Healthcare Realty Trust Incorporated (HR) Q2 2026 Earnings Report, Transcript and Summary

Hello, everyone. You for joining us, and welcome to Healthcare Realty's 2.52 million to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Doris Lo, Doris, please go ahead.

Thank you for joining us today for Healthcare Realty's second quarter 26 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 06/30/2026. The company's earnings press release and earnings supplemental information are available on the company's website. I would now like to turn the call over to our President and CEO, Peter A. Scott.

Thanks, Doris. Joining me on the call today are Robert E. Hull, Daniel Gabbay, and Ryan E. Crowley. It has been exactly 1 year since we put out our strategic plan. At the core of the plan, we laid out clear and purposeful changes designed to improve operational performance, strengthen our portfolio, reestablish credibility, and maximize shareholder value. 1 year henceforth, and I am pleased to report we are outperforming every 1 of our key objectives over the last 4 quarters. Same store NOI growth has averaged 5.7%, Same store occupancy has increased to nearly 93%. Retention has averaged nearly 90%. Cash leasing spreads have averaged 4.1%. Leverage is down nearly a full turn. And we have raised guidance every single quarter along the way. Including by another $0.02 this quarter, driven by strong operations and leasing, a successful convertible bond offering, and accretive capital allocation. Our outperformance has been a collaborative effort across the entire organization, and it would not have been possible without the hard work of all 500+ employees and the support of our best in class board of directors. We have built a winning mentality and a culture of executing with purpose and intensity, that is now pervasive throughout the organization. Shifting to our recent leasing success. Year to date, we have executed 3.5 million square feet of leases. That is over 10% of our total portfolio. You can see the benefit of our leasing success in our weighted average remaining lease term, which stands at 65 months today an improvement of 15 months since we disclosed our strategic plan. Going forward, we have very limited near-term exploration risk, providing a clear path for earnings growth over the next several years. Our leadership team has also implemented a new leasing model designed to drive ROI across the portfolio. Over the last 4 quarters, lease IRRs have improved nearly 3 thousand basis points and our payback period is down nearly 25%. As we keep executing this quarter after quarter, our core earnings growth engine will re-rate meaningfully higher. Turning now to health system relationships. Which was an important facet of our strategic plan. Our dialogue with health systems has increased exponentially over the last year. And we are constantly collaborating to assess mutual value creation opportunities. Want to highlight a couple of recent health system transactions. First, CommonSpirit. In late June, we executed approximately 160 thousand square feet of renewals in 5 states at a positive 7% cash leasing spread. As part of this transaction, we agreed to sell common spirit 15 acres of land in Denver for $16 million removing our current land carry costs. CommonSpirit intends to use the land to expand the hospital. On top of that, we also retained future MOB development rights on the site. A great win-win transaction for both sides. Second, Wellstar. Year to date, we have executed 215 thousand square feet of renewal leases at a positive 4% cash leasing spread, along with 27 thousand square feet of new leases. As part of our lease negotiations, we agreed to sell Wellstar to Kennestone Cancer Center for $36 million which equates to more than $600 per square foot and a mid 5% cap rate. We plan to recycle these proceeds into JV acquisitions at a substantially higher yield. Another great example of a win-win outcome. Third, Ascension St. Thomas. Early July, we executed an LOI for 203 thousand square feet of leases across 3 campuses in Nashville. The cash leasing spread is positive 11%, and we expect these leases to be executed in the third quarter. As part of this transaction, Ascension and Healthcare Realty launch a comprehensive redevelopment of the Ascension St. Thomas West campus. Located in 1 of the most vibrant submarkets in Nashville. We plan to invest $35 million in our 3 medical office buildings, The hospital and health campus will undergo a $120 million modernization led by Ascension to enhance the consumer experience and develop new service lines. This is a great win-win outcome and further deepens our partnership with Ascension St. Thomas. Shifting now to capital allocation. Which is quickly becoming an important component of our earnings growth narrative. Our targeted approach continues to prioritize redevelopments joint venture acquisitions, and managing our balance sheet and returning capital to shareholders. In the second quarter, once again, we did exactly what we said we would do. First, redevelopments. During the quarter, we invested approximately $25 million in this portfolio, and we have leased it up to 67% an improvement of 1.4 thousand basis points over the last 4 quarters. We are underwriting 10% cash-on-cash yields across our redevelopment portfolio. We see some larger campuses in key markets like our West Campus in Nashville, entering the redevelopment portfolio in the near term. Second, joint venture acquisitions. We are fortunate to have a great partner in KKR who has a stated goal to grow in the medical office sector. Since our last earnings call, we have closed on or have under contract or an LOI approximately $200 million of assets or $40 million at our share. The going-in cash yield to HealthCare Realty on these transactions is approximately 7.5%. Which is highly accretive relative to our implied cap rate of approximately 6%. All of these high quality acquisition assets complement our existing sizable footprint within their respective markets, including Greenwich, Connecticut Charleston, South Carolina Port St. Lucie, Florida Seattle, Washington and Denver, Colorado. The medical office transaction market remains vibrant. Institutional capital clearly sees the same positive sector fundamentals we see, strong tenant demand, a severe lack of new supply, and rising NOI growth rates. Third, balance sheet and return of capital. During the second quarter, we moved quickly and decisively to address our near term debt maturities. We raised $1.1 billion in capital through our convertible bond issuance and delayed draw term loan. Blended interest rate on this capital is approximately 4%, saving us 100 basis points versus our original guidance. Importantly, we can be opportunistic and patient now before we access the debt capital markets again. We also bought back $75 million of stock in the second quarter, Since putting out our strategic plan, we have now repurchased $175 million of stock at a blended price of approximately $18.50, creating more than $30 million of value for shareholders. Our capital allocation priorities are currently being funded with free cash flow and disposition proceeds. Year to date, we have disposed of 6 buildings and 3 land parcels for approximately $75 million at a blended 5% cap rate. We also have an additional disposition pipeline of nearly $200 million in various stages. That amount could grow further if we are successful and opportunistically executing on low cap rate direct to health system sales at premium pricing levels. Let me finish now with what is on the horizon for HealthCare Realty 2.0. We have proven we can execute a new superior medical office model. The next several years are about scaling it. We set out to become the trailblazer in medical office, And today, we are not just talking about that ambition. We are delivering it. In addition, the pillars of organic growth occupancy, retention, cash leasing spreads, and consistent escalators They are real. And they are the engine underneath everything else we do. Now we are layering disciplined, accretive capital allocation on top of that engine. This is not a 1 quarter story. It is a durable, repeatable framework and we intend to keep pulling on every lever. Are pleased to see our valuation improving, but let me be very clear. We are not satisfied. And we are not slowing down. We see meaningful upside ahead of us, as the only public REIT that is actively growing its medical office platform we intend to lead this sector, not just participate in it. We have the team, portfolio, balance sheet, and momentum to define what best in class looks like. For outpatient medical, and we are just getting started. With that, let me turn the call over to Robert.

Thanks, Peter and good morning, everyone. Healthcare Realty delivered another strong operating quarter. We executed 23 leases, totaling 1.5 million square feet. Including 350 thousand square feet of new leasing. Same store cash leasing spreads averaged 4.8% Average escalators were 3%. And the weighted average lease term was nearly 6 years. Tenant retention was a standout at 88.5%. Helping drive approximately 25 basis points of absorption and lifting same store occupancy to nearly 93%. We also ended the quarter with approximately 460 thousand square feet of signed not occupied leases representing roughly 140 basis points of future occupancy and giving us visibility into additional gains in the back half of the year. Our health system relationships are playing a major role in generating our outstanding results. Peter mentioned a few major deals in his remarks. But we also had significant second quarter leasing activity with Baylor Scott and White in Dallas Fort Worth, UW Medicine in Seattle, Kaiser in San Francisco, and HCA in Houston. This activity further demonstrates the great progress we are making with our partners. Redevelopment leasing also advanced. We executed nearly 60 thousand square feet of new leasing during the quarter. Moving these properties to 67% leased. And we are building a strong pipeline of activity that will translate into additional leasing gains in coming quarters. Broader supply demand fundamentals remain favorable. Medical outpatient completions as a percentage of inventory are hovering near all time lows. While sector occupancy continues to reach record highs. We are also seeing increased health system M&A activity, as systems look to build scale, strengthen market position, and improve financial performance. Acquisitions can expand patient reach, broaden services, improve payer leverage, and create cost efficiencies. Over time, these benefits can support stronger margins, better balance sheets, and lower cost capital for these systems. For landlords, this activity can translate into stronger tenant credit and additional capital sources to support health system growth that drives demand for outpatient medical space. Against this favorable backdrop, our new and renewal lease pipeline remains robust, at more than 3 million square feet. Including several large health system transactions that continue to progress. Finally, tenant satisfaction. Our recent annual third party tenant survey showed year over year improvement across every metric. These results are further evidence that the operating platform changes we made improving the tenant experience, and strengthening execution across the portfolio. As we move into the back half of the year, we expect strong leasing momentum high tenant retention, and improving lease economics to continue driving same store NOI growth. With that, I will turn it over to Daniel to discuss financial results.

Thanks, Robert. I will briefly comment on our earnings balance sheet and capital allocation and our higher revised guidance for the year. Our momentum continued in Q2. With normalized FFO per share of $0.41 and same store cash NOI growth of 5.1%. Which includes almost our entire portfolio. Additionally, FAD per share was $0.32, resulting in a quarterly dividend payout ratio of 76%. In May, we opportunistically accessed the capital markets during a reprieve in global conflicts and issued $700 million of exchangeable senior unsecured notes due 2032 at a coupon of 3%. The issuance was strongly received and upsized by $100 million during the marketing process. We utilized proceeds to repay our $600 million senior unsecured notes due in August this year, which had a coupon of 3.5%. We can currently repurchase $75 million of shares with the offering, which was both financially accretive and additive to the overall deal execution. When factoring in the capped call, exchangeable notes have an effective conversion price of $27.41 per share. Or 40% above our closing price on the day of marketing. Also during the quarter, we raised a $400 million delayed draw term loan. Exchangeable notes and delayed draw term loan effectively address our maturities through 2027, and with an additional $1.2 billion in liquidity on our line of credit, we have ample flexibility through 2029. In the meantime, we will remain opportunistic evaluating the bank and bond markets for any future steps to further extend our maturity profile at attractive rates. As Pete noted, we remain disciplined and decisive if there are acquisition opportunities in our joint venture with KKR. Since the end of March, we have closed on or under contractor LOI for nearly $200 million in acquisitions or $40 million at share. These transactions will be efficiently match funded with dispositions throughout the year. Such as our land sale to CommonSpirit, and our MOB sale to Wellstar. Most importantly, will continue to keep our leverage in the mid-5x area. Turning to guidance, which you can find on page 11 of our supplemental report, we increased full year normalized FFO per share guidance by $0.02 to $1.64 at the midpoint, and we increased the upper end of the range to $1.66 per share. Our same store cash NOI outlook is now 4.25 to 5%, up 50 basis points at the bottom of the range up 25 basis points at the upper end of the range. These results are driven by strong leasing outcomes and 4% to 5% cash releasing spreads year-to-date in our same store portfolio. Uses of capital increased $115 million for the year, to reflect the incremental share repurchases we made alongside the exchangeable notes as well as the $40 million to fund our share of the JV acquisitions mentioned earlier. Disposition guidance, therefore, increased by a similar amount. Again, recall, our guidance only reflects acquisitions, redevelopments, or other uses of capital announced to date. 1 last housekeeping item before we go to Q&A. In addition to filing our earnings results, we will be refiling our securities shelf and ATM prospectus supplement since the shelf is due to expire in August. We will also file the resale registration statement as required by the registration rights in connection with the exchangeable notes. With that, operator, let's go ahead with Q and A.

We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute. Your device. Please stand by while we compile the q and a roster. Your first question comes from the line of John Kilichowski with Wells Fargo. John, please go ahead.

Hi, good morning. Thanks for taking my question. Peter, in the opening remarks, you talked about trending ahead. You are a year out from your strategic plan, and you are trending ahead on all I am kind of curious now, where does that put you in terms of your outlook on that $1.99 or $1.97 to $1.99 range that you gave in that strategic plan.

Yeah. Thanks, John. Hey. it is Peter here. Good question you are looking for. 2028 guidance. But it is AFFO and not FFO, AFFO, just to be clear. But, look. As I said on the oh, no worries. No worries. I said in my prepared remarks, we are tracking ahead of schedule. I think a couple of things I would just point to. Thanks to the convert deal and better-than-expected same store NOI. This year. And actually, what we are seeing as we look out to the next couple of years and as fundamentals continue to firm up, we certainly feel like we are ahead of schedule on that. And if you go back a year ago, 2026 was really expected to be a flat year of earnings since we had you know, about $0.07 of dilution from portfolio optimization, and we also had some refinancing headwinds. Our $1.64, which is the midpoint today, the year is not done. You know, we are halfway through. You know, that is actually $0.03 of growth. When you look at this year versus, you know, last year. And, also, we are only getting about a half year benefit from that. Convert this year. So I am not going to give an exact number, except to say that we feel quite good about, you know, how we are trending just a couple quarters into the, 12 quarters of projections we put out, that 3-year plan.

Thank you. And then my second 1 is on the KKR. JV now. We are seeing you acquire alongside them. I noticed no flywheel image in the supplemental yet, but I am curious just about the sizing of that opportunity. And then also with the match funding piece, you know, the end of last year, there was this idea of getting out of the noncore assets, and there was some great pricing there. But just curious what you are funding it with and how you are managing to keep this sort of NAV accretive that you are still selling out of some of the things that you do not want to own but are still able to achieve these great cap rates to afford sort of that spread?

Yeah. it is a really good question. And, obviously, KKR has been a great partner. They came in as part of a recap couple years ago and always had ambition to grow that vehicle. I would say that health care realty was holding that vehicle back from being able to grow. There was not a lot of free cash flow and there was a, you know, optimization plan that was discussed but actually had not been put into effect yet. So it was very difficult, and, obviously, the dividend issue was very difficult for that you know, joint venture to grow, and we are pleased now that we have done about a half a dozen deals so far. This year. it is about $300 million in total. With the stuff that is either closed or under contract. And it is it is pretty attractive yields to us. it is attractive yields to them. You know, how we think about funding that, which I think is the crux of your question, You know, to date, we have actually focused on capital recycling. And free cash flow to basically fund all of our capital allocation initiatives. I think, look, at the end of the day, it is our job as executives to maximize earnings growth. So as we think about funding capital allocation priorities, if funding them is more advantageous through dispositions, because of the cap rate we are able to get, then we will certainly focus on that. You know? If accessing the equity markets becomes more accretive than, you know, the dispositions, then we certainly could pivot to that. We have not done that. To date at this point in time. Or we certainly could look at both. But I think what is most important for us is we are going to look at every lever to maximize know, earnings growth going forward. And I will also just point out, and I know this is a long winded answer, you put out a good note last night. We are going to maintain discipline. Here. We kind of use the d word, not the o word. that is come up a lot. So we are not looking to create that you know, flywheel you are talking about there. Certainly, it is accretive today for us to think about capital allocation priorities, but we are going to maintain discipline as we think about it. Very helpful. Thank you. Yep.

Your next question comes from the line of Michael Mueller with JPMorgan. Michael, please go ahead.

Good morning, guys, and thanks for taking the question. You have Nahum on for Michael this morning. I guess my first question, looks like you guys have built a pretty sizable redevelopment pipeline to this point. What does the shadow pipeline look like? And you guys think you will be able to sustain a size close to this over the next few years?

Yeah. I can take that 1. it is Peter here. You know, we actually are really pleased with the progress we have made on the redevelopment pipeline and the preleasing Hopefully, everyone heard it in my prepared remarks. But when you look back a year ago, we have improved preleasing in that portfolio by 1.4 thousand basis points, which is pretty significant. And we actually have a nice pipeline as well, you know, building on that. So I would expect to see continued absorption as the year progresses. You know, we have got around 25 assets in redevelopment today. We have made a big push to try and identify the assets we want to go into redevelopment. So they go in on the front end of our 3 year plan that we had put out. So that pool has increased the last couple of quarters. It will increase a little bit more as the year progresses. We have not put the 3 assets of the Ascension St. Thomas campus in yet. Those will go in as the year progresses. I would expect that number to probably go up to maybe 30 or so. But then also, we will get the benefit of assets completed that will cycle out. So I would think we will probably reach a peak towards the end of this year. I think it will always be part of the ongoing business. I mean, I have been around this business for a long time, and where rental rates are trending, I think there is a real opportunity for us to spend capital on assets in our existing portfolio. And increase occupancy and or rental rate and get a very, very nice return on that. So I think we are at the front end of that, and I think it will be a continuous part of our business going forward even outside of the strategic plan, but it will not be as large. Outside of the strategic plan as it is trending right now.

Got it. Thanks. And maybe just a quick follow-up sticking on redevelopment. I think the supplement shows about 9% to 12% returns for the current pipeline. Could you guys walk us through what would need to happen to maybe achieve the low end and high end of that range and maybe where you guys, you know, currently think the pipeline stands within there?

Yeah. I mean, I think the pipeline is probably right in the middle of there. I think some markets, you will get a higher yield. In other markets, it may be on the lower side of that. I think Nashville is probably a pretty good example where it is probably more like a 9, as opposed to a 12. But, you know, for this market, for what those assets would trade for, on a stabilized basis with improvements. I mean, you are creating pretty significant value. I am just talking about cash-on-cash yield, not about NAV, you know, value creation. On that. And, again, it comes from basically, you know, 2 important pieces. 1 is an uplift in rental rates, which is very real. And then the other would be absorption within the assets. You know, some of the assets that are in there are assets that had been underinvested into for quite some time. And we have said that in the past. So we see a pretty significant upside in occupancy. So if you are getting upside in occupancy and you are getting an uplift in rate, you are gonna get to the higher end of those cash on cash yields. If you are just getting more of a rate uplift, and a little bit of occupancy uplift, you are probably gonna be on the lower end of that range. Got it. Thanks, guys. Yep.

Your next question comes from the line of Michael Carroll with RBC. Michael, please go ahead.

Yep. Thanks. I wanted to circle back on the Ascension agreement that you guys highlighted in your prepared remarks and in the supplemental. Can you provide some color on the extent of the $35 million planned investment that HR is making? And is that a revenue generating investment? Or is it are you I guess, it is a set Ascension's rents increasing? Or is that just reflected in the 200 thousand square feet of leases that you completed?

Yeah. So, Mike, there is actually a couple pieces to that. And first of all, we are really pleased that we got this agreement announced. In fact, actually, Ascension press released it a couple of weeks ago, so we felt like it was important to get this out. And in our earnings release. And we have got a very close relationship with the Ascension St. Thomas team that is based down here in Nashville. And I do not know, 5+ years ago, there was a big redevelopment plan on the Midtown campus that was under occupied and that campus is now 100% leased effectively and pretty sporty. Rental rates. I think it is kinda leading rental rates in the Nashville market, and I know many of you have seen it. So this is a campus that is in, you know, West Nashville closer to, Belmead. So it is actually, like, right at the entrance way to the most expensive houses here in Nashville. And it is been an underinvested campus for quite some time. it is about 80% occupied today. And the hospital has not been invested into in a long time. And Ascension has a real mandate to invest more capital into the Nashville market. I mean, it is a target market for them. So we collaborated together to figure out what we think makes the most sense. And you know, we extended, the Ascension leases 10 years. At that campus at a pretty nice mark to market. I mean, you are talking about a double-digit mark-to-market of 11%. that is not in our numbers that we reported last quarter, so that certainly gonna help us when we report our numbers. Spread over a lot of leases in the third quarter. And we see that campus going from 80% occupancy up to over time, probably close to 100%, like in the Midtown campus, it generates $7 million of NOI today. We believe it is gonna be $10 million+ of NOI when all is said and done between absorption as well as the, the favorable leases that we have put in place. So, again, as I said, that is kind of in that 9% to 10% range that is part of our cash on cash yields. But, again, I cannot actually emphasize enough that you are gonna get some pretty significant I think, NAV, how you benefit from them because the cap rate is certainly gonna compress on that asset.

Okay. Good. No. that is helpful. And then similarly, just on the CommonSpirit investment that you talked about or the sale. Yeah. I guess, is CommonSpirit building on that specific land site? And when you say that HR is maintaining future MOB development rights, is it within that campus that you will just do a land lease where they own the land and then you will develop it. it is not on that site or is it just on other parcels nearby?

Yeah. No. It will be on that site, Mike, I mean, that is a great win. The common spirit hospital beds are full. that is actually a hospital that is right at the foothills of the Rockies. And it is got a great, you know, ortho as well, and they need to expand. And the only way they could expand is with the land that we owned. Adjacent to the you know, hospital. So they have development rights to build you know, and expand the hospital there. And then we were able to retain your typical development agreement to the extent that a medical office building gets built on that, parcel of land, it would be a development that we have the first right to do, and it would be under a ground lease structure. Very similar to how typical developments get. You know, completed on campus here. So we were able to take what was a nonincome producing asset, in fact, an asset where we were losing money, monetize it, and also achieve some pretty healthy leases alongside of it as well. So we felt like that was a great win. CommonSpirit achieved what they were looking to achieve, and we achieved what we were looking to achieve. And the relationship is as strong as it is ever been with CommonSpirit right now. Great. I appreciate it. Yep. Thanks, Mike.

Your next question comes from the line of Michael Stroyeck with Green Street. Michael, please go ahead.

Thanks, and good morning. Curious just on the magnitude of releasing spreads by occupancy. How large is the divergence of those spreads you are seeing between, call it, your stabilized portfolio and your lease up portfolio?

Yeah. Do not know that I have all those numbers. You know, at the tip of my fingers right now, Mike. But I would just say that, to achieve close to 5% this quarter on cash leasing spreads, which I think is your question. I mean, you have gotta have the vast majority of your leases you know, rolling up at some pretty nice you know, levels. I would say, to be to be fair, we are probably getting better cash leasing spreads on more well occupied buildings as opposed to the lease up buildings just because I think we have a lot more leverage in a building that is full And we are actually going through a process and it is been helping us you know, figure out exactly how hard we can push. We are gonna rank all of our buildings. And on the ones where we feel like we have got high occupancy, strong markets, you know, I would not be surprised to see double digit cash leasing spreads. On those. And then in buildings where we are trying to lease up the asset, you know, we are we are probably not gonna get as robust of a cash leasing spread, but we are a lot of absorption associated with it. But it all blends today to around 5%. You know, high fours. And that is trending, you know, favorably. So we feel quite pleased with where it is headed. Makes sense. Then maybe we could switch gears and talk to transaction market a bit.

What are you seeing in terms of the strength of the private market bid today have higher rates in recent months led to any sort of reset in pricing expectations or just general, you know, thinning of bidding tents from some of the more levered buyers?

We do track it. We track it pretty closely. And we have not seen a big impact in right now, cap rates with rates having backed up, but it is still, obviously, you know, early days. We do like our strategy. Of doing, you know, single asset or very small portfolio deals with KKR. I mean, when we talk about the $200 million that is under you know, contract right now or closed, that is spread over 5 different, you know, transactions. So we feel like if there is a backing up of you know, cap rates at all, we will be able to take advantage of that in the future. But to date, we have not seen a backing up, We are an unlevered buyer within that vehicle, which I think positions us you know, quite well. And I would just say that there is not a lot of other REITs that are actually showing up. When assets are on the market today. So I think we have a little bit of a competitive advantage from that perspective, but, obviously, there is a big you know, private market bid, but, typically, those buyers, in institutional capital needs a partner. To oversee those assets. So like I said, I think we are we are pretty well positioned. But again, we are going to be very disciplined. I keep using the d word. On how we think about this. We are gonna manage our balance sheet effectively. We are going to continue to allocate capital to redevelopments. And we will continue to look at acquisitions to the extent that we feel like it is augmenting our earnings growth. Understood. Thanks for the time.

Yep.

Next question comes from the line of David Rogers with Raymond James. Dave, please go ahead.

Yeah. Good morning, everybody. Hey, Peter. You talked about in your opening comments just the strength of the lease IRRs that you have improved and obviously the spreads are part of that, concessions must be down. But maybe dive a little bit more into that of how much of that is, obviously, you guys have done a good job, but how much that is also just the market improving on the leasing front? But give us a little more color on kind of those IRRs and what you have done.

Yeah. Well, I think it is a couple of things. I think, obviously, fundamentals have firmed up, Dave. that is certainly been helping. I will also point out retention. I mean, retention has increased and increased pretty significantly, and that is a function of I think, better service we are providing to our tenants combined with lack of, you know, new supply. And on renewal lease deals, the amount of capital required is a fraction of what is required on a new lease deal. So that is certainly helping us as well. And when we talk about the pillars of growth, you know, retention is 1 that we certainly put in there. I know cash leasing spreads tends to get everyone a little bit more excited but we look at, you know, all of the different, you know, pillars including retention, and that certainly has helped. So I think it is part fundamentals and then just part, you know, better retention. Limiting the amount of capital that has to go into to any kind of, lease deal we do. Thanks for that.

And then maybe a follow-up on leasing as well. I think Robert had mentioned the 3 million square feet in the leasing pipeline, if I heard that right. Maybe talk about under the new HR what that looks like in terms of, you know, how much of that you think you close over time? I know you have a about a year worth of history to kind of determine that. But what does that look like, I guess, over the last year? How does that compare historically? So an execution rate, And I guess, where do you guys see that going overall?

Yeah. It is Robert. Yeah. The pipeline is strong right now. A little over 3 million square feet. About half of that is health system activity. We have seen an uptick there. As Peter mentioned, we have we have got a number of been improving our health system relationships and the dialogue there with the systems. We have seen a good bit of that activity over the past couple of quarters. You know, we did about a million and a half square feet of leasing this quarter. You know, that is, you know, a little down from last quarter. But I will say, think we mentioned this last quarter, 2 million square feet was a was a big number for us and that of that was a number of deals with these health systems that we had been working on for some time, and we dragged them across the line. So the 3 million square feet is in the pipeline is strong, and I think that kind of in that million-and-a-half range that we have been executing, it is probably a good pace to think about whenever we as we go forward. And then that is a combination of renewals and new leasing So I am comfortable with that, and I think as we just talked about, the demand out there for outpatient medical is very strong and getting, in my mind, stronger as we see the continued push from inpatient to the outpatient facilities by these health systems doing more procedures in the outpatient setting and it being more having higher margins for these systems. So I think we are just gonna continue to see that happen. Great. Thank you.

Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin, please go ahead.

Thanks. Good morning, everyone. On the $3 million of upside of NOI at the Ascension campus in Nashville, you highlighted earlier. I am just wondering, is that part of the $20 million of upside within the lease up of the unstabilized pool And are there other assets or sort of relationships with chunkier upside opportunities that you are evaluating in the near term that kind of really help close that gap? Going from $75 million, you know, up to the $95 million stabilized number that you flagged in the presentation?

Hey, Austin. it is Daniel. Good morning. I will grab that 1. Short answer on the Ascension campus is, is that when you think about that $20 million, that is not in there. And I think as we continue to look through the portfolio and as we have talked about, there could be incremental opportunities versus the $25 million or so asset we already have in redev. We look for incremental opportunities across all 560 plus properties in our portfolio all the time. And these things can change as well as you have different demand drivers, improving demand drivers in a market. So it is a great relationship with Ascension. They are a fantastic partner. So we are glad to, have that coming. And we will look to always continue to find more upsides in the portfolio.

And then p as you move into the phase of scaling the portfolio, through the disciplined capital allocation you spoke to, You mentioned you are nearing a peak on redevelopment. How close are you to evaluating more wholly owned opportunities through either development or just straight wholly owned acquisitions?

Yeah. that is actually really good question. I think just stepping back for a second, when you look at our 3-year plan, we did not assume really any capital allocation beyond redevelopments. Right? So the fact that a year after we put it out, we are seeing some progress on some prudent capital allocation on the JV acquisition side. I would say that we are pleased that we have gotten here a lot faster than maybe we had anticipated, which is great. Right? But we are gonna be extremely mindful of accretion as we put capital out the door And I think putting capital out the door in JVs today creates the most amount of accretion for us. Therefore, we are gonna prioritize joint ventures. that is not to say we could not consider something on balance sheet in the future. But, again, it is all just gonna come down to the types of assets we wanna buy and what is the earnings benefit. You know, from it. So that is just the lens in which we will look at everything. Great. Thanks for the time. Thanks, Austin.

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

Thanks, Seth. it is Nick Joseph here with Seth. Maybe just on internal growth. You are trending ahead on full year cash since your NOI guidance. So just wanted you to touch on the back half assumptions and what is going into the implied deceleration there.

Yeah. Maybe Nick, let me start, and then I am gonna have Daniel just touch on 2026, generally speaking. By the way, nice to have you on the call. Always good to hear your voice. I just as we think about same store NOI growth and earnings growth, and I have said this a couple of times, in the past. Mean, we are very aware that earnings growth and valuation multiple are highly correlated. In fact, I am sure the correlations are at the highest they have ever been. In the real estate sector. So you can rest assured that we are gonna focus on earnings growth, and pull on every lever to achieve that. And, you know, last quarter, I did spend a lot of time going through the pillars of growth and how those are shaping up. Outpatient medical. So I think as we look at what do we think it is gonna take to be successful in the health care REIT space, to get a better valuation multiple mean, I think our same store growth probably has to be in the, you know, 4% area on a stabilized basis. We are doing better than that. Today because of some occupancy and absorption And then, obviously, when you think about earnings growth, like to see mid single digit earnings growth on a stabilized basis as well. And when you look at where we trade today, I do not believe we are getting credit for our ability to achieve those numbers that I just, you know, laid out. But that is the upside opportunity, and that is what, you know, gets us excited as a team here. Every day. And we are pleased that it is improved, since, we put out our strategic plan. And since I was able to join the company. A year plus ago, but they are still obviously work to do.

Daniel, why do not you talk about 2026 in general in the back half of the year? And hey, Nick. Again, thanks for the question. I think Peter thematically has done it, spot on. I mean, numerically, right, we have increased our guidance range. We increased it more at the low end of the range by 50 basis points. We took up the top end of the range of 25 basis points on the same store NOI growth. For the year. And I think that speaks to our performance year to date. That speaks to our conviction in the business and the changes we have made about driving results every single day. Obviously, we are over 7 months of the year. Right? So if we continue to perform, I think we feel very good, through the guidance. Numbers that we have provided. And as Peter said, we are always trying to drive towards you know, outperforming, and being at the top end of our guidance range. But there is still 5 more months of the year to go. So I think that are the sort of things that we think about when we think about our same store NOI guidance range. And as it relates to FFO translation, we have obviously anniversaried through a lot of dispositions from last year that create a drag on year over year FFO per share growth. We successfully addressed the August 2026 maturity of the bond, with our highly success highly successful exchangeable note offering, which removes some of the drag that we had there. So everything we are doing every single day is to drive to that core organic earnings growth in our business that is mid single digit. And we continue to put through those efforts. So it is really about doing that. it is on our it is on our leasing side. We are happy with the JV acquisitions with KKR. And we are looking to continue to deliver every day. But it is a simple business in those respects, and we are gonna lease We are gonna have high retention and push those cash leasing spreads and continue to keep pushing on that occupancy in the same store NOI growth. Makes sense. Thank you. Thanks, Nick.

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo, please go ahead.

Yes. Good morning, everyone. First of all, I just wanted to focus on the KKR transaction and trying to understand a little bit more the, the, like, 7.5% cap rate on those deals. Again, you guys are selling assets at sub-5%. So just kind of curious about the pricing there, and if there was anything unique. Is it market? it is just seems like really, really attractive pricing and opportunities to do more like that.

Yeah. So, Tayo, let me just start with that. I mean, when you think about the dispositions and we do characterize you know, the type of asset operating or land. There is some land within our dispositions, so that certainly benefits the cap rates. That said, I would probably focus on the Kennesstone Cancer Center. And the $600 per square foot and a kind of mid-5% you know, cap rate that we quoted on that. I mean, that is the type of, you know, asset sale we could consider doing if we wanted to you know, fund acquisition opportunities with, you know, asset sales and we have certainly got a pipeline of things we are looking at and we have got a pipeline of dispositions that will close through the balance of the year. So we appreciate that if we can create some type of arbitrage, it makes sense, and we will we will look at that. As to the you know, yields on the acquisitions, and maybe I will just spend a second on the, the 200 million You know, as I said, that it is 6 assets, but it was 5 different you know, transactions. So the going in cash cap rate is in the low sixes, but the yield to health care realty, which is what is gonna drive our earnings, is actually right around that 7.5%, and that is on a cash. Basis as well. We get, obviously, asset management fees on the capital within the venture, which helps boost those returns for us. We think that is the right way to quote it. You know, the occupancy on those assets is in the low nineties. Weighted average lease term is you know, 7 years, and there is actually a pretty strong mark to market in the markets that we mentioned. I mean, Greenwich, Connecticut is a very strong market. Charleston, South Carolina, Seattle, Washington. So even though the going in cap rate or the going in yields are what they are, we think they certainly have upside to them, over the whole periods just given the mark to market know, opportunity. So I would expect to do deals similar to this going forward, if we are fortunate to transact. But I wanted to spend a second on the mid-7s yield to us and what that means from a going in cap rate. Exclusive of any asset management fee. that is helpful.

And then on the JV side, any update on the Nuveen JV and kind of what is happening on that end and if we could see additional activity there. Apart from the KKR JV.

Yeah. Look. We talk to Nuveen quite often. You know, I think those are more just discrete JVs, and they are not growth vehicles. Like what the KKR vehicle is, but I would say we have got, you know, great you know, dialogue with Nuveen and not much else to report on those JVs today. Gotcha.

And if I could squeeze 1 more in, tenant improvements and leasing costs. Again, that is coming down pretty nicely. it is still about 22%. Of net rent Just kind of curious again where you see that going forward as you are kind of negotiating with your tenants whether, again, you are having opportunities to kind of lower that just because again, demand's getting better. there is less supply. Just for the industry fundamentals continue to enable you to kind of drive that lower and then to also enable you to possibly drive the annual rent escalator higher.

Hey, Tayo. it is Daniel. Great question. As you noted in the supplemental trend, these numbers are coming down year over year. We have always talked about you know, these numbers, remaining in the for the renewal leases, it is you know, consistently seen this so far this year in the sort of mid-double digits in the teens. As Peter's always talked about, right, renewal leases are less expensive from capital perspective than new leases. New leases numbers have come down significantly in terms of the percent of annual rent that we are providing in terms of TISLCs. So driving all those results. that is why we have better IRRs, better payback periods in all of our leases. As you have higher retention and a higher occupied portfolio, right, you just have more of a skew towards renewal versus new definitionally. And that is advantageous as we look to drive those numbers down. So that is a continued focus for us. Trying to be efficient with every dollar of capital in the company. Great.

Good execution here from you guys and the team. Well done. Thanks, Kyle.

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

Morning. Thanks a lot for taking my questions. Same store NOI growth was in the first quarter was 6.9% and the second quarter 5.1%. This well above the historical MOB norm. So what went different today, or is this just the strategic plan playing out? And I know you have discussed 4 drivers of the business in the past. Maybe you can touch on whether any of those have changed that is driving these results.

Yeah. Hey, Michael. it is Peter here. I mean, look. We certainly are seeing a benefit from absorption. In the first and, you know, second quarters, and you can just look back over the last however many quarters. And as we have had a lot of leasing success, that absorption benefit is going to you know, fade a little bit. But we are seeing you know, on the other side of the spectrum, cash leasing spreads are firming up. And so we still feel like we can generate much better growth going forward than we have historically. And as I said, last quarter, and I will continue to repeat, you know, the 2 to 3% kind of steady-Eddie descriptions of medical office, like, that was all well and good in a low interest rate environment. But that does not work in a higher interest rate environment. So we have to do better, and we will do better. And we are doing better. So we will push on all of those levers, but we have gotten the benefit in the first and second quarters of some pretty significant year over year occupancy gains, which that will stabilize over time. We have a mostly multitenant portfolio. We are getting close to 93% leased in our same store pool. You are going to have some frictional, you know, vacancy. It just happens. You are not gonna retain or renew every single you know, tenant for a variety of reasons. But and then that gives us an opportunity to push on cash lease spread. So we feel like we are in a pretty good spot. And then I did not answer Tayo's question on escalators. I think 3% escalators today has become kind of the norm. that is that is definitely improved. that is another lever. And we certainly if we can push, we will continue to push. I think as rates rise, that is certainly an easy thing to push on. On our tenants as well to point to why we justify a better-than-3% escalator, but I would say we have been pleased with getting 3% up to this point. Thanks for that.

Your stock has rerated meaningfully from the levels where you repurchased shares earlier in the year. So how does today's expected return from share repurchases compare with this 7% plus yield you are achieving through JV acquisitions and the 9% to 12% redevelopment yields you are underwriting has a relative attractiveness of buybacks changed.

Yeah. I mean, the short answer is yes. It has changed, and we are going to look at you know, what the buyback math is relative to recycling that capital into redevelopments or you know, capital allocation. But buybacks, it is always a lever that we can turn on. It provides immediate accretion if we decided to, you know, pursue. it is not a program that we just turn on and let a financial institution manage it for us over a period of time. I mean, we are active. We are active traders. On it, when we do turn it on, and we will get more aggressive in days where we feel like the opportunity presents itself. But at the moment, you know, I think buybacks do not screen as favorably, but that does not mean that we are not rooting for this, but obviously, if there is some dislocation, we can obviously turn it back on immediately, and it provides immediate accretion. Thanks.

And if I could squeeze 1 more in, same store occupancy is now at 92.7%. Total portfolio occupancy continues to move higher. Has your view of normalized occupancy ceiling changed given the continued lack of new supply? Or do you still view 92, 93% as the right long term target?

Yeah. Good question. I think there is certainly a bias for it to be increasing. Which is which is a positive. I mean, when you look at sector wide, occupancy, I mean, it is been trending higher for I think, 20 to 30 quarters. We certainly should be able to do just as well as the overall sector. And can we do better than that You know? Perhaps. And I think we feel like there is some additional absorption in the back half of the year. As well. So it is trending a little bit higher. For sure. Thank you very much. Good luck in the back half. Thanks, Michael.

Your next question comes from the line of Michael Gorman with BTIG. Michael, please go ahead.

Yeah. Thanks. Good morning. A lot of ground covered here. Just a quick 1. Peter, as you look at the transaction markets, obviously, you have got active dialogues with all of your health systems. You have got a great partner with KKR. Have there ever been any transactions or any of those relationships where wanting to control their real estate, they may be do not want a joint venture that involves a manager involved in owning their assets. Has that been a limitation at all when looking at the transactions market? Where you have to do something on balance sheet rather than through the partnership if you wanted to participate.

Hey. Michael. Good question. To date, no. it is kind of seamless to the tenants in the building. In fact, I do not know that our tenants would be aware if it is a wholly owned building or if it is a joint venture building. We are the asset manager within the venture. We control leasing. We control property management. The health care realty brand and everything you would expect is within the building. So I would tell you today that, no. We have not had any, you know, pushback on a wholly owned versus an institutional capital joint venture asset. And I think that is probably pretty consistent. Where you could have some you know, items to deal with is only on contributing assets into a joint venture whereby you trigger some ROFR rights for the health system, but that is not what we are talking about here. We are not talking about a defensive JV and a capital raising. Exercise. Okay. Great. That is helpful. I will leave it there. Thank you. Great. Thank you.

There are no further questions at this time. I will now turn the call back to Peter A. Scott for closing remarks. Peter, go ahead.

Great. Thank you, and thanks to everybody for joining us on this call. We look forward to continuing to communicate with you, over the coming months. Everyone enjoy the rest of their summers. Talk soon. Thanks. Bye.

This concludes today's call. Thank you for attending. You may now disconnect.