Healthcare Realty Trust Incorporated

Hello, everyone. Thank you for joining us and welcome to Healthcare Realty Third Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Doris Lo. Doris, please go ahead.

Thank you for joining us today for Healthcare Realty's Third Quarter 2026 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. 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 measures may be found in the company's earnings press release for the quarter ended September 30th, 2026. The company's 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.

Thanks, Doris. Joining me on the call today are Rob Hull, Dan Gabbay, and Ryan Crowley. The third quarter was another strong quarter for healthcare realty. Higher interest rates have weighed on real estate stocks, including ours, but not on our fundamentals. Demand for our space is rising and so are our rents. Let me start with our results. Normalized FFO was 42 cents per share. Same store NOI grew 5.1%. We signed 1.5 million square feet of leases. including 430,000 square feet of new leases. Our redevelopment portfolio is now 72% leased, up 500 basis points sequentially. Same store occupancy improved to 93.1%. Cash leasing spreads were 8.6% and we are raising guidance for the third time this year. Let's turn to capital allocation. We remain disciplined and everything we do is aimed at improving our earnings growth. Earlier this year, we executed on $1.1 billion of debt refinancing at a blended interest rate of approximately 4%. Our balance sheet gives us the flexibility to be nimble across our two main external capital allocation priorities, stock buybacks and joint venture acquisitions. On stock buybacks, during the quarter and through October, We repurchased $75 million of stock at an average price of approximately $17.75 bringing our year-to-date total to $250 million. Our philosophy on buybacks is simple. Our stock must compete for capital like any other investment. When we trade at a meaningful discount, as we do today, buying back our stock is one of the most accretive uses of our capital. On joint venture acquisitions, Year to date, we have acquired eight medical office buildings and have one more under contract for a total of $338 million or $67 million at our share. That is within the 50 to $100 million range we outlined earlier this year. These investments carry a mid 7% initial cash yield to healthcare realty before accounting for meaningful additional platform benefits. Together with our partners at KKR, we will pace our acquisitions with discipline. We will also continue to evaluate select asset sales to help systems that want to own strategic real estate on their hospital campuses and to private buyers who remain attracted to the strong tailwinds benefiting our sector. Year to date, we have monetized over $200 million of assets with over $100 million more under contract or LOI. For the year, we expect our average disposition yield to be in the mid 5% range. Opportunistically selling assets to fund buybacks and joint venture acquisitions is significantly accretive to earnings. Shifting to the MOB sector and why we are so well positioned. First, growth. Medical office can deliver mid single digit growth with the tailwinds we are experiencing and our results show it. Tenant demand continues to rise with the needs of an aging population. Site of care continues to shift to outpatient settings, while new MOV supply remains muted due to elevated construction and debt financing costs. Second, pricing power. Sector-wide occupancy is now nearly 93% at historical peaks. Rising tenant demand and constrained new supply are driving rents higher in our buildings. The evidence is cash leasing spreads in excess of 5% year to date and nearly 90% retention rates. We have a best in class portfolio predominantly located in the nation's fastest growing markets, which positions us well to continue to benefit from these powerful dynamics. Third, return on capital. Our leasing model is designed to drive ROI across the portfolio. Every leasing decision is made on economic returns, not volume. That rigor is paying off. Since we introduced the new model, lease IRRs have improved nearly 3,000 basis points and payback periods are down 25%. With higher occupancy and retention, our capital burden is reduced and our profitability improves. Our plan is to continue repeating this quarter after quarter. Fourth focus, healthcare realty is a pure play. The only public REIT focused exclusively on medical office. For others, it's an afterthought. For us, it is 100% of what we do. Our capital, our people, and our attention are never divided. This laser focus is leading to better results across the board. We are outperforming, that is by design. In finishing, with fundamentals firmly on our side, we will keep executing, putting up strong numbers, allocating capital with discipline, following through on our commitments, and focusing on the things we can control. Healthcare Realty offers much better growth than our share price reflects. This motivates us every day. With that, let me turn the call over to Rob.