Earnings call transcript: Healthcare Realty misses EPS forecast in Q2 2025

Healthcare Realty Trust Incorporated (HR) reported its second-quarter earnings, revealing a significant earnings per share (EPS) miss against forecasts. The company posted an EPS of -0.45, sharply below the expected -0.0795, marking a surprise of -466.04%. Despite this, the stock surged 6.54% to $15.36, reflecting investor optimism about the company’s strategic initiatives and operational improvements. According to InvestingPro data, the company’s current market capitalization stands at $5.82 billion, with a relatively defensive beta of 0.73, indicating lower volatility compared to the broader market.

Key Takeaways

• Healthcare Realty’s EPS was significantly below expectations, with a surprise of -466.04%.
• The stock price rose 6.54% post-earnings, indicating positive investor sentiment.
• The company launched a strategic plan, "Healthcare Realty 2.0," focusing on operational excellence.
• A 23% reduction in quarterly dividends was announced.
• Strong demand for outpatient medical space continues to support market optimism.

Company Performance

Healthcare Realty’s performance this quarter was mixed. While the EPS miss was substantial, the company demonstrated resilience through operational improvements and strategic initiatives. The "Healthcare Realty 2.0" plan aims to enhance asset management and operational efficiency, which may have bolstered investor confidence despite the earnings miss. The company also reported a 5.1% growth in same-store cash net operating income (NOI), the highest in nine years. InvestingPro analysis suggests the stock is currently trading above its Fair Value, with analysts setting price targets between $15 and $20. InvestingPro subscribers can access 8 additional key insights about Healthcare Realty’s financial health and market position.

Financial Highlights

• Revenue: $287.07 million, slightly below the forecast of $290.64 million.
• Normalized funds from operations (FFO): $0.41 per share, up 7% year-over-year.
• Funds available for distribution (FAD): $0.33 per share.
• Same-store cash NOI growth: 5.1%.

Earnings vs. Forecast

Healthcare Realty’s EPS of -0.45 was significantly below the forecast of -0.0795, resulting in a negative surprise of 466.04%. This substantial miss contrasts with the company’s previous quarters, where results were closer to expectations.

Market Reaction

Despite the EPS miss, Healthcare Realty’s stock price rose by 6.54% in after-hours trading, reaching $15.36. This increase suggests that investors are optimistic about the company’s strategic direction and operational improvements. The stock remains within its 52-week range, closer to the low end, indicating room for potential growth.

Outlook & Guidance

Healthcare Realty provided guidance for the remainder of the year, with a normalized FFO target of $1.57-$1.61 per share. The company plans $800 million to $1 billion in asset dispositions and aims for a 3-4% NOI growth. These initiatives, coupled with the strategic "Healthcare Realty 2.0" plan, are expected to drive future performance.

Executive Commentary

CEO Pete Scott emphasized the importance of the strategic plan, stating, "Healthcare Realty 2.0 will be an operations-oriented culture where earnings growth is paramount." Additionally, Scott highlighted the potential upside from the lease-up portfolio, projecting a $50 million NOI increase. CIO Ryan Crowley noted market dynamics, "Today, there’s more buyers and more equity looking to be deployed than there are assets available for sale."

Risks and Challenges

• The significant EPS miss raises concerns about operational efficiency and cost management.
• The high net debt to adjusted EBITDA ratio of 6x could pose financial challenges.
• The 23% dividend reduction might affect investor sentiment and stock attractiveness.
• Potential impacts from healthcare legislation changes could influence market dynamics.
• Macro-economic pressures and interest rates may affect the real estate sector’s performance.

Q&A

During the earnings call, analysts questioned the company’s lease-up potential, capital allocation strategy, and the impact of healthcare legislation. Executives addressed these concerns, emphasizing strategic initiatives and market opportunities that could drive future growth.

Full transcript - Healthcare Realty Trust (HR) Q2 2025:

Ian, Conference 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 Second Quarter twenty twenty five 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.

Thank you. I would like to hand the call over to Rob Hubbard, Vice President, Investor Relations. You may begin your conference.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty: Thank you for joining us today for Healthcare Realty’s second quarter twenty twenty five earnings conference call. A reminder that except for the historical information contained within, the matters discussed in this call may contain forward looking statements that involve estimates, assumptions, risks and uncertainties. These forward looking statements represent the company’s judgment as of the date of this call. The company disclaims any obligation to update this forward looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC.

Certain non GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measure 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.

Pete Scott, President and CEO, Healthcare Realty: Thanks, Ron. Joining me on the call today are Rob Hull, our COO and Austin Helfrich, our CFO. Also available for the Q and 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 $02 increase. Bad was $0.33 per share, a $04 sequential increase. Same store occupancy was 90%, a 40 basis point sequential increase. Same store NOI growth was 5.1%, a two eighty 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 $211,000,000 at a blended 6.2% cap rate. We have over $700,000,000 of additional assets under contract or LOI. We completed a very successful renewal of our revolver. We extended the tenor of our term loans and we raised guidance.

Rob and Austin will cover these items in more detail. A special thanks to the entire Healthcare Realty 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 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 two point zero. Let me start with my overall assessment. The good news, 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 one point zero 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 too and for many years 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 two point zero will be an operations oriented culture where earnings growth is paramount, strong tenant relationships are essential, leasing decisions are made based on economic 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’ve 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 $10,000,000 in run rate G and 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 six fifty 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 two point zero. The stabilized portfolio consists of four seventy properties encompassing over 25,000,000 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 7,000,000 square feet of well located health system aligned clinical space. Performance has lagged due to years of underinvestment or deteriorated local relationship. 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 $50,000,000 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 $1,000,000,000 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 and 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 investments into select vacant suites to drive leasing. Number two, redevelopments, 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 $300,000,000 of capital investment at attractive returns.

Additional accretive opportunities, including acquisitions and development, will come when our cost of capital allows for it or we 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 $1,400,000,000 of low coupon bonds maturing over the next three years It provides $100,000,000 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 a 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 two point zero, 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.

Austin Helfrich, CFO, Healthcare Realty: 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 1,500,000 square feet of leases, including over 450,000 square feet of new leases. Our signed 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 HCA’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 1,300,000 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 seventy five one hundred and twenty five 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 see 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. 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 occupancy 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 $211,000,000 of asset sales through the July. Inclusive of a $38,000,000 loan repayment, our total proceeds generated year to date are approximately $250,000,000 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 $700,000,000 under contractor LOI, we are raising our full year disposition outlook to $800,000,000 to $1,000,000,000 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 $1,500,000,000 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 2,030 and term loans to 2027 and 2029. With

Tayo Okusanya, Analyst, Deutsche Bank: this,

Austin Helfrich, CFO, Healthcare Realty: we have decreased the amount of debt maturing through the 2026 from $1,500,000,000 at the end of the first quarter to approximately $600,000,000 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 twenty twenty seven term loans with disposition proceeds. Pro form a for our July asset sales, our net debt to EBITDA is six times and we expect leverage to decrease into the mid-5s to 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 $01 at the midpoint to $1.57 to $1.61 Driving this change is a reduction in our G and 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. We are proud of our second quarter financial performance and energized by our improved outlook for the year despite an almost $500,000,000 increase to our disposition guidance. Before turning to Q and 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 classifications. 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 $5,000,000 to $10,000,000 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 and A portion of the call.

Ian, Conference Operator: Our first question comes from the line of Nick Yulico with Scotiabank. Your line is open.

Nick Yulico, Analyst, Scotiabank: Thanks. Good morning, guys. I guess maybe first off, since in terms of the strategic plan, a lot of the upside feels like is in the lease up portfolio. Can you just talk

Ryan Crowley, CIO, Healthcare Realty: a little bit more

Nick Yulico, Analyst, Scotiabank: about composition of that portfolio, if it’s all multi tenant or if there’s any single tenant? And then in terms of the numbers, I just want to make sure I’m understanding the you talked about 20,000,000 to $40,000,000 of upside in that portfolio over three years, but then there’s also a $50,000,000 number that you gave elsewhere. And so I just wanted to understand kind of the difference between those two numbers and then also the composition portfolio.

Pete Scott, President and CEO, Healthcare Realty: Nick, it’s Pete here. Hope all is well and great to hear from you. I’m glad you brought up the 20,000,000 to $40,000,000 versus the $50,000,000 of upside. We see $50,000,000 in total upside. I think realistically it will take us some time to start to spend that capital and to get that return immediately.

These redev projects can take upwards of twelve to eighteen months. We’ve obviously identified a nice group of assets that will go into redevelopment. But to get the full $50,000,000 within the first three years I think would be a very aggressive assumption. So we did add some footnote disclosure that we still assume will get the full 50,000,000 but it’s going to get 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 $50,000,000 that we’re talking about is if you simply just look at that map page and you see where these assets are located.

I mentioned the top markets being Denver, you got Dallas in there as well. There’s some other really good markets too, Houston, Charlotte. 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 amount of capital and amount of NOI, but we feel quite good about our ability to achieve that.

Nick Yulico, Analyst, Scotiabank: 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 and you talked about 300,000,000 over three years. I wasn’t sure though if it was additional capital to get to the $50,000,000 of total upside.

And then from a funding standpoint, I know you have the money saved from the dividend cut, but is there also I think there also may be some capital you’re sort of putting aside from the asset sales besides what you’re paying off from debt that you’re going to use for this portfolio? Thanks.

Pete Scott, President and CEO, Healthcare Realty: Yes. So the $300,000,000 is what’s required we believe to get to the full 50,000,000 So we don’t see incremental 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. 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 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.

Michael Gorman, Analyst, BTIG: All right. Thanks Pete.

Pete Scott, President and CEO, Healthcare Realty: Yes. Thanks Nick.

Ian, Conference Operator: Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Austin Wurschmidt, Analyst, KeyBanc Capital Markets: Yes. Hi. Good morning, everybody. Just wanted to follow a little bit up on sort of the redevelopment pool and some of the rents that you’ve outlined and the confidence that you can kind of get from that low $20 range, up to nearly $40 once you invest this capital. Just can you talk about that versus maybe underlying market dynamics?

Thanks.

Tayo Okusanya, Analyst, Deutsche Bank: Yes.

Pete Scott, President and CEO, Healthcare Realty: Maybe 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 how we can achieve a really solid 10% cash on cash yield. Rents there were in the low 20s 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% cash on cash yield. But we certainly see with capital getting spent the opportunity to drive rental rates. I don’t know if they’re going to go from 23% to 40%, but we certainly see a nice pop. And our underwriting will be will be judicious in the way we think about that.

And obviously the 10% cash on cash yield is really a requirement.

Austin Wurschmidt, Analyst, KeyBanc Capital Markets: 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 kind of outlined the capital needs here and just the decision to push these forward into redevelopment as it doesn’t look like it made it into the projects that are under construction in the supplemental?

Austin Helfrich, CFO, Healthcare Realty: Yes. Hey, good morning, Austin. I’d highlight that if you go into the supplemental, we’ve got almost 2,000,000 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 1,200,000 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, Analyst, KeyBanc Capital Markets: So how much of that should we coincide with how much spend, I guess, should we coincide with that step up? Should that continue to ramp as you kind of ramp these redevelopment efforts? Yes.

Austin Helfrich, CFO, Healthcare Realty: I think from here, Austin, what I would tell you is given the increased level of spend that we will have in redevelopments and the increased projects that Pete spoke about earlier in the lease up portfolio, I think you 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 redevelopments moving in and out. But I think generally around this level would be a good assumption.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty: That’s helpful. Thank you. Thanks, Austin.

Ian, Conference Operator: Our next question comes from the line of John Pawlowski with Green Street. Your line is open.

Austin Wurschmidt, Analyst, KeyBanc Capital Markets: Hey, thanks for the time. Good morning. Rob, I wanted to drill into the lease up portfolio, but specifically the ready to occupy space. I guess can you give me some historical context of why you couldn’t get this occupied? Why was it under managed?

And what you’re going to do specifically going forward to unlock that potential?

Pete Scott, President and CEO, Healthcare Realty: Yes. 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 hospital CEO who is actually encouraging 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 RTO program now.

Rob Hull, COO, Healthcare Realty: Yes. Thanks, Pete. Yes, 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, it was significantly 16%, 17% of our new leases were in 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. 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 and from the time they execute a lease to getting to cash paying rent. Some real benefits there for the organization from a cash flow perspective. I would say in terms of the returns on the RTO program, generally targeting mid teens IRRs and generally targeting about a seven year walk on those deals. Substantial returns, good use of capital and a nice lease for the organization.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty0: Okay. Thanks for that context. Second question is on the pool of assets you’ve sold or in the process of selling.

Austin Wurschmidt, Analyst, KeyBanc Capital Markets: I think the average 7% cap rate struck us as high given they’re only 80% occupied. So maybe a buyer is going be underwriting a higher going in yield. Is it mostly a function of deferred CapEx or onerous or short term ground leases? What’s pushing those cap rates on those assets higher in terms of stabilized cap rate?

Pete Scott, President and CEO, Healthcare Realty: Yes. 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, CIO, Healthcare Realty: When you think about what we have under contractor LOI, you’re looking at over 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 yes, 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. So when you think about what we’re really doing, the overarching theme is that we’re exiting markets with weak real estate fundamentals where 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.

Ian, Conference Operator: Okay. Thank you. Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is open.

Tayo Okusanya, Analyst, Deutsche Bank: Hi. Yes. Good morning. Pete, great to see you are shaking the table so soon. Question around the lease up portfolio, the $300,000,000 you talked about.

I’m trying to understand the $50,000,000 NOI opportunity there. How much of that is just purely lease up versus how much of it again is kind of getting better pricing after you reposition these assets? And could any of the repositioning or redevelopment be disruptive to current NOI?

Pete Scott, President and CEO, Healthcare Realty: Hey Tayo, nice to chat with you as well. I would say the vast majority of the $50,000,000 is simply just leasing up from 70% to 90%. But obviously getting a better rental rate is going to have some contribution to it as well. But today we’re getting nothing on those on that vacant space and we’re actually absorbing all the expenses. So the lion’s share of that move is getting 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 RTOs and vacant suites, right? So it’s not as if the entire amount is going to come all from redevelopment. I mean as we look at redevelopment of those 95 assets, we see probably about 10 that fit into the redevelopment bucket where we think we can get the returns that we need. The balance of that is really going to come through selective capital spend in the Bacon Sweets.

Tayo Okusanya, Analyst, Deutsche Bank: That’s helpful. And then Austin, just hoping you could help us kind of reconcile guidance again. You have a penny increase in the guidance. You are picking up from increasing store NOI of a penny or two. You are picking up from the G and A spend about $01 or so.

It sounds like you’re talking about higher capitalized interest that’s also a couple of pennies. You have an offset from increased asset sales, but it still feels like that all kind of sums up to $03 or $04 but guidance was already increased by $01 Just trying to understand the difference.

Austin Helfrich, CFO, Healthcare Realty: 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 $4,000,000 decrease in G and A coupled with the 25 basis points increase in same store NOI. And then obviously, we’ve taken disposition volume up $500,000,000 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 $1,200,000,000 of strategic dispositions as quickly as they can.

We’ve guided $800,000,000 to $1,000,000,000 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 I’d say when you put all that together, we’re pleased to be able to raise $0 given the increase in dispositions and given what Ryan and his team are working to accomplish this year.

Tayo Okusanya, Analyst, Deutsche Bank: Much appreciated. Thank you and best of luck to you guys.

Ian, Conference Operator: Thanks, Tayo. Our next question comes from the line of Seth Berge with Citigroup. Your line is open.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty1: Hi, good morning. Thanks for taking my question. What gives you the confidence you can achieve the 92% to 93% occupancy given occupancy has kind of trended near the high 80% range over the past several years? Is that just a function of go forward portfolio composition? Is it the change in the structure to better align leasing and operations?

Just if you could talk a little bit more about that.

Pete Scott, President and CEO, Healthcare Realty: Yes. So I would say a couple of things to that. One, the macro environment has improved. And if you look 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 supply.

And I think that’s something that we see for the foreseeable future. So obviously we have that opportunity as well. Couple other things I would just mention, we are doing a very significant revamp to our asset management 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 80s into the low 90s, 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. And I asked someone for the stat, I think since like 2016. So it’s been 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, 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 of 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 92%, 93% range over time. It’s not going to happen overnight although you should see a nice incremental benefit as we get more and more of these dispositions done.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty1: Thanks. And then 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 kind of investing in the portfolio and leasing existing space with them? Is that external acquisitions?

Just kind of what is the growth opportunity to look like with that?

Pete Scott, President and CEO, Healthcare Realty: Yes. 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, COO, Healthcare Realty: Yes. I mean I think certainly I think restructuring the platform is going to help in that area, relationships really driving the more at the local level. But I also think that the opportunities within the redev lease up portfolio, there’s a lot of strong relationships inside of that lease up portfolio that we are going to continue to expand on and we think a lot of the opportunities are going to be taken by the health systems. I mentioned in my remarks that about a third of our leasing was related to health came from our health system partners. I think we can do better than that.

And so I think we’re going continue to focus on that stat and drive that upwards.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty1: Great. Thanks.

Ian, Conference Operator: Our next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty2: 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, President and CEO, Healthcare Realty: Yes. Let me start with that. Look, we’ve been spending a lot of time. First of all, Juan, it’s great to talk with you. We’ve been spending a lot of time going through the platform and savings within the platform.

It’s a little bit of what I would call just pure blocking and tackling. And so we’ve started heavily on the G and A side and I think we’re pretty pleased that we’ve been able to identify. We said we thought we could find about $03 of savings to help offset some of the dilution as we want to get the balance sheet into a better spot. 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 understands that we’ve got an objective and we know where we want to go. With regards to additional 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 employees within the platform and that number coming down.

I would say that’s not the biggest driver of margins improving. That certainly helps improve those margins. But really the biggest driver of margins improving is going to be from occupancy increasing and that’s where our focus is going to shift. So we certainly have some additional cost savings opportunities, but really what’s going to drive the path to FFO growth is going to come through lease up and revenue growth.

Austin Helfrich, CFO, Healthcare Realty: Juan, it’s also Maybe I’ll just touch on your disposition. I think at the beginning of that you had a question around disposition timing as well?

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty2: Yes. More just the run rate given the acquisitions are going to be back half loaded of how you’ll exit the year from a FFO perspective vis a vis your revised guidance.

Austin Helfrich, CFO, Healthcare Realty: Yes. 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 1,200,000,000 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 $06 of estimated dilution off of the $25 revised guidance. It would be safe to assume that we would assume the vast majority of that $06 is going to impact 2026. To the extent that we close on additional asset sales in 2026, I would expect it to be earlier in the year. So I think it is a good assumption to include that full $06 impact in your 2026 numbers.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty2: 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, which is now not included in that. 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 kind of won’t be in

Tayo Okusanya, Analyst, Deutsche Bank: SAD, if that makes sense?

Austin Helfrich, CFO, Healthcare Realty: Yes. 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 $300,000,000 will not be included in maintenance capital.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty2: Thank you.

Ian, Conference Operator: Our next question comes from the line of Michael Gorman with BTIG. Your line is open.

Michael Gorman, Analyst, BTIG: 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 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, President and CEO, Healthcare Realty: Yes. It’s a good question Michael because I think that’s going to be the biggest growth engine and the biggest driver of earnings growth going forward. One of the things that actually was encouraging when I was out seeing the real estate is, I’m not saying we’re getting this in every lease, but in some leases we’re actually getting escalators all the way up to 4%. You look back three, five years ago escalators were kind of in that 2.5% range and didn’t move for a long, long time. They started to trend up to 3%.

I think 3% is absolutely the norm today unless a tenant has a lease extension option already embedded in with a

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty3: fixed

Pete Scott, President and CEO, Healthcare Realty: escalator. If they don’t have that then we’re getting 3% or better in every single 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% occupied, we certainly want to keep retention really, really high because capital spend and downtime is actually what really impacts your go forward earnings trajectory. So keeping that portfolio fully occupied pushing on retention and then obviously when you’re in the 95% 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 going to continue to work on and see if we can have some success with that.

Michael Gorman, Analyst, BTIG: 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 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, CIO, Healthcare Realty: Yes. 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 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 outpatient medical. Over the last several quarters, the financing market has been accretive to going in cap rates.

We’ve seen banks really step up. Today, they’re eager to lend. We’ve seen compression on the spreads and 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 6s on an all in rate, which again is accretive to going in cap rates. Cap rates today, we’re seeing deals go off in the high 5s to the 7% range.

For a stabilized asset, you could see typically in that 6.5 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 acquisition 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 we’re 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, Analyst, BTIG: That’s really helpful. Thank you for the time guys.

Pete Scott, President and CEO, Healthcare Realty: Thanks, Michael.

Ian, Conference Operator: Our next question comes from the line of John Kieliczewski with Wells Fargo. Your line is open.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty3: Thank you. Good morning. And great work on the strategic plan team. First question from me is on just on the G and A savings. I know there’s roughly $5,000,000 that’s 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 you have to identify and give us sort of a timeline on that three year plan when you expect to achieve that savings?

Austin Helfrich, CFO, Healthcare Realty: Yes. Hey, John, it’s Austin. Let me bucket this starting with the G and A savings that we have already identified and I would say carried out the actions necessary to achieve. That is the $10,000,000 of initial savings that we spell out in the strategy presentation. We will have achieved $5,000,000 of that this year, and we expect to capture the remaining $5,000,000 next year.

If you then look at Page 28 of our three year growth plan, we are highlighting another 5,000,000 to $10,000,000 in additional saves beyond the $10,000,000 of G and A that I just outlined. I think it would be safe to assume that 5,000,000 to $10,000,000 will be embedded more on the property operating expense side. 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. But I would expect that to be more split over the next three years.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty3: 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 new revised upward guide. I’m curious how much of that is just you’re seeing better demand for your product and better leasing up versus maybe this is also part of the calling process of those noncore assets?

Austin Helfrich, CFO, Healthcare Realty: It’s a really good question, John. I’m going 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 5% 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. But 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, President and CEO, Healthcare Realty: Yes. And the one thing I would add to that, John, I mean, obviously, as you look at the three year framework that we put out in the deck, 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%. We’re working hard to achieve that.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty3: Okay. Very helpful. And just last one for me. I know Pete 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

Nick Yulico, Analyst, Scotiabank: of NOI going forward here?

Pete Scott, President and CEO, Healthcare Realty: Austin, do want to take that?

Austin Helfrich, CFO, Healthcare Realty: Yes. 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 really, I think, what many people call spec suite program, which is going to 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

Pete Scott, President and CEO, Healthcare Realty: forward. But maybe that didn’t answer your question entirely. Know that those are all the right facts. I was just your question might just be how should we model the $300,000,000 getting spent? I mean I think the RPO probably gets spent ratably over three years.

And I think the reDAS probably the best assumption today is it’s probably more of a ratable spend. But if we can accelerate that a little bit, right, because we talked about 20,000,000 to $40,000,000 of the 50,000,000 in our framework, I’d like to get as much of that as we can. I think the way we initially thought about it is spending that over three years. And if there’s an opportunity to accelerate it, great. But I think for modeling purposes, I’d probably look at that $300,000,000 as $100,000,000 each year for the next three years.

Austin Helfrich, CFO, Healthcare Realty: Got it. Very helpful. Thanks guys.

Pete Scott, President and CEO, Healthcare Realty: Yes. Thanks John.

Ian, Conference Operator: Our next question comes from the line of Mike Mueller with JPMorgan. Your line is open.

Ryan Crowley, CIO, Healthcare Realty: Yes. Hi. I have a

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty4: 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, COO, Healthcare Realty: That’s the same store occupancy gain guide that we gave for this year in the Okay. Same

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty: So that’s overall. Okay.

Ian, Conference Operator: Yes.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty4: And then I guess when we’re looking at the three year NFFO target 165,000,000 to $185 what are the biggest moving parts between the top and the bottom end of those of the range?

Pete Scott, President and CEO, Healthcare Realty: Go ahead, Yes.

Austin Helfrich, CFO, Healthcare Realty: Good question, Mike. I think on Page 28, we try to give you some of kind of what I’ll call the goalpost 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 4%, 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 $50,000,000 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 going 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 And side

Pete Scott, President and CEO, Healthcare Realty: obviously, Mike, as you know, everyone’s going to 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 declining.

I think everyone in REIT land would say that’d be 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.

Rob Hubbard, Vice President, Investor Relations, Healthcare Realty4: Got it. Okay. That’s good. Thank you.

Pete Scott, President and CEO, Healthcare Realty: Yes. Thanks, Mike. Thank you.

Ian, Conference Operator: Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is open.

Tayo Okusanya, Analyst, Deutsche Bank: Thanks for taking my I just wanted to hello?

Ian, Conference Operator: Yes. Hey, Kyle.

Tayo Okusanya, Analyst, Deutsche Bank: Hey. Just a quick follow-up. Just curious what your thoughts are in regards to the one the big beautiful bill and potential positive or negative implications for medical office buildings?

Pete Scott, President and CEO, Healthcare Realty: Yes. 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 going to happen. We actually met with 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.

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 that’s been happening for many, many years just given the profitability inside of our buildings versus inside of the hospital. What hospitals could be most affected by this? We have talked about that as well. And I think 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, outside of that, there’s obviously been some CMS proposals that have been out there on site neutrality. That’s come up a little bit.

And again, I’ll just reiterate the point I said before, which is 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. 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.

Ian, Conference Operator: Great. Thank you. Thanks, Kyle. 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, President and CEO, Healthcare Realty: Yes. 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. This

Ian, Conference Operator: concludes today’s conference call. You may now disconnect.

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