Healthpeak Properties Second Quarter 2026 Conference Call

Good morning, and welcome to the HealthPeak Properties, Inc. second quarter 2026 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 1 again. Please note, this event is being recorded. I would now like to turn the conference over to Andrew Johns, Senior Vice President, Investor Relations. Please go ahead.

Welcome. Today's conference call contains certain forward-looking statements. Although we believe the expectations reflected on any forward-looking statements are based on reasonable assumptions, these statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations. A discussion of risk and risk factors is included in our press release and detailed in our filings of the SEC. We do not undertake a duty to update any forward-looking statements. Certain non-GAAP measures we discussed on this call in an AK that we filed at SEC yesterday, we have reconciled all non-GAAP financial measures, the most directly comparable GAAP measures in accordance with rent-to-year requirements. The exhibit is also available on our website at healthpeak.com. I'll now turn the call over to our President, Chief Executive Officer, Scott Brinker.

Thanks, AJ, and welcome to Healthpeak's second quarter earnings call. WE CARE is the acronym we use for our core values, with a W representing our winning mindset. That's easy to do when demand exceeds supply and fundamentals are in your favor. Everyone's happy and looks really smart. It's a lot harder to do when supply exceeds demand, but that's exactly when a winning mindset is needed the most. As the life science pendulum finally starts to swing back in our favor, I want to say thank you to the team here who live up to our core values and maintain a winning mindset these past four years. It absolutely paid off and we're stronger because of it. The downturn also provided a window to redefine our company and reset the competitive landscape. We were bold and strategic, including a $5 billion merger and a billion dollar IPO. Today we're a bigger and better company because of those decisive actions. Even more important, we added capabilities, including strategic new hires and internalizing property management in much of our renewal leasing. Now we're in the process of rolling out our agentic operating platform. This modern version of HealthPeak is an on-the-ground operator who generates superior results with our people and platforms. We're already seeing a payoff from this strategy. In the past two quarters, two of the largest and most respected real estate investors in the world chose HealthPeak as their operating partner. Neither Blackstone nor Brookfield had any meaningful prior exposure to the outpatient medical sector. Both joint ventures allow us to maintain control of strategic buildings and tenant relationships while providing an alternative source of equity capital. We're excited to grow both of those partnerships in the future. Our balance sheet is stronger than it's ever been. Leverage is below five times, and we have flexibility to pursue a number of capital allocation alternatives. We're funding highly pre-leashed outpatient development projects sourced directly through our relationships, such as the project in Atlanta that we announced last evening. We can also do outpatient acquisitions in our joint ventures with Blackstone and Brookfield where the deal structures generate additional returns to HealthPeak as the operating partner. We also see a unique opportunity in LifeScience to create value via acquisition. LifeScience has been a development game for the past decade, but for the next few years it will be an acquisition game and we have the platform and balance sheet to capitalize on the opportunity. We can also do stock buybacks if and when the stock price is well below intrinsic value. Today, that's less attractive, but we did buy back $100 million in April at a 10-plus percent FFO yield when the stock was less than $17 per share. And finally, we could maintain leverage below our 5.5 times long-term target, given the cost of debt today isn't much lower than the fair market cap rate of our real estate. This is not the right environment to have elevated leverage. with our strong balance sheet, we can afford to be patient and utilize our dry powder when it's most impactful. A few comments on operating results and the underlying environment. The strong fundamentals in outpatient medical that we spoke to with the merger announcement three years ago continue to be validated. Last quarter, we had plus 5% cash-releasing spreads and modest TIs that continue to be materially lower than peers. Total occupancy increased 20 basis points sequentially, and our leasing pipeline suggests that an internal growth in the outpatient portfolio will accelerate in 2027. In life science, public capital raising last quarter was the highest since 2Q21. The IPO market is healthy but measured, with 13 later-stage companies raising more than $5 billion in proceeds in the first half of the year. This week alone, we could see five biotech's price IPOs. M&A has been record-breaking, with more than $250 billion dollars of announcements in the last three quarters, which recycles capital back into the ecosystem. Most important, the science continues to advance, and year-to-date FDA approvals are above the five-year trend. The building blocks are in place for occupancy in the sector to inflect, led by HealthBeak. In senior housing, we'll provide all the details on the Janus Living call, but happy to report that same-store portfolio had 260 basis points of occupancy growth and 19% NOI growth. We have an active and accretive acquisition pipeline sourced through our deep relationships in the sector, including $1.8 billion closed since January 1. Our senior housing portfolio will essentially double in size this year, and the number of operating partners will increase from two to more than 10. We're on pace to accomplish a three-year business plan in 12 months. Janus Living's success is also driving earnings growth at Healthpeak, given our unique and creative deal structure that aligns the interests of both companies. I'll turn it to Kelvin.

Thank you, Scott. We continue to execute our plan and have made tremendous progress year-to-date in our leasing and capital allocation objectives. I'll take a moment on our outpatient medical recapitalization with Brookfield. We're pleased to complete this strategic partnership as the proceeds raised exceed our capital recycling target for the year in a single transaction with the leadership from our investments team we've demonstrated our ability to execute scale transactions and partner with leading institutional investment managers from a structure perspective help people retain a 51 ownership interest in a 5.6 million square foot outpatient medical portfolio and raise a billion dollars of cash proceeds we will utilize our best in class platform and expertise to provide asset management, property management and leasing services, maintaining day-to-day control of the real estate and preserving our client relationship. Economically, the transaction represents a trailing cash cap rate of 5.9%, and after seven years, we'll have a finite number of call rights to repurchase the non-controlling interest at a price sufficient to provide Brookfield a 6.5% unlevered rate of return. Most importantly, this partnership expands our access to alternative sources of equity capital with a framework we can replicate to pursue growth opportunities across our business. Now turning to the second quarter results. We reported FFOs adjusted of 46 cents per share and net debt to EBITDA of 4.7 times. Now starting with outpatient medical, we had another strong quarter of leasing as we continued to see demand for our real estate. For the quarter, we executed 1.2 million square feet of leases, including approximately 327,000 square feet of new leasing, bringing our year-to-date total to 2.3 million square feet. We achieved 80 percent tenant retention and cash-releasing spreads of 5 percent, which is in line with our average of 5 percent over the last 10 quarters and above our pre-positioned realty merger averages of 2 to 3 percent. We ended the quarter with total occupancy up 20 basis points sequentially to 90.7%. Since July 1st, we have an additional 204,000 square feet of lease executions and approximately 882,000 square feet under LOI. I'd like to highlight our partnership with Northside and Atlanta as it's proven to be a source of strategic growth for our outpatient portfolio. We have now entered into another development agreement for the ground-up construction of a new outpatient medical project to support their expansion in Atlanta where we have number one market share. This will be the fifth development project with Northside totaling approximately 565,000 square feet. Moving to lab, we continue to make progress towards net absorption and total occupancy capture through year end. For the quarter, we executed 381,000 square feet of leases of which approximately 60 percent with new leasing and 30 percent on vacant space we ended the quarter with total occupancy increasing by 80 basis points sequentially to 78.5 percent that is a 140 basis points increase since here in 2025 and since july we've entered into approximately 20 000 square feet of leases and have another 480,000 square feet under LOI. As a result of this activity, we anticipate a modest improvement in total occupancy by year-end from where we stand as of June 30th. These results reflect our focus on driving leasing volumes at our properties, which I would like to highlight by sharing our progress in Torrey Pines, the premier lab submarket in San Diego. The activity we've seen in Torrey is a testament to our team on the ground and our high-quality portfolio, as tenants are seeking core assets and core locations with experienced landlords. This is allowing us to capture an outsized share of the deal volume. When accounting for executed leases and LOIs, our leased percentage in the sub-market increases to 97% from approximately 65% at year-end 2025. And ending with senior housing. Health piece ownership interest in in Janus Living is now 74%, which represents approximately $6.5 billion of equity value. For the second quarter, Janus Living delivered total revenue growth of 45%, adjusted EBITDA growth of 34%, and ended the period with cash on the balance sheet and no outstanding debt. Now moving to the balance sheet. We had significant activity during the second quarter into the third quarter against a backdrop of elevated borrowing costs. We have taken prudent steps to manage our debt maturities and maintain flexibility in accessing the capital market. Through year-end, we now expect to generate $1.9 billion of gross proceeds from Capital Recycling Initiative. And to date, we have completed $1 billion of acquisitions and buybacks. Through August 4th, we have repaid $900 million of debt, including $650 million of senior unsecured notes in July. We ended the second quarter with net debt to adjust adjusted EBITDA of 4.7 times and $4.1 billion of available liquidity. And quickly ending with guidance before we open up for Q&A. We raised our FFO's adjusted guidance range by two cents to $1.73 to $1.77 per share. The raise was driven by a 75 basis points increase in total same-store NOI at the midpoint, which includes a 200 basis points increase in both lab and senior housing and the recognition of the low market interest amortization related to the $400 million seller note repayment. To recap, we've made significant progress across the business through the first half of the year, and our balance sheet has never been stronger. We have ample capacity available to deploy into new investments as we find opportunities. And with that, operator, please open the line for questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then one again. In the interest of time, callers will be limited to one question. At this time, we will pause momentarily to assemble our roster. Your first question is from the line of Ronald Camden from Morgan Stanley. Your line is now open. Please go ahead.

Hey, great. I just wanted to ask about the lab portfolio um look like occupancy picked up as you mentioned sequentially and still expecting sort of improvement in the back half of the year i guess i'm just curious as you're sort of putting it all together uh with the environment with the leasing pipeline when do you think you'll have line of sight to be able to see sort of same store and reflect uh to the positive thanks hey ron this is kelvin i'll start there i mean i think what's most important that we've been really focused on is capturing more than our share of the demand in the market and driving net absorption through the portfolio.

And we've been able to do that through the first half of the year. We started with 77% occupancy coming into the year, and now we're at 78.5% total occupancy, which I think is a testament to the team doing a really phenomenal job on the ground to capture that demand. And it'll certainly translate. We improved our same-store guidance for lab by 200 basis points at the midpoint. And that's certainly trending in the right direction. That's driven by the improvement in occupancy and just the overall health that we're seeing in the sector. So I think it's probably a little too soon to predict exactly which quarter. We'll see that inflection, but we're certainly trending in the right direction.

Hey, Ron, I just want to add, same store is less relevant. The real key is total occupancy and moving NOI in that segment higher. That's what generates earnings growth and ultimately share price. So that's all we talk about internally. That's the number we're reporting on. We report same store because we have to. That's not the number we focus on. The key is we're growing total occupancy, and that's going to grow total NOI and ultimately earnings. So we're making progress already in the first half of this year. Next question.

Your next question comes from the line of Juan Sanabria from BMO Capital Markets. Your line is now open. Please go ahead.

Hi, good morning, and thanks for the time. I appreciate how succinctly prepared remarks were. Just on the lab and the competitive environment for leasing, we obviously have different players out there with different motivations, highly motivated to push up leasing as you guys are. But just curious if anything has changed with regards to the rate environment, free rent, build-out cost, et cetera, and maybe as part of that, if you can comment on any changes in the size of tenants out there, small, medium, large, and where the improvements have been.

Hey, Juan, this is Kelvin. I'll start there. What I'd say is the pipeline continues to be fairly robust. We've seen since September of 25 strong demand just continue in the portfolio. We've had a 2 million square foot leasing pipeline, and we've been capturing that demand and translating it into executed LOIs and leases. So as of the earnings call, we had 500,000 square feet under LOI, which is within our 2 million square feet of pipeline. And I'd say that the characteristics of that pipeline hasn't changed dramatically. It's disproportionately wet lab space. It's biotech tenants. that are really attracted to core assets and core locations. So we're certainly a recipient of all of the positive momentum we've seen in the biotech sector. From a rates and concession standpoint, I'd say that the rates continue to be in line generally with our portfolio averages. Free rent has trended to be, you know, one month per year, up to two months per year of lease term. And that's been fairly consistent. So it's really, it's use dependent. It's a condition of the quality of the space, how much capital needs to be invested that's really driving the economics around these deals. And each situation is fairly unique. But most importantly, our portfolio can accommodate a wide variety of uses. And we've seen the benefit of that in our results. We've had fairly low capital deployed to capture that occupancy, just given the quality of our spaces for second-generation leases. And in certain instances where we have redevelopments, you know, CapEx could be more elevated as we have to, you know, improve spaces that have been occupied for multiple decades by a single tenant. So I think the pipeline continues to be strong, and the team's doing a phenomenal job converting it.

Hey, Juan, this is Scott Bowen. And the only thing I'd add on that, too, is from a size perspective, we have seen more in that $25,000 to $75,000 per foot range, both in the executions as well as the LOI and pipeline bucket. So, you know, I think that that size range is normalizing as we see the funding environment continue to improve.

Your next question is from the line of John Kilachowski from Wells Fargo. Your line is now open. Please go ahead.

Hi, good morning. Scott, in the opening remarks, you talked about the outlook for lab getting more attractive here. I'm curious, are we getting back into an environment where the distressed lab opportunity is looking more attractive to you, and what's the opportunity set today there?

Yeah, the building blocks for the sector recovery are definitely there, and we're starting to translate that into leasing pipeline and leasing execution, growing occupancy. So things are definitely getting better. Obviously, there was some work that needed to be done with vacancy, so it's not going to happen overnight, but the trajectory is clearly positive. I think the incumbents like HealthPeak are definitely capturing market share. So we're focused on core markets, buildings we want to own long term, and particularly situations where we think our platform can bring something to the table and lease up a building that's otherwise not doing very well. So I think we've got the team and the balance sheet and the credibility to do all those things. The pipeline is active. You know, it may end up not doing anything. We'll see. These deals take time to play out. Sometimes they're quite complicated. Lenders involved, et cetera. But we're working on a number of situations. We obviously did the one at Gateway over the new year. It's doing phenomenally well. Scott, Natalia, and the team are leasing it up. Sign something like 125,000 feet of leases or LOIs since that purchase. and active discussions on another 200,000 feet or so. So like really making good progress on that at a great basis. So hopefully it's situations like that that we're focused on core sub market in a situation where we can really add value with our platform and balance sheet and relationships. So we're working on a number of them, but no promises that any of them get done. But I think we'll end up being a consolidator over the next 24 months, which should prove to be a great time to grow the portfolio.

Your next question is from the line of Austin Werschmidt from KeyBank Capital Markets. Your line is now open. Please go ahead.

Thanks. Good morning, everybody. Kelvin, I think you had said that about 30% of the new leasing in the second quarter was for vacant space. I'm just wondering if you can give us some sense about the difference between leased versus occupied today And, you know, kind of how that's trended versus last quarter and what kind of a commencement schedule looks like across those leases that have been signed and are expected to take occupancy, you know, over the next six months or so. Thanks.

Yeah, thanks, Austin, for that question. Without giving very specific guidance in terms of occupancy in the four quarters, what I can simply say is that we have commencements in the back half of the year that exceed our expirations, and we continue to expect a modest improvement in total occupancy for the lab portfolio. portfolio. We've talked about the pipeline. It continues to be healthy, and these leases have the potential to commence starting in 2026 that are within our LOI bucket. I wouldn't say it's a substantial share of that 500,000 square feet that we mentioned, but we do have the potential for some of our recent executions to benefit 2026 and into 2027. So we continue to focus on just capturing demand. We're only midway through the year, so there's plenty of time, no pressure on the team here, to go out there and further improve the conversion of that pipeline that'll drive incremental occupancy into 2027.

Your next question is from the line of Seth Bergey from Citi. Your line is now open. Please go ahead. Hi, good morning.

Thanks for is my question. It sounds like the kind of activity in the market has certainly improved and you're seeing kind of more tenants. I'm just wondering, how has that conversion timeline kind of changed just given the amount of available lab space? Are you seeing a pickup between kind of when tenants come to the market and getting across that finish line of signing the lease?

Sure, Seth, Scott Bowen. I mean, we're still in an environment where folks that are a little cautious, right? And there's still a little bit of scar tissue out there. So I think people in groups are taking their time and doing the diligence they need to do, which they should in a lease process. So from initial tour to execution, depending on the deal, it could be three months, it could be nine months, right? There's a lot of factors at play, size, organization, things like that. But it's been relatively consistent, I'd say over the past 12 months.

Your next question is from the line of Connor Mitchell from UBS. Your line is now open. Please go ahead.

Hey, good morning. Thanks for taking my question.

You guys mentioned some CapEx that's required for second generation leasing or spaces that have been occupied and now turning over. Can you just expand on that a bit and maybe how much CapEx we should expect over the near or medium term just based on the known move out and the leasing pipeline?

Hey, Connor, this is Calvin. I'll start there. What I would say is, generally speaking, as you look through the available space in our portfolio, we've done a great job over the years of investing capital and preparing for these second-generation leases. So we've done a great job keeping capital costs low to obtain the occupancy that we've been able to achieve. So I think on our redevelopment assets, in certain instances, you'll see a more elevated capital need to get spaces that were occupied for multiple decades by a single tenant to be prepared for multi-tenant occupancy or to, you know, be modernized for the current user's requirements. So those spaces will require some elevated capital, but generally speaking with our availabilities, you know, We're looking at pretty modest capital costs across the board to get tenants in. We don't have much space in our portfolio that needs to be built out from shell. I think that's a huge advantage, both from a timing standpoint of getting a tenant to occupancy, but also from a capital spend standpoint. So we're certainly taking advantage of the quality of our space right now to be able to capture the demand.

Yeah, if you're looking for numbers, too, I'd just say around 10 percent for renewals, probably 20, 25 percent for new leasing. It's probably just a good rule of thumb, some higher, some lower, but just as an average. It's about what it's been over the last decade. Okay, next question.

Your next question is from the line of Rich Anderson at Cantor Fitzgerald. Your line is now open. Please go ahead.

Thanks, and good morning, and very nice quarter, folks. So last quarter, you know, you got it to 100 basis point uptick for the year in life science, and you've achieved that, and then some. so far, you have not made a commitment going forward necessarily on what that number will look like. And I can appreciate it's a lumpy business and so on. But I guess the question is 100 basis points up, despite being 150 basis points up for the first half, is that still in the range of possible? Meaning like, you know, you could have some, you know, some volatility in terms of timing of leasing, chunky assets that are coming, you know, that are expiring, so on? Or is 100 basis points up for the full year, meaning some give back in the second half is probably off the table at this point? Thanks.

Yeah, Rich, maybe I'll try to answer that simplistically. When we had articulated the 100 basis points, that was off of year-end 2025, five, total occupancy at 77%. And we've already exceeded that. And I think for the balance of the year, I mentioned a few times that, you know, we have commencements that will exceed our expirations. Every quarter is unique in terms of the timing of when those vacates occur. So there could be some lumpiness, but we've anticipated modest improvement in total occupancy through year-end from here. So we've already captured the 100 basis points that we had articulated previously, and there's still room to capture some incremental occupancy through the balance of the year. Okay, next question.

Your next question comes from the line of Rich Hightower at Barclays. Your line is now open. Please go ahead.

Hey, good morning, guys. I guess shifting to outpatient for a minute, you know, I noticed that, I guess, cash spreads decelerated a little bit in the second quarter versus the first quarter so maybe just help us understand a window into that and you know where would you estimate sort of the mark to market opportunity in outpatient and I guess thirdly are you are you looking at growing that portfolio maybe even via the JVs thanks yeah thanks for the question Rich uh Mark and the team are doing a great job taking advantage of solid fundamentals in that business so the releasing spreads I don't know they might have been down 20 basis points from last quarter, but they're up like 50% from the last decade at plus

5%. That's a phenomenal result in that business. And even better, we're doing it with very modest TIs. And we're getting 3% escalators on essentially all the leasing that's being done. So the releasing spread is only half the story. To couple that with low TIs and really strong escalators, just a phenomenal result. So we're actually really pleased with it. Next question.

Your next question comes from the line of Feral Granath from Bank of America. Your line is now open. Please go ahead.

Thank you and good morning. Staying on the MOB topic, I was curious if you can expand on your appetite for potentially doing more JVs, especially in this recap structure, and also if you could just touch on what led you to do this Brookfield transaction, especially keeping the call option on the go forward.

Yeah, Adam and the team did a fantastic job. with Brookfield. That's a great organization to work with. We've done some things with them over the years. Happy to have them as a partner. Going forward, they obviously have a huge balance sheet and appetite to grow, as does Blackstone. So really two amazing partners to add to our portfolio over the last two quarters. And I would expect us to do more with each. The deal structures are a little different. We're 51% owner with Brookfield or a 20% owner with Blackstone. And they each have their own unique things that they're trying to pursue. But the common thread is they're looking to partner with Healthy as their GP in this business. We do have a fantastic existing portfolio that we can recap at what we think are strong prices. Obviously, they're getting the returns that they need. But from our perspective, these are strong prices. And with Brookfield, that buyback option, I mean, when this team joined Healthpeak, I don't know, eight years ago, we inherited contracts that the tenants had a lot of purchase options that were in the money. I think we've created a purchase option here that will be in the money for Healthpeak. After seven years, obviously, we'll make that decision at the time, but the 6.5% unlevered return with the quality of the portfolio, we think that's certainly achievable. So a great price up front from our perspective, but also the ability to acquire assets in the future at a strong price, maintain the hospital relationships, control of the decision making. I mean, it's really phenomenal outcome. It just puts our balance sheet in the best position it's ever been with leverage below five times. We're seeing a lot of opportunity across all three business segments that we're excited to take advantage of. But we'll be patient and make sure that when we actually use the dry powder, that it's as impactful as possible. Okay, next question.

Your next question comes from the line of Michael Carroll at RBC Capital Markets. Your line is now open. Please go ahead.

I know, Scott, you touched on this throughout the call, but I wanted to circle back on the lab acquisition opportunities. What markets are most interesting? And should we think about this as more of a fee simple type acquisition, or are you still interested in the structured finance type deals that you've guys done in the past?

Yeah, we'll focus on the core markets where we have a competitive advantage, people on the ground that can actually make a difference. We're already capturing more than our fair share of the leasing. So I think that will be a common thread in anything that we do is we can bring our platform to the table and create value in addition to our balance sheet. In terms of deal structure, we did some loans, I don't know, two years ago because owners hadn't really capitulated. So the pricing didn't make sense from our perspective. But I think we're getting closer to the point that pricing has come down. Gateway is a good example where fee simple made more sense. So I'd say the majority of what we're looking at today is fee simple, but there may be unique situations where we'd still look to a loan structure with an option to buy. But pathway to ownership, in any event, we're not here to make loans. Next question.

Your next question comes from the line of Michael Stroyek from Green Street. Your line is now open. Please go ahead.

Thanks, and good morning. Can you maybe just provide some color on which lab markets are seeing the strongest demand today and maybe related to that? Where is pricing power holding up the best across those markets if there is differentiation?

Yeah, maybe I'll start, Michael. Thanks for the question. And I might ask Scott to jump in here as well. But, you know, we're certainly seeing the demand the strongest in the Bay Area. You know, no surprise that the biotech ecosystem in that market just continues to thrive. And we're positioning our portfolio to be able to capture that demand. San Diego has also been tremendously productive. We talked about Torrey Pines and what we've seen there. And a good amount of that demand has been homegrown. These are existing clients that have had successful outcomes in their businesses and are seeking more space. That's the story that you like to hear across the sector. And that's happened quite frequently in the Tory sub-market that's driven those outcomes that we talked about, getting from high 60s to high 90s, least percentage is pretty phenomenal in a short amount of time. So great execution from our team, but also just the strength of what we're seeing in that market. Boston's probably the most challenged, just given the supply overhang across that marketplace. I think where we're positioned in West Cambridge and Lexington, we have an opportunity to continue to capture demand that's kind of seeking that kind of suburban urban product. And we've done a phenomenal job there. We're also very well leased in that market. So with regards to our available spaces, we've been chasing a subset of the demand. There's other sub markets that are proving to become, you know, alternatives outside of biotech and life sciences. So, you know, as the supply overhang gets managed, that should probably improve over time. But, Scott, I don't know if you'd add anything specifically, Carl.

Yeah, I mean, I think in Boston, one thing I would note is, you know, in the second quarter, we saw 80 percent of the market activity that we saw in all of 2025, right? So, you're certainly seeing signs of light there. I mean, as Kelvin mentioned, there's the biggest supply-demand imbalance there, so a lot to work through. But, you know, our relative position there is important to remember, too. I mean, if you look at the Route 128 West market, I mean, overall, it's 30% vacant, but our assets are, you know, 11% vacant, right? So, you know, it really comes down to what is the quality of your assets within, you know, that particular sub market. And your question on pricing power, you know, we talk about it a lot, but our portfolio scale, especially in markets like the Bay Area or in Torrey, allow us to see a lot of deals that aren't widely marketed. Whether those are just relationships we have with tenants within the portfolio or otherwise, or with the VCs, and many of those are groups who are growing within the portfolio. So we tend to have a little bit more pricing power on deals like that than you would on a widely marketed deal.

Your next question is from the line of Mike Mueller at JPMorgan. Your line is now open. Please go ahead.

Yeah, hi, Scott. You touched on outpatient spreads, But was there anything out of the ordinary driving, the weaker laps, rent spread in the quarter? Was it just spreads bouncing around, trying to drive occupancy or something else?

It's just a unique situation. We've had very positive spreads the last couple of years, plus or minus 5%, 6%, 7%. In most quarters, there's always going to be an outlier quarter, up or down. This was one where it was a little bit down. We had a lease in Boston. The team did a great job renewing. It actually really strong terms. It's a 10-year lease, not much TI, but the rent was a little bit lower. It ended up being a bit competitive, but the team did a great job winning that deal. So still a great outcome, but it was really just the one big lease that drove that outcome. I mean, Kelvin spoke earlier to the mark-to-market across the whole portfolio. It's plus or minus in line, but there are obviously going to be outliers on either side of that, depending on specific building or when that lease was signed. Nothing to read into this specific quarter, though.

We have reached the end of the Q&A session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.