Q2 2026 Healthcare Realty Trust Inc Earnings Call

July 31, 2026

Operator 3: Hello, everyone. Thank you for joining us. Welcome to Healthcare Realty's Q2 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Doris Lowe. Doris, please go ahead.

Operator: Thank you for joining us. Welcome to Healthcare Realty's Q2 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Doris Lo. Doris, please go ahead.

Speaker #1: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Doris Lowe, Doris, please go ahead.

Speaker #2: Thank you for joining us today for Healthcare Realty's second quarter 2026 earnings conference call. A reminder that, except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks, and uncertainties.

Doris Lowe: Thank you for joining us today for Healthcare Realty's Q2 2026 earnings conference call. A reminder that except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks, and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC. Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended 30 June 2026. The company's earnings press release and earnings supplemental information are available on the company's website.

Doris Lo: Thank you for joining us today for Healthcare Realty's Q2 2026 earnings conference call. A reminder that except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks, and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC. Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended 30 June 2026. The company's earnings press release and earnings supplemental information are available on the company's website.

Speaker #2: These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors is included in our press release and detailed in our filings with the SEC.

Speaker #2: Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended June 30, 2026.

Speaker #2: The company's earnings press release and earnings supplemental information are available on the company's website. I'd now like to turn the call over to a president and CEO, Pete Scott.

Doris Lowe: I'd now like to turn the call over to our President and CEO, Pete Scott.

Doris Lo: I'd now like to turn the call over to our President and CEO, Pete Scott.

Speaker #3: Thanks, Doris. Joining me on the call today are Rob Hull, Dan Gabbay, and Ryan Crowley. It has been exactly one year since we put out our strategic plan.

Operator 3: Thanks, Doris. Joining me on the call today are Rob Hull, Dan Gabbay, and Ryan Crowley. It has been exactly 1 year since we put out our strategic plan. At the core of the plan, we laid out clear and purposeful changes designed to improve operational performance, strengthen our portfolio, reestablish credibility, and maximize shareholder value. I am pleased to report we are outperforming every one of our key objectives over the last 4 quarters. Same-store NOI growth has averaged 5.7%, same-store occupancy has increased to nearly 93%, retention has averaged nearly 90%, cash leasing spreads have averaged 4.1%, leverage is down nearly a full turn. We have raised guidance every single quarter along the way, including by another $0.02 this quarter, driven by strong operations and leasing, a successful convertible bond offering, and accretive capital allocation.

Pete Scott: Thanks, Doris. Joining me on the call today are Rob Hull, Dan Gabbay, and Ryan Crowley. It has been exactly one year since we put out our strategic plan. At the core of the plan, we laid out clear and purposeful changes designed to improve operational performance, strengthen our portfolio, reestablish credibility, and maximize shareholder value. I am pleased to report we are outperforming every one of our key objectives over the last four quarters. Same-store NOI growth has averaged 5.7%, same-store occupancy has increased to nearly 93%, retention has averaged nearly 90%, cash leasing spreads have averaged 4.1%, leverage is down nearly a full turn. We have raised guidance every single quarter along the way, including by another $0.02 this quarter, driven by strong operations and leasing, a successful convertible bond offering, and accretive capital allocation.

Speaker #3: At the core of the plan, we laid out clear and purposeful changes designed to improve operational performance, strengthen our portfolio, reestablish credibility, and maximize shareholder value.

Speaker #3: One year henceforth and, I am pleased to report, we are outperforming every one of our key objectives over the last four quarters. Same store NOI growth has averaged 5.7%.

Speaker #3: Same store occupancy has increased to nearly 93%. Retention has averaged nearly 90%. Cash leasing spreads have averaged 4.1%. Leverage is down nearly a full turn.

Speaker #3: And we have raised guidance every single quarter along the way, including by another two pennies this quarter, driven by strong operations and leasing, a successful convertible bond offering, and creative capital allocation.

Speaker #3: Our outperformance has been a collaborative effort across the entire organization, and would not have been possible without the hard work of all 500-plus employees and the support of our best-in-class board of directors.

Operator 3: Our outperformance has been a collaborative effort across the entire organization and would not have been possible without the hard work of all 500-plus employees and the support of our best-in-class board of directors. We have built a winning mentality and a culture of executing with purpose and intensity that is now pervasive throughout the organization. Shifting to our recent leasing success. Year to date, we have executed 3.5 million square feet of leases. That is over 10% of our total portfolio. You can see the benefit of our leasing success in our weighted average remaining lease term, which stands at 65 months today, an improvement of 15 months since we disclosed our strategic plan. Going forward, we have very limited near-term expiration risk, providing a clear path for earnings growth over the next several years.

Pete Scott: Our outperformance has been a collaborative effort across the entire organization and would not have been possible without the hard work of all 500-plus employees and the support of our best-in-class board of directors. We have built a winning mentality and a culture of executing with purpose and intensity that is now pervasive throughout the organization. Shifting to our recent leasing success. Year to date, we have executed 3.5 million square feet of leases. That is over 10% of our total portfolio. You can see the benefit of our leasing success in our weighted average remaining lease term, which stands at 65 months today, an improvement of 15 months since we disclosed our strategic plan. Going forward, we have very limited near-term expiration risk, providing a clear path for earnings growth over the next several years.

Speaker #3: We have built a winning mentality and a culture of executing with purpose and intensity that is now pervasive throughout the organization. Shifting to our recent leasing success.

Speaker #3: Year to date, we have executed 3.5 million square feet of leases. That is over 10% of our total portfolio. You can see the benefit of our leasing success in our weighted average remaining lease term, which stands at 65 months today—an improvement of 15 months since we disclosed our strategic plan.

Speaker #3: Going forward, we have very limited near-term expiration risk, providing a clear path for earnings growth over the next several years. Our leadership team has also implemented a new leasing model designed to drive ROI across the portfolio, over the last four quarters, lease IRRs have improved nearly 3,000 basis points, and our payback period is down nearly 25%.

Operator 3: Our leadership team has also implemented a new leasing model designed to drive ROI across the portfolio. Over the last four quarters, lease IRRs have improved nearly 3,000 basis points, and our payback period is down nearly 25%. As we keep executing this quarter after quarter, our core earnings growth engine will rerate meaningfully higher. Turning now to health system relationships, which was an important facet of our strategic plan. Our dialogue with health systems has increased exponentially over the last year, and we are constantly collaborating to assess mutual value creation opportunities. I want to highlight a couple of recent health system transactions. First, CommonSpirit. In late June, we executed approximately 160,000 square feet of renewals in five states at a +7% cash leasing spread.

Pete Scott: Our leadership team has also implemented a new leasing model designed to drive ROI across the portfolio. Over the last four quarters, lease IRRs have improved nearly 3,000 basis points, and our payback period is down nearly 25%. As we keep executing this quarter after quarter, our core earnings growth engine will rerate meaningfully higher. Turning now to health system relationships, which was an important facet of our strategic plan. Our dialogue with health systems has increased exponentially over the last year, and we are constantly collaborating to assess mutual value creation opportunities. I want to highlight a couple of recent health system transactions. First, CommonSpirit. In late June, we executed approximately 160,000 square feet of renewals in five states at a +7% cash leasing spread.

Speaker #3: As we keep executing this quarter after quarter, our core earnings growth engine will re-rate meaningfully higher. Turning now to health system relationships, which was an important facet of our strategic plan.

Speaker #3: Our dialogue has expanded exponentially over the last year, and we are constantly collaborating to assess mutual value creation opportunities. I want to highlight a couple of recent health system transactions.

Speaker #3: First, CommonSpirit. In late June, we executed approximately 160,000 square feet of renewals in five states at a positive 7% cash leasing spread. As part of this transaction, we agreed to sell CommonSpirit 15 acres of land in Denver for $16 million, removing our current land carry costs.

Operator 3: As part of this transaction, we agreed to sell CommonSpirit 15 acres of land in Denver for $16 million, removing our current land carry costs. CommonSpirit intends to use the land to expand the hospital. On top of that, we also retained future MOB development rights on the site. A great win-win transaction for both sides. Second, Wellstar. Year to date, we have executed 215,000 square feet of renewal leases at a +4% cash leasing spread, along with 27,000 square feet of new leases. As part of our lease negotiations, we agreed to sell Wellstar Kennestone Cancer Center for $36 million, which equates to more than $600 per square foot and a mid-5% cap rate. We plan to recycle these proceeds into JV acquisitions at a substantially higher yield. Another great example of a win-win outcome. Third, Ascension Saint Thomas.

Pete Scott: As part of this transaction, we agreed to sell CommonSpirit 15 acres of land in Denver for $16 million, removing our current land carry costs. CommonSpirit intends to use the land to expand the hospital. On top of that, we also retained future MOB development rights on the site. A great win-win transaction for both sides. Second, Wellstar. Year to date, we have executed 215,000 square feet of renewal leases at a +4% cash leasing spread, along with 27,000 square feet of new leases. As part of our lease negotiations, we agreed to sell Wellstar Kennestone Cancer Center for $36 million, which equates to more than $600 per square foot and a mid-5% cap rate. We plan to recycle these proceeds into JV acquisitions at a substantially higher yield. Another great example of a win-win outcome. Third, Ascension Saint Thomas.

Speaker #3: CommonSpirit intends to use the land to expand the hospital. On top of that, we also retained future MOB development rights on the site. A great win-win transaction for both sides.

Speaker #3: Second, Wellstar. Year to date, we have executed 215,000 square feet of renewal leases at a positive 4% cash leasing spread, along with 27,000 square feet of new leases.

Speaker #3: As part of our lease negotiations, we agreed to sell Wellstar to Kennestone Cancer Center for $36 million. Which equates to more than $600 per square foot and a mid 5% cap rate.

Speaker #3: We plan to recycle these proceeds into JV acquisitions at a substantially higher yield—another great example of a win-win outcome. Third, Ascension St. Thomas.

Speaker #3: In early July, we executed an LOI for 203,000 square feet of leases across three campuses in Nashville. The cash leasing spread is a positive 11%, and we expect these leases to be executed in the third quarter.

Peter A. Scott: In early July, we executed an LOI for 203,000 square feet of leases across three campuses in Nashville. The cash leasing spread is +11%, and we expect these leases to be executed in Q3. As part of this transaction, Ascension and Healthcare Realty will launch a comprehensive redevelopment of the Ascension Saint Thomas West Campus, located in one of the most vibrant submarkets in Nashville. We plan to invest $35 million in our three medical office buildings. The hospital and health campus will undergo a $120 million modernization led by Ascension to enhance the consumer experience and develop new service lines. This is a great win-win outcome and further deepens our partnership with Ascension Saint Thomas. Shifting now to capital allocation, which is quickly becoming an important component of our earnings growth narrative.

Pete Scott: In early July, we executed an LOI for 203,000 square feet of leases across three campuses in Nashville. The cash leasing spread is +11%, and we expect these leases to be executed in Q3. As part of this transaction, Ascension and Healthcare Realty will launch a comprehensive redevelopment of the Ascension Saint Thomas West Campus, located in one of the most vibrant submarkets in Nashville. We plan to invest $35 million in our three medical office buildings. The hospital and health campus will undergo a $120 million modernization led by Ascension to enhance the consumer experience and develop new service lines. This is a great win-win outcome and further deepens our partnership with Ascension Saint Thomas. Shifting now to capital allocation, which is quickly becoming an important component of our earnings growth narrative.

Speaker #3: As part of this transaction, Ascension and healthcare realty will launch a comprehensive redevelopment of the Ascension St. Thomas West campus, located in one of the most vibrant sub-markets in Nashville.

Speaker #3: We plan to invest $35 million in our three medical office buildings, the hospital and health campus will undergo a $120 million modernization, led by Ascension, to enhance the consumer experience and develop new service lines.

Speaker #3: This is a great win-win outcome and further deepens our partnership with Ascension St. Thomas. Shifting now to capital allocation. Which is quickly becoming an important component of our earnings growth narrative.

Speaker #3: Our targeted approach continues to prioritize redevelopments, joint venture acquisitions, and managing our balance sheet and returning capital to shareholders. In the second quarter, once again, we did exactly what we said we would do.

Peter A. Scott: Our targeted approach continues to prioritize redevelopments, joint venture acquisitions, and managing our balance sheet and returning capital to shareholders. In Q2, once again, we did exactly what we said we would do. First, redevelopments. During the quarter, we invested approximately $25 million in this portfolio, and we have leased it up to 67%, an improvement of 1,400 basis points over the last four quarters. We are underwriting 10% cash-on-cash yields across our redevelopment portfolio. We see some larger campuses in key markets, like our West Campus in Nashville, entering the redevelopment portfolio in the near term. Second, joint venture acquisitions. We are fortunate to have a great partner in KKR who has a stated goal to grow in the medical office sector.

Pete Scott: Our targeted approach continues to prioritize redevelopments, joint venture acquisitions, and managing our balance sheet and returning capital to shareholders. In Q2, once again, we did exactly what we said we would do. First, redevelopments. During the quarter, we invested approximately $25 million in this portfolio, and we have leased it up to 67%, an improvement of 1,400 basis points over the last four quarters. We are underwriting 10% cash-on-cash yields across our redevelopment portfolio. We see some larger campuses in key markets, like our West Campus in Nashville, entering the redevelopment portfolio in the near term. Second, joint venture acquisitions. We are fortunate to have a great partner in KKR who has a stated goal to grow in the medical office sector.

Speaker #3: First, redevelopments. During the quarter, we invested approximately $25 million in this portfolio, and we have leased it up to 67% and improvement of 1,400 basis points over the last four quarters.

Speaker #3: We are underwriting 10% cash-on-cash yields across our redevelopment portfolio. We see some larger campuses in key markets, like our West campus in Nashville, entering the redevelopment portfolio in the near term.

Speaker #3: Second, joint venture acquisitions. We are fortunate to have a great partner in KKR, who has a stated goal to grow in the medical office sector.

Speaker #3: Since our last earnings call, we have closed on or have under contract or LOI approximately $200 million of assets or $40 million at our share.

Peter A. Scott: Since our last earnings call, we have closed on or have under contract or LOI approximately $200 million of assets or $40 million at our share. The going-in cash yield to Healthcare Realty on these transactions is approximately 7.5%, which is highly accretive relative to our implied cap rate of approximately 6%. All of these high-quality acquisition assets complement our existing sizable footprints within their respective markets, including Greenwich, Connecticut, Charleston, South Carolina, Port St. Lucie, Florida, Seattle, Washington, and Denver, Colorado. The medical office transaction market remains vibrant. Institutional capital clearly sees the same positive sector fundamentals we see, strong tenant demand, a severe lack of new supply, and rising NOI growth rates. Third, balance sheet and return of capital. During Q2, we moved quickly and decisively to address our near-term debt maturities.

Pete Scott: Since our last earnings call, we have closed on or have under contract or LOI approximately $200 million of assets or $40 million at our share. The going-in cash yield to Healthcare Realty on these transactions is approximately 7.5%, which is highly accretive relative to our implied cap rate of approximately 6%. All of these high-quality acquisition assets complement our existing sizable footprints within their respective markets, including Greenwich, Connecticut, Charleston, South Carolina, Port St. Lucie, Florida, Seattle, Washington, and Denver, Colorado. The medical office transaction market remains vibrant. Institutional capital clearly sees the same positive sector fundamentals we see, strong tenant demand, a severe lack of new supply, and rising NOI growth rates. Third, balance sheet and return of capital. During Q2, we moved quickly and decisively to address our near-term debt maturities.

Speaker #3: The going-in cash yield to healthcare realty on these transactions is approximately 7.5%, which is highly accretive relative to our implied cap rate, of approximately 6%.

Speaker #3: All of these high-quality acquisition assets complement our existing sizable footprints within their respective markets, including Greenwich, Connecticut, Charleston, South Carolina, Port St. Lucie, Florida, Seattle, Washington, and Denver, Colorado.

Speaker #3: The medical office transaction market remains vibrant. Institutional capital clearly sees the same positive sector fundamentals we see: strong tenant demand, a severe lack of new supply, and rising NOI growth rates.

Speaker #3: Third, balance sheet and return of capital. During the second quarter, we moved quickly and decisively to address our near-term debt maturities. We raised $1.1 billion in capital, through our convertible bond issuance and delayed draw term loan.

Peter A. Scott: We raised $1.1 billion in capital through our convertible bond issuance and delayed draw term loan. The blended interest rate on this capital is approximately 4%, saving us 100 basis points versus our original guidance. Importantly, we can be opportunistic and patient now before we access the debt capital markets again. We also bought back $75 million of stock in Q2. Since putting out our strategic plan, we have now repurchased $175 million of stock at a blended price of approximately $18.50, creating more than $30 million of value for shareholders. Our capital allocation priorities are currently being funded with free cash flow and disposition proceeds. Year to date, we have disposed of 6 buildings and 3 land parcels for approximately $75 million at a blended 5% cap rate. We also have an additional disposition pipeline of nearly $200 million in various stages.

Pete Scott: We raised $1.1 billion in capital through our convertible bond issuance and delayed draw term loan. The blended interest rate on this capital is approximately 4%, saving us 100 basis points versus our original guidance. Importantly, we can be opportunistic and patient now before we access the debt capital markets again. We also bought back $75 million of stock in Q2. Since putting out our strategic plan, we have now repurchased $175 million of stock at a blended price of approximately $18.50, creating more than $30 million of value for shareholders. Our capital allocation priorities are currently being funded with free cash flow and disposition proceeds. Year to date, we have disposed of 6 buildings and 3 land parcels for approximately $75 million at a blended 5% cap rate. We also have an additional disposition pipeline of nearly $200 million in various stages.

Speaker #3: The blended interest rate on this capital is approximately 4%, saving us $100 basis points versus our original guidance. Importantly, we can be opportunistic and patient now before we access the debt capital markets again.

Speaker #3: We also bought back 75 million dollars of stock in the second quarter, since putting out our strategic plan. We have now repurchased 175 million dollars of stock at a blended price of approximately $18.50, creating more than $30 million of value for shareholders.

Speaker #3: Our capital allocation priorities are currently being funded with free cash flow and disposition proceeds. Year to date, we have disposed of six buildings and three land parcels for approximately $75 million at a blended 5% cap rate.

Speaker #3: We also have an additional disposition pipeline of nearly $200 million in various stages. That amount could grow further if we are successful and opportunistically execute on low cap rate, direct-to-health system sales at premium pricing levels.

Peter A. Scott: That amount could grow further if we are successful in opportunistically executing on low cap rate direct to health system sales at premium pricing levels. Let me finish now with what is on the horizon for Healthcare Realty 2.0. We have proven we can execute a new superior medical office model. The next several years are about scaling it. We set out to become the trailblazer in medical office. Today we are not just talking about that ambition, we are delivering it. In addition to pillars of organic growth, occupancy, retention, cash leasing spreads, and consistent escalators, they are real, and they are the engine underneath everything else we do. We are layering disciplined accretive capital allocation on top of that engine. This is not a one-quarter story. It is a durable, repeatable framework, and we intend to keep pulling on every lever.

Pete Scott: That amount could grow further if we are successful in opportunistically executing on low cap rate direct to health system sales at premium pricing levels. Let me finish now with what is on the horizon for Healthcare Realty 2.0. We have proven we can execute a new superior medical office model. The next several years are about scaling it. We set out to become the trailblazer in medical office. Today we are not just talking about that ambition, we are delivering it. In addition to pillars of organic growth, occupancy, retention, cash leasing spreads, and consistent escalators, they are real, and they are the engine underneath everything else we do. We are layering disciplined accretive capital allocation on top of that engine. This is not a one-quarter story. It is a durable, repeatable framework, and we intend to keep pulling on every lever.

Speaker #3: Let me finish now with what is on the horizon for healthcare realty 2.0. We have proven we can execute a new, superior medical office model.

Speaker #3: The next several years are about scaling it. We set out to become the trailblazer in medical office, and today, we are not just talking about that ambition.

Speaker #3: We are delivering it. In addition, the pillars of organic growth, occupancy retention, cash leasing spreads, and consistent escalators they are real, and they are the engine underneath everything else we do.

Speaker #3: Now, we are layering disciplined accretive capital allocation on top of that engine. This is not a one-quarter story. It is a durable, repeatable framework, and we intend to keep pulling on every lever.

Speaker #3: We are pleased to see our valuation improving, but let me be very clear. We are not satisfied. And we are not slowing down. We see meaningful upside ahead of us as the only public REIT that is actively growing its medical office platform, we intend to lead this sector, not just participate in it.

Peter A. Scott: We are pleased to see our valuation improving. Let me be very clear, we are not satisfied and we are not slowing down. We see meaningful upside ahead of us. As the only public REIT that is actively growing its medical office platform, we intend to lead this sector, not just participate in it. We have the team, portfolio, balance sheet, and momentum to define what best in class looks like for outpatient medical, and we are just getting started. With that, let me turn the call over to Rob.

Pete Scott: We are pleased to see our valuation improving. Let me be very clear, we are not satisfied and we are not slowing down. We see meaningful upside ahead of us. As the only public REIT that is actively growing its medical office platform, we intend to lead this sector, not just participate in it. We have the team, portfolio, balance sheet, and momentum to define what best in class looks like for outpatient medical, and we are just getting started. With that, let me turn the call over to Rob.

Speaker #3: We have the team, portfolio, balance sheet, and momentum to define what best-in-class looks like for outpatient medical, and we are just getting started. With that, let me turn the call over to Rob.

Speaker #1: Thanks, Pete. And good morning, everyone. Healthcare Realty delivered another strong operating quarter. We executed $323 leases, totaling $1.5 million square feet. Including $350,000 square feet of new leasing.

Rob E. Hull: Thanks, Pete, and good morning, everyone. Healthcare Realty delivered another strong operating quarter. We executed 323 leases totaling 1.5 million square feet, including 350,000 square feet of new leasing. Same-store cash leasing spreads averaged 4.8%, average escalators were 3%, and the weighted average lease term was nearly six years. Tenant retention was a standout at 88.5%, helping drive approximately 25 basis points of absorption and lifting same-store occupancy to nearly 93%. We also ended the quarter with approximately 460,000 square feet of signed, not occupied leases, representing roughly 140 basis points of future occupancy and giving us visibility into additional gains in the back half of the year. Our health system relationships are playing a major role in generating our outstanding results.

Rob Hull: Thanks, Pete, and good morning, everyone. Healthcare Realty delivered another strong operating quarter. We executed 323 leases totaling 1.5 million square feet, including 350,000 square feet of new leasing. Same-store cash leasing spreads averaged 4.8%, average escalators were 3%, and the weighted average lease term was nearly six years. Tenant retention was a standout at 88.5%, helping drive approximately 25 basis points of absorption and lifting same-store occupancy to nearly 93%. We also ended the quarter with approximately 460,000 square feet of signed, not occupied leases, representing roughly 140 basis points of future occupancy and giving us visibility into additional gains in the back half of the year. Our health system relationships are playing a major role in generating our outstanding results.

Speaker #1: Same-store cash leasing spreads averaged 4.8%, average escalators were 3%, and the weighted average lease term was nearly six years. Tenant retention was the standout at 88.5%, helping drive approximately 25 basis points of absorption and lifting same-store occupancy to nearly 93%.

Speaker #1: We also ended the quarter with approximately 460,000 square feet of signed, not occupied leases, representing roughly 140 basis points of future occupancy and giving us visibility into additional gains in the back half of the year.

Speaker #1: Our health system relationships are playing a major role in generating our outstanding results. Pete mentioned a few major deals in his remarks. But we also had significant second-quarter leasing activity with Baylor Scott & White in Dallas, Fort Worth, UW Medicine in Seattle, Kaiser in San Francisco, and HCA in Houston.

Rob E. Hull: Pete mentioned a few major deals in his remarks, we also had significant Q2 leasing activity with Baylor Scott & White in Dallas-Fort Worth, UW Medicine in Seattle, Kaiser in San Francisco, and HCA in Houston. This activity further demonstrates the great progress we are making with our partners. Redevelopment leasing also advanced. We executed nearly 60,000 square feet of new leasing during the quarter, moving these properties to 67% leased, and we are building a strong pipeline of activity that will translate into additional leasing gains in coming quarters. Broader supply-demand fundamentals remain favorable. Medical outpatient completions as a percentage of inventory are hovering near all-time lows, while sector occupancy continues to reach record highs. We are also seeing increased health system M&A activity as systems look to build scale, strengthen market position, and improve financial performance.

Rob Hull: Pete mentioned a few major deals in his remarks, we also had significant Q2 leasing activity with Baylor Scott & White in Dallas-Fort Worth, UW Medicine in Seattle, Kaiser in San Francisco, and HCA in Houston. This activity further demonstrates the great progress we are making with our partners. Redevelopment leasing also advanced. We executed nearly 60,000 square feet of new leasing during the quarter, moving these properties to 67% leased, and we are building a strong pipeline of activity that will translate into additional leasing gains in coming quarters. Broader supply-demand fundamentals remain favorable. Medical outpatient completions as a percentage of inventory are hovering near all-time lows, while sector occupancy continues to reach record highs. We are also seeing increased health system M&A activity as systems look to build scale, strengthen market position, and improve financial performance.

Speaker #1: This activity, further demonstrates the great progress we are making with our partners. Redevelopment leasing also advanced. We executed nearly 60,000 square feet of new leasing during the quarter.

Speaker #1: Moving these properties to 67% leased. And we are building a strong pipeline of activity that will translate into additional leasing gains in coming quarters.

Speaker #1: Broader supply-demand fundamentals remain favorable. Medical outpatient completions as a percentage of inventory are hovering near all-time lows, while sector occupancy continues to reach record highs.

Speaker #1: We are also seeing increased health system M&A activity, as systems look to build scale, strengthen market position, and improve financial performance. Acquisitions can expand patient reach, broaden services, improve payer leverage, and create cost efficiencies.

Rob E. Hull: Acquisitions can expand patient reach, broaden services, improve payer leverage, and create cost efficiencies. Over time, these benefits can support stronger margins, better balance sheets, and lower cost capital for these systems. For landlords, this activity can translate into stronger tenant credit and additional capital sources to support health system growth that drives demand for outpatient medical space. Against this favorable backdrop, our new and renewal lease pipeline remains robust at more than 3 million square feet, including several large health system transactions that continue to progress. Finally, tenant satisfaction. Our recent annual third-party tenant survey showed year-over-year improvement across every metric. These results are further evidence that the operating platform changes we made are improving the tenant experience and strengthening execution across the portfolio.

Rob Hull: Acquisitions can expand patient reach, broaden services, improve payer leverage, and create cost efficiencies. Over time, these benefits can support stronger margins, better balance sheets, and lower cost capital for these systems. For landlords, this activity can translate into stronger tenant credit and additional capital sources to support health system growth that drives demand for outpatient medical space. Against this favorable backdrop, our new and renewal lease pipeline remains robust at more than 3 million square feet, including several large health system transactions that continue to progress. Finally, tenant satisfaction. Our recent annual third-party tenant survey showed year-over-year improvement across every metric. These results are further evidence that the operating platform changes we made are improving the tenant experience and strengthening execution across the portfolio.

Speaker #1: Over time, these benefits can support stronger margins, better balance sheets, and lower cost capital for these systems. For landlords, this activity can translate into stronger tenant credit and additional capital sources to support health system growth that drives demand for outpatient medical space.

Speaker #1: Against this favorable backdrop, our new and renewal lease pipeline remains robust at more than 3 million square feet, including several large health system transactions that continue to progress.

Speaker #1: Finally, tenant satisfaction. Our recent annual third-party tenant survey showed year-over-year improvement across every metric. These results are further evidence that the operating platform changes we made are improving the tenant experience and strengthening execution across the portfolio.

Speaker #1: As we move into the back half of the year, we expect strong leasing momentum, high tenant retention, and improving lease economics to continue driving same-store NOI growth.

Rob E. Hull: As we move into the back half of the year, we expect strong leasing momentum, high tenant retention, and improving lease economics to continue driving same-store NOI growth. With that, I'll turn it over to Dan to discuss financial results.

Rob Hull: As we move into the back half of the year, we expect strong leasing momentum, high tenant retention, and improving lease economics to continue driving same-store NOI growth. With that, I'll turn it over to Dan to discuss financial results.

Speaker #1: With that, I'll turn it over to Dan to discuss financial results.

Speaker #2: Thanks, Rob. I'll briefly comment on our earnings balance sheet and capital allocation and our higher revised guidance for the year. Our momentum continued in Q2.

Dan Gabbay: Thanks, Rob. I will briefly comment on our earnings, balance sheet, capital allocation, and our higher revised guidance for the year. Our momentum continued in Q2 with normalized FFO per share of $0.41 and same-store cash NOI growth of 5.1%, which includes almost our entire portfolio. Additionally, FAD per share was $0.32, resulting in a quarterly dividend payout ratio of 76%. In May, we opportunistically accessed the capital markets during a reprieve in global conflicts and issued $700 million of exchangeable senior unsecured notes due 2032 at a coupon of 3%. The issuance was strongly received and upsized by $100 million during the marketing process. We utilized proceeds to repay our $600 million senior unsecured notes due in August this year, which had a coupon of 3.5%.

Speaker #2: With normalized FFO per share of $0.41, and same-store cash NOI growth of 5.1%, which includes almost our entire portfolio. Additionally, FAD per share was $0.32, resulting in a quarterly dividend payout ratio of 76%.

Speaker #2: In May, we opportunistically accessed the capital markets during a reprieve in global conflicts and issued $700 million of exchangeable senior unsecured notes due 2032 at a coupon of 3%.

Speaker #2: The issuance was strongly received and upsized by $100 million during the marketing process. We utilized proceeds to repay our $600 million senior unsecured notes due in August this year which had a coupon of 3.5%.

Speaker #2: We concurrently repurchased $75 million of shares with the offering, which was both financially accretive and additive to the overall deal execution. When factoring in the capped call, the exchangeable notes have an effective conversion price of $27.41 per share, or 40% above our closing price on the day of marketing.

Dan Gabbay: We can currently repurchase $75 million of shares with the offering, which was both financially accretive and additive to the overall deal execution. When factoring in the capped call, the exchangeable notes have an effective conversion price of $27.41 per share, or 40% above our closing price on the day of marketing. Also during the quarter, we raised a $400 million unsecured delayed draw term loan. The exchangeable notes and delayed draw term loan effectively addressed our maturities through 2027, and with an additional $1.2 billion in liquidity on our line of credit, we have ample flexibility through 2029. In the meantime, we will remain opportunistic evaluating the bank and bond markets for any future steps to further extend our maturity profile at attractive rates. As Pete noted, we remain disciplined and decisive if there are acquisition opportunities in our joint venture with KKR.

Speaker #2: Also during the quarter, we raised a $400 million unsecured delay draw term loan. The exchangeable notes and delay draw term loan effectively addressed our maturities through 2027, and with an additional $1.2 billion in liquidity on our line of credit, we have ample flexibility through 2029.

Speaker #2: In the meantime, we will remain opportunistic evaluating the bank and bond markets for any future steps to further extend our maturity profile at attractive rates.

Speaker #2: As Pete noted, we remain disciplined and decisive if there are acquisition opportunities in our joint venture with KKR. Since the end of March, we have closed on or are under contractor LOI for nearly $200 million in acquisitions, or $40 million at share.

Dan Gabbay: Since the end of March, we have closed on or are under contract or LOI for nearly $200 million in acquisitions or $40 million at share. These transactions will be efficiently match funded with dispositions throughout the year, such as our land sale to CommonSpirit Health and our MOB sale to Wellstar Health System. Most importantly, we will continue to keep our leverage in the mid five times area. Turning to guidance, which you can find on page 11 of our supplemental report, we increased full year normalized FFO per share guidance by $0.02 to $1.64 at the midpoint, and we increased the upper end of the range to $1.66 per share. Our same-store cash NOI outlook is now 4.25% to 5%, up 50 basis points at the bottom of the range and up 25 basis points at the upper end of the range.

Speaker #2: These transactions will be efficiently match funded with dispositions throughout the year, such as our land sale to Common Spirit, and our MOB sale to Wellstar.

Speaker #2: Most importantly, we will continue to keep our leverage in the mid-five times area. Turning to guidance, which you can find on page 11 of our supplemental report, we increased full-year normalized FFO per share guidance by 2 pennies to $1.64 at the midpoint, and we increased the upper end of the range to $1.66 per share.

Speaker #2: Our same-store cash NOI outlook is now basis points at the bottom of the range, and up 25 basis points at the upper end of the range.

Speaker #2: These results are driven by strong leasing outcomes and 4% to 5% cash releasing spreads year to date in our same-store portfolio. Uses of capital increased $115 million for the year to reflect the incremental share repurchases we made alongside the exchangeable notes, as well as the $40 million to fund our share of the JV acquisitions mentioned earlier.

Dan Gabbay: These results are driven by strong leasing outcomes and 4% to 5% cash leasing spreads year to date in our same-store portfolio. Uses of capital increased $115 million for the year to reflect the incremental share repurchases we made alongside the exchangeable notes, as well as the $40 million to fund our share of the JV acquisitions mentioned earlier. Disposition guidance therefore increased by a similar amount. Again, recall, our guidance only reflects acquisitions, redevelopments, or other uses of capital announced to date. One last housekeeping item before we go to Q&A. In addition to filing our earnings results, we will be refiling our security shelf and ATM prospectus supplement since the shelf is due to expire in August. We will also file the resale registration statement as required by the registration rights in connection with the exchangeable notes. With that, operator, let's go ahead with Q&A.

Speaker #2: Disposition guidance, amount. Again, recall our guidance only reflects acquisitions, redevelopments, or other uses of capital announced to date. One last housekeeping item before we go to Q&A.

Speaker #2: In addition to filing our earnings results, we will be refiling our securities shelf and ATM prospectus supplement, since the shelf is due to expire in August.

Speaker #2: We will also file the resale registration statement as required by the registration rights in connection with the exchangeable notes. With that, operator, let's go ahead with Q&A.

Speaker #3: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand.

Operator 3: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Kilichowski with Wells Fargo. John, please go ahead.

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

Speaker #3: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #3: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Kilichowski.

Speaker #3: With Wells Fargo. John, please go ahead.

Speaker #4: Hi, good morning. Thanks for taking my question. Pete, in the opening remarks, you talked about trending ahead you're a year out from your strategic plan and you're trending ahead on all metrics.

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

Speaker #4: I'm kind of curious now, where does that put you in terms of your outlook on that 185 or 165 to 185 FFO range that you gave in that strategic plan?

Speaker #2: Yeah, thanks, John. Hey, it's Pete here. Good question. You're looking for 2028 guidance, but it is FFO—and FFO, just to be clear. But look, as I said on the—oh, no worries.

Peter A. Scott: Yeah. Thanks, John. Hey, it's Pete here. Good question. You're looking for 2028 guidance. It is FFO and not AFFO, just to be clear.

Pete Scott: Yeah. Thanks, John. Hey, it's Pete here. Good question. You're looking for 2028 guidance. It is FFO and not AFFO, just to be clear.

John Kilichowski: Apologies. Yeah

Peter A. Scott: I said in my prepared remarks, we are tracking ahead of schedule. I think a couple of things I would just point to. Thanks to the convert deal and better than expected same-store NOI this year. Actually, what we're seeing as we look out the next couple of years, as fundamentals continue to firm up, we certainly feel like we are ahead of schedule on that. If you go back a year ago, 2026 was really expected to be a flat year of earnings since we had about 7 pennies of dilution from portfolio optimization, and we also had some refinancing headwinds. Our $1.64, which is the midpoint today, the year is not done. We're halfway through. That's actually 3 pennies of growth when you look at this year versus last year.

Speaker #2: No worries. As I said in my prepared remarks, we are tracking ahead of schedule. I think there are a couple of things I would just point to.

Pete Scott: I said in my prepared remarks, we are tracking ahead of schedule. I think a couple of things I would just point to. Thanks to the convert deal and better than expected same-store NOI this year. Actually, what we're seeing as we look out the next couple of years, as fundamentals continue to firm up, we certainly feel like we are ahead of schedule on that. If you go back a year ago, 2026 was really expected to be a flat year of earnings since we had about 7 pennies of dilution from portfolio optimization, and we also had some refinancing headwinds. Our $1.64, which is the midpoint today, the year is not done. We're halfway through. That's actually 3 pennies of growth when you look at this year versus last year.

Speaker #2: Thanks to the convert deal, and better-than-expected same-store NOI this year. And actually, what we're seeing as we look out over the next couple of years, as fundamentals continue to firm up, we certainly feel like we are ahead of schedule on that.

Speaker #2: And if you go back a year ago, 2026 was really expected to be a flat year of earnings, since we had about 7 pennies of dilution from portfolio optimization.

Speaker #2: And we also had some refinancing headwinds. Our $1.64, which is the midpoint today, the year is not done. We're halfway through. That's actually 3 pennies of growth.

Speaker #2: When you look at this year versus last year. And also, we're only getting about a half-year benefit from that convert this year. So I'm not going to give an exact number, except to say that we feel quite good about how we're trending, just a couple of quarters into the 12 quarters of the projections we put out, that three-year plan.

Peter A. Scott: Also we're only getting about a half year benefit from that convert this year. I'm not going to give an exact number except to say that, we feel quite good about how we're trending just a couple of quarters into the 12 quarters of the projections we put out, that 3-year plan.

Pete Scott: Also we're only getting about a half year benefit from that convert this year. I'm not going to give an exact number except to say that, we feel quite good about how we're trending just a couple of quarters into the 12 quarters of the projections we put out, that 3-year plan.

John Kilichowski: Mm-hmm. Thank you. My second one is on the KKR JV now. We're seeing you acquire alongside them. I noticed no flywheel image in the supplemental yet, but I'm curious just about the sizing of that opportunity, and then also with the match funding piece. The end of last year, there was this idea of getting out of the non-core assets, and there was some great pricing there. Just curious what you're funding it with and how you're managing to keep this sort of NAV accretive, that you're still selling out of some of the things that you don't want to own, but are still able to achieve these great cap rates to afford sort of that spread.

Speaker #4: Thank you. And then my second one is on the KKR, JV now. We're seeing you acquire alongside them. I noticed Noah Flywheel image in the supplemental yet, but I'm curious, just about the sizing of that opportunity.

Speaker #4: And then also, with the match funding piece, the end of last year, there was this idea of getting out of the non-core assets, and there were some great pricing there.

Speaker #4: But just curious, what your funding it with, and how you're managing to keep this sort of NAV accretive that you're still selling out of some of the things that you don't want to own, but are still able to achieve these great cap rates to afford sort of that spread.

Speaker #2: Yeah. It's a really good question. And obviously, KKR has been a great partner. They came in as part of a recap a couple of years ago, and always had ambitions to grow that vehicle.

Peter A. Scott: Yeah. It's a really good question, and obviously KKR has been a great partner. They came in as part of a recap a couple of years ago, and always had ambitions to grow that vehicle. I would say that Healthcare Realty was holding that vehicle back from being able to grow. There wasn't a lot of free cash flow, and there was an optimization plan that was discussed but actually hadn't been put into effect yet. It was very difficult, and obviously the dividend issue, for that joint venture to grow, and we're pleased now that we've done about a half a dozen deals so far this year. It's about $300 million in total with the stuff that's either closed or under contract. It's pretty attractive yields to us. It's attractive yields to them.

Pete Scott: Yeah. It's a really good question, and obviously KKR has been a great partner. They came in as part of a recap a couple of years ago, and always had ambitions to grow that vehicle. I would say that Healthcare Realty was holding that vehicle back from being able to grow. There wasn't a lot of free cash flow, and there was an optimization plan that was discussed but actually hadn't been put into effect yet. It was very difficult, and obviously the dividend issue, for that joint venture to grow, and we're pleased now that we've done about a half a dozen deals so far this year. It's about $300 million in total with the stuff that's either closed or under contract. It's pretty attractive yields to us. It's attractive yields to them.

Speaker #2: I would say that healthcare realty was holding that vehicle back from being able to grow. There wasn't a lot of free cash flow. And there was a optimization plan that was discussed, but actually hadn't been put into effect yet.

Speaker #2: So it was very difficult. And obviously, the dividend issue. It was very difficult for that joint venture to grow. And we're pleased now that we've done about a half a dozen deals so far, this year.

Speaker #2: It's about $300 million in total, with the stuff that's either closed or under contract. And it's pretty attractive yields to us. It's attractive yields to them.

Speaker #2: How we think about funding that, which I think is the question, to date, we've actually focused on capital recycling. And free cash flow to basically fund all of our capital allocation initiatives.

Peter A. Scott: How we think about funding that, which I think is the crux of your question. To date, we've actually focused on capital recycling and free cash flow to basically fund all of our capital allocation initiatives. I think, look, at the end of the day, it's our job as executives to maximize earnings growth. As we think about funding capital allocation priorities, if funding them is more advantageous through dispositions because of the cap rate we're able to get, we'll certainly focus on that. If accessing the equity markets becomes more accretive than the dispositions, we certainly could pivot to that. We have not done that to date at this point in time. We certainly could look at both. I think what's most important for us is we're going to look at every lever to maximize earnings growth going forward.

Pete Scott: How we think about funding that, which I think is the crux of your question. To date, we've actually focused on capital recycling and free cash flow to basically fund all of our capital allocation initiatives. I think, look, at the end of the day, it's our job as executives to maximize earnings growth. As we think about funding capital allocation priorities, if funding them is more advantageous through dispositions because of the cap rate we're able to get, we'll certainly focus on that. If accessing the equity markets becomes more accretive than the dispositions, we certainly could pivot to that. We have not done that to date at this point in time. We certainly could look at both. I think what's most important for us is we're going to look at every lever to maximize earnings growth going forward.

Speaker #2: I think, look, at the end of the day, it's our job as executives to maximize earnings growth. So as we think about funding capital allocation priorities, if funding them is more advantageous through dispositions, because of the cap rate we're able to get, then we'll certainly focus on that.

Speaker #2: If accessing the equity markets becomes more accretive than the dispositions, then we certainly could pivot to that. We have not done that to date at this point in time.

Speaker #2: Or we certainly could look at both. But I think what's most important for us is we're going to look at every lever to maximize earnings growth going forward.

Speaker #2: And I will also just point out—and I know this is a long-winded answer—you put out a good note last night. We're going to maintain discipline here.

Peter A. Scott: I will also just point out, I know this is a long-winded answer, you put out a good note last night. We're going to maintain discipline here. We kind of use the D word, not the O word. That's come up a lot. We're not looking to create that flywheel you're talking about there. Certainly, it's accretive today for us to think about capital allocation priorities, we're going to maintain discipline as we think about it.

Pete Scott: I will also just point out, I know this is a long-winded answer, you put out a good note last night. We're going to maintain discipline here. We kind of use the D word, not the O word. That's come up a lot. We're not looking to create that flywheel you're talking about there. Certainly, it's accretive today for us to think about capital allocation priorities, we're going to maintain discipline as we think about it.

Speaker #2: We kind of use the D word, not the O word. That's come up a lot. So we're not looking to create that flywheel you're talking about there.

Speaker #2: Certainly, it's accretive today for us to think about capital allocation priorities, but we're going to maintain discipline as we think about it.

Speaker #4: Very helpful. Thank you.

John Kilichowski: Very helpful. Thank you.

Speaker #2: Yep.

Peter A. Scott: Yep.

Pete Scott: Yep.

Speaker #3: Your next question comes from the line of Michael Mueller, with JP Morgan. Michael, please go ahead.

Operator 3: Your next question comes from the line of Michael Mueller with JPMorgan Chase. Michael, please go ahead.

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

Speaker #5: Morning, guys. And thanks for taking the question. You have Nahum on from Mike this morning. I guess my first question, it looks like you guys have built a pretty sizable redevelopment pipeline to this point.

[Analyst] (J.P. Morgan): Morning, guys, thanks for taking the question. You have Nahum from Mike this morning. My first question, looks like you guys have built a pretty sizable redevelopment pipeline to this point. What does the shadow pipeline look like? Do you guys think you'll be able to sustain a size close to this over the next few years?

[Analyst] (JPMorgan): Morning, guys, thanks for taking the question. You have Nahum from Mike this morning. My first question, looks like you guys have built a pretty sizable redevelopment pipeline to this point. What does the shadow pipeline look like? Do you guys think you'll be able to sustain a size close to this over the next few years?

Speaker #5: I guess, what does the shadow pipeline look like? And do you guys think you'll be able to sustain a size close to this over the next few years?

Speaker #2: Yeah. I could take that one. It's Pete here. We actually are really pleased with the progress we've made on the redevelopment pipeline and the pre-leasing.

Peter A. Scott: I could take that one. It's Pete here. We actually are really pleased with the progress we've made on the redevelopment pipeline and the pre-leasing. Hopefully, everyone heard it in my prepared remarks, when you look back a year ago, we've improved pre-leasing in that portfolio by 1,400 basis points, which is pretty significant, we actually have a nice pipeline as well building on that. I would expect to see continued absorption as the year progresses. We've got around 25 assets in redevelopment today. We've made a big push to try and identify the assets we want to go into redevelopment, so they go in on the front end of our three-year plan that we had put out. That pool has increased the last couple of quarters. It will increase a little bit more as the year progresses.

Pete Scott: I could take that one. It's Pete here. We actually are really pleased with the progress we've made on the redevelopment pipeline and the pre-leasing. Hopefully, everyone heard it in my prepared remarks, when you look back a year ago, we've improved pre-leasing in that portfolio by 1,400 basis points, which is pretty significant, we actually have a nice pipeline as well building on that. I would expect to see continued absorption as the year progresses. We've got around 25 assets in redevelopment today. We've made a big push to try and identify the assets we want to go into redevelopment, so they go in on the front end of our three-year plan that we had put out. That pool has increased the last couple of quarters. It will increase a little bit more as the year progresses.

Speaker #2: Hopefully, everyone heard it in my prepared remarks. But when you look back a year ago, we’ve improved pre-leasing in that portfolio by 1,400 basis points, which is pretty significant.

Speaker #2: And we actually have a nice pipeline as well. Building on that. So I would expect to see continued absorption as the year progresses. We've got around 25 assets in redevelopment today.

Speaker #2: We've made a big push to try and identify the assets we want to go into redevelopment. So they go in on the front end of our three-year plan that we had put out.

Speaker #2: So that pool has increased the last couple of quarters. It will increase a little bit more as the year progresses. We have not put the three assets of the Ascension St.

Peter A. Scott: We have not put the three assets of the Ascension Saint Thomas campus in yet. Those will go in as the year progresses. I would expect that number to probably go up to maybe 30 or so. You will get the benefit of assets completed that will cycle out. I would think we'll probably reach a peak towards the end of this year. I think it will always be part of the ongoing business. I've been around this business for a long time, where rental rates are trending, I think there's a real opportunity for us to spend capital on assets in our existing portfolio and increase occupancy and/or rental rate and get a very nice return on that.

Pete Scott: We have not put the three assets of the Ascension Saint Thomas campus in yet. Those will go in as the year progresses. I would expect that number to probably go up to maybe 30 or so. You will get the benefit of assets completed that will cycle out. I would think we'll probably reach a peak towards the end of this year. I think it will always be part of the ongoing business. I've been around this business for a long time, where rental rates are trending, I think there's a real opportunity for us to spend capital on assets in our existing portfolio and increase occupancy and/or rental rate and get a very nice return on that.

Speaker #2: Thomas campus in yet. Those will go in as the year progresses. I would expect that number to probably go up to maybe 30 or so.

Speaker #2: But then also, you will get the benefit of assets completed. That will cycle out. So I would think we'll probably reach a peak towards the end of this year.

Speaker #2: But I think it will always be part of the ongoing business. I mean, I've been around this business for a long time, and where rental rates are trending...

Speaker #2: I think there's a real opportunity for us to spend capital on assets in our existing portfolio, and increase occupancy and/or rental rates, and get a very, very nice return on that.

Speaker #2: So I think we're at the front end of that. And I think it will be a continuous part of our business going forward, even outside of the strategic plan.

Peter A. Scott: I think we're at the front end of that, I think it will be a continuous part of our business going forward, even outside of the strategic plan, it won't be as large outside of the strategic plan as it's trending right now.

Pete Scott: I think we're at the front end of that, I think it will be a continuous part of our business going forward, even outside of the strategic plan, it won't be as large outside of the strategic plan as it's trending right now.

Speaker #2: But it won't be as large, outside of the strategic plan, as it's trending right now.

Speaker #5: Got it, thanks. And maybe just a quick follow-up, sticking on redevelopment. I think the supplement talked about 9% to 12% returns for the current pipeline.

[Analyst] (J.P. Morgan): Got it. Thanks. Maybe just a quick follow-up, sticking on redevelopment.

[Analyst] (JPMorgan): Got it. Thanks. Maybe just a quick follow-up, sticking on redevelopment.

[Analyst] (J.P. Morgan): Yeah.

Pete Scott: Yeah.

[Analyst] (J.P. Morgan): I think the supplement about 9% to 12% returns for the current pipeline. Could you guys walk us through what would need to happen to maybe achieve the low end and high end of that range, and maybe where you guys currently think the pipeline stands within there?

[Analyst] (JPMorgan): I think the supplement about 9% to 12% returns for the current pipeline. Could you guys walk us through what would need to happen to maybe achieve the low end and high end of that range, and maybe where you guys currently think the pipeline stands within there?

Speaker #5: Could you guys walk us through what would need to happen to maybe achieve the low end and high end of that range? And maybe where you guys currently think the pipeline stands within there?

Speaker #2: Yeah, I mean, I think the pipeline is probably right in the middle of there. I think in some markets you'll get a higher yield, and in other markets it may be on the lower side of that.

Peter A. Scott: Yeah. I think the pipeline is probably right in the middle of there. I think some markets, you'll get a higher yield. In other markets, it may be on the lower side of that. I think Nashville's probably a pretty good example, where it's probably more like a nine as opposed to a 12. For this market and for what those assets would trade for on a stabilized basis with improvements, you're creating pretty significant value. I'm just talking about cash-on-cash yields, not about NAV value creation on that. Again, it comes from basically two important pieces. One is an uplift in rental rates, which is very real. The other would be absorption within the assets. Some of the assets that are in there are assets that had been under-invested into for quite some time. We've said that in the past.

Pete Scott: Yeah. I think the pipeline is probably right in the middle of there. I think some markets, you'll get a higher yield. In other markets, it may be on the lower side of that. I think Nashville's probably a pretty good example, where it's probably more like a nine as opposed to a 12. For this market and for what those assets would trade for on a stabilized basis with improvements, you're creating pretty significant value. I'm just talking about cash-on-cash yields, not about NAV value creation on that. Again, it comes from basically two important pieces. One is an uplift in rental rates, which is very real. The other would be absorption within the assets. Some of the assets that are in there are assets that had been under-invested into for quite some time. We've said that in the past.

Speaker #2: I think Nashville is probably a pretty good example, where it's probably more like a 9. As opposed to a 12. But for this market, and for what those assets would trade for on a stabilized basis with improvements, I mean, you're creating pretty significant value.

Speaker #2: I'm just talking about cash-on-cash yields, not about NAV value creation. On that, and again, it comes from basically two important pieces. One is an uplift in rental rates, which is very real.

Speaker #2: And then the other would be absorption within the assets. Some of the assets that are in there are assets that had been underinvested in for quite some time.

Speaker #2: And we've said that in the past. And so we see a pretty significant upside in occupancy. So if you're getting upside in occupancy, and you're getting an uplift in rate, you're going to get to the higher end of those cash on cash yields.

Peter A. Scott: We see a pretty significant upside in occupancy. If you're getting upside in occupancy and you're getting an uplift in rate, you're going to get to the higher end of those cash-on-cash yields. If you're just getting more of a rate uplift and a little bit of occupancy uplift, you're probably going to be on the lower end of that range.

Pete Scott: We see a pretty significant upside in occupancy. If you're getting upside in occupancy and you're getting an uplift in rate, you're going to get to the higher end of those cash-on-cash yields. If you're just getting more of a rate uplift and a little bit of occupancy uplift, you're probably going to be on the lower end of that range.

Speaker #2: If you're just getting more of a rate uplift, and a little bit of occupancy uplift, you're probably going to be on the lower end of that range.

Speaker #5: Got it. Thanks, Chris.

[Analyst] (J.P. Morgan): Got it. Thanks, guys.

[Analyst] (JPMorgan): Got it. Thanks, guys.

Speaker #3: Your next question comes from the line of Michael Carroll with RBC. Michael, please go ahead.

Peter A. Scott: Yep.

Pete Scott: Yep.

Operator 3: Your next question comes from the line of Michael Carroll with RBC. Michael, please go ahead.

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

Speaker #6: Yep, thanks. I wanted to circle back on the Ascension agreement that you guys highlighted in your prepared remarks and in the supplemental. Can you provide some color on the extent of the $35 million planned investment that HR is making?

Michael Carroll: Yeah, thanks. I wanted to circle back on the Ascension agreement that you guys highlighted in your prepared remarks and in the supplemental. Can you provide some color on the extent of the $35 million plan investment that HR is making? Is that a revenue-generating investment, or I guess, is Ascension's rents increasing, or is that just reflected in the 200,000 square feet of leases that you completed?

Speaker #6: And is that a revenue-generating investment, or is it I guess it's Ascension's rents increasing, or is that just reflected in the 200,000 square feet of leases that you completed?

Speaker #2: Yeah, so Mike, there’s actually a couple of pieces to that. First of all, we are really pleased that we got this agreement announced. In fact, actually, Ascension put out a press release a couple of weeks ago.

Peter A. Scott: Yeah. Mike, there's actually a couple pieces to that. First of all, we are really pleased that we got this agreement announced. In fact, actually, Ascension press released it a couple of weeks ago. We felt like it was important to get this out in our earnings release. We've got a very close relationship with the Ascension Saint Thomas team that's based down here in Nashville. I don't know, five-plus years ago, there was a big redevelopment plan on the Midtown campus that was under-occupied. That campus is now 100% leased effectively, and at pretty sporty rental rates. I'd say it's kind of leading rental rates in the Nashville market. I know many of you have seen it. This is a campus that's in West Nashville, closer to Belle Meade.

Pete Scott: Yeah. Mike, there's actually a couple pieces to that. First of all, we are really pleased that we got this agreement announced. In fact, actually, Ascension press released it a couple of weeks ago. We felt like it was important to get this out in our earnings release. We've got a very close relationship with the Ascension Saint Thomas team that's based down here in Nashville. I don't know, five-plus years ago, there was a big redevelopment plan on the Midtown campus that was under-occupied. That campus is now 100% leased effectively, and at pretty sporty rental rates. I'd say it's kind of leading rental rates in the Nashville market. I know many of you have seen it. This is a campus that's in West Nashville, closer to Belle Meade.

Speaker #2: So we felt like it was important to get this out in our earnings release. And we've got a very close relationship with Ascension St.

Speaker #2: Thomas team that's based down here. And in Nashville. And I don't know, five-plus years ago, there was a big redevelopment plan on the Midtown campus that was under-occupied.

Speaker #2: And that campus is now 100% leased effectively. And at pretty sporty rental rates. I think it's kind of leading rental rates in the Nashville market.

Speaker #2: And I know many of you have seen it. So, this is a campus that's in West Nashville, closer to Belle Meade. So, it's actually right at the entranceway to the most expensive houses here in Nashville.

Peter A. Scott: It's actually right at the entranceway to the most expensive houses here in Nashville. It's been an under-invested campus for quite some time. It's about 80% occupied today, and the hospital has not been invested into in a long time. Ascension has a real mandate to invest more capital into the Nashville market. It's a target market for them. We collaborated together to figure out what we think makes the most sense, and we extended the Ascension leases 10 years, at that campus at a pretty nice mark-to-market. You're talking about a double-digit mark-to-market 11%. That's not in our numbers that we reported last quarter, so that's certainly going to help us when we report our numbers spread over a lot of leases in the Q3.

Pete Scott: It's actually right at the entranceway to the most expensive houses here in Nashville. It's been an under-invested campus for quite some time. It's about 80% occupied today, and the hospital has not been invested into in a long time. Ascension has a real mandate to invest more capital into the Nashville market. It's a target market for them. We collaborated together to figure out what we think makes the most sense, and we extended the Ascension leases 10 years, at that campus at a pretty nice mark-to-market. You're talking about a double-digit mark-to-market 11%. That's not in our numbers that we reported last quarter, so that's certainly going to help us when we report our numbers spread over a lot of leases in the Q3.

Speaker #2: And it's been an underinvested campus for quite some time. It's about 80% occupied today, and the hospital has not been invested into in a long time.

Speaker #2: And Ascension has a real mandate to invest more capital into the Nashville market. I mean, it's a target market for them. So we collaborated together to figure out what we think makes the most sense.

Speaker #2: And we extended the Ascension leases 10 years at that campus, at a pretty nice mark-to-market. I mean, you're talking about a double-digit mark-to-market—11%.

Speaker #2: That's not in our numbers that we reported last quarter. So that's certainly going to help us when we report our numbers spread over a lot of leases in the third quarter.

Speaker #2: And we see that campus going from 80% occupancy up to over time, probably close to 100%, like in the Midtown campus. It generates 7 million of NOI today.

Peter A. Scott: We see that campus going from 80% occupancy up to, over time, probably close to 100%, like in the Midtown campus. It generates $7 million of NOI today. We believe it's going to be $10 million plus of NOI when all is said and done, between absorption as well as the favorable leases that we've put in place. Again, as I said, that's kind of in that 9% to 10% range that is part of our cash-on-cash yields. Again, I can't actually emphasize enough that you're going to get some pretty significant, I think, NAV value benefit from them, because the cap rate is certainly going to compress on that asset.

Pete Scott: We see that campus going from 80% occupancy up to, over time, probably close to 100%, like in the Midtown campus. It generates $7 million of NOI today. We believe it's going to be $10 million plus of NOI when all is said and done, between absorption as well as the favorable leases that we've put in place. Again, as I said, that's kind of in that 9% to 10% range that is part of our cash-on-cash yields. Again, I can't actually emphasize enough that you're going to get some pretty significant, I think, NAV value benefit from them, because the cap rate is certainly going to compress on that asset.

Speaker #2: We believe it's going to be 10 million-plus of NOI when all is said and done, between absorption as well as the favorable leases that we've put in place.

Speaker #2: So again, as I said, that's kind of in that 9 to 10 percent range that is part of our cash on cash yields. But again, I can't actually emphasize enough that you're going to get some pretty significant, I think, NAV value benefit from them, because the cap rate is certainly going to compress on that asset.

Speaker #6: Okay. Good. No, that's helpful. And then, similarly, just on the common spirits investment that you talked about, or the sale I guess this common spirits building on that specific land site.

Michael Carroll: Okay, great. No, that's helpful. Then similarly, just on the CommonSpirit's investment that you talked about or the sale. I guess, is CommonSpirit's building on that specific land site? When you say that HR is maintaining future MOB development rights, is it within that campus that you'll just do a land lease where they own the land and then you'll develop it? Is it not on that site, or is it just on other parcels nearby?

Speaker #6: And when you say that HR is maintaining future MOB development rates, is it within that campus that you'll just do a land lease where they own the land, and then you will develop it?

Speaker #6: It's not on that site, or is it just on other parcels nearby?

Speaker #2: Yeah, no, it'll be on that site, Mike. I mean, that's a great win-win, with the CommonSpirit hospital beds being full. That's actually a hospital that's right at the foothills of the Rockies.

Peter A. Scott: Yeah, no, it'll be on that site, Mike. That's a great win-win. The CommonSpirit hospital beds are full. That's actually a hospital that's right at the foothills of the Rockies, it's got a great ortho practice as well, they need to expand, and the only way they could expand is with the land that we owned adjacent to the hospital. They have development rights to build and expand the hospital there. Then we were able to retain your typical development agreement to the extent that a medical office building gets built on that parcel of land. It would be a development that we have the first right to do, and it would be under a ground lease structure, very similar to how typical developments get completed on campus here.

Pete Scott: Yeah, no, it'll be on that site, Mike. That's a great win-win. The CommonSpirit hospital beds are full. That's actually a hospital that's right at the foothills of the Rockies, it's got a great ortho practice as well, they need to expand, and the only way they could expand is with the land that we owned adjacent to the hospital. They have development rights to build and expand the hospital there. Then we were able to retain your typical development agreement to the extent that a medical office building gets built on that parcel of land. It would be a development that we have the first right to do, and it would be under a ground lease structure, very similar to how typical developments get completed on campus here.

Speaker #2: And it's got a great ortho practice as well. And they need to expand. And the only way they could expand is with the land that we owned.

Speaker #2: Adjacent to the hospital, so they have development rights to build and expand the hospital there. And then we were able to retain your typical development agreement to the extent that a medical office building gets built.

Speaker #2: On that parcel of land, it would be a development that we have the first right to do. And it would be under a ground lease structure very similar to how typical developments get completed on campus here.

Speaker #2: So we were able to take what was a non-income-producing asset. In fact, an asset where we were losing money monetize it, and also achieve some pretty healthy leases alongside of it as well.

Peter A. Scott: We were able to take what was a non-income producing asset, in fact, an asset where we were losing money, monetize it, and also achieve some pretty healthy leases alongside of it as well. We felt like that was a great win-win. CommonSpirit achieved what they were looking to achieve, and we achieved what we were looking to achieve. The relationship is as strong as it's ever been with CommonSpirit right now.

Pete Scott: We were able to take what was a non-income producing asset, in fact, an asset where we were losing money, monetize it, and also achieve some pretty healthy leases alongside of it as well. We felt like that was a great win-win. CommonSpirit achieved what they were looking to achieve, and we achieved what we were looking to achieve. The relationship is as strong as it's ever been with CommonSpirit right now.

Speaker #2: So we felt like that was a great win-win. Common spirit achieved what they were looking to achieve, and we achieved what we were looking to achieve.

Speaker #2: And the relationship is as strong as it's ever been with CommonSpirit right now.

Speaker #6: Great. I appreciate it.

Michael Carroll: Great. I appreciate it.

Speaker #2: Yep. Thanks, Mike.

Peter A. Scott: Yeah. Thanks, Mike.

Pete Scott: Yeah. Thanks, Mike.

Speaker #3: Your next question comes from the line of Michael Stroyak with Green Street. Michael, please go ahead.

Operator 3: Your next question comes from the line of Michael Stroyer with Green Street. Michael, please go ahead.

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

Speaker #7: Thanks. And good morning. I'm curious just on the magnitude of releasing spreads by occupancy. How large is the divergence of those spreads you're seeing between call it your stabilized portfolio and your lease-up portfolio?

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

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

Speaker #2: Yeah, I don't know that I have all those numbers at the tip of my fingers right now, Mike. But I would just say that to achieve close to 5% this quarter on cash leasing spreads—which I think is your question—I mean, you've got to have the vast majority of your leases rolling up at some pretty nice levels.

Peter A. Scott: Yeah. I don't know that I have all those numbers at the tip of my fingers right now, Mike. I would just say that, to achieve close to 5% this quarter on cash leasing spreads, which I think is your question, you've got to have the vast majority of your leases rolling up at some pretty nice levels. I would say, to be fair, we're probably getting better cash leasing spreads on more well-occupied buildings as opposed to the lease-up buildings, just because I think we have a lot more leverage in a building that's full. We're actually going through a process, and it's been helping us figure out exactly how hard we can push. We're going to rank all of our buildings.

Pete Scott: Yeah. I don't know that I have all those numbers at the tip of my fingers right now, Mike. I would just say that, to achieve close to 5% this quarter on cash leasing spreads, which I think is your question, you've got to have the vast majority of your leases rolling up at some pretty nice levels. I would say, to be fair, we're probably getting better cash leasing spreads on more well-occupied buildings as opposed to the lease-up buildings, just because I think we have a lot more leverage in a building that's full. We're actually going through a process, and it's been helping us figure out exactly how hard we can push. We're going to rank all of our buildings.

Speaker #2: I would say, to be fair, we're probably getting better cash leasing spreads on more well-occupied buildings as opposed to the lease-up buildings, just because I think we have a lot more leverage in a building that's full.

Speaker #2: And we're actually going through a process, and it's been helping us figure out exactly how hard we can push. We're going to rank all of our buildings.

Speaker #2: And on the ones where we feel like we've got high occupancy strong markets, I wouldn't be surprised to see double-digit cash leasing spreads. On those.

Peter A. Scott: On the ones where we feel like we've got high occupancy, strong markets, I wouldn't be surprised to see double-digit cash leasing spreads on those. In buildings where we're trying to lease up the asset, we're probably not going to get as robust of a cash leasing spread, but we'll get a lot of absorption associated with it. It all blends today to around 5%, high fours, and that's trending favorably. We feel quite pleased with where it's headed.

Pete Scott: On the ones where we feel like we've got high occupancy, strong markets, I wouldn't be surprised to see double-digit cash leasing spreads on those. In buildings where we're trying to lease up the asset, we're probably not going to get as robust of a cash leasing spread, but we'll get a lot of absorption associated with it. It all blends today to around 5%, high fours, and that's trending favorably. We feel quite pleased with where it's headed.

Speaker #2: And then in buildings where we're trying to lease up the asset, we're probably not going to get as robust of a cash leasing spread, but we'll get a lot of absorption associated with it.

Speaker #2: But it all blends today to around 5%, high fours. And that's trending favorably. So we feel quite pleased with where it's headed.

Speaker #7: Makes sense. Then maybe we can switch gears and talk transaction market a bit. What are you seeing in terms of the strength of the private market bid today?

Michael Stroyer: Makes sense. Maybe we could switch gears and talk transaction market a bit. What are you seeing in terms of the strength of the private market bid today? Have higher rates in recent months led to any sort of reset in pricing expectations or just general thinning of bidding tents from some of the more levered buyers?

Michael Stroyeck: Makes sense. Maybe we could switch gears and talk transaction market a bit. What are you seeing in terms of the strength of the private market bid today? Have higher rates in recent months led to any sort of reset in pricing expectations or just general thinning of bidding tents from some of the more levered buyers?

Speaker #7: Have higher rates in recent months led to any sort of reset in pricing expectations, or just general thinning of bidding trends from some of the more levered buyers?

Peter A. Scott: We do track it. We track it pretty closely, and we have not seen a big impact in, right now, cap rates with rates having backed up, but it's still obviously early days. We do like our strategy of doing single asset or very small portfolio deals with KKR. When we talk about the $200 million that's under contract right now or closed, that's spread over five different transactions. We feel like if there is a backing up of cap rates at all, we'll be able to take advantage of that in the future. To date, we haven't seen a backing up. We're an unlevered buyer within that vehicle, which I think positions us quite well. I would just say that there's not a lot of other REITs that are actually showing up when assets are on the market today.

Pete Scott: We do track it. We track it pretty closely, and we have not seen a big impact in, right now, cap rates with rates having backed up, but it's still obviously early days. We do like our strategy of doing single asset or very small portfolio deals with KKR. When we talk about the $200 million that's under contract right now or closed, that's spread over five different transactions. We feel like if there is a backing up of cap rates at all, we'll be able to take advantage of that in the future. To date, we haven't seen a backing up. We're an unlevered buyer within that vehicle, which I think positions us quite well. I would just say that there's not a lot of other REITs that are actually showing up when assets are on the market today.

Speaker #2: We do track it. We track it pretty closely. And we have not seen a big impact in right now cap rates with rates having backed up.

Speaker #2: But it's still obviously early days. We do like our strategy of doing single asset or very small portfolio deals with KKR. I mean, when we talk about the 200 million, that's under contract right now or closed.

Speaker #2: That's spread over five different transactions. So we feel like if there is a backing up of cap rates, it all will be able to take advantage of that in the future.

Speaker #2: But to date, we haven't seen a backing up. We're an unlevered buyer within that vehicle, which I think positions us quite well. And I would just say that there's not a lot of other REITs that are actually showing up when assets are on the market today.

Speaker #2: So I think we have a little bit of a competitive advantage from that perspective. But obviously, there's a big private market bid. Typically, though, those buyers—institutional capital—need a partner to oversee those assets.

Peter A. Scott: I think we have a little bit of a competitive advantage from that perspective. Obviously there's a big private market bid, but typically those buyers, institutional capital needs a partner to oversee those assets. Like I said, I think we're pretty well-positioned. Again, we're going to be very disciplined. I'm going to keep using the D word on how we think about this. We're going to manage our balance sheet effectively. We're going to continue to allocate capital to redevelopments. We'll continue to look at acquisitions to the extent that we feel like it's augmenting our earnings growth.

Pete Scott: I think we have a little bit of a competitive advantage from that perspective. Obviously there's a big private market bid, but typically those buyers, institutional capital needs a partner to oversee those assets. Like I said, I think we're pretty well-positioned. Again, we're going to be very disciplined. I'm going to keep using the D word on how we think about this. We're going to manage our balance sheet effectively. We're going to continue to allocate capital to redevelopments. We'll continue to look at acquisitions to the extent that we feel like it's augmenting our earnings growth.

Speaker #2: So, like I said, I think we're pretty well positioned. But again, we're going to be very disciplined—I'm going to keep using the "D" word—on how we think about this.

Speaker #2: We're going to manage our balance sheet effectively. We're going to continue to allocate capital to redevelopments, and we'll continue to look at acquisitions to the extent that we feel like it's augmenting our earnings growth.

Speaker #7: Understood. Thanks for the time.

Michael Stroyer: Understood. Thanks for the time.

Michael Stroyeck: Understood. Thanks for the time.

Speaker #3: Your next question comes from the line of Dave Rogers, with Raymond James. Dave, please go ahead.

Operator 3: Your next question comes from the line of David Rodgers with Raymond James. Dave, please go ahead.

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

Speaker #8: Yeah. Good morning, everybody. Hey, Pete. You talked about, in your opening comments, just the strength of the lease IRRs that you've improved. And obviously, the spreads are part of that.

David Rodgers: Good morning, everybody. Pete, you talked about in your opening comments, just the strength of the lease IRRs that you've improved, and obviously the spreads are part of that. Concessions must be down, maybe dive a little bit more into that, of how much of that, obviously you guys have done a good job, how much of that is also just the market improving on the leasing front? Give us a little more color on kind of those IRRs and what you've done.

Speaker #8: Concessions must be down. But maybe dive a little bit more into that of how much of that obviously, you guys have done a good job, but how much of that has also just the market improving on the leasing front.

Speaker #8: But give us a little more color on those IRRs and what you've done.

Speaker #2: Yeah. Well, I think it's a couple of things. I think, obviously, fundamentals have firmed up, Dave, and that's certainly been helping. I will also point out retention.

Peter A. Scott: Well, I think it's a couple things. I think obviously fundamentals have firmed up, Dave, that's certainly been helping. I will also point out retention. Retention has increased pretty significantly. That's a function of, I think, better service we're providing to our tenants, combined with lack of new supply. On renewal lease deals, the amount of capital required is a fraction of what's required on a new lease deal. That's certainly helping us as well. When we talk about the pillars of growth, retention is one that we certainly put in there. I know cash leasing spreads tends to get everyone a little bit more excited, we look at all the different pillars, including retention, that certainly has helped.

Pete Scott: Well, I think it's a couple things. I think obviously fundamentals have firmed up, Dave, that's certainly been helping. I will also point out retention. Retention has increased pretty significantly. That's a function of, I think, better service we're providing to our tenants, combined with lack of new supply. On renewal lease deals, the amount of capital required is a fraction of what's required on a new lease deal. That's certainly helping us as well. When we talk about the pillars of growth, retention is one that we certainly put in there. I know cash leasing spreads tends to get everyone a little bit more excited, we look at all the different pillars, including retention, that certainly has helped.

Speaker #2: I mean, retention has increased, and increased pretty significantly. And that's a function of, I think, better service we're providing to our tenants, combined with the lack of new supply.

Speaker #2: And on renewal lease deals, the amount of capital required is a fraction of what's required on a new lease deal. So that's certainly helping us as well.

Speaker #2: And when we talk about the pillars of growth, retention is one that we certainly put in there. I know cash leasing spreads tend to get everyone a little bit more excited.

Speaker #2: But we look at all of the different pillars, including retention, and that certainly has helped. So I think it's part fundamentals and then just part better retention.

Peter A. Scott: I think it's part fundamentals just part better retention, limiting the amount of capital that has to go into any kind of lease deal we do.

Pete Scott: I think it's part fundamentals just part better retention, limiting the amount of capital that has to go into any kind of lease deal we do.

Speaker #2: Limiting the amount of capital that has to go into any kind of lease deal we do.

Speaker #8: Thanks for that.

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

Speaker #7: And then maybe a follow-up on leasing as well. I think, Rob, it was mentioned the 3 million square feet in the leasing pipeline. If I heard that right, maybe talk about under the new HR, what that looks like in terms of how much of that you think you close over time.

Speaker #7: I know you have about a year worth of history to kind of determine that. But what does that look like, I guess, over the last year?

Speaker #7: How does that compare historically? So, execution rate. And, I guess, where do you guys see that going overall?

Speaker #2: Yeah. This is Rob. Yeah. The pipeline is strong right now. A little over 3 million square feet. About half of that is health system activity.

Rob E. Hull: It is Rob. The pipeline is strong right now. A little over 3 million square feet. About half of that is health system activity. We've seen an uptick there. As Pete mentioned, we've been improving our health system relationships and the dialogue there with those systems. We've seen a good bit of that activity over the past couple of quarters. We did about a million and a half square feet of leasing this quarter. That's a little down from last quarter, I will say, and I think we mentioned this last quarter, 2 million square feet was a big number for us. Inside of that was a number of deals with these health systems that we have been working on for some time, and we dragged them across the line.

Rob Hull: It is Rob. The pipeline is strong right now. A little over 3 million square feet. About half of that is health system activity. We've seen an uptick there. As Pete mentioned, we've been improving our health system relationships and the dialogue there with those systems. We've seen a good bit of that activity over the past couple of quarters. We did about a million and a half square feet of leasing this quarter. That's a little down from last quarter, I will say, and I think we mentioned this last quarter, 2 million square feet was a big number for us. Inside of that was a number of deals with these health systems that we have been working on for some time, and we dragged them across the line.

Speaker #2: We've seen an uptick there. As Pete mentioned, we've got a number of been improving our health system relationships and the dialogue there with those systems.

Speaker #2: We've seen a good bit of that activity over the past couple of quarters. We did about 1.5 million square feet of leasing this quarter.

Speaker #2: That's a little down from last quarter. But I will say, and I think we mentioned this last quarter, 2 million square feet was a big number for us.

Speaker #2: And inside of that was a number of deals with these health systems that we have been working on for some time, and we dragged them across the line.

Speaker #2: So the 3 million square feet is in the pipeline is strong. And I think that kind of in that million and a half range that we've been executing, it's probably a good pace to think about as we go forward.

Rob E. Hull: The 3 million square feet in the pipeline is strong, and I think that kind of in that million and a half range that we've been executing, it's probably a good pace to think about as we go forward. That's a combination of renewals and new leasing. I'm comfortable with that, and I think as we just talked about, the demand out there for outpatient medical is very strong and getting, in my mind, getting stronger. As we see the continued push from inpatient to the outpatient facilities by these health systems doing more procedures in the outpatient setting, and it having higher margins for these systems. I think we're just going to continue to see that happen.

Rob Hull: The 3 million square feet in the pipeline is strong, and I think that kind of in that million and a half range that we've been executing, it's probably a good pace to think about as we go forward. That's a combination of renewals and new leasing. I'm comfortable with that, and I think as we just talked about, the demand out there for outpatient medical is very strong and getting, in my mind, getting stronger. As we see the continued push from inpatient to the outpatient facilities by these health systems doing more procedures in the outpatient setting, and it having higher margins for these systems. I think we're just going to continue to see that happen.

Speaker #2: And that's a combination of renewals and new leasing, so I'm comfortable with that. And I think, as we just talked about, the demand out there for outpatient medical is very strong and, in my mind, getting stronger as we see the continued push from inpatient to outpatient facilities by these health systems, doing more procedures in the outpatient setting.

Speaker #2: And it being more about having higher margins for these systems. So I think we're just going to continue to see that happen.

Speaker #7: Great. Thank you.

David Rodgers: Great. Thank you.

Speaker #3: Your next question comes from the line of Austen Werschmidt with KeyBank Capital Markets. Austen, please go ahead.

Operator 3: Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin, please go ahead.

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

Speaker #5: Thanks. Good morning, everyone. On the $3 million of NOI upside at the Ascension campus in Nashville you highlighted earlier, I'm just wondering, is that part of the $20 million of upside within the lease-up of the unstabilized pool?

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

Speaker #5: And are there other assets or sort of relationships with chunkier upside opportunities that you're evaluating in the near term that could really help close that gap, going from $75 million up to the $95 million stabilized number that you flagged in the presentation?

Speaker #2: Yeah. Hey, Austen, it's Dan. Good morning. I'll grab that one. Short answer on the Ascension campus is that's when you think about that 20 million dollars, that's not in there.

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

Speaker #2: And I think as we continue to look through the portfolio, and as we've talked about, there could be incremental opportunities versus the $25 million or so of assets we already have in redev.

Speaker #2: We look for incremental opportunities across all 560-plus properties in our portfolio all the time. These things can change as well, as you have different demand drivers and improving demand drivers in our market.

Speaker #2: So it's a great relationship with Ascension. They're a fantastic partner. So we're glad to have that coming. And we'll look to always continue to find more upsides in the portfolio.

Speaker #5: And then, Pete, as you move into the phase of scale in the portfolio through the disciplined capital allocation, you spoke to you mentioned you're nearing a peak on redevelopment.

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

Speaker #5: How close are you to evaluating more wholly-owned opportunities through either development or just straight wholly-owned acquisitions?

Speaker #2: Yeah, that's actually a really good question. I think, just stepping back for a second, when you look at our three-year plan, we did not assume really any capital allocation beyond redevelopments, right?

Peter A. Scott: Yeah. That is actually a really good question. I think just stepping back for a second, when you look at our 3-year plan, we did not assume really any capital allocation beyond redevelopments, right? The fact that a year since we put it out, we are seeing some progress on some prudent capital allocation on the JV acquisition side. I would say that we are pleased that we have gotten here a lot faster than maybe we had anticipated, which is great, right? We are going to be extremely mindful of accretion as we put capital out the door, and I think putting capital out the door in JVs today, creates the most amount of accretion for us. Therefore, we are going to prioritize joint ventures.

Pete Scott: Yeah. That is actually a really good question. I think just stepping back for a second, when you look at our 3-year plan, we did not assume really any capital allocation beyond redevelopments, right? The fact that a year since we put it out, we are seeing some progress on some prudent capital allocation on the JV acquisition side. I would say that we are pleased that we have gotten here a lot faster than maybe we had anticipated, which is great, right? We are going to be extremely mindful of accretion as we put capital out the door, and I think putting capital out the door in JVs today, creates the most amount of accretion for us. Therefore, we are going to prioritize joint ventures.

Speaker #2: So the fact that a year since we put it out, we're seeing some progress on some prudent capital allocation on the JV acquisition side, I'd say that we're pleased that we've gotten here a lot faster than maybe we had anticipated, which is great, right?

Speaker #2: But we're going to be extremely mindful of accretion as we put capital out the door. And I think putting capital out the door in JVs today creates the most amount of accretion for us.

Speaker #2: Therefore, we're going to prioritize joint ventures that's not to say we couldn't consider something on balance sheet in the future. But again, it's all just going to come down to the types of assets we want to buy and what's the earnings benefit from it.

Peter A. Scott: That's not to say we couldn't consider something on balance sheet in the future, but again, it's all just going to come down to the types of assets we want to buy and what's the earnings benefit from it. That's just the lens in which we'll look at everything.

Pete Scott: That's not to say we couldn't consider something on balance sheet in the future, but again, it's all just going to come down to the types of assets we want to buy and what's the earnings benefit from it. That's just the lens in which we'll look at everything.

Speaker #2: So that's just the lens in which we'll look at everything.

Speaker #5: Great. Thanks for the time.

Austin Wurschmidt: Great. Thanks for the time.

Speaker #2: Thanks, Austen.

Peter A. Scott: Thanks, Austin.

Pete Scott: Thanks, Austin.

Speaker #3: Your next question comes from the line of Seth Burgie, with Citi. Go ahead, Seth.

Operator 3: Your next question comes from the line of Seth Bergey with Citigroup. Go ahead, Seth.

Operator: Your next question comes from the line of Seth Bergey with Citigroup. Go ahead, Seth.

Speaker #4: Thanks, Seth. Thanks. It's Nick Joseph here with Seth. Maybe just on internal growth. Your trending ahead on four-year cash seems to NOI guidance. So just wanted you to touch on the back half assumptions and kind of what is going into the implied deceleration there.

Nick Joseph: Thanks. It's Nick Joseph here with Seth. Maybe just on internal growth, you're trending ahead on full-year cash since internal guidance. Just wanted you to touch on the H2 assumptions and kind of what is going into the implied deceleration there.

Speaker #2: Yeah. Maybe Nick, let me start, and then I'm going to have Dan just touch on 2026 generally speaking. By the way, nice to have you on the call.

Peter A. Scott: Yeah. Maybe Nick, let me start, and then I'm going to have Dan just touch on 2026, generally speaking. By the way, nice to have you on the call. Always good to hear your voice. As we think about same store NOI growth and earnings growth, and I've said this a couple of times in the past, we are very aware that earnings growth and valuation multiple are highly correlated. In fact, I'm sure the correlations are at the highest they've ever been in the real estate sector. You can rest assured that we are going to focus on earnings growth, and pull on every lever to achieve that. Last quarter, I did spend a lot of time going through the pillars of growth and how those are shaping up in outpatient medical.

Pete Scott: Yeah. Maybe Nick, let me start, and then I'm going to have Dan just touch on 2026, generally speaking. By the way, nice to have you on the call. Always good to hear your voice. As we think about same store NOI growth and earnings growth, and I've said this a couple of times in the past, we are very aware that earnings growth and valuation multiple are highly correlated. In fact, I'm sure the correlations are at the highest they've ever been in the real estate sector. You can rest assured that we are going to focus on earnings growth, and pull on every lever to achieve that. Last quarter, I did spend a lot of time going through the pillars of growth and how those are shaping up in outpatient medical.

Speaker #2: Always good to hear your voice. I just as we think about same-store NOI growth and earnings growth, and I've said this a couple of times, in the past, I mean, we are very aware that earnings growth and valuation multiple are highly correlated.

Speaker #2: In fact, I'm sure the correlations are at the highest they've ever been in the real estate sector. So you can rest assured that we are going to focus on earnings growth and pull on every lever to achieve that.

Speaker #2: And last quarter, I did spend a lot of time going through the pillars of growth and how those are shaping up in outpatient medical.

Speaker #2: So I think, as we look at what it's going to take to be successful in the healthcare REIT space and to get a better valuation multiple, I mean, I think our same-store growth probably has to be in the 4% area on a stabilized basis.

Peter A. Scott: I think as we look at what do we think it's going to take to be successful in the healthcare REIT space and to get a better valuation multiple, I think our same store growth probably has to be in the 4% area on a stabilized basis. We're doing better than that today because of some occupancy and absorption. Obviously when you think about earnings growth, you'd like to see mid-single digit earnings growth on a stabilized basis as well. When you look at where we trade today, I don't believe we're getting credit for our ability to achieve those numbers that I just laid out. That's the upside opportunity, and that's what gets us excited as a team here every day.

Pete Scott: I think as we look at what do we think it's going to take to be successful in the healthcare REIT space and to get a better valuation multiple, I think our same store growth probably has to be in the 4% area on a stabilized basis. We're doing better than that today because of some occupancy and absorption. Obviously when you think about earnings growth, you'd like to see mid-single digit earnings growth on a stabilized basis as well. When you look at where we trade today, I don't believe we're getting credit for our ability to achieve those numbers that I just laid out. That's the upside opportunity, and that's what gets us excited as a team here every day.

Speaker #2: We're doing better than that today because of some occupancy and absorption, and then, obviously, when you think about earnings growth, you'd like to see mid-single-digit earnings growth on a stabilized basis as well.

Speaker #2: And when you look at where we trade today, I don't believe we're getting credit for our ability to achieve those numbers that I just laid out.

Speaker #2: But that's the upside opportunity. And that's what gets us excited as a team here. Every day. And we're pleased that it's improved. Since we put out our strategic plan and since I was able to join the company, a year plus ago, but there's still obviously work to do.

Peter A. Scott: We're pleased that it's improved since we put out our strategic plan and since I was able to join the company a year plus ago. There's still obviously work to do. Dan, why don't you talk about 2026 in general and the H2 of the year?

Pete Scott: We're pleased that it's improved since we put out our strategic plan and since I was able to join the company a year plus ago. There's still obviously work to do. Dan, why don't you talk about 2026 in general and the H2 of the year?

Speaker #2: Dan, why don't you talk about 2026 in general on the back half of the year?

Speaker #3: And hey, Nick, again, thanks for the question. I think Pete thematically hit on it spot on. I mean, numerically, right, we've increased our guidance range.

Dan Gabbay: Yeah. Hey, Nick. Again, thanks for the question. I think Pete thematically is on it spot on. Numerically, we've increased our guidance range. We increased it more at the low end of the range by 50 basis points. We took up the top end of the range of 25 basis points on the same store NOI growth for the year. I think that speaks to our performance year to date. That speaks to our conviction in the business and the changes we've made, I think, about driving results every single day. Obviously, we're 7 months into the year, right? If we continue to perform, I think we feel very good through the guidance numbers that we've provided. As Pete said, we're always trying to drive towards outperforming and being at the top end of our guidance range.

Speaker #3: We've increased it more at the low end of the range by 50 basis points. We took up the top range end of the range of 25 basis points on the same-store NOI growth for the year.

Speaker #3: And I think that speaks to our performance year to date that speaks to our conviction in the business and the changes we've made. I think about driving results every single day.

Speaker #3: Obviously, we're seven months into the year, right? So if we continue to perform, I think we feel very good through the guidance numbers that we've provided.

Speaker #3: And as Pete said, we're always trying to drive towards outperforming and being at the top end of our guidance range. But there's still five more months of the year to go.

Dan Gabbay: There's still 5 more months of the year to go. I think that's sort of things that we think about when we think about our same store NOI guidance range. As it relates to AFFO translation, we've obviously anniversaried through a lot of dispositions from last year that created drag on year-over-year AFFO per share growth. We successfully addressed the August 2026 maturity of the bond with our highly successful exchangeable note offering, which removed some of the drag that we had there. Everything we're doing every single day is to drive to that core organic earnings growth in our business that's mid-single digit. We continue to put through those efforts. It's really about doing that. It's on our leasing side. We're happy with the JV acquisitions with KKR, we're looking to continue to deliver every day.

Speaker #3: So I think that’s the sort of thing that we think about when we consider our same-store NOI guidance range. And, as it relates to FFO translation, we’ve obviously anniversaried through a lot of dispositions from last year that created a drag on year-over-year FFO per share growth.

Speaker #3: We successfully addressed the August 2026 maturity of the bond with our highly successful exchangeable note offering, which removed some of the drag that we had there.

Speaker #3: So everything we're doing every single day is to drive to that core organic earnings growth in our business that's mid-single-digit. And we continue to put through those efforts.

Speaker #3: So, it's really about doing that. It's on our leasing side. We're happy with the JV acquisitions with KKR, and we're looking to continue to deliver every day.

Speaker #3: But it's a simple business in those respects. We're going to lease, we're going to have high retention, we're going to push those cash leasing spreads, and continue to keep pushing on that occupancy and the same-store NOI growth.

Dan Gabbay: It's a simple business in those respects. We're going to lease, we're going to have high retention. We're going to push those cash leasing spreads and continue to keep pushing on that occupancy and the same store NOI growth.

Speaker #4: Makes sense. Thank you.

Nick Joseph: Makes sense. Thank you.

Speaker #3: Thanks, Nick. Your next question comes from the line of Omoto, Okusanya. With Deutsche Bank. Omoto, please go ahead.

Peter A. Scott: Thanks, Nick.

Pete Scott: Thanks, Nick.

Operator 3: Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo, please go ahead.

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

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

Speaker #4: Yes. Good morning, everyone. First of all, I just wanted to focus on the KKR transactions and trying to understand a little bit more the seven and a half cap rate on those deals.

Speaker #4: Again, you guys are selling assets at sub-5. So just kind of curious about the pricing there and if there was anything unique. Is it off-market?

Speaker #4: It's just seems like really, really attractive pricing and opportunities to do more like that.

Speaker #2: Yeah. So Tayo, let me just start with that. I mean, when you think about the dispositions, and we do characterize the type of asset—operating or land—there is some land within our dispositions.

Peter A. Scott: Yeah. Tayo, let me just start with that. When you think about the dispositions and we do characterize the type of asset operating or land. There is some land within our dispositions, so that certainly benefits the cap rates. That said, I'd probably focus on the Kennestone Cancer Center and the $600 a foot and kind of mid-fives cap rate that we quoted on that. That is the type of asset sale we could consider doing if we wanted to fund acquisition opportunities with asset sales. We've certainly got a pipeline of things we're looking at. We've got a pipeline of dispositions that'll close through the balance of the year. We appreciate that if we can create some type of arbitrage, it makes sense, and we'll look at that.

Pete Scott: Yeah. Tayo, let me just start with that. When you think about the dispositions and we do characterize the type of asset operating or land. There is some land within our dispositions, so that certainly benefits the cap rates. That said, I'd probably focus on the Kennestone Cancer Center and the $600 a foot and kind of mid-fives cap rate that we quoted on that. That is the type of asset sale we could consider doing if we wanted to fund acquisition opportunities with asset sales. We've certainly got a pipeline of things we're looking at. We've got a pipeline of dispositions that'll close through the balance of the year. We appreciate that if we can create some type of arbitrage, it makes sense, and we'll look at that.

Speaker #2: So that certainly benefits the cap rates. That said, I'd probably focus on the Kennestone Cancer Center and the $600 a foot, and kind of mid-fives.

Speaker #2: The cap rate that we quoted on that—I mean, that is the type of asset sale we could consider doing if we wanted to fund acquisition opportunities with asset sales.

Speaker #2: And we've certainly got a pipeline of things we're looking at, and we've got a pipeline of dispositions that'll close through the balance of the year.

Speaker #2: So we appreciate that if we can create some type of arbitrage, it makes sense, and we'll look at that. As to the yields on the acquisitions—and maybe I'll just spend a second on the $200 million—as I said, that's six assets, but it was five different transactions.

Peter A. Scott: As to the yields on the acquisitions, maybe I'll just spend a second on the $200 million. As I said, it's six assets, but it was five different transactions. The going-in cash cap rate is in the low sixes, but the yield to Healthcare Realty, which is what's going to drive our earnings, is actually right around that 7.5%, that's on a cash basis as well. We get obviously asset management fees on the capital within the venture, which helps boost those returns for us. We think that's the right way to quote it. The occupancy on those assets is in the low 90s. Weighted average lease term is seven years, there's actually a pretty strong mark to market in the markets that we mentioned. Greenwich, Connecticut is a very strong market. Charleston, South Carolina, Seattle, Washington.

Pete Scott: As to the yields on the acquisitions, maybe I'll just spend a second on the $200 million. As I said, it's six assets, but it was five different transactions. The going-in cash cap rate is in the low sixes, but the yield to Healthcare Realty, which is what's going to drive our earnings, is actually right around that 7.5%, that's on a cash basis as well. We get obviously asset management fees on the capital within the venture, which helps boost those returns for us. We think that's the right way to quote it. The occupancy on those assets is in the low 90s. Weighted average lease term is seven years, there's actually a pretty strong mark to market in the markets that we mentioned. Greenwich, Connecticut is a very strong market. Charleston, South Carolina, Seattle, Washington.

Speaker #2: So the going-in cash cap rate is in the low sixes, but the yield to Healthcare Realty, which is what's going to drive our earnings, is actually right around that 7.5%.

Speaker #2: And that's on a cash basis as well. We obviously get asset management fees on the capital within the venture, which helps boost those returns for us.

Speaker #2: We think that's the right way to quote it. The occupancy on those assets is in the low 90s, and the weighted average lease term is seven years.

Speaker #2: And there's actually a pretty strong mark-to-market in the markets that we mentioned. I mean, Greenwich, Connecticut is a very strong market—Charleston, South Carolina; Seattle, Washington.

Speaker #2: So even though the going-in cap rates or the going-in yields are what they are, we think they certainly have upside to them over the hold period, just given the mark-to-market opportunity.

Peter A. Scott: Even though the going-in cap rate or the going-in yields are what they are, we think they certainly have upside to them over the hold periods, just given the mark-to-market opportunity. I would expect to do deals similar to this going forward if we are fortunate to transact. I want to just spend a second on the mid-seven yield to us and what that means from a going-in cap rate exclusive of any asset management fee.

Pete Scott: Even though the going-in cap rate or the going-in yields are what they are, we think they certainly have upside to them over the hold periods, just given the mark-to-market opportunity. I would expect to do deals similar to this going forward if we are fortunate to transact. I want to just spend a second on the mid-seven yield to us and what that means from a going-in cap rate exclusive of any asset management fee.

Speaker #2: So I would expect to do deals similar to this going forward, if we are fortunate to transact. But I want to just spend a second on the mid-7s deal to us and what that means from a going-in cap rate.

Speaker #2: Exclusive of any asset management fees.

Speaker #4: That's helpful. And then on the JV side, any update on the new Veeam JV and kind of what's happening on that end, and if we could see additional activity there apart from the KKR JV?

Omotayo Okusanya: That's helpful. On the JV side, any update on the Nuveen JV and kind of what's happening on that end? If we could see additional activity there apart from the KKR JV.

Speaker #2: Yeah. Look, we talk to Naveen quite often. I think those are more just discrete JVs, and they're not growth vehicles like what the KKR vehicle is.

Peter A. Scott: Yeah. Look, we talk to Nuveen quite often. I think those are more just discreet JVs and they're not growth vehicles like what the KKR vehicle is. I'd say we've got great dialogue with Nuveen not much else to report on those JVs today.

Pete Scott: Yeah. Look, we talk to Nuveen quite often. I think those are more just discreet JVs and they're not growth vehicles like what the KKR vehicle is. I'd say we've got great dialogue with Nuveen not much else to report on those JVs today.

Speaker #2: But I'd say we've got great dialogue with Naveen and not much else to report on those JVs. Today.

Speaker #4: Gotcha. And if I could squeeze one more in—kind of new improvements in leasing costs. Again, that's coming down pretty nicely. It's still about 22% of net rents.

Omotayo Okusanya: Gotcha. If I could squeeze one more in.

Peter A. Scott: Sure.

Pete Scott: Sure.

Omotayo Okusanya: Tenant improvements and leasing costs. Again, that's coming down pretty nicely. It's still about 22% of net rents. Just kind of curious again, where you see that going forward as you're kind of negotiating with your tenants, whether, again, you're having opportunities to kind of lower that just because, again, demand's getting better, there's less supply. Just whether industry fundamentals continue to enable you to kind of, one, drive that lower. Then two, also enable you to possibly also drive the annual rent escalators higher.

Speaker #4: Just kind of curious again, where you see that going forward as you're kind of negotiating with your tenants whether again, you're having opportunities to kind of lower that just because, again, demand's getting better.

Speaker #4: There's less supply, which the industry fundamentals continue to enable you to kind of run, drive that lower, and then to also enable you to possibly also drive the annual rent escalator higher.

Speaker #3: Yeah. Hey, Tayo, it's Dan. Great question. As you noted, in the software trend, these numbers are coming down year over year. We've always talked about these numbers remaining in the, for the renewal leases, it's consistently seen so far this year in sort of mid-double digits—in the teens.

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

Speaker #3: As Pete's always talked about, right, renewal leases are less expensive from a capital perspective than new leases. Our new lease numbers have come down significantly, in terms of the percent of annual rent that we're providing in terms of TIs and LCs.

Speaker #3: So we're driving all those results. That's why we have better IRRs, better payback periods in all of our leases. And as you have higher retention and a higher occupied portfolio, right, you just have more of a skew towards renewal versus, I think, new definitionally.

Speaker #3: And that's advantageous as we look to drive those numbers down. So that's a continued focus for us, and we're trying to be efficient with every dollar of capital in the company.

Dan Gabbay: That's a continued focus for us and trying to be efficient with every dollar of capital in the company.

Speaker #4: Great. Good execution here from you guys and the team. Well done.

Omotayo Okusanya: Great. Good execution here from you guys and the team. Well done.

Speaker #2: Thanks, Tayo.

Peter A. Scott: Thanks, Tayo.

Pete Scott: Thanks, Tayo.

Speaker #3: Your next question comes from the line of Michael Goldsmith with UBS. Michael, go ahead.

Operator 3: Your next question comes from the line of Michael Goldsmith with UBS. Michael, go ahead.

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

Speaker #5: Good morning. Thanks a lot for taking my questions. Seems to run a lot of growth was in the first quarter was 6.9%. In the second quarter, 5.1%.

Michael Goldsmith: Good morning. Thanks a lot for taking my questions. It seems your NOI growth in Q1 was 6.9%, in Q2, 5.1%. It is well above the historical MOB norm. What is different today, or is this just the strategic plan playing out? I know you have discussed four drivers of the business in the past, maybe you can touch on whether any of those have changed that is driving these results.

Speaker #5: That's well above the historical MOB norm. So what's different today or is this just the strategic plan playing out? And I know you've discussed four drivers of the business in the past.

Speaker #5: Maybe you can touch on whether any of those have changed that's driving these results.

Speaker #2: Yeah. Hey Michael, it's Pete here. I mean, look, we certainly are seeing a benefit from absorption in the first and second quarters. And you can just look back over the last however many quarters.

Peter A. Scott: Hey, Michael, it's Pete here. Look, we certainly are seeing a benefit from absorption in Q1 and Q2, you can just look back over the last however many quarters. As we've had a lot of leasing success, that absorption benefit is going to fade a little bit. We are seeing, on the other side of the spectrum, cash leasing spreads firming up. We still feel like we can generate much better growth going forward than we have historically. As I said last quarter, I'll continue to repeat, the 2% to 3% kind of steady eddy descriptions of medical office, that was all well and good in a low interest rate environment. That doesn't work in a higher interest rate environment. We have to do better, we will do better, and we are doing better.

Pete Scott: Hey, Michael, it's Pete here. Look, we certainly are seeing a benefit from absorption in Q1 and Q2, you can just look back over the last however many quarters. As we've had a lot of leasing success, that absorption benefit is going to fade a little bit. We are seeing, on the other side of the spectrum, cash leasing spreads firming up. We still feel like we can generate much better growth going forward than we have historically. As I said last quarter, I'll continue to repeat, the 2% to 3% kind of steady eddy descriptions of medical office, that was all well and good in a low interest rate environment. That doesn't work in a higher interest rate environment. We have to do better, we will do better, and we are doing better.

Speaker #2: And as we've had a lot of leasing success, that absorption benefit is going to fade a little bit. But we are seeing, on the other side of the spectrum, cash leasing spreads firming up.

Speaker #2: And so we still feel like we can generate much better growth going forward than we have historically. And as I said last quarter, and I'll continue to repeat, the 2% to 3% kind of "steady eddy" description of medical office—like that was all well and good in a low interest rate environment.

Speaker #2: But that doesn't work in a higher interest rate environment. So we have to do better. And we will do better. And we are doing better.

Speaker #2: So, we’ll push on all of those levers, but we have gotten the benefit in the first and second quarters of some pretty significant year-over-year occupancy gains, which will stabilize over time.

Peter A. Scott: We'll push on all of those levers, we have gotten the benefit in Q1 and Q2 of some pretty significant year-over-year occupancy gains, which that will stabilize over time. We have a mostly multi-tenant portfolio. We're getting close to 93% leased in our same-store pool. You're going to have some frictional vacancy. It just happens. You're not going to retain or renew every single tenant for a variety of reasons. That gives us an opportunity to push on cash leasing spread. We feel like we're in a pretty good spot. I didn't answer Tayo's question on escalators. I think 3% escalators today has become kind of the norm. That's definitely improved. That's another lever. We certainly, if we can push, we will continue to push.

Pete Scott: We'll push on all of those levers, we have gotten the benefit in Q1 and Q2 of some pretty significant year-over-year occupancy gains, which that will stabilize over time. We have a mostly multi-tenant portfolio. We're getting close to 93% leased in our same-store pool. You're going to have some frictional vacancy. It just happens. You're not going to retain or renew every single tenant for a variety of reasons. That gives us an opportunity to push on cash leasing spread. We feel like we're in a pretty good spot. I didn't answer Tayo's question on escalators. I think 3% escalators today has become kind of the norm. That's definitely improved. That's another lever. We certainly, if we can push, we will continue to push.

Speaker #2: We have a mostly multi-tenant portfolio. We're getting close to 93% leased in our same-store pool. You're going to have some frictional vacancy; it just happens.

Speaker #2: You're not going to retain or renew every single tenant for a variety of reasons, but then that gives us an opportunity to push on cash leasing spread.

Speaker #2: So we feel like we're in a pretty good spot. And then I didn't answer Tayo's question on escalators. I think 3% escalators today has become kind of the norm.

Speaker #2: That's definitely improved. That's another lever, and we certainly, if we can push, we will continue to push. I think as rates rise, that's certainly an easy thing to push on our tenants as well, to point to why we justify better than a 3% escalator.

Peter A. Scott: I think as rates rise, that's certainly an easy thing to push on our tenants as well, to point to why we justify better than 3% escalator. I'd say we've been pleased with getting 3% up to this point.

Pete Scott: I think as rates rise, that's certainly an easy thing to push on our tenants as well, to point to why we justify better than 3% escalator. I'd say we've been pleased with getting 3% up to this point.

Speaker #2: But I'd say we've been pleased with getting 3% up to this point.

Speaker #4: Yeah, thanks for that. Your stock has rerated meaningfully from the levels where you repurchased shares earlier in the year. So how does today’s expected return from share purchases compare with the 7% plus yields you’re achieving through JV acquisitions and the 9 to 12% redevelopment yields you’re underwriting? Has the relative attractiveness of buybacks changed?

Michael Goldsmith: Thanks for that. Your stock has re-rated meaningfully from the levels where you repurchased shares earlier in the year. How does today's expected return from share repurchases compare with the 7%+ yields you're achieving through JV acquisitions, and the 9% to 12% redevelopment yields you're underwriting as a relative attractiveness of buybacks changed?

Speaker #2: Yeah. I mean, the short answer is yes, it has changed and we're going to look at what's the buyback math relative to recycling that capital into redevelopments or capital allocation.

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

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

Speaker #2: But buybacks are always a lever that we can turn on. They provide immediate accretion if we decide to pursue them. It's not a program that we just turn on and let a financial institution manage for us over a period of time.

Speaker #2: I mean, we're active. We are active traders on it. When we do turn it on, we will get more aggressive on days where we feel like the opportunity presents itself.

Speaker #2: But at the moment, I think buybacks don't screen as favorably, but that doesn't mean that we're not rooting for this. Obviously, if there's some dislocation, we can turn it back on immediately, and it provides immediate accretion.

Michael Goldsmith: Thanks. If I could squeeze one more in. Same-store occupancy is now at 92.7%. Total portfolio occupancy continues to move higher. Has your view of normalized occupancy feeling changed given the continued lack of new supply, or do you still view 92%, 93% as the right long-term target?

Speaker #4: Thanks. If I can squeeze one more in, it seems our occupancy is now at 92.7%. Total portfolio occupancy continues to move higher. Has your view of the normalized occupancy ceiling changed, given the continued lack of new supply?

Speaker #4: Would you still view 92% or 93% as the right long-term target?

Speaker #2: Yeah, good question. I think there's certainly a bias for it to be increasing, which is a positive. I mean, when you look sector-wide, occupancy has been trending higher for, I think, 20 or 25 straight quarters, and sector-wide, you're probably at close to 93%.

Peter A. Scott: Yeah. Good question. I think there's certainly a bias for it to be increasing, which is a positive. When you look at sector-wide occupancy, it's been trending higher for, I think, 20 or 25 straight quarters. Sector wide, you're probably at close to 93%. We certainly should be able to do just as well as the overall sector. Can we do better than that? Perhaps. I think we feel like there's some additional absorption in the back H2 as well. It's trending a little bit higher, for sure.

Pete Scott: Yeah. Good question. I think there's certainly a bias for it to be increasing, which is a positive. When you look at sector-wide occupancy, it's been trending higher for, I think, 20 or 25 straight quarters. Sector wide, you're probably at close to 93%. We certainly should be able to do just as well as the overall sector. Can we do better than that? Perhaps. I think we feel like there's some additional absorption in the back H2 as well. It's trending a little bit higher, for sure.

Speaker #2: So, we certainly should be able to do just as well as the overall sector. And can we do better than that, perhaps? I think we feel like there's some additional absorption in the back half of the year as well.

Speaker #2: So, it's trending a little bit higher, for sure.

Speaker #4: Thank you very much. Good luck in the back half.

Michael Goldsmith: Thank you very much. Good luck in the back H2.

Speaker #2: Great. Thank you, Michael.

Peter A. Scott: Great. Thank you, Michael.

Pete Scott: Great. Thank you, Michael.

Speaker #3: Your next question comes from the line of Michael Gorman with BTIG. Michael, please go ahead.

Operator 3: Your next question comes from the line of Michael Gorman with BTIG. Michael, please go ahead.

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

Speaker #6: Yeah, thanks. Good morning. A lot of ground covered here. Just a quick one—Pete, as you look at the transaction markets, obviously you've got active dialogues with all of your health systems.

Michael Gorman: Yeah, thanks. Good morning. A lot of ground covered here. Just a quick one. Pete, as you look at the transaction markets, obviously you've got active dialogues with all of your health systems. You've got a great partner with KKR. Have there been any transactions or any of those relationships where wanting to control their real estate, they maybe don't want a joint venture that involves an institutional asset manager involved in owning their assets? Has that been a limitation at all when looking at the transactions markets where you have to do something on balance sheet rather than through the partnership if you wanted to participate?

Speaker #6: You've got a great partner with KKR. Have there been any transactions, or any of those relationships, where, wanting to control their real estate, they maybe don't want a joint venture that involves an institutional asset manager being involved in owning their assets?

Speaker #6: Has that been a limitation at all when looking at the transactions market, where you have to do something on balance sheet rather than through the partnership if you wanted to participate?

Speaker #2: Hey Michael, good question. To date, no. It’s kind of seamless to the tenant in the building. In fact, I don’t know that our tenants would be aware if it’s a wholly owned building or if it’s a joint venture building.

Peter A. Scott: Hey, Michael. Good question. To date, no. It's kind of seamless to the tenants in the building. In fact, I don't know that our tenants would be aware if it's a wholly owned building or if it's a joint venture building. We're the asset manager within the venture. We control leasing. We control property management. The Healthcare Realty brand and everything you would expect is within the building. I would tell you today that, no, we have not had any pushback on a wholly owned versus an institutional capital joint venture asset. I think that's probably pretty consistent. Where you could have some items to deal with is only on contributing assets into a joint venture whereby you trigger some ROFR rights for the health system, but that's not what we're talking about here. We're not talking about a defensive JV and a capital-raising exercise.

Pete Scott: Hey, Michael. Good question. To date, no. It's kind of seamless to the tenants in the building. In fact, I don't know that our tenants would be aware if it's a wholly owned building or if it's a joint venture building. We're the asset manager within the venture. We control leasing. We control property management. The Healthcare Realty brand and everything you would expect is within the building. I would tell you today that, no, we have not had any pushback on a wholly owned versus an institutional capital joint venture asset. I think that's probably pretty consistent. Where you could have some items to deal with is only on contributing assets into a joint venture whereby you trigger some ROFR rights for the health system, but that's not what we're talking about here. We're not talking about a defensive JV and a capital-raising exercise.

Speaker #2: We’re the asset manager within the venture. We control leasing. We control property management—the Healthcare Realty brand and everything you would expect within the building.

Speaker #2: So, I would tell you today that, no, we have not had any pushback on a wholly owned versus an institutional capital joint venture asset.

Speaker #2: And I think that's probably pretty consistent. Where you could have some items to deal with is only on contributing assets into a joint venture whereby you trigger some ROFR rights for the health system, but that's not what we're talking about here.

Speaker #2: We're not talking about a defensive JV and a capital-raising exercise.

Speaker #6: Okay, great. That's helpful. I'll leave it there. Thank you.

Michael Gorman: Okay, great. That's helpful. I'll leave it there. Thank you.

Speaker #2: Great. Thank you.

Peter A. Scott: Great. Thank you.

Pete Scott: Great. Thank you.

Speaker #3: There are no further questions at this time. I will now turn the call back to Peter Scott for closing remarks. Peter, go ahead.

Operator 3: There are no further questions at this time. I will now turn the call back to Peter Scott for closing remarks. Peter, go ahead.

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

Speaker #2: Great. Thank you. And thanks to everybody for joining us on this call. We look forward to continuing to communicate with you over the coming months.

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

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

Speaker #2: Everyone enjoy the rest of their summers. Talk soon. Thanks. Bye.

Speaker #3: This concludes today's call. Thank you for attending. You may now disconnect.

Operator 3: This concludes today's call. Thank you for attending. You may now disconnect.

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

Operator 1: This event has now concluded. Access the Healthcare Realty Trust Incorporated IR website for more information. This line will now disconnect.

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