Healthcare Realty Second Quarter 2026 Earnings Conference Call

Hello, everyone. Thank you for joining us and welcome to Healthcare Realty's second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Doris Lowe. Doris, please go ahead.

Thank you for joining us today for Healthcare Realty's second quarter 2026 Earnings Conference Call. A reminder that except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks, and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. 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 June 30, 2026. The company's earnings press release and earnings supplemental information are available on the company's website. I'd now like to turn the call over to our President and CEO, Pete Scott.

Thanks, Doris. Joining me on the call today are Rob Hull, Dan Gabay, and Ryan Crowley. It has been exactly one 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, re-establish credibility, and maximize shareholder value. One year henceforth, and I am pleased to report, we are outperforming every one of our key objectives over the last four quarters. Same-store NOI growth has averaged 5.7 percent. Same-store occupancy has increased to nearly 93 percent. Retention has averaged nearly 90 percent. 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 two pennies this quarter, driven by strong operations in leasing, a successful convertible bond offering, and accretive capital allocation. Our performance has been a collaborative effort across the entire organization and would not have been possible without the hard work of all 500-plus 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 expiration 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 four quarters, lease IRRs have improved nearly 3,000 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. I want to highlight a couple of recent health system transactions. First, Common Spirit. In late June, we executed approximately 160,000 square feet of renewals in five 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. Common Spirit 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 215,000 square feet of renewal leases at a positive 4% cash leasing spread, along with 27,000 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. In early July, we executed an LOI for 203,000 square feet of leases across three 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 will launch a comprehensive redevelopment of the Ascension St. Thomas West Campus, located in one of the most vibrant sub-markets in Nashville. We plan to invest $35 million in our three 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 1,400 basis points over the last four 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 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 percent, which is highly accretive relative to our implied cap rate of approximately 6%. All of these high-quality acquisition assets complement our existing sizable footprints 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. The 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 six buildings and three 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 in 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 one-quarter story. It is a durable, repeatable framework, and we intend to keep pulling on every lever. We 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 REAP 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 Rob.

Thanks, Pete, and good morning, everyone. Healthcare Realty delivered another strong operating quarter. We executed 323 leases, totaling 1.5 million square feet, including 350,000 square feet of new leasing. Same-store cash leasing spreads averaged 4.8 percent, average escalators were 3 percent, and the weighted average lease term was nearly six 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 460,000 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. Pete mentioned a few major deals in his remarks, but we also had significant second quarter leasing activity with Baylor Scott & 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 60,000 square feet of new leasing during the quarter, moving these properties to 67% lease. 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 are 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 and OI growth. With that, I'll turn it over to Dan to discuss financial results.

Thanks, Rob. I'll 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 41 cents and same-store cash NOI growth of 5.1 percent, which includes almost our entire portfolio. Additionally, FAD per share was 32 cents, resulting in a quarterly dividend payout ratio of 76 percent. In May, we opportunistically accessed the capital markets during a reprieve global conflicts and issued 700 million dollars of exchangeable senior unsecured notes due 2032 at a coupon of three percent the issuance was strongly received and upsized by 100 million dollars during the marketing process we utilized proceeds to repay our 600 million dollars senior unsecured notes due in august this year which had a coupon of three and a half percent we concurrently repurchase 75 million dollars of shares with the offering which was both financially accretive and additive to the overall deal execution. When factoring in the capped call, the 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 unsecured delay draw term loan. The exchangeable notes and delay draw Term Loan effectively addressed 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 are under contract or 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 Common Spirit and our MOB sale to WellSTAR. Most importantly, we will continue to keep our leverage in the mid-five times 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 two pennies 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 and 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. One last housekeeping item before we go to Q&A. In addition to filing our earnings results, we will be refiling our security 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&A.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one 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&A roster. Your first question comes from the line of John Kilachowski with Wells Fargo. John, please go ahead.

Hi, good morning. Thanks for taking my question. Pete, in the opening remarks, you talked about trending ahead. You're a year out from your strategic plan and you're trending ahead on all metrics. I'm kind of curious now, where does that put you in terms of your outlook on that 185 or 165 to 185 AFFO range that you gave in that strategic plan?

Yeah, thanks, John. Hey, it's Pete here. Good question. You're looking for 2028 guidance. But it is FFO and not AFFO, just to be clear. But look, as I said, Oh, no worries. No worries. I said in my prepared remarks, you know, we are tracking ahead of schedule. I think a couple of things I would just point to, you know, thanks to the convert deal and better than expected, you know, same store NOI this year. And actually what we're seeing as we look out 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, you know, 2026 was really expected to be a flat year of earnings since we had, you know, about seven pennies of dilution from portfolio optimization. And we also had some refinancing, you know, headwinds. our dollar 64 which is the midpoint today the year is not done uh you know we're we're halfway through you know that's actually three pennies of growth when you look at this year versus you know last year um and also we're only getting about a half year benefit from that convert this year so i'm not going to give an exact number except to say that that we feel quite good about you know how we're trending just a couple quarters into the uh 12 quarters of the projections we put out that three-year plan thank you and then my my second one is on the kkr jv now we're seeing

you acquire alongside them um i noticed no uh no flywheel image in the in the supplemental yet but i'm curious just about the sizing of that opportunity and then also with the match funding piece you know the the end of last year there was this idea of getting out of the non-core assets and there was some great pricing there, but just curious what you're funding it with and how you're managing to keep this sort of nav accretive that you're still selling out of some of the things that you don't want to own, but are still able to achieve these great cap rates to afford sort of that spread.

Yeah, it's a really good question. And obviously, KKR has been a great partner. They came in as part of a recap a couple years ago and always had ambitions to grow that vehicle. I would say that Healthcare Realty was holding that vehicle back from being able to grow. There wasn't a lot of free cash flow, and there was an optimization plan that was discussed but actually hadn't been put into effect yet. So it was very difficult, and obviously the dividend issue was very difficult for that joint venture to grow, and we're pleased now that we've done about a half a dozen deals so far this year. It's about $300 million in total with the stuff that's either closed or under contract. And it's pretty attractive yields to us. It's attractive yields to them. How we think about funding that, which I think is the crux of your question, to date, we've 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's 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're able to get, then we'll 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's most important for us is we're going to look at every lever to maximize, you 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, you know, we're going to maintain discipline here. We kind of use the D word, not the O word that's come up a lot. So we're not looking to create that, you know, flywheel you're talking about there. Certainly, it's a creative today for us to think about capital allocation priorities, but we're going to maintain discipline as we think about it.

Very helpful. Thank you.

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

Morning, guys, and thanks for taking the question. You have Nahum on for Mike 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 do you guys think you'll be able to sustain a size close to this over the next few years?

Yeah, I could take that one. It's Pete here. You know, we actually are really pleased with the progress we've made on the redevelopment, you know, pipeline and the pre-leasing. Hopefully everyone heard it in my prepared remarks. But when you look back a year ago, we've improved, you know, pre-leasing in that portfolio by 1,400 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've got around 25 assets in redevelopment today. We've 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 three-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 three 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 you will get the benefit of assets completed that will cycle out. So I would think we'll probably reach a peak towards the end of this year, but I think it will always be part of the ongoing business. I mean, I've been around this business for a long time and where rental rates are trending, I think there's 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're 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 won't be as large outside of the strategic plan as it's trending right now.

Got it. Thanks. And maybe just a quick follow-up sticking on redevelopment. I think the supplement, 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 know, you'll get a higher yield than other markets. It may be, you know, on the lower side of that. I think Nashville is probably a pretty good example where it's probably more like a 9 as opposed to a 12. But for this market and for what those assets would trade for on a stabilized basis with improvements, I mean, you're creating pretty significant value. I'm just talking about cash on cash yields, not about NAV value creation on that. And again, it comes from basically two important pieces. One 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've said that in the past. And so we see a pretty significant upside in occupancy. So if you're getting upside in occupancy and you're getting an uplift in rate, you're going to get to the higher end of those cash on cash yields. If you're just getting more of a rate uplift and a little bit of occupancy uplift, you're probably going to be on the lower end of that range.

Got it. Thanks, Ed.

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

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 plan investment that HR is making, and is that a revenue-generating investment, or is it, I guess, is Ascension's rents increasing, or is that just reflected in the 200,000 square feet of leases that you completed?

Yeah, so, Mike, there's 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 in our earnings release. And we've got a very close relationship with the Ascension St. Thomas team that's based down here in Nashville. And I don't know, five-plus years ago, there was a big redevelopment plan on the Midtown campus that was underoccupied, And that campus is now 100% leased effectively and at pretty sporty rental rates. I think it's kind of leading rental rates in the Nashville market. And I know many of you have seen it. So this is a campus that's in, you know, West Nashville, closer to Belle Meade. So it's actually like right at the entranceway to the most expensive houses here in Nashville. And it's been an underinvested campus for quite some time. it's about 80 percent 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's 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're talking about a double-digit mark-to-market, 11%. That's not in our numbers that we reported last quarter, so that's certainly going to 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's going to be 10 million plus of NOI when all is said and done between absorption as well as the favorable leases that we've put in place. So again, as I said, that's kind of in that, you know, 9 to 10 percent range that is part of our cash on cash yields. But again, I can't actually emphasize enough that you're going to get some pretty significant, I think, NAV value benefit from them because the cap rate is certainly going to compress on that asset.

Okay, good. No, that's helpful. Then similarly, just on the common spirits investment that you talked about or the sale, I guess is common spirits 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'll just do a land lease where they own the land and then you will develop it? It's not on that site or is it just on other parcels nearby?

Yeah, no, it'll be on that site, Mike, I mean, that's a great win-win, you know, the common spirit hospital beds are full. That's actually a hospital that's right at the foothills of the Rockies, and it's got a great, you know, ortho practice 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 non-income producing asset in fact an asset where we were losing money monetize it and also achieve some some pretty you know healthy leases alongside of it as well so we felt like that was a great win-win common spirit achieved what they were looking to achieve and we achieved what we were looking to achieve and the relationship is as strong as it's ever been with Common Spirit right now.

I appreciate it.

Yeah, thanks, Mike. Your next question comes from the line of Michael Stroyek with Green Street. Michael, please go ahead.

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

Yeah, I don't know that I have all those numbers, you know, at the tip of my fingers right now, Mike, but I would just say that, you know, to achieve close to 5% this quarter on cash leasing spreads, which I think is your question, I mean, you've got to have the vast majority of your leases, you know, rolling up at some pretty nice, you know, levels. I would say, to be fair, we're 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's full. And we're actually going through a process, and it's been helping us figure out exactly how hard we can push. we're going to rank all of our buildings. And on the ones where we feel like we've got high occupancy, strong markets, you know, I wouldn't be surprised to see double-digit cash leasing spreads on those. And then in buildings where we're trying to lease up the asset, you know, we're probably not going to get as robust of a cash leasing spread, but we'll get a lot of absorption associated with it. But it all blends today to around 5%, you know, high fours, and that's trending, you know, favorably. So we feel quite pleased with where it's headed.

Makes sense. Maybe we can switch gears and talk to the 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 thinning of bidding tents from some of the more levered buyers?

You know, we do track it. We track it pretty closely. And we have not seen a big impact in, you know, right now, cap rates with rates having backed up. But it's 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's under, you know, contract right now or closed, that's spread over five different, you know, transactions. So we feel like if there is a backing up of, you know, cap rates at all, we'll be able to take advantage of that in the future. But to date, we haven't seen a backing up. We're an unlevered buyer within that vehicle, which I think positions us, you know, quite well. And I would just say that there's 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's a big, you know, private market bid. But typically, those buyers, institutional capital needs a partner to oversee those assets. So like I said, I think we're pretty well positioned, but again, we're going to be very disciplined. I'm going to keep using the D word on how we think about this. We're going to manage our balance sheet effectively. We're going to continue to allocate capital to redevelopment, and we'll continue to look at acquisitions to the extent that we feel like it's augmenting our earnings growth.

Understood. Thanks for the time.

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

Yeah. Good morning, everybody. Hey, Pete, you talked about in your opening comments, just the strength of the lease IRRs that you've 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. Obviously, you guys have done a good job, but how much of 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've done?

Yeah. Well, I think it's a couple things. I think obviously fundamentals have firmed up, Dave, and that's certainly been helping. I will also point out retention. I mean, retention has increased and increased pretty significantly. And that's a a function of, I think, better service we're providing to our tenants combined with lack of new supply. And on renewal lease deals, the amount of capital required is a fraction of what's required on a new lease deal. So that's certainly helping us as well. And when we talk about the pillars of growth, retention is one 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 the different, you know, pillars, including retention, and that certainly has helped. So I think it's part fundamentals and then just part, you know, better retention, limiting the amount of capital that has to go into any kind of lease deal we do.

Thanks for that. And then maybe a follow-up on leasing as well. I think Rob, it was 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 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, execution rate, and I guess, where do you guys see that going overall?

Yeah, it is, Rob. Yeah, the pipeline is strong right now, a little over 3 million square feet about half of that is is health system activity um we've seen an uptick there um as pete mentioned we've we've got a number of been improving our health system relationships in the dialogue there with those systems we've seen a good bit of that activity over the past couple of quarters um you know we did about a million and a half square feet of of leasing this uh this quarter you know that's um you know a little down from from last quarter But I will say, I think we mentioned this last quarter, 2 million square feet was a big number for us. And inside 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 in the pipeline is strong. And I think that, you know, kind of in that, you know, man and a half range that we've been executing, it's probably a good pace to think about as we go forward. And that's a combination of renewals and new leasing. So I'm comfortable with that. And I think, as we just talked about, the demand out there for outpatient medical is very strong and getting, you know, in my mind, getting 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're just going to continue to see that happen.

Great. Thank you.

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

Thanks. Good morning, everyone. On the $3 million of upside, of NLI upside at the Ascension Campus in Nashville you highlighted earlier, I'm 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're evaluating in the near term that kind of really helped close that gap, going from $75 million up to the $95 million stabilized number that you flagged in the presentation?

Hey, Austin. I'll grab that one. Um, short answer on the Ascension campus is, um, that's when you think about that $20 million, that that's not in there. And I think as we continue to look through the portfolio and as we've talked about, there could be incremental opportunities versus the 25 million or so assets 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 and improving demand drivers in our markets. So it's a great relationship with Ascension. They're a fantastic partner. So we're glad to have that coming, and we'll look to always continue to find more upsides in the portfolio.

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

Yeah, that's actually a really good question. I think just stepping back for a second, when you look at our three-year, you know, plan, we did not assume really any capital allocation beyond redevelopments, right? So the fact that a year since we put it out, we're seeing some progress on some prudent capital allocation on the JV acquisition side. I'd say that, you know, we're pleased that we've gotten here a lot faster than maybe we had anticipated, which is great, right? But we're going to 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're going to prioritize joint ventures. That's not to say we couldn't consider something on balance sheet in the future. But again, it's all just going to come down to the types of assets we want to buy and what's the earnings benefit from it. So that's just the lens in which we'll look at everything.

Great. Thanks for the time.

Thanks, Austin. Your next question comes from the line of Seth Berge with Citi. Go ahead, Seth.

Thanks. It's Nick Joseph here with Seth. Maybe just on internal growth, you're trending ahead on four-year cash since trying to lie 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'm going to have Dan just touch on 2026, generally speaking. By the way, nice to have you on the call. Always good to hear your voice. You know, as we think about SAME-STRO NOI growth and earnings growth, and I've said this a couple times in the past, I mean, we are very aware that earnings growth and valuation multiple are highly correlated. In fact, I'm sure the correlations are at the highest they've ever been in the real estate sector. So you can rest assured that we are going to 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 in outpatient medical. You know, so I think as we look at what do we think it's going to take to be successful in the healthcare REIT space and to get a better valuation multiple, I mean, I think our same-store growth probably has to be in the, you know, 4 percent area on a stabilized basis. We're doing better than that today because of some occupancy and absorption. And then, obviously, when you think about earnings growth, you'd like to see mid-single-digit, you know, earnings growth on a stabilized basis as well. And when you look at where we trade today, I don't believe we're getting credit for our ability to achieve those numbers that I just, you know, laid out. But that's the upside opportunity, and that's what, you know, gets us excited as a team here every day. And we're pleased that it's improved since we put out our strategic plan and since I was able to join the company a year plus ago. But there's still obviously work to do. Dan, why don't you talk about 2026 in general and the back half of the year?

Hey, Nick. Again, thanks for the question. I think Pete thematically hit on it spot on. I mean, numerically, we've 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 sort of 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've made. I think about driving results every single day. Obviously, we're seven months into the year, right? So if we continue to perform, I think we feel very good through the guidance numbers that we've provided. And as Pete said, we're always trying to drive towards outperforming and being at the top end of our guidance range. But there's still five more months of the year to go. So I think that's sort of things that that we think about when we think about our same story and why guidance range. And as it relates to FFO translation, we've obviously anniversary through a lot of dispositions from last year that created drag on year-over-year FFO per share growth. We successfully addressed the August 2026 maturity of the bond with our highly successful exchangeable note offering, which removed some of the drag that we had there. So everything we're doing every single day is to drive to that core organic earnings growth in our business that's mid-single digit, and we continue to put through those efforts. So it's really about doing that. It's on our leasing side. We're happy with the JV acquisitions with KKR, and we're looking to continue to deliver every day. But it's a simple business in those respects, and we're going to lease. we're going to have high retention and push those cash leasing spreads uh and and continue to keep pushing on um that occupancy in the same turnover growth makes sense thank you thanks nick your next question comes from the line of omatayo akusanya with deutsche bank omatoyo please go ahead yes good morning everyone uh first of all just wanted to focus on the kkr transactions and trying to understand a little bit more the like the seven and a half cap rate on those deals

again you guys are selling assets at sub five so just kind of curious about the pricing there and so is anything unique is it off market it just seems like really really attractive pricing and opportunities to do more like that yeah so uh tayo uh 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'd probably focus on the Kenistone Cancer Center and the $600 a foot and kind of mid fives, 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've certainly got a pipeline of things we're looking at. And we've 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'll look at that. As to the, you know, yields on the acquisitions, and maybe I'll just spend a second on the $200 million. You know, as I said, it's six assets, but it was five different, you know, transactions. So the going in cash cap rate is in the low sixes, but the yield to healthcare realty, which is what's going to drive our earnings, is actually right around that seven and a half, you know, percent. And that's 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's the right way to quote it. You know, the occupancy on those assets is in the low 90s. Weighted average lease term is, you know, seven years. And there's actually a pretty strong mark to market in the markets that we mentioned. I mean, Greenwich, Connecticut's 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 hold periods, just given the mark-to-market 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 fees that's helpful uh i mean on the jv side any update on the new vene jv and kind of what's happening on that end and if you could see additional activity there apart from the kkr jv yeah um look we talk to novene quite often um you know i think those are more just discrete JVs, and they're not growth, you know, vehicles like what the KKR vehicle is, but I'd say we've got, you know, great, you know, dialogue with Nuveen and not much else to report on those JVs today.

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

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

Good morning. Thanks a lot for taking my questions. Seamster NLI growth in the first quarter was 6.9% and the second quarter 5.1%. It's well above the historical MLB norm. So what's different today or is this just the strategic plan playing out? And I know you've discussed four drivers of the business in the past and you can touch on whether any of those have changed that's driving these results?

Yeah. Hey, Michael, it's Pete 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've 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 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'll continue to repeat, the 2% to 3% kind of steady Eddie descriptions of medical office, that was all well and good in a low interest rate environment. But that doesn't 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'll 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 multi-tenant portfolio. We're getting close to 93% leased in our same store pool. You're going to have some frictional vacancy. It just happens. You're not going to retain or renew every single, you know, tenant for a variety of reasons. But then that gives us an opportunity to push on cash leasing spread. So we feel like we're in a pretty good spot. And then I didn't answer Tyo's question on escalators. I think 3% escalators today has become kind of a norm. That's definitely improved. That's another lever. And we certainly, if we can push, we will continue to push. I think as rates rise, that's certainly an easy thing to push on our tenants as well to point to why we justify better than 3% escalator. But I'd say we've been pleased with getting 3% up to this point.

Thanks for that. Your stock is re-rated meaningfully from the levels where you repurchased shares earlier in the year.

So how does today's expected return from share purchases compare with the 7% plus yields you're achieving through jv acquisitions and the nine to twelve percent redevelopment yields you're underwriting has a relative attractiveness of buybacks changed yeah i mean the the short answer is yes it it it has changed and we're going to look at you know what's the buyback math relative to recycling that capital into redevelopments or you know capital allocation but you know buybacks it's always a lever that we can turn on. It provides immediate accretion if we decided to, you know, pursue it. It's not a program that we just turn on and let, you know, a financial institution manage it for us over a period of time. I mean, we're 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 don't screen as favorably, but that doesn't mean that, you know, we're not rooting for this. But obviously, if there's some dislocation, we can obviously turn it back on immediately and it provides immediate accretion.

Thanks. If I can squeeze one 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's certainly a bias for it to be increasing, which is a positive. I mean, when you look at sector-wide occupancy, I mean, it's been trending higher for, I think, 20 or 25 straight quarters, and sector-wide, you're probably at close to 93%. So 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's some additional absorption in the back half of the year as well. So it's trending a little bit higher, for sure.

Thank you very much. Good luck in the back half.

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

Yeah, thanks. A lot of ground covered here. Just a quick one. Pete, as you look at the transaction markets, obviously, you've got active dialogues with all of your health systems. You've got a great partner with KKR. Have there been any transactions or any of those relationships where wanting to control their real estate, they maybe don't want a joint venture that involves an institutional asset 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's kind of seamless to the tenant in the building. In fact, I don't know that our tenants would be aware if it's a wholly owned building or if it's a joint venture building. You know, we're the asset manager within the venture. We control leasing. We control property management. You know, the healthcare realty brand and everything you would expect is, you know, within the building. So I would tell you today that, no, we have not had any, you know, pushback on a wholly owned versus a institutional capital. you know, joint venture, you know, asset. And I think that's 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 rofer rights for the health system, but that's not what we're talking about here. We're not talking about a defensive JV and a capital raising exercise. Okay, great. that's helpful.

I'll 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 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.

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