Good morning and welcome to the Healthcare Realty Trust Third Quarter Financial Results Conference Call. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Todd Meredith, CEO. Please go ahead.

Thank you, Debbie. Joining me on the call today are Carla Baca, Bethany Mancini, Kris Douglas and Rob Hull. Carla, if you could first read the disclaimer?

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 risks are more specifically discussed in our Form 10-K filed with the SEC for the year ended December 31st, 2019 and in subsequently filed Form 10-Q. 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. The matters discussed in this call may also contain certain non-GAAP financial measures, such as funds from operations, FFO, normalized FFO, FFO per share, normalized FFO per share, funds available for distribution, FAD, net operating income, NOI, EBITDA and adjusted EBITDA. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the Company's earnings press release for the third quarter ended September 30th, 2020. The Company's earnings press release, supplemental information, Forms 10-Q and 10-K is available on the Company's website. Todd?

Thank you, Carla. We are pleased to report positive results for the third quarter. My opening comments this morning will focus on three themes. First, the business for our tenants has rebounded quickly. Second, our properties are performing well, and finally how we are accelerating the pace of acquisitions. We are encouraged to see health systems, frontline healthcare professionals and patients adapting to the demands of COVID while addressing much needed routine care and surgical cases. This is evident in the activity levels at our buildings including foot traffic, patient visits and parking, which have all rebounded to 90% or better and are steadily improving. The country is seeing a rise in COVID cases in certain markets, but we expect our facilities to remain open and elective procedures to continue. Public Health officials and providers are better equipped and have more experience managing inpatient capacity than back in the spring. They have gained valuable understanding of effective therapies and the availability of vaccines is on the horizon. Our tenants are now operating at productive and sustainable levels. We credit their resilience to the critical need for specialty outpatient services. Requests for rent deferrals tapered off months ago, and rent collections have returned to normal. We have seen property tours pickup notably, which bodes well for absorption in future periods. While there may be bumps along the way, we expect our portfolio to perform well and steadily improve in the quarters ahead. These positive trends have encouraged us to shift to offense. We are capitalizing on a sizable and growing pipeline and we have increased acquisition guidance substantially for a second time this year. Ramping up our investment pace has come about organically. Our experienced team has worked proactively in our target markets to source more properties. We are extending our…

With an uncertain backdrop of macroeconomic and political factors, healthcare providers have proven quite resilient in 2020. Providers are focused on meeting strong demand for health services and much needed delayed care. Higher acuity inpatient volume in surgeries have ramped up quickly for hospitals while the lower acuity service lines are expected to normalize in the months to come. If COVID continues to spike, we expect providers to be able to treat patients without shutting down other scheduled care. Hospitals now have adequate staffing, PPE and better coordination of inpatient bed capacity as well as more use of outpatient facilities. Healthcare providers could also potentially benefit from additional federal assistance whether through a fit economic stimulus bill or with the remaining funds previously allotted to them under the CARES Act. For physician offices, HR's tenants have returned to 90% or more of normal volume on average. They have seen a heavy shift back to in-person care even as higher Medicare reimbursement remains in place for telemedicine visit. Physician office hiring in September outpaced every other healthcare sub sector adding 18,200 jobs. This is more than three times the average monthly hiring for physician offices pre-COVID. After several months of steady hiring, physician offices are now at 97% of pre-COVID staffing level, a sign of strong patient demand, physician revenue growth and a positive outlook for the coming months. Tuesday's election once decided will have implications for the direction of health policy over the next four years. Several swing states remain under contention, but Republicans are likely to hold the majority in the Senate. If former Vice President Biden prevailed in the presidency with the split Congress, we expect status quo for healthcare, at least until the next mid-term elections. A more progressive agenda on health policy such as a public…

Thank you, Bethany. Performance in the third quarter was strong, rebounding well from the COVID impacts we saw in the second quarter. Healthy rent collections and internal growth combined with accretive acquisitions contributed to normalized FFO per share of $0.41. It is noteworthy that this is $0.01 above a year ago even with almost $0.02 of dilution from the $244 million disposition of the Mercy assets in July. And, looking forward, we're on pace to more than redeploy these proceeds by year-end, which positions us well to sustain meaningful FFO per share growth in 2021. Our ability to grow FFO amid pandemic-related challenges is a testament to our portfolio strength. As expected we experienced sequential quarterly impacts from the typical third quarter seasonal utility expenses as well as the Mercy dispositions. These were partially offset by nearly 50% increase in parking income over second quarter. In addition, we benefited from a $1 million sequential swing in COVID rent deferral reserves including a $300,000 release from the reserve in the third quarter. The deferral reserve was reduced given that we collected over 96% of scheduled deferred rent payments and there were no material new deferrals granted. Further, and most importantly, third quarter rent collections were 99%, back to pre-pandemic levels. Remaining deferrals are scheduled to be repaid by year-end. Turning to operating performance. Same-store NOI was driven by 2.4% growth over the third quarter of 2019 for the multi-tenant properties. Same-store multi-tenant NOI growth was enhanced by operating leverage created from quarterly year-over-year revenue growth of 1.6% and operating expense growth of just 0.5%. Building utilization has rebounded from the second quarter lows, but it's still running below pre-pandemic levels. This contributed to the expense growth below our long-term average of 2% to 2.5%. We expect to see a gradual return…

Thanks, Kris. Healthcare Realty is confidently moving forward with additional investments. This confidence is supported by the resilient cash flows and strong rent collections from quality medical office buildings. As the pandemic unfolded, a number of marketed deals were pulled and many investors hit the pause button. In contrast, we remained active assembling the robust pipeline sourcing one or two buildings at a time. Over three quarters of our pipeline this year has been directly sourced from building owners and relationships we have cultivated over many years. Our focus has been primarily centered on creating concentrations of buildings around leading hospitals serving dense growing population. Over 95% of our purchases in the last three years have been in markets where we were already invested, with the balance located in a couple of target markets where we see a clear path to invest in more buildings. Since July Healthcare Realty has acquired seven MOBs for $117 million. These properties illustrate our focus on forming property clusters around leading hospitals. These clusters position us well to leverage local leasing knowledge and provide a diverse mix of options to tenants with varying space needs. Local expertise also helps us identify and underwrite additional investments in the market. A recent example is a multi-tenant MOB purchased in Los Angeles. The building is 100% leased and located adjacent to Huntington Hospital. This growing 503-bed hospital signed a definitive agreement to affiliate with Cedars-Sinai. This is our third acquisition in the last year around this campus, and we have gained line of sight on additional prospects adjacent to the hospital. Another in Colorado Springs is an off-campus MOB next to a building we acquired in March of this year. The investment gives us control of the two property complex that provides a convenient destination for medical…

The first question comes from Juan Sanabria with BMO. Please go ahead.

Hi, it's Juan here. Thanks for the time. Just on the investment pipeline, I just wanted to get a clarification of how the prospects that you're looking for maybe different mix between on and off-campus versus your current portfolio, maybe sounded like you're a little bit more apt or wanting to take on more of or adjacent assets and if so, if you could comment on the relative pricing differential from a cap rate perspective, on the on versus off?

Yes, I think if you look at our acquisitions that we've made this year, there have been more adjacent properties. Most of them have been adjacent, there have been a few off-campus properties in there, and I think when it comes to the -- and I think if you look at the pipeline for the remainder of the year, be a similar mix of on and adjacent -- largely on and adjacent and a few off-campus sprinkled in there. I think when you look at the pricing difference, there is typically seeing a -- you know, depending on the market you can see anywhere from 50 basis points to 75 basis points pricing difference between those. In some cases, it could be slightly higher than that, but generally it's in that 50 basis points to 75 basis point range.

Juan, I guess I would -- I would say that's sort of the on versus off and then adjacent is going to skew closer to the on cap rates. So not as much of a difference there. The closer yard at the hospital, I mean, it's almost kind of the linear line of distance to hospital, but it can vary by market as Rob said.

Great, thanks. And then you kind of alluded to it in -- for 2021 in your acquisition, you said you had a multitude of kind of capital sources. So, how should we think about how you feel about your cost of capital relative to cap rates today and your willingness to either equity fund or would you -- or would you be more likely to fund via capital recycling as you move forward in 2021 assuming a status quo here in your cost of capital today?

Yes, first right now, we do have the cash proceeds to redeploy. So we will start there. I guess blended, we're working to keep our leverage in the low 5's where we are -- where we will be once we redeploy this cash. And so we are looking at it from that blended WACC basis. And, right now that is certainly accretive for us based on where we're able to purchase assets in the market in that kind of mid 5's range. And so we will continue to define with a mix of debt and equity. We are well positioned on the equity front with the forward ATM proceeds that we have -- have lined up so far this year, we have $112 million available through that forward equity right now. So, that will be used once we go through our cash that we have on the balance sheet to fund the current pipeline. So, well positioned, but we also certainly have access to other forms of capital outside of that as well.

The next question comes from Jordan Sadler with KeyBanc. Please go ahead.

Thanks, good morning. Just a follow-up on sort of the last question regarding the pipeline of potential acquisitions, the under contract and the under LOI. Is the mix there heavily skewed as well toward off-campus?

No, I think the mix is heavily skewed in the contracting; mix is skewed toward on an adjacent, not much off.

On and adjacent, okay.

Yes, if you look at the -- if you think about the definition of our adjacent, it's within a quarter-mile.

No, I follow that. I'm just, I mean it looks like a lot of -- I mean a lot of what you guys have done. I caught a nuance I think in your prepared remarks, Todd where you said you have a strong preference for on-campus multi-tenant MOBs, I just -- I noticed that's kind of, that piece of the mix is kind of going down, I'm just kind of curious, are you still able to source those on campus transaction specifically or is it really more of this adjacent?

Yes, I think, yes, we are still able to source on campus. I think, what you're seeing, we've -- over the past three years, we've our acquisitions have been -- 95% of our acquisitions have been in target markets where we already have a presence. If you look even closer, about 70% of those have been around campuses where either on or adjacent to campuses where we already have a presence. So, I think what you're seeing is us having success in building out these clusters or tight clusters around campuses where we want to build out a presence. And so, where we've -- where you've seen a number of the acquisitions that we've made here recently as adjacent, those are part of our strategy of building out smaller portfolios around campuses where we want to be. So I think it's -- we can still get at the on-campus properties, it's just our work and the way we source properties through these direct relationships and local knowledge where we're going out and buying one and two at a time. Oftentimes it comes with buying one property to enter that submarket and then building upon that. And, so that's really where the strength of our portfolio pipeline building comes in, is that we're constantly buying properties around campuses where we want to be and we've identified an opportunity to build out significant square footage.

Okay, that's helpful. I know there is -- there is quite a bit of a narrative obviously surrounding sort of work-from-home for traditional -- more traditional locations or traditional office space and office users obviously versus you know your primary tenancy. Is this kind of -- how do you think about this in underwriting Rob when you're looking at even adjacent stuff around these hospitals and even for locations, do you think there'll be potentially more product available for sale as a result of this as obviously some of these other landlords are hurting?

Yes, I think -- I think that when you look at our underwriting and when we're underwriting the adjacent buildings as well as the on, I mean there still a significant demand for tenants to be located on or around the campus. We've seen our statistics show that even during the pandemic where we had this fall off in foot traffic in some of the on-campus traffic that was really caused by these restrictions around elective surgeries and inpatient services, that's largely rebounded, and I think that shows up in our statistics. And so we think that there's going to be continued demand for tenants and space around not only on but adjacent to the campus as they serve these higher acuity services that still need to be located in and around the hospital.

I might add.

Go ahead Todd.

Well, I was going -- probably the same comment, I think you're on to something in one -- on one hand that you're right, if somebody has a local investor regional has a portfolio and they're struggling in retail or they're struggling in some other sector for the reasons you cited economic generally, or even the work-from-home trend, I think you're right. They are looking at some liquidity from an area like MOB where the value has been preserved and doing well. But, on the other hand, there's going to be probably a similar amount of people that are saying, I want to hang on to that if I can because it's doing really well, and then there's a lot of other demand from institutional capital to move into MOB. So it's a balance, but I do think, you're right. It probably lends itself to a little more availability at the margin, and I think you've seen us certainly benefit from that and I think it will continue to be the case for a while.

Jordan, this is Kris. I'll add one thing actually back to your previous question about the on versus adjacent. As we look at that, as Rob mentioned, our definition is pretty tight at a quarter-mile, and if you look at a lot of campuses, frankly walking across the campus could be more than a quarter of a mile. And, so we look at those pretty close to interchangeably and if we look at our performance across our own properties versus our adjacent properties, they're very, very similar. So, I wouldn't read too much into a slight shift in one quarter or even one year of adjacency versus on, they're very, very similar.

That's helpful. And then just Kris, while I have you a clarification just looked at the same-store portfolio page that you guys provided is helpful. Can you just shed a little bit of light on the three assets that we're moving out from reposition, the 443,000 square feet?

Yes, we had a couple of assets, things are moving around. We had some that were sold. We have a couple of that -- they got moved into reposition. One of those is one that we have talked about before, that is the fitness center down in Dallas that we are in the process of reconfiguring that fitness center, was over 100,000 square feet. Currently, we are -- the new fitness center is going to be about half of that and we are going to be spending dollars to upgrade the building and convert the remainder of that space into clinical space. Another one, we had a general office building in Dallas, as well that we had a tenant that had moved out, multi-floor tenant, that we are backfilling with multi-tenant floors. We actually already had a new 10,000 square feet tenant that is taking some space in there. So we're already in that process, but there is just going to be some transition that goes on, as we are repositioning those assets. So, that's kind of the main culprits in terms of the shift in the overall square footage, but that one building in -- or the fitness center is, it's over 200,000 square feet and so it makes up the predominance of the change in the square footage that you noted.

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

Thanks for taking the questions. I know you mentioned, we shouldn't read into too much into, kind of, the on versus adjacent. But, I guess it's also one of the few or maybe one of the first time you've actually outlined, kind of, growing the pie so to say, by looking at adjacent and more so off like you mentioned. So I'm just, maybe just higher level, if you can give us a sense of what's the impetus for this change even if it's slightly on the margin. And then related to that, how is your underwriting may be different for when you look at off-campus versus what you've traditionally looked at in terms of tenants or bumps or any other metric you may be looking at?

Yes, Vikram, I think, it's a good question and I think certainly we would agree it's obvious we are doing a little more adjacent and it's really not so much new, we've actually been doing it for a while. I think what you're seeing is our ability to accelerate that trend and it's really stacking up nicely this year and we're continuing to add those on campus buildings, but what you're seeing a lot of this year is our ability as Rob described, over 70% of these assets or where we're developing that cluster. Again that tight ring, quarter mile around the campus and either adding to the cluster of adjacency or our ideal scenario is we have adjacent, we have on, and then as we build, sort of, what I would call the network effect among the tenants and the leasing and the knowledge that we have from being in that flow. All of the sudden we have a sense of what are the right competitive buildings where we see ourselves competing the most, whether that's on adjacent or off. And, so what we often we get in the flow of that information whether it's through brokers or directly ourselves, and the dialog with the hospital and the providers, and suddenly you realize that one building down the street a mile, which is off-campus by our definition is really a strong building and competing well. We like that, let's go look at that, let's go to see if we can get a hold of that building. And, so you develop that knowledge the longer you're in a market the more critical mass you build. And, then obviously the flip side of that is you get some more benefit, just from a cost standpoint, but our view is really it's revenue enhancing play rather than just a cost, because there's a limit to the cost benefits. So, our view is just building out, sort of, that cluster strategy, and the network effect, and it's anchoring it always with some line of sight down the road of getting on campus, and really tethering yourself to the strength of that local submarket, that cluster effect.

Yes, that's actually where I was going, but you've mentioned cluster. So I was trying to get a sense of what you hope to, kind of, enhance in terms of bumps or your rent spreads or then even up from a cost perspective, maybe the overall margin in that specific market. So I'm wondering if you have any anecdotes or experiences to share where you do have clusters, kind of, how some of those metrics may have started to pan out or what the goals are if you don't?

Yes, I think it's early to give you this concrete example of it does, X or Y exactly, but what we are really seeing, I mean, several places, from just all over the place, Memphis, Nashville, Denver all these different places where we own these on and adjacent or we see, if we don't own those, in some cases, where these tenants might be going and where that demand builds and so it gives us that insight, but I think the core of it is what you said it's getting to a stronger absorption trends. That's a way we see to building that absorption, that positive absorption and then translating that to sustaining, sort of, the 3% to 4% cash leasing spreads, potentially more than that in any given period, but over the long run we think that it's a very compelling way to generate those spreads. And again, it's not a new concept. We've been doing it for a while and now we're trying to really aggressively move more of that direction, and so you're seeing it help us sort of accelerate and elevate the pace of our acquisitions and frankly we think it's very sustainable. I mean, we have a strong pipeline going into next year. Rob mentioned the group of properties under LOI and even some of the ones on our contract that may not close; they'll close in the first quarter. So, we'd be off to a great start next year to kind of keep up a pace at least is strong as this year.

Once thing, I might add to that, Vikram. Vikram, I might add to that is over the last five plus years you have seen us selling some off-campus buildings, I would say those are ones that though didn't fit with this, kind of, cluster idea. But at the same time we always said, we weren't going to 100% on or adjacent. We said there are some good properties that we owned and kind of fit this characteristic that Todd is talking about. So, right now we're, call it 10%, 15% that is off-campus, and so if you see us buying somewhere in that range, it will probably stay in a similar range to what we currently have in terms of the overall mix. So, I would say it's all marginal and it's not an overall major shift in terms of what you've seen out of our portfolio, but we do think it can certainly be additive force.

Okay, fair enough. And then just one last one, you've done a great job, sort of, in getting the payout now, as you mentioned hoping to be 90% or lower. I'm just wondering, kind of, if you have updated thoughts you can share when investors might think about or see a dividend increase.

Sure. So clearly as you pointed out, we've made some progress. And I think as Kris outlined, we should be 90% or better for the calendar year of 2020. Some of that is clearly attributable to a little bit of the leasing slowdown we saw off the back of tours slowing down in the second quarter. So that's helped us a little this year. So, we don't want to get too ahead of ourselves on that. But, even if we spend a little more next year to make up for that, it's obviously for the right reasons, it's getting occupancy and absorption. So, but we still are optimistic about next year and our goal is really to drive comfortably into the '80s and really see line -- direct line of sight and ability to drive into the mid '80s. But, I think the good news is it's not if, it's when, and I think as we put together our assessment of '21, our forecast internally, we will be very focused on that. So it's -- I wouldn't suggest it's imminent, but it is certainly in our planning thoughts, and we hope to be there sooner rather than later, but I think we've got to take a hard look at how the leasing and the payout looks for '21.

Our next question comes from Nick Joseph with Citi. Please go ahead.

Thanks. You gave some details around tour activities. So I'm just curious how you think about that as a leading indicator for ultimately the leasing and kind of what the typical relationship is between that activities and ultimately sign in?

Yes, It's Kris. I'll take that. We certainly track our leasing and then kind of conversion ratios and we did see a drop off as we have talked about in the second quarter, rebounded very nicely in the third quarter, and when you average those two together, it's pretty similar to what we saw over the first quarter. That's what's, kind of, giving us some of this optimism, as well as what we are hearing just on the ground from our leasing people, of discussions with providers, as well as with hospital systems that are looking to move forward with various clinical plans. So, we'll continue to track that, that tour activity as we move into fourth quarter. There is a bit of a lag there in terms of tour -- initial tour converting into occupancy, but we're pleased with how well it has rebounded in the third quarter, and that's providing a lot of optimism that you're hearing for us going into next year.

Thanks. And then just on your tenants. Do you have a sense of how much pent-up demand is still, kind of, unsatisfied from previous locked down? Are we backing to a generally normal course of business at most of these divisions?

I would say it's not quite back to normal. I think they're still working through it. You have probably experienced in your own lives, if you are trying to get a doctor's appointment, it's still usually a pretty good delay right now. So, I think there is still pent-up demand. I don't think it's terribly high such that it's going to take forever to work through it, but I do think you still are seeing some of that, and I think the biggest bottleneck is just, kind of, being very safe in everybody's practices and making sure you don't crowd waiting rooms and kind of overwhelm the system. So, I think everybody is doing their best to, sort of, keep it safe and do the appropriate volume right now. So, I think it will continue to benefit. It will be a grind here, as we said, we're about 90% plus varies from 82% to 100% across the market. So, I would see that as just grinding higher until we really see, I think we're all sort of looking for some of the trends to improve probably into the spring and obviously the vaccines will be, I think the real moment when, I think you'll have worked through most of that and get back to sort of a run rate, that's 100% or better where we were pre-COVID.

The next question comes from Rick Anderson with SMBC. Please go ahead.

Okay. So, just quickly on the Mercy disposition -- I guess disposition. Would that cap rate kind of in the realm of normal like 5.5%, just curious if you're making any money on that deployment trade or if that's more about a longer-term growth thesis redeploying those proceeds?

Yes. No, that was a higher cap rate; it was 7.5% cap rate. It was really about the higher rates that we had there and some smaller markets in the single-tenant risk. So, we did have some dilution that was associated with that, but we think from a long-term value, it's still a good trade for us.

Yes, I'm sorry, I remember that now, apologize. On the adjacent, sort of, theme that we're talking about here. Is there anything about that, I understand the clusters, and you can only move away from the center of a hub of a circle, you naturally would go off-campus, but is there anything also about that is a sign of the times people maybe don't want to be so close or even connected to a hospital, because of the environment? Or is that not playing a role at all in, sort of how the market -- and you're behaving in the marketplace from an acquisition standpoint?

No, not at all. I mean, we absolutely want to do the on-campus. I think what you've seen from us is that we, kind of, strategically pick which market is, number one, that we want to go into, as Rob said over 95% of those have been the ones we're already in. And, then we go down and drill down and say, well what hospitals do we want to be around. We've done that well and then now, what we're doing, as we've said, and you've mentioned, we're building that out by the adjacency and again it's a very tight circle. So, there is no change that we want to be on campus, we absolutely do. And frankly our portfolio, which is heavily on-campus as you know. We have not seen any concerns there. It's not like we're seeing different foot traffic levels and activity levels. It certainly didn't see it play out in the deferral situation in the second quarter differently on versus adjacent versus off. So it's very much a concerted effort to, sort of, develop these clusters, and Rob talked about 70% of what we're doing is in the same cluster, well then the 30% that's not in the same clusters that's us trying to find the next cluster. Maybe we get a single on-campus building somewhere in a new sub-market or maybe we get a an adjacent one, and then immediately what our team is doing is saying, who are we -- talk with our leasing people, who are we competing with, and therefore what buildings would we want to own in that submarket. So it's just -- frankly, it's more likely, you're going to get to the adjacent first, because the hospitals often own the on-campus if they're not already owned by some other institutional buyer like us. And, so you can get a foothold oftentimes adjacent initially and you can easily build on that more, but getting that on-campus is sort of priming yourself to get in position to be the best buyer of the on-campus, we've done already on it.

Okay. And, then let me think about this a little bit differently than, if perhaps there is a bit more attention being drawn by medical office in this environment for all the reasons you probably be able to list pretty quickly, and that includes distance off-campus where people maybe -- there is some consistency to the idea of being close to a home, people might feel safer whatnot and all that, and I don't know how long that will last. But, is this an environment where you can actually sell more of what you do own off-campus, the environment is more sort of accommodating of that or is there really no movement there either to speak of?

Well, I would say, as Kris pointed out earlier, we have probably historically sold a fair bit of our off-campus, and it was really going through and identifying, which ones we want to own long-term versus not. And, so we kind of whittled it down to a lot of the off-campus we have, which is again fairly a small percentage. Those are the places where we want to continue to invest and develop clusters in those markets. So, I would say we're not looking at taking advantage of that trade. Now on the margin, may we do that here or there, sure? But, I would say generally we're very comfortable with the off that we have, and I would say you will see that off-campus for us tick up a little, because as Kris said, we're almost 90:10 on an adjacent versus off and so I could see that drifting to 85% to 80% on an adjacent, but we're comfortable there as long as it fits strategically, it's the right demographics that, kind of, plays into our clusters. So we're very comfortable with that mix.

Yes. And Todd, I would just add to that. This is Rob, I would just add to that point about clusters. If you're investing, obviously generally going to see us where we already have a significant on or adjacent presence. So, it's really complementary to that clustering effect. It's not going to be where we're going in and starting to cluster with an off truly off-campus building.

Yes. Got you. Last one, perhaps for Kris. If your -- you're 4.8 times debt-to-EBITDA, lower than your target and you go into 2021 and you said I think 5.5-ish type of range. How much does that feed growth, in other words by levering up a little bit in 2021 assuming low interest rates and all the rest you've got a lot of accretion from the next incremental acquisition if it's funded entirely with the debt. So I'm curious how much does that move the needle when you're talking about material FFO growth next year?

Yes. Rich, I think the way to think about that is you kind of really have to pro forma for the cash that you have on the balance sheet. So it's kind of I was trying to highlight in my prepared remarks. So yes, we are 4.8 times today, but if you take our $183 million of cash and redeploy that in the mid-5's that debt-to-EBITDA ends up going back into the low 5 times on a debt-to-EBITDA basis. And, so we're really already in our target range of 5 times to 5.5 times. And, so I wouldn't anticipate a meaningful shift in leverage moving forward. I will point out that we did see some benefit to earnings from the refinancing that we did back in October with the new bond issuance, new 10-plus year 2.5-year bond issuance, it's just over 2%, which brought down our blended interest rate by 30 basis points. So, we are seeing some benefit on that, but I would say we're not looking to try to accelerate earnings moving forward by levering up. We plan to keep that leverage there in the low 5's which is frankly kind of where it is today once that cash is redeployed.

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

It's John here on for Lukas. Thank you guys for the time, and congrats on the quarter. Just, I guess a two-parter from me. I just wanted to get a better understanding of the supply outlook particularly around your cluster markets and where you see kind of the lack of supply coming on? What's your desire there to have stepped in on the development side to fill that need?

Yes, I think on the supply side, I think if -- when we evaluate markets, certainly starting with our target markets and as Todd said going in and identifying a campus that we want to locate around, certainly supply becomes a driving factor. And, really with the way we source buildings we're going out and identifying the buildings that we want to own and figure out who owns those buildings and then engaging in a dialog with either building owners or local brokers there that can help us begin the form those relationships. And, so that certainly drives our -- some of the identification of these clustered markets, and if we don't feel like there is a substantial enough opportunity to get enough buildings, then we'll certainly move on to the next market that we've identified. And certainly, as it relates to development, sure, if it's a tight market, oftentimes we're in the clusters we have a -- we've formed a nice relationship with the hospital and that's really what's been driving our development efforts of late. We certainly want to develop properties inside of those clusters when we see the opportunity, but those are going to be largely driven by the hospital there and their needs and their growth, and so we have certain situations where we've done that. Our current building that we have under development or we finished this year, Valley; that was a situation where we were already on campus and had an opportunity to develop an additional building there through our relationship with the hospital. So, it's certainly something that we will continue to evaluate while we're building out these clusters, and have a -- actually have a couple of opportunities that we've been working on that fit that criteria. So, the next couple of months we'll probably begin -- be coming out with a couple of new developments.

The next question comes from Jon Petersen with Jefferies. Please go ahead.

Thank you, good morning guys. A few kind of COVID-related questions, sort of on TIs, they were a little bit lower this quarter, but I was actually just wondering whether, as you talked about renewals or new leases with some of your tenants if they have reconfiguration needs, social distancing or telehealth or anything like that that would necessitate TIs to go higher going forward.

Yes, on TI, we kind of look at it based on spend as well as is commitments, and our spend is down, but that frankly is because the volume is down a little bit as we talked about because of the slowdown in tours that we saw earlier this year. If you look at our commitments, they're frankly kind of right in the range of what we historically expect, we say renewal is kind of $1.5 to $2.00, more in that $4 to $5 for new leases. So, we're pretty close to that right now. So, we're not seeing a meaningful shift. We're monitoring what may occur with any changes for COVID in terms of space needs. We're not seeing people as of yet making a material shift in the way they're using that space. I think there's a lot of discussion around that and there are things that could be done, and probably also depends on the specific of the location. People are getting much better of using online check in, so you don't have to have as many people in a waiting room and being able to turn exam rooms and cleaning and such. And so, we will be on the lookout for that, but we have not seen anything as of yet that would make us change our typical expectations of what our leasing TI commitments would be.

Okay, that's helpful and then yesterday we hit the unfortunate milestone of 100,000 new cases. I'm just curious if you're having discussions with your neighboring health systems on creating additional capacity for them or if there is kind of been plans in place or whatnot for another -- for another spike in overcapacity at your neighboring hospitals?

It really has not returned to anything like what we saw in the spring, which is good news. The bad news is there are specific places we know that are spiking. It doesn't seem as though it's currently happening in our markets to a material degree. So, it really hasn't led to sort of that return to discussion about more -- addressing these issues in some more dramatic fashion or just a helpful way. We haven't even had a lot of that. So, I would say right now, we're not seeing it. The good news is we all went through this in the spring and even sort of a second surge in July in a couple of markets. So, I think everybody feels a little better, is breathing a little easier about our ability to sort of react and handle that well. And, I say our ability -- I mean, it's really the hospitals and us lending a hand with whatever we can do. So, we feel good about it. We were even having a discussion with a couple of our Board Members who lead health systems in different markets and they feel way better than they did back in the spring about inability to handle these spikes. So, very encouraging what we're hearing, obviously it's hard to know going into the winter, but so far so good.

If I could just one more kind of COVID-related question. If we get a vaccine I would assume there is going to be a very high volume of people that are going to be seeking. I guess, to get the vaccine and for it to be administered. Does that create any opportunities or anything for you guys any short-term -- yes, I guess, demand for administering the vaccine?

I think it certainly will lend itself to more demand for these fairly low acuity visits to people going to get the vaccine to their kids at the pediatricians' office or more likely internal medicine, family practice type offices. We'll see, I mean obviously not -- none of us has great insight into exactly how this is all going to work, but I think it will be good and it will hopefully lead to people being more confident to kind of return to normal activity. So, it clearly will be a benefit, but nothing specific at this point.

The next question is from Daniel Bernstein with Capital One. Please go ahead.

Hi, good morning. I think you kind of answered this in the last set of questions. But have you seen any difference in, I guess the demand for the size of your tenants? I mean are your tenants looking for any additional space or expansions? I mean, you had a lot of confidence in your ability to increase occupancy over the next 12 months, just from lease, but I'm wondering if tenants are actually asking for more space as well.

I would say generally yes. I mean, we are definitely seeing a fair amount of expansion talk. It's proportionate. I think it's similar to the positive signs for more new leasing and absorption. So, we definitely see that. I wouldn't say it's a 10 times type of consideration, but we are very encouraged by that. And, one place that we've seen a lot of that going on is this redevelopment in Memphis. It is really just kind of growing through expansion and a big driver of that, one part is hospital, building out their outpatient practices there, but also an orthopedic and surgery center, that is really ramping up. So, very encouraging signs, I would say, on some of that higher acuity demand. And, we think that will translate to some more expansions. But in proportion, just generally more demand.

Okay. Then, I guess it's like not related to COVID, you're not looking for more space because they need...

Right. It's more just -- it's just volume. It's not back to --

Volume of healthcare needed, okay.

Yes, volume of healthcare, and not just saying we need bigger waiting rooms or anything like that.

All right. And then just -- I don't know if you could talk a little bit who are the sellers, not by name, but by characteristic. The sellers of the assets that you're looking to buy from, I mean, is it hospitals monetizing assets or is it just private landlords? I guess, trying to just get a flavor for whether you might see some more hospital monetization here, whether people are reallocating capital somehow or again -- versus just private sellers looking to capitalize on the cap rates that are out there and reallocate someplace else within their portfolios?

Yes, I mean I think that's right. I think it's primarily private building owners that are looking to sell. We've talked over the years about hospital monetization and kind of waited for the wave to come, but we're just not seeing that. We had the Mercy assets that we sold that with hospital that they purchased this last quarter, I think there has been another instance that I saw recently were hospital purchased some buildings. So I don't view them as is large source of product now or in the near term.

Okay. And going back to the on versus adjacent question. Do you see any discernable difference in occupancy or rate growth between an on-campus and an adjacent property? I'm just trying to understand that if you -- I know it might be an incremental shift, but if you shift at all to adjacent to the fundamentals of your rate increases change at all.

No, I would say, I think Kris alluded to this, we really see a very common pattern between on and adjacent. There are some differences. One thing we tend to see on campus and this is a good thing, but oftentimes you have a strong anchor occupancy not one lease, but a lot of leases with the hospital, and they oftentimes have a right to take or meet terms of third party leases as those come up, whether it's a new lease or renewal. And so a lot of time these hospitals will backfill or just take space as it becomes available and that's great for us. But, at the same time you're losing a provider, a third-party provider that wants to be around that campus. So, that's a benefit we see with adjacent, is that you get that synergy of, "Hey we can own the building across the street and if we have multiple buildings we can capture that tenant as they look to continue to be around that campus." So, that's certainly a benefit we see, and so we kind of see, again, just slightly different behaviors, but very similar operating trends in occupancy, retention, leasing spreads; all those metrics look very similar.

And these are fee simple right?

Yes. Almost always you would see that'd be fee simple.

Okay. That's all I had. Thank you very much.

The next question comes from Omotayo Okusanya with Mizuho. Please go ahead.

Yes, good morning. Actually, good afternoon. Congrats on the solid quarter. It looks like you're kind of '21 near-term outlook is pretty solid as it pertains to external growth internal growth as well, and of course potential dividend growth. So the question I have for the team is, at this point what kind of still keeps you worried or up at night, just kind of given there is a lot of positive indicator at this point for your earnings outlook?

Sure. One thing that I think Bethany touched on. Some of these things we -- none of us can control right? But it's -- these external factors, and some of that is just the capital markets, but that seems to be settling down positive right now, and I think clearly the political environment. And it's not that they were particularly bad outcomes on the horizon in any of these outcomes, it was just that uncertainty, lack of visibility, those were some of the things that I think have been hanging on the capital markets, but also hanging over the healthcare world as well. And, I think now that we have this sort of insight that it probably is going to be a mixed outcome, I think as Bethany articulated, it looks like it should be a much more tame, less volatile environment for at least two years if not longer. So, I think there is a pretty nice sigh of relief on everybody's part that maybe we'll see a little less change here and people can continue to get on with focusing on their business and growing and frankly recovering from COVID. I think COVID still present some uncertainty, but I think everybody feels more confident today than we did several months ago. And I think all those things combined give us that confidence on top of really just organically what we're doing, as you said, the portfolio plus a really great amount of traction on building the pipeline for acquisitions and seeing that ability to keep it up. So, we are very optimistic about '21.

Okay. That's helpful, and then just if you could indulge me, if we go down the ACA rabbit hole for a little bit and lets kind of assume ends up sort of kind of that is unconstitutional, the whole thing kind of get scrapped. How do you guys think about what the potential impact could be to hospitals and hospital systems, which again are your major client base?

Sure. I think obviously you know this and suggested it. It is a rabbit hole, it's speculation. As Bethany kind of described in her remarks, we really do feel very confident that it will be determined to severable, there's just a lot of precedent on that. Obviously we could be wrong, you never know where it could go, maybe back to the benefit of the split outcome between the administration and Congress and the Senate and the House. I think hopefully what that leads to is a more productive environment that says we have to get some things done, that may show up in the form of a stimulus bill, it could show up in the form of something that would sort of step in if that were to happen, if the ACA were struck down. I think you would see quick efforts from the administration if it's Biden, obviously from the house, but even the Senate to say we've got to do something to cover these lives and shore that up. So, I just think that it's so unlikely that it's probably not worth a whole lot of time on it, but I don't even think that's the draconian outcome.

The final questioner is Sarah Tan with J.P. Morgan. Please go ahead.

Hi, good morning. Thanks for taking my questions. Just one question on my end. I noticed that your proportion of renewal leases with a negative leasing rate increased this quarter, should we be reading into that?

Yes, I would say it's really is a story of the tails this quarter. So, we did have a bit more that were on the negative, but we also had a bit more that were on the positive, and so they kind of balanced each other out, and back to the performance that you've seen from us. On the left tale there on the negative, we did have one property that had an unusual renewal -- some unusual renewal option language that was a bit more favorable for the tenant, which drove the higher proportion of that negative spread. Excluding that one property, you would have had 10% of the spreads would have been negative which is pretty consistent with our historical range and what we have described as a reasonable long-term expectation on that end. But as I mentioned, the good news is that we also had 31% that were greater than for this quarter. So, they did a cancel each other out. So, I would say an anomaly and not something that we would expect long term, and still very pleased with the overall performance.

This concludes our question-and-answer session. I would like to turn the conference back over to Todd Meredith for any closing remarks.

Thank you, Debbie. We appreciate everybody tuning in this morning and showing your interest and your questions and we will be available today for follow-up or any time. And we look forward to virtually meeting a lot of you at NAREIT. Everybody have a great day. Take care.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.