Note: This is an earnings call transcript. Content may contain errors.

Image source: The Motley Fool.

DATE

Friday, Oct. 31, 2025, at 9 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Peter A. Scott
  • Chief Operating Officer — Robert E. Hull
  • Chief Financial Officer — Austen B. Helfrich
  • Chief Investment Officer — Ryan E. Crowley

RISKS

  • CEO Scott confirmed, "some of the assets that are taking longer to get done, and it shouldn't be a surprise, are those with value-add components associated with them, good assets just maybe in different markets or markets we're not going to be concentrated in going forward. So I'd say that the balance of what is remaining to close is probably skewed more to the value-add component," indicating remaining dispositions of approximately $700 million as of fiscal Q3 2025 (period ended Sept. 30, 2025) may face higher execution risk and potentially higher cap rates.
  • CEO Scott stated, "we want to do with the asset? It may require some pretty significant capital investment to reposition it to get the appropriate increase in rates within that market," highlighting ongoing capital risks related to vacancy and asset repositioning.
  • Approximately $22 million in restructuring costs over the past two quarters, implying non-recurring charges are still impacting reported results as the organizational restructuring phase continues.

TAKEAWAYS

  • Normalized FFO per share -- $0.41 in fiscal Q3 2025 (period ended Sept. 30, 2025), a 5% year-over-year increase.
  • Same-store cash NOI growth -- 5.4% year over year in fiscal Q3 2025, with same-store occupancy up 90 basis points to 91.1%.
  • Leasing pipeline and activity -- 1,100,000 square feet in the active pipeline as of fiscal Q3 2025, with 1,600,000 square feet of executed leases in the quarter, including 441,000 square feet of new leases; tenant retention nearly 89%.
  • Disposition activity -- $500 million in asset sales year-to-date at a blended cap rate of 6.5%, with approximately $700 million in additional dispositions under contract or LOI; two-thirds of dispositions classified as non-core, at a 7.25% blended cap rate, the remainder core at 5.75% (e.g., Richmond, VA portfolio at $171 million, high-5% cap rate).
  • Debt reduction -- Leverage decreased to 5.8x net debt to EBITDA, with $225 million of 2027 term loans repaid and $500 million of debt repaid year-to-date in 2025.
  • Guidance updates -- FFO per share guidance midpoint raised to $1.59–$1.61 for 2025; same-store cash NOI growth outlook lifted to 4%–4.75% for 2025; G&A guidance of $46 million–$49 million for 2025.
  • Development/redevelopment -- Two projects (All Saints II and Macon Pond) are expected to provide approximately $8 million in stabilized NOI; five new asset redevelopments with a $60 million budget and an anticipated $8 million in incremental NOI from these projects.
  • ATM and buyback authorization -- New $1 billion at-the-market equity program and up to $500 million share buyback authorization secured; prospectus filing expected in Q4.
  • Portfolio shifts -- High concentration in largest and fastest-growing MSAs, with assets moved into held for sale and out of the same-store pool (over 40 assets transitioned in fiscal Q3 2025).
  • Annual lease escalators -- 3.1% average annual escalators across the portfolio, with achievement of consistently higher escalators in new and renewed leases.

SUMMARY

Healthcare Realty Trust (HR 0.23%) reported $500 million in year-to-date dispositions as of fiscal Q3 2025 (period ended Sept. 30, 2025), with the remaining $700 million disposition pipeline primarily under binding agreement, shifting portfolio quality and market concentration. As a result of robust expense controls and occupancy gains, the company delivered a 5% year-over-year increase in normalized FFO per share and raised both FFO and same-store cash NOI growth guidance for 2025. Transaction activity is driving deleveraging, as net debt to EBITDA fell to 5.8x, while management expects further balance sheet improvement as additional sales close and term loans are repaid, as discussed in the earnings call. The new $1 billion ATM program and refreshed $500 million buyback authorization expand capital allocation options, although management stated there are no immediate plans to use the ATM at current stock levels. Looking ahead, the company highlighted significant redevelopment and development contributions that are expected to enhance NOI. Health system leasing comprised nearly 50% of total activity, up almost 20% from the low point in 2023, and is near its highest level in recent memory. Annual lease escalators averaged 3.1% across new and renewal contracts.

  • COO Hull reported, "Tenant retention increased to nearly 89%, the highest in six years, and marked our sixth consecutive quarter over 80%," demonstrating consistent leasing momentum and reduced churn.
  • Private institutional capital and health systems each accounted for about half of assets sold in 2025, with buyer demand supported by CIO Crowley's statement: "Bank originated loan rates are dipping into the high 4s."
  • The new asset management model is targeted for full implementation by year-end, with added staffing to further localize portfolio decision-making accountability.
  • CEO Scott emphasized, "As we think about maximizing lease economics, we have implemented a payback period model as well as an IRR model over the last couple of quarters," refocusing negotiations on cash returns and retention economics rather than lease volume.
  • With planned dispositions nearly complete, management expects external growth to be moderate. CEO Scott said, "We certainly could look to grow some of our joint ventures, and we are talking to our joint venture partners actively on that. And then we could look to do some selective smaller deals, tuck-in acquisitions in core markets or on core campuses. But that's the way we're thinking about it right now," and not through significant open-market acquisitions or equity issuance.

INDUSTRY GLOSSARY

  • MSA (Metropolitan Statistical Area): A geographic region defined for statistical purposes by the U.S. Office of Management and Budget, signifying large population centers relevant to real estate market analysis.
  • Cap rate (Capitalization Rate): The ratio of a property's net operating income to its acquisition price; used to assess asset yield in real estate transactions.
  • LOI (Letter of Intent): A preliminary, non-binding agreement outlining principal terms of a potential transaction before formal contracts.
  • MOB (Medical Office Building): A building primarily leased or occupied by outpatient healthcare providers; a core asset for healthcare REITs.
  • ATM (At-the-market offering): An equity issuance program allowing a company to sell shares directly into the market over time, based on prevailing prices.
  • NOI (Net Operating Income): Total income from property operations less operating expenses; a key metric for REIT portfolio performance.
  • FAD (Funds Available for Distribution): A measure of cash flow, reflecting a REIT's available funds for dividends after capital expenditures.

Full Conference Call Transcript

Peter A. Scott: Thanks, Ron. Joining me on the call today are Robert E. Hull, our COO, and Austen B. Helfrich, our CFO. Also available for the Q&A portion of the call is Ryan E. Crowley, our CIO. I wanted to open with some important feedback on the strategic plan. During the course of the third quarter, we met with over 100 investors across trips to Chicago, New York City, Boston, and the Mid-Atlantic. With the dividend decision behind us, the tone of the meetings differed dramatically from earlier in the year. The excitement around our strategic plan is palpable, and the value creation opportunity is significant. The challenge ahead of us is simple: to exceed our three-year growth framework.

To that end, we are assessing every possible opportunity to improve earnings, and the hard work is already manifesting into better results. Over the last two quarters, same-store NOI growth has averaged 5.25%. Same-store occupancy has increased 180 basis points, and net debt to EBITDA has been reduced by half a turn. We are also becoming increasingly more positive on the tailwinds for Healthcare Realty Trust Incorporated.

First, the secular trends in outpatient medical continue to improve with demand far exceeding supply. For the seventeenth straight quarter, occupancy increased across the top 100 metros and is approaching 93%, an all-time record. Second, our new leasing pipeline continues to grow and stands at 1,100,000 square feet. Two-thirds of our pipeline is in the LOI or lease documentation phase, indicating a high probability of completion. Third, with our improved occupancy levels, we can push harder on lease economics. Our primary focus is no longer on volume but on economic returns as we seek to maximize retention escalators and cash leasing spreads.

Fourth, with our rapidly improving leverage profile, for the first time in years, we have capital to invest accretively into our portfolio, and we are quickly building up dry powder to go back on offense. Fifth, with the progress we've made on our strategic dispositions, our portfolio is uniquely concentrated within the largest and fastest-growing MSAs. When combined with our exceptional health system alignment, these key portfolio attributes should lead to superior operating performance in the quarters and years ahead.

Turning to the third quarter, we delivered excellent results with contributions across the platform. With the financial rigor we are instilling in the organization, we are quickly shifting from a company that fell short of expectations to a company that is exceeding them. Normalized FFO was $0.41 per share. We raised both our FFO and same-store guidance, and for the first time since early 2022, net debt to adjusted EBITDA is below six times. A special thanks to the entire Healthcare Realty Trust Incorporated team for their extraordinary efforts this quarter. We followed up a win in the second quarter with a win in the third quarter.

That is not an easy thing to do, and the team rose to the challenge.

Turning to the transaction market, as evidenced by recent activity, the transaction market for outpatient medical is heating up. A variety of factors are contributing to this, including improving sector fundamentals, a favorable lending market, and strong health system appetite to own strategic real estate. The combination of these favorable dynamics is driving cap rate compression. We are benefiting from these improving trends, and we have reduced the midpoint of the expected cap rate on our dispositions by 25 basis points. We are nearing completion of our lofty disposition initiatives. Year to date, we have sold $500 million of assets at a blended cap rate of 6.5%.

Our remaining disposition pipeline, totaling approximately $700 million, is almost entirely under binding contract or LOI. By our next earnings call, we expect to have closed on the vast majority of our remaining dispositions. With every completed transaction, our go-forward NOI growth profile improves, as demonstrated by our strong same-store growth results this quarter. In addition, with the potential for excess balance sheet capacity by year-end, we are monitoring the transaction market for select external investment opportunities that are both strategic to our portfolio and accretive to earnings.

We wanted to elaborate more on the cap rates achieved on dispositions. Two-thirds of our dispositions, or approximately $800 million, are what we would characterize as non-core assets. We define non-core assets as those located in non-priority markets with suboptimal operating performance and significant capital needs. Non-core assets also include a few legacy office properties. The blended cap rate for these assets is 7.25%. The other one-third of our dispositions, or $400 million, are what we would characterize as core disposition assets. We define core disposition assets as those with good operating performance and high occupancy but are located in markets where we have limited scale and/or an inability to achieve meaningful scale.

The blended cap rate for this subset of assets is 5.75%. A good example of a core disposition is our six-asset Richmond, Virginia portfolio, which we are under binding contract to sell with an expected mid-November closing. We received unsolicited interest in this portfolio and opted to run a full sales process to maximize value. Final pricing was $171 million, or roughly $425 per square foot, achieving a high 5% cap rate. Richmond is one of our few remaining markets where we utilize third-party property management, and we did not see an opportunity to grow our market share.

With an occupancy rate above 93%, an average building age of nearly thirty years, and strong tenancy, we believe the cap rate on this portfolio is a good representation of the value embedded within our remaining stabilized portfolio.

Turning now to our development and redevelopment platform, we have two projects in our active development pipeline: the All Saints II project in Fort Worth, Texas, which is anchored by Baylor Scott and White, and our Macon Pond project in Raleigh, North Carolina, which is anchored by UNC REX Health. The All Saints II project is now 72% leased, up from 54% last quarter, and we recently placed the project into service. The Macon Pond project is 51% pre-leased, and we expect to place the project into service in mid-2026. Stabilized NOI from these two projects is expected to be approximately $8 million, providing a source of near-term upside. We see significant opportunity to harvest meaningful upside in our portfolio through targeted ROI-driven investments.

During the third quarter, we added five assets into our redevelopment portfolio with a total budget of approximately $60 million. These assets are in strong submarkets and include Nashville, Seattle, Denver, Charlotte, and Dallas. The incremental NOI from these five projects is also expected to be nearly $8 million. In the coming quarters, we expect to have more assets enter the redevelopment pool as we seek to accelerate our capital spend and potential earnings upside. You will note that we enhanced our development and redevelopment disclosures in the supplemental. We have also included a table of our current non-income-producing land parcels.

We own strategic land parcels in key markets such as Denver, White Plains, Atlanta, Nashville, and Austin, with annual carry costs of approximately $1.5 million. We are in the process of assessing each parcel to determine if it makes sense to continue to hold or monetize.

In finishing, we are incredibly excited about the future at Healthcare Realty Trust Incorporated 2.0. Our operating performance is steadily improving. Our transition to an operations-oriented culture is happening faster than anticipated. Our balance sheet initiatives are nearly complete. We are accelerating capital spend into our existing portfolio, and we are rebuilding much-needed credibility with the investor community. On my first earnings call, I said we have one overarching objective: to be the first choice for equity investors when they are seeking exposure to outpatient medical. As the only pure-play outpatient medical REIT, our undivided attention allows us to singularly focus on this objective every day. Let me turn the call over to Robert E. Hull, who will expand more on operations and leasing.

Robert E. Hull: Thanks, Pete. We had an exceptional quarter on the operations front. Leasing activity was strong with 1,600,000 square feet of executed leases, including over 441,000 square feet of new leases. Tenant retention increased to nearly 89%, the highest in six years, and our sixth consecutive quarter over 80%. And annual escalators of 3.1% improved the average across our total portfolio. Our activity this quarter contains several notable deals with some of our top health system partners. As examples, a 21,000 square foot lease was signed with Baptist Memorial in Memphis. An 18,000 square foot lease was executed with Baylor Scott and White at our on-campus development in Fort Worth.

And a 25,000 square foot renewal was completed with MultiCare at our building on the Overlake Hospital campus in Seattle. The backdrop for industry fundamentals remains strong, supporting further growth in our 1,100,000 square foot lease pipeline. This quarter, demand in the top 100 MSAs outstripped supply over 740,000 square feet, and completions as a percentage of inventory remain near all-time lows. Health systems remain on solid footing and continue to rely on outpatient facilities as a key component to reduce operating costs and expand market share. Throughout this year, health system activity as a percentage of our total leasing has continued to climb.

This quarter, we saw health system leasing comprise nearly 50% of our total activity, up almost 20% from the low point in 2023.

Turning to our same-store portfolio, occupancy improved by 44 basis points sequentially, ending the quarter at 91.1%. For the year, we have gained 77 basis points of occupancy, placing us inside the range of our full-year expectations of 75 to 125 basis points. We expect our absorption momentum to continue in the fourth quarter. Shifting to the operating platform, we have made considerable progress migrating to an asset management model. Recently, we hired two additional asset managers, and we expect to fill the last couple of positions within this new platform in the coming months. Full conversion is targeted for the end of the year, providing greater accountability closer to the real estate.

A key area of focus for the new asset management team will be the portion of our portfolio deemed lease-up in our strategic plan. This quarter, we saw notable leasing activity from this segment of our portfolio. Out of the 441,000 square feet of new leases that I mentioned earlier, 217,000 square feet, or nearly 50%, came from these properties. I want to congratulate our team on the leasing and absorption gains we made this quarter. With a robust leasing pipeline, strong tenant retention, and tightening supply, our portfolio is poised to see further leasing momentum and NOI growth throughout the remainder of the year and into 2026. I will now turn it over to Austen B.

Helfrich to discuss financial results.

Austen B. Helfrich: Thanks, Rob. This morning, I'll provide an overview of our third quarter 2025 results, our capital allocation activity, and our updated 2025 guidance. Our strong year-to-date momentum carried into the third quarter with normalized FFO per share up 5% year over year to $0.41 and same-store cash NOI growth of 5.4%. Additionally, second quarter FAD per share was $0.33, resulting in a quarterly payout ratio of 73%. Our outperformance this quarter was broad-based, including 90 basis points of year-over-year occupancy gains, 3.9% cash leasing spreads, and strong expense controls.

We are at or above the high end of all of our core operational expectations for the year, driven by our focus on pushing accountability and decision-making closer to the real estate, as well as a natural uplift from the sale of the disposition assets. We moved rapidly in the second quarter to reduce expenses across the organization. This progress showed in the third quarter with normalized G&A of $9.7 million. While we are still building out key teams, we have a clear line of sight on our target of $45 million of G&A in 2026 and are well on our way to completing the build-out of our best-in-class platform.

Proceeds from disposition activity during the third quarter and through October funded the repayment of approximately $225 million of our 2027 term loans, decreasing our leverage to 5.8 times. Inclusive of our bond repayment earlier this year, we have paid down approximately $500 million of notes and term loans in 2025. The revolver and 2027 term loans will continue to be the use of proceeds for near-term dispositions as our leverage continues to move into the mid-5s. Now turning to our updated 2025 guidance, we are increasing the midpoint of our FFO per share guidance by $0.01 to a new range of $1.59 to $1.61.

Additionally, we now see same-store cash NOI growth of 4% to 4.75% and G&A of $46 million to $49 million. Before we turn to Q&A, I want to note that this quarter we received Board authorization for a $1 billion ATM equity program and up to $500 million in share buybacks. The prospectus for the equity program will be filed in the fourth quarter. Our existing share repurchase authorization expired this quarter, and this new authorization is part of our normal course business. It's good practice to have both programs approved and available should we need them. Operator, we're now ready to move to the Q&A portion of the call.

Operator: Thank you. First question comes from Nicholas Philip Yulico from Scotiabank. Please go ahead. Your line is open.

Nicholas Philip Yulico: Thanks. I guess, morning. First question is just in terms of as you think about the NOI impact on the whole portfolio over the next several quarters. It's a little bit easier to model the asset sales, but can you talk some more about the redevelopment? You talked about more assets entering that pool. Presumably, there's some earnings drag from that. And then, but then you also have occupancy sort of picking up in the rest of your pool. So just any sort of high-level thoughts about how to think about that impact over the next couple of quarters? Thanks.

Peter A. Scott: Yes. Hey, Nick. It's Pete here. So I think from the stabilized portfolio perspective, as we've talked about, and as we laid out in our strategic deck, we think a good stabilized year-over-year growth rate is probably more like 3% to 4%, and if fundamentals continue to improve, we'll continue to assess if you can even do better than that. But I think we've laid out 3% to 4%. I think on the incremental $50 million of upside to NOI over the next three-plus years, we did forecast probably $20 million to $40 million was the range over the next three years since the capital spend does take time to go out the door.

And ultimately, the NOI you achieve from those redevelopments takes a couple of years to earn in. So we have laid out a revamped table in our supplemental, and we're open to any feedback from people on any additional information to include in there to help from a modeling perspective. And I think as you think about the $50 million of NOI, probably half of that is coming from redevelopments. And we added five assets in this quarter; I would expect to add probably another five to ten over the next couple of quarters. One of the things that challenged the team here to do is to identify those assets sooner rather than later.

So we can start to work towards the higher end of that incremental NOI upside. And that's why you saw a lot more come into the pool this quarter, and you'll see more come in the next couple of quarters as well. And we'll continue to provide information for everybody to track. The other kind of $25 million of the $50 million of upside is going to come from the lease-up portfolio that is not redevelopment. A lot of those are in same-store. I think that's one of the reasons why you're able to see some better than 3% to 4% NOI growth numbers that are coming out today as we're beginning the lease-up and the absorption in those assets.

I could see that continuing for another year or two as well as we selectively invest capital into suites and not do redevelopments there, but targeted specific suite-by-suite capital investment. So that's the way we're thinking about it. I know there was a lot to unpack within that, but I wanted to give two big buckets within the $50 million of incremental NOI over the next couple of years.

Nicholas Philip Yulico: Okay, great. Thanks. And then the second question is just in terms of the health system share of leasing picking up this quarter. Was that also just like skewed by renewals for those health systems in the quarter versus prior quarters? Or are you having, can you think, more success in terms of actually capturing a higher health system share in your new leasing, which I know has been a focus for you guys? Thanks.

Peter A. Scott: Yeah. Maybe I'll let Rob handle that one.

Robert E. Hull: Yeah. Hey, Nick. Yes, I think that the volume that I talked about was total leasing. Certainly, we've seen a pickup this year. It's sort of been a gradual trend upwards this year. And really going all the way back to 2023, as I mentioned, that low point in '23. And so it's what we've continued to experience in terms of the continuing trend from moving services out of the hospital into the outpatient setting, which is certainly a tailwind for us. Then I think it also is continuing to improve tenant relations with our health systems and the effort that we've been doing over the past couple of years, you're really seeing that payoff for us.

So it's a combination of health systems continuing to grow and to grow their market share, but then I think also just better tenant relations and continuing to work relationships we have.

Peter A. Scott: Yes. And Nick, the revamped asset management platform, I think this is one of the really big benefits of it. The asset managers are really going to be point on the health system relationships, and with the local teams out in their various markets, dialogue from our company to them has picked up pretty significantly over the last couple of quarters. I expect that to continue to pick up going forward.

Nicholas Philip Yulico: All right. Thanks, guys.

Operator: Our next question comes from Richard Anderson from Cantor Fitzgerald. Please go ahead. Your line is open.

Richard Anderson: Hey, thanks. Good morning. So you lowered your cap rate assumption for dispositions by 25 basis points to 6.75%. You've been able to achieve 6.5% year to date. I'm wondering if that's conservatism or if you think more, well, I guess you did say more of the remaining is coming out of the non-core bucket. Is that right? Is we would expect that the cap rate number for the remaining disposition to be higher for that reason. Do I have that logically correct?

Peter A. Scott: Yes. Yeah. Obviously, we've been pleased with the execution so far. And year to date, we're at 6.5%. Our expectation is some of the assets that are taking longer to get done, and it shouldn't be a surprise, are those with value-add components associated with them, good assets just maybe in different markets or markets we're not going to be concentrated in going forward. So I'd say that the balance of what is remaining to close is probably skewed more to the value-add component. And like I said, there's also some legacy office assets as well that we're looking to shed.

So I would not look into anything other than it's just the mix of the assets remaining is probably a little bit higher from an unlevered IRR perspective as the way the buyers are looking at it.

Richard Anderson: Okay. And then there's a lot going on in medical office these days, largely in terms of dispositions. You, Welltower, DOC are all in the market to sell. Total about $9 billion to $10 billion at least just from those three companies. Does what does that tell you in terms of the appetite? I mean, does it give you any pause to see that level of selling when this is your business? And if not, I assume you're going to say no. And if not, tell me why.

Peter A. Scott: I think what it's showing is that there's a very, very strong bid for outpatient medical in the private markets right now. It's probably the best way to characterize it. Our focus on dispositions is really to create the best portfolio going forward from an NOI growth perspective. And our balance sheet was over-levered, and that dates back multiple years. And when you see at our balance sheet leverage metrics to a more appropriate level, and they're almost there at this point in time. So our intent is to complete the dispositions that we are working on right now. We're pretty darn close to that.

It's a pretty lofty goal to get all that done this year or really before our next earnings call. But we're really happy with the strong bid for the asset class. I think it shows that investors see a lot of value in it. And we look forward to continuing to generate pretty strong returns on the portfolio that we're keeping and going forward. And we'd like to switch to going more on offense as opposed to going on or really playing more of a defensive game at the moment. And I think that's going to come pretty soon. We're going to have balance sheet capacity to be able to shift to go on offense as well.

So I look at it and say, great, there's a lot of product on the market. Maybe there's opportunities for us in joint ventures or even on balance sheet to start to take advantage of that.

Richard Anderson: I guess the thing that I concern myself with is like the one thing that we've been waiting to happen is to extract some of the medical office ownership by the systems and get at stuff that sort of tied up there. Is a lot of this sale activity going back to the health systems and hence sort of you're kind of going backwards in time in terms of the ownership structure of medical office. I'm just wondering, I guess, the buyer pool and what the long-term ramifications are of it.

Peter A. Scott: Health systems have certainly picked up their purchasing. And we've noted that we've actually generated some pretty strong cap rates. I'd say the health system deals tend to be on the lower end of the cap rate range of what we've been quoting. So I think that's great. We can take advantage of that to the extent that we need to. But the majority of what you just quoted, $8 billion to $10 billion, is not going to health systems. I mean, health systems have ROFRs, and some of it will end up in their hands because they want to control the strategic real estate on their campuses.

But most of that $8 billion to $10 billion that you just mentioned is going to non-health system buyers.

Richard Anderson: Okay. Great. Thanks, Pete. Thanks, everyone.

Operator: Our next question comes from Austin Todd Wurschmidt from KeyBanc Capital Markets. Please go ahead. Your line is open.

Austin Todd Wurschmidt: Hey, good morning, everybody. Pete, just going back to the plans to add additional assets to the redevelopment pool in the coming quarters, I'm just wondering, are these currently occupied assets that there could be an initial move out before you add that into the pool? It looked like there was a move out in that bucket this quarter. Are these just normal course assets that are in that lease-up bucket that needs a little bit of capital in order to achieve the returns that you're focused on?

Peter A. Scott: Yeah. I would say that most of it is current vacancy. And we see an opportunity to invest capital, or it's perhaps there's near-term role coming up, and we see an opportunity with some investment to get the Anchor Health System to extend on a long-term lease and at a pretty healthy mark to market. That's the majority of it. Every now and again, you will have a vacate. Although if you look, our retention numbers are pretty darn high. So I'd say this is in the minority where you have a tenant vacate, and you say, what do we want to do with the asset?

It may require some pretty significant capital investment to reposition it to get the appropriate increase in rates within that market. But I'd say that happens probably less frequently than it is for us today. Current vacancy or an opportunity to invest some capital and also get a pretty nice markup on the existing rent roll roster.

Austin Todd Wurschmidt: That's helpful. And then, Austin, I mean, you had referenced kind of looking forward to pivoting and potentially moving on offense. And then Austin kind of flagged that you put in place the ATM as a capital allocation tool and source. I mean, is that something that we should expect in the near term from you guys to start to lean into that a little bit? And given the fact that the transaction market is heating up and there are opportunities out there that maybe you could mine through it and find something that kind of fits with the profile that you're looking for today and sort of the Healthcare Realty Trust Incorporated 2.0?

Peter A. Scott: Yeah. I would say, I think as a matter of course, it makes sense to just always have an active ATM in place. We're not intending to use it based upon where our stock is trading today. We do have some balance sheet capacity that we are building, though, through delevering below our target leverage levels. And as we think about going on offense, it's not huge numbers as a result of the fact that we are constrained. We're not going to issue equity at today's level. But we certainly could look to grow some of our joint ventures, and we are talking to our joint venture partners actively on that.

And then we could look to do some selective smaller deals, tuck-in acquisitions in core markets or on core campuses. But that's the way we're thinking about it right now. And don't want anyone to come off this call and think, they're putting an ATM in place. They're going to start issuing equity again. Just think it's important to have it up and running. It hasn't been up and running for years. So that's really why I had Austin say what he said in the prepared remarks was to just tell people it's coming, but I wouldn't read anything into it.

Austin Todd Wurschmidt: Yeah. That's helpful clarification. For the time.

Operator: Next question comes from Juan Carlos Sanabria from BMO Capital Markets. Please go ahead. Your line is open.

Juan Carlos Sanabria: Hey, this is Robin sitting in for Juan. On the $700 million that this dispositions on the contract, just curious if any of them are in the same-store pool if anything, any of them are targeted for a JV and what pricing you're expecting?

Peter A. Scott: Yeah. No. None of them are targeted for joint ventures. So they're all going to get, you know, sold 100%. And then are any in the same-store pool? I would say at this point in time, no. Given how far along we are, and the probability of those closing, the high degree of probability of them closing. They're all in held for sale at this point in time, and that was the big move where you saw, I don't know, 40 plus assets go from the operating portfolio into held for sale this quarter.

Juan Carlos Sanabria: And so on the recent dispositions, there wasn't any impact to the same-store NOI increase after they were not part of the same-store pool on the recent dispositions either.

Austen B. Helfrich: Yeah. Hey. Good morning. It's Austin. If you look at the increase in same-store NOI guidance for the year, I'd say the vast majority of that is being driven by especially looking at the third quarter 4% same-store revenue growth, 90 basis points of year-over-year occupancy gains, and sub-two percent property operating expenses. So I'd say the core portfolio, the stabilized portfolio continues to perform extremely well. And even including the assets moving into held for sale, we still would have been at the top end of our revised guidance range for same-store growth.

That being said, there is, as I mentioned in my prepared remarks, a little bit of an uplift just given the disposition portfolio as we showed in the strategic deck. Does grow slower than the core stabilized portfolio.

Juan Carlos Sanabria: Thank you. And shifting to the external growth opportunity, could you maybe level set expectations with us when you're early at the possibility to go on offense?

Peter A. Scott: Well, I think just from a balance sheet capacity perspective, we said we wanted to be kind of in the mid to high five net debt to EBITDA. We're at 5.8. We'd like it to come down a little bit from here. But when you factor in $700 million more of sales still yet to go and some debt repayment there. We will go likely less than 5.5 times net debt to EBITDA. So it's probably anywhere from $150 million to $300 million of capital we can put out without taking our leverage levels beyond what our targets are.

So we're building up a little bit of dry powder, and that doesn't give us any benefit for EBITDA growth in future years and so on and so forth. It's just the immediate amount of capital. So there's some tuck-in acquisitions we could do, and they would be accretive since we'd be financing that with 100% leverage.

Juan Carlos Sanabria: And then lastly for me, if I may. On the margin improvement timeline, you outlined in the recent deck that the 65%, 66%, can you maybe just elaborate a little bit on that on timing?

Peter A. Scott: Yeah. You know, I think I'll talk both about occupancy and margins. We did lay out a three-year growth framework, and we did lay out the pieces to that. I think selling some of these, I'll call, higher IRR value-add assets, you get an immediate benefit from that, and you're seeing that right now with our same-store occupancy at a little bit better than 91% in our total occupancy and the very high 80s. I think it's 88%, 89%, probably 89% plus at this point in time. And our margins are in that 64% to 65% area last quarter and this quarter.

So it's probably over multiple years that we would see that stabilized occupancy and margin levels, but we're working our way towards that pretty darn fast. And the more and more absorption we get, the better the leasing environment, the quicker we can get there. But I think this quarter was a very good example as to how fast we could get there through sales. And then going forward, it's really going to come through organic leasing as well as expense controls.

Operator: Thank you. Our next question comes from Seth Eugene Bergey from Citi. Please go ahead. Your line is open.

Seth Eugene Bergey: Hi, thanks for taking my question. I just wondered if you could start off by maybe commenting, this has been talked about a little bit, but just overall changes to the buyer pool, depth of the buyer pool you kind of started the dispositions?

Peter A. Scott: Yeah. Maybe I'll have Ryan E. Crowley jump in on that.

Ryan E. Crowley: Yeah. Hi, Seth. I would say buyers have always been there. We've been selling, we sold material assets in 2024. And more so this year. The buyer demand and the buyer appetites remain strong all along. The biggest change has been the steady and market improvement in the lending environment. Bank liquidity is way up in our space today. Bank originated loan rates are dipping into the high 4s. And so that's really fueling that buyer appetite. The buyer appetite is being led by primarily private institutional capital and, as Pete referenced earlier, the health systems. Health system percentage of MOB acquisitions this year is about as high as it's been in recent memory.

But for the full year for us on the $1 billion or so of dispositions, our mix, our buyer mix will be roughly half and half private buyers and health systems.

Seth Eugene Bergey: Thanks. And then I guess just a second one. With the $700 million kind of under contract, do you think is that just kind of like a timing issue of some of those closing kind of into the next year in terms of why the disposition guide remains unchanged?

Peter A. Scott: Yeah. Some of them may close in early January. There's not much more to read into it than that.

Seth Eugene Bergey: Okay.

Ryan E. Crowley: I'll just add, it's a high number of transactions. Year to date, the 35 properties we've sold have been 24 different discrete transactions. We have over a dozen remaining. So it's just it's not one or two large transactions that dictate the timing. It's the number.

Seth Eugene Bergey: Great. Thanks.

Operator: Next question comes from Michael Patrick Gorman from RBC Capital Markets. Please go ahead. Your line is open.

Michael Patrick Gorman: Yes, thanks. Pete, I wanted to circle back on your comments on HR can be more offensive or a little bit more offensive in this market. I mean, how difficult is it to find these strategic just given the strong private bid? I mean, are there options or opportunities where HR has specific relationships that it can lever to get these deals? Guess, you talk a little bit about that?

Peter A. Scott: Sure. Why don't you jump in on this, Ryan, and then I'll touch on it on the end.

Ryan E. Crowley: Michael. Our reputation in the acquisitions market has historically been that of a sharpshooter. During our growth in years past, we bought assets typically one at a time. And primarily, frankly, in relationship-driven off-market transactions that would be a majority of the deals we had historically done. Today, we have an active inventory of what we call Tier one acquisition targets that we've already identified.

In our top 20 priority markets with the systems we want to align with and specifically on the top-performing hospital campuses, we've already done the analysis, we've cataloged over 400 Tier one acquisitions that our team tries to sharpshoot via these direct relationships that we have with owners, brokers, and key relationships and health systems in these markets. What does that represent? Probably 20 million square feet over $8 billion of volume. Of value. And our team actively pursues that.

The only other thing I'll add is as cap rates have steadily declined from the beginning of the year, have definitely noticed over the recent months an uptick in the number of assets and the quality of assets coming to market. So there is more opportunity out there today.

Peter A. Scott: Yes. Hey, Mike, I just want to jump in for a second on this. I'm glad we're obviously talking about going on offense just a little bit. But our focus is first and foremost on our three-year growth framework and generating organic growth and reinvesting capital into our real estate. When we talk about going on offense, this is some modest balance sheet capacity that we have. And if we can find ways to put that capital to work, to generate some nice accretion primarily in joint ventures where we get an enhanced yield, that's stuff that we will look at.

But to the extent that it's not additive to what we've laid out in our strategic plan, we certainly can remain under-levered. So I just want to be a little bit careful when everyone hears the term offense that all of a sudden we're disregarding our strategic plan and just looking at a bunch of acquisitions. I mean, there's just some tuck-in things that we would like to do if the math pencils. But we do not need to do those. And our focus is primarily first and foremost on the strategic plan and the three-year growth framework that we laid out.

Michael Patrick Gorman: Okay. That's helpful. Know, I guess Pete you also made a comment earlier in the call in the prepared remarks that given where occupancy is that you can be a little bit more aggressive pushing price. Can you provide some color on what that means? Are you going to try to push it on spreads? Annual bumps? And is this kind of something new worth that you can do just given that the market is getting tighter over the past few quarters?

Peter A. Scott: Yes. As we think about maximizing lease economics, we have implemented a payback period model as well as an IRR model over the last couple of quarters. So it's just trying to get the absolute best possible economic returns with all the leases that we end up signing. I think where we're seeing success today is certainly on the escalator front. We're also seeing higher retention since there's just a lot less supply out there. I think the last piece is you think about rent mark to market opportunity, which I think is helpful to get. We've been able to achieve kind of the low single digits.

If occupancy continues to increase, then there's an opportunity to continue to move more and more, push harder and harder on that. But I think most importantly, it's the high retention as well as getting strong escalators because high retention, you have no downtime, and you have no capital really that you have to invest. There's limited capital you have to invest on renewals relative to new leasing. So that's the way we're thinking about it.

Michael Patrick Gorman: Okay, great. Thank you.

Operator: Our next question comes from Michael William Mueller from BTIG. Please go ahead. Your line is open.

Michael William Mueller: Yes, thanks. Good morning. Austin, maybe you could just spend a minute talking a lot about balance sheet strategy and productivity. The unsecured market has been pretty strong in the REIT space of late. Can you just talk about how you're thinking about that market into the end of the year and strategy around kind of the 2026 maturities?

Austen B. Helfrich: Yes. Good morning, Michael. So a great question. We have $600 million of a bond maturing in August. So I would say first and foremost, we do have a lot of time. But to add to that, your point is not lost on us that especially since we put out the strategic plan, rates up until maybe two days ago had moved slightly in our favor. And you are seeing spreads at or near all-time lows. So it's certainly something that we're paying close attention to. We'll be opportunistic, I think, given the amount of time that we have until bond refinancing. But certainly could look at doing something if the opportunity, an attractive opportunity presented itself.

Michael William Mueller: That's helpful. And then maybe just switching to the portfolio side. For the 2026 lease maturities, can you just talk a little bit about how those back up compared to some of the escalators that you've been able to achieve in the third quarter and maybe how the '26 expirations look relative to that just to give us a sense for the potential opportunity there?

Robert E. Hull: Yes. I think if you look at '26, I mean, we've got a good number of renewals coming up in '26. I mentioned in my remarks that we've been 3.1% average across all of the renewals and new leases. '26, we see an opportunity to move that up over 3%. We've been consistently getting greater than 3% escalators. And as supply tightens and the portfolio improves through asset sales, we see an opportunity to move that even potentially higher. So certainly looking at improving on the average that we have achieved this quarter. As we look to next year to move that up into the mid-3s.

Michael William Mueller: Great. Thanks for the time, guys.

Operator: Our next question comes from Mike Mueller from JPMorgan. Please go ahead. Your line is open.

Mike Mueller: Yes. Hi. Just are you thinking about what's the right level of development, redevelopment to have underway at any given time? I know pre-leasing levels come into it, but just a little more color on how you're thinking about that would be great.

Peter A. Scott: Yeah. Obviously, on the development side, those developments are legacy developments that have been ongoing for a while. I would not expect us to commence a new development unless we do have that land bank unless it was a very, very heavily pre-leased attractive yield to us. I would say there's nothing imminent on the horizon on that. From a redevelopment perspective, it's going to be a little bit higher initially just because we're going to be reinvesting capital first and foremost into our portfolio. And by the way, we see a pretty darn good yield from that as well.

You would calculate something in the 9% to 12% cash on cash yield with the IRRs being even higher than that. So it's a really good way to invest capital. I think that bucket will have some assets cycle out, some assets cycle in. There have been some assets in redevelopment for a while that are near completion at this point in time. But I could see having 25-ish or so assets in that bucket. And I would say on average it's $10 million to $15 million of redevelopment spend across each project. So you can do the math on that, but I think that's probably a comfortable level for us going forward.

And we obviously have the free cash flow opportunity to do that as well with our payout ratio being in the low 70s right now.

Mike Mueller: Got it. And one other question. Once you're through the $700 million of asset sales that are under contract letter of intent, should we be thinking of any additional dispositions on a go-forward basis or just something nominal and opportunistic as well?

Peter A. Scott: I think it would just be nominal and opportunistic, Mike. There would not be, like, a large program, but perhaps there could be some pruning on an annual basis every year. But that would be just very nominal stuff and done opportunistically. Thanks, Mike.

Operator: Our last question comes from John Joseph Pawlowski from Green Street. Please go ahead. Your line is open.

John Joseph Pawlowski: Hey, thanks for the time. Just two questions for me on the restructuring. I believe there's $12 million of restructuring costs this quarter. Dollars 22 million-ish in the last two quarters. Can you just give us a sense of the total restructuring costs expected, and then just in general, Pete? Like what I know you guys are moving fast, but what kind of inning are we in terms of your organizational restructuring of HR?

Peter A. Scott: Yeah. I think we're in the later innings on that. But if you think about the organizational restructuring charges, but you also factor in that we had $2 million to $3 million less of G&A this quarter, right? Working its way into less G&A. A smaller cost structure. So I would say we've made really good progress. Are we done? We're getting closer to that level, but we're certainly in the later innings.

John Joseph Pawlowski: Okay. And then last one for me. I know you guys highlighted in your strategic review document a little bit of a drag from a 100,000 square foot single-tenant lease expiration in '27. Has there been any other additional single-tenant vacates that we expect in '26, and then you have a lot of lease rolling in the single-tenant portfolio in 2027. So any other vacates have popped up in recent months? We should be aware of?

Peter A. Scott: Yeah. No. I'd say nothing material. Obviously, highlighted the 27.1% in the strategic deck. And that really is the large lease roll in 2027 that tenant occupies. Two buildings. We are having conversations with them on extending in the entire other building that they are in. So I'd say we're making good progress on that. But no to your question, is there anything additional that's popped up? No, there is not.

John Joseph Pawlowski: Okay. For the time.

Operator: We have no further questions. I'd like to turn the call back over to Mr. Peter A. Scott for any closing remarks.

Peter A. Scott: Great. Thanks, everyone, for joining us here. Like I said, we're very excited about the direction that we're headed in Healthcare Realty Trust Incorporated 2.0. Proud of the quarter we put up and look forward to continuing to talk to you over the coming months as we finish out the year. Thanks very much.

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