point in time. I don't know what else to say. We can't comment.

I wonder how someone can just step away like that. Was it due to any disagreements regarding the business, operations, strategy, financial conditions, internal controls, processes, or the strategic direction of the Company? You have to consider that he is a founder with a significant ownership stake. It's unusual to see someone leave without any explanation. It could be for personal reasons, but that hasn't even been stated.

Well, we did say it's for personal reasons. It was Scott's decision. And I can tell you it isn't any of the things you just listed.

Into why there was no transition, a person can step away and still provide help. Peter, you have a simpler task ahead. It just doesn’t seem right for someone to step away without explanation. You had to speed up your conference call and there is no transition period. What reassurance can you offer shareholders that there isn't a larger issue at play here?

First of all, it's not a $100 million he has in the Company, but it's a significant amount. His decision was personal, and I cannot provide any additional context about it. It's unusual for such a decision to happen on such short notice; we weren't prepared for it. We have been working on a succession plan, but there was no way we could implement that plan at this early stage given the limited notice. I can't share any more details about it. We simply don't know.

Okay. Well, I guess

We don't have a very good answer for you other than to say that we stepped up to the continuation of this great Company. And we run it, we love it, but we don't have a good answer for you because we don't know.

Can you assure us that you will engage strategic financial advisors to determine the best course of action? Investing in a new CEO could be quite costly, especially with many people pursuing top talent. It might be worth considering a sale of the Company as an alternative. Given the rapid changes, shareholders deserve clarity from the Board of Directors regarding the CEO search process and any potential alternatives that might be considered.

Yes, we will be expanding our communications on that as we proceed down that road. We are going to look internally and externally. I don't think we're going to rush to any conclusions. We've got some business at hand we want to continue to take care of. We need to focus on that most importantly. And we will replace Peter in due course with the appropriate talent and we'll keep you informed as we move along. At this stage.

Does that mean you're planning to stay the course as a standalone company and hire a CEO? That doesn't seem like you, given the significant opportunities in MOBs. Why wouldn't you at least consider exploring a partnership with another public company or a sale to private capital while the company is without a CEO, instead of continuing as a standalone public company?

Well, should in the course of our continuation of the business opportunities we have that circumstance would be presented to us, we would, as a Board, have to consider all those situations but we don't consider ourselves in any rush to have to deal with that situation at this time.

Okay. Thank you for the time.

The next question comes from Vikram Malhotra with Morgan Stanley. Please go ahead.

Thanks for taking the question. Maybe just to start, if you can clarify, when did Scott actually resign?

Yeah. The effective date was yesterday, and the notice was about four days before that.

Yup. 29th was the notice.

Vikram, we have the exact dates, I believe in the 8-K.

Okay. Got it.

When the resignation was submitted on the effective date.

And then I just want to make sure I heard, you said there is no link between the whistleblower complaint and his resignation, correct?

That's correct.

Okay. Clearly, there have been numerous questions regarding this matter. Could you clarify the status of the whistleblower complaint? Has the board been engaged with it recently, or is this a development you've just learned about? How long have you been addressing this issue? Please provide us with more details about the timeline and the whistleblower complaint.

About 2 to 3 weeks now.

Okay. Given that you have 2 to 3 weeks, can you provide any general information about what it might pertain to? Is it related to accounting, some calculations, or another broad topic? I'm asking this because, as we discussed earlier, this situation is unprecedented and sudden, and it would be helpful to give us some context and offer investors more insight.

The investigation started by independent attorneys two weeks ago. Last week, really, was the first week. And the whistleblower complaints are not financial. The Company is in great shape. That's not a concern.

I think, Vikram, this is Robert. When you look at this, Peter and Brad can provide input as it relates to the Board. From a financial perspective, there are various factors that it could pertain to. We have confidence in signing off on our financials. Within the organization, we have full agreement regarding the certainty of what we're presenting, and we are able to assert that this has been reviewed by all parties. We do not expect any significant financial impact from this, which provides you with some insight into our comfort level in making that statement.

Okay. And then just one last question. I may have missed this, but is there outside counsel looking into this? Is there a dollar amount that you expect to be spent? And can you give us a rough timeline on how long you think this will take?

I don't know if we can put a dollar amount on it, but our expectation is it should be 4 to 6 weeks.

Okay. Great. Thanks so much.

Vikram, from a financial perspective, and cost is at least as what we've been able to see here. Obviously, we reiterated our financial guidance for the year. I think we have the confidence to continue down that path. I think we have the confidence to put out a range today. I think we have the confidence knowing what you know to continue with the investments that we've seen, to continue to run the business operations. Obviously, we understand you have to ask all of these questions related to it and, unfortunately, there's not a lot of additional color we can provide, but we did, obviously, reiterate our guidance. We do continue to see the operations moving forward. I think we do continue to see investments that are out there and I think what Michael said was right; MOBs are a great place to be in, the asset value is very high right now. I think it's a very attractive place and we've got a very attractive platform that we've been able to put together.

Okay. That's helpful. Robert, while I have you, I'll just ask you a quick numbers question. The same-store NOI guide, I think, is modestly lower now at the midpoint. Can you just highlight what drove that?

I believe that as we've assessed our same-store growth for the year, we've started with slightly lower occupancy. However, we've experienced very strong leasing activity as health systems emerge from COVID and concentrate on growth, as Amanda mentioned. The timing of signing leases and moving in has faced some delays, partly due to a shortage of materials. Additionally, it has been quite challenging to secure contractors, which has contributed to construction delays. As a result, we have adjusted our expectations to a modest decrease to 2.5%. We recorded 1.6% in the first quarter, influenced by increased snow removal and utility costs. Given that we are six months into the year, it makes sense to adjust our forecast to this level, which we still consider a strong outcome. Over the past two years, we have consistently been able to enhance our portfolio's performance, and we believe that, in comparison to other benchmarks, our performance has remained robust.

Okay. Great. Thanks so much.

Thank you.

The next question comes from Rich Anderson with SMBC Nikko. Please, go ahead.

I have two questions, I promise. You mentioned that the whistleblower issue is not financial, but then you stated in the 8-K that there's no financial impact. I'm confused—does it or does it not have a financial impact? You said you don't expect a material financial impact, but not that there is zero financial impact. I'm trying to understand what this whistleblower situation entails. Could you explain it in general terms, whether personal, financial, or anything else?

Rich, this is Robert. I'll share a few thoughts on this. I believe you are reviewing the relevant details. In our business activities, there is always a potential financial impact. However, as we analyze the situation, I can confirm that we do not expect this matter to have any significant financial effect on the Company.

I have a question about the quick timing of the call. You were set to report on Thursday night and have a call on Friday, but notice was given on the 29th and the resignation was official on the 2nd. This feels a bit rushed to me. If you're going to wait from the 29th to the 3rd, why not hold off until the 5th? What prompted the decision to accelerate the call?

It really depends on the disclosure date, which starts from when we received the notice. We have an SEC requirement to provide information as promptly as possible, and I believe the timeframe is typically 3 to 4 days. When we got the notice on Thursday, that initiated the timeline. Considering the questions we were facing, we wanted to ensure we could present it within the context of a business that has continued to perform, with ongoing opportunities and various investment prospects, including development that has shown improvement and continues to generate earnings. Therefore, the timeline was dictated by the date of the notice.

I understand that. I'm just curious why Scott didn't choose a different timing. I recognize there are disclosure concerns, but it seems like there isn't much collaboration here. Just a thought. That's all I've got. Thanks.

Thanks, Rich.

The next question comes from Lukas Hartwich with Green Street. Please go ahead.

Thanks. Will the process for a CEO successor be conducted in tandem with the investigation, or does the investigation need to be completed first?

No, it can be conducted in tandem with that. There's no pecking order.

Okay. And then are there any other employees subject to the investigation, or former employees, I guess?

Let me clarify. We haven't indicated that any specific person is under the whistleblower investigation. The important point is that we disclosed there is an ongoing investigation, but that does not suggest it is connected to anyone in particular or any specific way.

Great. Thank you.

The next question comes from Mike Mueller with JPMorgan. Please go ahead.

Hi. Was the whistleblower connected to Scott? You mentioned Scott left, but is there a different issue, or is it related to Scott? That's my first question. The second question is, does this whistleblower complaint relate to operations or tenant relationships in any way?

I think it's important to be clear about what we report in the 8-K. Every company has a whistleblower hotline in place, particularly public companies. These reports do come in occasionally. The Board takes all matters seriously as it's their responsibility to do so and to investigate them appropriately. As for our disclosures on this topic, we are able to indicate that we anticipated a time of significant material financial impact.

Yeah. I mean, not that whistleblowers are random, but it just seems like if this was a random event, it wouldn't necessarily be in the same 8-K with Scott's departure.

Well, I think it's just a matter of disclosure that you have to put out any time that there is a significant material event such as an officer leaving. I think it is incumbent upon companies to disclose anything else that is going on. So, I think it's for the specific reason that that's why the 2 were together. And I think, specifically in the 8-K, we don't tie them together in any way. So, I don't think that's what we specifically stated.

Okay. Thank you.

The next question comes from Nick Yulico with Scotiabank. Please go ahead.

Thanks. I just want to go back to the topic of severance and be clear on this. I think you said that there is no payments whatsoever going to Scott related to the resignation. Is that correct?

I think Nick and Brad and Peter will opine, Scott's employment contract obviously, has a number provisions in it. This, as bread and Peter said, this was resignation by Scott for personal reasons. That is what we know. I think in due course, that the rest of it, we just came in in the last couple of days. In due course, I think it's going to play out. And so we don't have a specific estimate that there's going to be a payout or if any.

I just wanted to clarify, Robert, because if you look at the proxy, there's a distinction between a resignation without good reason and one for good reason. The resignation for good reason could potentially entitle Scott to $14 million as stated in the proxy, while the resignation without good reason only leads to a potential $2 million payment if the non-compete is enforced. So, to be clear, the Board has not yet determined whether this is a resignation for good reason.

No, the letter we received had no condition. It was just a resignation without good reason. It was just without a reason. He just period didn't answer that question.

Okay. I appreciate that. Thank you. And then just to follow up on that is, are you going to enforce a non-compete?

Those are judgments we'll make here shortly, but I would imagine we would.

Sorry. You imagine you would?

Yes, we imagine we would.

Okay. All right. Thank you. Appreciate it. Thank you.

The next question comes from Michael Gorman from BTIG. Please go ahead.

Thank you. Good afternoon. I apologize for bringing this up again, but Robert, I wanted to revisit a question Mike asked, and I understand the sensitivity. You filed three 8-Ks today, so I want to ensure I understand. If there is no connection between the two, it seems a bit unusual that this particular information was included in that specific 8-K instead of in the disclosure of your financial results or the dividend or other important updates. Is there a technical reason I'm not aware of for its placement in that 8-K instead of the others?

Mike, I think it's a good question. And I think from an 8-K perspective, we just had them all in line together. I think the earnings release covers, specifically, the earnings release as we've always had, I think the dividend is consistent with everything else that we put. And then from just an 8-K perspective, we put the rest of the matters into that one as opposed to just doing it on the bus-type 8-K, that would include all sorts of stuff. I think we were trying to just aim for transparency of putting them out there. So I think, in the 8-K, we did not tie them together, but I do think it is important to note that we are following the obligations that we have just from a disclosure perspective. And again, as I think both Brad and Peter have said, it was a personal resignation for personal reasons. It's a disclosure of several just reviews taking place, of which, at this point, we don't anticipate to have any material or financial impact.

Yeah. Remember the resignation event required an 8-K filing within a four-day period. So, we prepared that and filed it as a separate 8-K.

Can you explain the internal whistleblower procedures at HTA? What factors determine when a situation escalates to the need for outside counsel, and who makes that determination? Specifically, when does a whistleblower issue typically need to involve the Chairman and CEO? It seems this investigation began a couple of weeks before the resignation date.

Well, Mike, I believe that from a company's standpoint and in compliance with Sarbanes-Oxley, every company has a whistleblower system. Ours specifically is directed to the Chair of the Audit Committee and the Lead Independent Director, as outlined in our whistleblower policy. This is the standard procedure. The next steps are determined from there. These systems are established so that every public company can manage them. We make this information available and it aligns with the practices of most other public companies.

Okay, great. Thank you for the time.

This concludes our question-and-answer session. I will now turn the conference back over to Peter Foss for any closing remarks.

Thank you very much and thanks to all of you for joining us today and asking questions.

Operator, do we have any other questions in the queue? We can still take one or two more questions if they're still in there.

We do. We have people who had already asked questions if that is okay.

We will take them.

Yeah. We'll take them. Sure.

We have Juan Sanabria from BMO Capital Markets. Please go ahead.

Hi. Just 1 follow-up question for me. Curious on why, or the strategy, or the policy behind involving the Audit Committee if the whistleblower complaint in Scott's departure is not tied to financial issues?

Well, all whistleblower complaints go through the audit committee. Chair of the Audit Committee is responsible for managing those.

And they don't all relate to financial matters.

Yeah. It's just the policy.

Okay. Thank you.

Next question's from Lukas Hartwich with Green Street, please go ahead.

Thanks. Appreciate you taking the follow-up. Can you comment on whether the whistleblower complaints are related to conduct at the Company or outside of the Company?

I don't think we can answer that question. We're not trying to evade it.

Okay.

The next question is from Nick Joseph with Citi. Please go ahead.

Great. It's Michael Bilerman. Since Nick and I are both on, the first questions were Nick's questions. I had a couple of follow-ups. Regarding the whistleblower complaints, were those made by external parties using the whistleblower hotline, or were they related to internal matters?

Michael, those are very fair questions. Many of these concerns can remain anonymous. Generally, a whistleblower hotline, along with NYSE requirements, provides opportunities for individuals to identify themselves or remain anonymous. This is a key aspect of the program regarding transparency. Therefore, we might not even be aware of the details. I'll let Brad address this further, as well as Peter and Robert at the Company. Our role was mainly to assist with the setup from a stock perspective; we don't actually receive or view the submissions. From a purely setup standpoint, the whistleblower can be anyone, whether they are internal or external to the Company, and they can also choose to remain anonymous.

I wasn't sure if you had already made some judgments regarding its severity, at least in relation to the financials. It wasn't clear to me whether you had completed some of the identification process and it was mentioned that there were several items. I wasn't certain if we were dealing with multiple whistleblower complaints or if it related to one issue that the Company and the audit committee are having their independent legal counsel examine.

There are multiple complaints, but they don't necessarily connect to each other. We are not sure who made the complaints. We are currently processing, researching, and investigating the situation.

And then the last question I have just goes back to Scott. It sounds like he tendered his resignation to the Board, I guess, last week on Thursday. Prior to that, had there been any conversations with Scott about potential changes in his role? He obviously is Chairman, CEO, and President. Was he at all involved in any of these investigations as his time as CEO? Just anything that press pre-dated that Thursday in terms of just discussions. And then if you can just say, did he completely leave, i.e., was completely cut off on Thursday, and there has been no communications between the parties since? I just wanted to get clarification on that.

And no communication since his notice. Correct.

Okay. And then just — to close, this was clearly a very unexpected move. It is a significant event that Scott was there since founding the company. Going forward, can you provide context around the expectations in terms of how you want to engage in this process? Obviously, given your respective backgrounds, I'm sure the vote of confidence is strong from both sides of this table, but I do feel, given how abrupt this has been, it's important for you to weighing — balance the focus of the business versus the leadership transition and possible strategy review in light of Scott's significant absence. Any thoughts in a way of providing some clarity on those considerations?

Unfortunately, at this point, we can't really go further into things since it was such a recent event. As we dig into things, we will be expanding on our communication on that as we proceed down this road. I think it is definitely top of mind for us.

Absolutely. We're committed to making sure that everything is transparent, and we keep you involved in the communications as best we can.

Thank you. This concludes our conference call. You may now disconnect.