Hello, everyone, and welcome to Healthcare Realty Trust First Quarter Earnings Release and Conference Call. My name is Charlie and I'll be coordinating the call today. You will have the opportunity to ask questions at the end of the presentation. I will now hand over to our host, Ron Hubbard, VP of Investor Relations to begin. Ron, please go ahead.

Thank you, Charlie. Thanks, everyone, for joining us today for Healthcare Realty's first quarter 2023 earnings conference call. Joining me on the call today are Todd Meredith, Kris Douglas, and Rob Hull. 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 risks are more specifically discussed in the company's Form 10-K filed with the SEC for the year ended December 31, 2022, and the Form 10-K filed with the SEC for the quarter ended March 31, 2023. 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 or FFO, normalized FFO, FFO per share, normalized FFO per share, funds available for distribution, or 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 quarter ended March 31, 2023. The company's earnings press release, supplemental information, and Form 10-Q are available on the company's website. I'll now turn the call over to Todd.

Thank you, Ron, and thank you, everyone, for joining us this morning for our first quarter 2023 earnings call. Healthcare Realty had a really solid first quarter. As expected, robust operating performance from our portfolio is the foundation of our steady results. We're building on this durable foundation with two strategic initiatives to accelerate FFO growth. First is our leasing team that's generating tremendous momentum. Converting this momentum to occupancy gains later this year and moving into 2024 will elevate our internal growth over a multiyear period. Second, we're focused on a return to external growth. We are working on several capital formation initiatives that will lower our cost of capital and drive accretive external growth. We expect the foundation of reliable performance from our portfolio, combined with these two initiatives to boost and sustain our bottom line growth well beyond the pace investors expect from the low-risk MOB sector. We see a clear path to generating FFO per share growth of 5% to 7% in 2024. This potential is bolstered by long-term rising demand for health care services and health systems are reporting that demand for outpatient services is accelerating. We also see near-term tailwinds that could strengthen our growth outlook including market expectations for softening inflation and lower short-term interest rates in the months ahead. These tailwinds align well with Healthcare Realty's post-merger strategic initiatives. For much of the last year, we've outlined the powerful benefits of the combination with HTA. First, we've increased safety through portfolio scale, diversification, and efficiency. And second, we're elevating growth through market scale, concentrated clusters, and expanded relationships that amplify our internal and external growth drivers. It's important to note that it takes 3 to 5 years to realize the full value of a significant combination like this. We are well on our way, and we have seen significant results in less than a year. Within the first 6 months of the merger, we successfully completed over $1 billion of asset sales and JVs in a challenging market. We realized our full G&A synergies in half the time we expected. And we've fully mobilized our leasing team to drive occupancy gains in the portfolio. In a few minutes, Rob will walk you through how we've organized our internal leasing team to leverage our external broker network and increase our deal flow. This will lead to significant occupancy gains. We expect multi-tenant absorption to double in 2024 to 100 basis points to 200 basis points. And we expect this absorption to accelerate same-store NOI growth to a range of 4% to 6% in 2024. This could be even stronger looking at 2025 and beyond. Rob will also share the favorable trends we're seeing in the debt financing market for MOBs. In a couple of short months, we witnessed cap rates move lower by as much as 50 basis points. We are increasingly seeing cap rates move into the 5s. Next, Kris will share with you how our portfolio performance is tracking extremely well. He will highlight the company's solid revenue drivers, including embedded escalators, cash leasing spreads, tenant retention, and steady occupancy gains. Kris will also walk you through our 2023 FFO guidance that serves as a baseline for our 2024 outlook. After the remarks from Kris and Rob, I'll circle back to spend a few minutes on our capital formation initiatives that will reignite our external growth in 2024. With that, I'll turn it over to Kris.

Thanks, Todd. Operating fundamentals were strong in the first quarter. Quarterly same-store NOI grew 2.8%, quarterly revenue increased by 2.7% and operating expenses by 2.6%, marking a return to margin expansion year-over-year. We are focused on maximizing rent growth and occupancy gains to accelerate revenue growth. Annual in-place contractual increases averaged 2.7% led by multi-tenant at 2.8%. And the 1.5 million square feet of leases that commenced in the quarter had future contractual increases of 2.9%. Cash leasing spreads in the quarter averaged 3.1% once again above in-place escalators. And notably, over 70% of leases had a spread of 3% or greater. Year-over-year occupancy increased 50 basis points to 89% for the same-store properties with total portfolio multi-tenant occupancy just over 85%. We see a meaningful opportunity for accelerating absorption and NOI growth later this year and into next. As Rob will discuss in more detail, we're seeing significant increases in leading indicators for future absorption. Operating expense growth of 2.6% in the quarter benefited from successful property tax appeals in the fourth quarter. These appeals will benefit year-over-year expense comparisons for the next several quarters. Trailing 12-month operating expenses, net of recoveries, grew at 3%, which is down from 4.6% for full year 2022. Looking forward, inflationary pressure shows signs of further easing, which will allow the power of rent growth and absorption to accelerate future NOI growth. Maintenance CapEx trended lower in the first quarter to $24.9 million or 11.8% of NOI. The FAD payout ratio was 95% for the quarter and 97% for the trailing 12 months. We expect the FAD payout ratio to be in the high 90s in 2023 as we invest in positive absorption. We expect steady underlying fundamentals and growth of the portfolio as well as the potential for lower interest rates to benefit the payout ratio moving into 2024. For example, a 1% reduction in variable interest rates results in almost 200 basis points improvement in our payout ratio. Normalized FFO per share for the first quarter of $0.40 was down $0.01 from the $0.41 per share run rate in the fourth quarter. This was primarily due to higher interest expense on variable rate debt. In addition, we fully reserved $2.4 million of first quarter revenue related to two items. $1.5 million for three legacy HCA skilled nursing facilities that we expect to sell later this year. Another $900,000 reflects interest income on a legacy ACA mezzanine construction loan. The project in Houston was paused in the first quarter but remobilized in May. The annual impact of the revenue reserves is $0.025 per share. The 2023 normalized FFO guidance range of $1.60 to $1.65 per share assumes no revenue contribution from these two projects. We expect the Houston construction project to be completed and placed into service by the end of 2023 and the three skilled nursing facilities to be sold later this year. With estimated proceeds of $100 million or more from the asset sales and construction loan repayment, the ultimate annual run rate impact is expected to be less than $0.01 per share. The benefit from the reinvestment proceeds is not included in the 2023 guidance range. The proceeds when received are expected to reduce debt to EBITDA from 6.6 times this quarter back within our target range of 6 times to 6.5 times. Above average same-store NOI growth moving into '24 will also help to drive leverage lower. As a rule of thumb, every 1% growth in same-store NOI reduces debt to EBITDA by over 5 basis points. For example, 5% NOI growth next year would reduce leverage by over a quarter of a turn. We also see a tailwind from expected lower interest rates. The forward SOFR curve suggests rates may rise modestly over the next few months and then decline in the second half of '23 and into '24. This would augment our expected occupancy gains and expanded external growth. But even without improving interest rates, we see a path for 5% to 7% per share growth next year. I'll now turn it over to Rob for more color on our leasing and investment activities.

Thanks, Kris. First quarter of 2023 marked the first time that Healthcare Realty's leasing team operated under a common set of practices, incentive plans, technology, and full brokerage coverage. From the merger closing through the end of last year, our team was busy integrating the legacy HTA portfolio into our leasing model. We onboarded the top talent from HTA's leasing team to our platform and at the first of the year, placed them on our incentive program. We also brought on over 35 new third-party brokerage teams that we identified as the best in their markets. These teams will lease approximately half of the legacy HTA square footage with the balance transitioning to our existing brokerage relationships. To maximize efficiency and speed to lease execution, we now have all of our properties on the same CRM platform called VTS, and we are using Healthcare Realty's streamlined lease documentation process. The result of our integration work began to flow through during the first quarter of this year. Prospective tenant tours, an early indicator of leasing activity, increased to over 775 in the first quarter, up over 50% from the fourth quarter. A more significant point is that tours in our legacy HTA properties were up over 80% during the same time versus a 25% increase for legacy HR properties. The benefits of our leasing model are beginning to come through. With better visibility on tours, expectations for the timing of new leases and resulting absorption are becoming clear. Our leasing analytics indicate that tours converted to leases about 15% to 20% of the time. The data also shows it takes an average of 4 months to convert a tour to a new executed lease. And once a new lease is signed, it takes approximately 6 months for a tenant to take occupancy. This tells us our pickup in the first quarter tours should translate to higher occupancy late this year and into 2024. By maintaining two activity consistent with the past 2 quarters, we expect to generate annual absorption of 100 basis points to 200 basis points next year. This comes from our 34.5 million square foot multi-tenant portfolio. The net effect is these gains are expected to add approximately 1.5% to 3% to our baseline annual NOI growth projections. We have illustrated these points on new slides in our investor presentation on Pages 12 and 13. On the broader demand picture, history shows that even with the economy slowing, clinic-based outpatient medical visits remain resilient during times of slower economic growth. Recently, there have been supportive read-throughs of positive trends from some core profit hospital systems. HTA and tenants reported that outpatient surgical procedures were up 5% to 8% year-over-year compared to a 2% range in 2022. They also reported further moderation in labor costs and stabilizing margins along with continued plans to invest in outpatient delivery settings. These improving demand drivers correlate with the increased tour activity we are experiencing in our buildings. Shifting to the market for MOB investment. Demand is strong. We see both debt and equity investors looking to reallocate the stability and safety of MOBs. On the debt side, we are seeing larger lenders such as Capital One, Wells Fargo, and Fifth Third returned to the market with fresh allocations. All in, debt financing appears to have shifted down into the mid-5s. This, coupled with growing institutional equity interest in the MOB space, has shifted cap rates lower by 25 to 50 basis points in the last couple of months. Upper tier MOBs are now trading in the mid-5s to low 6s. With this expanded interest, we see increasing opportunities to leverage our joint venture relationships to accelerate external growth volume. Our pipeline of clustered acquisition opportunities continues to grow with our greater market scale and deeper health system relationships. These relationships are a rich source for development and redevelopment opportunities. Health systems are formulating capital plans to meet the increasing demand for outpatient services. In a few recent examples, hospitals reached out to discuss the new need for new outpatient facilities in growing markets like Phoenix, Houston, Raleigh and Dallas. This year, we are building a road map for increased occupancy gains that will accelerate NOI growth next year. Additionally, strong demand for MOBs along with our greater scale and expanding health system relationships, positions us well for accelerated external growth. The combination of these two will drive meaningful increases in FFO per share. Now I'll turn it back over to Todd.

Thank you, Rob. It's important to note the merger sparked strong interest among institutional capital partners. They recognize the value of Healthcare Realty's operating expertise, the scale of our premium platform, and the strength of our deep industry relationships. We are meeting with blue-chip investors who've earmarked capital for MOBs and want to rapidly scale their exposure. Over the next 6 to 9 months, we intend to see one or more joint ventures with gross asset values between $500 million and $1 billion. We also expect to secure sizable commitments for go-forward investment capital. We will use proceeds from seed portfolios alongside these capital commitments to fund our robust pipeline of investment opportunities. These new ventures will diversify our capital sources and expand our ability to invest in a broad range of burgeoning outpatient trends. We see the potential for our gross investment volume to exceed $1 billion in 2024 and expand from there. As we look ahead, we view 2023 as a critical inflection point for Healthcare Realty. We are carefully investing the resources necessary to sustain higher annual FFO growth well above MOB sector norms. In 2024, we see a clear path to FFO per share growth of 5% to 7%. We also see near-term tailwinds that could strengthen our growth outlook, including softening inflation and lower short-term interest rates. We are eager to engage with everyone further as we execute our growth strategy. We look forward to hosting an Investor Day in the latter part of 2023. We're working on potential dates, and we'll pull many of you over the next few weeks, including at NAREIT. With that, operator, Charlie, we're now ready to shift to the question-and-answer period.

Thank you. Our first question comes from Michael Griffin of Citi. Michael, your line is open. Please go ahead.

It's actually Nick Joseph here with Michael. Todd, you mentioned kind of seeding JVs and the funding robust pipeline of investments. How are you thinking about getting the accretion for HR shareholders from those deals, just given where the cost of equity is today? Obviously, that can fluctuate. But how do you think about actually driving accretive per share earnings from external growth?

Sure. I think how we view it, clearly, as you said, with our cost of equity today, that's not really the basis that we're thinking about. We're really thinking about the basis being the seed portfolio formation cap rates that would come from that, number one. And so obviously, we see that as moving in an attractive direction that both Rob and I both described as cap rates been shifting lower. And then I think the flip side is obviously investing through a JV format, enhancing your returns, leveraging partners' capital, using their expertise to earn fee structures, promote structures that would enhance the return and therefore, creating a spread between those two levels.

And then how do you balance or think about share buybacks versus that pipeline of investment opportunities?

Sure. Naturally, when we sell assets, which we expect to do consistently through this year and into next year, we will evaluate the opportunities available to us when we have those proceeds. We'll consider the return on a share buyback compared to investing that capital in new ventures, whether that's higher-yielding redevelopment, development, or acquisitions, whether they come from our balance sheet or joint ventures. We will take all those factors into account. However, with the opportunities we're identifying, we anticipate focusing more on external growth rather than share buybacks, though that option will always be available.

Just hoping to unpack the potential joint venture opportunities you mentioned. How do we think about the target range of your potential investments or stake in the joint ventures? And how would you feel with interest in growing those joint ventures versus investing on balance sheet?

Sure. I think it's early to obviously express exactly what a JV structure would look like. But I think you can look at the two we have in place today as maybe some goalposts to frame that in. In one case, we're 50-50 with Nuveen or Teachers. And then with CBRE Investment Management, we have an 80-20, where we're the 20. So those are probably good goalposts to think about, something in that range, but it's obviously subject to how we structure it with potential partners, including those potential groups. Obviously, we're talking to a lot of folks. Sorry, what was your second question there?

Just the conflicts. I mean, you're going to have two. Yes.

Yes, I think it's always a balance. We've been careful with our two joint ventures to avoid creating conflicts, as you mentioned. Currently, our joint ventures are relatively small in the bigger picture, and we aim to diversify and grow them, especially considering our cost of capital is not where we want it to be. Many REITs are dealing with discounts to NAV or lower multiples than usual and are exploring ways to utilize external capital. We will continue to assess balance sheet investments alongside these efforts, balancing our overall strategy. We believe that pursuing this external joint venture structure is appropriate now, and there is significant potential for value creation for shareholders. Over time, if the balance sheet's cost of capital is favorable, we will invest more in that. As we've mentioned in previous discussions about our joint ventures, we've been careful to ensure that our strategies complement one another. Our balance sheet strategy focuses on market scale and clusters, particularly in hospital-centric investments. There are many other areas we have explored for years that we could expand upon through these joint ventures, which we have already begun with our current partnerships. We will continue to manage this balance very carefully.

Yes. Regarding the skilled nursing facilities, those are assets we did not intend to hold long-term, and we are already planning to exit them. This quarter's changes are related to the current state of operations and the necessary transition to a new operator or owner. Therefore, we deemed it wise to allocate those reserves to cash accounting until the assets are sold. As for the mezzanine project, as I noted in my prepared remarks, there was a pause during the first quarter, and no work was conducted at that time. This was the change we experienced. The developer has since secured additional equity and is working on restarting the project, which we anticipate will be completed later this year. However, based on the circumstances from the first quarter, we believed it was best to reserve that amount and move to cash. It's important to remember that these are the only skilled nursing facilities and mezz loans we possess, and they were not part of our long-term strategy. We have taken a conservative approach this quarter, which has resulted in about a 2.5% annual impact. Once we recognize the proceeds from the sale and loan repayment, we expect the final impact to be smaller. Overall, the effect is quite minimal.

I wanted to connect a few aspects of the guidance. You're discussing occupancy growth throughout the year, but from an FFO perspective, on a normalized basis, you achieved $0.40 in the first quarter, with the low end for the year set at $1.60. There isn't much growth expected from the first quarter figure, with only modest growth projected at the high end. I'm trying to grasp what might be causing this. If occupancy is anticipated to improve sequentially, what's holding back the sequential FFO from being a bit better?

Nick, this is Todd. I think the real key there is really focusing on Rob's prepared remarks. We're moving along nicely at a 50 basis point year-over-year occupancy improvement currently, and we have been for a little while. We see that beginning to build in the second half. But I think what we really, really want to emphasize is the team that's been really put together to motivate and mobilize leasing, and as Rob described, that really came together at the beginning of the year. A lot of hard work went into that in the second half of last year and really see that momentum building on the tour side. And again, ramping up tours, that's a read through of about 10 months until you see the pickup in occupancy. So we do see steady occupancy gains this year, but fairly modest compared to what we see next year. Next year, we see that doubling, going to 100 basis points to 200 basis points. So it's really a 2024 acceleration story on the occupancy side. But again, we've given guidance this year of same-store NOI, same-store NOI of 2.5% to 3.5%. We're kind of at the lower end now, building later into this year, but moving to a higher level of 4% to 6% next year. So that's really, I think, the important part.

I wanted to follow up on the potential FFO growth of 5% to 7% next year. Can you clarify if any assumptions about acquisitions are included in that figure? Also, do you have an opinion on how the SOFR curve might affect variable rates and contribute to growth next year?

Yes. We anticipate that our acquisitions will increase in 2024, but this will develop gradually throughout the year. Therefore, the contribution in 2024 will be less substantial compared to what we expect in the following years. It constitutes a small portion of our guidance range, likely less than 1%. The majority of the growth we project comes from same-store improvements that I previously mentioned. Kris, would you like to discuss the SOFR curve?

Yes, I mentioned in my prepared remarks that we are not really factoring that into the 5% to 7%. Instead, it would be additional depending on how the SOFR curve ultimately plays out. Currently, it appears to provide a benefit, but it has experienced a lot of volatility. What we are trying to highlight is that from core operations, we see strong growth, along with some potential benefits if interest rates decline as the forward curve anticipates.

My question was kind of on a similar vein to the last one. I'm kind of thinking about the 2024 FFO growth of 5% to 7% that you're targeting. It's really just semantics, but I was just wondering if you could just provide more color on whether you're visualizing maybe a bolus of new leases, all starting on January 1 of next year versus how much the leasing activity and multi-tenant occupancy gains will be more on a rolling basis that may contribute or maybe some in late '23 and potentially throughout '24? Just picture on how you're visualizing that right now. Just more color would be great.

Sure. That's a fair question, Steven. I would say it's not just a single event in the first quarter. It's definitely a gradual buildup that began in the fourth quarter and is continuing to grow more significantly in the first quarter and throughout the year. As Rob mentioned, we're observing a spike in tour volume. We've seen historical trends on conversion rates showing a substantial increase, and we're also experiencing strong numbers already through April. So we're monitoring that and ensuring it maintains its momentum as we progress through 2024.

Yes, I'd say that I would say large or small, I'd say we've seen a number of deals here recently that have sort of across the board in terms of on-campus or off and generally some longer wall product with some credit in it that has significantly move down well into the 5s. You have some typical MOBs trading around the low 6s that I mentioned. So it's a pretty wide gamut of trades that we've seen. The volume, I will say, has been down, but I think we are starting to see some marks that are meaningful for the type of product that we typically invest in and indicative of what we're generally having in our portfolio.

And Rob, just adding to that, I think one of the lowest cap rates we've been hearing about recently was a single asset. So $50 million or less that was testing that 5.5 level. So to your point, it's not just some large deal of some nature that's driving it. I think it's pretty much across the board.

Just along those same lines of questions, again, I guess I'm a little bit surprised that your cap rates are coming in that low on some transactions. Any sense, just again what an underwriter of such a deal must be assuming for those deals to kind of work just given where cost of debt and cost of equity generally is in the market today? And would you expect that you could also contribute assets to any potential JVs at those type of cap rates?

Yes, it's a good question, Tayo. People are looking ahead and reflecting on the recent tough times caused by the quick rise in treasury and index rates. Despite the difficulties, we are starting to see some stabilization in the market. Kris mentioned the outlook for the SOFR curve, which, while not perfect, gives a general idea of market expectations. As a result, some may consider taking on more equity risk and refinancing as stability returns. Additionally, significant banks are adding liquidity and pricing cap rates in the mid-5s range. It will take time to determine where these cap rates will settle, but expectations of mid-5s to low 6s seem reasonable. We will collaborate with our investors on the thematic ideas for our seed portfolio, which could influence cap rates. We're not going to pinpoint a specific cap rate like 5.5% but are considering a range around 6%. This is important for being active in the MOB space, and we will keep you updated as we progress through the year. The range Rob mentioned still reflects where MOBs are currently pricing.

Our next question comes from Connor Siversky of Wells Fargo. Connor, your line is open. Please go ahead.

So thinking about external activity into 2024 and looking at the $1.8 billion long-term development opportunities you guys list in the presentation, I mean in consideration of some of the commentary coming from the REIT space in general that we've seen delays related to air handling equipment, HVAC, and so forth, I mean, can we expect a pickup in development activity in 2024 as well in conjunction with an increase in acquisition cadence?

Yes. If you review the pipeline outlined in our supplemental materials, you'll notice several projects launching at the end of this year, with the majority of funding occurring in 2024. I would estimate that this reflects a significant increase. Considering what is concluding now and what will begin in 2024 in terms of new projects, we anticipate an additional $150 million in expenditures. I mentioned during the last call that our current spending is approximately $25 million per quarter, which would nearly double to around $50 million per quarter. We are optimistic about our development pipeline and see considerable potential in 2024 to initiate and complete these projects within the typical 12- to 24-month timeframe. Furthermore, regarding the health system side, this past quarter revealed that several for-profit entities reported increases in outpatient surgeries and some easing of labor challenges. We view this as an opportunity, as we believe the growth plans of these health systems will advance into 2024 to cater to the growing demand for outpatient services. Therefore, we do not anticipate a slowdown in development. It is more about leveraging our portfolio effectively and obtaining suitable risk-adjusted returns on our development initiatives.

Yes. So I guess, not surprisingly going back to the 5% to 7% growth next year. I mean, it seems to imply that if you're talking about doing these large JVs where you're ceding assets later in the year, that you would have to have a lot of acquisitions lined up kind of right behind it to use the proceeds or else you're creating a lot of short-term dilution that seems to work against the 5% to 7%. So can you just maybe just elaborate a little bit more on that 5% to 7%? And does it contemplate these JVs that you're talking about? And any sort of timing considerations just so we can try to get our arms around that.

Sure, we’re happy to discuss this further as we refine the timing details in the upcoming quarters. You raise a valid point, and we will monitor that closely. We’re observing an increasing number of acquisition and development opportunities that, as Rob mentioned, could be quite beneficial in a joint venture context. Additionally, if we notice changes in our portfolio structure, we can time some adjustments accordingly. By implementing a phased approach, we could alleviate some of the timing issues. We're very aware of this, and I can confidently say that our pipeline for investment opportunities is robust, which we aim to leverage as we move into 2024. However, you’ve raised an important consideration, and we will take it into account while structuring our joint ventures.

I just wanted to circle back to, I believe, Nick Joseph's question on your cost of capital. The cap rates are compressing and they are where you say they are. You're trading at a pretty big discount to NAV. So I just can't reconcile that with your pounding the table on external growth. So just curious if your cost of capital stays where it is, why aren't you aggressively shrinking the balance sheet?

We are in the process of selling some assets this year, which has been a significant focus since the merger. The seed portfolios relate to these sales, and we are raising capital through a joint venture structure. This approach is part of our strategy to manage the cost of capital effectively. We aim to use the proceeds from these sales, combined with commitments from our joint ventures, to drive external and accretive growth. Additionally, there will be various fees and structures involved that can enhance returns. We are not viewing this as simply liquidating equity at unfavorable valuations, which could lead to dilution. We are aware of this and are careful about it. Our longer-term plan is to improve our stock price and cost of capital, allowing us to leverage that as well. We are primarily focused on joint ventures to achieve a lower effective cost of capital. But the gross investment volumes that you referenced earlier in the call, apologies if I missed this, could you share what HR's balance sheet commitment will be? We consider it as essentially the proceeds from seed portfolios. This means we're either selling assets directly to other parties or generating proceeds from seeding portfolios, which we would then combine with significant amounts of external capital. Our goal is to leverage these joint venture structures to pursue the volumes we are discussing.

How much of the 5% to 7% earnings growth and 4% to 6% cash same-store growth for '24 you highlighted, is just HTA merger playing out as you had previously highlighted versus something different that you're seeing more broadly across the leasing environment that's broader based, not specifically tied to kind of improving the operating metrics of the HTA assets?

I believe it's a combination of both factors. It certainly builds on the rationale for merging with HTA, as we recognized significant opportunities within the HTA portfolio, especially given their multi-tenant occupancy being notably lower than ours. Additionally, the merger enhances our market scale and strengthens our existing cluster strategy, leveraging Healthcare Realty's established relationships alongside HTA's strengths to create further momentum. Moreover, as Rob mentioned, there's a noticeable recovery in sentiment regarding the growing demand for healthcare services, particularly outpatient services. Therefore, it involves both portfolios, not solely focused on HTA but also enhancing the HR portfolio. The combined benefits extend beyond occupancy improvements to include various performance metrics we aim to enhance, such as in-place escalators, cash leasing spreads, and managing expense growth, all of which benefit from greater scale and leverage across the larger merged portfolio.

Yes, the timeline I mentioned is based on historical data we have analyzed. There are certainly approximations and averages in the data, so some may progress quicker while others may take longer. What we are currently observing is that health systems and providers are remaining active, increasing their market share and expanding their service areas. We view this as an opportunity to establish our expectations for leasing and occupancy as we head into 2024, based on the heightened activity we have seen from integrating HTA's portfolio into our leasing model and the improved performance from the health systems.

Thank you, Charlie, and thank you, everybody, for joining us this morning. We look forward to seeing you at upcoming conferences, including NAREIT, and we'll be engaging with you about our growth story, but obviously, also the Investor Day that we're looking put together for later this year. Thank you, everybody.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.