Image source: The Motley Fool.
DATE
Friday, Aug. 1, 2025 at 1 p.m. ET
Call participants
President and Chief Executive Officer — Pete Scott
Chief Operating Officer — Rob Hull
Chief Financial Officer — Austin Helfrich
Chief Investment Officer — Ryan Crowley
Vice President, Investor Relations — Ron Hubbard
Need a quote from one of our analysts? Email [email protected]
Risks
President and CEO Pete Scott stated, "we have fallen short of expectations despite our solid foundation," and acknowledged that the prior acquisitions-driven business model "collapsed in 2022," necessitating "swift changes" to reestablish credibility.
The dividend was reduced by 23% to $0.24 per share for Q2 2025 to create a "sustainable payout ratio" and manage "pressure from $1.4 billion of low coupon bonds maturing over the next three years," implying diluted income for shareholders in the near term.
Dispositions totaling approximately $1 billion in 2025 are expected at a blended 7% cap rate, with Austin Helfrich noting "6¢ of estimated dilution off of the 2025 revised guidance," with the vast majority of that impact expected in 2026 due to higher-yielding assets being sold to pay down debt at approximately 5% rates.
Redevelopment projects in the lease-up portfolio may take "upwards of twelve to eighteen months" to complete, according to management commentary during the Q2 2025 earnings call, delaying the full realization of the forecasted $50 million NOI uplift, which management indicated will be phased in over more than three years.
Takeaways
Normalized FFO per share: $0.41 normalized FFO per share for the quarter, up nearly 7% year over year compared to Q2 2024, with a 2¢ sequential increase in normalized FFO per share.
FAD per share: $0.33 FAD per share, with a 4¢ sequential increase in FAD per share and a 96% payout ratio, noted as a "significant improvement from the first quarter."
Same-store occupancy: 90%, representing a 40 basis point sequential increase in same-store occupancy and the highest same-store occupancy level (90%) since 2016.
Same-store NOI growth: 5.1%, or a 280 basis point sequential increase in same-store NOI growth, and the highest in nine years.
Net debt to adjusted EBITDA: Net debt to EBITDA was 6.0x pro forma for July 2025 asset sales. Expectations are to reach the mid-5x net debt to EBITDA area by year-end 2025 following further dispositions.
New leasing: Second-highest new leasing quarter in the last three years, with nearly 1.5 million square feet of leases executed and over 450,000 square feet of new leases.
Disposition activity: $211 million in asset sales closed through July 2025, including a $38 million loan repayment year to date through July 2025 for $250 million total proceeds year to date; $700 million under contract or LOI, raising full-year 2025 disposition guidance to $800 million-$1 billion at a blended 7% cap rate.
Board reconstitution: Reduced from 12 to 7 directors, with 5 of 7 directors appointed since 2024 and 5 directors having REIT CEO experience.
G&A savings: $10 million in annualized run-rate G&A savings achieved predominantly through headcount reduction and corporate overhead cuts.
Stabilized portfolio: 470 properties (75% of total), 95% occupancy for the stabilized portfolio. NOI margins are over 65% for the stabilized portfolio, average eight-year lease term, and 3% average rent escalators for the stabilized portfolio.
Lease-up portfolio: 95 assets (13% of total), 70% occupancy for the lease-up portfolio, 55% NOI margins for the lease-up portfolio, and rents in the lease-up portfolio are nearly 20% below market; management aims for up to $50 million in incremental NOI with $300 million in targeted capital investment over the next three years.
Dividend action: Quarterly dividend reduced by 23% to $0.24 per share, freeing up $100 million in annual cash for portfolio reinvestment.
Revolver and term loans: $1.5 billion revolver recast with extended maturity to 2030; term loans extended to 2027 and 2029, reducing debt maturing through 2026 from $1.5 billion to $600 million.
2025 guidance: Normalized FFO per share forecast increased by a penny at the midpoint to $1.57-$1.61 for 2025. The increase is driven by a $4 million lower G&A estimate for 2025 guidance and a 25 basis point increase in same-store NOI guidance for 2025.
Operational shift: Transitioning to an "operations-oriented culture" focused on earnings growth, asset management, disciplined leasing, and capital allocation prioritizing existing portfolio investments.
Summary
Healthcare Realty Trust(HR 2.18%) reported sequential and year-over-year improvements in normalized FFO and occupancy for the second quarter of 2025, demonstrating a rebound in operational metrics. The company outlined a comprehensive strategic overhaul focused on corporate governance, organizational restructuring, targeted portfolio optimization, and disciplined reinvestment, while also de-risking its balance sheet through asset sales and lower leverage. Management emphasized both a material dividend cut of 23% to $0.24 per share and a larger-than-prior-year capital recycling effort, raising the full-year 2025 disposition outlook to $800 million-$1 billion to pivot toward higher-margin, faster-growing assets, seek outsized NOI gains, and position the REIT for future accretive growth and potential share repurchases.
President and CEO Pete Scott said, "Healthcare Realty Trust 2.0 will be an operations-oriented culture where earnings growth is paramount, strong tenant relationships are essential, leasing decisions are made based on economics, and capital allocation is initially prioritized towards accretive reinvestment into our existing portfolio."
Chief Investment Officer Ryan Crowley described a diverse, competitive buyer pool for the disposition portfolio, noting: "today, there's more buyers and more equity looking to be deployed than there are assets available for sale," with increased interest from health system acquirers focused on control rather than price sensitivity.
Capital for lease-up and redevelopment efforts is expected to be spent ratably over three years, with approximately $100 million per year, based on company guidance, with the timing and realization of full NOI upside subject to execution pace and market absorption.
The company began reporting leverage based on the carrying value of debt starting in Q2 2025 and adjusted maintenance capital disclosure to match peer methodologies in Q2 2025, which is expected to reduce reported maintenance capital by $5-$10 million annually.
Leadership signaled willingness to consider additional "alternatives needed to unlock value" if the company's trading discount persists, but did not specify what actions would be taken.
Industry glossary
RTO (Ready-to-Occupy) suites: Pre-built, move-in-ready medical office suites designed to accelerate lease-up and generate quicker rental cash flow.
SNO (Sign Not Occupied) pipeline: Space for which leases have been signed but occupancy and rent commencement are pending, representing prospective occupancy gains.
FAD (Funds Available for Distribution): Cash metric representing distributable earnings after capital expenditures, used to assess dividend sustainability in REITs.
Full Conference Call Transcript
Operator: Thank you for standing by. My name is Ian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Healthcare Realty Trust Incorporated Second Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press 1. Thank you. I would like to hand the call over to Ron Hubbard, Vice President, Investor Relations. You may begin your conference.
Ron Hubbard: Thank you for joining us today for Healthcare Realty Trust Incorporated's second quarter 2025 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.
Pete Scott: 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 release for the quarter ended 06/30/2025. The company's earnings press release, earnings supplemental information, and Form 10-Q are available on the company's website. Now I'd like to turn the call over to our President and CEO, Pete Scott. Thanks, Ron. Joining me on the call today are Rob Hull, our COO, and Austin Helfrich, our CFO. Also available for the Q&A portion of the call is Ryan Crowley, our CIO. We had a very busy second quarter with excellent results and contributions across the organization.
Fundamentals are quite strong in outpatient medical, and that was clear with our second quarter print. Normalized FFO was $0.41 per share, a 2¢ sequential increase. FAD was $0.33 per share, a 4¢ sequential increase. Same-store occupancy was 90%, a 40 basis point sequential increase. Same-store NOI growth was 5.1%, a 280 basis point sequential increase. And net debt to adjusted EBITDA sits at six times. In addition, it was the second highest new leasing quarter in the last three years. Year-to-date sales increased to $211 million at a blended 6.2% cap rate. We have over $700 million of additional assets under contract or LOI.
We completed a very successful renewal of our revolver, extended the tenor of our term loans, and raised guidance. Rob and Austin will cover these items in more detail. A special thanks to the entire Healthcare Realty Trust Incorporated team for their extraordinary efforts this quarter. Moving on to our strategic plan, which we published on our website concurrent with our earnings release. I have now been at Healthcare Realty Trust Incorporated just over one hundred days, and my time has largely been spent seeing the real estate, assessing the team, and receiving valuable feedback from our shareholders.
During the quarter, the team and I toured 10 core markets encompassing approximately 50% of our overall NOI, and, more importantly, about two-thirds of our overall real estate value. In addition, I spent considerable time with our teams out in the field, including leasing and operations. Each and every one of these interactions has had an influence on the strategic plan, and I am confident now is the right time to disclose the vision for Healthcare Realty Trust Incorporated 2.0. Let me start with my overall assessment. The good news is we have the best-in-class outpatient medical portfolio. We have scale in the right markets, and we are aligned with the nation's leading healthcare systems.
In short, we have the essential ingredients of what is needed to be a successful real estate company: great assets, desirable locations, solid tenants. That said, we have fallen short of expectations despite our solid foundation. Healthcare Realty Trust Incorporated 1.0 was a transactions-oriented culture that relied almost exclusively on acquisitions and development to drive growth, to the detriment of asset management. This strategy worked for many years, and the company traded at a premium valuation. Unfortunately, this business model collapsed in 2022, and swift changes are necessary to reverse course and reestablish credibility.
Healthcare Realty Trust Incorporated 2.0 will be an operations-oriented culture where earnings growth is paramount, strong tenant relationships are essential, leasing decisions are made based on economics, and capital allocation is initially prioritized towards accretive reinvestment into our existing portfolio. With that as the backdrop, let me elaborate on the five key action items of the strategic plan. First action item: improved corporate governance. As was previously disclosed, we reduced the size of our board from 12 to seven directors. The go-forward board brings fresh perspective and decades of industry experience to support our value creation initiative. Five of the seven directors have been appointed since 2024, and all directors have been appointed since 2020.
In addition, five board members have REIT CEO experience. Second action item: a significant organizational restructuring. We have implemented a new operating model that will drive meaningful cost savings and promote incremental accountability at the property level between our operations and leasing personnel. This new asset management-oriented platform will create stronger and better-aligned tenant relationships. Over the past few months, I have had the benefit of sitting down with leadership at some of our largest health system tenants to discuss expansion opportunities. These tenants include Baylor Scott White, HCA, Ascension, CommonSpirit, and Banner Health. With our enhanced platform and renewed focus, we can and will do better.
To advance our platform changes, during the second quarter, we hired Tony Acevedo and Glenn Preston to lead our asset management efforts. Tony and Glenn have extensive track records in the outpatient medical sector, with sixteen years and twenty-five years of experience, respectively. They have been trusted partners of mine in the past, and they have hit the ground running. Another important restructuring initiative is streamlining our corporate overhead costs. We've completed a thorough review of every line item and have already achieved our initial goal of at least $10 million in run-rate G&A savings. 100% of this has been captured through headcount reduction, office expense savings, and, of course, the previously mentioned reduction in our board size.
At year-end, Julie Wilson, EVP and Chief Administrative Officer, will be departing the organization after a twenty-four-year career with the company. We would all like to express sincere thanks to Julie, who played a valuable role in the growth of the organization. She will be missed. Third action item: portfolio optimization to maximize NOI growth. We have completed a full bottom-up property-by-property analysis and segmented all 650 assets into three distinct buckets: the stabilized portfolio, the lease-up portfolio, and the disposition portfolio. Each of these buckets has different characteristics.
Starting with the stabilized portfolio, which is 75% of the total, ours is hands down the premier outpatient medical portfolio, and our well-performing stabilized assets will be the primary engine of growth for Healthcare Realty Trust Incorporated 2.0. The stabilized portfolio consists of 470 properties, encompassing over 25 million square feet. It includes trophy properties on flagship campuses, such as Ascension St. Thomas Midtown in Nashville, MultiCare Overlake Medical Center in Seattle, and Baylor Scott and White All Saints Medical Center in Fort Worth, just to name a few. Current occupancy is 95%, NOI margins are over 65%, our average lease term is eight years, and our average escalators are 3%.
Our strategy with this portfolio is to maintain high occupancy and maximize lease economics to drive consistent NOI growth. Moving to the lease-up portfolio, which is approximately 13% of the total. These 95 assets contain over 7 million square feet of well-located, health system-aligned clinical space. Performance has lagged due to years of underinvestment or deteriorated local relationships. These properties are primarily located within our priority markets, with the top three markets of Denver, Dallas, and Phoenix comprising 25% of the square footage. We have strong conviction that through targeted ROI-driven investments and engaged asset management leadership, we can harvest meaningful upside in this portfolio and generate up to $50 million of incremental NOI.
Current occupancy in these properties is 70%, NOI margins are 55%, and our rents are nearly 20% below market. In a bit, I'll touch more on unlocking this potential through prudent capital allocation. Shifting to the disposition portfolio, which is approximately 12% of the total. Over the last two years, NOI growth for these assets has lagged our stabilized portfolio by 700 basis points. In addition, 80% of this portfolio is located outside of our priority markets, where demographic trends are weaker, limiting upside potential. We can capitalize on the current strength in the outpatient medical transaction market to strategically exit these assets at attractive relative valuations.
Today, we have a robust and balanced disposition pipeline across a variety of asset profiles to maximize value and minimize execution risk. We expect asset sales of approximately $1 billion to close in 2025 at a blended cap rate of 7%. We extensively evaluated the real estate fundamentals of these assets and believe our time and capital are best focused on the lease-up portfolio. The end result of the portfolio optimization strategy will be significantly improved occupancy and margin, an enhanced NOI growth profile, and a sharpened geographic focus. Fourth action item: reprioritizing our capital allocation internally. Our near-term priority will be investing capital back into our lease-up portfolio. This will come through two different types of targeted investments.
Number one, ready-to-occupy spec suites, which we refer to as RTO, and our strategic investment into select vacant suites to drive leasing. Number two, redevelopment, which are significant investments to reposition buildings and drive higher rental rates, occupancy, and cash-on-cash returns. Between RTO and redevelopment opportunities, over the next three years, we estimate approximately $300 million of capital investment at attractive returns. Additional accretive opportunities, including acquisitions and development, will come when our cost of capital allows for it or have sufficient balance sheet capacity. As our balance sheet continues to improve, we could utilize a portion of sale proceeds to repurchase stock should the opportunity present itself. Fifth action item: an improved balance sheet.
The company has been playing defense for years with extremely limited financial flexibility due to excessive leverage. With the sale of the disposition portfolio, we expect net debt to EBITDA to be in the mid-five times area by year-end. This lower leverage combined with extended maturities will allow us to gradually shift from defense to offense. Turning now to the dividend. As a final part of the strategic plan, we completed a thorough and careful evaluation of the dividend. The result of this analysis is that the board unanimously approved a dividend reduction of 23% to $0.24 per share on a quarterly basis.
While we could maintain the dividend and grow into a sustainable payout ratio over time, the key factors for rightsizing the dividend are it alleviates pressure from $1.4 billion of low coupon bonds maturing over the next three years. It provides $100 million annually of capital that we need to reinvest into our portfolio to drive performance, and it positions the company to maximize our go-forward earnings potential. Let me finish with the value creation opportunity. In our strategic plan presentation, we have included a high-level framework for potential earnings growth over a three-year forward-looking period. There is a clear path to creating attractive FFO per share, and the analysis excludes any upside from accretive capital allocation.
In addition, we currently trade at approximately 10 times FFO, which is six turns below both our ten-year average and the ten-year average of our healthcare REIT peers. We know our evaluation is a function of many self-inflicted wounds and a loss of credibility and does not remotely reflect the significant value embedded in our irreplaceable portfolio. With the purposeful changes underway at Healthcare Realty Trust Incorporated 2.0, we see a real opportunity to improve operating performance, restore credibility, and unlock shareholder value. With the implementation of our strategic plan, we will remain the only public REIT focused exclusively on outpatient medical. We will have a positive earnings outlook. Our balance sheet will be a source of strength.
We will no longer be burdened by an uncovered dividend. We can use free cash flow to invest accretively in our portfolio. Our assets will be operating at maximum NOI capacity. We will have a lean cost structure, and we will have a best-in-class team and board. We are firmly committed to this vision and are confident it will maximize value for all stakeholders. Nevertheless, over time, if our platform continues to trade at a significant discount to our intrinsic value, then it will be our responsibility to explore all additional alternatives needed to unlock value. Let me now turn the call over to Rob.
Rob Hull: Thanks, Pete. Demand for outpatient medical space remains strong, driven by tightening supply and the ongoing migration of services into a lower-cost outpatient setting. During the quarter, we executed nearly 1.5 million square feet of leases, including over 450,000 square feet of new leases. Our sign not occupied pipeline, or SNO, remains solid at nearly 610,000 square feet, representing almost 170 basis points of occupancy in the coming quarters. We continue to see robust demand from our health system partners, accounting for about a third of our lease executions this quarter.
A few notable transactions include a 24,000 square foot new lease in a redevelopment project on the campus of the ATA's North Cypress Hospital in Houston, a 42,000 square foot renewal also in Houston with the Premier Pediatrics Group associated with Texas Children's Hospital, and a 23,000 square foot new lease in Orange County, California with UC Irvine Health. UCI recently acquired the campus hospital from Tennant Health. Looking ahead, our new lease pipeline remains solid at over 1.3 million square feet and growing. Within our pipeline, about 60% is in the letter of intent or lease documentation phase, indicating a high probability of lease execution.
Shifting to operations, the second quarter marked the beginning of our transition to an operating platform with a greater focus on asset management. As Pete mentioned, we made some key hires to lead the team and have taken the initial steps to transition portfolio operations under their leadership. We expect to complete the transition to this new model by year-end. Once completed, we will continue to refine the platform over the next year by implementing new operating procedures, identifying further efficiencies, and emphasizing discipline around leasing decisions based on economic returns. Turning to our same-store portfolio, with strong new lease commencements and tenant retention of 83%, we gained 40 basis points of occupancy this quarter.
Consistent with seasonal trends, we expect most of our occupancy gains to come in the second half of the year. Our outlook for 2025 remains 75 to 125 basis points of absorption by year-end. I want to congratulate our team on the leasing and absorption progress we made this quarter. With a robust leasing pipeline, strong tenant retention, and tightening supply, our portfolio is poised to seek further leasing momentum and NOI growth throughout the remainder of the year and into 2026. I will now turn it over to Austin to discuss financial results.
Austin Helfrich: Thanks, Rob. In my remarks this morning, I will cover our second quarter results, progress on asset sales, balance sheet improvements, and increased 2025 guidance. But before I jump in, let me say how pleased I am with our performance this quarter and our momentum heading into the back half of the year. Now let's dive into the details. Normalized FFO per share was $0.41 for the quarter, up nearly 7% year over year driven by strong gains, disciplined cost management, and a decrease in share count. Quarterly FAD per share increased to $0.33, representing a 96% payout ratio, a significant improvement from the first quarter, primarily due to strong earnings growth and lower seasonal maintenance capital.
Second quarter same-store cash NOI growth of 5.1% was the highest in nine years as a 100 basis point increase in occupancy coupled with strong expense controls drove 50 basis points of year-over-year margin improvement. Since the start of the year, I've been transparent that we expected the first quarter to be a difficult comp and growth to meaningfully accelerate beginning in the second quarter. I will say that I'm very pleased with the level of growth in the second quarter and believe that it more accurately reflects the strong current fundamentals in our business. On disposition activity, we completed $211 million of asset sales through July.
Inclusive of a $38 million loan repayment, our total proceeds generated year to date are approximately $250 million. Consistent with our disposition strategy, the sales were largely concentrated in assets with weaker growth prospects outside of our priority markets. Importantly, we fully exited two smaller slower growth MSAs in Indiana and Washington. With an additional $700 million under contract or LOI, we are raising our full-year disposition outlook to $800 million to $1 billion as part of our strategic plan. Turning to the balance sheet, in the second quarter, we successfully completed the first phase of our derisking strategy.
Today, we are pleased to announce the recast of our $1.5 billion revolver as well as the addition of extension options to all of our outstanding term loans. We extended the outside maturity of our revolver to 2030 and term loans to 2027 and 2029. With this, we have decreased the amount of debt maturing through 2026 from $1.5 billion at the end of the first quarter to approximately $600 million today. This decrease in near-term maturities gives us financial flexibility and bolsters our liquidity profile. We'd like to thank our bank partners for a very successful transaction.
Over the coming quarters, we will execute the next phase of our balance sheet strategy as we delever by paying off our 2027 term loans with disposition proceeds. Pro forma for our July asset sales, our net debt to EBITDA is six times, and we expect leverage to decrease into the mid-fives through the balance of the year. Coupled with the announced dividend resizing, our liquidity and leverage profile has vastly improved from just a few quarters ago. I'm very pleased to report that we are raising our 2025 normalized FFO per share outlook by a penny at the midpoint to $1.57 to $1.61.
Driving this change is a reduction in our G&A expectations, reflecting the restructuring efforts discussed in our strategy presentation as well as a 25 basis point increase in our same-store NOI guidance. Our outlook for the year is proud of our second quarter financial performance and energized by our improved despite an almost $500 million increase to our disposition guidance. Before turning to Q&A, I'd like to highlight two items from our second quarter press release regarding reporting. First, this quarter, we began reporting leverage utilizing the carrying value of debt. This aligns with the methodology of our peer group as well as the rating agencies.
Second, we adjusted our maintenance capital definition to align with peers by classifying leasing commissions based on corresponding TI classification. Simply put, any leasing commissions associated with first-generation capital spend will now also be classified as first-gen. This aligns us with industry norms, and we expect this change to reduce maintenance capital by approximately $510 million annually. It is important to note that our FAD per share in the second quarter would have been $0.32 even without this change. Operator, we're now ready to move to the Q&A portion of the call.
Operator: Star followed by the number one on your telephone keypad. Once again, that is star followed by the number one. Our first question comes from the line of Nick Yulico with Scotiabank. Your line is open.
Nick Yulico: I guess maybe first off, since in terms of the strategic plan, a lot of the upside feels like is, you know, in the lease-up portfolio. You just talk a little bit more about the composition of that portfolio, all multi-tenant or if there's any single tenant, and then, you know, in terms of the numbers, I just want to make sure I'm understanding the and you talked about $20 to $40 million of upside in that portfolio over three years, but then there's also a $50 million number that you give elsewhere. And so I just wanted to understand kind of the difference between those two numbers and then also the composition portfolio.
Pete Scott: Hey, Nick. It's Pete here. Hope all is well, and great to hear from you. I'm glad you brought up the $20 to $40 million versus the $50 million of upside. You know, we see $50 million in total upside. I think, realistically, it will take us some time to start to spend that capital and to get that return immediately. You know, these redev projects can take, you know, upwards of twelve to, you know, eighteen months. We've obviously identified a nice group of assets that will go into redevelopment. But to get the full $50 million within the first three years, I think, would be a very aggressive assumption.
So we did add some footnote disclosure that we still assume get the full $50, but it's gonna get, you know, layered in or phased in over a little bit more time. As to the lease-up portfolio, I think what gets me really excited about the opportunity to get the upside, the $50 million that we're talking about is you simply just look at that map page, and you see where these assets are located. I mentioned, you know, the top markets being Denver, you know, you got Dallas in there as well. There's some other really good markets too.
Houston, Charlotte, you know, the way I think about it is it's really like a value-add portfolio embedded within our primary markets, and we really like the demographic trends within those markets. So that's what gives us the confidence to be able to put out a number like that, which is a pretty big incremental, you know, amount of capital and amount of NOI. But we feel quite good about our ability to achieve that.
Nick Yulico: Okay. Great. And then I just wanted to be clear as well. I mean, in terms of the capital that's going into that portfolio, you talked about $300 million over three years. I wasn't sure, though, if it was additional capital to get to the, you know, the $50 million of total the dividend cut, but is there also I think there also may be some upside? And then from a funding standpoint, I know you have capital you're sort of putting aside from the, you know, the money saved from the asset sales, besides, you know, what you're paying off from debt that you're gonna use for this portfolio? Thanks.
Pete Scott: Yeah. So the $300 million is what's required, we believe, to get to the full $50. So we don't see incremental, you know, capital required to get to the balance that you're mentioning there. And I think the primary source of funding is the way we looked at it was to come through the dividend adjustment. You know, dollars are fungible, though. So to the extent we can actually commence some of these developments, or redevelopments, I'll call them earlier, then certainly we could use sale proceeds for that.
I think we've just we're putting our balance sheet in a position where it's no longer, you know, a weakness of ours, but a strength, and so where the dollars come from are somewhat fungible. We don't have to wait for year three to be able to spend that capital to the extent that we see the opportunities present themselves earlier.
Nick Yulico: Alright. Thanks, Pete.
Pete Scott: Yep. Thanks, Nick.
Operator: Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.
Austin Wurschmidt: Just wanted to follow a little bit up on sort of the redevelopment pool and some of the rents that you've outlined and, you know, the confidence that you can kinda get from that low $20 range up to, you know, nearly $40 once you invest this capital. Just can you can you talk about that versus maybe underlying market dynamics? Thanks.
Pete Scott: Yeah. Yeah. I maybe I can I can jump into that? I mean, obviously, we see some below-market rents within our markets where we're going to redevelop the assets. I'm not sure that I would use the White Plains example that we put in our deck, although that is a great example of, you know, how we can achieve a really solid 10%, you know, cash-on-cash yield. Rents there were in the low twenties, and with the capital investment, they've gone now to around $40 a share, which is actually up pretty significantly. I'm not sure I would look at White Plains, though.
That is a pretty tight market, and we've done a lot of leasing with White Plains Hospital there. But nevertheless, I think that's maybe an extreme example of what can happen. And the IRRs on that would be well in excess of the 10%, you know, cash-on-cash yield. But we certainly see with capital getting spent, the opportunity to, you know, drive rental rates. I don't know if they're gonna go from 23 to 40, but we certainly see a nice pop. And our underwriting will be, you know, we will be judicious in the way we think about that. And, obviously, the 10% cash-on-cash yield is really a requirement.
Austin Wurschmidt: Understood. Sorry about that. Misunderstood. That was a single example. Austin, I wanted to ask about the capitalized interest that increased pretty significantly presumably related to some of this redevelopment. Just speak, was there any change in the policy here? You kinda outlined the capital needs here. And, you know, just the decision to push fees forward into redevelopment as it doesn't look like it made it into, you know, the projects that are under construction, in the supplemental.
Austin Helfrich: Yeah. Hey. Good morning, Austin. I'd highlight that if you go into the supplemental, we've got almost 2 million square feet in redevelopment today. On the redevelopment page where we break out projects specifically, we only are breaking out about 650,000 square feet there. So you should assume if you read the footnote on that page, there's about 1.2 million square feet that's not broken out on that page. In that bucket of redevelopment projects, we have obviously been working on that since the beginning of the year and had a significant portion of those commence in the second quarter.
So, obviously, I think given that commencement, you are seeing a commensurate step up in cap interest, which is what you're referring to. I will say on the page where we are breaking out specific redevelopment projects, given the strategic plan and given the focus on redevelopment over the next three years, we will start to provide additional information on that page to allow you to better see what's going on in the redevelopment portfolio.
Austin Wurschmidt: So how much of that should we coincide with, you know, how much spend, I guess, should we coincide with that step up? And should that continue to ramp as you ramp these redevelopment efforts? Thanks.
Austin Helfrich: Yeah. I think from here, Austin, what I would tell you is given the increased level of spend that we will have in redevelopments, the increased projects that Pete spoke about earlier in the lease-up portfolio, I think you just should assume that capitalized interest stays at around this level going forward. It will obviously move from quarter to quarter just depending on development, moving out or redevelopment moving in and out. But I think generally, around this level would be a good assumption.
Austin Wurschmidt: That's helpful. Thank you.
Austin Helfrich: Thanks, Austin.
Operator: Our next question comes from the line of John Pawlowski with Green Street.
John Pawlowski: Rob, I wanted to drill into the lease-up portfolio, but specifically the ready-to-occupy space. You give me some historical context of why you couldn't get this undermanaged, and what you're gonna do specifically going forward to unlock that potential.
Pete Scott: Yeah. Hey, John. Maybe I'll start with that, and then I want Rob to go through the RTO program, which we've had a lot of success on. I mean, I went out and saw a lot of markets this last quarter. And I intend to see a lot more going forward. I'd like to see every single asset in the portfolio. What I would say is that it was very clear as I went out into the market that certain assets had just been underinvested into for many, many years, and that would be well before the merger as well. And a lot of these assets were assets that came over as part of that merger. We own them now.
So they're ours. Right? But they clearly had not been invested into. And the other thing I would say that became very clear to me in certain markets is the relationship with the health system had deteriorated or declined to a level where they were not supporting our assets even if they were proximate to the hospital. And that's a problem. When you don't have your health system and your partner in that market supporting your real estate, we are fixing that. The team has been fixing that. Good work has been done. But there is more work to continue to do.
And I'd say a great example of where this has turned around is in Houston with our North Cypress assets. I would say the relationship with HCA was fractured for many, many years. We are redeveloping that campus. We're actually having a lot of progress there in leasing that up. And we're getting the support of the local, you know, hospital CEO who is actually encouraging, you know, tenants to look at our properties now as opposed to discouraging them in the past. So those are really the main two drivers.
I mean, there's more in there, John, but I just wanted to lay out what I saw when I went out into the road that became, like, abundantly clear to me. Maybe I'll have Rob just talk about the RTL program now.
Rob Hull: Yeah. Thanks, Pete. Yeah. The RTO program has certainly been something that we've had some success with in the past, having more success now. I think if you look at year to date, we've leased a little over 100,000 square feet in that program. Second quarter was significantly about 16%, 17% of our new leases were coming from the RTO program. So we are seeing some good success there. The benefits come in being able to capture demand from tenants who need to move quickly. Move, you know, in some cases, they want to move in that month. So having readily available move-in ready suites is really critical for the leasing team.
I would also say that when you look at getting to cash rent and from lease execution to cash rent paying tenants, the time is significantly reduced through the RTO program. We see, generally, it's about a six to ten-month improvement from the time they execute a lease to getting to cash paying rent. So some real benefits there for the organization from a cash flow perspective. I would say in terms of the returns on the IT or the RTO program, generally targeting in the mid-teens IRRs and generally, you know, targeting about a seven-year vault on those deals. So substantial, you know, returns, good use of capital, and a nice lease for the organization.
John Pawlowski: Okay. Thanks for that context. Second question is on the pool of assets you've sold or in the process of selling. I think the average 7% cap rate struck us as high given they're only 80% occupied. So maybe a buyer is gonna be underwriting a higher going-in yield. Is it mostly a function of deferred CapEx or onerous or short wall or short-term ground leases? What's pushing those cap rates on those assets higher in terms of a stabilized cap rate?
Pete Scott: Yeah. I mean, it's a variety of things, but let me have Ryan Crowley spend a little bit of time on that portfolio.
Ryan Crowley: When you think about what we have under contract, there are 40 different assets and nearly 20 different transactions. And these assets really run the spectrum of MOB types, whether it's on-campus and off-campus, single-tenant, multi-tenant, large, small, ground lease terms of various term lengths. So, yeah, you're right. I'd say there's definitely a value-add component in there, but there's also some core assets in undesirable markets that are sprinkled in there. When you think about what we're really doing, the overarching theme is that we're exiting markets with weak real estate fundamentals. We don't have scale, and we don't see a path to scale.
But by and large, the disposition portfolio is generally characterized by lower occupancy, lower margin, and older vintage, and all those things play into that 7% blended cap rate you're talking about.
John Pawlowski: Okay. Thank you.
Operator: Next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is opened.
Omotayo Okusanya: Hi. Yes. Good morning. Pete, great to see you are shaking the table so soon. Question around the lease-up portfolio. The $300 million you talked about. Trying to understand, you know, the $50 million NOI opportunity there. How much of that is just pure lease-up versus how much of it again is? And could any of the repositioning or redevelopment be disruptive to current NOI?
Pete Scott: Yeah. Hey, Tayo. Nice to chat with you as well. I would say the vast majority of the $50 million is simply just leasing up from, you know, 70% to 90%, but, obviously, getting a better rental rate is gonna have some contribution to it as well. But, you know, today, we're getting nothing on that, you know, vacant space, and we're actually absorbing all the expenses. So the lion's share of that move is getting, you know, tenants into the space. That said, we do see an opportunity to drive rate with capital that gets spent. If we don't see that opportunity, then what we would do is just look at selective, you know, RTOs and vacant suites. Right?
So it's not as if the entire amount is gonna come all from redevelopment. I mean, as we look at redevelopment, of those, you know, 95 assets, we see probably about 10 that fit into the redevelopment, you know, bucket where we think we can get the returns that we need. The balance of that is really gonna come through selective capital spend in the vacant suites.
Omotayo Okusanya: That's helpful. And then, Austin, just hoping you could help us kinda reconcile guidance again. You have a penny increase in the guidance. You are picking up on increasing store NOI of, you know, a penny or 2. You are picking up on the G&A spend, you know, about a penny or so. It sounds like, you know, you're talking about higher capitalized interest. There's also a couple of pennies. You have an offset on increased asset sales. But it still feels like, you know, that all kind of sums up to three or cents. Our guidance was already increased by a penny. Try to understand the difference.
Austin Helfrich: Yeah. Hey, Tayo. Thanks for the question. I think you should assume that we had good insight into the capitalized interest moves at the beginning of the year. And so what I would point you to from a guidance perspective is really the $4 million decrease in G&A coupled with the 25 basis points increase in same-store NOI. And then obviously, we've taken disposition volume up $500 million. What I would also say, Tayo, is we're halfway through the year. Ryan and his team are very hard at work at getting through the $1.2 billion of strategic dispositions as quickly as they can. We've guided $800 million to $1 billion this year.
But I would say it's early in the year, and there's continued timing uncertainty around when exactly Ryan will close on dispositions in the back half of the year. So say when you put all that together, we're pleased to be able to raise a penny given the increase in dispositions and given what Ryan and his team are working to accomplish this year.
Omotayo Okusanya: Much appreciated. Thank you, and best of luck to you guys.
Austin Helfrich: Thanks, Tayo.
Operator: Our next question comes from the line of Seth Berge with Citigroup.
Seth Berge: Hi, good morning. Thanks for taking my question. Align leasing and operations? Just if you could talk a little bit more about that.
Pete Scott: Yeah. So I would say a couple of things to that. One, the macro environment has improved. And if you look at the last five years and even the last couple of years, occupancy has trended up in outpatient medical. So you've got simply demand exceeding, you know, supply, and I think that's something that we see, you know, for the foreseeable future. So, obviously, we have that opportunity as well. A couple of other things I would just mention, you know, we are doing a very significant revamp to our asset management, you know, platform here, which I outlined in my prepared remarks, and we certainly see a benefit coming from that.
We're also disposing of assets that have historically been under-occupied. And as we laid out the bridge to go from the high eighties into the low nineties, the disposition portfolio certainly plays a role. So our same-store occupancy today is at 90%. I think that's the highest it's been in, I asked someone for the stat, I think, since, like, 2016. So it's been, you know, almost ten years since you've seen a 90% same-store number here. So, I mean, things are changing on their own.
And then, obviously, you know, I said a little bit of this in my prepared remarks, but the company was not really in a position to have free cash flow to reinvest into its assets. The balance sheet was really a big liability, not a source of strength, and we're fixing all those things. So I have a lot of confidence now that we have the cash flow to invest into our assets to be able to get that occupancy upside, and that's something that hasn't existed for quite some time here. So I think for all those reasons, we have a lot of confidence that we can get into that, you know, 92, 93% range over time.
It's not gonna happen, you know, overnight, although you should see a nice incremental benefit as we get more and more of these dispositions done.
Seth Berge: Thanks. And then, you know, you talked in your opening remarks about the opportunities for expansion with some of your top tenants. Can you just provide a little bit about what that looks like? Is that, you know, kind of investing in the portfolio and leasing existing space with them? Is that external acquisitions? You know, just kind of what does the growth opportunity look like with that?
Pete Scott: Yeah. I think first and foremost, it's having our health systems expand within our existing portfolio if there's room for that. And I think what we outlined on that slide in the strategic plan was in some cases, we can do better. Right? And I think we will do better, and we've opened communication with all those health systems to improve upon that, and I feel confident that we will gain some traction within that. I don't know, Rob, if you want to add anything more onto that topic.
Rob Hull: Yeah. I mean, I think certainly, you know, I think restructuring the platform is gonna help in that area. You know, having relationships really driving at the more at the local level. The redev lease-up portfolio, there's a lot of strong relationships inside of that lease-up portfolio that we are gonna continue to expand on, and we think a lot of the opportunities are gonna be taken by the health systems. I mentioned in my remarks that about a third of our leasing was related to health or came from our health system partners. I think we can do better than that, and so I think we're gonna continue to focus on that stat and drive that upwards.
Seth Berge: Great. Thanks.
Operator: Our next question comes from the line of Juan Sanabria with BMO Capital Markets.
Juan Sanabria: Hi. Thanks for the time. Just maybe piggybacking off of Tayo's prior question with regards to dispositions and the earnings. So how should we think about the exit run rate? Because it seems like some of the disposition dilution won't necessarily be fully factored into this year's increased FFO guidance. And as part of that, could you talk about the kind of the next leg of cost-cutting and what's driving that?
Pete Scott: Yeah. Let me start with that. You know, look, we've been spending a lot of time. First of all, Juan, it's great to talk with you. You know, we've been spending a lot of time going through the platform and savings within the. It's a little bit of what I would call just pure blocking and tackling. And so we've started heavily on the G&A side. And I think we're pretty pleased that we've been able to identify. We thought we could find about 3 pennies of, you know, savings to help offset some of the dilution as we want to get the balance sheet into a better spot, and, you know, we've been able to do that. Right?
It's not easy. Those are tough conversations to have with people, but everybody, I think, here, you know, understands that we've got an objective. And we know where we want to go. You know, with regards to additional, you know, savings, we'll certainly continue to look for that. I think most of that will come at the property level. Right, which will certainly help from a margin perspective. As we complete the dispositions, we look at the stabilized plus the lease-up portfolio. And if you look at the chart in there, there is some references to the total amount of, you know, employees within the platform, and that number, you know, coming down.
I would say that's not the biggest driver of margins improving. That certainly helps, you know, improve those margins. But really, the biggest driver of margins improving is gonna be from, you know, occupancy increasing, and that's where our focus is gonna shift. So we certainly have some additional, you know, cost savings opportunities, but really, what's gonna drive the path to FFO growth is gonna come through lease-up and revenue growth.
Austin Helfrich: Juan, it's Austin. I'll maybe just touch on your disposition. I think at the beginning of that, you had a question around disposition timing as well.
Juan Sanabria: Yeah. More just the run rate given the acquisitions are gonna be back half-loaded of how exit the year from FFO perspective vis a vis your revised guidance.
Austin Helfrich: Yeah. That makes sense. I would point you to page 28 of the strategy presentation, Juan, just to give you some insight into this. On the dispositions line item here, we give you the $1.2 billion at a 7% cap rate. You should expect that we are selling assets at that 7% cap rate to pay down debt at approximately 5%. We have given you the 6 pennies of estimated dilution off of the 25 revised guidance. It would be safe to assume that we would assume the vast majority of that 6¢ is going to impact 2026. To the extent that we close on additional asset sales in '26, I would expect it to be earlier in the year.
And so I think it is a good assumption to include that full 6¢ impact in your '26 numbers.
Juan Sanabria: Perfect. Thanks. And then just on the capital spend on the lease-up, some of which sounds like it's redev, some of it is first-gen, is now not included inside. Could you just give us a breakdown of, like, to drive that lease-up occupancy higher, the different buckets of CapEx and what will be and kinda won't be in that? If that makes sense.
Austin Helfrich: Yeah. I think it's a good question, Juan. If you look at redevelopment and the RTO, RTOs fall into first-gen capital. And then, obviously, we break out the redevelopment separately. So I would assume that the vast majority of that $300 million will not be included in maintenance capital.
Juan Sanabria: Thank you.
Operator: Our next question comes from the line of Michael Gorman with BTIG. Line is open.
Michael Gorman: Yes. Thanks. Good morning. Pete, could you spend just a minute on kind of the core portfolio? You talked about a focus being maximizing lease economics. And maybe give us some context that with the new organizational structure and with kind of the refined focus, maybe what the opportunity set there is from the lease escalator perspective or the lease spread perspective to kind of drive incremental growth out of that 75% that really represents kind of the core of the HR platform.
Pete Scott: Yeah. It's a good question, Michael, because I think that's gonna be the biggest growth engine and the biggest driver of earnings growth going forward. You know, one of the things that actually was encouraging when I was out seeing the real estate is, you know, I'm not saying we're getting this in every lease, but in some leases, we're actually getting, you know, escalators all the way up to 4%. You know, you look back, three, five years ago, escalators were kind of in that two and a half percent, you know, range. And didn't move for a long, long time. They started to trend up to 3%.
I think three is the norm today unless a tenant has a, you know, lease extension option already embedded in with a fixed, you know, escalator. If they don't have that, then we're getting 3% or better in every single, you know, deal. And we've actually started to talk about, can we push that even further? The other thing I would say is, that portfolio being 95%, you know, occupied, we certainly, you know, want to keep retention really, really high because capital spend and downtime is actually what really impacts, you know, your go-forward earnings trajectory. So keeping that, you know, portfolio fully occupied, pushing on retention.
And then, obviously, when you're in the 95%, you know, range, I think pushing on cash leasing spreads is important as well. So it's really a combination of all those, but I think pushing on the escalators more is something that we're gonna continue to work on and see if we can have some success with that.
Michael Gorman: That's helpful. Thanks. And then maybe a question for Ryan. Can you just give us a sense for, as you look at the pipeline of dispositions, you know, given the volatility we've seen year to date, how leverage sensitive are the buyers that are coming in and looking at these assets, or are these more cash buyers, owner-occupants? What's the composition of the buyer pool here for those dispositions?
Ryan Crowley: Yeah. It's a great question, Mike. And given the breadth of what we're doing, it really runs the gamut. What I would say is that today, there's more buyers and more equity looking to be deployed than there are assets available for sale. Frankly, our bid rosters, we've seen them deeper here on recent deals than we have in recent years. And we're seeing a lot of competitive bidding in the later rounds of our transaction processes, and that drives up pricing. So, you know, as we work through this large disposition portfolio, as always, it's about finding the right property for the right buyer.
And the private investors, the operators, they've partnered in recent years with a lot of new institutional equity that's come into our space. And that equity is continuing to look to flow into the outpatient medical. Over the last several quarters, the financing market has been accretive to going in cap rates. You know, we've seen banks really step up. Today, they're eager to lend. Seen compression on the spreads. We've seen good movement on the base rates. And today, if you're looking at financing a deal that you're acquiring from us, it's 5.6 to the low sixes on an all-in rate, which, again, is accretive to going in cap rates.
Cap rates today, you know, we're seeing deals go off in the high fives to the seven range. For a stabilized asset, you could see typically in that six and a half cap rate range. But one of the more interesting observations we've had as we've been progressing through the dispositions through the year is a real increase in health system MOB acquisitions activity. The proportion of deals that were going to health systems has more than doubled when you look at the transactions volume over the last two years. And what's interesting about the health systems is their decision-making is less about price. It's more about long-term strategy and control over an asset.
And frankly, that's constructive to our disposition pricing. So doing direct deals with health systems. We're doing marketed deals that are broker-driven. We're maximizing price and finding the right buyers. And there's no shortage of buyers out there.
Michael Gorman: That's really helpful. Thank you for the time, guys.
Ryan Crowley: Thanks, Michael.
Operator: Our next question comes from the line of John Pawlowski with Green Street.
John Pawlowski: Thanks for taking my follow-up. I just wanted to ask about the cost savings. I know there's roughly $5 million kind of been identified. But could you maybe help me bucket sort of that second tranche of savings into or maybe the entirety of it into already achieved or identified but not achieved and then maybe yet to identify and give us sort of a timeline on that three-year plan when you're expected to achieve that savings.
Austin Helfrich: Yeah. Hey, John. It's Austin. Let me bucket this starting with the G&A savings that we have already identified. And I would say, carried out the actions necessary to achieve. That is the $10 million of initial savings that we spell out in the strategy presentation. We will have achieved $5 million of that this year, and we expect to capture the remaining $5 million next year. If you then look at Page 28 of our three-year growth plan, we are highlighting another $5 to $10 million in additional saves beyond the $10 million of G&A that I just outlined.
I think it would be safe to assume that $5 to $10 million will be embedded more on the property operating expense. As Pete mentioned, the majority of the increase in margin at the properties will be driven by occupancy. But with the asset management platform and new leadership, we do believe there are some opportunities to achieve some additional savings in there as well. I would expect that to be more split over the next three years.
John Pawlowski: Got it. Thank you. And then maybe on the same-store performance, the same-store cash NOI growth is running still well ahead of the midpoint of your, you know, new revised upward guide. I'm curious how much of that is just you're seeing better demand for your product, better leasing up versus maybe this is also part of the culling process of those noncore assets.
Austin Helfrich: It's a really good question, John. I'm gonna be really specific on this. Which is just to your last point, the assets that were sold during the quarter had only about a 30 basis point impact on our same-store. So we were right at five either way. I would say if you look under the surface, what is happening is the 100 basis points year-over-year increase in occupancy is really starting to pull into that same-store NOI growth. In the first quarter, I talked about some difficult comps.
But I think as we get into the second quarter, this is what I would say much more reflective of what I would expect from the business given the year-over-year occupancy increases that we're seeing. I do think, to your earlier question, our same-store growth year to date is 3.9%. Obviously, that's a little bit above where our guidance, our revised guidance is for the year. Let's say as we're halfway through the year, we've got a lot of leasing still to do this year, so we'll see how things play out in the third quarter and update you then.
Pete Scott: Yeah. And the one thing I would add to that, John, I mean, obviously, you look at the three-year, you know, framework that we put out in the deck, you know, it's got 3 to 4% NOI growth embedded within it. I mean, I'm searching for the 3 to 4%. I know some of the numbers you've seen have been at 5%. If we could do better, great. But the baseline that we set out was the 3 to 4%. You know, we're working hard to achieve that.
John Pawlowski: Okay. Very helpful. And just last one for me. I know you've already talked a ton about this today. But just on as we think about CapEx and the focus on the RTO plan, I'm just kind of curious how I should think about the cadence of CapEx as a percentage of NOI going forward here?
Austin Helfrich: Yeah. I think, John, it would be a fair assumption. I answered this a little bit earlier, but just to put a fine point on it. The RTO program is really, I think, what many people call spec suite program, which is gonna fall into and does fall into our first-generation TI bucket. And then the capital for redevelopment will obviously flow through the redevelopment bucket. So I think from a maintenance capital perspective, it would be fair to look at our year-to-date experience and assume that's a reasonable starting place looking for.
Pete Scott: But maybe that didn't answer your question entirely. I know that those are all the right facts. I was just, your question might just be how do how should we model the $300 million spent? I mean, I think the RTO probably gets spent, you know, ratably over, you know, three years. I think the redev, probably the best assumption today is it's probably, you know, more of a ratable spend. But if we can accelerate that a little bit, right, because we talked about $20 to $40 million of the $50 in our framework, I'd like to get as much of that as we can.
But I think the way we initially thought about it is spending that over, you know, three years. And if there's an opportunity to accelerate it, great. But I think for modeling purposes, I'd probably look at that $300 million as $100 million each year for the next three years.
John Pawlowski: Got it. Very helpful. Thanks, guys.
Pete Scott: Yeah. Thanks, John.
Operator: Our next question comes from the line of Mike Mueller with JPMorgan. Your line is open.
Mike Mueller: Yes, hi. I have a couple of questions, but a quick clarification first. Rob, when you were talking about 75 to 125 basis points of leasing absorption in 2025, was that overall occupancy, same-store occupancy, multi-tenant occupancy? What was the metric that was for?
Rob Hull: Yeah. That's the same-store occupancy gain guide that we gave for this year. In the same store. So that's overall?
Mike Mueller: Okay. Yeah. And then I guess what we're looking at the three-year NFFO target, $1.65 to $1.85, what are the biggest moving parts between the top and the bottom end of those of the range?
Austin Helfrich: Good question, Mike. I think on page 28, we try to give you some of kind of what I'll call, you know, goalposts here for either side. I would say, I think some of the biggest things that we'll look to drive is the biggest number, if you look across this page, right, is the annual NOI growth that Pete touched on earlier for the base portfolio. So driving that compounding cash flow growth of 3% to 4% in the portfolio. The closer we can be to four, the bigger that delta becomes. And there's obviously an enormous amount of spread there in terms of the compounding over three years.
I think the second is how quickly can we achieve the $50 million of upside in the lease-up portfolio. From a redevelopment perspective, that can take time for that number to hit. So how much falls into that three-year period? We're gonna be working as hard as we can, but that will be a little bit of a spread as well. I think from the dispose and other things we've laid out, those things kind of are what they are, and the math is what it is at this point based on the strategic plans. I would kind of point to those two top side items.
Pete Scott: And, obviously, Mike, as you know, everyone's gonna model our refinancing rates in some way. And we laid out what we think that sort of bookends are with a little bit of cushion on the low end and the high end. I mean, we have zero control over that at this point in time. So, obviously, that could change, and there's nothing that we can obviously do about it. I mean, obviously, we'd be fans of rates, you know, declining. I think everyone in REIT land would say that fantastic, but we don't have any control over that. But we did lay out what we thought were kind of the bookends today, and that could change tomorrow.
Mike Mueller: Got it. Okay. That's good. Thank you.
Pete Scott: Yep. Thanks, Mike. Thank you.
Operator: Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is open.
Omotayo Okusanya: Thanks for taking my follow-up. I just wanted hello? Yeah. Hey, Kyle.
Pete Scott: Hey. Just a quick follow-up. Just curious what your thoughts are in regards to the one the big, bill and potential positive or negative implications for medical office buildings?
Pete Scott: Yeah. I mean, that's a good question. I think the short answer is probably it's still a little too soon for us to know exactly what's gonna happen. We actually met one of our larger health systems earlier this year, and she conceded that they're still getting their arms around what exactly this means. So I'd say, probably too soon to tell. You know, our initial reaction to it is like, a lot of these changes, it tends to indirectly have a benefit on the outpatient model, and that's something that has not changed for a long time.
And I think there are charts that show that's been happening for many, many years just given the profitability inside of our buildings versus inside of the hospital. You know, what hospitals could be most affected by this? We have talked about that as well. And I think that the rural hospitals are probably the ones that will struggle the most with the Medicaid cuts. We really are not impacted at all by that, just given where our assets are geographically located. So it's a good question, Tayo. We're continuing to monitor it. I mean, and outside of that, there's obviously been some CMS proposals that have been out there on, you know, site neutrality.
That's come up a little bit. And, again, I'll just reiterate the point I said before. Which is, you know, that to me feels more like a real benefit to the outpatient model, as doctors can choose the site where they would like that procedure to happen. They don't just have to have the default at the hospital. And, again, we see that as a demand driver for our space as well. And I think a lot of our other peers have been saying the same thing as well. So it's a really good question. We're continuing to monitor it. But I don't look at it as having an impact necessarily on our business.
Omotayo Okusanya: Great. Thank you.
Pete Scott: Thanks, Kyle.
Operator: And there are no further questions at this time. I would like to hand the call back over to Pete Scott for some closing remarks.
Pete Scott: Yeah. Perfect. Thanks very much. And look, thanks for everyone for joining the call. We put a lot out. We appreciate you digesting it all and asking some great questions on this call. We look forward to seeing all of you as we get out into the market and do a lot more IR work this quarter. So we look forward to seeing you in the upcoming months. Thanks very much.
Operator: This concludes today's conference call. You may now disconnect.