Healthcare Trust of America Inc (HTA) Q4 2020 Earnings Call Transcript

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Healthcare Trust of America Inc (HTA)
Q4 2020 Earnings Call
Feb 23, 2021, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Healthcare Trust of America's Fourth Quarter and Full Year 2020 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to David Gershenson, CAO. Please go ahead, sir.

David Gershenson -- Chief Accounting Officer

Thank you and welcome to Healthcare Trust of America's fourth quarter and year-end 2020 earnings call. We filed our earnings release and our financial supplement yesterday after the close. These documents can be found on the Investor Relations section of our website or with the SEC. Please note this call is being webcast and will be available for replay for the next 90 days. We'll be happy to take your questions at the conclusion of our prepared remarks.

During the course of the call, we will make forward-looking statements. These forward-looking statements are based on the current beliefs of management and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although, we believe that our assumptions are reasonable, they are not guarantees of future performance. Therefore, our actual future results could materially differ from our current expectations. For a detailed description on potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website.

I will now turn the call over to Scott Peters, Chairman, and CEO of Healthcare Trust of America. Scott?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

Good morning, and thank you for joining us today for Healthcare Trust of America's year-end 2020 earnings conference call.

Joining me on the call today is Robert Milligan, our Chief Financial Officer. As we sit here today, it is hard to believe that it is almost one full year, since the COVID-19 pandemic took hold. While its impact has been devastating for many individuals and communities, it is encouraging to see the resiliency of our healthcare systems and providers, which are seeing patient volumes return to pre-pandemic levels, while continuing to treat patients. In addition, it is important to recognize the performance of our company and our team, which has worked through these challenging times, and managed to keep our buildings open and operational and our employees safe and our business moving forward.

Despite these challenges, I'm happy to report that HTA has continued to improve our enterprise value and deliver strong financial performance for shareholders in 2020. This is the hallmark of HTA's position as the leader in the medical office sector. In the third quarter, we generated record earnings for HTA and we have followed that up in the fourth quarter with a return to our customary growth and acquisition velocity. For the full year, we delivered record earnings of $1.71 per share of normalized FFO, up more than 4% from 2019 and in the middle of our guidance provided at the start of the year.

We raised our dividend for the seventh year in a row, a level of consistency and growth that is unparalleled within the MOB-focused REITs. We signed a record number of leases, 3.9 million square feet or more than 17% of our existing portfolio and did so at a record releasing spreads, up almost 5%. Tenant retention for the year was very strong, at 87%. We collected almost all of our rent, while still finding ways to work with our key healthcare relationships, as they navigated this pandemic.

We closed on $181 million of MOBs at an attractive year one yield of 6% and maintained our development progress at even higher yields. Finally, we have raised a significant amount of long-term capital that gives us a strong and conservative balance sheet with more than $1.4 billion of liquidity and no near-term debt maturities. As a result, HTA is in a very strong position heading into 2021 as outlined in our reinstated earnings guidance that we put out last night.

I'll now turn the call over to Robert, who will walk through our performance for the quarter and the year.

Robert A. Milligan -- Chief Financial Officer, Treasurer and Secretary

Thanks, Scott.

During the year, the medical office sector has demonstrated the reasons we believe it is one of the best areas of real estate in which to invest over the long term. Our tenants have strong need-based demand that has proven resilient and bouncing back up after the lows of March and April. During that period, we took a very forward-looking long-term view of our business and made a decision to proactively reach out to our leading healthcare tenants and work with them, if needed. This included deferring rent and executing early renewals, actions that had relatively minor near-term impacts, but positioned us as a partner of choice for the long term. Despite this flexibility, we still had very strong cash collections during the year and continued to sign leases at strong rental rates that reflect high levels of demand for space.

For HTA, our portfolio and company are second to none. Our portfolio is broad with $7.5 billion invested across more than 25 million square feet. We are also invested in a strong mix of property locations, on-campus, across the street from campus, and in core community locations. This best reflects the trends in healthcare that have been accelerated by COVID, mainly the move of care to locations that are closer to the patients, more convenient, and better able to accommodate increasing levels of care that is shifting to medical office buildings.

This investment philosophy is further supported by recent market reports from Revista, the only company reporting on actual market data within the sector, which demonstrated that core multi-tenanted off-campus MOBs have at least the same, if not better, performance in occupancy, rent growth and same-store performance over the last five years on campus MOBs. While this certainly does not diminish the value of the on-campus MOB, it does highlight the increasing value of the core critical outpatient MOBs that we have highlighted over time, and are becoming increasingly important to leading healthcare providers. A very positive sign for the sector, which increases the investable universe of high-quality assets.

Our portfolio is also diversified geographically, with no one market accounting for more than 10% of rent and no single tenant, accounting for more than 4.2%. Our tenants consist primarily of leading healthcare providers in our markets, with almost 75% of our rent coming from health systems, universities, and large national healthcare providers and 60% of our rent coming from credit-rated tenants.

From a financial perspective in the fourth quarter, our cash NOI grew 2.5%, a return to our customary same-store run rate over the years, and driven by a 2.2% increase in base rent. We collected more than 99.5% of our contractually due fourth quarter rents, while continuing to see cash inflows outpace total charges. We also saw our rent deferrals get repaid ahead of schedule, with just $2.6 million of the $11 million that we deferred remaining outstanding as of today.

We continue to see strong leasing activity, signing almost 600,000 square feet of leases, with renewal spreads of 2.7% and tenant retention of 80%. We increased our investment activity, closing more than $129 million in acquisitions, at year one yield of 6%, reflective of a rifle shot approach to individual deals in our key markets where we can utilize our in-house asset management platform. This compares favorably to the low 5% cap rate pricing that these opportunities would command if they were sold on a portfolio level basis and without the additional synergies that we're able to achieve. We also saw our relationship-focused approach toward deferrals and rent collections to start to pay off, with several acquisitions coming directly from healthcare systems and a pipeline of future developments and acquisitions starting to increase. And we grew our earnings to $0.43 per share.

Our recurring capex for the quarter was $16.5 million, which was approximately 13% of cash NOI. As a result, our normalized FAD for the period was $80.3 million, up 11% from the prior year. Our developments have continued to progress, where we completed our first projects in Raleigh in the third quarter with three more projects in Dallas, Miami and California continuing with completions on track for 2021.

Combined, these projects totaled more than $150 million of investments, at an average yield of more than 6.5% that we expect to be fully stabilized with all projects paying rent by the fourth quarter of next year. We can continue to invest with confidence as our balance sheet is strong, with leverage of just 5.3 times incorporated in our forward equity and $1.4 billion of liquidity coming from long-term capital that we have sourced effectively with more than $100 million of cash on our balance sheet and $277 million of forward equity remaining to be settled as investments come to fruition. We also have very limited near-term maturities, with no bond maturities before 2026, as a result of the $800 million bond deal that we did in September at record lows of 2%.

This level of performance and insight into our business gave us the confidence to raise our dividend for the seventh consecutive year and result in our dividend growing more than 11% since 2014, annual growth of approximately 2%, which demonstrates the consistency and strong performance of our company and underlying business model. It also allows us to reinstate our earnings guidance, with expectations of 2021 coming in at $1.71 to $1.79 per share. This largely reflects our expectations that we'll have same-store NOI growth of 2% to 3% for the year with the rest of the variability driven by the timing of acquisitions, dispositions and our forward equity. We expect our recurring capex to run between a 11% and 16% of NOI over the year, which includes up to $10 million in energy-saving initiatives. In addition, as we see our levels of leasing activity increasing, we expect to spend an additional $10 to $15 million in capital to bring existing suites to move-in-ready condition to meet the demand for quick move-ins that are coming to the forefront. As we continue to operate our business and return to making investments, we will finance our business in a manner that maintains low leverage and significant liquidity.

Finally, I would like to add that we have added additional disclosure this quarter around our developments and redevelopments and their impact to our net asset value. Given the significant value in these assets, we believe current models significantly undervalue them and will be raised higher as their true value is understood. We look forward to working with analysts and investors over the coming weeks, and conferences to discuss this performance in our new disclosures.

I will now turn it back to Scott.

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

Thank you, Robert and we'll open up for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-answer session. [Operator Instructions] Today's first question comes from Juan Sanabria with BMO Capital Markets. Please go ahead.

Juan Sanabria -- BMO Capital Markets -- Analyst

Thank you. Just hoping you guys could give a little bit more color on the acquisition pipeline, pretty broad -- a wide range. Kind of what your expectation is in terms of the timing of that and your forward visibility in terms of deal flow here as we start the year?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

Well, we're in a very good position with the forward equity that we have. I think we're trying to be extremely diligent and we're seeing opportunities, which is good. Robert's talked about some of those and that you saw in the fourth quarter, we closed on some acquisitions. Our view is that we continue to like growth cities, we like our markets, we like our property management to be able to -- and leasing to be able to assist in bringing accretive to the bottom line and that's really what we're focused on as that -- acquisitions that we acquire today and perform over the short term, long term, but are accretive to FFO.

Juan Sanabria -- BMO Capital Markets -- Analyst

Great, thanks for that. And then, just question on the occupancy. What drove the kind of quarter over quarter dip in the fourth quarter? Maybe if you could talk to leasing expectations for '21, what's maybe already been dealt within any releasing spread assumptions and guidance?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

Robert?

Robert A. Milligan -- Chief Financial Officer, Treasurer and Secretary

Yeah. So, I think, I'll answer the -- as we look at 2021, I think our expectations are to continue to be in that 70% to 80%, 85% type retention kind of throughout the year. I mean, I think as we saw in 2020, we were able to release and maintain a very high level of retention, while still working through almost 4 million square feet of leases there. And I think we anticipate -- we've got less rollover this year than we did last year and I think we expect to continue to be able to get and maintain kind of like I said, that 70%, 80%, 85% type retention.

I think as we looked at some of the occupancy that was coming toward the end of the year, I think we typically have a little bit of a seasonal lull as far as occupancy goes of a lot of kind of year end or year-end type that come up. And then, we seem to generally be able to build off of that as we get through the first quarter into the second and third quarter and I think that's our expectation as we're looking at 2021 now.

We've got actually a number of kind of larger deals that we're seeing that have come back from health systems that were maybe a little hesitant to move forward in the second half last year. Now, really being ready to potentially execute now. So, I think we see that coming back off the bottom as we get into, really, the second and third quarter.

Juan Sanabria -- BMO Capital Markets -- Analyst

Great. Thank you.

Operator

And our next question today comes from Nick Joseph with Citi. Please go ahead.

Nick Joseph -- Citi -- Analyst

Thanks. Just curious if you could talk about the competition for assets, in terms of acquisitions. Obviously, you're being diligent and prudent, with what's going through the pipeline, but are you finding that you're competing with different types of buyers just kind of versus what you've seen in the past?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

Well, I think it's still a very competitive market and I think that's one of the things that you need to be cautious about right now is that you are going after assets that bring benefit to the Company for a longer term and also fit into our market. So, there are some portfolios, there are some assets out there that are on the market that just would not fit our our goals, our objectives, our portfolio. So, we pass on those.

But I think you've seen the same players. There is still a high degree of attractiveness to the MOB sector and we've been at this a while, obviously. We've got our key markets. And so, we're pretty comfortable when we find an asset that we like. The relationships that we've built are helping a lot. And that's something -- that is a benefit for someone who has been in it now almost 14 years, 15 years.

Nick Joseph -- Citi -- Analyst

Thanks. And then, just on development, appreciate the comments on the stabilization of the yields. What's the opportunity to backfill that pipeline and what's kind of the size we should expect going forward?

Robert A. Milligan -- Chief Financial Officer, Treasurer and Secretary

Well, Nick. I think as we look at our development kind of portfolio, we've kind of gotten into the markets where we've been really looking to develop kind of largely build-to-suit type assets, assets with a high degree of pre-leasing, mostly driven by healthcare systems. I think as we look at the pipeline, as we went through COVID, most of the healthcare systems were much more focused on how do you take care of patients, how do you look for vaccination sites and things like that.

So, their large development pipelines were essentially put on hold for a year or so. So, I think on the one hand, I think we would anticipate that those types of RFP projects will be coming back -- to start come to fruition in the middle half of this year. But I think on top of that we have found some other interesting opportunities where there have been developments with good land parcels with kind of key growth areas in markets where we've been able to identify and work with some local developers and are seeing some opportunities to do more of a joint venture developments. Where the healthcare systems have talked to us about growth areas, we've been able to find a local developer with a parcel of land. And we see some opportunity to do some more of those type joint ventures at pretty attractive rates because they're a little less competitive. It's more fee-simple types are things like that.

So, we've got one that we had talked about previously in Raleigh that we anticipate kind of bringing to market here first part of this year, anticipate getting a strong amount of pre-leasing before we actually put kind of shovels in the ground. So, I think our long-term goal has been $100 million to $200 million of annual announcements, annual starts. I think you'll see us get back toward that path in 2021.

Nick Joseph -- Citi -- Analyst

Thank you.

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

And I think as a final comment, you'll see us become more active in acquisitions, certainly this year than last year, but that's more, I think, a reaction to the fact that we'll be moving into a more normal environment.

Nick Joseph -- Citi -- Analyst

Thanks.

Operator

And our next question today comes from Connor Siversky with Berenberg. Please, go ahead.

Connor Siversky -- Berenberg -- Analyst

Hey, everybody. Thanks for having me. First, just a high-level question. As we see this kind of migration from some of the major metros, I'm just wondering if you guys are looking at any new markets as attractive or fit the criteria that you would choose to invest in?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

We continue to look. I think that's one of the the longer-term investment thesis that all companies are going to go through which is that there is going to be a changing demographic as we move forward. And we like -- when you look at where we are located, and you look at this demographic that that you're starting to see from out of some of the cities, or some of the locations and in some other types of a geographic locations, we really like our footprint.

And so, I would say that there's not a market. We stayed out of a lot of the -- some of the more popular markets like LA and San Francisco and New York and so forth. We weren't there, but we've been heavily invested in a Florida, Texas. You look at South Carolina, you look at some of the other markets that we're in -- Raleigh. So, those are gaining population -- Arizona. And I think that's going to be -- bode well for our occupancy and for the valuation of our portfolio, but also as we continue able to grow those markets from an acquisition perspective.

Connor Siversky -- Berenberg -- Analyst

Okay, thanks for that. And then, moving on to dispositions in your guidance assumptions. I'm just wondering if there's any rhyme or reason here if these are already slated to be sold or are you kind of looking for more opportunistic situations to kind of spin-out some of these assets out of the portfolio?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

Robert?

Robert A. Milligan -- Chief Financial Officer, Treasurer and Secretary

Yeah. On the dispositions, we always -- we get a lot of inbound calls, as you would expect. And I think as we've gone through our assets and our markets of where we want to be kind of getting to Scott's earlier comments, we talked a lot about markets that we don't think -- it might not be a good fit for us long term. So, I think as we look at dispositions right now, we've got a handful of properties that we do have under some form of a contract and agreement to sell. I wouldn't be surprised if that ended up potentially closing -- a couple of them closed toward the end of the first quarter into the second quarter. And then, we'll look to be a little bit more opportunistic after that. But these deals are typically -- it take a -- I don't know two months, three months to kind of go through the diligence underwriting and closing. And we've got a couple under contract, but we'll -- they've still got to go through the process.

Connor Siversky -- Berenberg -- Analyst

Okay. And one last quick one for me. Just on the capacity of the forward agreement, is it safe to assume that this will be used up in step with the acquisition pipeline or are there any kind of timing conventions we should be aware of here?

Robert A. Milligan -- Chief Financial Officer, Treasurer and Secretary

Well, I really think that we'll use it along with just our investments from an acquisition perspective, largely, but as well as to fund our development that we've got to do this year. Technically, they do have to be used by June 30th this year, but as we were able to do last year, we were able to work with our banks and extend them if the opportunities aren't there. So -- but I think you should think about it and model it as us taking the equity as we acquire assets.

Connor Siversky -- Berenberg -- Analyst

Okay. That's very helpful. Thanks, Rob.

Operator

And our next question today comes from Omotayo Okusanya with Mizuho. Please go ahead.

Omotayo Okusanya -- Mizuho -- Analyst

Yes, good afternoon, everyone. So, at the beginning of the pandemic, you guys kind of used a little bit more of free rent and you had very good leasing velocity this quarter, pulled back on free rent kind of in the slowdown in leasing velocity. As we all kind of think about 2021, how should we be thinking about the balance between those two things? And basically, what's kind of your base case in guidance versus maybe what causes the lower end or the higher end based on pulling these two levers?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

Robert?

Robert A. Milligan -- Chief Financial Officer, Treasurer and Secretary

Yeah. I think as we're looking at leasing and kind of use of free rent and things like that, I think, we used it very kind of purposefully in 2020. I think as we looked at our relationships in our markets in March and April last year, we did -- we were very forthright about talking about how we view this as an opportunity, really, to work with the healthcare systems. I think our view was there's much more of a long-term relationship at play than any kind of short-term financial impact over three months, six months, nine months. So, we were a little bit more open to both deferrals and free rent to extend leases than some of our peers were.

I think that was very much kind of point in time around that. And so, most of that was done in the second quarter of last year. We really returned in the third and fourth quarter to a much more normal kind of leasing convention of typical amounts of free rent in the back half of the year that matched much of what we had done in 2018 and 2019. So, I think you're going to see us continue that path in 2021. I don't anticipate big, huge uses of free rent with existing tenants to sign renewals or anything like that. I think that was really much more of a point in time in relation to the pandemic.

Omotayo Okusanya -- Mizuho -- Analyst

Got you. Okay. Then the second question, if you don't mind, just the spike in COVID cases kind of nationally in December and January, again, it's kind of interesting that a whole bunch of the senior housing, skilled nursing as you're seeing increased deferrals and things like that to your tenants, but we haven't really seen it on the MOB side. So I'm just trying to -- could you talk a little bit about what happened differently this time around versus, say, again, six months, seven months ago when, again, COVID cases were also kind of spiking as well? Like, why didn't we kind of see a second round of additional deferrals and things like that?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

I think the real focus is that folks stayed open, hospitals were better prepared. They had separated and segregated locations so that they could continue to utilize all their services. Local physicians and physician groups had the appropriate PP&E that they needed. We have not seen any requests and I know that our peers have indicated the same thing. We still feel -- I still feel that the little solo practitioner or smaller groups continue to struggle just because of the burdens that they've faced.

But as a whole, we have -- the medical office space has proved that it's resilient and all the rents are being collected. And as Robert said, we rolled over 17% of our portfolio at almost 5%, which is going to benefit in the next three years, five years, seven years. And the occupancy, I think, you'll see us continue to grow now going into 2021 and in 2022. As we have looked at our inventory, we've communicated to tenants and we want to make sure the right tenants are on the right place. And that they are enabled -- they are, in fact, able to continue to pay rent. We tightened up our credit. We've been very careful about going through diligence on that so that we don't simply occupy space and then have a collections issue three months, six months from now or a year from now. So, we've gotten through exhausted process and I think it's -- one, it's paid off in our performance and two, it's going to pay off over the next two years, three years.

Omotayo Okusanya -- Mizuho -- Analyst

Got you. And then last one, if you don't mind. Any thoughts around the nominated person for -- to kind of lead to the HHS and also the nominated person to lead as CMS on a going-forward basis?

Robert A. Milligan -- Chief Financial Officer, Treasurer and Secretary

Well, I think our view of kind of everything around the political appointments and just the tone and tenor of the Biden administration is, there's going to be a big focus on how do you expand care, just like we saw when the Affordable Care Act was originally rolled out. So, I think our view is that, that's just going to be a positive for us. I think there's going to be certainly a focus on delivery of care in the appropriate setting and how do you get people to be seen close to where they are and at a lower cost point to the extent they can, all of which, I think -- we think, bodes well for medical office.

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

And just to add a comment, I think that healthcare has been a tremendous asset class and it has been that way for, I think, certainly, the last 15 years or 20 years. But if you look at the pandemic on a longer-term perspective, I think, it's going to put more activity into healthcare. It's going to put more focus into healthcare. And I actually think that healthcare systems and individuals generally, are going to focus more on their health. And I think that's a very strong indicator for us, as a company, certainly over the next five years or 10 years.

Omotayo Okusanya -- Mizuho -- Analyst

Great. Thank you.

Operator

And our next question today comes from Rich Anderson at SMBC. Please go ahead.

Rich Anderson -- SMBC -- Analyst

So that last comment was interesting, Scott, because it kind of leads into my question, which is medical office and the hospital business have a strange relationship. You want to take business from them in a sense that it's a lower-cost environment and on a outpatient setting, but you don't want to disrupt into the point where the hospital ceases to exist worst-case scenario.

So, I'm curious, what -- you sound like you think the hospital industry is better post COVID, not worse, even though there could be some reset of the industry, whether it's even incrementally more nursing shortages or maybe some pushback from all those folks that work through all this and don't feel appreciated. There could be a lot of disruption in the hospital industry, but perhaps you don't agree with that. Is that correct to say?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

Rich, I think on a short-term basis, you may be right. I mean, I've read much of your stuff that you put out recently on other sectors. And frankly, I agree with most of it. And I think though that in the healthcare space, there's so much -- I mean, one of the things that we've come to realize is, there's been a lot of dollars that have come out of the government into the healthcare sector that would not have come into this sector, I don't think, except for this -- for the last 12 months. I think that's put the healthcare sector in a different framework. And I do think that it's going to be positive from an overall perspective. So yes, I think it's stronger, and I think it's going to expand, and I think there's going to be more emphasis on this can never happen again.

Rich Anderson -- SMBC -- Analyst

Yeah. Okay. And what do you think, politically, not to get into the politics, but you have a Biden administration now, probably going to see more in the way of Obamacare and no dismantling of it. Do you think that that's a good thing for the industry overall or would you rather have seen more of a private sector model that a Republican administration would have been pushing for?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

I think -- again, I think we ebb and flow as a country on politics, and the Affordable Care Act was really the genesis of the MOB space. I mean, I remember you and I talking six years, seven years, eight years ago that, that really was, I thought, what really brought to the forefront the investor appetite or the awareness of the MOB space. And so, I think this particular rotation where we are politically is going to, again, put more dollars, more focus, wider healthcare from a perspective of the individual, and I think that's good for healthcare. And I don't think the private sector will ever go away. So, I think the blend is actually going to work out as it -- hopefully, it should work out.

Rich Anderson -- SMBC -- Analyst

Okay. Good. And then, last quick question. When you think about your acquisition pipeline and this could be for either of you, is it more valuable to get acquisition at the point of the investment? Or do you think accretion to your growth profile is the more important outcome? Like if you had to choose one or the other, a big pop from an accretion by investing the money or take a hit, maybe a dilutive hit, but a little bit more growth to the portfolio in year two and beyond. What's more important to you?

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

I think right now, for us, we went into this year, last year, looking at FFO growth. We continue to look at FFO growth. And so, I think our priority when we look at acquisitions is, is it accretive? I've looked at some of the transactions that folks have made. And I wonder if it's going to be accretive in any -- when is going to be accretive if it's sub-5% [Phonetic]. I just find that, that's -- that becomes a much more difficult equation because rents could come down, occupancy can affect things. So I think, Rich, we're from the old school. We want to make sure that when we invest dollars that it's accretive and that we continue to grow our FFO and reach the higher end of our guidance this year.

Rich Anderson -- SMBC -- Analyst

Okay. Good enough. Thanks.

Operator

And our next question today comes from Mike Miller with JPMorgan. Please go ahead.

Mike Miller -- JPMorgan -- Analyst

Yeah, hi. A question on the $10 million to $15 million of elevated capex. I mean, should we think of that as being just a 2021 phenomenon? Or is that something that is going to occur going forward? And what's prompting you to do that out of curiosity?

Robert A. Milligan -- Chief Financial Officer, Treasurer and Secretary

Well...

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

Robert, I'll start real quick just to -- and then you can finish up, but our focus is quality of our portfolio. We're taking extreme diligence and view of our assets for long-term viability to our tenants. And we see energy savings, we see efficiency in operation of buildings as being a differentiator to our tenants and our relationships. So, this is something we're going to focus on and that's a general statement. And Robert, you can talk about specifics.

Robert A. Milligan -- Chief Financial Officer, Treasurer and Secretary

Yeah. I think there's kind of two initiatives that we've had under way for a bit. I think first, Mike, as we talked about, and we've been investing a fair amount in just energy efficiency. I think our energy efficiency investments have taken on a couple of forms. I think one of our initiatives has been just upgrading certain things like the lights and HVAC units and things like that. The other initiative that we've really had is just from an operational perspective of making sure that we are utilizing best practices that the building is running really as it should, which we've seen a lot of success in really driving down our energy costs over the last couple of years. So, I think a part of that, I think, we just wanted to highlight that that spend in our capital spend and it's going to continue to be in our capital spend as we go into 2021. So, that might not be a real elevation, more just kind of commentary that we're going to continue to invest in that.

I think the second thing that we talked about was really investing in some move-in ready spaces. I think as we've seen physician behavior and health system behavior kind of through the pandemic is that people aren't wanting to wait a long time for space to be ready. I think the people that are willing to make a move are wanting to make a move for a space that they're able to move in, in 30 days, 60 days. They don't have to go through kind of a long TI process. So, I think for us, it's a bit of a pull forward of that capital, just recognizing that the move-in ready spaces are moving more quickly in the areas where we've identified a lot of activity. We're just trying to get ahead of that. So, I think we would look at it and say $10 million to $15 million is what we're going to spend now, but that's really pulling forward TI from leases that will take place two quarters to three quarters from now.

Mike Miller -- JPMorgan -- Analyst

Got it. Okay. That's it. Thank you.

Operator

And ladies and gentlemen, this concludes your question-and-answer session. I'd like to turn the conference back over to Scott Peters for any final remarks.

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

I just want to thank everyone for joining us and we look forward to talking to everyone at the end of the next quarter and of course, at any conferences that are coming up. Thank you.

Operator

[Operator Closing Remarks]

Duration: 37 minutes

Call participants:

David Gershenson -- Chief Accounting Officer

Scott D. Peters -- Chairman of the Board, Chief Executive Officer and President

Robert A. Milligan -- Chief Financial Officer, Treasurer and Secretary

Juan Sanabria -- BMO Capital Markets -- Analyst

Nick Joseph -- Citi -- Analyst

Connor Siversky -- Berenberg -- Analyst

Omotayo Okusanya -- Mizuho -- Analyst

Rich Anderson -- SMBC -- Analyst

Mike Miller -- JPMorgan -- Analyst

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