This occured after a SharePoint 2010 Foundation to SharePoint 2013 Foundation upgrade.

https://www.ozkary.com/2012/06/sharepoint-custom-form-shows-html-as.html

SharePoint Custom Form Shows HTML as Text on Lookup Fields

Before: <xsl:value-of select="@FieldName" />

After: <xsl:value-of select="@FieldName" disable-output-escaping="yes"/>

BEFORE

AFTER