Earnings call transcript: Healthcare Realty Trust Q3 2025 shows EPS miss

Healthcare Realty Trust (HRT) reported its Q3 2025 earnings with a notable discrepancy between actual and expected earnings per share (EPS). The company posted an EPS of -$0.17, significantly missing the forecasted -$0.02. Revenues came in at $287.4 million, slightly below the anticipated $289.6 million. Following the announcement, the stock price closed at $17.76, reflecting a 1.38% decline from the previous close.

Key Takeaways

• EPS fell short of expectations by 750%, indicating a significant earnings miss.
• Revenue was slightly under forecast, with a 0.76% shortfall.
• Stock price decreased by 1.38% post-earnings announcement.
• Strong operational metrics with a 5% year-over-year increase in Normalized FFO per share.
• Raised guidance for FFO and same-store growth for 2025.

Company Performance

Healthcare Realty Trust demonstrated robust operational metrics despite the earnings miss. The company reported a 5% year-over-year increase in Normalized Funds From Operations (FFO) per share, achieving $0.41. Same-store cash Net Operating Income (NOI) grew by 5.4%, highlighting strong performance in its core operations. The company also maintained a high tenant retention rate of nearly 89%, reflecting effective leasing strategies.

Financial Highlights

• Revenue: $287.4 million, slightly below the forecast of $289.6 million.
• Earnings per share: -$0.17, missing the forecast of -$0.02.
• Normalized FFO per share: $0.41, up 5% year-over-year.
• Quarterly payout ratio: 73%.

Earnings vs. Forecast

Healthcare Realty Trust’s EPS of -$0.17 was a significant miss compared to the forecasted -$0.02, marking a 750% negative surprise. This discrepancy is substantial compared to previous quarters, where the company has generally aligned more closely with forecasts. Revenue, while slightly below expectations, did not deviate significantly from projections.

Market Reaction

Following the earnings announcement, Healthcare Realty Trust’s stock price fell by 1.38%, closing at $17.76. This movement places the stock closer to its 52-week low of $14.09, reflecting investor concerns over the earnings miss. The broader market trends have shown resilience, suggesting that the stock’s decline is more company-specific.

Outlook & Guidance

Healthcare Realty Trust raised its guidance for 2025, projecting FFO per share between $1.59 and $1.61, and same-store cash NOI growth between 4% and 4.75%. The company plans to allocate $150-$300 million for investments, focusing on organic growth and strategic acquisitions.

Executive Commentary

CEO Pete Scott emphasized the company’s strategic shift: "We are quickly shifting from a company that fell short of expectations to a company that is exceeding them." He also highlighted the ongoing disposition strategy, stating, "Our intent is to complete the dispositions that we are working on right now."

Risks and Challenges

• Potential for continued earnings volatility if forecasts are not met.
• Market saturation could impact future growth in key metropolitan areas.
• Macroeconomic pressures, including interest rate fluctuations, may affect borrowing costs.
• Competition for tier-one acquisition targets could increase acquisition costs.
• Execution risk in transitioning to an asset management model.

Q&A

During the earnings call, analysts inquired about the company’s disposition strategy and its potential impact on future growth. The management reiterated its focus on completing current dispositions and exploring strategic investments to enhance shareholder value.

Full transcript - Healthcare Realty Trust (HR) Q3 2025:

Conference Call Operator: Good morning and welcome to Healthcare Realty Trust’s third quarter 2025 earnings conference call. All participants are in a listen-only mode. After the speaker’s remarks, we will conduct a question-and-answer session. To ask a question at this time, you will need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Ron Hubbard, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Ron Hubbard, Vice President of Investor Relations, Healthcare Realty Trust: Thank you for joining us today for Healthcare Realty Trust’s third quarter 2025 earnings conference call. A reminder that, except for the historical information contained within, the matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks, and uncertainties. These forward-looking statements represent the company’s judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors is included in our press release and detailed in our filings with the SEC. Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company’s earnings press release for the quarter ended September 30, 2025. The earnings press release and earnings supplemental information are available on the company’s website.

I’d now like to turn the call over to our President and CEO, Pete Scott.

Pete Scott, President and CEO, Healthcare Realty Trust: Thanks, Ron. Joining me on the call today are Rob Hull, our COO, and Austen Helfrich, our CFO. Also available for the Q&A portion of the call is Ryan 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. First, the secular trends in outpatient medical continue to improve, with demand far exceeding supply. For the 17th 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 1.1 million 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.

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 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%, average building age of nearly 30 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, that is anchored by Baylor Scott & White, and our Macon Pond project in Raleigh, North Carolina, that 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 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, our undivided attention allows us to singularly focus on this objective every day. Let me turn the call over to Rob, who will expand more on operations and leasing.

Rob Hull, COO, Healthcare Realty Trust: Thanks, Pete. We had an exceptional quarter on the operations front. Leasing activity was strong with 1.6 million 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%. Annual escalators of 3.1% improved the average across our total portfolio. Our activity this quarter contained 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 & 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 1.1 million square foot lease pipeline.

This quarter, demand in the top 100 MSAs outstripped supply by 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 to discuss financial results.

Austen Helfrich, CFO, Healthcare Realty Trust: 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-fives. Now turning to our updated 2025 guidance.

We are increasing the midpoint of our FFO per share guidance by a penny 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.

Conference Call Operator: Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. We’ll pause for just a moment to compile the Q&A roster. Our first question comes from Nick Yulico from Scotiabank. Please go ahead. Your line is open.

Thanks. Good morning. First question is just in terms of, you know, as we 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. Can you talk some more about the redevelopment? You talked about more assets entering that pool. Presumably, there’s some earnings drag from that, but you also have occupancy sort of picking up in the rest of your pool. Just any sort of high-level thoughts about how to think about that impact over the next couple of quarters. Thanks.

Austen Helfrich, CFO, Healthcare Realty Trust: Yeah. Hey, Nick. It’s Pete here. 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%. If fundamentals continue to improve, we’ll continue to assess if you can even do better than that. I think we’ve laid out 3 to 4%. I think on the incremental $50 million of upside to NOI over the next, you know, three-plus years, we did forecast probably $20 to $40 million was the range over the next three years since the capital spend does take time to go out the door. Ultimately, the NOI you achieve from those redevelopments takes a couple of years to earn in.

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. I think as you think about the $50 million of NOI, probably half of that is coming from redevelopments. We added five assets in this quarter. I would expect to add probably another 5 to 10 over the next couple of quarters. One of the things I’ve 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. That’s why you saw a lot more come into the pool this quarter, and you’ll see more come in in the next couple of quarters as well. 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. That’s the way we’re thinking about it. I know there was a lot to unpack within that, but I wanted to give the two big buckets within the $50 million of incremental NOI over the next couple of years.

Okay. Great. Thanks. The second question is just in terms of the health system share of leasing picking up this quarter. Is that, 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.

Yeah, maybe I’ll let Rob handle that one.

Ryan Crowley, CIO, Healthcare Realty Trust: Yeah. Hey, Nick. Yeah. 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 2023. 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. 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. It’s a combination of health systems are continuing to grow and to grow their market share, but I think also just better tenant relations and continuing to work the relationships we have.

Austen Helfrich, CFO, Healthcare Realty Trust: Yeah. Nick, on 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, and I expect that to continue to pick up going forward.

All right. Thanks, guys.

Thanks, Nick.

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

Hey, thanks. Good morning. 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, I guess you did say more of the remaining is coming out of the non-core bucket. Is that right? We would expect that the cap rate number for the remaining dispositions to be higher for that reason. Do I have that logically correct?

Austen Helfrich, CFO, Healthcare Realty Trust: Yeah. Obviously, we’ve been pleased with the execution so far. You know, 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. I’d say that the balance of what is remaining to close is probably skewed more to the value-add component. Like I said, there’s also some legacy office assets as well that we’re looking to shed. 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.

Okay. There’s a lot going on in medical office these days, largely in terms of dispositions. You know, you, Welltower, DOC are all in the market to sell total about $9 to $10 billion, at least just from those three companies. 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? If not, I assume you’re going to say no. If not, tell me why.

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, you know, characterize it. Our focus on dispositions is really to create the best portfolio going forward from an NOI growth perspective. Our balance sheet was over-levered, and that dates back multiple years. We need to get our balance sheet leverage metrics to a more appropriate level, and they’re almost there at this point in time. 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, really before our next earnings call. 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.

We look forward to continuing to generate pretty strong returns on the portfolio that we’re keeping and going forward. We’d like to be switching to going more on offense as opposed to going on or really playing more of a defensive game at the moment. 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. 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.

I guess the thing that I concern myself with is 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’s sort of tied up there. Is a lot of this sale activity going back to the health systems and hence 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.

You know, 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. I think that’s great. We can take advantage of that to the extent that we need to. The majority of what you just quoted, the $8 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. Most of that $8 to $10 billion that you just mentioned is going to non-health system buyers.

Okay. Great. Thanks, Pete. Thanks, everyone.

Yep.

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

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, you know, 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, you know, normal course assets that are in that lease-up bucket that needs a little bit of capital, you know, in order to achieve the returns that you’re focused on?

Austen Helfrich, CFO, Healthcare Realty Trust: Yeah. I would say that most of it is current vacancy, and we see an opportunity to invest capital, or perhaps there’s near-term roll coming up. 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. 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.

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 mark-up on the existing rent-roll roster.

That’s helpful. Peter or Austen, Pete, you had referenced kind of looking forward to pivoting and potentially moving on offense. Austen kind of flagged that you put in place the ATM as a capital allocation tool and a source. Is that something that we should expect in the near term from you guys to start to lean into that a little bit? Given the fact that the transaction market’s heating up and there are opportunities out there, 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 2.0?

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. 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 levels. We certainly could look to grow some of our joint ventures. We are talking to our joint venture partners actively on that. We could look to do some selective smaller, you know, deals, tuck-in acquisitions in core markets or on core campuses. That’s the way we’re thinking about it right now.

I don’t want anyone to come off this call and think, "Oh, they’re putting an ATM in place. They’re going to start issuing equity again." I just think it’s important to have it up and running. It hasn’t been up and running for years. That’s really why I had Austen say what he said in the prepared remarks was to just tell people it’s coming, but I wouldn’t read anything into it.

Yeah, that’s a helpful clarification. Thanks for the time.

Conference Call Operator: Our next question comes from Juan Sanabria from BMO Capital Markets. Please go ahead. Your line is open.

Hey, this is Robin sitting in for Juan. On the $700 million dispositions under contract, just curious if any of them are in the same strip pool, if any of them are targeted for a JV, and what pricing you’re expecting.

Austen Helfrich, CFO, Healthcare Realty Trust: Yeah. No, none of them are targeted for joint ventures. They’re all going to get, you know, sold 100%. 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. That was the big move where you saw, I don’t know, 40+ assets go from the operating portfolio into held for sale this quarter.

There wasn’t any impact to the same-store NOI increase as they were not part of the same-store pool on the recent dispositions either.

Yeah. Hey. Good morning. It’s Austen. 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, you know, especially looking at the third quarter, 4% same-store revenue growth, 90 basis points of year-over-year occupancy gains, and sub-2% property operating expenses. I would say the core portfolio, the stabilized portfolio, continues to perform extremely well. 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.

Thank you. Shifting to the external growth opportunity, could you maybe level set expectations with us when you earliest see a possibility to go on offense?

From a balance sheet capacity perspective, we said we wanted to be kind of in the mid to high 5 net debt to EBITDA. We’re at 5.8. We’d like it to come down a little bit from here. 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. 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. We’re building up a little bit of dry powder. 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. There are some tuck-in acquisitions we could do, and they would be accretive since we’d be financing that with 100% leverage.

Lastly for me, if I may. On the margin improvement timeline, you outlined in the recent deck the 65, 66%. Can you maybe just elaborate a little bit on that on timing?

Yeah. I think I’ll talk both about occupancy and I’ll talk about 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, what we call higher IRR value-add assets, you get an immediate benefit from that. You’re seeing that right now with our same-store occupancy at a little bit better than 91% and our total occupancy in the very high 80s. I think it’s 88, 89%. It’s probably 89% plus at this point in time. Our margins are in that 64 to 65% area last quarter and this quarter. It’s probably over multiple years that we would see stabilized occupancy and margin levels, but we’re working our way towards that pretty darn fast. The more and more absorption we get, the better the leasing environment, the quicker we can get there.

I think this quarter was a very good example as to how fast we could get there through sales. Going forward, it’s really going to come through organic leasing as well as expense controls.

Thank you.

Conference Call Operator: Our next question comes from Seth Bergey from Citigroup. Please go ahead. Your line is open.

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

Austen Helfrich, CFO, Healthcare Realty Trust: Yeah. Maybe I’ll have Ryan Crowley jump in on that.

Pete Scott, President and CEO, Healthcare Realty Trust: Yeah. Hi, Seth. I would say buyers have always been there. We’ve been selling, you know, we sold material assets in 2024 and more so this year. The buyer demand and the buyer appetite remained strong all along. The biggest change has been the steady and marked 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 that’s really fueling that buyer appetite. The buyer appetite is being led by primarily private institutional capital. 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. 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.

Thanks. 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 into the next year in terms of why the disposition guide remains unchanged?

Austen Helfrich, CFO, Healthcare Realty Trust: Some of them may close in early January. There’s not much more to read into it than that.

Okay. Thanks.

Pete Scott, President and CEO, Healthcare Realty Trust: I’ll just add it’s a high number of transactions. You know, year to date, the 35 properties we’ve sold have been 24 different discrete transactions. You know, we have over a dozen remaining. It’s not one or two large transactions that dictate the timing. It’s the number.

Great. Thanks.

Conference Call Operator: Our next question comes from Michael Carroll from RBC Capital Markets. Please go ahead. Your line is open.

Yep. Thanks. Pete, I wanted to circle back on your comments on Healthcare Realty Trust can be more offensive or a little bit more offensive in this market. I mean, how difficult is it to find these strategic investments just given the strong private bid? I mean, are there options or opportunities where Healthcare Realty Trust has specific relationships that it can lever to get these deals? I guess, can you talk a little bit about that?

Austen Helfrich, CFO, Healthcare Realty Trust: Sure. Why don’t you jump in on this, Ryan, and then I’ll touch on it at the end?

Pete Scott, President and CEO, Healthcare Realty Trust: Sure, Michael. I mean, 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. Specifically on the top-performing hospital campuses where 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 in health systems in these markets. What does that represent? Probably 20 million square feet, over $8 billion of volume of value. 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, we have definitely noticed over the recent months an uptick in the number of assets and the quality of assets coming to market. There is more opportunity out there today.

Austen Helfrich, CFO, Healthcare Realty Trust: Yeah. 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. 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. 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. To the extent that it’s not additive to what we’ve laid out in our strategic plan, we certainly can remain under-levered.

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. There are just some tuck-in things that we would like to do if the math pencils, but we do not need to do those. Our focus is primarily first and foremost on the strategic plan and the three-year growth framework that we laid out.

Good. That’s helpful. I know. 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? Is this kind of something newer that you can do just given the market’s getting tighter over the past few quarters?

Yeah. 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. 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 the 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.

I think most importantly, it’s the high retention as well as getting the 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. That’s the way we’re thinking about it.

Okay. Great. Thank you.

Okay.

Conference Call Operator: Our next question comes from Michael Gorman from BTIG. Please go ahead. Your line is open.

Yeah. Thanks. Good morning. Austen, maybe you could just spend a minute. We’ve talked a lot about balance sheet strategy and proactivity. The unsecured market has been pretty strong in the REIT space of late. Can you just talk about how you’re thinking about access to that market into the end of the year and strategy around kind of the 2026 maturities?

Austen Helfrich, CFO, Healthcare Realty Trust: Yeah. Good morning, Michael. It’s a great question. We have $600 million of a bond maturing in August of next year. I would say first and foremost, we do have a lot of time. To add to that, your point is not lost on us, 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. 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 the bond refinancing, but certainly could look at doing something if the opportunity and attractive opportunity presented itself.

That’s helpful. Thanks. Maybe just switching to the portfolio side, for the 2026 lease maturities, can you just talk a little bit about how those stack up compared to some of the escalators that you’ve been able to achieve in the third quarter, and maybe how the 2026 expirations look relative to that just to give us a sense for the potential opportunity there?

Yeah. I think if you look at it, 2026, I mean, we’ve got a good number of renewals coming up. The escalators on the total portfolio right now, I think we’re averaging in the high 2s. I mentioned in my remarks that we’ve been achieving 3.1% on average across all of the renewals and new leases. On our new leases, we’ve even achieved a little bit higher than that. I think as we look out at 2026, we see an opportunity to kind of move that up over 3%. We’ve been consistently getting greater than 3% escalators. As supply tightens and the portfolio improves through asset sales, we see an opportunity to move that even potentially higher. Certainly looking at improving on the average that we have and achieved this quarter as we look to next year, trying to move that up into the mid-3s.

Great. Thanks for the time, guys.

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

Pete Scott, President and CEO, Healthcare Realty Trust: Hi. Just how are you thinking about what’s the right level of development, redevelopment to have underway at any given time? I mean, I know pre-leasing levels come into it, but just a little more color on how you’re thinking about that would be great.

Austen Helfrich, CFO, Healthcare Realty Trust: 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. 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. 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. I could see having 25-ish or so assets in that bucket. I would say on average, it’s $10 million to $15 million of redevelopment spend across each project. You can do the math on that, but I think that’s probably a comfortable level for us going forward. We obviously have the free cash flow opportunity to do that as well with our payout ratio being in the low 70% right now.

Pete Scott, President and CEO, Healthcare Realty Trust: Got it. One other question. Once you’re through the $700 million of asset sales that are under contract or letter of intent, should we be thinking of any additional dispositions on a go-forward basis, or just something nominal and opportunistic as well?

Austen Helfrich, CFO, Healthcare Realty Trust: I think it would just be nominal and opportunistic, Mike. There would not be a large program. Perhaps there could be some pruning on an annual basis every year. That would be just very nominal stuff and done opportunistically.

Pete Scott, President and CEO, Healthcare Realty Trust: Great. Okay. Thank you.

Austen Helfrich, CFO, Healthcare Realty Trust: Thanks, Mike.

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

Hey, thanks for the time. Just two questions for me on the restructuring. I believe there’s $12 million of restructuring costs this quarter, $22 million-ish in the last two quarters. Can you just give us a sense of the total restructuring costs expected? In general, Pete, I know you guys are moving fast, but what kind of inning are we in in terms of your organizational restructuring of Healthcare Realty Trust?

Austen Helfrich, CFO, Healthcare Realty Trust: Yeah. I think we’re in the later innings on that. If you think about the organizational restructuring charges, but you also factor in that we had $2 to $3 million less of G&A this quarter, right? It’s working its way into less G&A, a smaller cost structure. 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.

Okay. 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 2027. Has there been any other additional single-tenant vacates that we should expect in 2026? You have a lot of lease rolling in the single-tenant portfolio in 2027. Any other vacates have popped up in recent months that we should be aware of?

Yeah. No, I’d say nothing material. Obviously, we highlighted the ’27 one in the strategic deck. 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. I’d say we’re making good progress on that. No, to your question, is there anything additional that’s popped up? No, there is not.

Okay, thanks for the time.

Conference Call Operator: We have no further questions. I’d like to turn the call back over to Mr. Pete Scott for any closing remarks.

Austen Helfrich, CFO, Healthcare Realty Trust: Great. Thanks, everyone, for joining us here. Like I said, we’re very excited about the direction that we’re headed in HR 2.0 and 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.

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

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