Q2 2022 Healthcare Realty Trust Inc Earnings Call

August 9, 2022

Kris Douglas: 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, 2022. 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.

A reconciliation of these measures to the most comparable GAAP financial measures maybe found in the company's earning press release for the quarter ended June 32022.

The Companys 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.

Sure.

Todd Meredith: Thank you, Chris, and thank you everyone for joining us for our Q2 2022 earnings call. Twenty days ago, we closed our transformational combination with HTA. Since we initially began pursuing HTA nearly a year ago, the market has presented a lot of challenges to navigate. Rising debt costs, geopolitical turmoil, and record inflation, among others. We're incredibly fortunate and proud to be where we are today. First, I'd like to express our gratitude to shareholders who voted overwhelmingly in favor of the combination. 79% of shares outstanding and 92% of those who voted. Thank you for your vote of confidence. I'd also like to thank my fellow board members and my colleagues at HR and HTA. We could not have achieved this outcome without their support and hard work. I'm particularly humbled by the commitment and perseverance of my colleagues.

Thank you, Chris and thank you everyone for joining us for our second quarter 2022 earnings call.

Two days ago, we closed our transformational combination with HCA.

Since we initially began pursuing HCA nearly a year ago. The market has presented a lot of challenges to navigate.

Rising debt costs geopolitical turmoil and record inflation among others.

We're incredibly fortunate and proud to be where we are today.

First I'd like to express our gratitude to shareholders, who voted overwhelmingly in favor of the combination.

79% of shares outstanding and 92% of those voters.

Thank you for your vote of confidence.

I'd also like to thank my fellow board members and my colleagues at HR and HCA.

We could not have achieved this outcome without their support and hard work.

I am, particularly humbled by the commitment and perseverance of my colleagues.

Todd Meredith: We're also grateful for the counsel of our advisors and the commitment from our bank group throughout this process. Looking forward, we know we have a lot of wood to chop. We're excited about the opportunity to demonstrate for investors, tenants, and our partners the strength and benefits of the new Healthcare Realty. Importantly, we never lost sight of why we're pursuing this combination. We see tremendous advantages to increased scale. The combined portfolio includes well over 700 properties and 40 million sq ft. When I look at the combination, we've nearly doubled the percentage of our portfolio in markets where we own more than 1 million sq ft. This is notable in a largely fragmented MOB sector. We now have unmatched scale in 14 markets. Dallas is our top market, where we now own nearly 4 million sq ft.

And we're also grateful for the council of our advisors and the commitment from our bank group throughout this process.

Looking forward, we know we have a lot of wood to chop, we're excited about the opportunity to demonstrate for investors tenants and our partners the strength and benefits of the new healthcare Realty.

Importantly, we never lost sight of why we are pursuing this combination.

We see tremendous advantages to increase scale.

The combined portfolio includes well over 700 properties and 40 million square feet.

And when I look at the combination we've nearly doubled the percentage of our portfolio in markets, where we own more than 1 million square feet.

This is notable and a largely fragmented mob sector.

We now have unmatched scale in 14 markets.

Dallas is our top market, where we now own nearly 4 million square feet.

Todd Meredith: What this means is, we can operate much more efficiently, strengthen our market knowledge, and leverage much deeper relationships to accelerate leasing and investment momentum. Fortunately, we operate in a sector with steady historical demand, even in uncertain economic times. Demand for outpatient healthcare in the US is projected to accelerate over the next decade. A sharp rise in the aging population will drive outpatient utilization regardless of economic conditions. What's important is, our portfolio is concentrated in dense, high-growth markets to capture this demand. Over three-quarters of our properties are in attractive coastal and Sun Belt markets like Seattle, Dallas, Atlanta, Nashville, Raleigh, Tampa, and Boston. We have clusters in the right locations, giving us great relationships with the leading health systems in each market. The combination of rising demand, growing markets, and deep relationships will accelerate bottom-line growth.

What this means is we can operate much more efficiently strengthen our market knowledge and leverage much deeper relationships to accelerate leasing and investment momentum.

Fortunately, we operate in a sector with steady historical demand even in uncertain economic times.

Demand for outpatient healthcare in the U S is projected to accelerate over the next decade.

A sharp rise in the aging population will drive outpatient utilization regardless of economic conditions.

What's important is our portfolio is concentrated in dense high growth markets to capture this demand.

Over three quarters of our properties are in attractive coastal and sunbelt market like Seattle, Dallas, Atlanta, Nashville, Raleigh, Tampa and Boston.

We have clusters in the right locations, giving us great relationships with the leading health systems in each market.

The combination of rising demand growing markets and deep relationships will accelerate bottom line growth.

Todd Meredith: In the coming quarters, we're focused on a few key performance indicators that will demonstrate progress and illustrate the power of our combined companies. Number one, asset sales and our joint venture program. We've made great progress and expect to complete the majority of asset sales in the next 30 days to fund the $1.1 billion special cash dividend. Number two, integration. We're hard at work combining our companies to optimize our teams and realize our targeted annual synergies. It's critically important to take care of our talented people and maintain our culture during this process. Number three, leasing momentum. In Q2, both HTA and HR generated robust leasing volume. Together, we have over 600,000 sq ft of new leases that are now in build-out. This record leasing activity will contribute to solid occupancy and NOI improvement.

In the coming quarters, we're focused on a few key performance indicators that will demonstrate progress and illustrate the power of our combined companies.

Number one asset sales and our joint venture program we've.

We've made great progress and expect to complete the majority of asset sales in the next 30 days to fund the $1 1 billion special cash dividend.

Number two integration.

We're hard at work combining our companies to optimize our teams and realize our targeted annual synergies.

It's critically important to take care of our talented people and maintain our culture. During this process.

Number three leasing momentum.

In the second quarter, both HCA and HR generated robust leasing volume to.

Together, we have over 600000 square feet of new leases that are now in buildout.

This record leasing activity will contribute to solid occupancy and NOI improvement.

Todd Meredith: We see momentum building moving into 2023. And number 4, relationships. We expect to tap into our expanded relationships to increase our pace of investment. We have greater visibility on several development starts in the coming quarters. We're intently focused on these 4 priorities. Delivering these results will begin to capture the value of the combination, which is not currently reflected in our stock price. Later, Chris will touch on some key valuation markers that should help our investors realize the potential for attractive returns. When I look at the combination, we have many more properties and many more options to refine the portfolio and generate proceeds when there's a disconnect between public and private valuations. We will use excess proceeds from asset sales together with our expanded joint venture program to invest in MOB, where we can create the most value through scale, clustering, and our expanded relationships.

We see momentum building moving into 2023.

And number four relationships we.

We expect to tap into our expanded relationships to increase our pace of investment.

We have greater visibility on several development starts in the coming quarters.

We're intently focused on these four priorities delivering these results will begin to capture the value of the combination which is not currently reflected in our stock price.

Later, Chris will touch on some key valuation markers that should help our investors realize the potential for attractive returns.

Okay.

When I look at the combination we have many more properties and many more options to refine the portfolio and generate proceeds when theres a disconnect between public and private valuations.

We will use excess proceeds from asset sales together with our expanded joint venture program to invest in <unk>, where we can create the most value through scale clustering and our expanded relationships.

Todd Meredith: While we're only 20 days into the new Healthcare Realty, we're off to a great start. We look forward to executing on our priorities in the coming quarters, and we intend to deliver attractive long-term shareholder value through a compelling combination of lower risk, increased liquidity, and accelerated growth. Now I'll turn it over to Rob to provide an update on our JV and asset sales, as well as our investment activity. Rob?

While we're only 20 days into the new healthcare Realty, we're off to a great start.

We look forward to executing on our priorities in the coming quarters.

And we intend to deliver attractive long term shareholder value through a compelling combination of lower risk increased liquidity and accelerated growth.

Now I'll turn it over to Rob to provide an update on our JV and asset sales as well as our investment activity Rob.

Kris Douglas: Thanks, Todd. Healthcare Realty has made substantial progress to fund the $1.1 billion special dividend through joint venture transactions and asset sales. Specifically, we have closed on $433 million of properties, and we are under contract on another $613 million, expected to close by the end of August.

Thanks Todd.

Healthcare Realty has made substantial progress to fund the $1 1 billion special dividend through joint venture transactions and asset sales <unk>.

Specifically, we have closed on $433 million of properties.

And we are under contract on another $613 million expected to close by the end of August .

Rob Hull: ... Combined, these transactions that are at a blended cap rate of just under 4.8%. By the end of Q3, we expect to complete the remaining sales that will bring the total to over $1.1 billion. The stability of MOBs is translating to more stable pricing relative to other asset types. Every sector is experiencing the headwind of rising rates, yet lenders remain active in the MOB space. The changing credit environment has pushed the market into a period of price discovery, with a wider bid-ask spread on certain offerings. Our asset sales are evidence that MOB pricing remains strong, especially for portfolios valued from $100 to 200 million. In the next several quarters, we plan to sell additional properties totaling $500 million to $1 billion.

Combined these transactions at our <unk> at a blended cap rate of just under four 8%.

By the end of the third quarter, we expect to complete the remaining sales that will bring the total to over $1 1 billion.

The stability of MLB is translating to more stable pricing relative to other asset types.

Every sector is experiencing the headwind of rising rates, yet lenders remain active in the <unk> space.

The training credit environment has pushed the market into a period of price discovery with a wider bid ask spread on certain offerings.

Our asset sales are evidenced the MLB pricing remains strong, especially for portfolios valued from $100 million to $200 million.

And the next several quarters, we plan to sell additional properties totaling $500 million to $1 billion.

Rob Hull: These sales will further refine the portfolio and generate proceeds for accretive reinvestment. In terms of investment activity, acquisitions for the combined company this year stand at $417 million at a blended cap rate of 5.2%. Since we last reported earnings, we closed seven additional investments for $58 million. All were in existing markets. One notable acquisition was in Raleigh, where we purchased three buildings for $27.5 million. Among these were two medical office buildings adjacent to WakeMed's Cary Hospital. Including HTA properties, the company now has substantial scale, with 13 buildings totaling 478,000 square feet in this cluster and 1.1 million square feet in the growing Research Triangle area. Looking ahead, our team remains focused on fostering lasting relationships in markets where robust population growth is increasing demand for healthcare services.

These sales will further refine the portfolio and generate proceeds for accretive reinvestment.

In terms of investment activity.

Acquisitions for the combined company this year stand at $417 million at a blended cap rate of five 2%.

Since we last reported earnings we closed seven additional investments for $58 million.

All were in existing markets.

One notable acquisition was in Raleigh, where we purchased three buildings for $27 $5 million.

Among these were two medical office buildings adjacent to Wakemed carry hospital.

And concluding HCA properties. The company now has substantial scale with 13 buildings totaling 478000 square feet in this cluster and $1 1 million square feet and the growing research triangle area.

Looking ahead, our team remains focused on fostering lasting relationships and markets were robust population growth is increasing demand for healthcare services.

Rob Hull: We will remain disciplined as we selectively pursue acquisitions in target markets that build upon our cluster strategy. For the year, we expect to invest $500 to 750 million in the low to mid-5s, funded largely through asset recycling. Solid demand for MOB space is driving lease up in the portfolio and across our developments. Hospital demand for MOB space remains strong. This demand is largely driven by a health system's need to recruit new physicians to support the expansion of service lines such as radiology, oncology, and women's services. Third-party demand for space also remains healthy, particularly in the areas of cardiology, dermatology, internal medicine, and ambulatory surgery centers. We are also seeing a lot of interest in move-in-ready suites. Tenants see significant value in avoiding delays caused by supply chain and permitting issues.

We will remain disciplined as we selectively pursue acquisitions in target markets that build upon our cluster strategy.

For the year, we expect to invest $500 million to $750 million in the low to mid fives funded largely through asset recycling.

Solid demand for <unk> space is driving lease up in the portfolio and across our developments.

Hospital demand for <unk> space remained strong.

This demand is largely driven by health systems need to recruit new physicians to support the expansion of service lines, such as radiology oncology and women's services.

Third party demand for space also remains healthy.

Particularly in the areas of cardiology dermatology internal medicine.

In ambulatory surgery centers.

We are also seeing a lot of interest in moving ready suites tenancy significant value and avoiding delays caused by supply chain and permitting issues.

Strong demand for outpatient services is also leading to an increase in development activity.

Our developments are largely sourced through existing relationships in target markets, giving us greater control over the process.

In contrast heavily marketed rfps generally attract developers looking for fees, rather than an appropriate spread above a stabilized acquisition.

We have seen our development spreads remained steady 100 to 200 basis points over acquisition.

Okay.

Operator: One moment, please, as we reconnect the speakers. One moment, please. One moment, please. We will resume the call momentarily. One moment, please. Francis, can you hear me? This is Todd.

Operator: One moment, please, as we reconnect the speakers. One moment, please. One moment, please. We will resume the call momentarily. One moment, please.

One moment, please as we reconnect the speakers one moment please.

One moment. Please we will begin the call momentarily one moment please.

Todd Meredith: Francis, can you hear me? This is Todd.

Okay.

Francis can you hear me.

Todd.

Operator: Yes, Todd, we can hear you.

Yes, Todd we can hear you.

Todd Meredith: Okay. We're having a connection issue for Chris and Rob. Something has been lost here. Can we, can we connect them again?

Okay.

Adding a connection issue for Chris and Rob.

Something has been lost here.

Can we can we connect them again.

Operator: Absolutely. One moment, please.

One moment please.

Operator: Excuse me, everyone. Please remain holding while we reconnect the speaker line. Thank you for your patience. Please remain holding while we reconnect the speaker line.

Excuse me everyone. Please remain holding while we reconnect the speaker line.

Okay.

Thank you for your patience, please remain holding while we reconnect the speaker line.

Todd Meredith: Francis, are we back on?

For instance are we back on.

Operator: We are now reconnected with Chris Douglas.

We are now reconnected with Kris Douglas.

Todd Meredith: Apologies, we lost connection there. Rob is going to pick back up where he was cut off.

Apologies.

We lost connection there Rob is going to pick back up where he was cutoff.

Rob Hull: Strong demand for outpatient services is also leading to an increase in development activity. Our developments are largely sourced through existing relationships and target markets, giving us greater control of the process. In contrast, heavily marketed RFPs generally attract developers looking for fees rather than an appropriate spread above a stabilized acquisition. We have seen our development spreads remain steady, 100 to 200 basis points over acquisition yields. Including HCA's pipeline, we currently have $181 million of development and redevelopment projects underway, with about half of this already funded. Our pipeline continues to grow as health systems expand their market footprints. Over the next 12 to 18 months, we expect to start another $100 to 200 million of new redevelopment and development projects.

Strong demand for outpatient services is also leading to an increase in development activity.

Our developments are largely sourced through existing relationships in target markets, giving us greater control of the process.

In contrast heavily marketed rfps generally attract developers looking for fees, rather than an appropriate spread above a stabilized acquisition.

We have seen our development spreads remained steady 100 to 200 basis points over acquisition yields.

Including Hca's pipeline, we currently have $181 million of development and redevelopment projects underway with about half of this already funded.

Our pipeline continues to grow as health systems expand our market footprints.

Over the next 12 to 18 months, we expect to start another $100 million to $200 million of new redevelopment and development projects.

Rob Hull: These are primarily located in target markets such as Atlanta, Dallas, Houston, and Orlando, and include a couple of projects from HTA's development pipeline. Longer term, we expect the addition of HTA's portfolio to be a rich source of development opportunity as we build towards $300 million in annual starts. We remain committed to pursuing accretive investments, focusing on target markets and clusters where we can build scale. The addition of HTA's portfolio gives us a broader base from which to meet robust demand for MOB space and grow cash flow per share. I'll now turn it over to Chris for a review of our financial results.

These are primarily located in target markets, such as Atlanta, Dallas, Houston, and Orlando and include a couple of projects from HCA development pipelines.

Longer term, we expect the addition of Hca's portfolio to be a rich source of development opportunity as we build towards $300 million in annual starts.

We remain committed to pursuing accretive investments focusing on target markets and clusters, where we can build scale.

The addition of HCA Hca's portfolio gives us a broader base from which to meet robust demand for <unk> space and grow cash flow per share.

I'll now turn it over to Chris for review of our financial results.

Todd Meredith: Thanks, Rob. Before getting into specifics on results, I would like to point out that second quarter financials are for standalone HR and HTA, given the merger closed after quarter end. This morning, we published separate financial and supplemental reports for both companies. The third quarter will be the first period with combined results. Our remarks will focus on legacy HR second quarter results, while also highlighting the HTA performance. HR's normalized FFO per share increased 4.7% over the second quarter of 2021 to $0.45. FAD per share increased 11% year-over-year, driving our FAD payout ratio down to 83% for the quarter and 86% for the trailing twelve months. HTA's normalized FFO for the second quarter was $101 million, or $0.43 per share. HTA's FAD payout ratio was 92% for the quarter.

Kris Douglas: Thanks, Rob. Before getting into specifics on results, I would like to point out that second quarter financials are for standalone HR and HTA, given the merger closed after quarter end. This morning, we published separate financial and supplemental reports for both companies. The third quarter will be the first period with combined results. Our remarks will focus on legacy HR second quarter results, while also highlighting the HTA performance. HR's normalized FFO per share increased 4.7% over the second quarter of 2021 to $0.45. FAD per share increased 11% year-over-year, driving our FAD payout ratio down to 83% for the quarter and 86% for the trailing twelve months. HTA's normalized FFO for the second quarter was $101 million, or $0.43 per share. HTA's FAD payout ratio was 92% for the quarter.

Thanks, Rob.

Before getting into specifics on our results I would like to point out the second quarter financials are for Standalone HR, an H T. A given the merger closed after quarter end.

This morning, we published separate financial and supplemental reports for both companies.

The third quarter will be the first period with combined results.

Our remarks will focus on legacy HR second quarter results, while also highlighting daych Ta performance.

HR is normalized <unk> per share increased four 7% over the second quarter of 21 to <unk> 45.

Our fad per share increased 11% year over year, driving our fad payout ratio down to 83% for the quarter and 86% for the trailing 12 months.

HCA has normalized <unk> for the second quarter was $101 million or <unk> 43 per share.

<unk> Fad payout ratio was 92% for the quarter.

Todd Meredith: Looking forward, we expect the combined company's FAD payout ratio to remain below 90%. For HTA, Q2 same-store NOI grew 1.6% year-over-year, an improvement from 0.8% in the Q1. HR's year-over-year quarterly same-store NOI growth increased 3.3%, driven by a 3.4% increase in revenue, offset by 3.5% increase in operating expenses. Operating expense growth decelerated from 6.6% in the Q1, due primarily to property tax refunds. Excluding property taxes, operating expenses increased 5.3% year-over-year, with the primary driver being utilities. We expect utilities to remain elevated in the Q3 with the extreme heat across the country.

Kris Douglas: Looking forward, we expect the combined company's FAD payout ratio to remain below 90%. For HTA, Q2 same-store NOI grew 1.6% year-over-year, an improvement from 0.8% in the Q1. HR's year-over-year quarterly same-store NOI growth increased 3.3%, driven by a 3.4% increase in revenue, offset by 3.5% increase in operating expenses. Operating expense growth decelerated from 6.6% in the Q1, due primarily to property tax refunds. Excluding property taxes, operating expenses increased 5.3% year-over-year, with the primary driver being utilities. We expect utilities to remain elevated in the Q3 with the extreme heat across the country.

Looking forward, we expect the combined company's fad payout ratio to remain below 90%.

For HCA second quarter same store NOI grew one 6% year over year.

An improvement from <unk>, 8% in the first quarter.

A charge year over year quarterly same store NOI growth increased three 3% driven by three 4% increase in revenue offset by a three 5% increase in operating expenses.

Operating expense growth decelerated from six 6% in the first quarter due primarily to property tax refunds.

Excluding property taxes operating expenses increased five 3% year over year with the primary driver being utilities.

We expect utilities to remain elevated in the third quarter with the extreme heat across the country.

Todd Meredith: However, we remain insulated from the higher than historical expenses, with over 90% of the combined company's leases having a pass-through of increased operating expenses. Year-over-year, Q2 revenue per occupied square foot increased 2.8%, which is generally consistent with our in-place contractual escalators of 2.89%. Q2 cash leasing spreads of 3.4% were in line with our expectations and historical range of 3% to 4%. Overall, revenue growth benefited from a 50 basis point improvement in average occupancy. It is noteworthy that we had 215,000sq ft of signed leases in the same-store portfolio that are in the process of build-out. This represents 1.6% of total same-store square footage.

Kris Douglas: However, we remain insulated from the higher than historical expenses, with over 90% of the combined company's leases having a pass-through of increased operating expenses. Year-over-year, Q2 revenue per occupied square foot increased 2.8%, which is generally consistent with our in-place contractual escalators of 2.89%. Q2 cash leasing spreads of 3.4% were in line with our expectations and historical range of 3% to 4%. Overall, revenue growth benefited from a 50 basis point improvement in average occupancy. It is noteworthy that we had 215,000sq ft of signed leases in the same-store portfolio that are in the process of build-out. This represents 1.6% of total same-store square footage.

However, we remain insulated from the higher than historical expenses with over 90% of the combined company's leases, having a pass through of increased operating expenses.

Year over year second quarter revenue per occupied square foot increased two 8%, which is generally consistent with our in place contractual escalators of 2.89%.

Second quarter cash leasing spreads of three 4% or long well in line with our expectations and historical range of 3% to 4%.

Overall revenue growth benefited from a 50 basis point improvement in average occupancy.

It is noteworthy that we had 215000 square feet of signed leases in the same store portfolio that are in the process of build out.

This represents one 6% of total same store same store square footage.

Todd Meredith: HTA had a record number of new leases executed in Q2 and has over 431,000 sq ft of leases that are in the process of build-out. This represents 1.9% of its total same-store square footage. Given the record amount of new leases and build-out across both portfolios, nearly double historical norms, we're optimistic about meaningful absorption in the coming quarters. Converting these suites to occupancy will create significant incremental NOI and per share value. Looking further ahead, bringing HTA's current multi-tenant occupancy of 84% in line with HR's existing multi-tenant occupancy of 88%, generates over $28 million of annual NOI. From there, bringing both portfolios' multi-tenant occupancy to 90% generates another $28 million, for a total of $56 million of annual NOI.

Kris Douglas: HTA had a record number of new leases executed in Q2 and has over 431,000 sq ft of leases that are in the process of build-out. This represents 1.9% of its total same-store square footage. Given the record amount of new leases and build-out across both portfolios, nearly double historical norms, we're optimistic about meaningful absorption in the coming quarters. Converting these suites to occupancy will create significant incremental NOI and per share value. Looking further ahead, bringing HTA's current multi-tenant occupancy of 84% in line with HR's existing multi-tenant occupancy of 88%, generates over $28 million of annual NOI. From there, bringing both portfolios' multi-tenant occupancy to 90% generates another $28 million, for a total of $56 million of annual NOI.

HCA had a record number of new leases executed in the second quarter and has over 431000 square feet of leases that are in the process of build out.

This represents one 9% of its total same store square footage.

Given the record amount of new leases and build out across both portfolios nearly double historical norms, we are optimistic about meaningful absorption in the coming quarters.

Converting these suites to occupancy will create significant incremental NOI and per share value.

Looking further ahead, bringing HTH current multi tenant occupancy of 84% in line with HRS existing multi tenant occupancy of 88% it generates over $28 million of annual NOI.

From their brain, both portfolios multi tenant occupancy to 90% generates another $28 million for a total of $56 million of annual NOI.

Todd Meredith: This will take multiple years, but can provide significant value beyond the $33 to 36 million of G&A synergies we expect to generate in the next twelve months. Now, shifting to the balance sheet. We finalized the recast of the combined HTA and HR bank credit facilities in Q2. The new combined facilities include $650 million of new term loans to repay the approximately $550 million outstanding on the existing revolvers and to fund remaining transaction costs. We currently have near full capacity under the new $1.5 billion revolver. The new $1.1 billion asset sale term loan was drawn at merger closing to fund the $4.82 per share special dividend to HTA shareholders.

Kris Douglas: This will take multiple years, but can provide significant value beyond the $33 to 36 million of G&A synergies we expect to generate in the next twelve months. Now, shifting to the balance sheet. We finalized the recast of the combined HTA and HR bank credit facilities in Q2. The new combined facilities include $650 million of new term loans to repay the approximately $550 million outstanding on the existing revolvers and to fund remaining transaction costs. We currently have near full capacity under the new $1.5 billion revolver. The new $1.1 billion asset sale term loan was drawn at merger closing to fund the $4.82 per share special dividend to HTA shareholders.

This will take multiple years, but can provide significant value beyond that $33 million to $36 million of G&A synergies, we expect to generate in the next 12 months.

Now shifting to the balance sheet, we finalized the recast of the combined H T E and HR bank credit facilities in the second quarter.

The new combined facilities include $650 million of new term loans to repay the approximately $550 million outstanding on the existing revolvers and define remaining transaction costs.

We currently have in your full capacity under the new $1 5 billion revolver.

The new $1 $1 billion asset sell term loan was drawn at merger closing defined the $4.82 per share special dividend to H T a shareholders.

Todd Meredith: We expect to repay this asset sale term loan with the proceeds from the JV and asset sales that are currently in process. We provided a couple of updated valuation disclosures this quarter. First, we added at the end of the HR supplemental, a summary combined company pro forma NAV schedule. It shows our current implied cap is in the high fives, well above the transaction pricing Rod described earlier. As we complete additional asset sales, we will look at opportunistic share repurchases if our implied cap is more attractive than acquisition and development yields. To that end, last week, the board authorized a $500 million share repurchase program. Second, we provided an updated accretion bridge for 2023 FAD on page 20 of our investor presentation.

Kris Douglas: We expect to repay this asset sale term loan with the proceeds from the JV and asset sales that are currently in process. We provided a couple of updated valuation disclosures this quarter. First, we added at the end of the HR supplemental, a summary combined company pro forma NAV schedule. It shows our current implied cap is in the high fives, well above the transaction pricing Rod described earlier. As we complete additional asset sales, we will look at opportunistic share repurchases if our implied cap is more attractive than acquisition and development yields. To that end, last week, the board authorized a $500 million share repurchase program. Second, we provided an updated accretion bridge for 2023 FAD on page 20 of our investor presentation.

We expect to repay this asset sale term loan with the proceeds from the JV and asset sales that are currently in process.

We provided a couple of updated valuation disclosures this quarter.

First we added at the end of HR supplemental a summary, combined company pro forma NAV schedule.

It shows our current implied cap is in the high fives, well above the transaction pricing Rob described earlier.

As we complete additional asset sales, we will look at opportunistic share repurchases, if our implied cap is more attractive than acquisitions and development yields.

To that end last week, the board authorized a $500 million share repurchase program.

Second we provided an update accretions updated accretion bridge for 2023 Fad on page 20 of our Investor presentation.

Todd Meredith: There are significant share price upside when you apply these expected results to the historical multiples, as shown on page 21 of the investor deck. Please note, this analysis focuses on FAD accretion and multiples. There will be several non-cash accounting adjustments, including reset of straight-line rent and mark-to-market outstanding debt, that will make FFO results less meaningful in the coming quarters. In July, HR and HTA declared and paid quarterly stub dividends of $0.201 and $0.029, respectively. The balance of the HR stub dividend of $0.109 was declared last week. The result is HR shareholders will receive a combined dividend of $0.31 this quarter, which is the same as the May dividend. We expect to maintain the legacy HR dividend policy and cadence moving forward.

Kris Douglas: There are significant share price upside when you apply these expected results to the historical multiples, as shown on page 21 of the investor deck. Please note, this analysis focuses on FAD accretion and multiples. There will be several non-cash accounting adjustments, including reset of straight-line rent and mark-to-market outstanding debt, that will make FFO results less meaningful in the coming quarters. In July, HR and HTA declared and paid quarterly stub dividends of $0.201 and $0.029, respectively. The balance of the HR stub dividend of $0.109 was declared last week. The result is HR shareholders will receive a combined dividend of $0.31 this quarter, which is the same as the May dividend. We expect to maintain the legacy HR dividend policy and cadence moving forward.

There are significant share price upside when he applied these expected results to the historical multiples as shown on page 21 of the investor deck.

Please note. This analysis focuses on fad accretion and multiples.

There will be several noncash accounting adjustments, including reset of straight line rent in March market outstanding debt that will make epatha results less meaningful in the coming quarters.

And July HR, an H T a declared and paid quarterly stub dividends of 21 cents and 2.9 cents respectively.

The balance of the HR stub dividend of $10.09 was declared last week.

The result is HR shareholders shareholders will receive a combined dividend of 31 cents this quarter, which is the same as the may dividend.

We expect to maintain the legacy HR dividend policy and cadence moving forward.

Todd Meredith: HR and HTA made great progress this quarter in closing the merger, while also continuing to execute operationally. Most noteworthy was the strong leasing results across the two portfolios. And looking ahead, we are eager to continue this progress and maximize the value from our combination. Francis, we're now ready to open the line for questions.

Kris Douglas: HR and HTA made great progress this quarter in closing the merger, while also continuing to execute operationally. Most noteworthy was the strong leasing results across the two portfolios. And looking ahead, we are eager to continue this progress and maximize the value from our combination. Francis, we're now ready to open the line for questions.

HR, an HCA made great progress this quarter and closing the merger while also continuing to execute operationally.

Most noteworthy was the strong leasing results across the two portfolios.

And looking ahead, we are eager to continue this project progress and maximize the value from our combination.

Francis were now ready to open the line for questions.

Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you'd like to remove that question, press star followed by two. Again, to ask a question, please press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. Our first question comes from Rich Anderson with SMBC. Please go ahead.

Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad, if you'd like to remove that question press star followed by Kim.

Again to ask a question please press star one.

As a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking your question.

Our first question comes from Rich Anderson with F. N B C. Please go ahead.

Rich Anderson: Hey, thanks. Good morning, everyone. So wanted to first on the disposition of the $1.1 billion, that's obviously taking longer to clear the finish line, but you're getting the same pricing that you've talked about. What would you say is causing that delay? You know, we thought we'd be pretty much done with it by middle of August, at least based on previous comments from you. So can you just kind of go through that, you know, the cadence of that experience for us?

Hey, Thanks, good morning, everyone.

So wanted to first on the on the disposition of the $1 1 billion, that's obviously taking longer to to clear the finish line, but you're getting the same pricing that you've talked about what would you say is is causing that delay.

We thought it would be pretty much done with it by middle of August politically based on previous comments from you. So can you just kind of go through that.

The cadence of of of that experience worse.

Todd Meredith: Hey, Rich, I would say it really hasn't been a material delay. I will say, at least what we communicated most recently, I wouldn't say it's a material delay. I would say, you know, today's progress is right on pace with what we were talking about previously. I would say from the original, you know, timing, maybe you have a valid point. And I think it's pretty obvious. I think it's just the markets are challenging. Rob alluded to the, you know, lenders are still active in MOB space. But as you can imagine, these buyers, you know, those who use debt are, you know, are having to go through and make it work as they kind of face some different debt terms than maybe they originally underwrote. So we're not really concerned about it.

Kris Douglas: Hey, Rich, I would say it really hasn't been a material delay. I will say, at least what we communicated most recently, I wouldn't say it's a material delay. I would say, you know, today's progress is right on pace with what we were talking about previously. I would say from the original, you know, timing, maybe you have a valid point. And I think it's pretty obvious. I think it's just the markets are challenging. Rob alluded to the, you know, lenders are still active in MOB space. But as you can imagine, these buyers, you know, those who use debt are, you know, are having to go through and make it work as they kind of face some different debt terms than maybe they originally underwrote. So we're not really concerned about it.

Yes.

Hey, rich.

I would say it really hasn't been a material delay I will say at least what we communicated most recently I wouldn't say it's material delay I would say you know today's progress is right on pace with what we were talking about previously I would say from the original.

Timing may be or you have a valid point and I think it's pretty obvious I think it's just the markets are challenging.

Rob alluded to the <unk>.

Lenders are still active in EM Ob space, but as you can imagine these buyers and others, who use debt or you know.

Or having to go through and make it work as they kind of faced some some different debt terms and maybe they originally underwrote. It. So we're not overly concerned about it we're obviously well on track with nearly half in a closed now in the balance closing in August there were you know.

Todd Meredith: We're obviously well on track with nearly half, you know, closed now and the balance closing in August. We're, you know, even if it is, you know, a tad bit slower, we're not concerned about it. We feel good about it.

Kris Douglas: We're obviously well on track with nearly half, you know, closed now and the balance closing in August. We're, you know, even if it is, you know, a tad bit slower, we're not concerned about it. We feel good about it.

Even if it is.

Tad bit slower, we're not concerned about it and we feel good about it.

Rich Anderson: Okay. And then, you mentioned in your opening comments there, three quarters of your portfolio are what, you know, you would describe as sort of densely populated areas of the country. It leads me to question, you know, now with the combined company, you know, what, what is... You know, you mentioned, upwards to $1 billion of dispositions on a, you know, you know, over the next several quarters. But what do you think the sweet spot is for the combined company now, as it relates to on versus off campus? You know, what do you see as the non-core component of your portfolio that over the, maybe not over the next year, but over the next several years, is likely to be sold over time?

Okay, and then you mentioned in your opening comments there are three quarters of your portfolio or what.

You would describe as sort of a dense densely populated areas of the country.

It leads me to question you know now with the combined company.

What what is.

You mentioned up to upwards to $1 billion of dispositions on it you know over the next several quarters, but what do you think the sweet spot is for the combined company now as it relates to on versus off campus.

What do you see as the.

The noncore a component of your portfolio that overall, maybe not over the next year, but over the next several years as is likely to be sold overtime.

Todd Meredith: Sure. You know, if you look at the combination of the two companies, we end up at about 68% on or adjacent to campus. And I think we've, you know, we've shared with folks that, you know, certainly you've seen us in the past be much higher than that. Although I think Rob has communicated a number of times that our investment pace over the last several years has been about 75, 25, so 75 being on or adjacent. I would say that's probably a longer term, you know, target that we're looking at. So the asset sales that we're working on now that Rob addressed, that'll tick up the on and adjacent a little bit, maybe 1% or so.

Kris Douglas: Sure. You know, if you look at the combination of the two companies, we end up at about 68% on or adjacent to campus. And I think we've, you know, we've shared with folks that, you know, certainly you've seen us in the past be much higher than that. Although I think Rob has communicated a number of times that our investment pace over the last several years has been about 75, 25, so 75 being on or adjacent. I would say that's probably a longer term, you know, target that we're looking at. So the asset sales that we're working on now that Rob addressed, that'll tick up the on and adjacent a little bit, maybe 1% or so.

Sure.

If you look at the combination of the two companies we ended up at about 68% on or adjacent to campus.

And I think we've you know we've shared with folks that certainly you've seen us in the past be much higher than that.

Although I think Rob has communicated a number of times that our investment pace over the last several years has been about 70, 525% to 75 being on or adjacent.

I'd say thats, probably a longer term target that we're looking at so the asset sales that we're working on now that Rob to address.

That'll tick up to be on an adjacent a little bit maybe a percent or so.

Todd Meredith: I think over time, as we continue to sell assets, as we continue to invest in new assets, we'll drive that, you know, up into the mid-seventies, ±. So I think that's kind of our long-term view. As you've heard us talk about our cluster strategy, we've gotten much more comfortable with the idea of investing, you know, again, primarily in on adjacent settings, but then complementing that with off-campus that's strategic and relevant to these health systems and providers that we work with in these markets. And I think as we gain scale in these markets, you know, filling that in between our campus-based clusters really makes a lot of sense. So that's kind of the long-term target, about 75%.

Kris Douglas: I think over time, as we continue to sell assets, as we continue to invest in new assets, we'll drive that, you know, up into the mid-seventies, ±. So I think that's kind of our long-term view. As you've heard us talk about our cluster strategy, we've gotten much more comfortable with the idea of investing, you know, again, primarily in on adjacent settings, but then complementing that with off-campus that's strategic and relevant to these health systems and providers that we work with in these markets. And I think as we gain scale in these markets, you know, filling that in between our campus-based clusters really makes a lot of sense. So that's kind of the long-term target, about 75%.

And I think over time as we continue to sell assets as we continue to invest in new assets will drive that up into the mid seventy's plus or minus so I think thats kind of our long long term view as you've heard us talk about our cluster strategy.

Got much more comfortable with the idea of investing again, primarily in on adjacent settings, but then complementing that with off campus with strategic and relevant to be health systems and providers and work with in these markets and I think as we gain scale in these markets.

Filling that in between our campus space clusters really makes a lot of sense. So that's that's kind of a long term target of about 75%.

Rich Anderson: Okay, last one from me. Now that you're, you know, you're a much bigger enterprise, understanding that it's a fairly fragmented market still, do you think that HR can, you know, kind of, institute real change in terms of how people view the business from the lens of the REIT? You know, we get typical 3% type, same-store NOI growth, 3%, cash leasing spreads, you know, in that range, sometimes more, sometimes less. But when you look at some other sectors in the REIT space, you know, the math is much different, right? For like industrial, where there is, you know, a price insensitive tenant base like yours, they get much bigger cash leasing spreads, bigger same store numbers.

Okay last one for me.

Now that Youre, a much bigger enterprise understanding that it's a fairly fragmented market still.

Do you think the HR can you know kind of.

Institute real change in terms of how people view the business from a from the lens of the REIT.

We get typical 3% type same store NOI grew 3% cash.

Cash releasing spreads in that in that range, sometimes more sometimes less but when you look at some other sectors in the REIT space.

The math is much different rate for like industrial where there is.

Because our price insensitive tenant base like yours, they get much bigger.

Cash releasing spreads are bigger same store numbers is is that something that you think you can achieve over the long term Institute real change in terms of the growth profile of the company I know you've lifted about lot of things in the future, but I'm thinking more about systemic change to the medical office business, adding more of a growth element to it in Europe .

Rich Anderson: Is that something that you think you can achieve over the long term, institute real change in terms of the growth profile of the company? I know you've listed a lot of things in the future, but I'm thinking more about systemic change to the medical office business, adding more of a growth element to it, you know, in your umbrella. Thanks.

And your umbrella thanks.

Todd Meredith: ... Sure. I think fundamentally, you know, we're not going to change medical office from a non-cyclical business to suddenly a cyclical business. I think that's the trade-off. And of course, we've been running for, you know, we're long in the tooth on these cyclical sectors that have really had a huge tailwind for an extended period. And I think, yeah, we're seeing that slow down, whether that's apartments or industrial; it's still very attractive, but it's slowing down, and that will change in the future. That can change. I think medical office is different. You know, it's really built to sort of grind, you know, at these more steady rates, but through economic cycles. And so I think that's the difference.

Sure.

I understand the question I think fundamentally we're not going to change medical office from a.

A non cyclical business to suddenly a cyclical business I think thats the tradeoffs and of course, we've been running for we're long in the tooth on these the cyclical sectors that have really had a huge tailwind for an extended period and I think we're seeing that slowdown whether that's departments or industrial still very attractive.

Its slowing down and that will change in the future that can change I think medical office is different you know, it's really built to sort of grind at these more steady rates, but through economic cycles, and so I think thats. The difference so im not going to pretend to suggest we're going to suddenly transform this into a cyclical business that creates a big peaks.

Todd Meredith: So I'm not going to pretend to suggest we're going to suddenly transform this into a cyclical business that creates, you know, big peaks and valleys. I do think, though, we can incrementally move higher on the growth profile. I think we can sustain a 3%+ type growth profile. And you've seen Healthcare Realty do that over the years, and I think we can apply that to this broader portfolio, use our strengths to do that. And I think that will show up in our rent bumps. It'll show up in our cash leasing spreads, obviously, same-store NOI. But we're not here to tell you that suddenly we can produce, you know, high single-digit, low double-digit type growth in the business on a sustainable basis. I think that just would defy gravity.

Valleys I.

I do think that we can incrementally move higher on the growth profile I think we can sustain a 3% plus type growth profile and you've seen healthcare realty do that over the years and I think we can apply that to this broader portfolio use our strength to do that.

And I think that will show up in in our rent bumps it'll show up in our cash leasing spreads obviously same store NOI, but we're not we're not here to tell you that suddenly we can produce high single digit low double digit type growth in the business on a sustainable basis, I think that just would defy gravity and this is about safety at <unk>.

Todd Meredith: And, you know, this is about safety. You know, MOBs are largely more about non-cyclical and safety, and that's fundamentally, you know, doctors aren't changing that business. Fundamentally, hospitals aren't. So, I think it's just different than something like industrial or other sectors.

Or largely more about non cyclical and safety in and Thats fundamentally doctors arent changing that business fundamentally hospitals art. So I think it's just different than something like industrial or other sectors.

Operator: All right. Good stuff. Thanks, Todd. Thanks, everyone.

Rich Anderson: All right. Good stuff. Thanks, Todd. Thanks, everyone.

Good stuff thanks, Todd Thanks, everyone.

Todd Meredith: Thanks, Rich.

Thanks Rich.

Operator: Thank you for your questions. Our next question comes from Michael Griffin with Citi. Please proceed.

Thank you for your questions.

Our next question comes from Michael Griffin with Citi. Please proceed.

Michael Griffin: Hey, thanks. I just want to go back to this accretion bridge page in the presentation. Just on the HR FAD of $370 million for 2023. If you look at current run rates, it's implying about flat relative to last year at $325 million. So I'm just curious how you're anticipating that extra, call it, $45 million of pickup from FAD on HR on just that standalone basis.

Yeah.

Hey, Thanks, I just want to go back to this accretion bridge page in the presentation Difama HCA fat of $370 million for 'twenty. Three if you look at current run rates, it's implying about flat relative to last year at 325 million. So I'm, just curious how youre anticipating that extra call it $45 million of pickup from fat on HCA.

And just that Standalone basis.

Todd Meredith: Yeah, Michael. Hey, this is Chris. Yeah, when you look at it and you take kind of their standalone, we have assumed, you know, that they're going to be able to grow in the low to mid 2s on a same store basis. You also get the full impact of their acquisitions that they completed in 2021. That needs to be added to that number that you were talking about, as well as a full impact of some of the developments, including some kind of current pay, construction loan type developments that will go into that. As well as, you know, some incremental acquisitions that we had assumed for this year. Now, we've pulled some of that back.

Kris Douglas: Yeah, Michael. Hey, this is Chris. Yeah, when you look at it and you take kind of their standalone, we have assumed, you know, that they're going to be able to grow in the low to mid 2s on a same store basis. You also get the full impact of their acquisitions that they completed in 2021. That needs to be added to that number that you were talking about, as well as a full impact of some of the developments, including some kind of current pay, construction loan type developments that will go into that. As well as, you know, some incremental acquisitions that we had assumed for this year. Now, we've pulled some of that back.

Yes, Michael Hey, this is Chris Yeah. When you look at it you take kind of their their standalone, we have assumed.

They're going to be able to grow.

In the low to mid twos on a same store basis, you also get the full impact of their acquisitions.

That they completed in in 'twenty, one that needs to be added to to that number that you were you were talking about as well as a full impact of of some of the developments including.

Some kind of current pay construction loan type type developments that will go go into that.

As well as.

You know some incremental acquisitions that we had assumed for this year now with we pulled some of that.

Todd Meredith: But when you roll through all of the impacts from the growth as well as those incremental acquisitions that weren't in that 21 number, that's what gets us up to the $370 million. And I will say that we did bring down that $370 from $390 previously, as we have cut back on the assumption of how much acquisitions we would be doing for the balance of this year moving into next year, with HCA, given, you know, where the current stock price is. We're effectively what you see in this accretion bridge is more of a more of an asset recycling as opposed to significantly more external growth.

Kris Douglas: But when you roll through all of the impacts from the growth as well as those incremental acquisitions that weren't in that 21 number, that's what gets us up to the $370 million. And I will say that we did bring down that $370 from $390 previously, as we have cut back on the assumption of how much acquisitions we would be doing for the balance of this year moving into next year, with HCA, given, you know, where the current stock price is. We're effectively what you see in this accretion bridge is more of a more of an asset recycling as opposed to significantly more external growth.

That back, but when you when you roll through.

All of the the impacts from the the growth as well as those those incremental acquisitions that weren't in that 'twenty one number.

What gets us up to the to the $370 million an hour.

I'll say that we did bring down that $3 70 from 390 previously as we have cut back on the <unk>.

Assumption of how much acquisitions, we would be doing for the balance of this year moving into next year.

With with HCA.

Given where the current stock prices, we're effectively what you see in this accretion bridge is more of a.

More of an asset recycling as opposed to significantly more.

Todd Meredith: However, we are assuming with that asset recycling that we're able to redeploy those proceeds accretively. So really, in terms of the accretion bridge, that change in that investment activity is not having a big impact. Really, the almost all, if not all, of the change from what we had presented previously can be related to change in interest rates.

Kris Douglas: However, we are assuming with that asset recycling that we're able to redeploy those proceeds accretively. So really, in terms of the accretion bridge, that change in that investment activity is not having a big impact. Really, the almost all, if not all, of the change from what we had presented previously can be related to change in interest rates.

External growth. However, we are assuming with that asset recycling that we're able to.

To redeploy those proceeds accretively.

So really in terms of the accretion bridge that change in net investment activity is not having a big impact really the almost all if not all of the change from what we had projected previously can be related to change in interest rates.

Michael Griffin: So should we then assume that that $20 million of net investment activity decrease applies to 2022 as well? Because I'm assuming that 2023 number is the one detailed in the proxy, the $390 million, and then for 2022, that's a $354 million. So, you know, you subtract $20 million from that, call it $334 million FAD for HCA for 2022. Is that fair to assume?

So should we then assume that that $20 million of net investment activity decreased supply to 'twenty, two as well because I'm assuming that 23 number is the one detail in the proxy of the $390 million and then for 'twenty two that the 354 so.

<unk> 29th Bad call at 334 Fab for HCA for 'twenty. Two is that is it fair to assume.

Todd Meredith: That might be pushing a little bit too early, because you are going to, you know, pick up some of that, some of those acquisitions from earlier in the year. But yes, I would say a good, a disproportionate amount of it would be in 2023, but you would get a portion into 2022 as well.

That might be put pushing a little bit too too early.

And because you are going to pick up some of that.

Some of those acquisitions from earlier in the year, but yes, I would say a good disproportion of that amount.

Would be in 'twenty, three but you would get you would get a portion into into 'twenty two as well.

Michael Griffin: Cool. Appreciate the color on that. Then just maybe touching on leverage. Just curious, kind of where it sits on a pro forma basis with the dispo that have already occurred and sort of, you know, do you still anticipate hitting that 6 to 6.5 times range, or, you know, could there be anything to kind of change the mindset on that?

Cool I appreciate the color on that and then just maybe touching on leverage just curious kind of where it sits on our on a pro forma basis with the dispose that have already occurred and sort of you know do you still anticipate hitting that six to six five times range or could there be anything to comment kind of change the mindset on that.

Todd Meredith: No, we're still feeling good about getting into that 6 to 6.5 range. You know, obviously, if we have not and we have a little bit more on that term loan, that it's higher right now on that asset sale term loan, but it's our expectation that will be fully repaid, you know, before the end of this quarter. So on a combined basis, we should be in that target range that we've disclosed.

No we're still feeling good about about getting into that six test to six and a half range.

You know obviously, if we have not and we have a little bit more on that term loan.

That it is higher right now in that asset sale term loan, but it's our expectation that will be fully repaid.

Before the before the end of this quarter.

So on a combined basis, we should be in that in that target range that we disclosed.

Michael Griffin: All right. That's it for me. Thanks for the time.

Alright, that's it for me thanks for the time.

Operator: Thank you, Michael. Our next question comes from Steven Valiquette with Barclays. Please go ahead.

Thank you Michael.

Our next question comes from Steven Valiquette with Barclays. Please go ahead.

Steven Valiquette: All right, great. Thanks for taking the question. Now, the one main question I have was actually just touched on a little bit, and it comes back to the, you know, all the projections in the proxy, the prospectus filed on June 10 for each standalone company through 2026. You just kind of talked about the 2022 numbers around that, but I guess beyond that, for 2023 through 2026, you know, before any consideration for the planned divestitures, are those numbers, you know, still valid to use for just kind of, you know, projecting out long term for each standalone company, or are they stale for one reason or another? Just wanted to visit that for the out years as well. Thanks.

Alright, great. Thanks for taking the questions.

Now the one main question I have is actually you just touched on a little bit and it comes back to the.

All of our projections and the proxy prospectus filed on June 10th three chairs Standalone company through 2026, and you just kind of talked about the 'twenty two numbers around that but I guess beyond that for 23 through 26.

Before any consideration for the planned divestitures of those numbers.

Still valid to us for just kind of you know projecting out long term for each standalone company or are they scale for one reason or another just wanted to visit that for the out years as well.

Todd Meredith: Yeah, it obviously, it kind of depends on exactly where we are in the volume of external growth. However, as I pointed out to Michael, that's really not having a significant impact on the overall results, given the fact that we're assuming if we are in an asset recycling phase as opposed to net external growth, that we're able to do that on an accretive basis by selling, you know, small portfolios like Rob talked about reinvesting in individual assets. So, that really doesn't have a major impact.

Yes, it obviously it kind of depends on exactly where we are off of the volume of external growth. However, as I pointed out to Michael that's really not having a significant impact on on the overall results given the fact of where assuming if we are in an asset recycling phase as opposed to.

To net.

External growth that we're able to do that on an accretive basis by selling.

No small portfolios like Rob talked about reinvesting in individual assets.

So that really didn't have a major impact really what is driving the change and what we presented and.

Todd Meredith: Really, what is driving the change in what we presented, and, you know, you could run that through the balance of those pro formas, would be changing interest rates, which obviously have adjusted since earlier in the year when those original pro formas were put together. And that's the reason we wanted to provide this updated accretion bridge to make sure that people were picking that up. And I think a lot of people were. I think, I don't think that's any surprise to anyone. But we just wanted to make sure that was abundantly clear.

Yeah, you can run that out through the balance of those performers will be change in interest rates, which obviously have.

<unk> adjusted.

Since earlier in the year when those those original performers were were put together and that's the reason we wanted to provide this this updated accretion bridge too to make sure that the people were picking that up and I think I think a lot of people were I think I don't think that that's any any surprise to anyone.

But but we just wanted to make sure that that was abundantly clear.

Steven Valiquette: Okay. The only real quick follow-up around that is just that, at the time these numbers came out back in 10 June 2022, I mean, they were, you know, projected before that, obviously. But we'll set the numbers were above Street consensus at the time. So I don't know if that stood out to you. Maybe you just gave the answer on why you think it might have been above. But what sticks out to you on why those projections were above the Street consensus at the time? And I guess if it's not obvious, we can just talk about it more offline later, but I was just curious if you had any quick thoughts around that.

Okay. The only real quick follow up around that is just that.

At the time these numbers came out back in June tab, I mean, they were young projected before that obviously, but both sets of numbers were above street consensus at the time. So I don't know if that stood out to you. Maybe you just gave the answer on why you think it might've been above of what sticks out to you on why those projections were above the street consensus at the time negative it's not <unk>.

Yes, we can just talk about it more offline later, but I'm. Just curious have you had any quick thoughts around that.

Todd Meredith: Yeah, I mean, I'm happy to, you know, follow up with you if you have more specific offline. But I do think that when you're in a period like this, where you're going through a merger, that as you look at the consensus numbers, you know, people may have a wider dispersion of what those results are, depending on what their assumptions are and how they're looking at those, and what the combination can provide in terms of net external growth, what it can do in terms of G&A. Obviously, we've put in place what we think our assumptions are, but everybody out there doesn't always have the same view.

Yes, I mean I'm happy to follow up with you. If you have more specific offline, but I do think that when you're in a period like this where you are going through.

Going through a merger.

Is that as you look at the consensus numbers.

People are are.

It may have.

A wider dispersion of what those results are dependent on what their assumptions are and how they are looking at those.

And what the combination can can can provide in terms of net external growth what it can do in terms of G&A. Obviously, we've put in place what we think our assumptions are but but everybody out there doesn't always.

Didn't always have the same view.

Todd Meredith: So I think that creates the, you know, the range of kind of results that can flow into that consensus number. But happy to follow up in more detail with you later, if you'd like.

And so I think that that creates.

The range of.

But the kind of results that can can flow into that consensus number but happy to follow up in more detail with you later if you'd like.

Steven Valiquette: Okay. Yeah, that's great. Okay, thanks.

Okay, Yeah, that's great okay. Thanks.

Operator: Thank you for your questions. Our next question comes from John Palowski with Green Street. Please go ahead.

Thank you for your question. Our next question comes from John Pawlowski with Green Street. Please go ahead.

Yeah.

John Pawlowski: Great. Thank you for the time. Todd, can you give us a sense for who from HTA's senior management is leading the day-to-day integration, given that a CFO left day one?

Great. Thank you for the time.

You give us a sense for do from H T. Any senior management is leading the day to day integration given that a CFO left day one.

Todd Meredith: Sure. You know, obviously we set up long ago some integration teams, and so we've got, you know, folks from HTA that are kind of paired off with our counterparts. So Julie Wilson, our EVP of Operations, is kind of our point person on integration, and she's been coordinating heavily with Amanda Houghton. But there's other folks that work with their Chief Accounting Officer, David Gershenson, and some others in his staff, that are key folks on that integration as well. And so, you know, there's clearly key functions like accounting that are critical in terms of that integration, but other folks related to human resources as well. So those are the main folks, but it's clearly, you know, there's a staff on both sides focused on that.

Sure.

Obviously, we set up long ago.

Some integration teams and so we've got folks from.

HCA that are kind of paired off with our counterparts at Julie Wilson.

Our EVP of operations is kind of our point person on integration and she's been coordinating heavily with Amanda Houghton, but there's other folks that work their chief accounting officer, David Gershon, Sem and some others and his staff that are key folks on that integration as well and so.

There is clearly key functions like accounting that are critical in terms of that integration, but other folks related to human resources as well.

So those those are the main folks, but it's clearly there's there's a staff on both sides focused on that but clearly healthcare Realty legacy healthcare Realty leadership is really driving that exercise.

Todd Meredith: But clearly, Healthcare Realty legacy Healthcare Realty leadership is really driving that exercise.

John Pawlowski: Okay. And then a follow-up on the transaction market as it relates to the asset sales. You guys are still achieving pretty solid pricing. Did the pool of assets change at all as the months roll along and we hit the volatility in the debt markets? Or are there any other concessions outside of price that you had to give to, again, close at that 4.8 kind of unaffected pricing?

And then a follow up on the transaction market as it relates to the assets you guys are still achieving.

Pretty solid pricing.

We're there.

Indeed, all of the assets change at all the Montreal on family at the volatility in the debt markets are there any other concessions outside of price that you had to give to a gang close at that four eight.

Unaffected pricing.

Steven Valiquette: This is Rob. No, I would say no. I mean, you know, as we indicated throughout the process, you know, we did break the transactions up into multiple transactions, smaller bite sizes that we were comfortable with, and we were seeing, you know, a deeper market for those, a deeper pool of buyers. So, but in terms of making concessions, I wouldn't say there were any meaningful concessions that were given in order to achieve that pricing.

Rob Hull: This is Rob. No, I would say no. I mean, you know, as we indicated throughout the process, you know, we did break the transactions up into multiple transactions, smaller bite sizes that we were comfortable with, and we were seeing, you know, a deeper market for those, a deeper pool of buyers. So, but in terms of making concessions, I wouldn't say there were any meaningful concessions that were given in order to achieve that pricing.

This is Rob no I would say no.

As we indicated throughout the process.

We did.

You know breakthrough.

Transactions up into multiple transactions smaller bite sizes that we were comfortable with and we were seeing.

A deeper market for those a deeper pool of buyers so but in terms of making concessions I wouldn't say there were any in the maidenform concessions that were given in order to achieve that pricing and one of the things that we did is we and we talked about this in the spring we had a we had a larger group of assets that we looked at so.

Todd Meredith: Yeah, and one of the things that we did is we, and we talked about this in the spring, is we had a, you know, we had a larger group of assets that we looked at. So it wasn't like we just started and just said: This is it, and this is all we're gonna do. And so we worked, worked through that. You know, I think we had announced we were at a point looking at, you know, closer to $1.6, 1.7 billion. And so we were able to identify out of those, that pool of assets, what we felt like we would be able to execute on and be able to get accomplished in terms of the timeframe that we were shooting for.

It wasn't like we just started and you said this is Ed is so we're going to do and so we worked worked through that I think we had announced we were at one point looking at closer to 161 7 billion and so we were able to <unk>.

Identify the out of those.

That pool of assets, what we felt like we would be able to to execute on ang and be able to.

To get accomplished in terms of the timeframe that we were shooting for and so you just kind of had to set a central priorities there but.

Todd Meredith: And so you just kind of had to set your priorities there. But ultimately, we feel good about the process and the result that we've been able to achieve.

But ultimately we feel we still feel good about the process and the result that we've been able to achieve.

Okay.

[Analyst] (Company Unknown): Okay. But was the final pool of assets sold or about to be sold higher quality than the initial, than the initial assets you guys were underwriting?

John Pawlowski: Okay. But was the final pool of assets sold or about to be sold higher quality than the initial, than the initial assets you guys were underwriting?

Okay, but for the final pool of assets sold or about to be sold higher quality than the initial and the initial assets you guys are underwriting.

Rob Hull: No, I wouldn't-

Todd Meredith: No.

Rob Hull: I wouldn't say that. No, I wouldn't say they were higher, higher quality than what we already sold.

No I, well I wouldn't say that.

I would now I would say they are higher quality than what we've already sold.

Todd Meredith: Yeah, I would say the assets that we're selling are similar to the overall mix, although a couple of preferences, as I articulated earlier, a little more off-campus, a little more single tenant. You know, we're selling some assets that are, you know, micro hospitals that, you know, great markets, great health system, but, you know, an asset type that we wanted to reduce our exposure to. So there's some things in there that, for us, on the margin, you know, actually improve the resulting quality of the combination after the sales.

Yes, I would say these are the assets that we're selling are.

Similar to the overall mix, although a couple of preferences as I articulated earlier.

A little more off campus, a little more single tenant.

We're selling some assets that are micro hospitals.

Great markets.

Great health system, but an asset type that we wanted to reduce our exposure to it so theres some things in there that for us on the margin actually improved the resulting.

Quality of the combination after the sales.

[Analyst] (Company Unknown): Okay. Thank you for the time.

John Pawlowski: Okay. Thank you for the time.

Okay. Thank you for the time.

Operator: Thank you for your questions. Our next question comes from Jonathan Hughes with Raymond James. Please proceed.

Thank you for your questions.

Our next question comes from Jonathan Hughes with Raymond James. Please proceed.

Jonathan Hughes: Hey, thanks for the time. I was hoping you could kind of stick with the JVs and dispositions that John was just asking about. You know, I think we saw another $600 million that was mentioned in the press release from a month ago. That was kind of like to be marketed or in the process. You know, is that $600 million still expected to be marketed and attempted to be sold in the near term? Or is that going to be added to that kind of phase two of the post-merger, you know, HR, and a little bit further down the road?

Okay.

Hey, Thanks for thanks for the time.

It was something that you kind of stick with the JV dispositions that John was just asking about.

No I think we saw another 600 million that was mentioned in the press release from a month ago that was kind of activity to be marketed or in the process.

Is that 600 million still expected to to be marketed and attempted to be sold in the near term or is that going to be added to that kind of phase two of the post merger.

HR analytics further downgrades.

Rob Hull: Yeah, I would say that, you know, we're looking at that as sort of the post-merger once, you know, we're going to complete the asset sales and JV transactions associated with the special dividend and funding that, and then moving into that next phase of really looking at refining, continuation, refining the portfolio, and looking at opportunities where we can exit markets, where we don't see a long-term growth strategy through clustering and working with our health system partners and really rotate out of those types of assets and those types of properties and into, you know, transac- or properties where we do our buying in existing markets and building out clusters.

Yeah, I would say that.

We're looking at that as sort of the post merger once kind of completes our.

Asset sales and JV transactions associated with the special dividend and funding that and then moving into that next phase of of really looking at refining continuation refining the portfolio.

Looking at opportunities, where we can exit markets, where we don't see a long term growth strategy through clustering and working with our health system partners and really rotate out of those types of assets and those types of properties and into.

Tran.

Zach or properties, where we do are buying in existing markets and building out clusters. So I think it's more of a refinement strategy and and rotating could be accretive transactions into in the markets, where we want to continue to bill.

Rob Hull: So, I think it's more of a refinement strategy and rotating through accretive transactions in the markets where we want to continue to build.

Todd Meredith: I think-

Todd Meredith: I think, Jonathan, in terms of timing on that, I would say, you know, some of that certainly we would expect to, to occur, you know, in calendar 2022, but some of it will obviously potentially flow over into 2023. But we certainly continue to work on those assets that you're referring to. Those are discussions that are ongoing, but we're kind of formalizing, you know, a process of selling an additional $500 million to $1 billion that Rob referenced. So I think that's kind of in that phase, and, and we'll see some of that progress this year as well as going into next year.

Jonathan Hughes: Okay.

Todd Meredith: Jonathan, in terms of timing-

And I think Jonathan.

Jonathan Hughes: Yeah.

Todd Meredith: Timing on that, I would say, you know, some of that certainly we would expect to, to occur, you know, in calendar 2022, but some of it will obviously potentially flow over into 2023. But we certainly continue to work on those assets that you're referring to. Those are discussions that are ongoing, but we're kind of formalizing, you know, a process of selling an additional $500 million to $1 billion that Rob referenced. So I think that's kind of in that phase, and, and we'll see some of that progress this year as well as going into next year.

<unk> timing on that I would say some of that certainly we would expect to occur in calendar 'twenty two but some of it will obviously potentially flow over into 'twenty three but we certainly continue to work on those assets that you're referring to those are discussions that are ongoing but we're kind of formalizing.

<unk>.

The process of selling an additional 500 to a 1 billion that Rob referenced so I think thats kind of in that phase and and we will see some of that progress this year as well as go into next year.

Jonathan Hughes: Got it. Okay. And then maybe turning to that accretion bridge in the slide deck this morning and looking at the 2023 FAD estimate for HCA, it's now, you know, $365 million versus the $390 million previously. That's down kind of 6% versus the last estimate due to the higher rates and less acquisitions that you talked about earlier, Chris. But on the 2023 FAD estimate for HR, standalone, you know, that dropped almost 10% due to the same, you know, higher rates and less acquisitions. Can you just walk us through why the drop was greater for HR versus HCA when, you know, leverage is not that dissimilar, and I think the acquisition activity, you know, for this year and future years sounds like it was unchanged.

Got it okay.

And then maybe.

Turning to that accretion bridge and the <unk>.

The slide deck. This morning, and looking at the 2023 F&B estimate for HCA and it's now $3 65 versus the $390 million previously that's down.

6% versus the last estimate due to the higher rates and less acquisitions that you talked about earlier, Chris but on the mid 2023 F. A b estimate for HR.

Standalone, if that drops tanker at almost 10% due to the same.

Higher rates and less acquisition can you just walk us through why the drop was was greater for HR versus H D. Wayne.

Leverage is not that dissimilar than I think the acquisition activity for this year and each year sounds like it wasn't changed.

Todd Meredith: Yeah, and it is, as we talked about, you know, the majority of what the change is, is really interest rates. Because if you look at the change in net investment activity, they did drop, but it was, we also brought down the shares that was associated with that, that growth, and so it really is related all, almost all to interest rates. And it really has to do with the difference between the, fixed and floating percentages between the two portfolios. We've typically run about 70, 75 percent fixed, in, in our capital structure. Ended up at HTA, at this point in time, ended up being almost 100 percent fixed.

Yes. It is.

As we talked about the majority of what the changes is really interest rates because if you look at the change in net investment activity.

They did drop but it was we also brought down the shares it was associated with that that growth and so it really is related all almost all to interest rates.

It really has to do with the difference between the fixed and floating percentages between the two portfolios, we typically run about.

70, 75% fixed.

And our capital structure ended up at H T Hey.

At this point in time ended up being almost 100% fixed and so as a result with the change in the interest rates is not having as a material impact.

Todd Meredith: And so as a result, with the change in the interest rates, it's not having as material impact to them as it does to us. But on a combined basis, we end up in a kind of 80 to 85% you know fixed percentage there. So we think that that's a good place to be right now. It still gives us a lot of flexibility. We'll obviously be watching, you know, what we can do in the bond markets, as well as what we can do with some swaps to term out some of our debt. But that's the reason for the difference of the impact of the interest rates.

To them as it does to us it does to us but on a combined basis, we end up in a.

Kind of.

82% to 85%.

Fixed <unk>.

<unk> there. So we think that that's a good place to be right now it still gives us a lot of flexibility we will obviously be watching what we can do in the bond markets as well as what we can do with some swaps due to term out some of our debt, but that's that's the reason for the difference of the impact of of the interest rates.

Jonathan Hughes: Okay. That's. That clears it up. Thank you. And then one more for me, kind of sticking with that accretion bridge page. You know, the JV and asset sales there show $44 million of FAD removed on the $1.1 billion of sales, but that implies a you know 4% yield. So how do we kind of square that with the reported 4.8 cap rate on those transactions?

Okay. That's that Krishna. Thank you and then one more for me and sticking with that accretion bridge page.

The JV and asset sale there show.

$44 million of F. <unk> removed on the $1 1 billion of sales does that imply the.

4% yield so how do we kind of square that with the reported four eight cap rate on this transaction.

Todd Meredith: ... Yeah, this is FAD, and so the difference there is the maintenance CapEx is associated with it.

Yes. This is bad and so the difference there is the maintenance capex is associated with it.

Operator: Got it. And is that CapEx assumption still the 12.5% of NOI? I think in the last deck, that's what it was. Is that unchanged still?

Got it.

And with an exact capex assumption still the 12 and a half per cent of NOI think an elastic that's what it was is that unchanged though.

Todd Meredith: Yeah, it's in that ballpark.

Yes, it's in that it's in that ballpark.

Operator: Got it. All right. Appreciate the time.

Got it.

Alright, I appreciate the time.

Todd Meredith: Thanks, Jonathan.

Thanks, Jonathan.

Operator: Thank you for your questions. Our next question comes from the line of Tayo Akusanya with Credit Suisse. Please proceed.

Thank you for your question.

Our next question comes from the line of Kayo Cusano with credit Suisse. Please proceed.

Omotayo Okusanya: Hi, guys. Good afternoon, everyone. First question is around the share buyback program. Again, makes a lot of sense, just kind of given where your implied cap rate is at, you know, sort of mid-sixties or so. But also wondering how you're balancing that against kind of, you know, increased leverage as well from doing share buybacks.

Tayo Okusanya: Hi, guys. Good afternoon, everyone. First question is around the share buyback program. Again, makes a lot of sense, just kind of given where your implied cap rate is at, you know, sort of mid-sixties or so. But also wondering how you're balancing that against kind of, you know, increased leverage as well from doing share buybacks.

Hi, good afternoon, everyone.

First question is around the share buyback program again makes a lot of sense, just kind of given where your implied cap rate is that.

Does it make fixes ourselves, but also wondering how you're balancing that against kind of no.

Increased leverage as well from doing share buybacks.

Todd Meredith: Yeah, I would say-

Got it and I will say what exactly how we expect going forward in regards to how how aggressive you might get with share buybacks.

Omotayo Okusanya: What exactly can we expect going forward in regards to how aggressive you may get with share buybacks?

Tayo Okusanya: What exactly can we expect going forward in regards to how aggressive you may get with share buybacks?

Todd Meredith: Tayo, I think we're – the way we would look at it is we would use disposition proceeds for... You know, we'll basically take disposition proceeds of this program we're talking about, and we will then evaluate fairly clinically, does it make more sense to buy our stock buyback because it's a better yield, better return, or should we invest in development or acquisitions? And so, you know, at these stock price levels, obviously, that could be compelling to buy back the stock. So that's how we look at it, rather than levering up to do it. I think that's a different order of magnitude question, which we're not really looking to do. This would really be a function of an alternative use of proceeds for asset sales rather than levering up to do it.

Tayo I think we're the way we would look at it is we would use disposition.

Proceeds per.

It will basically take disposition proceeds with this program, we're talking about and we will then evaluate purely clinically does it make more sense to buy our stock back because it's a better yield better return or should we invest in development or acquisitions and so at these stock price levels, obviously that could be compelling to.

Buy back the stock so thats, how we look at it rather than levering up to do it I think thats a different order of magnitude question, which we're not really looking to do this would really be a function of an alternative use of proceeds for asset sales rather than levering up to do it because I think again, Chris mentioned six to six five times debt to EBITDA that is.

Todd Meredith: So, I think, again, Chris mentioned 6 to 6.5 times debt EBITDA. That's a range we're comfortable being in. We're not looking to, you know, accelerate that higher just to buy back the stock. So that's, that's sort of the framework we think about.

A range, we're comfortable being in we're not looking to accelerate that higher just to buy back the stock. So that's that's sort of the framework we think about.

Omotayo Okusanya: Okay. Um-

Tayo Okusanya: Okay. Um-

Okay.

Todd Meredith: Tayo, the only other thing I would mention, you mentioned an implied cap rate in the mid-sixties. We did provide, Chris referenced, I believe, a supplemental page in our supplemental, sort of a pro forma NAV schedule, and we would look at our implied cap rate being in the high fives currently, and we've seen some others coming in around there as well, but our own numbers suggest that. So we would certainly encourage everybody to take a look at that.

The only other thing I would mention.

You mentioned, an implied cap rate in the mid sixes, we did provide Chris referenced I believe a supplemental page in our supplemental.

Sort of a pro forma NAV schedule, and we would look at our implied cap rate being in the high fives currently and we've seen some others coming in around there as well, but our own numbers suggest that so we would certainly encourage everybody to take a look bad.

Omotayo Okusanya: That's helpful. And then also, you know, the FAD per share growth acceleration. I think, again, the drivers of that all make sense. But, you know, in terms of occupancy gains, I mean, especially again, a lot of it feels like it's going to be focused on the multi-tenant HTA portfolio, where occupancy has just kind of been stubbornly, you know, stuck for a very long time. Again, you guys have had some time now to do some due diligence. I mean, what do you see there that gives you the confidence you can drive occupancy gain when occupancy in our portfolio has not grown for the longest time?

Tayo Okusanya: That's helpful. And then also, you know, the FAD per share growth acceleration. I think, again, the drivers of that all make sense. But, you know, in terms of occupancy gains, I mean, especially again, a lot of it feels like it's going to be focused on the multi-tenant HTA portfolio, where occupancy has just kind of been stubbornly, you know, stuck for a very long time. Again, you guys have had some time now to do some due diligence. I mean, what do you see there that gives you the confidence you can drive occupancy gain when occupancy in our portfolio has not grown for the longest time?

That's helpful.

And then also the F B D per share grew.

Growth acceleration I think again the.

The drivers of that all makes sense, but.

In terms of occupancy gains I mean, especially again a lot of it feels like it's going to be focused on the multi tenant portfolio, where occupancy occupancy is has kind of been stubbornly stuck for very long time again, you guys have had some times at some time now to do some due diligence.

I mean, what do you see there that gives you this confidence you can drive occupancy gain.

Occupancy in our portfolio has not grown for the longest time.

Todd Meredith: Yeah, I mean, a couple things I would throw out there, Tayo, to think about. You know, one thing we've talked about is a little difference in our leasing approach than HTA's historical approach. We at Healthcare Realty historically have really engaged with the brokerage community and used the brokerage community in markets to really extend our reach to find new tenants and to really help attract, you know, those new tenants that really do expand occupancy. And so we've begun to see a lot of benefit from that. Obviously, having more scale in a market, more clusters within a market and getting the benefit to that, getting the focus of brokers, getting the first call from those brokers or directly from tenants, prospective tenants, I think is key.

Yes, a couple of things I would I would throw out there tayo to think about one one thing we've talked about it a little difference in our leasing approach than HTH historical approach, we at healthcare Realty historically have really engaged with the brokerage community and.

Used the brokerage community.

In markets to really extend our reach to find new tenants and to really help attract those new tenants that really do expand occupancy and so we begin we've begun to see a lot of benefit from that obviously, having more scale in a market.

More clusters within a market and getting the benefits of that getting the focus of brokers getting the first call from those brokers or directly from tenants prospective tenants I think is key so we see a lot of strength building out of that and where we've been able to develop those those critical levels of scale. So having much more of the combined port.

Todd Meredith: So we see a lot of strength building out of that, and where we've been able to develop those critical levels of scale. So having much more of the combined portfolio at scale, having much more of a broker-oriented approach, we think we can get a lot of benefit out of that in the HTA portfolio. And you're right, most of that opportunity lies, or at least half the opportunity overall lies in their multi-tenant portfolio. But we also think there's a lot more room in the, in the legacy Healthcare Realty multi-tenant portfolio. Chris, I think, walked through some numbers that suggested, you know, north of $55 million of NOI pickup, if we can bring both, basically all the portfolio up towards that 90% occupancy level. And we think there's just a lot of tailwinds right now.

Folio at scale, having much more of a broker oriented.

Approach, we think we can get a lot of benefit out of that in the HCA portfolio, you're right most of that opportunity lies.

Or at least has the opportunity over all lives in their multi tenant portfolio, but we also think there's a lot more room.

In the legacy healthcare Realty multi tenant portfolio, Chris I think walked through some numbers that suggested.

North of $55 million of NOI pickup if we can bring boats basically all of the portfolio up towards that 90% occupancy level and we think there's just a lot of tailwind right now youre seeing it across the sector.

Todd Meredith: You're seeing it across the sector. A lot of rising replacement costs, there's just not as much supply that's gonna go up that's affordable, and so we think that's gonna, you know, benefit our buildings, and we're just seeing a lot of demand from providers. I think some of that's pent up from the last couple of years and having their heads down, focused on COVID. So we're very bullish, and we're seeing it come through in the leasing, as we talked about earlier.

A lot of.

Rice with rising replacement costs, there's just not as much supply that's going to go up it's affordable and so we think that's going to benefit our our buildings and we're just seeing a lot of demand from providers I think some of that pent up from the last couple of years and having their heads down focused on COVID-19. So we're very bullish and we're seeing it come through in the.

Leasing is as we talked about earlier.

Operator: I might add to that, Todd. I might add to that, that you are starting to see some of that in the HTA portfolio already. It is not-

Kris Douglas: I might add to that, Todd. I might add to that, that you are starting to see some of that in the HTA portfolio already. It is not-

I would add I might add to that Todd I might add to that that you are starting to see some of that in the HCA portfolio already has not flowed through all the way to occupancy, but if you look at their lease percentage and its ups and their same store portfolio, it's up year over year by 70 basis points and so there's a.

Todd Meredith: ...flow through all the way to occupancy. If you look at their lease percentage, it's up in their same-store portfolio, it's up year-over-year by 70 basis points. This is what I hit on in my prepared remarks, that there is a large amount between both portfolios of leases that are in the process of build-out, and frankly, almost double the amount that we've seen historically. As those build-outs are completed and are able to be converted to occupancy, we see some good upside, very optimistic about what it can do to drive occupancy, which actually drives rent, NOI, and overall earnings growth.

Kris Douglas: ...flow through all the way to occupancy. If you look at their lease percentage, it's up in their same-store portfolio, it's up year-over-year by 70 basis points. This is what I hit on in my prepared remarks, that there is a large amount between both portfolios of leases that are in the process of build-out, and frankly, almost double the amount that we've seen historically. As those build-outs are completed and are able to be converted to occupancy, we see some good upside, very optimistic about what it can do to drive occupancy, which actually drives rent, NOI, and overall earnings growth.

And that is what I hit on in my prepared remarks that there is a a large amount.

Between both portfolios of leases that are in the process of a build out and frankly almost double the amount than we've seen historically so.

So as those build outs are completed and are able to be converted to occupancy we see.

Some some good upside very.

Nick about what it can do to drive occupancy, which actually drives.

Rent and NOI and an overall earnings growth. So I don't think that we're saying, okay. We got a we got a long integration process and then we might start seeing some I think that it's already you can already kind of see it.

Todd Meredith: So I don't think that we're saying, okay, we've got a long integration process, and then we might start seeing some. I think that it's already. You can already kind of see it set up inside of their portfolio and ours to start to be able to capitalize on some of this occupancy we're talking about.

Kris Douglas: So I don't think that we're saying, okay, we've got a long integration process, and then we might start seeing some. I think that it's already. You can already kind of see it set up inside of their portfolio and ours to start to be able to capitalize on some of this occupancy we're talking about.

Set up inside of of their portfolio an hours two to start to be able to capitalize on some of this occupancy we're talking about.

Omotayo Okusanya: Gotcha. If you could indulge me with one more question. One of your peers on their earnings call kind of really talked about a really remarkable mark-to-market of about 8%. I think you guys kind of came in at about 3.5 or 3.4 or so. Just kind of curious, again, with everything you're kind of seeing with inflation, do you expect mark-to-market to accelerate going forward? Or how do you kind of look at that versus the need to kind of manage the client relationship?

Tayo Okusanya: Gotcha. If you could indulge me with one more question. One of your peers on their earnings call kind of really talked about a really remarkable mark-to-market of about 8%. I think you guys kind of came in at about 3.5 or 3.4 or so. Just kind of curious, again, with everything you're kind of seeing with inflation, do you expect mark-to-market to accelerate going forward? Or how do you kind of look at that versus the need to kind of manage the client relationship?

Gotcha.

Could I indulge me with one more question one of your peers on their earnings call kind of redo talked about are really remarkable mark to market of about 8%.

I think Lee you guys kind of came in at about 3.5 or 3.4 or so.

Just kind of curious again with everything that kind of thing with inflation do you expect mark to market direct salary going forward or how do you kind of look at that versus the need to kind of manage the client relationship.

Todd Meredith: Yeah, it's a good question. We saw that as well, and certainly wouldn't take anything away from the numbers that you know, Physicians Realty put up. Certainly a great quarter of cash leasing spreads. I think in their own remarks, though, they acknowledged that, you know, it's not exactly what they expect the next couple quarters. But I think like them, we would agree, there's definitely tailwinds here that give us optimism about continuing to push rate. And I think with replacement costs being clearly up significantly, build-out costs are up significantly, both for you know, leasing activity as well as development, that gives us some tailwinds to continue to push on rate. You know, even higher rates being a lower cost alternative than something new, a new development. So we're optimistic.

Yes, it's a good question, we saw that as well and certainly wouldn't take anything away from from the numbers that the.

Physicians Realty put up slipping.

Really a great quarter of cash leasing spreads I think in their own remarks, there. They acknowledged that it's not exactly what they expect the next couple of quarters, but I think like them. We would agree theres definitely tailwind here that are that are often give us optimism about continuing to push rate.

Think with replacement costs being.

Clearly up significantly build out costs are up significantly both for leasing activity as well as development.

That gives us some tailwind to continue to push push on rate.

Even higher rates being a lower cost alternatives and something something new a new development. So we're optimistic I'm not going to say that as the new norm at all but you've seen us in past years put up some numbers that are you know.

Todd Meredith: I'm not gonna say that 8's the new norm at all, but you've seen us in past years put up some numbers that are, you know, getting up to that order of magnitude. So I think our view is, we like, we think 3 to 4 is, you know, very doable, and occasionally, you know, getting, you know, in the 3 to 5 range is feasible as well. So, you know, directionally, I think we're optimistic on that, just like our peers.

Getting up to that order of magnitude. So I think our view is we like we think three to four is very doable and occasionally getting.

In the three to five range is feasible as well so.

Directionally I think we're optimistic on that just like our peers.

Omotayo Okusanya: Thank you.

Tayo Okusanya: Thank you.

Thank you.

Operator: Thank you for your questions. Our next question comes from Michael Griffin with Citi. Please go ahead.

Thank you for your questions.

Our next question comes from Michael Griffin with Citi. Please go ahead.

Michael Bilerman: Hey, it's Michael Billerman here with Griff. So Todd, I think to sort of get back to, on, the cost of capital, you know, as you think about sort of where the company is today, you know, obviously, the cost of capital for the entire sector overall in the weeks has moved up pretty dramatically since last August. But for you specifically, it's moved up more, right? Your stock's down more, right? So your implied cap rate, the implied cost of equity is up. But more so on the debt side, your spreads have gapped out wider than where REITs are.

Hey, it's Michael Bilerman here with Christy.

So Todd I wanted to sort of get back to on the cost of capital do you think about <unk>.

Sort of where the company is today you know obviously the cost of capital for the entire sector overall, it or we could be moved up pretty dramatically since last August but for us specifically moved up more but your stock's down more into your implied cap rate.

Cost of equity is up.

More so on the debt side your spreads have gapped out wider than where rates are.

Michael Bilerman: You know, I think to the value that you've been able to create over time at HR, a lot of it has come from external investment, either through acquisitions or through the development or redevelopment activities that the company has undertaken. So now that you've done this transaction, obviously, the market has spoken in terms of... I don't think the market, unless maybe you, maybe you think the market's missing something, but the market is clearly, I don't know, we'll call it put in your penalty box, but your multiple is clearly low, lower than where it has been in the past, which you've shown in your slides. You have very limited free cash flow, right? $1.30 of a dividend relative to the $1.45 of FAD next year.

And I think to the value that you've been able to create over time at HR a lot of it has come from external investment.

Either through acquisitions or through the development or redevelopment activities that the company has undertaken.

And so now that you've done this transaction obviously the market has spoken in terms of I don't think the market isn't it.

Maybe you think the market's missing something but the market is clearly will help goodyear penalty box that your multiple is clearly low lower than where it has been in the past, which you've shown in your slides.

You're very limited free cash flow rate of Buck 30 of the dividend relative to the block 45 of <unk> next year.

Michael Bilerman: Leverage is at the higher end of where you want, so you can't be as aggressive without selling assets. So like, how do you get to the other side, right? What's the catalyst that you're looking for the market to recognize, for you to be able to have that cost of capital, to be able to embark on that accretive growth?

Leverage is at the higher end of where you want to you cant be as aggressive with up selling assets.

How do you get to the other side like what's the catalyst that you were looking for the market to recognize for you being able to have that cost of capital to be able to embark on that accretive growth.

Todd Meredith: Sure. Yeah, fair, fair, you know, framework and question. You know, I think clearly where we are today is we've just completed the merger, and I think as no surprise, that's why I articulated these four priorities in my remarks. Clearly, we need to keep demonstrating progress and success on the asset sales and the JV. I think people want to keep seeing that progress. It's a tough market out there. We all know. We're all trying to figure out where cap rates are and where they're going with rising debt costs. So I think people want to see that come through. I think we clearly need to keep showing progress on the synergies. But I think probably the key, you know, answer to your question is, in the near term, it's what Chris just talked about on leasing.

Sure Yeah fair here.

Framework and function.

I think clearly where we are today as we've just completed the merger and I think as.

No surprise swag articulated these four priorities in my remarks, clearly, we need to keep demonstrating progress and success on the asset sales in the J D. I think people want to keep seeing that progress. It's a tough market out there. We all know we're all trying to figure out where cap rates are and where they're going with rising debt cost. So I think people want to see that come through.

<unk> I think we clearly need to keep showing progress on the synergies.

But I think probably the key answer to your question is in the near term, it's what Chris just talked about on leasing is that leasing momentum and really driving operational improvement and like Chris said, we're not waiting two years from now to get to because we see that progress coming.

Todd Meredith: It's that leasing momentum and really driving operational improvement that, like Chris said, we're not waiting, you know, two years from now to get to. We see that progress coming, and we - we're excited about getting after that and demonstrating those results, and we think it's coming true. I think clearly development is also a piece where we think we can create long-term value that's, you know, higher returns. But at the end of the day, you're right. We obviously need to show progress on all those things and kind of earn back that reputation for delivering those results, so that we can get back to a valuation, a multiple that makes sense to grow, you know, through external growth as well. Because it takes all those pieces, as you well know, to deliver that 5 to 7%, you know, WACC.

And we were excited about getting after that and demonstrating his results and we think it's coming through I think clearly development is also a piece, where we think we can create long term values its higher returns, but at the end of the day, you're right. We obviously need to show progress on all of those things and kind of earn back that that reputation for.

Delivering those results so that we can get back to evaluation of multiple that makes sense to grow through external growth as well because it takes all of those pieces as you well know to deliver that 5% to 7%.

Todd Meredith: Per share growth, we know that. So we've got to get back to that. But I think for us, it's just executing, executing, executing, and, and showing how we can drive the operational benefit of this combination to then get back to that external side.

Per share growth, we know that so we've got to get back to that but I think for us. It's just executing executing executing and showing how we can drive the operational benefit of this combination to then get back to that external side.

Michael Bilerman: I guess the question is how long it takes to get there and potential capital and sort of the execution of it, because, you know, we're gonna go through-

Michael Bilerman: I guess the question is how long it takes to get there and potential capital and sort of the execution of it, because, you know, we're gonna go through 2, 2 years, almost 2.5 years, right? Where, you know, like, you're, you're-- you call it an accretion bridge. I, I mean, I jokingly said you just call it a bridge because you're ending up with the same number, right? There's no, there's no accretion. It's a $1.45 start, and you're a $1.45 at the end. So at some point, right, you need to be able to demonstrate that there's, you know, a real reason why the company pursued this merger. And I recognize you did a stock for stock deal and you used the asset sales to fund the dividend.

And I guess the question is how long it takes to get there and potential capital and sort of the execution of it becomes you know we're going to go through two years, almost two and a half years right, where you know like you're you're calling accretion bridge.

Todd Meredith: Yeah

Michael Bilerman: 2, 2 years, almost 2.5 years, right? Where, you know, like, you're, you're-- you call it an accretion bridge. I, I mean, I jokingly said you just call it a bridge because you're ending up with the same number, right? There's no, there's no accretion. It's a $1.45 start, and you're a $1.45 at the end. So at some point, right, you need to be able to demonstrate that there's, you know, a real reason why the company pursued this merger. And I recognize you did a stock for stock deal-

I jokingly said she is called a bridge because you're ending up at the same number there's no. There's no accretion is about 45, starting here about 45 at the end.

So at some point right you need to be able to demonstrate that there's.

A real reason why the company pursued this merger and I recognize you didnt stocks of starch or Nolan you use the asset sales to fund the dividend Tonight I understand you know the contribution but stock for stock you effectively offered.

Todd Meredith: Sure

Michael Bilerman: and you used the asset sales to fund the dividend. I understand, you know, the contribution, but that stock for stock, you effectively offered, you know, a higher exchange ratio because you were the buyer, right? You had to play ball. So... But you step back from that, you know, how do you get to the other side? Because I mean, is leasing that different now that you're a combined company from where you were before? I would have thought you had pretty good relationships in both companies. I mean, the margin is not like you're gonna get 20 deals versus getting 10, right? Help me understand that part.

Michael Bilerman: I understand, you know, the contribution, but that stock for stock, you effectively offered, you know, a higher exchange ratio because you were the buyer, right? You had to play ball. So... But you step back from that, you know, how do you get to the other side? Because I mean, is leasing that different now that you're a combined company from where you were before? I would have thought you had pretty good relationships in both companies. I mean, the margin is not like you're gonna get 20 deals versus getting 10, right? Help me understand that part.

Higher exchange ratio because you are the buyer I E. You have to play ball until but then you step back from that.

How do you how do you get to the other side because I.

I mean is leasing that different now that you're a combined company, where you before I would've thought you had pretty good relationships in both companies I mean, the the margin is not like Youre going to get 20 deals versus getting 10 right. So.

So help me understand that part yes.

Todd Meredith: Yeah, sure, sure. I mean, I think as Chris said, even independently, both companies are seeing momentum build on the leasing side. So you're right about that, that, you know, both companies have, you know, relationships and strength and ability to produce leasing results. But we do see more powerful results through the combination. You know, just the sheer volume in the markets. And so we think, though, ultimately, that leads to also more opportunity through expanded, you know, development activity, redevelopment activity, where you can actually create net new space. So we see a lot of opportunity there, and we think rent growth itself will be strengthened. So not just gains and occupancy, but actually being able to, you know, dial up that rent growth. We think we can do that better through this combination.

Sure sure I mean, I think as Chris said, even independently both companies are seeing momentum build on the leasing side. So you are right about that.

Those companies have relationships and strength and ability to produce leasing results, but we do see more powerful.

Through the combination.

Yeah, just just just the sheer volume in the markets and so we think that ultimately that leads to also more opportunity through expanded development activity redevelopment activity, where you can actually create net new space.

So we see a lot of opportunity there and we think rent growth itself will be strengthened so not just gains in occupancy, but actually being able to.

Dial up that rent growth, we think we can do that better through this combination. So again, it's not something we're saying that's three years off we think that's coming in the near term. So we'll be able to track that as we're also tracking some of these other specific merger metrics as well the other thing I would comment on though is that the combination does give us a lot too.

Todd Meredith: So again, it's not something we're saying that's three years off. We think that's coming, you know, in the near term. So we'll be able to track that as we're also tracking some of these other, you know, specific merger metrics as well. The other thing I would comment on, though, is that the combination does give us a lot to work with in terms of asset sales. We can sell what are, you know, quality assets to the market, but maybe don't fit for us as well. But we can sell them at, you know, maybe a sub 5 cap rates, maybe it's, you know, a little above 5 cap, but we can rotate that into, accretively into other investment activities.

Work with in terms of asset sales.

We can sell what are quality assets to the market, but maybe don't fit.

For us as well, but we can sell them at maybe a sub five cap rates maybe it's.

Well above five cap, but we can rotate that into accretively into other investment activities. If looked at let's say, it's not our stock maybe our stocks in a better spot it doesn't make sense to buy backs or we can invest in higher yielding acquisitions, we can fund higher yielding development. So I think there's.

Todd Meredith: If, let's say, it's not our stock, maybe our stock's, you know, in a better spot, it doesn't make sense to buy back. So we can invest in higher yielding acquisitions, we can fund higher yielding developments. So I think there's... It's not just, you know, hit the pause button completely, but I think it's clearly a mind towards, you know, smart capital allocation here.

It's not just <unk>.

<unk> completely but I think it's clearly a mind towards smart capital allocation here.

Michael Bilerman: Right. And when you put the two portfolios together, there's more opportunities to sell down because you have a greater scale, so less impact, and you're being able to maintain the platform and, and things like that. So that definitely makes sense. One thing just on the bridge page, does this include anything on additional asset sales and tapping into that buyback, or all of that is separate? That's something that we should think about, you know, as we start to model for 23 additional asset sales and buybacks. There's nothing in here particularly for that, right?

And when you put the particular portfolios together theres more opportunities to sell down because you have a greater scale, so less impact in your being able to maintain the platform and things like that so that definitely makes sense.

One thing just under bridge page position include anything on additional asset sales and tapping into that buyback or all of that is separate that something that we should think about as we start to model for 'twenty three additional on the sales and buybacks, there's nothing in here, particularly for that right.

Todd Meredith: Yeah, there is not, in terms of share buyback. What we are assuming here is the change in net investment activity, that it goes into more of an asset recycling. So, inside of this, we're assuming that we're selling assets and redeploying them in new acquisitions. But as Todd said, we would make that determination dependent on when those proceeds come in and where our share price is. And so if the share price is more accretive, then, you know, obviously, there would be some upside here in terms of what the accretion would be. But we'll have to wait and see where that is.

Yes, there is not in terms of of share buyback. What we are assuming here is the change in net investment activity that it goes into more of a of an asset recycling. So we inside of this we are assuming that we're selling assets and redeploy them in new acquisitions, but as Todd said, we would make that determination dependent.

On Windows proceeds come in and where our share prices and so if the share prices is more accretive than then.

Then obviously there would be some some upside here in terms of what the what the accretion would be.

Michael Bilerman: So how much accretion-

But we'll have to wait and see where that is or how much accretion in Ireland.

Todd Meredith: - from time.

Michael Bilerman: I guess, how much accretion do you have in here from capital recycling then? Because I would assume selling assets and buying assets, if there's a positive spread, you could have some accretion, or is it limited?

I guess, how much accretion do you have an ear from capital recycling, then because I would assume selling assets and buying assets. If there's a positive spread you could have some accretion or is it limited.

Todd Meredith: Yeah. Yeah, we do. We're running, call it about 30 basis points or so, 30, 40 basis points of spread between our acquisition and disposition inside of here, with the ability to, you know, to sell, as Todd was talking about, you know, portfolios and reinvest those into individual assets, so we're not paying the same portfolio premium.

Kris Douglas: Yeah. Yeah, we do. We're running, call it about 30 basis points or so, 30, 40 basis points of spread between our acquisition and disposition inside of here, with the ability to, you know, to sell, as Todd was talking about, you know, portfolios and reinvest those into individual assets, so we're not paying the same portfolio premium.

Yeah, we do where we're running call it about 30 basis points or so 30 to 40 basis points of spread between our acquisition and disposition inside of here.

With the ability to.

You know to sell as Tom was talking about.

In our portfolios and reinvest those into.

Individual assets. So we're not we're not paying the same portfolio of premium.

Michael Bilerman: So what is that? Because I assume that part of that's 22 and 23. How much accretion is based in that $1.45 from accretive capital recycling? $0.05?

So what is that can I assume that part of that 'twenty, two and 'twenty three how much accretion is based in net dollar 45 from accretive capital recycling.

Yes.

Todd Meredith: So, yeah, you have-

Kris Douglas: So, yeah, you have-

Michael Bilerman: Ten?

By Jos you have sense.

Todd Meredith: Yeah, no, I would say it's more in that 2 to 3 cent range, but you know, pretty similar to what we would have you know historically there. And you know, it once again, it goes back to what the... You gotta, you kinda have to build it, so I'm sorry, I'm not able to give you just a direct number because it kind of builds over time. But yeah, in that $0.02 to $0.03 range.

Kris Douglas: Yeah, no, I would say it's more in that 2 to 3 cent range, but you know, pretty similar to what we would have you know historically there. And you know, it once again, it goes back to what the... You gotta, you kinda have to build it, so I'm sorry, I'm not able to give you just a direct number because it kind of builds over time. But yeah, in that $0.02 to $0.03 range.

Yes, no I would say, it's more than that that are two or three cent range.

Pretty pretty similar to what we would have.

Historically there.

And.

Once again it goes back to what the you got to you kind of have to build it. So I'm sorry, and are able to give you just a direct number just kind of builds over time, but.

And that 2% range.

Michael Bilerman: Yeah, we're just trying to understand what's in there so that as we go through and benchmark, we actually understand what's coming in and out. And it may be helpful to include these slides in the supplemental. That way, you know, we heard from some people that they didn't realize it was out there. So, you know, perhaps just wrap that into the press release and the supplemental in Q3.

Yes, I'm just trying to understand what's in there so that as we go through.

Benchmark, we actually understand what's coming in and out and it may be helpful. To include these slides in the supplemental that way you know we heard from some people that they didn't realize it was out there so.

Perhaps just wrap that into the press release and in the supplemental and through Q.

Todd Meredith: Sure.

Kris Douglas: Sure.

Michael Bilerman: Thank you. Thanks for that.

Michael Bilerman: Thank you.

Kris Douglas: Thanks for that.

Sure Thanks for that.

Operator: Thanks, Michael.

Todd Meredith: Thanks, Michael.

Thanks, Michael.

Operator: Thank you for your questions. Our next question comes from Daniel Bernstein with Capital One. Please go ahead.

Yes.

Thank you for your questions.

Our next question comes from Daniel Bernstein with capital one. Please go ahead.

Daniel Bernstein: Hello. Some of my questions were actually just answered. But I, I just wanted to go back to kind of how you're thinking about, the, the buybacks versus investments. I mean, kind of like you said, you're in the upper fives implied yield, but the real IRR is probably a lot higher given the upside in HCA occupancy. So I, I don't know if you can just talk about maybe kind of the thought process a little bit more of buybacks versus investments, especially at the current stock price.

Some of my questions were actually just answered.

But I just wanted to go back to <unk>.

How youre thinking about.

The buybacks versus investments.

You said youre in the upper fives implied yield, but the real IRR is probably a lot higher given the upside to HCA occupancy so.

I don't know if you can just talk about maybe how does the thought.

The process, a little bit more of buybacks versus investments, especially at the current stock price.

Todd Meredith: Yeah, I would say, Dan, you're right. I mean, I think we... You know, our buying back our stock, we think is a great investment, not only because it's at an attractive yield, but you're right, there's some real upside there. So we would agree with that. We would compare whatever we might be looking at to reinvest in. Let's say we sell $500 million of assets, and, you know, we're looking at, do we rotate into some acquisitions? Do we rotate into some development or some combination, or do we just buy back stock? And I think it's pretty clinical. We would look at the types of IRRs we might be facing with some acquisitions that we might be looking at with some development versus what we would infer from buying back the stock.

Yeah, I would say, Dan you're right I mean I think.

Our our buying back our stock we think is a great investment not only because it's at an attractive yield but youre right. So there's some real upside there. So we would agree with that we would compare whatever we might be looking at two and to reinvest in let's say, we sell 500 million of assets.

And you know we're looking at do we do a rotate into some acquisitions do we rotated some development or some combination or do we just buy back stock and I think it's pretty clinical we would look at the types of borrowers we might be facing.

With some acquisitions that we might be looking at with some development.

<unk>, what we would infer from buying back the stock. So I think we would just look at that very clinically and choose to do that and I think at today's prices the stock's pretty darn attractive so that would probably be a.

Todd Meredith: So I think we would just look at that very clinically and choose to do that. And I think, you know, at today's prices, you know, the stock's pretty darn attractive, so that would probably be a clear preference at this point.

Clear preference at this point.

Daniel Bernstein: Okay. And then I just, you know, maybe there's some historical perspective you can give on when you have really wide bid-ask spreads in the MOB space, how typically, you know, what could we expect in terms of timing of when that might close? So, you know, if it's wide today, you don't wanna push the investment side, the external growth side, as much today as you would have, you know, a couple months ago before debt costs went up. You know, when could we expect higher cap rates, initial yields in the MOB space? Is it. I know it's a big ask. You know, we're mid 22, you know, you might be looking at mid 23 or something, but, you know, is it a six-month process, three-month process? Is it typically longer?

Okay.

And then I just.

Maybe there's some historical perspective, you can give on where you have really wide bid ask spreads in the MLP space.

Typically what could we expect in terms of timing of when that debt.

My clothes, if it's why today, you don't want to maybe make it or you.

You don't want to push the investment side, the external growth side as much today as you would have a couple of months ago before debt costs went up.

When could we expect the higher cap rates initial yields in the MLP space is just I know, it's a big ask yourself, where mid 'twenty two you might be looking out into 'twenty, three or something but.

Is it a six month process three months process.

Daniel Bernstein: I know it's unusual times, but you know, that's kind of where-

Is it typically longer I know, it's unusual times, but that's kind of where I think it's really pivoting historical Chris to answer that yes, I think you can't necessarily just rely on history I mean normally maybe I would've said six.

Todd Meredith: I think it's really difficult-

Daniel Bernstein: Give any historical perspective.

Todd Meredith: - To answer that. Yeah, I think you can't necessarily just rely on history. I mean, normally, maybe I would have said, you know, six to 12 months. You know, Rob, I don't know if that's what you would say, but I think that's what we would typically lean on. But I think we've seen tremendous interest from buyers to get at quality assets, and, you know, see portfolios coming. As Rob said, we've kind of pulled this back to about $100 to 200 million dollar portfolios, and we've seen a ton of demand, so, and plenty more to go. So we think there's plenty of capital out there. They're just trying to figure out how to, you know, keep buying these assets and deal with the rising, you know, debt costs in the market.

Six to 12 months.

And Rob I don't know if that's what you would say, but I think thats, what we would typically lean on but I think we've seen tremendous interest from from buyers to get at quality assets.

And N C portfolios coming as Rob said, we've kind of called this back to about $100 million to $200 million portfolios, we've seen a ton of demand so.

Plenty more to go so we think theres plenty of capital out there.

Just trying to figure out how to keep buying these assets and deal with the rising debt debt costs from the market. So.

Todd Meredith: So, it's again, very difficult to say. You know, it could take... I think we're all trying to figure out exactly where debt costs are going, and, you know, it feels a little bit like it overcorrected, but yet we all know it's still sort of poised to rise over the long term. So I think it's just gonna take a while, and I don't know if that's, you know, six months or a year, but it's-

It's again very difficult to say it could take I think we're all trying to figure out exactly where where that costs are going and you know it feels a little bit like it you know.

Overcorrected, but yet we all know it's still sort of poised.

To rise over the long term. So I think it's just going to take a while and I don't know if thats you know six months or a year, but it had argue we're into six months now so it's it's longer than that.

Daniel Bernstein: Uh.

Todd Meredith: I'd argue, you know, we're into six months now, so it's, it's longer than that, and we'll see.

We'll see.

Daniel Bernstein: Okay. That's all I have. Appreciate the call. Thanks.

Okay.

That's all I have I appreciate the color. Thanks.

Todd Meredith: Thanks, Dan.

Thanks, Dan.

Operator: Thank you. Our next question comes from Jonathan Hughes with Raymond James. Please go ahead.

Thank you.

Our next question comes from Jonathan Hughes with Raymond James. Please go ahead.

Jonathan Hughes: Hey, thank you for the follow-up. On the share repurchase program, I see that was authorized a week ago, but was also authorized, I think, back on 3 May. Is this only a three-month authorization? I'm just trying to understand why the need to kind of redo that program, you know, from May, and if it's, if it really is something new.

Hey, Thank you for the follow up on the share repurchase program that was authorized a week ago, but was also authorized to be back on may 3rd is it only a three month authorization I'm just trying to understand why the need to kind of redo that program from Maine. It if it really is something there.

Todd Meredith: It was really just because the merger was completed, and we obviously wanted the new Healthcare Realty board to authorize that. So it was really just. I would say that's a year, I think. I believe, Chris, is that right? It's basically authorized for a year, is the typical timeframe. Yeah. I can't remember specific in that language, but we typically look at that every year. And Todd, you're right, that we already had it, but with the new board, we needed to go ahead and get that reauthorization.

It it was really just because the merger was completed and we obviously wanted the the the new.

Healthcare Realty board to authorize that so it was really just I would say that's a year I think I believe Chris is that right. It's basically authorized for year is the typical timeframe I can't remember specific in our language that we typically look at that every year.

Kris Douglas: Yeah. I can't remember specific in that language, but we typically look at that every year. And Todd, you're right, that we already had it, but with the new board, we needed to go ahead and get that reauthorization.

And Todd you are right that we already had it but with the new board we needed to do.

To go ahead and get that reauthorization.

Jonathan Hughes: Got it. And then I noticed in the supplement, I think the components of expected FFO page was removed, but can you just confirm, you know, expectations for, you know, same-store NOI growth are unchanged or maybe even, you know, higher since the legacy HR portfolio is actually running north of, you know, 3%, closer to that higher end of guidance from then?

Got it.

And then I noticed on the B in the supplement I think the components of expected F. F. O page was was removed but can you just confirm your expectations for same store NOI growth are unchanged shore or maybe even higher since the the legacy HR portfolio is actually running north of 3% closer to that higher end.

Guidance for men.

Todd Meredith: Yeah, you're right. We did pull back, because the way we're presenting these, we didn't think just providing a standalone HR guidance by itself would be that helpful to people. You know, we will be, you know, in the coming quarters, you know, providing some more update. But as you heard in our remarks, our expectation of what we're seeing related to leasing, as well as our cash leasing spreads and bumps, has really not had a material change. And so you know, on the combined basis, as you just look at it in terms of where the contractual escalators are running, in that kind of 2.5 to 3 range, is a reasonable position without any changes in occupancy.

Yes, you are right. We did we did pull back because the way we're presenting these that we didn't think just providing a standalone.

HR guidance by itself would.

Would be that helpful to people.

We will be.

In the coming quarters, providing some more more update but but as you heard in our remarks, our expectation of what we're seeing related to leasing as well as our cash leasing spreads and bumps has really not had a material change in.

And so the.

On a combined basis as we issue just look at it in terms of where the contractual escalators are running.

And that kind of two and a half to three range is a reasonable position without any changes in occupancy but.

Todd Meredith: But as we talked about, we're optimistic that we could see some upside in occupancy moving forward, which could help drive that higher.

But as we talked about we're optimistic that we could see some some upside in occupancy moving forward, which could.

Could help drive that higher.

Jonathan Hughes: All right. Thanks for the time.

Alright, thanks for the time.

Alright.

Yes.

Operator: Thank you, Jonathan. Our next question comes from Mike Mueller with J.P. Morgan. Please proceed.

Thank you Jonathan.

Our next question comes from Mike Mueller with Jpmorgan. Please proceed.

Mike Mueller: Yeah, thanks. Chris, I guess I appreciate the comments on accounting issues, but is there any shot of providing even rough FFO guideposts for 2023? I mean, that is, you know, the most standard reporting metric, and when you look at estimates now, the range is, you know, high $1.60 to almost $1.90, so it's pretty wide.

Yeah. Thanks, Chris I guess I appreciate the comments on a county issues, but is there any shot of providing even rough guideposts for 'twenty three.

That is the most standard reporting metric and when you look at.

Estimates now the range is high 160, <unk> to almost $1 90, so its pretty wide.

Todd Meredith: Yeah, that's fair. And yes, we'd like to be able to provide some additional, even if it reflects some of these non-cash accounting items. You know, I don't have the full... We're still going through the opening balance sheet and the valuation of that information, so I don't have that to be able to provide to you right now. And frankly, that's gonna be what creates more, you know, a wider range of potential outcomes, depending on where that lies, rather than the underlying fundamentals, which are gonna tie back more to the FAD numbers that we're providing to people. But you know, 'cause one of the things that we're gonna do is we have to mark to market all the debt.

Kris Douglas: Yeah, that's fair. And yes, we'd like to be able to provide some additional, even if it reflects some of these non-cash accounting items. You know, I don't have the full... We're still going through the opening balance sheet and the valuation of that information, so I don't have that to be able to provide to you right now. And frankly, that's gonna be what creates more, you know, a wider range of potential outcomes, depending on where that lies, rather than the underlying fundamentals, which are gonna tie back more to the FAD numbers that we're providing to people. But you know, 'cause one of the things that we're gonna do is we have to mark to market all the debt.

Yes, that's fair and and.

Yes, we'd like to be able to provide some additional even if it if it reflects some of these noncash accounting items.

I don't have the before we're still going through the opening balance sheet and the valuation of that information. So I can't I don't have that to be able to provide to you right now and frankly, that's going to be what creates more.

A wider range of potential outcomes, depending on where that that lies rather than the the underlying fundamentals, which are going to tie back more to the fad numbers that we're providing to people.

But you know because one of the things that we're going to do is we have to mark to market. The.

Todd Meredith: So over $3.1 billion of debt that's on the HCA was on the HCA balance sheet. And so depending on what the ultimate, you know, rates are that are determined there compared to what, what's inside, you know, their current pay, it could have a meaningful impact. And so I think that probably is driving a lot of the difference. And hopefully, as we are able to get more clarity on exactly how those numbers come out, we'll then be able to report it.

Kris Douglas: So over $3.1 billion of debt that's on the HCA was on the HCA balance sheet. And so depending on what the ultimate, you know, rates are that are determined there compared to what, what's inside, you know, their current pay, it could have a meaningful impact. And so I think that probably is driving a lot of the difference. And hopefully, as we are able to get more clarity on exactly how those numbers come out, we'll then be able to report it.

All of the deaths of over $3 $1 billion of debt that's on the on the HCA.

It was an HCA balance sheet and so depending on what the ultimate.

You know rates are that are determined there compared to what what's inside.

Their current pay it.

It could it could have a meaningful meaningful impact and so I think that that probably is driving a lot of the difference and hopefully as we.

Are able to get more clarity on exactly how those numbers.

Come out.

Todd Meredith: But, you know, regardless, I still look at it, yes, people look at that, and it's meaningful, but, but I would say that those adjustments are not as meaningful to what we think the overlying value and cash flow of the combination are moving forward, which is the reason you see us focusing more on the FAD growth.

Kris Douglas: But, you know, regardless, I still look at it, yes, people look at that, and it's meaningful, but, but I would say that those adjustments are not as meaningful to what we think the overlying value and cash flow of the combination are moving forward, which is the reason you see us focusing more on the FAD growth.

We'll then be able to report it but yes.

Regardless I still look at it of yes people look at that and it's meaningful but.

But I would say that that those adjustments.

Are not as meaningful to what we think the overlying value and cash flow of the combination are moving forward, which is the reason you see us focusing more on the on the Fad growth.

Mike Mueller: No, I appreciate that, but I'd imagine the range would probably not be the 20-some cent range that it is now, at least what's on Bloomberg. And, you know, again-

Mike Mueller: No, I appreciate that, but I'd imagine the range would probably not be the 20-some cent range that it is now, at least what's on Bloomberg. And, you know, again, that's the headline for it, so.

No I appreciate that but I would imagine the range would probably not be the 20. Some cent range that it is now at least with on Bloomberg.

Todd Meredith: Yeah.

Mike Mueller: That's the headline for it, so.

Again, yes, that's the headline for it.

Todd Meredith: Yeah, I get, I get that. I think it also depends on, Mike, the way people, and people have different views of how they do this, and I can appreciate that, of how they look at the synergies. You know, some people will kind of normalize that and assume that you've already gotten it. Some of them will assume that, all right, now you're gonna have that drag. So I do think that there may be differences in people's methodologies or definitions of how they're looking at some of those earnings results.

Kris Douglas: Yeah, I get, I get that. I think it also depends on, Mike, the way people, and people have different views of how they do this, and I can appreciate that, of how they look at the synergies. You know, some people will kind of normalize that and assume that you've already gotten it. Some of them will assume that, all right, now you're gonna have that drag. So I do think that there may be differences in people's methodologies or definitions of how they're looking at some of those earnings results.

Yes, I get that I think it also depends on Mike the way people and people have different views of how they do this and I can appreciate that of how they look at the synergies you know some people will will kind of normalize that and assume that you've already gotten it summer, we'll assume that or I know youre going to have that drag.

So I do think that there may be differences in people's methodologies or definitions of how they're looking at some of those.

Mike Mueller: Got it. And then... Got it. And then just one quick one, too. To get to the roughly $300 million of annual development starts, what, what's a ballpark time frame, do you think, for that?

Earnings result, got it and then.

Got it and then just one quick one to do you get to the roughly 300 million of annual development starts with what's the ballpark timeframe do you think for that.

Rob Hull: You know, there's a lot of. We're seeing a lot of demand from health systems for development, which not only from our internal and kind of embedded pipeline, but then as we're looking at HCA's pipeline, we're seeing a lot of demand and have some good discussions going on. So we think that, you know, to kind of get to that at $200 to 300 million in annual starts.

There's a lot of we're seeing a lot of demand from health systems for development.

Alloy from our internal and kind of embedded pipeline, but then as we're looking at Hca's pipeline, we're seeing a lot of demand and had some good discussions going on so we think that and then kind of get to that $2 million to $300 million in annual starts.

Todd Meredith: Mike, can you hear Rob?

Mike did you can you here Rob.

Mike Mueller: No, I heard get to-

Now I heard Kip.

Todd Meredith: Okay.

Mike Mueller: The 200, 300.

Todd Meredith: Okay. Rob? Yeah, okay. Unfortunately, I think we're having these audio... I'm sorry about these technical problems. I'm not sure what's going on. I'm on a separate line on my iPhone because I'm isolating for or recovering from COVID, so I'm on a different line. But anyway, I think if we were to put some time on it, Mike, I would say it's probably not, you know, 2023, but I think it's building, and I think it can get-- we can get to that pretty quickly, maybe by 2024. But we're seeing a lot of demand, as Rob said. So I do think that's gonna pick up pretty quickly, both picking up ours versus versus, you know, HCA's, put them together, we think we can get there pretty quickly. I don't-

The two to 300, Okay I'll start Rob.

Yeah. Okay. Unfortunately, I think we're having these audience sorry about these technical problems I'm not sure what's going on I'm on a separate line on my iPhone, because I'm isolating for recovering covering from Covid.

I'm on a different line.

But anyway I think.

If we were to put some time on it Mike I would say, it's probably not.

'twenty three but I think it is building and I think it can get we can get to that pretty quickly maybe by 2024.

But we're seeing a lot of demand as Rob said, so I do think that that's going to pick up pretty quickly.

Picking up ours versus.

Versus.

<unk> put them together, we think we can get there pretty quickly.

Mike Mueller: Got it.

Todd Meredith: It looks like Rob and Chris are not, they're not on audio, so they can't... They're not gonna be able to join back in.

I have got it looks like Rob and Chris are not they're not on audio said they can't.

And I could go catch on backend dubbed it Mike I think you were the last I'm going through the last question. So.

Mike Mueller: That was it.

Todd Meredith: Mike, I think you were the last-

Mike Mueller: I'm good.

Todd Meredith: You were the last question, so that unfortunately worked out okay. And again, apologies to everybody for the technical difficulties. My iPhone was reliable this quarter. Well, thank you all for all the questions. We appreciate your time today. We look forward to seeing many of you at conferences in the fall here as we wrap up summer, and look forward to catching up with each of you then. Thank you all. Have a great day.

Unfortunately that worked out okay, and again apologies everybody for the technical difficulties my iPhone was reliable this quarter.

Well. Thank you all for all the questions. We appreciate your time today, we look forward to seeing many of you at conferences.

In the in the fall here as we wrap up summer and look forward to catching up with each of you.

Thank you all have great day.

Operator: That concludes the Healthcare Realty Trust Q2 financial results. Thank you for your participation. You may now disconnect your lines.

That concludes the healthcare Realty Trust second quarter financial results.

For your participation you may now disconnect your lines.

Q2 2022 Healthcare Realty Trust Inc Earnings Call

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