Healthcare Realty Trust Incorporated Aktie

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Healthcare Realty First Quarter 2026 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the call over to Ron Hubbard, Vice President of Investor Relations. You may begin.

Thank you for joining us today for Healthcare Realty's first quarter 2026 earnings conference call.

A reminder that except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. This company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC.

Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended March 31, 2026. The company's earnings press release and earnings supplemental information are available on the company's website.

I'd now like to turn the call over to our President and CEO, Pete Scott.

Thanks, Ron. Joining me on the call today are Rob Hull, our COO; and Dan Gabbay, our CFO. Also available for the Q&A portion of the call is Ryan Crowley, our CIO.

It has been just over a year since I assumed the CEO role, and we have made significant progress in that short period of time. In many ways, we entered 2026 as an entirely new company. We added industry expertise to our revamped and more financially rigorous operating platform, we refined our portfolio, and we rightsized our balance sheet. All of this was in preparation to meet or exceed our 3-year earnings forecast.

I am pleased to report the hard work and immense preparation is manifesting into better results. While 1 quarter does not guarantee a 3-year earnings forecast, it does create a solid foundation for outperformance while sustaining the winning mentality we have worked hard to instill at Healthcare Realty 2.0.

Now let's turn to our results for the first quarter. Every day we are executing with purpose and intensity. We signed over 2 million square feet of leases an all-time high. We reported same-store NOI growth of nearly 7%, also an all-time high. We accretively bought back more stock. We completed our first joint venture acquisition. We continue to stabilize our redevelopment portfolio. And our capital markets plan is beginning to take shape.

The net impact of all this, our first quarter results were far better than expectations. We are raising both FFO and same-store guidance early in the year. And there is more to come on the horizon with a strong leasing pipeline.

I wanted to elaborate more on the earnings growth framework for Healthcare Realty 2.0. Earnings growth has unequivocally become the dominant metric that determines a premium multiple in the REIT industry. If you go into any AI platform and search medical office characteristics, you will note the typical catchphrases that have become synonymous with sector: stable cash flow, recession-resistant, Steady Eddie, and 2% to 3% growth.

In a low interest rate environment, like we experienced from 2010 to 2020 when the 10-year treasury averaged low 2%, this all sounded great. Investors were able to generate alpha in medical office with very little risk. However, with the 10-year treasury at 4.3% today and our stock trading at an 11x FFO multiple, this simply won't cut it anymore.

We see 2 challenges in front of us: put up better numbers, which we are doing, and break down these historical stereotypes. As the only public REIT focused exclusively on outpatient medical, we will be the trailblazer and redefine what success means in our sector.

So let me walk you through the main pillars of organic growth. First, occupancy. Sector-wide occupancy is approaching 93% because of strong demand and limited supply growth. We see multiple years of sustained tailwinds in front of us driven by the rapid growth of the 65-plus population and the unabated shift in care to outpatient settings. At HR 2.0, our same-store occupancy improved this quarter to 92.3%, a year-over-year increase of 110 basis points. Total occupancy has improved to 90.5% and is a significant near-term earnings growth driver as we stabilize our lease-up and redevelopment portfolio.

Second, annual escalators. Under the new asset management platform, our average annual escalator on signed leases is 3% plus. I cannot overemphasize the importance of the annual escalator on earnings growth. With our portfolio NOI at approximately $650 million, escalators will be the primary driver of core earnings growth going forward.

Third, retention rate. Often overlooked, retention rate is a critical driver of earnings growth. Downtime and capital expenditures, which are the silent killer of earnings growth, are significantly lower for renewal lease deals compared to new lease deals. Therefore, the higher the retention rate, the less capital we have to commit, the higher the lease IRR, the more profitable the deal is to us. During the first quarter, our retention rate was 93.5%.

Fourth, cash leasing spreads. With our portfolio optimization complete and our concentration of assets in higher growth markets, including the Sunbelt market, I would anticipate our cash leasing spreads improving. In the first quarter, our cash leasing spread was 4.2%. Importantly, 1 out of every 4 leases we signed had a cash leasing spread greater than 5%.

When you add all this up, occupancy growth, annual escalators, higher retention and improved cash leasing spreads, we expect to generate materially higher earnings growth going forward. Our same-store results this quarter are a good indicator that we are heading in the right direction. And as a reminder, our core earnings growth in 2026 is tracking above 5% excluding the impact from the necessary portfolio optimization and deleveraging.

I wanted to spend a moment on external growth and capital allocation, which are incremental to our organic pillars of growth. As we recently disclosed, our capital allocation approach will remain incredibly disciplined. During the first quarter, we did exactly what we said we would do. We bought back $100 million of stock, we completed in excess of $20 million of acquisitions and we invested $25 million in our redevelopment portfolio.

Let me provide a little more context behind our priorities. First, stock buybacks. If we experience dislocation in our stock price, we will not hesitate to acquire shares. This provides us with significant and immediate accretion. We have $400 million of stock buyback capacity remaining under our current authorization.

Second, acquisition. All external acquisitions will be done in joint ventures. Joint ventures currently encompass 5% of our total NOI, so there is ample room for this to grow. We would expect initial cash yields of greater than 7%, which exceeds our implied cap rate. In terms of magnitude, I could see us accretively allocating $50 million to $100 million of capital into our KKR joint venture in 2026.

Third, redevelopment, which currently consists of 23 properties that are 64% pre-leased. Redevelopments are the primary source of the $50 million of NOI upside in our 3-year forecast, and we continue to track ahead of schedule. I would expect the number of assets in redevelopment to modestly tick up in the coming quarters as we front-load our spend into the earlier part of our 3-year plan. This will allow us to maximize the NOI upside opportunity sooner. As a reminder, our average cash-on-cash yield for the redevelopment portfolio is 10% and comes through a combination of increased occupancy and/or increased rental rate.

Importantly, none of these priorities, buybacks, joint venture acquisitions and redevelopments, are mutually exclusive. In addition, while not part of our guidance, we are open to selling more assets, including core assets, and accretively recycling the proceeds into any one of our priorities to further improve earnings growth.

Finishing now with a quick note on our Board. As part of our ongoing Board refreshment initiatives, longtime Director, Jay Leupp announced he will retire after our upcoming annual meeting. I would like to provide a sincere thanks to Jay for his contributions to the organization over the years. Upon Jay's departure, the average tenure of our remaining directors is less than 2 years. We plan to add a new director later this year, to more prioritize that person's experience and diversity.

With that, let me turn the call over to Rob.

Thanks, Pete. The first quarter was the company's strongest ever for leasing. Our team executed over 290 leases, representing more than 2 million square feet. Lease economics across both new and renewal leases continued to improve. Annual escalators averaged 3.1% and the weighted average lease term was nearly 8 years, bolstering the portfolio's long-term growth profile.

Tenant retention was 93.5%, driven by a number of early renewals across the portfolio. Included are 8 single tenant renewals totaling nearly 740,000 square feet, for an average extension of approximately 10 years. This meaningfully reduces our lease maturities through the end of 2027. And cash leasing spreads were strong, averaging 4.2%.

Demand for medical outpatient buildings remains robust. We continue to see favorable sector fundamentals as absorption outstripped completions during the quarter and rental rates continued to climb. Health systems are seeing steady operating trends and investing in higher-margin outpatient services. These favorable industry fundamentals are translating into better performance for our portfolio.

Health system relationships remain a key area of focus as their demand for space continues to grow, improving the credit profile of our portfolio. This quarter, we saw a substantial health system activity, including, in Atlanta, 176,000 square feet of new and renewal leases with Wellstar across 6 on-campus buildings, including a 59,000 square foot cancer center. The renewals carry an average term of 5 years with a blended cash leasing spread of approximately 4%. Wellstar is a leading health system in the Atlanta MSA with an A+ credit rating.

In Charlotte, 6 renewal leases totaling 154,000 square feet with Advocate Health. The average term was more than 7 years with a blended cash leasing spread over 5%. Advocate Health is the leading health system in Charlotte with well over 50% market share and carries a AA credit rating.

In Upstate New York, we leased 64,000 square feet of clinical and surgery center space to Trinity Health St. Peter's Hospital. The leases have an average term of nearly 6.5 years and annual escalators of 3%. Trinity Health is a top 10 health system nationally with a AA- credit rating.

And in Charleston, 3 lease renewals for 55,000 square feet with MUSC Health, maintaining 100% occupancy across 2 buildings. The leases have an average term of 9 years with an average cash leasing spread of nearly 14%. MUSC is South Carolina's only comprehensive academic health system with 16 hospitals and regional medical centers.

Looking ahead, occupancy gains over the remainder of the year will be driven by a robust new leasing pipeline of approximately 1.4 million square feet, strong tenant retention and our 490,000 square foot Signed Not Occupied or SNO pipeline.

Turning to redevelopment. We saw a gain of 900 basis points sequentially in the lease percentage of our redevelopment portfolio. This quarter, we added 2 new projects, including a $25 million redevelopment of a 155,000 square foot MOB connected to Tufts Medical Center in Boston. The building is 100% pre-leased with a 10-year term and 3% annual escalators.

We also completed a $35 million 2 MOB project located in Charlotte, adjacent to Novant Health Huntersville Medical Center. The redevelopment is 98% leased with a stabilized yield within our targeted range of 9% to 12%. The 2 buildings will move into same store once a full calendar year has passed since completion.

Our results this quarter demonstrate the team's ability to drive accretive lease economics and strengthen our health system relationships. We are well positioned to build on this momentum through the balance of the year and deliver strong NOI growth to our shareholders.

Now I will turn it over to Dan to discuss our financial results.

Thanks, Rob. 2026 is off to a great start. We reported normalized FFO per share of $0.41, up sequentially from $0.40, and we achieved same-store cash NOI growth of 6.9%. Additionally, FAD per share was $0.32, resulting in a quarterly dividend payout ratio of 75%.

Our outperformance this quarter was driven by 110 basis points of year-over-year same-store occupancy gains, 4.2% cash leasing spreads and our improved balance sheet. Q1 same-store occupancy finished at 92.3% and same-store margins expanded 60 basis points year-over-year. Notably, 95% of our total NOI is included in our same-store pool.

Turning to capital allocation. As Pete mentioned, Q1 was active across all our strategic priorities. In March, we opportunistically repurchased an additional $50 million of shares as global conflicts pushed the stock market into correction territory. This brings our total repurchases year-to-date to $100 million or 5.7 million shares at a weighted average price of $17.38.

And at quarter-end, we closed on a JV acquisition for $18 million at our pro rata share, and commenced 2 new redevelopments with an expected cost of $31 million. We remain confident in our ability to continue allocating capital towards accretive redevelopments and selective external growth while maintaining our year-end leverage target in the mid-5x area.

I would like to call out a couple of items related to our balance sheet. First, we are putting in place a new $400 million unsecured delayed draw term loan. Our strong bank partnerships allowed us to move quickly during a period of heightened volatility. The facility is fully committed and expected to close in May. Drawn pricing is at SOFR plus 90 basis points and all-in pricing inclusive of transaction costs is approximately 4.8%. This is inside our 5% cost of debt assumption for 2026.

We plan to draw the term loan in late July to repay our $600 million bond maturity, with the balance funded on our line of credit. Factoring in this transaction, we would still have $1 billion of remaining liquidity on our line which provides meaningful flexibility as we consider all of our future capital markets alternatives.

As discussed last quarter, we also launched our commercial paper program. We currently have roughly $250 million outstanding, which is fully backstopped by our line of credit. Borrowing costs today are approximately 40 to 50 basis points lower than our line.

Finally, during the quarter, we also extended the maturities on $400 million of swaps associated with our existing unsecured term loans, locking in SOFR at 3.3% through debt maturity in 2029. These levels remain attractive as expectations for Fed cuts diminished during the quarter.

Turning to 2026 guidance, which you can find on Page 11 of our Q1 supplemental report, we increased full year normalized FFO per share guidance by $0.01 to $1.59 to $1.65 per share or $1.62 at the midpoint. And we increased same-store cash NOI growth by 25 basis points to a revised range of 3.75% to 4.75%. These results are driven by strong leasing outcomes and 4% plus cash re-leasing spreads in our same-store portfolio.

Uses of capital increased $75 million for the year to reflect the incremental share repurchases and acquisitions in Q1 that we discussed earlier. Our guidance does not include any additional acquisitions, redevelopments or incremental share repurchases for the remainder of the year. Funding sources increased by $75 million to match the capital allocation activity in the quarter.

One last item before we go to Q&A. You probably noticed that we published a revised supplemental reporting package and updated investor presentation last night. We are pleased to provide cleaner, simpler disclosure going forward in our supp on the total portfolio while also maintaining key information and performance metrics that we have previously provided. The materials commence with our portfolio-level information across top markets and tenants followed by our same-store redevelopment and ancillary financial information.

To recap, we are very excited about our Q1 results and upside for the year. Our core earnings growth model that Pete described is working across the board, and absent the dilution from our 2025 dispositions, we are already delivering mid-single-digit growth. We, therefore, remain confident and laser-focused as we target the upper end of our revised FFO per share and same-store NOI guidance.

With that, operator, let's open up the call for Q&A.

Our first question comes from the line of John Kilichowski with Wells Fargo.

Maybe first, if we could just start with the same-store guide we appreciate the bump here, but the 6.9% certainly stands out in 1Q. How do we think about that conservatism there? What drove the 6.9%? Was it comps? Was it just a great quarter? And is there an ability to repeat something a little bit closer to that going forward?

John, it's Pete here. I think as you pointed out, we had a great first quarter, posting same-store of nearly 7%. And the main pieces of that were we did see a pretty significant ramp-up in occupancy year-over-year and also some margin improvements. And that's something, if you go all the way back to our strategic deck, we said those were 2 important metrics that we wanted to improve, and we have. And we also had some strong leasing in the first quarter.

I think to your comments about deceleration implied in our same-store guidance, and I think you touched on this just a bit in your note last night, I don't really think about it necessarily as deceleration. I mean I think about it as an opportunity to raise guidance a few more times as the year progresses. So I like to look at it as the glass is half-full, not necessarily the glass is half-empty.

I will say we had an easier comp in the first quarter. I think that was pretty well known. If you looked at our results last quarter -- or excuse me, last year, we had a tough first quarter and it ramped up significantly in quarters 2 through 4. I still expect our growth to be quite strong and much longer than historical norms for the balance of the year. But we might not see something all the way at that like near 7% level, but I would expect it to continue to be strong.

Got it. That's very helpful. And then the second one, Pete, you gave some very helpful color in the opening remarks on the capital allocation opportunities and the buyback and doing what's best. I'm curious how you feel about the push and pull of doing what's most accretive but also managing leverage. You put a ton of effort into getting the balance sheet into a good place. And now you've kind of done that, you take up leverage ever so slightly, like it's still in a good spot. But what's that point at which you're like, okay, the buyback is now off the table, we can't lever up past this and the incremental proceeds need to go towards, like you said, the JVs or the redev versus that?

Yes. It's a good question and I'm glad you brought it up because I did want to spend a lot of time on it in the prepared remarks and on this call. In the first quarter, we did all 3. I think it was a nice mix of buyback, we did a JV acquisition, and we allocated capital to redevelopments. All 3 are accretive to our earnings growth. So we're pleased about that, especially since we can utilize balance sheet capacity for it.

So I think it's the right mix to continue to focus on all 3. I will highlight the word disciplined, right? I have seen, and I'll again repeat the O word pop up from time to time, and I would not characterize it as that. I would characterize this as a very, very disciplined capital allocation approach.

And to your point about leverage, I would also point out that we will not shy away from selling more assets, including core assets, right? So not selling lower quality. That was a lot of what we did last year to get the portfolio to where we wanted it to be today. Our focus could be on selling more core assets and accretively recycling that back into the 3 priorities. We just think it's good to have a good mix of different options available to us, and we think it's the right mix right now.

Your next question comes from the line of Nick Yulico with Scotiabank.

I wanted to first ask on total occupancy. I know you have that 92% to 93% target. You said you're at 90.5% in the first quarter. I think sort of twofold here, one is just latest thoughts on sort of the time frame for achieving that target. And then I think a component of that is leasing up development, redevelopment, where there is just some pure vacancy today. And I think, Rob, you gave some stats on like a Sign Not Occupied pipeline, but I'm wondering if you had any of that time Signed Not Occupied specifically you could cite for that development/redevelopment pool?

Yes. Nick, it's Pete here. I'll start and maybe I'll have Rob jump in on the backside. We do see redevelopments as a great way to invest capital and get a nice cash-on-cash return. It's the 10% cash-on-cash return that we are targeting on average.

And as we think about that portfolio, we did improve our disclosures a couple of quarters ago to track the percent pre-leased within that bucket. That's actually where a lot of our SNO sits right now. So our 90.5% of occupancy today does not get the benefit of a lot of that pre-leasing that we've been able to do in the redevelopments. But we will continue to disclose that. And as you saw, there's 900 basis points effectively of sequential occupancy gains within that -- or I'd say leased gains within that portfolio. It hasn't turned into occupancy yet.

So I don't know, Rob, if you want to give any more color behind that.

Yes, I'll just add to that, this is a substantial -- in our SNO pipeline, 90,000 square feet, nearly half of that in that kind of lease-up redevelopment bucket. So a substantial amount, which is where we see a lot of the opportunity to drive occupancy over the course of this year.

I would also say that our pipeline remains strong at the 1.4 million square feet. That's a good leading indicator of where we're headed. Tenant retention is still a major source of occupancy gains. And we expect all 3 of those to contribute meaningfully this year.

Okay. Great. That's really helpful, guys. Second question. Pete, I want to go back to the commentary about you're open to selling core assets. And I guess -- and then also going back to your point about earnings growth and that being a focus. Is this an opportunity -- is this more than just a sort of opportunity to sell at a strong cap rate and sort of arbitrage that on the investing side, which is maybe like a onetime earnings benefit? Or are you also open to selling core assets because in some ways you're going to get a low cap rate and they're also structurally slower growth assets for every reason, maybe they're safer profile of the lease, whatever it is, that if you're actually selling core assets, you could be improving sort of a long-term growth profile?

Yes. I would go back to my comment in the prepared remarks about 5% of our portfolio, the NOI being in joint ventures right now. And we get some pretty nice advantageous fees. So any going-in cap rate for like a core-plus asset is an enhanced yield to us with regards to our initial cash yield. I think that's one of the beauties of JVs and that's why a lot of REITs employ JVs as an important part of their business model.

I think 5% is low. I think 5% could grow. I won't give a number as to where it could grow, but I think it could grow well beyond 5%. And I think I'll look at selling core assets and recycling that capital back into potentially JVs as a use of proceeds could be done accretively and I think would be a good thing for our portfolio as well as for shareholders.

Your next question comes from the line of Seth Bergey with Citi.

Just want to kind of go back to the JV comments. How are partners thinking about how many partners are you kind of in discussions with that are interested in investing in outpatient medical? And can you just talk about kind of the overall depth of the transaction market and interest in the outpatient medical space?

Yes. Maybe I'll start with that and Ryan can talk briefly about the transaction market. As you think about our JV exposures, we do have a few different JVs, but there's really just one at the moment that is what I would call more a growth JV. And that's with our partner at KKR that was set up a couple of years ago. There was a pool of assets that was contributed by the company into that joint venture. But the hope was that, that joint venture would grow over time by acquiring third-party assets or, I'd say, external growth. It's another good way to characterize that.

Nothing happened over the last couple of years, really because there was no capital or balance sheet capacity here for any desire at Healthcare Realty to grow, even though our partner had a desire to grow. So I would say what we're focused on right now is growing with that 1 partner. I don't know that I want to get into any additional JVs that we could potentially look to set up over time. The other JVs that we do have, they're more discrete assets. Those were set up many years ago prior to that KKR joint venture, and I would not look at those necessarily as growth ventures. Our growth is really going to be focused with that 1 partner right now.

And then Ryan, do you want to talk about the transaction market briefly?

Sure, Pete. I'll say that the momentum that built from the transaction market last year has certainly carried into 2026. If anything, the strength of that private bid has only increased and financing remains really available. There's plenty of demand and liquidity out there.

If you want me to talk about cap rates, I'd say that core assets are pricing today in the 5.5% to 6% range. And frankly, core-plus isn't much above those levels.

Great. And then just coming back to some of the -- your opening comments about retention and escalators. Just given that occupancy for outpatient medical is kind of in that low 90s places, where do you think those metrics could ultimately go in terms of just new lease economics?

Yes. Good question, Seth. I mean what I would say is we completely revamped our approach to leasing about the middle of last year and we've become just much more financially rigorous as we underwrite deals. And I think what you're starting to see is the benefits of that change is starting to work its way into both the amount of leases we're getting done as well as the output of those.

So retention, as you point out, at 93.5% is really strong. We did get the benefit of doing a couple of very, very large leases in our single tenant bucket that were pushed out quite a way. So if you look at our weighted average lease term, it actually almost went up about a year this quarter, which is a pretty big change in 1 quarter.

I would say from a retention perspective, I don't know that I would model 93.5% going forward. But if it used to be 75% to 80%, I'd like to think that it could be more like 80% to 85% going forward.

And then on the cash leasing spreads, we did put up a good quarter this quarter. It was over 4%. I'll point out 1 out of every 4 lease deals that we did was greater than 5%. And we are focusing heavily on that, to try and push as much as we can on that metric. I'd like to think it can even improve upon 4%, but this will take perhaps a little bit of time to continue to work into the system. But we are optimistic and we'll continue pushing.

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

Pete, I wanted to circle back on those early renewals that you're able to execute during the quarter. I mean what drove those decisions? Is that something that you approached the tenant about? Or did they approach you about it? And given that those assets now have much longer term, is that something that you sell now or could potentially sell just given that you have about 10 years on some of those leases?

Yes. I mean we certainly could. I don't know that I can go into each one of those. It would take too long on this call to go through all the different assets within that bucket. But certainly, if it's a single tenant expiration and it's got less term on it, I mean you guys can go talk to the folks in the triple-net world, but when there's not a lot of term on a single-tenant asset, it's really not worth anything. So we've certainly unlocked some value in extending those. But I won't really comment at the moment on what our lands are for those in particular.

I will say extending the weighted average lease term was actually quite important. We got a question on that a couple of quarters ago. And I felt confident we were going to do it. I would say many of these discussions on those lease deals took multiple quarters to get done. So I think you're seeing multiple quarters of work in our results that we put out in the first quarter.

I would just add to that, Pete, that, to your question about the systems approach us, in some cases, they did. And I would say that it's kind of an indication of the environment that we're in. Vacancy is getting lower. It's more expensive to build new products. And so we're seeing an uptick in discussions with health systems, and I think that's where you're seeing us able to drive lease economics.

That's helpful. And then on the investment side, I know [ like in prior calls ], I mean there's been a lot of discussions on how attractive some of those opportunities are, it does look like, given the stuff that you've done year-to-date, you're kind of approaching the top end of the guidance range provided. I mean how do we kind of compare those 2? So you're seeing good opportunities, but it's not reflected in guidance. Is that just you trying to be cautious, not wanting to over-extend yourself without having some type of source of funds coming in? Or how do we explain those 2 differences?

Yes. I mean one thing and then I'll turn it to Dan. I mean, look, Mike, it is early in the year. Obviously, we put up some good results and we're able to raise guidance in the first quarter. So I feel quite pleased with that. But there's more quarters to go, more for us to do, and I think there's more upside for us to go capture as well as we execute with purpose. But maybe I'll have Dan talk about balance sheet capacity.

Yes. And Mike, as we started talking about at the beginning of the year, we have balance sheet capacity. We've always talked about having upwards of $100 million to $200 million, sort of in that range, of balance sheet capacity as we entered the year. We've used some of that. We continue to have capacity. And as Pete mentioned, we have the ability, if there's the right assets to sell and harvest at great valuations, we can recycle more capital into external growth.

As it relates to our guidance specifically, we're taking the approach with guidance that what you see in sources and uses is what we've announced to date and we don't include any future acquisitions or share repurchases in our guidance going forward. And we've given folks our outlook on -- for the year of dispositions as well, which is tracking nicely. And we're already including this $45 million loan repayment we talked about in our press release being repaid, actually it's this week. And so we are halfway on our dispositions already towards the midpoint of our target. So feeling good about those sources and uses. And as we have more activity, we'll continue to update those ranges and update you and the market as those transpire.

Your next question comes from the line of Michael Goldsmith with UBS.

I'm here with Justin Haasbeek. Maybe first, your same-store occupancy was up 110 basis points to 92.3% in the quarter. So really the question is how high can occupancy go in the same-store portfolio? Or maybe asked another way, how should we think about frictional vacancy for your portfolio in outpatient medical?

Yes. Michael, it's Pete. And thanks for picking up coverage. We appreciate it. I mean, look, we're in the low 92% area. If you go back to our strategy deck, we said we'd like to get to 92% to 93%. I think as we've improved our portfolio, I'd like to think we can get closer to the 93%. We've said actually that we believe there is some absorption as the year progresses as well, which is a positive for us, and that certainly will help our same-store.

As to your question around just like frictional vacancy, I mean, I think that's probably about right, like mid to high single digits. I mean we just don't have a very, very large triple-net, single-tenant portfolio, which typically when you see other REITs that own assets like we do, will have higher occupancy levels because of that. We have a big multi-tenant portfolio, which is actually, we think, a positive in an environment where you've got more demand and less supply right now.

So I think you'll always have a little bit of vacancy as doctors retire and things like that. But I feel like we're getting close to it. We're very focused on getting the total occupancy in the portfolio, the 90.5%, I mean getting that up to 92% to 93%, I mean that's going to be the big opportunity for us as we think about exceeding our 3-year forecast over the next few years.

Got it. And then just as a follow-up, when you annualize your first quarter normalized FFO, you get pretty close to the high end of the guidance range. So just wondering if there's some conservatism baked in or another drag outside of the August debt maturity that we should be aware of? Or just how we should think about it?

I think you're thinking about it the right way. The only drag, I would point out is what's going to happen with that bond that does come due in August. But we did put out that delayed draw term loan, the announcement on that. So I feel like we've been able to significantly derisk that. And frankly, we've got plenty of runway now with that term loan where -- I'm a big believer in the capital markets. You can never time them perfectly, but you can certainly access those markets at times when you can become a price maker and not a price taker. I felt like we were in the price taker bucket without putting that term loan in place.

And with that bullet maturity coming up in August, and with the dislocation in the markets the last couple of weeks, we pivoted very, very quickly. And I credit Dan and his team for putting that together and I thank our banking partners for that. Because I think the all-in cost on that is in the mid-4s. When you compare that to bond pricing today, we'd probably be 50 to 75 basis points wider. So that's a really good financing for us to put in place.

Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Pete, I appreciate you highlighting some of the various items that you're targeting to improve the growth profile and just returns associated with medical office. If 2% to 3% internal growth doesn't cut it for the reasons you highlighted, I guess, what's the right growth level you think is achievable? And just the time line it takes to reset that internal growth based on the lease maturity schedule.

Yes. Good question. I mean yes, I agree, 2% to 3% NOI growth just, as much as I'd like to say it works, it just won't work anymore. So I don't know that 7% is the right number for us to anchor ourselves to right now, for the reasons I mentioned in a question before. But probably something right in between.

And then I will go back and focus you on a comment I said in my prepared remarks. And I get this is us working around some magic numbers behind the scenes. But if you back out the dilution from the portfolio optimization and the deleveraging from last year and you look at our actual organic growth this year, it's actually above 5%. So I'd probably start anchoring around a number like that. I mean obviously, we have other things we have to factor in as well with regards to our balance sheet and our refinancings over the next couple of years. But I think from a pure organic growth perspective, that's probably the best number I can anchor you to.

That's helpful. And then switching gears, Ryan or Pete, as a follow-up to some comments earlier, you flagged the cap rates are in the 5.5%, 6% range for core assets, core-plus isn't much above that. I mean is that what we should be thinking about on future dispositions? And what gives you the confidence then that you can source deals at going-in yields in excess of 7%? And I think you said in the prepared remarks, especially if these are lease-up opportunities with higher growth potential.

Yes. Well, I'd point you to the deal we just did in Birmingham. It's a $90 million deal, a core asset, 100% occupied, newly developed, 12-year weighted average lease term. The going-in cap rate on that was a 6% and our going-in yield was in the low 7s from a cash perspective. I'd say from a GAAP perspective, which we don't really talk about a lot, you're actually north of an 8% on that. So as we think about stock buybacks and the FFO yield versus putting capital to work in investments, we do have to look at GAAP yields from time to time.

So that's a core-plus asset that we feel quite good about the accretion on that because the going-in yield is actually wider than or above our implied cap rate, and that's an important metric that we would look at. I'd say if we were looking to sell core assets, I would expect to be getting pricing even inside of that. That would be our take.

Not every asset we're going to sell is going to be core. I think we will look to do just some typical core-plus pruning as well. But to the extent we looked at selling core assets, and we've got a lot of them, I would expect us to do quite well if we decided to transact.

Your next question comes from the line of Rich Anderson with Cantor Fitzgerald.

So perhaps a cynical question first. You said at the top, and you just kind of got -- went through the growth number, Steady Eddie growth isn't going to cut it in this market, and you're saying maybe somewhere between 3% and 7% will cut it. I recognize you can't be very precise there. I wonder if that will sway the conversation around the growth profile of MOBs, we'll see.

But I guess the question I have is if you're solving for a growth level and then sort of work backwards to achieve it, there have been dangers in the past of people doing unnatural things to sort of break the status quo. So how do you avoid sort of the complications around that? How do you avoid sort of losing reputational capital if the rest of the MOB market isn't sort of buying into this new paradigm shift? I'm just curious how do you manage all of those sort of moving parts as you reassess the growth of the business.

Rich, good question, and thanks for your cynicism. But let me just spend a second on the value creation opportunity and maybe expand on my premium multiple comments that were in the prepared remarks. If you think about our current valuation, in my opinion, that implies basically minimal to no growth going forward, right? I mean I'm biased, I think it's way too low. But I think it implies very, very, very little growth when you look at how we stack up within the entire REIT industry. And I think it's very much backwards-looking. But I respect that, that's where we are right now, and we're still only a year into putting out our -- less than a year to putting out our strategic plan.

So as I said, we have a challenge in front of us. One, we have to put up better numbers. I think this quarter, and actually if you look at the last couple of quarters, they've been much better than they've been historically. And we obviously have to redefine what we think success is in our sector.

I would say success for us is not going from an 11x FFO multiple to a 30x FFO multiple. I mean I tip my cap to those companies that trade at those stratospheric levels, and then they're doing a fantastic job keeping the market excited and it's great for them. Success for us is not going all the way to those stratospheric levels. It is taking our multiple from 11x to something commensurate with where I think other similar growth characteristics or other REIT sectors that grow at a similar level to where we can grow are. And they're not at 11x. They are better than 11x. I think they are about 3 to 4 turns better than where we trade right now. I'll let you guys do the math, but that's pretty significant value creation from where we trade today.

So I'm not looking to all of a sudden persuade everybody and say, oh my God, these guys are now going to grow at such an amazing level that they deserve this stratospheric level type multiple. We're very, very much rooted in realism here and what we think the right total return profile is. But it's a lot better, we think, from an earnings growth perspective than the old Steady Eddie model.

Okay. Perfectly fair. And second question, on selling core assets, I know it's a little bit of a conversation piece today. What governors do you have on yourself to limit how much of that you're willing to do? Because you don't want to be guilty of throwing the baby out with the bath water. I recognize that there is sort of an accretive transfer of capital. But you -- someone just brought up core numbers -- core cap rates for core assets, I should say, are 5.5% to 6%, and not so core are just a little bit above that. So I just wonder what the real risk-reward benefit is of being overly aggressive with the core to asset sales.

Yes. I will go back to the word disciplined, Rich, like we're going to be disciplined, and I said we are open to selling core assets and recycling that capital accretively. And if you go back and take a look at all the numbers I've been discussing in here, they are all very modest type figures. So I would not look at this as we're just going and liquidating the highest-quality stuff.

And you know this even better than we do, there's a limit from a tax gain capacity from how much we can do as well. But I think in moderation, we will certainly look to dispose of or potentially contribute some core assets into ventures as well where we still retain a stake in those. So like I said, we're looking at all options. I know we get questions on balance sheet capacity and our ability to recycle capital into our capital allocation priorities. And I felt like just pointing out we're not just going to utilize the balance sheet for this and lever up. We will certainly look at taking advantage of our portfolio to allow us to continue to further that.

Our next question comes from the line of Daniella de Armas Rosales from JPMorgan.

Your spreads in the quarter were strong with 4% average. But can you give us some color on the 13% of renewals that had negative spreads? And do you think those roll-downs are largely behind you?

Yes. We tend to focus on the blended number of over 4% and actually achieving a lot higher on the upside. I would say that selectively, if we feel like, and I would go back to my comment earlier, if we feel like the better play for us is to retain a tenant as opposed to seeing them walk from a building, we will add time selectively look at modest roll-downs because we will look at the whole financial package as we look at this. What's it going to cost to re-lease that? What's the downtime? What's the CapEx?

So I don't know that I would say, going forward, we're always going to have every lease 5% or above. We'll certainly strive to do something like that. But at times, we may selectively make a decision to allow a tenant to stay for a variety of reasons. But at the end of the day, we would make that decision because the IRR for that lease is much better than the alternative.

Your next question comes from the line of Michael Stroyeck with Green Street.

Maybe going back to same-store NOI growth, are there any known tenant move-outs or any other moving pieces that you expect to weigh on NOI growth during the rest of the year outside of just tougher year-over-year comps?

No. I mean if I look at the remaining lease expiration for 2026, I mean, that number, if you go back and look last quarter versus this quarter, has come down significantly. I gave you some thoughts on retention before in the 80% to 85% area. I'd expect the remaining lease expirations for this year to kind of track within that range. We'll retain the vast, vast majority of those tenants.

So there's nothing that jumps out to me. I would just point out that we had a bit of an easier comp this quarter that we won't have in the next couple of quarters. But I would still look at the blended midpoint of 4.25% today. And as we've said, we think there is probably a little bit of upside as the year progresses on that, or at least that's what we would hope if we execute. And that's still really strong growth.

So I would focus -- while we are focusing on the strong number this quarter, 1 quarter you got to average out over the entire year. But I think for the year, it's still quite strong growth relative to historical norms.

Got it. That's helpful. And then maybe following up on an earlier acquisition yield discussion. You outlined the 6% yield going to 7% on that recent Alabama deal. So just clarifying, is that 7%-plus yields that you're underwriting, is that more of a stabilized yield or is that actually expected year 1 you expect to see?

That's year 1. That's not a stabilized yield. That's what we're going in at.

Mike, I'd just point out that when we talk about the JVs, that's inclusive of the advantageous fee arrangements that we have with our partners, that we've talked about so far this year.

Your final question comes from the line of Juan Sanabria with BMO Capital Markets.

This is Robin Haneland sitting in for Juan. Just curious on the strategic 3-year plan, if there's any updates compared to initial expectations, and whether you could share with us the next low-hanging fruits?

Yes. Look, I think what I would say on that is that we're tracking ahead of schedule at this point in time. And frankly, we're 1 quarter into a 12-quarter forecast. And to be tracking ahead of schedule, I think, is a testament to the hard work that the entire organization has put into preparing for kicking off this 3-year forecast, and also for the financial rigor that we're improving in this organization. I hate to continue to repeat that word, but I think if you guys were in here every day, you would see it and be quite impressed.

The other thing I would just point out with regards to this year, I mean, this year was expected to be a flat year from an FFO perspective. And I think 1 quarter into the year and we're already exceeding from that perspective, and we'd like to continue to have an opportunity if we execute to increase guidance for the balance of the year as we go along. Obviously, we have to continue to execute with the intensity that we have been. So as I would say, I feel like we're tracking ahead of schedule. Not ready to say much more than that at this point in time being 1 quarter in, but it's good to be saying that at least that early on.

And I was just also curious on if there are any signs of supply picking up and I'd be curious to know how far rents are off from being able to pencil.

I want to talk about supply, Ryan, because it really hasn't picked up?

We've seen new completions drop in recent quarters and new starts have remained fairly flat. They're actually tracking well below historical industry average of, call it, 1.5% to 2%, in what is a 1% of inventory range. So no, not much on that front. .

And with no further questions in queue, I will now turn the call back over to the company for closing remarks.

Great. Well, thanks, everyone, for joining the call. We have a couple of industry conferences coming up later this month. We look forward to seeing you there. And then if we don't see you there, we'll see you at NAREIT. Thanks very much.

Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Healthcare Realty Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Ron Hubbard, Vice President of Investor Relations. Please go ahead.

Thank you for joining us today for Healthcare Realty's Fourth Quarter 2025 Earnings Conference Call.

A reminder that except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC.

Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended December 31, 2025. The company's earnings press release and earnings supplemental information are available on the company's website.

I'd now like to turn the call over to our President and CEO, Pete Scott.

Thanks, Ron. Joining me on the call today are Rob Hull, our COO; and Dan Gabbbay, our CFO. Also available for the Q&A portion of the call is Ryan Crowley, our CIO. 2025 was a transformational year at Healthcare Realty 2.0. When I joined the company, it quickly became apparent that we had an opportunity to become the clear leader in the outpatient medical sector. We have the best-in-class portfolio. We have scale in the right markets, and we are aligned with leading health systems. We also had the makings of a great team, but we needed to execute better and be more ambitious. In a short period of time, we have added talent across the organization that further differentiates our platform.

I am immensely proud of the team and how they rose to the challenge during this critical time. We have more to do, and it will not always be a linear path, but our mission is simple and unwavering to operate and make decisions every day to drive long-term shareholder value. To that end, I wanted to provide an update on the 3-year strategic plan we published in July. Within the plan, we outlined the key steps being taken to overhaul all facets of the organization.

I am pleased to report in just a few quarters, we are tracking ahead of schedule. First, the revamp of the asset management platform is complete. We have a new leadership team that is spearheading improved alignment between asset management and leasing. In addition, we have incorporated a new leasing model to drive ROI across the portfolio. The heightened rigor for achieving the best possible economic returns is manifesting into better results. Under the new platform, cash leasing spreads have improved 60 basis points, tenant retention has improved 220 basis points, and we see a meaningful uptick in our lease IRRs and lease payback period. The end result, as we repeat this quarter after quarter will be a higher quality earnings stream and improved earnings growth. Second, we have successfully achieved our target of $10 million run rate G&A savings.

Our total G&A expense now sits at $45 million and ranks favorably to peers. We also improved our property NOI margins by 60 basis points and believe there is additional margin expansion to attain over the coming years. Third, we have completed our ambitious asset disposition plan. We have sold $1.2 billion of assets at a blended 6.7% cap rate. Both numbers exceeded the high end of our expectations.

We exited 14 noncore markets and have improved our overall geographic footprint into high-growth MSAs. We are confident we have the premier outpatient medical portfolio, confirmed by the nearly 5% same-store NOI growth number that we generated in 2025. Fourth, our balance sheet initiatives are complete. For the first time in years, we have much needed financial flexibility and modest balance sheet capacity for capital allocation. We have reduced net debt to EBITDA nearly a full turn to 5.4x. We have extended our debt maturities and increased our liquidity. And our outlook has improved to stable from both Moody's and S&P. We also took the long overdue step to rightsize our dividend, something HR 1.0 struggled with for over a decade. Our dividend is appropriate, well covered and under the right conditions, able to grow in the future, while at present, offering a nearly 6% current yield to our shareholders.

Fifth, we have strengthened our corporate governance and leadership team. We streamlined our Board to 7 individuals. I believe we have one of the highest quality boards in the REIT industry, and I am very fortunate to have them on our team. I would also like to officially welcome Dan Gay as our CFO. Dan and I have known each other for 20 years, both as colleagues and then as a trusted adviser. He brings an exceptional blend of financial acumen, strategic insight and capital markets expertise to the organization.

Let me shift now to our 2025 results, which surpassed expectations across the board. Normalized FFO was $1.61 per share, exceeding the midpoint of our original guidance by $0.03. Same-store NOI growth was 4.8%, exceeding the midpoint of our original guidance by 140 basis points. We executed approximately 5.8 million square feet of leases, and we are off to a strong start in 2026 with our health system dialogue at an all-time high. Turning to capital allocation priorities. As you are aware, outpatient medical transaction volume increased significantly in 2025, and we were fortunate to take advantage of this developing trend. Private investors clearly see the same positive backdrop we see, increasing patient and tenant demand, combined with a severe lack of new supply.

Notwithstanding the positive backdrop, we are realistic that our current cost of capital and discount to intrinsic asset value limits external growth. Therefore, our capital allocation approach will remain incredibly disciplined as we invest balance sheet capacity, free cash flow and capital recycling proceeds. This targeted approach includes Number one, redevelopments. We are prioritizing redevelopment projects within our existing portfolio.

We see attractive yields on cost of approximately 10%, and this is a significant source of NOI upside. Number two, returning capital to shareholders through stock buybacks. In January, we purchased $50 million of stock and have authorization to purchase more. At our current stock price, we trade at a 9% plus FFO yield. Number three, joint venture transactions. As we look at external growth opportunities, we are fortunate to have existing joint venture partners who want to increase their investments in outpatient medical. We will only pursue a JV transaction if we can create earnings accretion through a combination of investment returns and advantageous fee arrangements. As a reminder, other than redevelopments, we do not include any accretive capital allocation opportunities in our guidance. Finishing now with our 2026 guidance and the value creation opportunity.

The midpoint of our normalized FFO guidance is $1.61 per share. On the surface, this could be perceived as underwhelming due to the implied flat year-over-year growth. However, embedded within the midpoint of our guidance is approximately 5% core earnings growth, which offsets the necessary dilution we proactively incurred from our back-end weighted 2025 dispositions and deleveraging.

With our noncore dispositions now behind us and our balance sheet in great shape, we are well positioned to maximize our go-forward earnings growth potential. When you combine this with our upside from multiple expansion and attractive dividend yield, we see a compelling opportunity to deliver long-term value for our shareholders. Let me turn the call over to Rob, who will expand more on operations and leasing.

Thanks, Pete. We finished the year strong, capping a robust year of leasing activity and showing early signs of operating improvement from our revamped asset management platform. For the year, we executed 5.8 million square feet of leasing, including 1.6 million square feet of new leases.

Annual escalators across all leasing activity averaged 3.1%, lifting the portfolio average to 2.9%, a 7 basis point increase over last year. The weighted average lease term was nearly 6 years, improving our portfolio average. Tenant retention for the year was 82% and same-store absorption of nearly 290,000 square feet translated to over 100 basis points of occupancy gain. During the quarter, we executed 1.5 million square feet of total leasing. Tenant retention was strong at nearly 83%, our eighth consecutive quarter over 80%. And we saw same-store occupancy improve over 20 basis points. At our redevelopment properties, we have seen a 1,000 basis point increase in the lease percentage since the end of the third quarter. This increase was driven by solid demand across a number of our projects, including a 64,000 square foot lease with St. Peters Health at a redevelopment in Upstate New York.

But the backdrop for industry fundamentals remain strong, supporting a steady flow of prospects into our 1.3 million square foot pipeline. Demand in the top 100 MSAs continues to outstrip supply and completions as a percentage of inventory remains near all-time lows. Additionally, robust investment by health systems in outpatient services is an ongoing positive trend.

Shifting to the operating platform. We have completed our transition to an asset management model. As Pete mentioned, we have seen early signs of improvement in lease economics as our revamped platform creates greater accountability closer to the real estate to drive better results. As we look ahead, maintaining financial discipline around leasing, further refining operating processes and improving tenant satisfaction are important objectives for our team and the sustainability of these results. This new platform also emphasizes developing and maintaining key relationships with our health system partners. Recent efforts have led to a meaningful uptick in lease activity with a number of these systems. A few examples worth noting include, in Connecticut, we executed 65,000 square feet of leases with Hartford Healthcare, backfilling the Prospect Medical space. We received a substantial credit upgrade, and we retained the full $3 million of NOI.

With this transaction, our relationship with Hartford Health has grown to nearly 250,000 square feet across 15 buildings that are 94% occupied. And in Memphis, Baptist extended 15 leases totaling nearly 170,000 square feet for 8 additional years. In addition, they signed 3 new leases totaling 25,000 square feet for a blended term of 10 years. Our portfolio with Baptist is now 99% leased. The Baptist deal is just one example of how our reinvigorated platform is leading our health system partners to want to do more with us.

Systems are re-leasing space early and expanding tenancy in our buildings. On top of this, of the 1.4 million square feet of single-tenant expirations in 2026 and 2027, we have already executed renewals or are in the lease documentation phase for over half of this space with more to come. Included in these renewals are a 154,000 square foot 8-year renewal with Tufts Medicine in Boston. The existing lease with Tufts was scheduled to expire in 2027. 3 lease extensions totaling 142,000 square feet with Advocate Health in Charlotte for an average of 7 years. The cash leasing spread was in excess of 5% and a 39,000 square foot renewal with Medical University of South Carolina in Charleston that was set to expire in late 2026.

I want to congratulate our team on a great finish to the year. Coming into 2026, our team is executing on our strategy extremely well, positioning us for further occupancy gains that will drive meaningful NOI growth. I will now turn it over to Dan to discuss financial results.

Thanks, Rob, and thank you, Pete, for the introduction. It's nice to meet everyone over the phone, and I look forward to meeting in person over the coming quarters. This morning, I'll provide some additional color on fourth quarter 2025 results, our capital allocation activity and our initial 2026 guidance outlook. But before that, I'll quickly introduce myself.

As Pete mentioned, we have an extensive history working together as colleagues and at his prior firm. where I served as an adviser to the company on several strategic transactions. My 20-year career in investment banking will be an asset as we instill greater financial discipline in the organization and continue to restore our financial credibility with shareholders and the analyst community.

As some of you already know, I've worked closely with most REITs in the health care sector advising on equity and debt strategies to minimize cost of capital and advising on transformative mergers and acquisitions. This will enable me to bring another strategic perspective to our C-suite. I've also had the pleasure to work with some current members of the Healthcare Realty team dating back nearly a decade.

And while it has only been a few short weeks, I have had the opportunity to get better acquainted with the entire executive management team and our highly experienced board. I am extremely impressed with the caliber professionalism and execution mindset of this team. They have quickly transformed the operating platform, improved portfolio quality and reset the outlook for the company. I am honored to work alongside them in my new role.

And with that, I'll turn back to our results. 2025 ended strong. In Q4, we reported normalized FFO per share of $0.40 and same-store cash NOI growth of 5.5%. Additionally, FAD per share was $0.32, resulting in a quarterly dividend payout ratio of 75%. Our outperformance this quarter was driven by 103 basis points of year-over-year same-store occupancy gains, 3.7% cash leasing spreads and continued property level and G&A expense controls. As a result, we are proud to have delivered full year normalized FFO per share of $1.61, FAD per share of $1.26 and same-store cash NOI growth of 4.8%.

Turning to capital allocation. Q4 remained active with nearly $700 million in dispositions Proceeds were primarily used to pay off our 2027 term loans. Inclusive of our bond repayment earlier this year, we repaid $900 million of debt and extended maturities on our remaining term loans and credit facility by 12 to 24 months. Leverage decreased to 5.4x from 6.4x at the beginning of the year, ahead of target and the timing laid out in our strategic plan. Going forward, we will be prudent and opportunistic deploying capital.

In January, we utilized $50 million of disposition proceeds to repurchase 2.9 million shares, and we have $450 million remaining under our current authorization. Overall, the Healthcare Realty team delivered results ahead of or in line with all metrics discussed in our July strategic plan, allowing us to be more front-footed as we position into 2026.

Turning to 2026 guidance, which you can find on Page 30 of our Q4 supplemental report published last night, we are forecasting normalized FFO per share of $1.58 to $1.64 representing $1.61 at the midpoint. These results are driven by lease-up and positive releasing spreads in our core portfolio, which we expect to generate same-store cash NOI growth of 3.5% to 4.5%. G&A is anticipated to be between $43 million and $47 million, in line with the strategic plan.

Sources of capital for the year will include modest asset sales, proceeds from a note receivable maturing in early '26 and free cash flow post dividends of approximately $100 million at the midpoint of our guidance. Uses will include our asset level capital plan outlined in our guidance and includes the $50 million already utilized towards share repurchases. Recall that our guidance does not include any additional acquisitions, developments or incremental share repurchases.

Finally, I would like to call out a couple of items related to our balance sheet. First, we assume the $600 million bond due this August, will be refinanced with new bonds in the low 5% coupon area midyear as compared to the existing coupon of 3.5%. Second, we published an additional press release last night disclosing our new $600 million commercial paper program.

Similar to other REITs in the sector, accessing the CP market will allow us to further diversify our capital sources and reduce our interest costs compared to our line of credit. The size is in line with other REITs and consistent with rating agency frameworks for our mid-BBB ratings.

Last but not least, we expect full year leverage in the mid-5x net debt to EBITDA range, although figures can fluctuate modestly from quarter-to-quarter.

With that, I'll turn the call back to Pete for any closing remarks.

Thanks, Dan. I'd like to finish by thanking our incredible team for their tireless efforts and laser focus on delivering excellent results. They didn't miss a beat during winter storm firm despite the impact in Nashville. I am energized and excited every day working with this team.

With that, operator, let's open the line for Q&A.

[Operator Instructions] Our first question comes from the line of Juan Sanabria with BMO Capital Markets.

Just curious on the same-store NOI guidance for '26, you obviously had a strong year for '25 but just curious on the implied decel on the '26 guidance and the piece parts or assumptions assumed in that same-store NOI, whether it's occupancy retention, et cetera.

Yes. Let me spend some time on that, Juan. I mean, obviously, 4.8% is a pretty strong number that we posted in 2025. And again, we also have some absorption benefit. I think we all saw the over 100 basis points of absorption we experienced, which is certainly a significant benefit within our same-store pool, and that aided us getting up close to 5%.

I would say this as we think about the 3.5% to 4.5% for 2026, look, we're going to push the envelope across the 4 main drivers, and those drivers are escalators, retention, absorption and cash leasing spreads from an escalators perspective, which is really the primary driver of our same-store growth, it's probably 75% or greater of the same-store number we achieve every year. We're averaging 3% or greater at this point in time on all lease deals we're signing from a retention perspective, which limits downtime and capital we have to put in our assets if we can retain tenants.

We're trending towards the mid- to low 80s on that, probably closer to the mid-80s and the low 80s when you look at the last couple of quarters, and that's going in the right direction for us. I think from an absorption perspective, we do expect more absorption this year as well. And we think that will certainly benefit our numbers. It's a little soon to give exact figures on that. I don't know that it will be 100 basis points like we did last year because we're at 92% now, but we certainly expect to see positive absorption as we work our way through the year.

And then the last piece of it, which gets a lot of airtime and appropriately so on cash leasing spreads. That is actually probably the smallest driver overall when you think about same store. But I think it's more important because from an industry health perspective, I think it gives you a sense as to where things stand from a supply-demand perspective. And today, demand is much greater than supply. And our cash leasing spreads have ticked up in the second half of the year. And like I said, we're going to look to push the envelope as much as we can.

And then just on the CapEx piece. Curious if you can give any guardrails with regards to that relative to the $1.61 normalized FFO expectation for '26?

Yes. Juan, it's Pete again. And in the future, I'll probably have Dan answer most of these, but given it's his first call, I'll jump in a bit on this. We're flat from an FFO perspective, and I think everyone is pretty aware of the pieces as to the core earnings growth and then obviously the necessary dilution we took from deleveraging in the asset sales.

If we're flat from an FFO perspective, I'd assume we're flat from a FAD perspective as well. We ended last year in the 126 range. And we've actually given the maintenance capital number within our guidance page as well to help everybody triangulate on their modeling and forecast. So I would assume the same thing for fab that we are assuming for FFO.

Your next question comes from the line of Nick Yulico with Scotiabank.

I think you talked a little bit about this in terms of the last question about absorption potential. I just want to be clear that you said some of that potential. Was that just the same store number? Or is that also applying to redevelopment and leasing? And maybe if you can just give us an update on kind of how to think about redevelopment project, timing, delivering lease-up and how that ultimately could create some earnings benefit beyond this year?

Yes. For sure, Nick, it's Pete again. What I quoted before was purely in the same-store bucket, and I'm glad you brought up the redevelopment portfolio because I think that's going to be a big driver of total portfolio occupancy increasing over the coming years. And I think you mentioned that in your pre-call note last night. As I think about redevelopments. We think it's a great way for us to allocate capital. I was very intentional in listing that first in the prepared remarks.

In the fourth quarter of last year, we had a sequential 500 basis points increase within the redevelopment portfolio from leases signed. I don't know if it was totally clear in our prepared remarks, but we did sign a very big new lease deal in January with St. Peter's Health up in upstate New York. And so we would expect probably another 500 basis points of incremental lease-up to show up in our supplemental in -- or at the end of the first quarter. And so I'd say we have really, really good momentum, and this is the key driver to meeting or exceeding the 3-year earnings growth framework.

Those leases we're signing now, the real benefits don't start until 2027, but I would say our confidence level in our earnings framework is certainly increasing as we continue to lease up within that bucket. So again, I'm glad you brought this up. Whatever I quoted from an absorption perspective is just to the same-store pool and we'd like to do even better. in the redevelopment bucket.

All right. And then second question is just going back to acquisition potential. I know you talked about stock price not being exactly where you want to be to fund that. But can you also just talk about like just a profile of potential acquisitions because clearly, there's this sort of issue where you're dealing with cap rates or low in some cases when you're -- which is good for selling assets, but it makes it difficult to buy assets. I don't know if there's also a profile of what you're looking at that would sort of enhance your yield and future growth from acquisitions, when you decide to do it?

Yes. Well, 2 pieces to that, Nick. The first is, if we do no acquisitions or stock buybacks this year, which our guidance does not incorporate any of that, we would actually end up in probably below 5 from a net debt-to-EBITDA perspective or below our target, right? So there is a little bit of balance sheet capacity. It's modest, but it's probably in the $200 million to $300 million range. That varies based upon buyback versus any kind of JV acquisition opportunity we could look at.

But just to be clear, as we think about JV deals specifically, I mean, we do have partners that would like to grow with us. We do have constraints on how much we can grow. I just pointed out the finite amount of capital we have unless our stock trades at a materially better level than it does currently. But as we think about the yields we would like to get on capital that we put out, our implied cap rate is somewhere in the low 7s, and we would not look to allocate any capital to even a JV transaction unless we felt like the yield to us even if we're funding it with balance sheet capacity is greater than our implied cap rate.

I mean that's just going to be an arbiter that we're going to look at. So hopefully, that gives investors comfort that we're not looking to go out and do a bunch of 5.5 cap rate deals just for the sake of doing deals. We were going to be incredibly disciplined in how we put money out. and make sure we are getting the best return possible on that money.

Your next question comes from the line of Seth Bergey with Citi.

It's Nick Joseph here for Seth. How are you thinking about the dispositions going forward? Obviously, you were able to execute on a lot at good pricing and faster than expected. So what's the plan from here? Is it more being on offense with dispositions for any potential? How are you thinking about the portfolio?

Yes. We're carefully using the award within the office here at the moment. That came up a lot last quarter, and I'm not sure it helped us. But I would say from an asset sale perspective, let me just hit on it. really from 2 different perspectives. So we've got $175 million of sales embedded within our guidance for this year. Within that, though, is about $70 million of deals that are closing early this year that was part of our $1.2 billion disposition plan. They just leaked over into the beginning of 2026. And we were pretty clear that some could leak over into this year. But we expect to have all of that done in the very, very near term. In fact, 1 is done and 1 is imminently about to close within that $70 million.

The other is a $45 million loan that's expected to get repaid late March. And so after that, you've really got about $60 million of dispositions baked into our guidance. And if you recall last quarter, I said we would consider selling some noncore non-income producing assets as well. We do have a pretty significant land bank that I think is undervalued currently within our stock price. I think there's a lot of things undervalued in our stock price, but certainly, that's one of them. So you should assume we would look at certain things like that.

But then stepping back, what's not in our guidance, like would we consider selling core real estate, I would say we would consider selling anything that's going to maximize value to our shareholders. So nothing is off the table. But at the moment, that's not baked into our guidance.

That's very helpful. And then just given how active you have been as part of the transaction market, are there any insights either from buyers or competition that you've seen change over the last, call it, 6 to 9 months?

Maybe I'll start, I will ask Ryan to quickly comment our Chief Investment Officer. I would say the biggest change that we've seen over the last year has been the availability of debt the pricing of debt and obviously, the LTVs that buyers are able to achieve. That has been probably the biggest benefit to why transaction volumes have picked up.

But I will also say that the perpetuation of demand exceeding supply continued absorption just nationwide in outpatient medical assets has certainly piqued the interest of private capital, and there's no shortage of private capital that is looking to enter this space or increase their exposure into the space. And I think you've seen that in some of the volume numbers that are out there.

I'll ask Ryan to maybe comment on cap rates for a second.

Sure. We're beginning to see more assets come to the market, and those are pricing at cap rates in the high 5s to low 6s. While core plus is pricing in the low 6s to upper 6s depending on property attributes. And of course, value-add properties are primarily IRR driven, not cap rate driven. But the -- as Pete alluded to, fire demand remains high and the transactions volumes have been really elevated in the space.

Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Pete, you've discussed in the past just how precious capital in this business is and your intent to target high retention. I think kind of putting a goal or maybe a stretch goal out there of 85% or better. What are you guys assuming as far as retention this year? And how much visibility, I guess, beyond the single tenant deals you described, do you have into the remaining expirations for this year?

Yes, Austin. Well, I know the exploration question did come up a call or 2 ago. And I will say that has been top of mind for us, and I would expect to see a significantly improved lease expiration schedule when we come out with our next supplemental, especially we're working our way through the '26 and '27 expirations. I mean we have a pretty good line of sight at this point into those, as you would expect.

With regards to the multi-tenant portfolio, I would say that we are expecting retention to be kind of in the 80% to 85% range. It will ebb and flow a little bit. Like in the third quarter at '25, we were at think 88%. And this past quarter, we were at close to 83%. That kind of blends to 85%. So I think the 80% to 85% number is probably a pretty good assumption that we've embedded within our guide for this year.

That's helpful. And then Pete or Rob, you guys footnoted and also flagged this 64,000 square foot lease in January new lease, was there any additional new leasing component to the nearly 1 million square feet that have been signed year-to-date? And then can you just kind of talk about how negotiations are moving along for the 1.3 million square foot pipeline.

Yes. I'll have Rob jump in and talk about that deal. Obviously, I mentioned it quickly that one, and he could talk about new leasing in general. I mean that's with St. Peters, and we just had a ribbon-cutting ceremony with them. up at that building. They took some other space as well in the building too and hopefully have some appetite to grow even more. But it's a big lease, and we're excited to be expanding our exposure with them.

Rob, why don't you talk generally about the 1 million square feet, though?

Yes. I think the 1 million square feet certainly off to a strong start. There is additional new leasing inside of that 1 million square feet that we've executed this quarter as well as a number of renewals, some of which I covered in my prepared remarks. But I think in general, we're extremely encouraged by the level of activity that we're seeing. We expect that to continue as we move forward. the 1.3 million square foot pipeline that I did mention is an active pipeline that is growing every day.

Our team is continuing to add to that. And that will certainly feed our leasing new leasing expectations in 2026. And we're just very optimistic on demand, as you can imagine, health systems continue to move services from the inpatient setting to the outpatient setting, which is driving a lot of that demand. And we think that we're well positioned to continue to capture that.

Your next question comes from the line of Michael Gorman with BTIG.

Pete, maybe just a couple of quick questions here on the CapEx number. I appreciate the guidance. I'm just curious, when we think about the stabilized portfolio and all the work that you put into it, as we move through '26, do some more leasing, get the asset management program for a full year here. Is that kind of 15% to 16% of NOI is the right range for the maintenance CapEx second gen leasing CapEx number on this platform going forward?

Yes. I would say it's probably 15% to 20% is a little bit of a wider range than I would go with. But I think you're right, we've been achieving 16%, 17%. So maybe I'm just being slightly conservative with bucketing that into the 15% to 20% range. But I think that's a good run rate number.

I'd say if your retention continues to go up, I would expect that number to perhaps even tick down a little bit. But obviously, look, we are making a concerted effort to invest capital back into our portfolio, and that was one of the reasons why we decided to rightsize our dividend a couple of quarters ago to take that additional retained earnings and reinvest it back into redevelopment. We think that is probably the highest and best use of our capital right now.

So what I quoted before was purely just a maintenance capital number and we are certainly investing above and beyond that at the moment. I think that will obviously be a more near-term investment that will eventually tail off in a couple of years, but we think it's the right place to invest capital today.

Got it. That's helpful. And you certainly made a clear kind of the discipline that you're putting forward when you're thinking about deploying capital. I'm just curious, again, with the improvement that you've managed to generate on the asset management side and maybe some of the success that you're seeing on the redevelopment side, does that expand the scope of opportunity that you're willing to look at, whether it be in the JV structure or on balance sheet in terms of the type of assets that you would be comfortable bringing into the portfolio now with the confidence that you have on the asset management side?

Yes. I mean, look, as I think about how we would bucket assets between what we would acquire and what we would do on balance sheet. I think we've got plenty of value add on balance sheet at the moment, and that's our redevelopment portfolio. And again, we enhanced our disclosures last quarter people can track the progress that we're making there. So we have a report card every quarter to see how we're doing. And I'd say we've got a pretty good grade in the fourth quarter on that.

With regards to the external growth, I think you've got capital that is more wanting to chase core and core plus right now that, frankly, we don't have the cost of capital to allow us to do that on balance sheet alone. So I think for the current time being, we're going to do any type of acquisition primarily through JVs, right? And like I said, we've got partners that want to grow in this space, and we do have some advantageous fee arrangements that allow our going-in yield to be much better than what the cap rate is for the transaction. And that's where our focus would be today on any kind of external growth.

But again, there's a finite amount of capital we have with that to put to work this year, and we will compare that to what's our FFO yield from a share buyback perspective. what are we looking at from a redevelopment perspective. But it all goes back to our balance sheet is in much better shape, and we have much needed free cash flow from the dividend adjustment to reinvest into our portfolio. So we're in a much better position 9 months hence forth from when I began to actually be able to talk about these things.

Your next question comes from the line of John Kilichowski with Wells Fargo.

Pete, maybe if I go back to your strategic plan and I look at some of these pages, you laid out $90 million of NOI upside from the redev and RTO portfolio. And then another $50 million of NOI from margin expansion due to these processes. I guess I'm curious how much of that do you feel like was captured in 4Q? What's included in guide? And then what sort of longer term down the road, if you could help us bucket those?

Yes. That's a good question, John. Let me see if I can give a couple of pieces on that. As I said in my prepared remarks, we are tracking generally ahead of schedule, and that would also be attributed to how we're thinking about the $50 million of NOI upside. But just to be clear, within our strategy deck, we just assumed $20 million to $40 million of NOI within the first 3 years just because there's a lag. You spend the capital you signed leases, but the commencement of those leases and when you get the full run rate benefit just -- it takes time, right?

So as I would think about the $20 million to $40 million and the leasing we've done, it's not just what we did in the second half of 2025, but also to start the year in 2026. As Rob mentioned, we've got about 1,000 basis points of incremental lease percentage within that bucket. So that's a long preamble to basically get to -- I think we've probably identified about $15 million of the $50 million at this point in time through the leasing activity we've done since the strategic plan went out. So that's probably about 1/3 of the $50 million of upside. But when you think about that relative to the $20 million to $40 million that was in that earnings frame, we're probably about halfway there, right?

And I'd say that's good progress. And it's ahead of schedule. I'm not expecting it to be a benefit to 2026, purely because of the reason I gave before. You sign a lease, it takes a while to do the build-out and for that to commence. But we should start to see pieces of it build up in and then further benefit in '28.

Got it. Very helpful. And then you answered this partially in the last question, but just kind of fleshing out here on the guidance is no further buybacks. But is that simply a yield question for you when determining does incremental dollars go there versus even maybe more deleveraging, although we've got some extra asset sales that are probably going towards the revolver.

And then as you're considering JVs, as you mentioned, is it simply what's most accretive? Or would you probably tilt towards the JV as you look to grow the business as long as that's greater than your implied. Just would love to get your thoughts there.

Yes. Look, I think it's going to be a combination of the 3 as we think about capital allocation priorities. I know for a fact, it's redevelopment that we will spend money. So it's really what about the other 2. And I would say that we will look at both of those. I'd like to think we can accomplish a bit of both. But stock buybacks, we don't control where our stock trades. So it's hard for me to give you an exact number there. But I will say we've turned on at least the underwriting engine here with one of our partners to certainly look at deals that we can do within JVs. And again, as I said, you should expect any yield that we would get would be greater than the implied cap rate we trade at right now.

Your next question comes from the line of Michael Strojek with Green Street.

Have you seen any change in the number of office repositionings across your markets? Is there any trend there either up or down in terms of just shadow supply from traditional office?

Not -- nothing of note, I would say.

No. I would say that no, we haven't -- you've heard stories of one-off opportunities where people have been successful in that. But I would say, generally, that shadow sort of supply, we're just not seeing it in our markets and with the space that we're leasing. We're doing a lot of health system leasing where they're growing critical service lines inside of those buildings that requires certain parking ratios, certain building design. And so I think for what we're doing, that's generally not a factor in our in our day to day.

Makes sense. Maybe one on the balance sheet. And as interest rate swaps begin to burn off later this year, what sort of mix between fixed and floating rate debt are you targeting?

Yes. I'm going to let Dan take that one.

Yes. Finally got one. I appreciate it. It's the first one. It's a great question. I think you've seen the balance sheet repair the company has undergone over the last 9, 12 months just from the dispositions. I think that's something particularly important to protect that balance sheet and our leverage levels I think when you think about fixed and floating mix, especially with the new commercial paper program, we're always looking to be most efficient with our balance sheet.

We're also looking to extend our maturities overall. We've got some good term loans and bonds in that cap structure right now. I think a floating rate mix is generally speaking, mid-single digits to upper single digits proportion with respect to our overall debt, especially as we're spending money on redevelopment this year. So something we'll be prudent about may fluctuate up and down, but you're not going to see us go all floating rate debt all of a sudden.

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

Pete, I want to circle back on your comments regarding the joint venture. I mean it sounds like that these conversations are pretty far along. I'm not sure if it was just with one of those partners or if it's a broader group. But what could these deals look like? I mean would HR create some type of fund to go pursue deals? Or could HR contribute assets into the fund to kind of expand it and be a little bit more active? I guess, how do you think about that?

Yes. Michael, maybe I would say specifically that our comments have been on existing joint venture arrangements we have today, where we could look to grow and where our partners want to grow and we already have those ventures effectively solidified. So we're not talking about a new joint venture at the moment. But frankly, since you bring it up, I think that it is something that we will continue to consider.

I think we have some real opportunities we could do with our current existing partner, and we'd like to grow with them. They would like to grow with us. but we certainly could look to expand that. It's tough to compete in this space today with all the private capital that is looking to chase deals and our private counterparts that are and have raised a lot of capital from those LPs are having the time of their lives, buying assets right now. I talked a bit about this when I was in my prepared remarks about private capital sees a lot of benefits to investing in this space. We see it, too.

And so we can't just go out and buy core, core plus assets on balance sheet. Our cost of capital would get I think, impacted quite significantly to the downside right now. So we would have to figure out ways to manufacture better returns. And it is something we are actively considering. But at the moment, we would do deals with our existing partner or partners, and we have very good structures lined up with them and a good dialogue.

Okay. And I don't know if it's premature to talk about this the or not, but that private capital that's looking to get into the MOB space, I mean, what type of returns are they typically targeting I mean, are they just looking for the stability and have kind of a lower unlevered IRR hurdle they're typing achieving? I guess how are they thinking about the space?

Yes, maybe I'll Ryan answer that.

Sure. It really runs to the spectrum. I mean if you're looking at a value-add JV with institutional capital, they're targeting high leverage, upper teens IRRs but there's also plenty of institutional foreign and domestic capital in the space that's looking for a very core product with credit, long-term walls, very high acuity, newer vintage that are targeting much lower returns than that. So it runs the full spectrum depending on the institutional capital you're talking about.

Congrats Dan for joining the team.

Your next question comes from the line of Michael Mueller with JPMorgan.

So for the 2 questions. I guess, first, what's the typical scope of the redevelopment that's on your redevelopment page. It looks like they average about $10 million to $15 million each. Is it any square footage, lighting brightening or just wet in general?

And then the second question, Pete, you talked about the areas where you've kind of met exceeded expectations so far with the turnaround. Can you talk about I guess, any aspects of it or areas where you may have run into more obstacles or things were more challenging than you originally thought?

Well, maybe I'll start with the second question first. I will tell you since I've joined this organization, every interaction I have had with people here has been a positive one. And the toughest part of that is when you have to tell somebody that they can no longer be a part of this team and no longer be a part of the exciting things we have moving forward. That's not fun. And that's unfortunately something that we've had to do. But it's been a very necessary thing in order for us to get our cost structure in line and get our earnings growth and trajectory headed in the right direction. I probably underestimated how difficult that was going to be. And I'm being totally open and honest with everybody on this call on that one.

With regards to the typical scope. I would say the average project is probably in the $10 million area and it's probably in the $200 to $300 a foot overall. And you're really taking a building from a much older vintage, and you're improving all the common areas you're improving the elevators, you're improving the build out of the space with regards to each one of these individual tenants. I mean it's a significant reinvestment into an asset that probably has not been invested into for, call it, 20 to 25 years. And so it's really soup to nuts taking something that's much older vintage and converting it to, I wouldn't call it the equivalent of a new development, but it gets pretty darn close to it and you get some really good rental rate pickup.

If you go back to our strategy deck, we actually put a really good example of the projects we're doing in White Plains and the amount of leasing we've been able to generate with White Point Hospital there, which is a Montefiore subsidiary. And we did soup-to-nuts on that, and it looks fantastic. You skin the outside, you put new windows in, you're putting all new systems in, and you're bringing it up to basically brand new product.

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank.

I appreciate all the hospital on the operational improvements and the capital allocation discipline. Dan, congrats, welcome aboard. It was good to have a solid HBS guy in a seat like that.

Question-wise, curious on the build-to-suit side of things. Again, just given how strong demand seems to be, at this point, what's going on with a whole bunch of hospital systems. Just kind of curious on the BTS side, what that's looking like, whether we can expect to see more activity on that front.

Yes. Tayo, and by the way, for someone that completed the Antarctica Marathon, Ron Hubbard did not do you any favors putting you towards the tail end of our Q&A list.

I dialed in late, not Ron's fault.

Yes, I know. Well, next time we'll get you a little further up. That was quite an accomplishment. You looked a little cold in some of the pictures I saw, but congrats. Build-to-suits. -- yes, build-to-suits are happening. I would say developments, generally speaking, you do not see spec development happen right now in the outpatient medical space. And I just -- I don't know of any capital that's looking to chase spec development. So development that gets done is definitely heavily pre-leased. So I don't know that I would call that a build-to-suit, but I would put it in a similar category.

I think the challenges with new developments today, and it's really one of the reasons why you've seen deliveries and starts come down considerably as costs have gone up so much the last 3 to 5 years, especially coming out of COVID that the rental rates needed to get to the return necessary for a developer who want to start that project is pretty significant. So you have to have a health system or a tenant willing to step up and pay much higher rental rates than what's in place right now.

And so if they get done, great. I think there's plenty of demand to allow for some development to happen in the space. I don't think you're going to cannibalize existing product from that. If anything, we'd like to try and draft off of those rental rates that are required in order to get those types of deals to pencil. So they're happening out there in select markets and in select circumstances, but they're happening a lot less than they have been in the past.

That's helpful. And then my second question, again, you do see some of the health care REITs actively selling out of MOBs. Again, the argument being -- they're trying to move to higher growth after classes. I mean what kind of your remodel for that, given this viewpoint that MOBs are also benefiting or should also be benefiting from kind of the changing U.S. demographics. How do you kind of think about the space and when you kind of think 5 years out, are we dealing with an asset craft where the earnings growth profile has improved materially just kind of giving some of these secular demand drivers that are happening.

Yes. Probably a good question, I think, maybe to end on. Look, I think this is a pretty significant value creation opportunity. And that's really what got me excited to take on this job and move to Nashville. As you think about where we trade it's probably somewhere in the 10x to 11x FFO at the moment. And I think, personally, that kind of multiple is typically reserved for companies or sectors that are struggling, right? Let's just be pretty candid about it.

And frankly, I think that kind of multiple significantly undervalues our platform, right? As I said in the prepared remarks and as Dan said, we've entered 2026 front-footed. Fundamentals in outpatient medical are strong. our portfolio is best-in-class with our dispositions now complete. Our balance sheet is a source of strength. We've overhauled our team, and we're posting strong results, right? I also think it's important to just note, the way we look at it, we think we're in a subsector of 1. There is not one direct peer out there in the public markets. There are those that have exposures to this space, but they don't have 100% exposure to it like we do.

And so we are starting to expand our thoughts about our peer sets and looking at other property types with similar earnings growth characteristics. And based upon this, we think that there's expansion in our multiple that could be in front of us if we continue to execute on the strategic plan and we think that, that will create value for shareholders. So that's our mission, and that's what we're focused on right now.

I will turn the call back over to Pete Scott for closing remarks.

Great. Well, look, we thank everybody for joining the call today, and we look forward to seeing all of you in person at least many of you in person in Florida in a couple of weeks at the Citi conference. Thanks very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning, and welcome to Healthcare Realty's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Ron Hubbard, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you for joining us today for Healthcare Realty's Third Quarter 2025 Earnings Conference Call. A reminder that except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC.

Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended September 30, 2025. The earnings press release and earnings supplemental information are available on the company's website.

I'd now like to turn the call over to our President and CEO, Pete Scott.

Thanks, Ron. Joining me on the call today are Rob Hull, our COO; and Austen Helfrich, our CFO. Also available for the Q&A portion of the call is Ryan Crowley, our CIO.

I wanted to open with some important feedback on the strategic plan. During the course of the third quarter, we met with over 100 investors across trips to Chicago, New York City, Boston and the Mid-Atlantic. With dividend decision behind us, the tone of the meetings differ dramatically from earlier in the year. The excitement around our strategic plan is palpable, and the value creation opportunity is significant. The challenge ahead of us is simple to exceed our 3-year growth framework.

To that end, we are assessing every possible opportunity to improve earnings and the hard work is already manifesting into better results. Over the last 2 quarters, same-store NOI growth has averaged 5.25% and. Same-store occupancy has increased 180 basis points, and net debt to EBITDA has been reduced by 0.5 a turn. We are also becoming increasingly more positive on the tailwinds for Healthcare Realty. First, the secular trends in outpatient medical continue to improve with demand far exceeding supply. For the 17th straight quarter, occupancy increased across the top 100 metros and is approaching 93%, an all-time record.

Second, our new leasing pipeline continues to grow and stands at 1.1 million square feet. 2/3 of our pipeline is in the LOI or lease documentation phase indicating a high probability of completion. Third, with our improved occupancy levels, we can push harder on lease economics. Our primary focus is no longer on volume but on economic returns as we seek to maximize retention, escalators and cash leasing spreads. Fourth, with our rapidly improving leverage profile, for the first time in years, we have capital to invest accretively into our portfolio, and we are quickly building up dry powder to go back on offense.

Fifth, with the progress we've made on our strategic dispositions, our portfolio is uniquely concentrated within the largest and fastest-growing MSAs. When combined with our exceptional health system alignment, these key portfolio attributes should lead to superior operating performance in the quarters and years ahead. Turning to the third quarter. We delivered excellent results with contributions across the platform. With the financial rigor we are instilling in the organization, we are quickly shifting from a company that fell short of expectations to a company that is exceeding them.

Normalized FFO was $0.41 per share. We raised both our FFO and same-store guidance and for the first time since early 2022, Net debt to adjusted EBITDA is below 6x. A special thanks to the entire Healthcare Realty team for their extraordinary efforts this quarter. We followed up a win in the second quarter with a win in the third quarter. That is not an easy thing to do, and the team rose to the challenge. Turning to the transaction market. As evidenced by recent activity, the transaction market for outpatient medical is heating up. A variety of factors are contributing to this, including improving sector fundamentals, a favorable lending market and strong health system appetite to own strategic real estate.

The combination of these favorable dynamics are driving cap rate compression. We are benefiting from these improving trends and we have reduced the midpoint of the expected cap rate on our dispositions by 25 basis points. We are nearing completion of our lofty disposition initiatives. Year-to-date, we have $sold 500 million of assets at a blended cap rate of 6.5%. Our remaining disposition pipeline totaling approximately $700 million is almost entirely under binding contract or LOI. By our next earnings call, we expect to have closed on the vast majority of our remaining dispositions. With every completed transaction, our go-forward NOI growth profile improved, as demonstrated by our strong same-store growth results this quarter.

In addition, with the potential for excess balance sheet capacity by year-end, we are monitoring the transaction market for select external investment opportunities that are both strategic to our portfolio and accretive to earnings. We wanted to elaborate more on the cap rates achieved on dispositions. 2/3 of our dispositions were approximately $800 million are what we would characterize as noncore assets. We define noncore assets as those located in nonpriority markets with suboptimal operating performance and significant capital needs.

Noncore assets also include a few legacy office properties. The blended cap rate for these assets is 7.25%. The other 1/3 of our dispositions or $400 million are what we would characterize as core disposition assets. We define core disposition assets as those with good operating performance and high occupancy, but are located in markets where we have limited scale and/or an inability to achieve meaningful scale. The blended cap rate for this subset of assets is 5.75%. A good example of a core disposition is our sixth asset Richmond, Virginia portfolio, which we are under binding contract to sell with an expected mid-November closing.

We received unsolicited interest in this portfolio and opted to run a full sales process to maximize value. Final print was $171 million or roughly $425 per square foot, achieving a high 5% cap rate. Richmond is one of our few remaining markets where we utilize third-party property management, and we did not see an opportunity to grow our market share. With an occupancy rate above 93%, average building age of nearly 30 years and strong tenancy, we believe the cap rate on this portfolio is a good representation of the value embedded within our remaining stabilized portfolio.

Turning now to our development and redevelopment platform. We have 2 projects in our active development pipeline. The -- all Saints 2 project in Fort Worth, Texas, that is anchored by Baylor Scott & White, and our Make & Palm project in Raleigh, North Carolina, that is anchored by UNC Rex Health. The [indiscernible] 2 project is now 72% leased, up from 54% last quarter. and we recently placed the project into service. The MakenPon project is 51% pre-leased, and we expect to place the project into service in mid-2026. Stabilized NOI from these 2 projects is expected to be approximately $8 million, providing a source of near-term upside.

We see significant opportunity to harvest meaningful upside in our portfolio through targeted ROI-driven investments. During the third quarter, we added 5 assets into our redevelopment portfolio, with a total budget of approximately $60 million. These assets are in strong submarkets and include Nashville, Seattle, Denver, Charlotte and Dallas. The incremental NOI from these 5 projects is also expected to be nearly $8 million. In the coming quarters, we expect to have more assets enter the redevelopment pool as we seek to accelerate our capital spend and potential earnings upside.

You will note that we enhanced our development and redevelopment disclosures in the supplemental. We have also included a table of our current non-income-producing land parcels. We own strategic land parcels in key markets such as Denver, White Plains, Atlanta, Nashville and Austin with annual carry costs of approximately $1.5 million. We are in the process of assessing each parcel to determine if it makes sense to continue to hold or monetize.

In finishing, we are incredibly excited about the future at Healthcare Realty 2.0. Our operating performance is steadily improving, our transition to an operations oriented culture is happening faster than anticipated. Our balance sheet initiatives are nearly complete. We are accelerating capital spend into our existing portfolio, and we are rebuilding much-needed credibility with the investor community.

On my first earnings call, I said we have one overarching objective. -- to be the first choice for equity investors when they are seeking exposure to outpatient medical. As the only pure-play outpatient medical REIT, our undivided attention allows us to singularly focus on this objective every day. Let me turn the call over to Rob, who will expand more on operations and leasing.

Thanks, Pete.

We had an exceptional quarter on the operations front. Leasing activity was strong with 1.6 million square feet of executed leases, including over 441,000 square feet of new leases. Tenant retention increased to nearly 89%, the highest in 6 years and our sixth consecutive quarter over 80%. and annual escalators of 3.1% improved the average across our total portfolio. Our activity this quarter contained several notable deals with some of our top health system partners. As examples, a 21,000 square foot lease was signed with Baptus Memorial and Memphis, an 18,000 square foot lease was executed with Baylor Scott & White at our on-campus development in Fort Worth, and a 25,000 square foot renewal was completed with MultiCare at our building on the Overlake Hospital campus in Seattle.

The backdrop for industry fundamentals remain strong. supporting further growth in our 1.1 million square foot lease pipeline. This quarter, demand in the top 100 MSAs outstripped supply by over 740,000 square feet and completions as a percentage of inventory remain near all-time lows. Health systems remain on solid footing and continue to rely on outpatient facilities as a key component to reduce operating costs and expand market share. Throughout this year, health system activity as a percentage of our total leasing has continued to climb.

This quarter, we saw health system leasing comprise nearly 50% of our total activity, up almost 20% from the low point in 2023. Turning to our same-store portfolio. Occupancy improved by 44 basis points sequentially, ending the quarter at 91.1%. For the year, we have gained 77 basis points of occupancy, placing us inside the range of our full year expectations of 75 to 125 basis points. We expect our absorption momentum to continue in the fourth quarter. Shifting to the operating platform. We have made considerable progress migrating to an asset management model.

Recently, we hired 2 additional asset managers, and we expect to fill the last couple of positions within this new in the coming months. Full conversion is targeted -- for the end of the year, providing greater accountability closer to the real estate. A key area of focus for the new asset management team will be the portion of our portfolio deemed lease-up and our strategic plan. This quarter, we saw notable leasing activity from this segment of our portfolio.

Out of the 441,000 square feet of new leases that I mentioned earlier, 217,000 square feet or nearly 50% came from these properties. I want to congratulate our team on the leasing and absorption gains we made this quarter with a robust leasing pipeline, strong tenant retention and tightening supply, our portfolio is poised to see further leasing momentum and NOI growth throughout the remainder of the year and into 2026.

I will now turn it over to Austin to discuss financial results.

Thanks, Rob.

This morning, I'll provide an overview of our third quarter 2025 results, our capital allocation activity and our updated 2025 guidance. Our strong year-to-date momentum carried into the third quarter with normalized FFO per share, up 5% year-over-year to $0.41 and same-store cash NOI growth of 5.4%. Additionally, second quarter FAD per share was $0.33, resulting in a quarterly payout ratio of 73%. Our outperformance this quarter was broad-based, including 90 basis points of year-over-year occupancy gains, 3.9% cash leasing spreads and strong expense controls.

We are at or above the high end of all of our core operational expectations for the year, driven by our focus on pushing accountability and decision-making closer to the real estate as well as a natural uplift from the sale of the disposition assets. We moved rapidly in the second quarter to reduce expenses across the organization. This progress showed in the third quarter with normalized G&A of $9.7 million. While we are still building out key teams, we have a clear line of sight on our target of $45 million of G&A in 2026 and are well on our way to completing the build-out of our best-in-class platform.

Proceeds from disposition activity during the third quarter and through October funded the repayment of approximately $225 million of our 2027 term loans, decreasing our leverage to 5.8x. Inclusive of our bond repayment earlier this year, we have paid down approximately $500 million of notes and term loans in 2025. The revolver in 2027 term loans will continue to be the use of proceeds for near-term dispositions as our leverage continues to move into the mid-5s.

Now turning to our updated 2025 guidance. We are increasing the midpoint of our FFO per share guidance by $0.01 to a new range of $1.59 to $1.61. Additionally, we now see same-store cash NOI growth of 4% to 4.75% and G&A of $46 million to $49 million. Before we turn to Q&A, I want to note that this quarter, we received board authorization for a $1 billion ATM equity program and up to $500 million in share buybacks. The prospectus for the equity program will be filed in the fourth quarter.

Our existing share repurchase authorization expired this quarter, and this new authorization is part of our normal course business. It's good practice that both programs approved and available should we need them.

Operator, we're now ready to move to the Q&A portion of the call.

[Operator Instructions] Our first question comes from Nick Yulico from Scotiabank.

I guess first question is just in terms of -- as we think about like the impact on the whole portfolio over the next several quarters. It's a little bit easier to model the asset sales -- but can you talk some more about the redevelopment. You talked about more assets entering that pool. Presumably, there's some earnings drag from that, but then you also have occupancy sort of picking up and in the rest of your pool. So just any sort of high-level thoughts about how to think about that impact over the next couple of quarters. .

Yes Nick, it's Pete here. So I think from the stabilized portfolio, perspective, as we've talked about and as we laid out in our strategic deck, we think a good stabilized year-over-year growth rate is probably more like 3% to 4%. And if fundamentals continue to improve, we'll continue to assess if you can even do better than that. But I think we've laid out 3% to 4% and I think on the incremental $50 million of upside to NOI over the next 3-plus years, we did forecast probably $20 million to $40 million was the range over the next 3 years since the capital spend does take time to go out the door and ultimately the NOI you achieve from those redevelopments, takes a couple of years to earn in.

So we have laid out a revamped table in our supplemental and we're open to any feedback from people on any additional information to include in there to help -- would expect to add probably another 5 to 10 over the next couple of quarters. One of the things I've challenged the team here to do is to identify those assets sooner rather than later, so we can start to work towards the higher end of that incremental NOI upside, and that's why you saw a lot more come into the pool this quarter, and you'll see more come in, in the next couple of quarters as well. And we'll continue to provide information for everybody to track.

The other kind of $25 million of the $50 million of upside is going to come from the lease-up portfolio that is not redevelopment. A lot of those are in same store. And I think that's one of the reasons why you're able to see some better than 3% to 4% NOI growth numbers that are coming out today as we're beginning the lease-up and the absorption in those assets. I could see that continuing for another year or 2 as well as we selectively invest capital into suites and not do redevelopments there, but targeted specific suite by suite capital investment.

So that's the way we're thinking about it. I know there was a lot to unpack within that, but I wanted to give the 2 big buckets within the $50 million of incremental NOI over the next couple of years.

Okay. Great. And then the second question is just in terms of the health system share of leasing picking up this quarter. Is that -- was that also just like skewed by renewals for those health systems in the quarter versus prior quarters? Or are you having -- can you think more success in terms of actually capturing a higher health system here in your new leasing, which I know has been a focus for you guys. .

Maybe I'll let Rob handle that one.

Nick, yes, I think that the volume that I talked about was total leasing. And certainly, we've seen a pickup this year, it's sort of been a gradual trend upwards this year and really going all the way back to '23, as I mentioned, at low point in -- and so it's what we've continued to experience in terms of the continuing trend from moving services out of the hospital into the outpatient setting, which is certainly a tailwind for us. But then I think it also is continuing to improve tenant relations with our health systems and the effort that we've been doing over the past couple of years, you're really seeing that pay off for us. So -- it's a combination of health systems are continuing to grow into grow their market share, but then I think also just better tenant relations and continuing to work the relationships we have. .

Yes. And Nick, on the revamped asset management platform, I think this is 1 of the really big benefits of it. is the asset managers are really going to be point on the health system relationships and with the local teams out in their various markets and dialogue from our company to then has picked up pretty significantly over the last couple of quarters, and I expect that to continue to pick up going forward. .

Next question comes from Rich Anderson from Cantor Fitzgerald.

You lowered your cap rate assumption for dispositions by 25 basis points to [ 6. 75. ] You've been able to achieve 6.5% year-to-date. I'm wondering if that's conservatism or if you think more Well, I guess you did say more of the remaining is coming out of the noncore bucket. Is that right, we would expect that the cap rate number for the remaining dispositions to be higher for that reason. Do I have that logically correct? .

Yes. obviously, we've been pleased with the execution so far. And year-to-date, we're at 6.5%, Our expectation is some of the assets that are taking longer to get done, and it shouldn't be a surprise or those with value-add components associated with them. good assets, just maybe in different markets or markets we're not going to be concentrated in going forward. So I'd say that the balance of what is remaining to close is probably skewed more to the value add component. And like I said, there's also some legacy office assets as well that we're looking to shed -- so I would not look into anything other than it's just the mix of the assets remaining is probably a little bit higher from an unlevered IRR perspective as the way the buyers are looking at it. .

Okay. And then there's a lot going on in medical office these days, largely in terms of dispositions. You, Welltower, Dock are all in the market to sell total about $9 billion or $10 billion, at least just from those 3 companies. Does -- what does that tell you in terms of the appetite, I mean, does it give you any pause to see that level of selling when this is your business? And if not, I assume you're going to say no. And if not, tell me why. .

I think what it's showing is that there's a very, very strong bid for outpatient medical in the private markets right now. It's probably the best way to characterize it. Our focus on dispositions is really to create the best portfolio going forward from an NOI growth perspective. And our balance sheet was overlevered and that dates back multiple years. And we need to get our balance sheet leverage metrics to a more appropriate level. And they're almost there at this point in time.

So our intent is to complete the dispositions that we are working on right now. We're pretty darn close to that. It's a pretty lofty goal in all that done this year or really before our next earnings call. But we're really happy with the strong bid for the asset class. I think it shows that investors see a lot of value in it. and we look forward to continuing to generate pretty strong returns on the portfolio that we're keeping and going forward. And we'd like to be switching to going more on offense as opposed to going on -- or really playing more of a defensive game at the moment.

And I think that's going to come pretty soon. We're going to have balance sheet capacity to be able to shift to go on offense as well. So I look at it and say, great, there's a lot of product on the market. Maybe there's opportunities for us in joint ventures or even on balance sheet to start to take advantage of that.

I guess the thing that I concern myself with is like the 1 thing that we've been waiting to happen is to extract some of the medical office ownership by the systems and get a stuff that's sort of tied up there. Is a lot of this sale activity going back to the health systems and hence, sort of kind of going backwards in time in terms of the ownership structure of medical office I'm just wondering, I guess, the buyer pool and what the long-term ramifications are of it.

Health systems have certainly picked up their purchasing. And we've noted that we've actually generated some pretty strong cap rates. I'd say the health system deals tend to be on the lower end of the cap rate range of what we've been quoting. So I think that's great. We can take advantage of that to the extent that we need to. But the majority of what you just quoted, the $8 billion to $10 billion is not going to health systems.

I mean health systems have ROFRs -- and some of it will end up in their hands because they want to control the strategic real estate on their campuses. But most of that $8 billion to $10 billion that you just mentioned is going to nonhealth system buyers.

Our next question comes from Austin Wurschmidt from KeyBanc Capital Markets.

Everybody. Pete, just going back to the plans to add additional assets to the redevelopment pool in the coming quarters, I'm just wondering, are these currently occupied assets that there could be an initial move out before you add that into the pool. It looked like there was a move out in that bucket this quarter. Or are these just normal course assets that are in that lease-up bucket that needs a little bit of capital in order to achieve the returns that you're focused on? .

Yes.

I would say that most of it is current vacancy and we see an opportunity to invest capital or it's -- perhaps there's near-term role coming up, and we see an opportunity with some investment to get the anchor health system to extend on a long-term lease and at a pretty healthy mark-to-market. That's the majority of it. Every now and again, you will have a vacate, although if you look, our retention numbers are pretty darn high.

So I'd say this is in the minority where you have a tenant vacate and you say, what do we want to do with the asset? It may require some pretty significant capital investment to reposition it to get the appropriate increase in rates within that market. But I'd say that happens probably less frequently than it is for us today, current vacancy or an opportunity to invest some capital and also get a pretty nice markup on the existing rent roll roster.

That's helpful. And then Peter or Austin, I mean, Pete, you had referenced kind of looking forward to pivoting and potentially moving on offense and then often kind of flagged that you put in place the ATM as a capital allocation tool and a source. I mean is that something that we should expect in the near term from you guys to start to lean into that a little bit. And given the fact that the transaction market is heating up and there are opportunities out there that maybe you could mine through it and find something that kind of fits with the profile that you're looking for today and sort of the Healthcare Realty 2.0? .

Yes. I would say I think -- as a matter of course, it makes sense to just always have an active ATM in place. We're not intending to use it based upon where our stock is trading today. We do have some balance sheet capacity that we are building though. -- through delevering below our target leverage levels. And as we think about going on offense, it's not huge numbers as a result of the fact that we are constrained. We're not going to issue equity at today's levels. but we certainly could look to grow some of our joint ventures, and we are talking to our joint venture partners actively on that. And then we could look to do some selective smaller deals, tuck-in acquisitions in core markets or on core campuses. But that's the way we're thinking about it right now.

And I don't want anyone to come off this call and they're putting an ATM in place, they're going to start issuing equity again. I just think it's important to have it up and running. It hasn't been up and running for years -- so that's really why I had Austin say what he said in the prepared remarks was to just tell people it's coming, but I wouldn't read anything into it.

Next question comes from Juan Sanabria from BMO Capital Markets.

This is Robin sitting in for Juan. On the $700 million of dispositions on the contract, just curious if any of them are in the same-store pool, if anything, any of them are targeted for a JV and what pricing you're expecting?

Yes. No, none of them are targeted for joint ventures. So they're all going to get sold 100%. And then are any in the same-store pool, I would say, at this point in time, no, given how far along we are and the probability of those closing, not the high degree of probability of them closing, they're all in held for sale at this point in time, and that was the big move where you saw I don't know, forward loss assets go from the operating portfolio into held for sale this quarter. .

And so on the recent dispositions, the -- there wasn't any impact to the same-store NOI increase as they were -- they were not part of the same store Poland on the recent dispositions either.

Yes. It's Austin. If you look at the increase in same-store NOI guidance for the year, I'd say the vast majority of that is being driven by especially looking at the third quarter, 4% same-store revenue growth, 90 basis points of year-over-year occupancy gains and sub-2% property operating expenses. I would say the core portfolio, the stabilized portfolio continues to perform extremely well. And even including the assets moving into held for sale, we still would have been at the top end of our revised guidance range for same-store growth. That being said, there is, as I mentioned in my prepared remarks, a little bit of an uplift just given the disposition portfolio as we showed in the strategic deck does grow slower than the core stabilized portfolio.

And shifting to the external growth opportunity. Could you maybe level set expectations with us when you earlier see a possibility to go on offense?

Well, I think just from a balance sheet capacity perspective, we said we wanted to be kind of in the mid- to high 5s net debt to EBITDA. We're at 5.8%. We'd like it to come down a little bit from here. But when you factor in $700 million more of sales still yet to go and some debt repayment there. We will go likely less than 5.5x net debt to EBITDA. So it's probably anywhere from $150 million to $300 million of capital we can put out without taking our leverage levels beyond what our targets are.

So we're building up a little bit of dry powder, and that doesn't give us any benefit for EBITDA growth in future years and so on and so forth. It's just the immediate amount of capital. So there's some tuck-in acquisitions we could do, and they would be accretive since we'd be financing that with 100% leverage.

And then lastly for me, if I may. On the margin improvement time line, you outlined in the recent debt at the 65%, 66%. Can you maybe just elaborate a little bit on that on timing?

Yes. I think I'll talk both about occupancy, and I'll talk about margins. We did lay out a 3-year growth framework and we did lay out the pieces to that. I think selling some of these, we call higher IRR value-add assets, you get an immediate benefit from that, and you're seeing that right now with our same-store occupancy at a little bit better than 91% in our total occupancy and the very high 80s, I think it's 88%, 89%, it's probably 89% plus at this point in time. And our margins are in that 64% to 65% area last quarter and this quarter.

So it's probably over multiple years that we would see that stabilized occupancy and margin levels, but we're working our way towards that. pretty darn fast. And the more and more absorption we get, the better the lease environment, the quicker we can get there. But I think this quarter was a very good example as to how fast we could get there through sales. And then going forward, it's really going to come through organic leasing as well as expense controls.

Our next question comes from Seth Berge from Citi.

I just wondered if you could start off by maybe commenting this has been talked about a little bit, but just overall changes to the buyer pool depth of the buyer pool since you kind of started the distasitions?

Yes. Maybe I'll have Ryan Crowley.

I would say is have always been there. We've been selling -- we sold material assets and more so this year, the buyer demand and the buyer appetites remain strong all along. The biggest change has been the steady end market improvement in the lending environment. Bank liquidity is way up in our space. Today, bank originated loan rates are dipping into the high 4s. And so that's really fueling that buyer appetite. The buyer appetite is being led by primarily private institutional capital, -- and as Pete referenced earlier, the health systems, health system percentage of MOB acquisitions this year is about as high as it's been in recent memory. But for the full year for us on the $1 billion or so of dispositions our mix, our buyer mix will be roughly half and half private buyers and health systems.

Okay. And then, I guess, just a second one, with the $700 million kind of under contract, Do you think -- is that just kind of like a timing issue of some of those closing kind of into next year in terms of why the disposition guide remain unchanged?

Some of them may close in early January, but there's not much more to read into it than that.

I'll just add, it's a high number of transactions. Year-to-date, the 35 properties we've sold have been 24 different discrete transactions. We have over a dozen remaining -- so it's just -- it's not 1 or 2 large transactions that did take the timing. It's the number.

Our next question comes from Michael Carroll from RBC Capital Markets.

Pete, I wanted to circle back on your comments on HR can be more offensive or a little bit more offensive in this market. I mean, how difficult is it to find these strategic investments just given the strong private did? I mean, is there options or opportunities where HR has specific relationships that it can lever to get these deals? I guess can you talk a little bit about that?

Sure. Why don't you jump in on this, Ryan, and then I'll touch on it on the end.

Sure, Michael. I mean our reputation in the acquisitions market has historically been that of a sharp heater. During our growth in years past, we bought assets typically 1 at a time and primarily, frankly, in relationship-driven off-market transactions that would be a majority of the deals we had historically done. Today, we have an active inventory of what we call Tier 1 acquisition targets that we've already identified in our top 20 priority markets, with the systems we want to align with and specifically on the top-performing hospital campuses where we've already done the analysis, we've cataloged over 400 Tier 1 acquisitions, that our team tries to sharp shoot via these direct relationships that we have with owners, brokers and key relationships and health systems in these markets.

What does that represent probably 20 million square feet over [indiscernible] volume of value. And our team actively pursues that. The only other thing I'll add is as cap rates have steadily declined from the beginning of the year. We have definitely noticed over the recent months an uptick in the number of assets and the quality of assets coming to market. So there is more opportunity out there today.

Yes. Mike, I just want to jump in for a second on this. I'm glad we're obviously talking about going on. offense just a little bit. But our focus is, first and foremost, on our 3-year growth framework and generating organic growth and reinvesting capital into our real estate. When we talk about going on offense. This is some modest balance sheet capacity that we have. And if we can find ways to put that capital to work to generate some nice accretion primarily in joint ventures where we get an enhanced yield. That stuff that we will look at. But to the extent that it's not additive to what we've laid out in our strategic plan we certainly can remain underlevered.

So I just want to be a little bit careful when everyone hears the term offense that all of a sudden, we're disregarding our strategic plan and just looking at a bunch of acquisitions. I mean there's just some tuck-in things that we would like to do if the math pencils, but we do not need to do those. And our focus is primarily first and foremost, on the strategic plan and the 3-year growth framework that we laid out.

That's helpful. And now I guess, Pete, you also made a comment earlier in the call in the prepared remarks that given where occupancy is that you can be a little bit more aggressive pushing price? I mean can you provide some color on what that means? Are you going to try to push it on spreads, annual bumps? And is this kind of something new or that you can do just given that the market is getting tighter over the past few quarters?

Yes, as we think about maximizing lease economics, we have implemented a payback period model as well as an IRR model over the last couple of quarters. So it's just trying to get the absolute best possible economic returns with all the leases that we end up signing. I think where we're seeing success today is certainly on the escalator front, we're also seeing higher retention since there's just a lot less supply out there. And I think the last piece is you think about the rent mark-to-market opportunity, which I think is helpful to get, and we've been able to achieve kind of the low single digits if occupancy continues to increase, then there's an opportunity to continue to move more and more push harder and harder on that.

But I think most importantly, it's the high retention as well as getting the strong escalators because high retention, you have no downtime and you have no capital really that you have to invest. There's limited capital you have to invest on renewals relative to new leasing. So that's the way we're thinking about it.

Next question comes from Michael Gorman from BTIG.

Austin, maybe you could just spend a minute, you talked a lot about balance sheet strategy and productivity. The unsecured market has been pretty strong in the REIT space of late. Can you just talk about how you're thinking about access to that market into the end of the year and strategy around kind of the 26 maturities?

Yes, it's a great question. Our -- we have $600 million of a bond maturing in August of next year. So I would say, first and foremost, we do have a lot of time. But to add to that, -- your point is not lost on us that, especially since we put out the strategic plan, rates up until maybe 2 days ago had moved slightly in our favor. -- and you are seeing spreads at or near all-time lows. So it's certainly something that we're paying close attention to.

We'll be opportunistic, I think, given the amount of time that we have until the bond refinancing but certainly could look at doing something if the opportunity and attractive opportunity presented itself.

That's helpful. And then maybe just switching to the portfolio side. For the 2026 lease maturities, can you just talk a little bit about how those back up compared to some of the escalators that you've been able to achieve in the third quarter? And maybe how the 26 expirations look relative to that, just to give us a sense for the potential opportunity there.

Yes. I think if you look out at '26, I mean we've got a good number of renewals coming up and the escalators on the total portfolio right now I think are in the averaging in the high 2s. I mentioned in my remarks that we've been achieving 3.1% on average across all of the renewals and new leases. And our new leases, we'd be even achieved a little bit higher than that. So I think as we look out at '26, we see an opportunity to kind of move that up over 3%.

We've been consistently getting greater than 3% escalators. And as supply tightens and the portfolio improves through asset sales, we see an opportunity to move that even potentially higher. So certainly looking at improving on the average that we have and achieved this quarter as we look to next year, trying to move that up into the mid-3s.

Our next question comes from Mike Mueller from JPMorgan.

Just how are you thinking about what's the right level of development, redevelopment to have underway at any given time? I know pre-leasing levels come into it, but just -- just a little more color on how you're thinking about that would be great. .

Yes. Obviously, on the development side, those developments are legacy developments that have been ongoing for a while. I would not expect us to commence a new development unless we do have that land bank unless it was a very, very heavily pre-leased, attractive yield to us. And I would say there's nothing imminent on the horizon. -- on that. From a redevelopment perspective, it's going to be a little bit higher initially just because we're going to be reinvesting capital, first and foremost, into our portfolio. And by the way, we see a pretty darn good yield. -- from that as well. You would calculate something in the 9% to 12% cash on cash yield with the IRRs being even higher than that.

So it's a really good way to invest capital I think that bucket will have some assets cycle out, some assets cycle in. There have been some assets in redevelopment for a while that are near completion at this point in time. But I could see having or so assets in that bucket, and I would say, on average, it's $10 million to $15 million of redevelopment spend across each project. So you can do the math on that, but I think that's probably a comfortable level for us going forward. And we obviously have the free cash flow opportunity to do that as well with our payout ratio being in the low 70s right now.

Got it. And one other question. Once you're through the $700 million of asset sales that are under contract letter of intent. Should we be thinking of any additional dispositions on a go-forward basis or just something nominal and opportunistic as well? .

I think it would just be nominal and opportunistic, Mike. There would not be like a large program, but perhaps there could be some pruning on an annual basis every year, but that would be just a very nominal stuff and done opportunistically.

Our last question comes from John Pawlowski from Green Street.

Just 2 questions for me on the restructuring. I believe there's $12 million of restructuring cost this quarter. $22 million-ish in the last 2 quarters. Can you just give us a sense of the total restructuring costs expected in just in general, Pat, like I know you guys are moving fast, but what kind of inning are we in, in terms of your organizational restructuring of HR? .

Yes. I think we're in the later innings on that. But if you think about the organizational restructuring charges, but you also factor in that we had $2 million to $3 million less of G&A this quarter, right? It's working its way into less G&A, a smaller cost structure. So I would say we've made really good progress. Are we done? We're getting closer to that level, but we're certainly in the later innings.

And then last one for me. I know you guys highlighted in your strategic review document, a little bit of a drag from 100,000 square foot single-tenant lease expiration in 27. Has there been any other additional single tenant vacates that we should expect in '26 and then you have a lot of lease rolling in the single-tenant portfolio in '27. So any other vacates have popped up in recent months that we should be aware of? .

Yes. No, I'd say nothing material. Obviously, we highlighted the '27 on in the strategic deck. And that really is the large lease roll in 2027, that tenant occupies 2 buildings. We are having conversations with them on extending in the entire other building that they are in. So I'd say we're making good progress on that. But no, to your question, is there anything additional that's popped up? No, there is not.

We have no further questions. I'd like to turn the call back over to Mr. Pete Scott for any closing remarks.

Great. Thanks, everyone, for joining us here. Like I said, we're very excited about the direction that we're headed in HR 2.0. And proud of the quarter we put up and look forward to continuing to talk to you over the coming months as we finish out the year. Thanks very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Healthcare Realty Second Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would like to hand the call over to Rob (sic) Ron Hubbard, Vice President, Investor Relations. You may begin your conference.

Thank you for joining us today for Healthcare Realty's Second Quarter 2025 Earnings Conference Call. A reminder that except for the historical information contained within, the matters discussed on this call may contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC.

Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings release for the quarter ended June 30, 2025. The company's earnings press release, earnings supplemental information and Form 10-Q are available on the company's website.

Now I'd like to turn the call over to our President and CEO, Pete Scott.

Thanks, Ron. Joining me on the call today are Rob Hull, our COO; and Austen Helfrich, our CFO. Also available for the Q&A portion of the call is Ryan Crowley, our CIO.

We had a very busy second quarter with excellent results and contributions across the organization. Fundamentals are quite strong in outpatient medical, and that was clear with our second quarter print. Normalized FFO was $0.41 per share, a $0.02 sequential increase. FAD was $0.33 per share, a $0.04 sequential increase. Same-store occupancy was 90%, a 40 basis point sequential increase. Same-store NOI growth was 5.1%, a 280 basis point sequential increase. And net debt to adjusted EBITDA sits at 6x.

In addition, it was the second highest new leasing quarter in the last 3 years. Year-to-date sales increased to $211 million at a blended 6.2% cap rate. We have over $700 million of additional assets under contract or LOI. We completed a very successful renewal of our revolver. We extended the tenor of our term loans, and we raised guidance. Rob and Austen will cover these items in more detail. A special thanks to the entire Healthcare Realty team for their extraordinary efforts this quarter.

Moving on to our strategic plan, which we published on our website, concurrent with our earnings release. I have now been at Healthcare Realty just over 100 days, and my time has largely been spent seeing the real estate, assessing the team and receiving valuable feedback from our shareholders. During the quarter, the team and I toured 10 core markets encompassing approximately 50% of our overall NOI, and more importantly, about 2/3 of our overall real estate value. In addition, I spent considerable time with our teams out in the field, including leasing and operations. Each and every one of these interactions has had an influence on the strategic plan, and I am confident now is the right time to disclose the vision for Healthcare Realty 2.0.

Let me start with my overall assessment. The good news. We have the best-in-class outpatient medical portfolio. We have scale in the right markets, and we are aligned with the nation's leading health care systems. In short, we have the essential ingredients of what is needed to be a successful real estate company: Great assets, desirable locations, solid tenants.

That said, we have fallen short of expectations despite our solid foundation. Healthcare Realty 1.0 was a transactions-oriented culture that relied almost exclusively on acquisitions and development to drive growth to the detriment of asset management. This strategy worked too, and for many years, the company traded at a premium valuation. Unfortunately, this business model collapsed in 2022, and swift changes are necessary to reverse course and reestablish credibility.

Healthcare Realty 2.0 will be an operations-oriented culture where earnings growth is paramount, strong tenant relationships are essential, leasing decisions are made based on economic [indiscernible] and capital allocation is initially prioritized towards accretive reinvestment into our existing portfolio. With that as the backdrop, let me elaborate on the 5 key action items of the strategic plan.

First action item, improved corporate governance. As was previously disclosed, we reduced the size of our Board from 12 to 7 directors. The go-forward Board brings fresh perspective and decades of industry experience to support our value creation initiatives. 5 of the 7 directors have been appointed since 2024, and all directors have been appointed since 2020. In addition, 5 Board members have REIT CEO experience.

Second action item, a significant organizational restructuring. We have implemented a new operating model that will drive meaningful cost savings and promote incremental accountability at the property level between our operations and leasing personnel. This new asset management-oriented platform will create stronger and better aligned tenant relationships.

Over the past few months, I have had the benefit of sitting down with leadership at some of our largest health system tenants to discuss expansion opportunities. These tenants include Baylor Scott & White, HCA, Ascension, CommonSpirit and Banner Health. With our enhanced platform and renewed focus, we can and will do better.

To advance our platform changes, during the second quarter, we hired Tony Acevedo and Glenn Preston to lead our asset management efforts. Tony and Glenn have extensive track records in the outpatient medical sector, with 16 years and 25 years of experience, respectively. They have been trusted partners of mine in the past, and they have hit the ground running.

Another important restructuring initiative is streamlining our corporate overhead costs. We've completed a thorough review of every line item and have already achieved our initial goal of at least $10 million in run rate G&A savings. 100% of this has been captured through headcount reduction, office expense savings, and of course, the previously mentioned reduction in our Board size.

At year-end, Julie Wilson, EVP and Chief Administrative Officer, will be departing the organization after a 24-year career with the company. We would all like to express sincere thanks to Julie, who played a valuable role in the growth of the organization. She will be missed.

Third action item, portfolio optimization to maximize NOI growth. We have completed a full bottom-up, property-by-property analysis and segmented all 650 assets into 3 distinct buckets: The stabilized portfolio, the lease-up portfolio and the disposition portfolio. Each of these buckets has different characteristics.

Starting with the stabilized portfolio, which is 75% of the total. Ours is hands down, the premier outpatient medical portfolio, and our well-performing stabilized assets will be the primary engine of growth for Healthcare Realty 2.0. The stabilized portfolio consists of 470 properties encompassing over 25 million square feet. It includes trophy properties on flagship campuses, such as Ascension St. Thomas Midtown in Nashville, [ MultiCare Overlake ] Medical Center in Seattle and Baylor Scott & White All Saints Medical Center in Fort Worth, just to name a few. Current occupancy is 95%, NOI margins are over 65%. Our average lease term is 8 years, and our average escalators are 3%. Our strategy with this portfolio is to maintain high occupancy and maximize lease economics to drive consistent NOI growth.

Moving to the lease-up portfolio, which is approximately 13% of the total. These 95 assets contain over 7 million square feet of well-located, health system aligned clinical space. Performance has lagged due to years of underinvestment or deteriorated local relationships. These properties are primarily located within our priority markets, with the top 3 markets of Denver, Dallas and Phoenix comprising 25% of the square footage. We have strong conviction that through targeted ROI-driven investments and engaged asset management leadership, we can harvest meaningful upside in this portfolio and generate up to $50 million of incremental NOI. Current occupancy in these properties is 70%, NOI margins are 55% and our rents are nearly 20% below market. In a bit, I'll touch more on unlocking this potential through prudent capital allocation.

Shifting to the disposition portfolio, which is approximately 12% of the total. Over the last 2 years, NOI growth for these assets has lagged our stabilized portfolio by 700 basis points. In addition, 80% of this portfolio is located outside of our priority markets, where demographic trends are weaker, limiting upside potential. We can capitalize on the current strength in the outpatient medical transaction market to strategically exit these assets at attractive relative valuations.

Today, we have a robust and balanced disposition pipeline across a variety of asset profiles to maximize value and minimize execution risk. We expect asset sales of approximately $1 billion to close in 2025 at a blended cap rate of 7%. We extensively evaluated the real estate fundamentals of these assets and believe our time and capital are best focused on the lease-up portfolio. The end result of the portfolio optimization strategy will be significantly improved occupancy and margin and enhanced NOI growth profile and a sharpened geographic focus.

Fourth action item, reprioritizing our capital allocation internally. Our near-term priority will be investing capital back into our lease-up portfolio. This will come through two different types of targeted investments. Number one, ready to occupy spec suites, which we refer to as RTO, and our strategic investment into select vacant suites to drive leasing. Number two, redevelopment, which are significant investments to reposition buildings and drive higher rental rates, occupancy and cash-on-cash returns. Between RTO and redevelopment opportunities, over the next 3 years, we estimate approximately $300 million of capital investment at attractive returns. Additional accretive opportunities, including acquisitions and development, will come when our cost of capital allows for it or we have sufficient balance sheet capacity. As our balance sheet continues to improve, we could utilize a portion of sale proceeds to repurchase stock should the opportunity present itself.

Fifth action item, an improved balance sheet. The company has been playing defense for years with extremely limited financial flexibility due to excessive leverage. With the sale of the disposition portfolio, we expect net debt-to-EBITDA to be in the mid-5x area by year-end. This lower leverage, combined with extended maturities, will allow us to gradually shift from defense to offense.

Turning now to the dividend. As a final part of the strategic plan, we completed a thorough and careful evaluation of the dividend. The result of this analysis is that the Board unanimously approved a dividend reduction of 23% to $0.24 per share on a quarterly basis. While we could maintain the dividend and grow into a sustainable payout ratio over time, the key factors for rightsizing the dividend are: It alleviates pressure from $1.4 billion of low coupon bonds maturing over the next 3 years; it provides $100 million annually of capital that we need to reinvest into our portfolio to drive performance; and it positions the company to maximize our go-forward earnings potential.

Let me finish with the value creation opportunity. In our strategic plan presentation, we have included a high-level framework for a potential earnings growth over a 3-year forward-looking period. There is a clear path to creating attractive FFO per share, and the analysis excludes any upside from accretive capital allocation. In addition, we currently trade at approximately 10x FFO, which is 6 turns below both our 10-year average and the 10-year average of our healthcare REIT peers. We know our evaluation is a function of many self-inflicted wounds and a loss of credibility and does not remotely reflect the significant value embedded in our irreplaceable portfolio.

With the purposeful changes underway at Healthcare Realty 2.0, we see a real opportunity to improve operating performance, restore credibility and unlock shareholder value. With the implementation of our strategic plan, we will remain the only public REIT focused exclusively on outpatient medical. We will have a positive earnings outlook. Our balance sheet will be a source of strength. We will no longer be burdened by an uncovered dividend. We can use free cash flow to invest accretively in our portfolio. Our assets will be operating at maximum NOI capacity. We will have a lean cost structure, and we will have a best-in-class team and Board.

We are firmly committed to this vision and are confident it will maximize value for all stakeholders. Nevertheless, over time, if our platform continues to trade at a significant discount to our intrinsic value, then it will be our responsibility to explore all additional alternatives needed to unlock value.

Let me now turn the call over to Rob.

Thanks, Pete. Demand for outpatient medical space remains strong, driven by tightening supply and the ongoing migration of services into a lower-cost outpatient setting. During the quarter, we executed nearly 1.5 million square feet of leases, including over 450,000 square feet of new leases. Our signed non-occupied pipeline, or SNO, remains solid at nearly 610,000 square feet, representing almost 170 basis points of occupancy in the coming quarters. We continue to see robust demand from our health system partners, accounting for about 1/3 of our lease execution this quarter.

A few notable transactions include a 24,000 square foot new lease in a redevelopment project on the campus of the HCA's North Cypress Hospital in Houston; a 42,000 square foot renewal, also in Houston, with a premier pediatrics group associated with Texas Children's Hospital; and a 23,000 square foot new lease in Orange County, California, with UC Irvine Health. UCI recently acquired the campus hospital from Tenet Health. Looking ahead, our new lease pipeline remains solid at over 1.3 million square feet and growing. Within our pipeline, about 60% is in the letter of intent or lease documentation phase, indicating a high probability of lease execution.

Shifting to operations. The second quarter marked the beginning of our transition to an operating platform with a greater focus on asset management. As Pete mentioned, we made some key hires to lead the team and have taken the initial steps to transition portfolio operations under their leadership. We expect to complete the transition to this new model by year-end. Once completed, we will continue to refine the platform over the next year by implementing new operating procedures, identifying further efficiencies and emphasizing discipline around leasing decisions based on economic returns.

Turning to our same-store portfolio. With strong new lease commencements and tenant retention of 83%, we gained 40 basis points of occupancy this quarter. Consistent with seasonal trends, we expect most of our occupancy gains to come in the second half of the year. Our outlook for 2025 remains 75 to 125 basis points of absorption by year-end. I want to congratulate our team on the leasing and absorption progress we made this quarter. With a robust leasing pipeline, strong tenant retention and tightening supply, our portfolio is poised to see further leasing momentum and NOI growth throughout the remainder of the year and into 2026.

I will now turn it over to Austen to discuss financial results.

Thanks, Rob. In my remarks this morning, I will cover our second quarter results, progress on asset sales, balance sheet improvements and increased 2025 guidance. But before I jump in, let me say how pleased I am with our performance this quarter and our momentum heading into the back half of the year.

Now let's dive into the details. Normalized FFO per share was $0.41 for the quarter, up nearly 7% year-over-year, driven by strong occupancy gains, disciplined cost management and a decrease in share count. Quarterly FAD per share increased to $0.33, representing a 96% payout ratio, a significant improvement from the first quarter, primarily due to strong earnings growth and lower seasonal maintenance capital. Second quarter same-store cash NOI growth of 5.1% was the highest in 9 years, as a 100 basis point increase in occupancy, coupled with strong expense controls, drove 50 basis points of year-over-year margin improvement.

Since the start of the year, I've been transparent that we expected the first quarter to be a difficult comp and growth to meaningfully accelerate beginning in the second quarter. I will say that I'm very pleased with the level of growth in the second quarter and believe that it more accurately reflects the strong current fundamentals in our business.

On disposition activity, we completed $211 million of asset sales through the end of July. Inclusive of a $38 million loan repayment, our total proceeds generated year-to-date are approximately $250 million. Consistent with our disposition strategy, the sales were largely concentrated in assets with weaker growth prospects outside of our priority markets.

Importantly, we fully exited 2 smaller, slower growth MSAs in Indiana and Washington. With an additional $700 million under contract or LOI, we are raising our full year disposition outlook to $800 million to $1 billion as part of our strategic plan.

Turning to the balance sheet. In the second quarter, we successfully completed the first phase of our derisking strategy. Today, we are pleased to announce the recast of our $1.5 billion revolver as well as the addition of extension options to all of our outstanding term loans. We extended the outside maturity of our revolver to 2030 and term loans to 2027 and 2029. With this, we have decreased the amount of debt maturing through the end of 2026 from $1.5 billion at the end of the first quarter to approximately $600 million today. This decrease in near-term maturities gives us financial flexibility and bolsters our liquidity profile. We'd like to thank our bank partners for a very successful transaction. Over the coming quarters, we will execute the next phase of our balance sheet strategy as we delever by paying off our 2027 term loans with disposition proceeds.

Pro forma for our July asset sales, our net debt to EBITDA is 6x, and we expect leverage to decrease into the mid-5s to the balance of the year. Coupled with the announced dividend resizing, our liquidity and leverage profile has vastly improved from just a few quarters ago. I'm very pleased to report that we are raising our 2025 normalized FFO per share outlook by $0.01 at the midpoint to $1.57 to $1.61. Driving this change is the reduction in our G&A expectations reflecting the restructuring efforts discussed in our strategy presentation, as well as a 25 basis point increase in our same-store NOI guidance. We are proud of our second quarter financial performance and energized by our improved outlook for the year despite an almost $500 million increase to our disposition guidance.

Before turning to Q&A, I'd like to highlight two items from our second quarter press release regarding reporting. First, this quarter, we began reporting leverage utilizing the carrying value of debt. This aligns with the methodology of our peer group as well as the rating agencies. Second, we adjusted our maintenance capital definition to align with peers by classifying leasing commissions based on corresponding TI classifications. Simply put, any leasing commissions associated with first-generation capital spend will now also be classified as first gen. This aligns us with industry norms, and we expect this change to reduce maintenance capital by approximately $5 million to $10 million annually. It is important to note that our FAD per share in the second quarter would have been $0.32 even without this change.

Operator, we're now ready to move to the Q&A portion of the call.

[Operator Instructions] Our first question comes from the line of Nick Yulico with Scotiabank.

I guess maybe first off, since in terms of the strategic plan, a lot of the upside feels like it's in the lease-up portfolio, can you just talk a little bit more about composition of that portfolio, if it's all multi-tenant, if there's any single tenant? And then in terms of the numbers, I just want to make sure I'm understanding the -- can you talk about $20 million to $40 million of upside in that portfolio over 3 years, but then there's also a $50 million number that you give elsewhere? And so I just wanted to understand kind of the difference between those two numbers and then also the composition portfolio.

Nick, it's Pete here. Hope all is well, and great to hear from you. I'm glad you brought up the $20 million to $40 million versus the $50 million of upside. We see $50 million in total upside. I think realistically, it will take us some time to start to spend that capital. And to get that return immediately, these redev projects can take upwards of 12 to 18 months. We've obviously identified a nice group of assets that will go into redevelopment. But to get the full $50 million within the first 3 years, I think, would be a very aggressive assumption. So we did add some footnote disclosure that we still assume we'll get the full $50 million, but it's going to get layered in or phased in over a little bit more time.

As to the lease-up portfolio, I think what gets me really excited about the opportunity to get the upside, the $50 million that we're talking about is if you simply just look at that map page and you see where these assets are located, I mentioned the top markets being Denver, you got Dallas in there as well. There's some other really good markets too, Houston, Charlotte. And the way I think about it is it's really like a value-add portfolio embedded within our primary markets, and we really like the demographic trends within those markets. So that's what gives us the confidence to be able to put out a number like that, which is a pretty big incremental amount of capital and amount of NOI. But we feel quite good about our ability to achieve that.

Okay. Great. And then I just wanted to be clear as well, I mean, in terms of the capital that's going into that portfolio, and you talked about $300 million over 3 years. I wasn't sure that there was additional capital to get to the $50 million of total upside. And then from a funding standpoint, I know you have the money saved from the dividend cut. But is there also -- I think there also may be some capital you're sort of putting aside from the asset sales besides what you're paying off from debt that you're going to use for this portfolio?

Yes. So the $300 million is what's required, we believe, to get to the full $50 million. We don't see incremental capital required to get to the balance that you're mentioning there. And I think the primary source of funding is the way we looked at it was to come through the dividend adjustment. Dollars are fungible, though. So to the extent we can actually commence some of these developments or redevelopments, I'll call them earlier, then certainly, we could use sale proceeds for that.

I think we've just -- we're putting our balance sheet in a position where it's no longer a weakness of ours, but a strength. And so where the dollars come from are somewhat fungible. We don't have to wait for year 3 to be able to spend that capital to the extent that we see the opportunities present themselves earlier.

Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Just wanted to follow a little bit up on sort of the redevelopment pool and some of the rents that you've outlined and the confidence that you can kind of get from that low $20 range up to nearly $40 once you invest this capital. Just, can you talk about that versus maybe underlying market dynamics?

Yes. Yes, maybe I can jump into that. I mean obviously, we see some below-market rents within our markets where we're going to redevelop the assets. I'm not sure that I would use the [ White Plains ] example that we put in our deck, although that is a great example of how we can achieve a really solid 10% cash-on-cash yield. Rents there were in the low 20s. And with the capital investment, they've gone now to around $40 a share, which is actually up pretty significantly. I'm not sure I would look at [ White Plains ], though. That is a pretty tight market, and we've done a lot of leasing with White Plains Hospital there. But nevertheless, I think that's maybe an extreme example of what can happen. And the IRRs on that would be well in excess of the 10% in cash-on-cash yield.

But we certainly see with capital getting spent, the opportunity to drive rental rates. I don't know if they're going to go from 23 to 40, but we certainly see a nice pop. And our underwriting will be -- we will be judicious in the way we think about that. And obviously, the 10% cash on cash yield is really a requirement.

Understood. Sorry, I thought I misunderstood. That was a single example. Austen, I wanted to ask about the capitalized interest that increased pretty significantly, presumably related to some of this redevelopment. And just speak -- was there any change in the policy here? You kind of outlined the capital needs here and just the decision to push these forward into redevelopment as it doesn't look like it made it into the projects that are under construction in the supplemental.

Yes. I'd highlight that if you go into the supplemental, we've got almost 2 million square feet in redevelopment today. On the redevelopment page, where we break out projects specifically, we only are breaking out about 650,000 square feet there. So you should assume -- if you read the footnote on that page, there's about 1.2 million square feet that's not broken out on that page. In that bucket of redevelopment projects, we have obviously been working on that since the beginning of the year and had a significant portion of those commenced in the second quarter.

So obviously, I think given that commencement, you are seeing a commensurate step-up in cap interest, which is what you're referring to. I will say on the page where we are breaking out specific redevelopment projects, given the strategic plan and given the focus on redevelopment over the next 3 years, we will start to provide additional information on that page to allow you to better see what's going on in the redevelopment portfolio.

So how much of that should we coincide with -- how much spend, I guess, should we coincide with that step-up? And should that continue to ramp as you kind of ramp these redevelopment efforts?

Yes. I think from here, Austin, what I would tell you is given the increased level of spend that we will have in redevelopments and the increased projects that Pete spoke about earlier in the lease-up portfolio, I think you should assume that capitalized interest stays at around this level going forward. It will obviously move from quarter-to-quarter, just depending on development moving out or redevelopments moving in and out. But I think generally, around this level would be a good assumption.

Our next question comes from the line of John Pawlowski with Green Street.

Rob, I wanted to drill into the lease-up portfolio, but specifically the ready to occupy space. Can you give me some historical context of why you couldn't get this occupied, why was it under managed and what you're going to do specifically going forward to unlock that potential?

Yes. John, maybe I'll start with that. And then I want Rob to go through the RTO program, which we've had a lot of success on. I mean, I went out and saw a lot of markets this last quarter, and I intend to see a lot more going forward. I'd like to see every single asset in the portfolio.

What I would say is that it was very clear as I went out into the market that certain assets had just been underinvested into for many, many years. And that would be well before the merger as well. And a lot of these assets were assets that came over as part of that merger. We own them now, so they're ours, right? But they clearly had not been invested into.

And the other thing I would say that became very clear to me in certain markets is the relationship with the health system had deteriorated or declined to a level where they were not supporting our assets even if they were proximate to the hospital. And that's a problem, when you don't have your health system and your partner in that market supporting your real estate.

We are fixing that. The team has been fixing that. Good work has been done, but there is more work to continue to do. And I'd say a great example of where this has turned around is in Houston with our North Cypress assets. I would say the relationship with HCA was fractured for many, many years. We are redeveloping that campus. We're actually having a lot of progress there in leasing that up. And we're getting the support of the local hospital CEO, who is actually encouraging tenants to look at our properties now, as opposed to discouraging them in the past.

So those are really the main two drivers. I mean, there's more in there, John, but I just wanted to lay out what I saw when I went out into the road that became like abundantly clear to me. Maybe I'll have Rob just talk about the RTO program now.

Yes. Thanks, Pete. Yes, the RTO program has certainly been something that we've had some success with in the past, having more success now. I think if you look at year-to-date, we've leased a little over 100,000 square feet in that program. Second quarter was significantly -- about 16%, 17% of our new leases were in -- coming from the RTO program. So we are seeing some good success there. The benefits come, and being able to capture demand from tenants who need to move quickly, in some cases, they want to move in that month. So having readily available move-in ready suites is really critical for the leasing team.

I would also say that when you look at getting to cash rent and from lease execution to cash rent paying tenants, the time is significantly reduced through the RTO program. We see generally, it's about a 6- to 10-month improvement in -- from the time they execute a lease to getting to cash paying rent. So some real benefits there for the organization from a cash flow perspective.

I would say in terms of the returns on the RTO program, generally targeting in the mid-teens IRRs and generally targeting about a 7-year vault on those deals. So substantial returns, good use of capital and a nice lease for the organization.

Okay. Second question is on the pool of assets you've sold or in the process of selling. I think the average 7% cap rate struck us as high given they're only 80% occupied. So maybe buyers would be underwriting a higher going-in yield. Is it mostly a function of deferred CapEx or onerous or short-term ground leases? What's pushing those cap rates on those assets higher in terms of a stabilized cap rate?

Yes. I mean, it's a variety of things. But let me -- let me have Ryan Crowley spend a little bit of time on that portfolio.

Yes. When you think about what we have under contract or LOI, you're looking at over 40 different assets and nearly 20 different transactions. And these assets really run the spectrum of MOB types, whether it's on-campus or off-campus, single tenant, multi-tenant, large, small ground lease terms of various term lengths.

So yes, you're right. I'd say there's definitely a value-add component in there. But there's also some core assets in undesirable markets that are sprinkled in there. So when you think about what we're really doing, the overarching theme is that we're exiting markets with weak real estate fundamentals where we don't have scale and we don't see a path to scale. But by and large, the disposition portfolio is generally characterized by lower occupancy, lower margin and older vintage. And all those things play into that 7% blended cap rate you're talking about.

Our next question comes from the line of Omotayo Okusanya with Deutsche Bank.

Pete, great to see you staking the table so soon. Question around the lease-up portfolio, the $300 million you talked about. Trying to understand the $50 million NOI opportunity there. How much of that is just pure lease-up versus how much of it again is kind of getting better pricing after you reposition these assets? And could any of the repositioning or redevelopment be disruptive to current NOI?

Yes. Hey, Tayo. Nice to chat with you as well. I would say the vast majority of the $50 million is simply just leasing up from 70% to 90%. But obviously, getting a better rental rate is going to have some contribution to it as well. But today, we're getting nothing on those -- on that vacant space, and we're actually absorbing all the expenses. So the lion's share of that move is getting tenants into the space.

That said, we do see an opportunity to drive rate with capital that gets spent. If we don't see that opportunity, then what we would do is just look at selective RTOs and vacant suites, right? So it's not as if the entire amount is going to come all from redevelopment. I mean, as we look at redevelopment of those 95 assets, we see probably about 10 that fit into the redevelopment bucket where we think we can get the returns that we need. The balance of that is really going to come through selective capital spend in the vacant suites.

Got it. That's helpful. And then Austen, just hoping you could help us kind of reconcile guidance. Again, you have a $0.01 increase in the guidance. You are picking up from increased same-store NOI of $0.01 or $0.02, you are picking up on the G&A spend, about $0.01 or so. It sounds like you're talking about a higher capitalized interest, that's also a couple of pennies. You have an offset from increased asset sales, but it still feels like that all kind of sums up to $0.03 or $0.04, but guidance was already increased by $0.01. Just trying to understand the difference.

Yes. Hey, Tayo. Thanks for the question. I think you should assume that we had good insight into the capitalized interest moves at the beginning of the year. And so what I would point you to from a guidance perspective is really the $4 million decrease in G&A, coupled with the 25 basis points increase in same-store NOI. And then obviously, we've taken disposition volume up $0.5 billion.

What I would also say, Tayo, is we're halfway through the year. Ryan and his team are very hard at work at getting through the $1.2 billion of strategic dispositions as quickly as they can. We've guided $800 million to $1 billion this year. But I would say it's early in the year, and there's continued timing uncertainty around when exactly Ryan will close on dispositions in the back half of the year.

So I'd say when you put all that together, we're pleased to be able to raise $0.01 given the increase in dispositions and given what Ryan and his team are working to accomplish this year.

Our next question comes from the line of Seth Bergey with Citigroup.

What gives you the confidence you can achieve the 92% to 93% occupancy given occupancy has kind of trended near the high 80% range over the past several years? Is that just a function of go-forward portfolio composition? Is it the change in the structure to better align leasing and operations? Just, if you could talk a little bit more about that.

Yes. So I would say a couple of things to that. One, the macro environment has improved. And if you look the last 5 years and even the last couple of years, occupancy has trended up in outpatient medical. So you've got simply, demand exceeding supply. And I think that's something that we see for the foreseeable future. So obviously, we have that opportunity as well.

A couple of the things I would just mention, we are doing a very significant revamp to our asset management platform here, which I outlined in my prepared remarks. And we certainly see a benefit coming from that. We're also disposing of assets that have historically been underoccupied. And as we laid out the bridge to go from the high 80s into the low 90s, the disposition portfolio certainly plays a role.

So our same-store occupancy today is at 90%. I think that's the highest it's been in -- I asked someone for the stat, I think since, like, 2016. So it's been almost 10 years since you've seen a 90% same-store number here. So I mean, things are changing on their own. And then obviously, I said a little bit of this in my prepared remarks, but the company was not really in a position to have free cash flow to reinvest into its assets. The balance sheet was really a big liability, not a source of strength, and we're fixing all of those things. So I have a lot of confidence now that we have the cash flow to invest into our assets to be able to get that occupancy upside, and that's something that hasn't existed for quite some time here.

So I think for all those reasons, we have a lot of confidence that we can get into that 92%, 93% range over time. It's not going to happen overnight, although you should see a nice incremental benefit as we get more and more of these dispositions done.

And then you talked in your opening remarks about the opportunities for expansion with some of your top tenants. Can you just provide a little bit about what that looks like? Is that kind of investing in the portfolio and leasing existing space to them? Is that external acquisitions? Just kind of what does the growth opportunity to look like with that?

Yes. I think first and foremost, it's having our health systems expand within our existing portfolio if there's room for that. And I think what we outlined on that slide in the strategic plan was in some cases, we can do better, right? And I think we will do better, and we've opened communication with all those health systems to improve upon that. And I feel confident that we will gain some traction within that. I don't know, Rob, if you want to add anything more on to that topic?

Yes. I mean, I think certainly, I think restructuring the platform is going to help in that area. Having relationships really driving the -- more at the local level. But I also think that the opportunities within the redev lease-up portfolio, there's a lot of strong relationships inside of that lease-up portfolio that we are going to continue to expand on, and we think a lot of the opportunities are going to be taken by the health systems. I mentioned in my remarks that about 1/3 of our leasing was related to health -- came from our health system partners. I think we can do better than that. And so I think we're going to continue to focus on that stat and drive that upwards.

Our next question comes from the line of Juan Sanabria with BMO Capital Markets.

All right. Just maybe piggybacking off of Tayo's prior question with regards to dispositions and the earnings. So how should we think about the exit run rate? Because it seems like some of the disposition dilution won't necessarily be fully factored into this year's increased FFO guidance. And as part of that, could you talk about the kind of the next leg of cost cutting and what's driving that?

Yes. Let me start with that. Look, we've been spending a lot of time -- first of all, Juan, it's great to talk with you. We've been spending a lot of time going through the platform and savings within the platform. It's a little bit of what I would call just pure blocking and tackling. And so we've started heavily on the G&A side. And I think we're pretty pleased that we've been able to identify. We said we thought we could find about $0.03 of savings to help offset some of the dilution as we want to get the balance sheet into a better spot. And we've been able to do that, right? It's not easy. Those are tough conversations to have with people. But everybody, I think, here understands that we've got an objective and we know where we want to go.

With regards to additional savings, we'll certainly continue to look for that. I think most of that will come at the property level, right, which will certainly help from a margin perspective as we complete the dispositions, we look at the stabilized, plus the lease-up portfolio. And if you look at the chart in there, there is some references to the total amount of employees within the platform and that number coming down.

I would say that's not the biggest driver of margins improving. That certainly helps improve those margins. But really, the biggest driver of margins improving is going to be from occupancy increasing, and that's where our focus is going to shift. So we certainly have some additional cost savings opportunities, but really, what's going to drive the path to FFO growth is going to come through lease-up and revenue growth.

Juan, it's -- maybe I'll just touch on your disposition. I think at the beginning of that, you had a question around disposition timing as well?

Yes. More just the run rate given the acquisitions are going to be back half loaded on how you'll exit the year from FFO perspective vis-a-vis your revised guidance?

Yes, that makes sense. I would point you to Page 28 of the strategy presentation, Juan, just give you some insight into this. On the dispositions line item here, we give you the $1.2 billion at a 7% cap rate. You should expect that we are selling assets at that 7% cap rate to pay down debt at approximately 5%. We have given you the $0.06 of estimated dilution off of the '25 revised guidance. It would be safe to assume that -- we would assume the vast majority of that $0.06 is going to impact 2026. To the extent that we close on additional asset sales in '26, I would expect it to be earlier in the year. And so I think it is a good assumption to include that full $0.06 impact in your '26 numbers.

Perfect. And then just on the capital spend on the lease up, some of which sounds like it's redev, some of it is first gen, which is now not included in that. Could you just give us a breakdown of like -- to drive that lease-up occupancy higher, the different buckets of CapEx and what will be and kind of won't be in that, if that makes sense?

Yes, I think it's a good question, Juan. If you look at redevelopment and the RTO, RTOs fall into first-gen capital. And then obviously, we break out the redevelopment separately. So I would assume that the vast majority of that $300 million will not be included in maintenance capital.

Our next question comes from the line of Michael Gorman with BTIG.

Pete, could you spend just a minute on kind of the core portfolio? You talked about a focus being maximizing lease economics. And maybe give us some context that with the new organizational structure and with kind of the refined focus, maybe what the opportunity set there is from the lease escalator perspective or the lease spread perspective to kind of drive incremental growth out of that 75% that really represents kind of the core of the HR platform?

Yes. It's a good question, Michael, because I think that's going to be the biggest growth engine and the biggest driver of earnings growth going forward. One of the things that actually was encouraging when I was out seeing the real estate is -- I'm not saying we're getting this in every lease. But in some leases, we're actually getting escalators all the way up to 4%. If you look back 3, 5 years ago, escalators were kind of in that 2.5% range and didn't move for a long, long time. They've started to trend up to 3%. I think 3% is absolutely the norm today unless a tenant has a lease extension option already embedded in with a fixed escalator. If they don't have that, then we're getting 3% or better in every single deal. And we've actually started to talk about, can we push that even further.

The other thing I would say is that portfolio being 95% occupied, we certainly want to keep retention really, really high because capital spend and downtime is actually what really impacts your go-forward earnings trajectory. So keeping that portfolio fully occupied, pushing on retention. And then obviously, when you're in the 95% range, I think, pushing on cash leasing spreads is important as well. So it's really a combination of all those. But I think pushing on the escalators more is something that we're going to continue to work on and see if we can't have some success with that.

That's helpful. And then maybe a question for Ryan. Can you just give us a sense for, as you look at the pipeline of dispositions, given the volatility we've seen year-to-date, how leverage sensitive are the buyers that are coming in and looking at these assets? Or are these more cash buyers, owner occupants? What's the composition of the buyer pool here for those dispositions?

Yes, it's a great question, Mike. And given the breadth of what we're doing, it really runs the gamut. What I would say is that today, there's more buyers and more equity looking to be deployed than there are assets available for sale. Frankly, our bid rosters, we've seen them deeper here on recent deals than we have in recent years. And we're seeing a lot of competitive bidding in the later rounds of our transaction processes, and that drives up pricing.

So as we work through this large disposition portfolio, as always, it's about finding the right property for the right buyer. And the private investors, operators they've partnered in recent years with a lot of new institutional equity that's come into our space. And that equity is continuing to look to flow into the outpatient medical. Over the last several quarters, the financing market has been accretive to going in cap rates. We've seen banks really step up. Today, they're eager to lend. We've seen compression on the spreads and we've seen good movement on the base rates. And today, if you're looking at financing a deal that you're acquiring from us, it's 5.6 to the low 6s on an all-in rate, which again is accretive to going in cap rates. Cap rates today, we're seeing deals go off in the high 5s to the 7 range for a stabilized asset. You could see typically in that 6.5 cap rate range.

But one of the more interesting observations we've had as we've been progressing through the dispositions through the year is a real increase in health system MOB acquisition activity. The proportion of deals that were going to health systems has more than doubled when you look at the transaction volume over the last 2 years. And what's interesting about the health systems is their decision making. It was less about price. It's more about long-term strategy and control over an asset. And frankly, that's constructive to our disposition pricing.

So we're doing direct deals with health systems. We're doing marketed deals that are broker-driven. We're maximizing price and finding the right buyers. And there's no shortage of buyers out there.

Our next question comes from the line of John Kilichowski with Wells Fargo.

Great work on the strategic plan team. First question from me is on -- just on the G&A savings. I know there's roughly $5 million that's kind of been identified. But could you maybe help me bucket sort of that second tranche of savings into -- or maybe the entirety of it into already achieved or identified but not achieved and then maybe get to identify and give us sort of a time line on that 3-year plan when you expect to achieve that savings?

John, it's Austen. Let me bucket this starting with the G&A savings that we have already identified and I would say, carried out the actions necessary to achieve. That is the $10 million of initial savings that we spell out in the strategy presentation. We will have achieved $5 million of that this year, and we expect to capture the remaining $5 million next year. If you then look at Page 28 of our 3-year growth plan, we are highlighting another $5 million to $10 million in additional saves beyond the $10 million of G&A that I just outlined. I think it would be safe to assume that $5 million to $10 million will be embedded more on the property operating expense side.

As Pete mentioned, the majority of the increase in margin at the properties will be driven by occupancy. But with the asset management platform and new leadership, we do believe there are some opportunities to achieve some additional savings in there as well. But I would expect that to be more split over the next 3 years.

Got it. And then maybe on the same-store performance. The same-store cash NOI growth is running still well ahead of the midpoint of your new revised upward guide. I'm curious, how much of that is just you're seeing better demand for your product and better leasing up versus maybe this is also part of the culling process of those noncore assets?

It's a really good question, John. I'm going to be really specific on this, which is, just to your last point, the assets that were sold during the quarter had only about a 30 basis point impact on our same store. So we were right at 5 either way. I would say if you look under the surface, what is happening is the 100 basis points year-over-year increase in occupancy is really starting to pull into that same-store NOI growth.

In the first quarter, I talked about some difficult comps. But I think as we get into the second quarter, this is, what I would say, much more reflective of what I would expect from the business given the year-over-year occupancy increases that we're seeing. I do think, to your earlier question, our same-store growth year-to-date is 3.9%. Obviously, that's a little bit above where our guidance -- our revised guidance is for the year. But I'd say as we're halfway through the year, we've got a lot of leasing still to do this year. So we'll see how things play out in the third quarter and update you then.

Yes. And the one thing I would add to that, John, I mean, obviously, as you look at the 3-year framework that we put out in the deck, it's got 3% to 4% NOI growth embedded within it. I mean, I'm searching for the 3% to 4%. I know some of the numbers you've seen have been at 5%. If we could do better, great, but the baseline that we set out was the 3% to 4%. We're working hard to achieve that.

Okay. Very helpful. And just last one for me. I know Pete, you've already talked a ton about this today, but just on -- as we think about CapEx and the focus on the RTO plan, I'm just kind of curious how I should think about the cadence of CapEx as a percentage of NOI going forward here?

Yes. Austen, do you want to take that?

Yes, I think, John, it would be a fair assumption. I answered this a little bit earlier, but just to put a fine point on it, the RTO program is really, I think, what many people call a spec suite program, which is going to fall into and does fall into our first-generation TI bucket. And then the capital for redevelopment will obviously flow through the redevelopment bucket. So I think from a maintenance capital perspective, it would be fair to look at our year-to-date experience and assume that's a reasonable starting place looking forward.

But maybe -- that didn't answer your question entirely. I know that those are all the right facts. I was just -- your question might just be how should we model the $300 million getting spent. I mean, I think the RTO will probably get spent ratably over 3 years. And I think the redevs, probably the best assumption today is it's probably more of a ratable spend. But if we can accelerate that a little bit right? Because we talked about $20 million to $40 million of the $50 million in our framework. I mean, I'd like to get as much of that as we can. But I think the way we initially thought about it is spending that over 3 years and if there's an opportunity to accelerate it, great. But I think for modeling purposes, I'd probably look at that $300 million as $100 million each year for the next 3 years.

Our next question comes from the line of Mike Mueller with JPMorgan.

I have a couple of questions. But a quick clarification first. Rob, when you were talking about 75 to 125 basis points of leasing absorption in '25, was that overall occupancy, same-store occupancy, multi-tenant occupancy? What was -- metric that was for?

Yes, that's the same-store occupancy gain guide that we gave for this year.

So that's overall. Okay.

Yes.

And then I guess when we're looking at the 3-year NFFO target, [ 165 to 185 ], what are the biggest moving parts between the top and the bottom end of those -- of the range?

Go ahead.

Yes. Good question, Mike. I think on Page 28, we try to give you some of kind of what I'll call the goalposts here for either side. I would say I think some of the biggest things that we'll look to drive as the biggest number, if you look across this page, right, is the annual NOI growth that Pete touched on earlier for the base portfolio. So driving that compounding cash flow growth of 3% to 4% in the portfolio. The closer we can be to 4%, the bigger that delta becomes and there's obviously an enormous amount of spread there in terms of the compounding over 3 years.

I think the second is how quickly can we achieve the $50 million of upside in the lease-up portfolio. From a redevelopment perspective, that can take time for that number to hit. So how much falls into that 3-year period, we're going to be working as hard as we can, but that will be a little bit of a spread as well. I think from the dispose and other things we've laid out, those things kind of are what they are. And the math is what it is at this point based on the strategic plan. I would kind of point to those two topside items.

And obviously, Mike, as you know, everyone is going to model our refinancing rates in some way. And we laid out what we think the sort of bookends are with a little bit of cushion on the low end and the high end. I mean, we have 0 control over that at this point in time. So obviously, that could change, and there's nothing that we can obviously do about it. I mean, obviously, we would be fans of rates declining. I think everyone in REIT land would say that'd be fantastic, but we don't have any control over that. But we did lay out what we thought were kind of the bookends today, and that could change tomorrow.

Our next question comes from the line of Omotayo Okusanya with Deutsche Bank.

I just want to -- just a quick follow-up. Just curious what your thoughts are in regards to the 1 -- the Big Beautiful Bill and potential positive or negative implications for medical office buildings?

Yes. I mean, that's a good question. I think the short answer is probably it's still a little too soon for us to know exactly what's going to happen. We actually met with one of our larger health systems earlier this year, and she conceded that they're still getting their arms around what exactly this means. So I'd say probably too soon to tell.

Our initial reaction to it is like a lot of these changes, it tends to indirectly have a benefit on the outpatient model, and that's something that has not changed for a long time. And I think there are charts that show that, that's been happening for many, many years, just given the profitability inside of our buildings versus inside of the hospital.

What hospitals could be most affected by this, we have talked about that as well. And I think the rural hospitals are probably the ones that will struggle the most with the Medicaid costs. We really are not impacted at all by that, just given where our assets are geographically located.

So it's a good question, Tayo. We're continuing to monitor it. I mean, and outside of that, there's obviously been some CMS proposals that have been out there on site neutrality, that's come up a little bit. And again, I'll just reiterate the point I said before, which is that, to me, feels more like a real benefit to the outpatient model as doctors can choose the site where they would like that procedure to happen. They don't just have to have the default at the hospital. And again, we see that as a demand driver for our space as well. And I think a lot of our other peers have been saying the same thing as well.

So it's a really good question. We're continuing to monitor it, but I don't look at it as having an impact necessarily on our business.

And there are no further questions at this time. I would like to hand the call back over to Pete Scott for some closing remarks.

Yes, perfect. Thanks very much, and look, thanks for everyone for joining the call. We put a lot out. We appreciate you digesting at all and asking some great questions on this call. We look forward to seeing all of you as we get out into the market and do a lot more IR work this quarter. So we look forward to seeing you in the upcoming months. Thanks very much.

This concludes today's conference call. You may now disconnect.