This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good afternoon. Thank you for attending the Healthcare Realty Second Quarter Earnings Conference Call. My name is Cameron, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Ron Hubbard, Vice President of Investor Relations. You may proceed.
spk08: Thank you for joining us today for Healthcare Realty Second Quarter 2024 Earnings Conference Call. Joining me on the call today are Todd Meredith, Chris Douglas, and Rob Hull. A reminder that except for the historical information contained within, the matters discussed in this call make you think forward-looking statements that involve estimates, assumptions, risks, and uncertainties. These risks are more specifically discussed in the Companies Form 10-K filed with the SEC for the year ended December 31, 2023. 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. The matters discussed in this call may also contain certain non-GAAP financial measures, such as funds from operations, or FFO, normalized FFO, FFO per share, normalized FFO per share, funds available for distribution, or FAD, net operating income, NOI, EBITDA, and adjusted EBITDA. 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 end of June 30, 2024. The company's earnings press release supplemental information and Form 10-K are available on the company's website. I'll now turn the call over to Todd.
spk11: Thank you, Ron, and thank you, everyone, for joining us today. Healthcare Realty had a strong second quarter. We are making notable progress on our capital allocation objectives and we are accelerating our operational momentum. For the second quarter, normalized FFO was 38 cents per share. This was impacted by the previously disclosed steward revenue reserve. Without the reserve, our results were 39 cents per share. Based on strong execution and momentum generated in the first half, we increased our full year 2024 FFO guidance midpoint by half a penny. The increase would have been about a penny more without the reserve. In terms of capital allocation, we expect to generate more than a billion dollars of proceeds from completed or planned JVs and asset sales. Our new JV with KKR is already growing, and we recently announced an expansion of our existing JV with Nuveen. We expect about 70% of total proceeds to come from asset contributions to these JVs. To redeploy this capital, we moved early in the second quarter, repurchasing stock at discounted levels. To date, we've repurchased almost $300 million at an average implied cap rate of 7.5%. With JV contribution and asset sale cap rates at 6.6%, this equates to 90 basis points of positive spread or well over 100 basis points, including JV fees. Looking ahead, we will remain opportunistic and continue repurchasing equity if it's accretive. Turning to operational momentum, we're seeing strong leasing trends and accelerating occupancy gains. The second quarter marks the fourth consecutive quarter with more than 400,000 square feet of new leases signed. And our first half multi-tenant occupancy gain of 55 basis points was solidly above the top end of our first half bridge guidance. We expect this momentum, this strong momentum, to continue into the second half and 2025. I'm especially pleased with our second quarter retention. This is our second consecutive quarter at the 85% level, which has improved materially from the mid to high 70s last year. Higher retention comes with the benefit of avoiding lost rent from downtime and avoiding higher tenant improvement dollars to re-tenant vacant space. I want to commend our leasing and operations teams. Their efforts to step up service levels and reduce move outs are really paying off. Our operations team is also successfully controlling operating expenses. Second quarter expenses declined year over year and are nearly flat for the first half. We expect growth in operating expenses to be contained in the 2% to 3% range for the full year. It's worth noting our net operating expenses are expected to grow well below 2% in 24 after taking into account tenant reimbursements. As a result, we are seeing meaningful margin expansion. The combination of strong occupancy gains and well-controlled expenses is translating to higher NOI growth. Without the Steward Reserve, same-store NOI grew 3.5 percent in the second quarter, and total multi-tenant NOI grew 3.9 percent. Both of these are at the high end of our guidance ranges. With strong momentum in the first half, we are steadily driving multi-tenant NOI growth toward the 5 percent level. Turning to maintenance CapEx, spending on TI and commissions is elevated as expected based on strong new leasing volumes. This investment in positive absorption is revenue-enhancing capital. In terms of capital allocation priorities, this is our highest return on investment by far. Excluding this revenue-enhancing capital, which we estimate to be $20 to $25 million this year, our dividend is expected to be fully covered going into 2025. Looking at the balance sheet, we expect our leverage to trend lower. Once we complete the announced JV and asset sale transactions, leverage is expected to be approximately 6.4 times. And we expect leverage to improve further going into 2025 as occupancy gains flow through to higher EBITDA. Now I'll turn it over to Chris to discuss results, guidance, and the balance sheet. Chris? Thanks, Todd. The first half of the year has been marked by strong operational and capital allocation execution. Normalized FFO per share for the quarter was $0.38. Excluding the previously disclosed $3 million steward revenue reserve, FFO per share was at the upper end of our quarterly guidance of $0.39. Same store NOI for the quarter without the revenue reserve improved 50 basis points sequentially to 3.5%. Multi-tenant NOI growth improved to 3.9%, which is at the upper end of our bridge expectations for the first half of the year. The strong NOI performance was driven by better-than-projected absorption and expense controls. Revenue growth benefited from 122,000 square feet of sequential multi-tenant absorption and 2.9% cash leasing spreads. The absorption outperformance came from a combination of better than planned new lease commitments and materially lower move outs. Tenant retention for the quarter improved to 85.5% up from 79.3% last year. Cash NOI margins improved 50 basis points sequentially and 70 basis points year over year as a result of the occupancy gains and strong expense controls. Year-over-year quarterly operating expenses decreased almost 1%, and net of recoveries were down almost 3%. This came from disciplined and proactive efforts, especially on labor costs and property taxes. Labor costs declined 2.0% year-over-year. Property taxes decreased 1.5% from successful property tax appeals late last year. We will lapse some of these benefits in the second half, but expect total full-year operating expenses to be well below 3%. Operating expenses at or below are in-place contractual escalators of 2.8%, lest the full impact of absorption drop to the bottom line and improve overall NOI margins. Turning to capital allocation, JV contributions and asset sales have generated $400 million of proceeds year-to-date. The proceeds funded existing capital commitments and $295 million of stock buybacks. The average repurchase price was $15.89, representing a 7.5% implied cap or approximately 20% discount to NAV. For the year, we expect over $1 billion in total JV and asset sale proceeds. This will fund $200 million of existing capital commitments of combined debt repayment and share buybacks. The $800 million of capital allocation proceeds are expected to generate over a penny a share of accretion in 2024 and over two and a half cents annualized. FFO per share guidance for the year was increased and reflects the capital allocation accretion. In addition, the updated guidance incorporates the operating assumptions on page 30 of the including a reduction in expected G&A expenses and lower straight line rent from asset sales. The midpoint of guidance does not assume repayment in 2024 of the $3 million steward revenue reserve taken in the second quarter. It does assume they will continue to pay monthly rent of approximately $2 million as they did in June and July. Looking to the balance sheet, Run rate leverage is 6.4 times, including the expected debt repayment for remaining asset sales and JVs. The debt repayment is expected to pay off the $250 million term loan that expires next July, which will reduce 2025 debt maturities to less than $300 million. The combination of our operational and capital allocation momentum will drive an improved dividend payout ratio and lower leverage moving into 2025. I'll now turn it over to Rob for more details on our leasing progress.
spk04: Thanks, Chris. My comments today will be focused on multi-tenant occupancy gains and a strong leasing momentum. We exceeded our bridge guidance in the first half of the year and expect further gains in the second half and into 2025. Multi-tenant occupancy improved sequentially by 37 basis points, or 122,000 square feet. Coupled with the first quarter, net absorption for the year in our total multi-tenant portfolio was 183,000 square feet. At this level, we exceeded the top end of our bridge guidance for the first half of the year by over 30%. Our outperformance was driven by greater than expected new lease commencements and a move-out rate that was over 300 basis points lower than historical levels. Over the last three quarters, we gained 112 basis points of occupancy in our multi-tenant portfolio. This puts us on track to deliver the 150 to 200 basis points of multi-tenant occupancy gains published last November in our five-quarter bridge. It is also worth noting that the legacy HTA assets have gained 172 basis points of occupancy over the same period, highlighting our ability to drive absorption in that portfolio. Strong absorption led to total multi-tenant NOI growth of 3.9% for the second quarter, at the top end of our first half bridge guidance. Our leasing activity this year has been supported by favorable supply and demand fundamentals. Occupancy across the sector continues to climb, and new MOB starts continue to trend lower. This quarter, absorption in the MOB sector reached 5.5 million square feet, the most on record since the data has been tracked. Health system top line revenue and our operating margins continue to improve. Providers are seeing solid outpatient volume and revenue trends. Longer term, we expect demand to continue rising. Spending on healthcare services is expected to increase at 5.6% annually over the next decade. Over the same time period, The over 65 age group will grow at more than nine times the rate for the remaining US population. And those over 65 are the largest users of healthcare services, spending four times more than those under 45. The combination of limited new supply and rising demand creates a tailwind to support ongoing leasing momentum. New signed leases in the second quarter totaled approximately 432,000 square feet. Notably, this marks our fourth consecutive quarter above 400,000, an important part of the equation driving our projected gain of 100 to 150 basis points of absorption this year. Our new lease pipeline reached 1.9 million square feet in the quarter, its highest level ever. This gives us visibility and positions us well to achieve projected absorption gains outlined in our bridge. Our team has executed well in the first half of 2024, delivering a robust level of new leasing and outsized absorption. With current multi-tenant occupancy at 85.9%, we are in the early innings of a multi-year plan to reach 90% across our multi-tenant portfolio. This will drive continuing absorption and outside NOI growth in 2025 and beyond. Now I'll turn it back to Todd for some final remarks. Thanks, Rob.
spk11: Now I'll just make a few more comments before we shift to the Q&A portion. As our announced JV and asset sale transactions are completed over the next quarter or so, we expect to have excess proceeds to redeploy. In the near term, our capital allocation priorities are first, to fund our existing obligations, such as the positive absorption capital I mentioned, which is our highest return on investment by far. Second, to repurchase stock accretively if the price trades at a discount. And third, to repay debt, keeping our leverage neutral or trending lower. So 24 is shaping up to be an important year for HR in terms of building momentum, and executing on our capital allocation and operational objectives. We're increasing 2024 FFO guidance based on strong first half results. External tailwinds of limited MOB supply and robust outpatient demand are bolstering our outlook for the second half of 24 and 2025. Full dividend coverage is well within reach and poised to keep improving in 2025 and 2026. and healthcare realty balance sheet is strengthening with leverage expected to trend lower. Cameron, operator, we're now ready to move to Q&A.
spk01: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, Press star one, and as a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question, and we will pause here briefly as questions are registered. The first question is from the line of Juan Sanabria with BMO Capital Markets. You may proceed.
spk12: This is Robin sitting. This is Robin sitting, and I'm with Juan. Just some steward. What's the expectation for how much space they'll look to keep? They're looking to lower any contractual rent. How does this compare to the market?
spk11: Sure, Robin. This is Todd. It's very early to really be speculating on where that may go. Obviously, we all are paying attention very closely to what may be happening on the hospital front, and that's clearly driving this process through the bankruptcy process. It's still very early, excuse me. And so we are not, you know, down to a point where we're engaging I think the good news is the outpatient space is needed and it will kind of play out after the hospital pieces are sorted out. So we're really not speculating. The one thing I can say about rents is we've done an assessment. We don't view that there's any material difference in terms of where our rents are versus markets. We feel very good about that and obviously any other speculation about space and what will be used or not It's just way too early to tell. We're very encouraged by what we're hearing, generally speaking.
spk12: And the $120 million in real estate impairment in the quarter, was that related to Stewart or something else? Just curious.
spk11: No, it's related to the asset sales that are ongoing and expected to close here through the balance of the year. Okay.
spk01: Thank you. Thank you. The next question is from the line of Austin Werschmitt with KeyBank Capital Markets. You may proceed.
spk13: Great. Thanks. Todd, I'm just curious how sustainable you think the 85% retention is over the next 12 to 18 months. Just trying to understand that, I guess, given that multi-tenant retention this quarter appeared to be lower. I also recall, I think you have some single-tenant move-outs you know, later this year, another million square foot of expirations on the single tenant side next year. So trying to think about it a little bit holistically, as well as the breakout between, you know, multi and single tenant, you know, over that timeframe.
spk11: Sure, sure. Good question. Obviously, we're pleased with being around 85% now for a couple of quarters. Generally speaking, you know, single tenant tends to sort of bring the average up a little bit. The mix isn't very high, as you know, in single tenant versus multi, but it brings it up maybe a percent or so year to date in this quarter. But I would say, generally speaking, we expect the multi-tenant to really be in that 80 to 85 range. Obviously, we hit some numbers that were in the mid to upper 70s last year as we were continuing to work through the integration of the portfolio. increasing our service levels across the whole portfolio. And we've really seen that come around and really turn out to really strong retention. Service levels are very strong. The team is fully in gear. And I think also on the leasing side, we're making very concerted efforts where we see tenants who may be thinking about leaving, working with them aggressively to see what we can do to retain them. So it's a joint effort across all of our teams. And I think it's really really paying off, and we do think we can sustain this at sort of 80 to 85. Obviously, any given quarter can vary, but I think importantly, over the time frame you talked about, you know, the rest of this year, next year, we'll be looking to produce, you know, 80 to 85 percent, and really similar levels across multi and single, you know, generally higher in single, but in that same range, and, you know, working on the backfill on both multi and single to to not only backfill, but create positive absorption.
spk13: That's helpful. And then just maybe hitting on the guidance piece, you know, implied kind of back half same store growth for the multi-tenant portfolio, I think is that that lower end of that, you know, four, four to five and a half percent range that you expect to achieve in the back half. Is that, you know, conservatism or you haven't really pulled forward the better performance in the first half or is there something else that's changed from a timing or back half growth perspective. That's all for me. Thanks.
spk11: Yeah, I would say it's the former, just conservatism being halfway through the year. You know, we're feeling good about where things are progressing so far in terms of occupancy as well as on operating expenses. And, you know, especially for the quarter, we were at the upper end of both those ranges. But it's halfway through the year. Try not to get too far ahead of ourselves.
spk01: The next question is from the line of Michael Griffin with city. You may proceed.
spk09: Great. Thanks. Um, wanted to ask first on leasing. Um, it looks like cash leasing spreads declined slightly quarter of a quarter, including the kind of negative cash rent spread bucket looked like it went up to about 10% from 4% of the leases in this quarter. Should we interpret this as tenants pushing back more on it on rent increases Or was there something, you know, maybe market or tenant specific that drove this delta?
spk04: Yeah. Hey, Michael, this is Rob. Yeah, you're right. They worked, cash leases for us were 2.9% this quarter. And, you know, what I would say is that we noted this year, we're really focused on driving occupancy. And I think our results are coming through or we've had a lower move out rate, but we've seen increased occupancy and And that comes in two forms. Certainly in places where we can push rents, we're doing that, where market dynamics are strong and we're able to push even above kind of the averages that we put out there. But I think it also points to where we have some markets where maybe more price sensitive markets, we're being more aggressive about negotiating those deals to keep occupancy and avoid costly downtime and incremental TI from back-filling space. So it's really kind of working the tails and pushing aggressively on the top end. And then on the bottom end of that spread, you noted that was more where we're just being more aggressive now.
spk09: Gotcha. Appreciate the call there, Rob. And then, Todd, I appreciated your comments kind of on the CapEx spend now for occupancy benefit in the future. But kind of as we think about the cadence of that, you know, what is going to be the near-term impact to FAD as a result of this CapEx spend you're going to need to spend on new leasing? And then, you know, how much occupancy upside, or I guess, you know, looking at your return, do you get as a result of that CapEx investment?
spk11: Sure. Yeah, I mentioned it's clearly our highest return on investment by far. And maybe a simple way to think about it is our marginal gross revenue that we can gain from absorbed space is around $36, kind of the average for the portfolio. And then if you divide that by, even on the high end, about $60 of all-in cost for a new lease, that's obviously a great return, 50, 60 plus percent type returns on the marginal capital. So from our standpoint, that's a home run and something we want to be doing, even looking at it almost as comparison to an external investment opportunity, but much, much higher returns. So Our view is that's very much revenue enhancing capital. We haven't broken it out as such, but we're just talking about, hey, there's 20 to 25 million this year, and frankly would be similar next year, just given the absorption expectations we have, that you really can think of that way. And that takes probably 6% off the payout ratio, if you just kind of run through that math. So it's a material piece of how we look at our dividend coverage and can get there as we go into 2025. Great. That's it for me.
spk09: Thanks for the time. Thanks, Mike.
spk01: Next question is from the line of Mike Mueller with JP Morgan. You may proceed.
spk03: Yeah. Hi. I guess your comments about multi-tenant occupancy going above 90%. First, was that a leased or an occupied comment?
spk11: and what sort of time frame are you expecting to get there by yeah mike rob talked about a multi-year plan of getting to 90 and and when we talk about it multiple years we're talking about occupancy obviously that that least percentage versus uh occupied you know is a delta that that we track and and report and gives us you know a lot of optimism along with our leasing pipeline that we can push uh gains over multiple years but but certainly looking out you know over the second half of this year, and into 2025. And so if you look at this year, we're saying 100 to 150 basis points of gain in the multi-tenant portfolio. That's probably a similar range we'll be thinking about in 2025, but it's a little early to lay that down specifically. But certainly another strong year in terms of our expectations next year. So if you start thinking about that as an annual pace, that's a three-year sort of timeframe, but making some real headway in 24 and 25 on that.
spk03: Got it. Okay, that's helpful. And then, second question, are you expecting more activity with the new VEEN-JV?
spk11: We are underway working on that. So, we talked about a, what, roughly $400 million set of transactions with Nuveen. So, that work is underway. And so, I guess, depending on your question, you know, it's in process, some, you know, a couple closings. So, very much expanding that existing level.
spk03: Yeah, actually, I was thinking beyond that. I mean, can we think of that as kind of a growing program beyond the 400 that you flagged already?
spk11: it's absolutely an option um you know the the as we you know embarked upon this process you know earlier this year to sort of ramp up our efforts um you know they came to the table interested and that was great so obviously we have a strong relationship with them work with them regularly on our existing uh properties and in our jv together so um they they've they've really come back you know multiple times and through that in that relationship so it's always an option it's not maybe Maybe to differentiate a little bit with KKR, it's not necessarily expressed in a way like KKR has said we want to commit a certain amount of equity capital to grow it. So it's more opportunistic is maybe the way I would describe it versus KKR being more of a programmatic commitment that we'll look to grow.
spk03: Got it. Okay. Thank you.
spk01: Thanks, Mike. The next question is from the line of Rich Anderson with Wedpush. You may proceed.
spk10: Thanks. Good morning down there. So you mentioned the Revenue Enhancing CapEx program. If you didn't do it, you'd be at 100% payout. I think you kind of alluded to that. So let's just isolate on that dynamic between that and payout or dividend coverage. How much longer would we have to wait for dividend coverage if you continue to do this 20 to 25 million with these great returns on incremental investment as opposed to shutting it down now, which you're not going to do, and getting coverage that way?
spk11: Yeah, maybe to think about the trajectory of those two approaches with and without the revenue enhancing treatment there. we still think we can drive towards a covered dividend, and even with that extra capital, sort of towards the end of 25. But obviously, if we have outsized absorption capital, then maybe that ticks you over a little bit, but that's obviously a good problem to have. This is a ramping process in our occupancy and the flow through. So clearly, the further out you go, the more beneficial you're starting to get all the NOI, EBITDA, FAB that comes from that. for coverage. So it really becomes less of a concern late in 25. But treating it as revenue enhancing capital sort of separate than maintenance capex, you get there basically going into 25. So that's the difference. Okay.
spk10: Okay. Next question. You know, you've got, you know, billion dollars of dispositions and, well, I guess the first part of the question is the buyback Option at today's stock price. Is that essentially off the table? Is it still make sense to buy back stock at these levels?
spk11: Yeah, it's Maybe to use the stoplight Analogy, you know, there's there's there's red and green but then there's sort of the yellow and I would say, you know That's where probably we are today where you're right the accretion gets pretty minimal, you know maybe a different way to express it is you know, what discounts to NAV and And I'm just kind of using market consensus for the NAV levels. You know, once you get into the 10%, you know, single digit, less than 10% discounts to NAV, yeah, the accretion math starts to fade. And so that's sort of where we're treading right now, which is a good thing. It's been moving in the right direction. So we got in early. We bought, you know, nearly 30% discounts to NAV and then continued all the way down to about 10%. And as Chris said, sort of averaged 20%. So there's a little more that can be gained, and I think really our view is we'll just be opportunistic, and if we see dislocations, we'll jump on it.
spk10: Okay. So that leads to the question. You've got this capital program, $20 million, $25 million, share buyback on and off, we'll see, and then debt repurchase. Your asset sales are creating a stream of impairments, so that's one sort of ghost factor. And then the other is on the debt repurchases. Will there be prepayment penalties associated with that since that maybe will be weighted more in the deployment math? So can you comment on both potential for more impairments and the potential for prepayment penalties on the debt? Thanks.
spk11: Yeah, Rich, this is Chris. So on the impairments, yes, we have had to take some of those. But really think about it, a lot of those have been assets that were um that were valued at the merger and so at that point you know cap rates were in the kind of low to mid fives uh where they were put on and so now you're we're saying we're selling them in the in the mid sixes and so that's really a balance sheet impact that doesn't change at all what's going through on the income statement and what happens on your accretion but that's the reason that you have the have the impairments that are going on um and so that you know We'll continue to see some of that as we continue with the asset sales. In terms of the debt repayment, we still have capacity right now in terms of bank lines. I mentioned our delayed draw term loan, $250 million. We paid down $100 million in the second quarter. We have $250 million left. That was set to expire July of 2025. Um, you know, that will be a priority of ours to pay off and there's no prepayment penalty associated with that. And the overall cost on that is around six, four. So, uh, you know, it's, it's, um, it's not a significant, uh, you know, negative drag to be paying that type of debt down. And then we, we certainly have, um, uh, you know, a bit of a line balance that we're gonna, we'll address that as well. Uh, so, so generally from what we see right now, we're not having to get into, into. into prepayment penalties, but if we increased it, then we certainly would take that into consideration as we're considering our options.
spk10: So there's a good chance then you could be sitting on more cash than anticipated by the end of this year because of all these moving parts. Is that a fair statement?
spk11: No, Rich, I think if you look back at what Chris described in his prepared remarks, the billion dollars, the way we think about it is there's about $200 million if you look at our capital obligations that comes out first. You know, that's development, redevelopment funding. It's this revenue-enhancing capital that I was talking about, first-gen acquisition capital. So you pull that $200 million out, you're at $800, and then if you think of 50-50 leverage neutral, rough guide, that's 400 for debt repayment, 400 for stock buyback. Obviously, there's some flex in there. We've used up about 300 million for stock buyback. So it kind of leaves us with about 500. And Chris, if you look at our debt, we have variable rate debt that we can pay off. It's about 500 between the line and that term loan Chris mentioned. So really don't see a scenario where we're sitting on excess cash there.
spk10: Okay.
spk11: Thanks very much. We would have to increase, Rich, we'd have to increase our proceeds beyond the billion. Let's put it that way. Yes. Okay. Thank you. Thanks, Rich.
spk01: The next question is from the line of John Kilachowski with Wells Fargo. You may proceed.
spk02: All right. Thank you. I'll just follow up on the last set of questions there for the sources and uses. Earlier in the opening remarks, you mentioned the penny of accretion. Is that to do with what, mostly with what has been accomplished year to date, or is that largely to do with what you plan to do with the disposition proceeds for the rest of the year?
spk11: Yeah, the penny is what we're talking about for this year, 24 and two and a half cents on an annualized basis, just to be clear on that. And it's a combination of doing the entire, you know, billion, but really I'm looking at the $800 million of what I have kind of coined the capital allocation portion, the portion that goes to debt repayment and to share repurchase. You know, we obviously leaned in early on the share repurchase piece and have already executed on about $300 million of that. But then, so now here on the back half of the year, you'll be leaning a little bit more on the debt repayment. But the penny for the year is the combination of all of that work.
spk02: Got it. And just like as we look at the uses, you broke out the math, the 200 of CapEx, and then right now we're at 300 of share purchases. Assuming you trade in line with where you are today, that leaves about 500 on the debt repayment side. I know you've paid down some of your term loans. So what is it, about $250 left of the term loan, and then the rest would be on the line? Is that correct? And could you give the rates on what you're paying on those today?
spk11: Yep. So, yeah, and as of 6-30, we had $250 on the delayed draw term loan and $250 on the line. And they're a slightly different rate, but between 6-3 and 6-4 is what we're paying on those rates. We also have a little bit more term loan, you know, non-hedge term loan that we could address as well if we did have additional proceeds.
spk02: Okay. Okay. And then I guess thinking about 25 here with the incremental 600 for KKR, you know, let's say if you start to trade at a premium to NAV and the attractiveness of this disposition program fades, I guess, do you have any protections there or what's the next – most accretive course of action for that capital?
spk11: Yeah, John, as I mentioned, you know, our priorities right now are very focused on, you know, the billion dollars that we've been talking about and what Chris just walked through. So, you know, it's really our existing commitments, stock repurchase and debt repayment. And that really kind of speaks for most of the capital we're talking about. As you look further, you're right. There is an opportunity as our stock price makes sense and it's accretive And it becomes more accretive through the JV, as you can imagine, with fee structures and putting out less capital. So it's a higher ROI. We can look selectively at incremental acquisitions through that KKR JV. But that's something that we'll evaluate depending on our valuation. As you said, as we get to a full value relative to NAV or a premium, that really starts to make a lot of sense. Clearly, as I mentioned earlier, we've sort of been in this yellow range, but as you get to sort of the green light, that's a great opportunity for us for external growth. Got it. Thank you. Thank you.
spk01: The next question is from the line of Emily Meckler with Green Street. You may proceed.
spk00: Thank you, guys. Good morning. I would like to better understand the quality of recent dispositions associated with the new beam JV. How do occupancy levels, average age, and remaining lease term compare to your portfolio average? And is it fairly similar to the assets in the KKR JV?
spk11: Sure. Good question. We actually have a page on this in our investor presentation. It's our key highlights, page 8. And we don't necessarily break out the two JVs, not that specifically, but we do differentiate between the wholly owned portfolio, the HR portfolio, JVs, and dispositions. And this takes into account sort of the billion dollars that we've been talking about. So if you look at that, probably the main differentiators are geography, top 50 MSAs. There's quite a big difference where the JV and the portfolio are similar, sort of the 90 to 100% range in top 50 MSAs. Dispos are down at 57%, so pretty big difference. I would say between, just maybe going a layer further between Nuveen and KKR, not a huge difference there. Maybe some slightly different preferences among those two groups, but generally high occupancy, strong markets, similar profile. And then the other aspect that I would say that's important to us is this clustered idea where it's part of our strategy, obviously, to own multiple properties in a tight cluster, typically around a hospital campus. And we're seeing very similar levels and maintaining similar levels on the balance sheet or wholly owned and the JV, but our dispos, you know, are much, much lower. So I would encourage you to check out that page. We do provide some other stats as well. One comment, you know, maybe one other differentiator is average escalator. Typically, we're trying to keep those higher growth escalators on the balance sheet wholly owned. The JVs and dispos are slightly lower. On occupancy, you don't necessarily see as much differentiation, but I think it's important to note generally more stabilized assets going into the JV than even the portfolio. And on dispos, similar, although there's sort of two tails. We'll sell some things that are highly occupied. We'll also sell some things where Rob and his team don't see a lot of opportunity to improve leasing. So we're trying to keep as much of the occupancy upside on the balance sheet wholly owned as we can. So certainly we can follow up if there's more questions, but that's a good page to look at.
spk00: Okay, great. Thank you. And then just one more question generally on the depth of the transaction market. How big would you say the bidding tent is for the top 10% of your properties versus bottom 10?
spk11: Say that again, Emily. I got the top 10 versus bottom 10. How big is the what? The buyer pool or what did you say?
spk00: The bidding tent. Yeah, yeah. The buyer pool, the bidding tent.
spk11: You know, I wouldn't say it's gotten a lot better. I would say there's quite a market at both ends. You know, typically I would lean to say, hey, there's a bigger pool of buyers at the top end. But I think there's definitely folks looking for things they can get at discounted prices or maybe an opportunity where they say they think they can go lease it up, maybe we don't. So it's improved dramatically. The other factor there has been financing. That's gotten a lot, lot better. And so it's actually helped both ends of that. But if you go back six, nine months, I would say big deals were harder to finance. That's changed dramatically. So that's good to see. And it was actually the other way where you could do one-off deals, maybe at the bottom end, and get financing done with smaller loans that weren't syndicated. So I would say it's trending towards neutralizing where both are pretty deep at either end. One comment I would add to that, I was talking to Ryan Crowley yesterday, and he mentioned on one specific transaction they're working on that the brokerage representing us said that it was the highest ratio of of LOIs to CAs that they've seen in quite some time. And I think that just is an indication of the depth of the market and what we're seeing right now and how it's improved over the last, you know, 12 to 18 months.
spk00: Okay, great. Thank you guys very much for the time.
spk11: Thank you.
spk01: The next question is from the line of Omoteyo Okusanya with Deutsche Bank. You may proceed.
spk06: Yes, good afternoon, guys. Great work on the operational side. It's kind of good to see the staff coming along.
spk07: On the steward issue, I think in your 10Q filing, there's a statement there about, you know, maybe two details that got canceled as part of the bankruptcy process. Could you talk a little bit about what's kind of going on there and why?
spk11: this is a way to be made and if there's any read through going forward about how Stuart is thinking about the overall HR portfolio yeah Ty those were were very small I'll say de minimis is under 8,000 square feet I believe it's two leases and these were in buildings that they didn't have any other um operations uh and and were off campus so it was they were just kind of uh small um things that didn't didn't really matter what happened with the sale of the of the hospitals and so you know those did those did occur but like i said it's it's pretty pretty small uh diminished in the uh in the overall scheme of things and entire i would say at this point there's there's there would be no inference from those as it relates to everything else they they were as chris said kind of one-offs um And frankly, not even in Massachusetts. So it's really not material at all. So again, it's kind of early to even try to speculate what may play out. But we're generally encouraged what we're hearing in the process. And maybe I won't forget your comment, Tayo. Thank you. I think the operations and leasing team are pretty ecstatic about the work this quarter and sort of the outlook ahead. So appreciate your comments there.
spk06: Sounds good. Thank you.
spk11: Thanks, Ty.
spk01: There are no additional questions waiting at this time. I would like to pass the conference over to the management team for any closing remarks.
spk11: Thanks, Cameron. We appreciate it. Thank you, everybody, for joining us today, and we will be around and available for follow-up and look forward to seeing many of you soon. Take care.
spk01: That concludes the Healthcare Realty Second Quarter Earnings Conference Call. Thank you for your participation and enjoy the rest of your day.
Disclaimer