HR - NYSE

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Healthcare Realty Trust Incorporated Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed with the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Ronald M. Hubbard, Vice President of Investor Relations. Please go ahead.

Thank you for joining us today for Healthcare Realty Trust Incorporated’s fourth 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 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 12/31/2025. The company's earnings press release and earnings supplemental information are available on the company's website. I would now like to turn the call over to our President and CEO, Peter A. Scott. Thanks, Ron. Joining me on the call today are Robert E. Hull, our COO, and Dan Gabbay, our CFO. Also available for the Q&A portion of the call is Ryan E. Crowley, our CIO. 2025 was a transformational year at Healthcare Realty Trust Incorporated 2.0. When I joined the company, it quickly became apparent we had an opportunity to become the clear leader in the outpatient medical sector. We have the best-in-class portfolio, we have scale in the right markets, and we are aligned with leading health systems. We also had the makings of a great team but needed to execute better and be more ambitious. In a short period of time, we have added talent across the organization that further differentiates our platform. I am immensely proud of the team and how they rose to the challenge during this critical time. We have more to do and it will not always be a linear path, but our mission is simple and unwavering: to operate and make decisions every day to drive long-term shareholder value. To that end, I wanted to provide an update on the three-year strategic plan we published in July. Within the plan, we outlined the key steps being taken to overhaul all facets of the organization. I am pleased to report in just a few quarters we are tracking ahead of schedule. First, the revamp of the asset management platform is complete. We have a new leadership team that is spearheading improved alignment between asset management and leasing. In addition, we have incorporated a new leasing model to drive ROI across the portfolio. The heightened rigor for achieving the best possible economic returns is manifesting into better results. Under the new platform, cash leasing spreads have improved 60 basis points, tenant retention has improved 220 basis points, and we see a meaningful uptick in our lease IRRs and lease payback period. The end result, as we repeat this quarter after quarter, will be a higher quality earnings stream and improved earnings growth. Second, we have successfully achieved our target of $10,000,000 run-rate G&A savings. Our total G&A expense now sits at $45,000,000 and ranks favorably to peers. We also improved our property NOI margins by 60 basis points and believe there is additional margin expansion to attain over the coming years. Third, we have completed our ambitious asset disposition plan. We have sold $1,200,000,000 of assets at a blended 6.7% cap rate, both numbers exceeded the high end of our expectations. We exited 14 noncore markets, and have improved our overall geographic footprint into high-growth MSAs. We are confident we have the premier outpatient medical portfolio,

confirmed

by the nearly 5% same-store NOI growth number that we generated in 2025. Fourth, our balance sheet initiatives are complete. For the first time in years, we have much needed financial flexibility, and modest balance sheet capacity for capital allocation. We have reduced net debt to EBITDA nearly a full turn to 5.4x. We have extended our debt maturities and increased our liquidity. And our outlook has improved to Stable from both Moody’s and S&P. We also took the long overdue step to rightsize our dividend, something HR 1.0 struggled with for over a decade. Our dividend is appropriate, well covered, and under the right conditions, able to grow in the future, while at present offering a nearly 6% current yield to our shareholders. Fifth, we have strengthened our corporate governance and leadership team. We streamlined our board to seven individuals. I believe we have one of the highest quality boards in the REIT industry, and I am very fortunate to have them on our team. I would also like to officially welcome Dan Gabbay as our CFO. Dan and I have known each other for twenty years, both as colleagues and then as a trusted adviser. He brings an exceptional blend of financial acumen,

strategic insight,

and capital markets expertise to the organization. Let me shift now to our 2025 results, which surpassed expectations across the board. Normalized FFO was $1.61 per share, exceeding the midpoint of our original guidance by $0.03. Same-store NOI growth was 4.8%, exceeding the midpoint of our original guidance by 140 basis points. We executed approximately 5,800,000 square feet of leases and we are off to a strong start in 2026 with our health system dialogue at an all-time high. Turning to capital allocation priorities. As you are aware, outpatient medical transaction volume increased significantly in 2025 and we were fortunate to take advantage of this developing trend. Private investors clearly see the same positive backdrop we see: increasing patient and tenant demand, combined with a severe lack of new supply. Notwithstanding the positive backdrop, we are realistic that our current cost of capital and discount to intrinsic asset value limits external growth. Therefore, our capital allocation approach will remain incredibly disciplined as we invest balance sheet capacity, free cash flow, and capital recycling proceeds. This targeted approach includes number one, redevelopments. We are prioritizing redevelopment projects within our existing portfolio. We see attractive yields on cost of approximately 10%, and this is a significant source of NOI upside. Number two, returning capital to shareholders through stock buybacks, and have authorization to purchase more. In January, we purchased $50,000,000 of stock. At our current stock price, we trade at a 9% plus FFO yield. Number three, joint venture transactions. As we look at external growth opportunities, we are fortunate to have existing joint venture partners who want to increase their investments in outpatient medical. We will only pursue a JV transaction if we can create earnings accretion through a combination of investment returns and advantageous fee arrangements. As a reminder, other than redevelopments, we do not include any accretive capital allocation opportunities in our guidance. Finishing now with our 2026 guidance and the value creation opportunity. The midpoint of our normalized FFO guidance is $1.61 per share. On the surface, this could be perceived as underwhelming due to the implied flat year-over-year growth. However, embedded within the midpoint of our guidance is approximately 5% core earnings growth, which offsets the necessary dilution we proactively incurred from our back-end weighted 2025 dispositions and deleveraging. With our noncore dispositions now behind us, and our balance sheet in great shape, we are well positioned to maximize our go-forward earnings growth potential. When you combine this with our upside from multiple expansion, and attractive dividend yield, we see a compelling opportunity to deliver long-term value for our shareholders. I will now turn the call over to Robert E. Hull who will expand more on operations and leasing. Thanks, Pete. We finished the year strong, capping a robust year of leasing activity and showing early signs of operating improvement from our revamped asset management platform. For the year, we executed 5,800,000 square feet of leasing, including 1,600,000 square feet of new leases. Annual escalators across all leasing activity average 3.1%, lifting the portfolio average to 2.9%, a 7 basis point increase over last year. The weighted average lease term was nearly six years, improving our portfolio average. Tenant retention for the year was 82%, and same-store absorption of nearly 290,000 square feet translated to over 100 basis points of occupancy gain. During the quarter, we executed 1,500,000 square feet of total leasing. Tenant retention was strong at nearly 83%, our eighth consecutive quarter over 80%, and we saw same-store occupancy improve over 20 basis points. At our redevelopment properties, we have seen a 1,000 basis point increase in the lease percentage since the end of the third quarter. This increase was driven by solid demand across a number of our projects, including a 64,000 square foot lease with Saint Peter’s Health at a redevelopment in Upstate New York. The backdrop for industry fundamentals remains strong, supporting a steady flow of prospects into our 1,300,000 square foot pipeline. Demand in the top 100 MSAs continues to outstrip supply and completions as a percentage of inventory remain near all-time lows. Additionally, robust investment by health systems in outpatient services is an ongoing positive trend. Shifting to the operating platform. We have completed our transition to an asset management model. As Pete mentioned, we have seen early signs of improvement in lease economics as our revamped platform creates greater accountability closer to the real estate to drive better results. As we look ahead, maintaining financial discipline around leasing, further refining operating processes, and improving tenant satisfaction are important objectives for our team and the sustainability of these results. This new platform also emphasizes developing and maintaining key relationships with our health system partners. Recent efforts have led to a meaningful uptick in lease activity with a number of these systems. A few examples worth noting include in Connecticut, we executed 65,000 square feet of leases with Hartford HealthCare, backfilling the Prospect Medical space. We received this substantial credit upgrade and we retained the full $3,000,000 of NOI. With this transaction, our relationship with Hartford Health has grown to nearly 250,000 square feet. Across 15 buildings, our portfolio is 94% occupied. And in Memphis, Baptist extended 15 leases totaling nearly 170,000 square feet for eight additional years. In addition, they signed three new leases totaling 25,000 square feet with a blended term of ten years. Our portfolio with Baptist is now 99% leased. The Baptist deal is just one example of how a reinvigorated platform is leading our health system partners to want to do more with us. Systems are releasing space early and expanding tenancy in our buildings. On top of this, of the 1,400,000 square feet of single-tenant expirations in 2026 and 2027, we have already executed renewals or are in the lease documentation phase for over half of this space, with more to come. Included in these renewals are a 154,000 square foot eight-year renewal with Tufts Medicine in Boston. The existing lease with Tufts was scheduled to expire in 2027. Three lease extensions totaling 142,000 square feet with Advocate Health in Charlotte for an average of seven years. The cash leasing spread was in excess of 5%. And a 39,000 square foot renewal with Medical University of South Carolina in Charleston that was set to expire in late 2026. I want to congratulate our team on a great finish to the year. Coming into 2026, our team is executing on our strategy extremely well, positioning us for further occupancy gains that will drive meaningful NOI growth. I will now turn it over to Dan to discuss financial results. Thanks, Rob, and thank you, Pete, for the introduction. It is nice to meet everyone over the phone, and I look forward to meeting in person over the coming quarters. This morning, I will provide some additional color on fourth quarter 2025 results, our capital allocation activity, and our initial 2026 guidance outlook. But before that, I will quickly introduce myself. As Pete mentioned, we have an extensive history working together as colleagues, and at his prior firm, where I served as an adviser to the company on several strategic transactions. My twenty-year career in investment banking will be an asset as we instill greater financial discipline in the organization, and continue to restore our financial credibility with shareholders and the analyst community. As some of you already know, I have worked closely with most REITs in the health care sector, advising on equity and debt strategies to minimize cost of capital and advising on transformative mergers and acquisitions. This will enable me to bring another strategic perspective to our C-suite. I have also had the pleasure to work with some current members of the Healthcare Realty Trust Incorporated team dating back nearly a decade. And while it has only been a few short weeks, I have had the opportunity to get better acquainted with the entire executive management team and our highly experienced board. I am extremely impressed with the caliber, professionalism, and execution mindset of this team. They have quickly transformed the operating platform, improved portfolio quality, and reset the outlook for the company. I am honored to work alongside them in my new role. And with that, I will turn back to our results. 2025 ended strong. In Q4, we reported normalized FFO per share of $0.40 and same-store cash NOI growth of 5.5%. Additionally, FAD per share was $0.32, resulting in a quarterly dividend payout ratio of 75%. Our outperformance this quarter was driven by 103 basis points of year-over-year same-store occupancy gains, 3.7% cash leasing spreads, and continued property-level and G&A expense controls. As a result, we are proud to have delivered full-year normalized FFO per share of $1.61, FAD per share of $1.26, and same-store cash NOI growth of 4.8%. Turning to capital allocation. Q4 remained active with nearly $700,000,000 in dispositions. Proceeds were primarily used to pay off our 2027 term loans. Inclusive of our bond repayment earlier this year, we repaid $900,000,000 of debt and extended maturities on our remaining term loans and credit facility by 12 to 24 months. Leverage decreased to 5.4x from 6.4x at the beginning of the year, ahead of target and the timing laid out in our strategic plan. Going forward, we will be prudent and opportunistic deploying capital. In January, we utilized $50,000,000 of disposition proceeds to repurchase 2,900,000 shares, and we have $450,000,000 remaining under our current authorization. Overall, the Healthcare Realty Trust Incorporated team delivered results ahead of or in line with all metrics discussed in our July strategic plan, allowing us to be more front-footed as we position into 2026. Turning to 2026 guidance, which you can find on Page 30 of our Q4 supplemental report published last night, we are forecasting normalized FFO per share of $1.58 to $1.64, representing $1.61 at the midpoint. These results are driven by lease-up and positive releasing spreads in our core portfolio, which we expect to generate same-store cash NOI growth of 3.5% to 4.5%. G&A is anticipated to be between $43,000,000 and $47,000,000, in line with the strategic plan. Sources of capital for the year will include modest asset sales, proceeds from a note receivable maturing in early 2026, and free cash flow post dividends of approximately $100,000,000 at the midpoint of our guidance. Uses will include our asset-level capital plan outlined in our guidance, and includes the $50,000,000 already utilized towards share repurchases. Recall that our guidance does not include any additional acquisitions, developments, or incremental share repurchases. Finally, I would like to call out a couple items related to our balance sheet. First, we assume the $600,000,000 bonds due this August will be refinanced with new bonds in the low 5% coupon area midyear, as compared to the existing coupon of 3.5%. Second, we published an additional press release last night disclosing our new $600,000,000 commercial paper program. Similar to other REITs in the sector, accessing the CP market will allow us to further diversify our capital sources, and reduce our interest costs compared to our line of credit. The size is in line with other REITs and consistent with rating agency frameworks for our mid-BBB ratings. Last but not least, we expect full-year leverage in the mid-5x net debt to EBITDA range, although figures can fluctuate modestly from quarter to quarter. With that, I will turn the call back to Pete for any closing remarks. Thanks, Dan. I would like to finish by thanking our incredible team for their tireless efforts and laser focus on delivering excellent results. They did not miss a beat during Winter Storm Fern, despite the impact in Nashville. I am energized and excited every day working with this team. With that, operator, let us open the line for Q&A.

At this time, I would like to remind everyone in order to ask a question, please press star then the number 1 on your telephone keypad. We request that you limit yourself to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Our first question comes from the line of Juan Carlos Sanabria with BMO Capital Markets. Your line is open.

Hi. Thanks for the time, and welcome, Dan.

Just curious on the same-store NOI guidance for 2026. You obviously had a strong year for 2025. But just curious on the implied decel on the 2026 guidance and the piece parts or assumptions assumed in that same-store NOI, whether it is occupancy, retention, etcetera. Yeah. Let me spend some time on that, Juan. I mean, obviously, 4.8% is a pretty strong number that we posted in 2025 and again, we also have some absorption benefit. I think we all saw the over 100 basis points of absorption we experienced, which is certainly a significant benefit within our same-store pool. And that aided us getting up close to 5%. I would say this, as we think about the 3.5% to 4.5% for 2026, look. We are going to push the envelope across the four main drivers, and those drivers are escalators, retention, absorption, and cash leasing spreads. From an escalators perspective, which is really the primary driver of our same-store growth, it is probably 75% or greater of the same-store number we achieve every year. We are averaging 3% or greater at this point in time on all lease deals we are signing. From a retention perspective, which limits downtime and capital we have to put in our assets if we can retain tenants, we are trending towards the mid to low eighties on that, probably closer to mid eighties than the low eighties when you look at the last couple quarters. And that is going in the right direction for us. I think from an absorption perspective, we do expect more absorption this year as well. And we think that will certainly benefit our numbers. It is a little soon to give exact figures on that, do not know that it will be 100 basis points, like we did last year because we are at 92% now, but certainly expect to see positive absorption as we work our way through the year. And then the last piece of it, which gets a lot of airtime, and appropriately so, on cash leasing spreads. That is actually probably the smallest driver overall when you think about same store. But I think it is more important because, from an industry health perspective, I think it gives you a sense as to where things stand from a supply-demand perspective. And today, demand is much greater than supply. And our cash leasing spreads have ticked up the second half of the year. And like I said, we are going to look to push the envelope as much as we can.

And so then just on the CapEx piece, curious if you can give any guardrails with regards to FAD relative to the $1.61 normalized FFO expectation for 2026?

Yeah.

Juan, it is Pete again. And in the future, I will probably have Dan answer most of these. But given it is his first call, I will weigh in a bit on this. If we are flat from an FFO perspective, and I think everyone is pretty aware of the pieces as to the core earnings growth and then, obviously, the necessary dilution we took from deleveraging and the asset sales. If we are flat from an FFO perspective, I would assume we are flat from a FAD perspective as well. We ended last year in the $1.26 range. And we have actually given the maintenance capital number within our guidance page as well to help everybody triangulate on their modeling and forecast. So I would assume the same thing for FAD that we are assuming for FFO.

Your next question comes from the line of Nicholas Philip Yulico with Scotiabank. Your line is open.

Thanks. I think you talked a little bit about this in terms of the last question about absorption potential. I just wanted to be clear that you said some of that potential. Was that just the same-store number? Or is that also you know, applying to redevelopment leasing and maybe if you can just give us an update on how to think about redevelopment project timing, delivering, lease-up and how that ultimately could create some earnings benefit beyond this year?

Yeah. For sure, Nick. It is Pete again. What I quoted before was purely in the same-store bucket, and I am glad you brought up the redevelopment portfolio because I think that is going to be a big driver of total portfolio occupancy increasing over the coming years. And I think you mentioned that in your pre-call note last night. As I think about redevelopments, we think it is a great way for us to allocate capital. I was very intentional in listing that first in the prepared remarks. In the fourth quarter of last year, we had a sequential 500 basis points increase within the redevelopment portfolio from leases signed. I do not know if it was totally clear in our prepared remarks, but we did sign a very big new lease deal in January with St. Peter’s Health up in Upstate New York. And so we would expect probably another 500 basis points of incremental lease-up to show up in our supplemental at the end of the first quarter. And so I would say we have really, really good momentum. And this is the key driver to meeting or exceeding the three-year earnings growth framework. Those leases we are signing now, the real benefits do not start until 2027, but I would say our confidence level in our earnings framework is certainly increasing as we continue to lease up within that bucket. Again, I am glad you brought this up. Whatever I quoted from an absorption perspective is just to the same-store pool, and we would like to do even better in the redevelopment bucket.

All right. Yes. Thanks, Pete. And then second question is just going back to acquisition potential. I know you talked about stock price not being exactly where you wanted to be to fund that. But can you also just talk about like just a profile of potential acquisitions? Because clearly, there is this sort of issue where you are dealing with cap rates that are low in some cases when you are which is good for selling assets, but it makes it difficult to buy assets. I do not know if there is also a profile of what you are looking at that would enhance your yield and future growth from acquisitions when you decide to do it? Thanks.

Yeah. Well, two pieces to that, Nick. The first is if we do no acquisitions or stock buybacks this year, which our guidance does not incorporate any of that. We would actually end up in probably the low fives from a net debt to EBITDA perspective or below our target. Right? So there is a little bit of balance sheet capacity. It is modest, but it is probably in the $200,000,000 to $300,000,000 range. That varies based upon buyback versus any kind of JV acquisition opportunity we could look at. But just to be clear, as we think about JV deals specifically, I mean, we do have partners that would like to grow with us. We do have constraints on how much we can grow. I just pointed out the finite amount of capital we have unless our stock trades at a materially better level than it does currently. But as we think about the yields we would like to get on capital that we put out, our implied cap rate is somewhere in the low 7s. And we would not look to allocate any capital to even a JV transaction unless we felt like the yield to us, even if we are funding it with balance sheet capacity, is greater than our implied cap rate. I mean, that is just going to be an arbiter that we are going to look at. So, hopefully, that gives investors comfort that we are not looking to go out and do a bunch of 5.5% cap rate deals just for the sake of doing deals. We are going to be incredibly disciplined in how we put money out and make sure we are getting the best returns possible on that money.

Your next question comes from the line of Seth Eugene Bergey with Citi. Your line is open.

It is Nick Joseph here with Seth. How are you thinking about the dispositions going forward? Obviously, you were able to execute on a lot at good pricing and faster than expected. So what is the plan from here? Is it more being on offense with dispositions or for any potential? How are you thinking about the portfolio?

Yeah. We are carefully using the O word within the office here at the moment. That came up a lot last quarter, and I am not sure it helped us. But I would say from an asset sale perspective, let me just hit on it from two different perspectives. So we have got $175,000,000 of sales embedded within our guidance for this year. Within that, though, is about $70,000,000 of deals that are closing early this year that were part of our $1,200,000,000 disposition plan. They just leaked over into the beginning of 2026, and we were pretty clear that some could leak over into this year, but we expect to have all of that done in the very, very near term. In fact, one is done and one is imminently about to close within that $70,000,000. The other is a $45,000,000 loan that is expected to get repaid late March. And so after that, you really have about $60,000,000 of dispositions baked into our guidance. And if you recall last quarter, I said we would consider selling some noncore, non-income producing assets as well. We do have a pretty significant land bank that I think is undervalued currently within our stock price. I think there are a lot of things undervalued in our stock price, but certainly, that is one of them. So you should assume we would look at certain things like that. But then stepping back, what is not in our guidance? Would we consider selling core real estate? I would say we would consider selling anything that is going to maximize value to our shareholders. So nothing is off the table. But at the moment, that is not baked into our guidance.

That is very helpful. Thank you. And then just given how active you have been as part of the transaction market, are there any insights either from buyers or competition that you have seen change over the last, call it, six to nine months?

Maybe I will start. I will ask Ryan to quickly comment, our Chief Investment Officer. I would say the biggest change that we have seen over the last year has been the availability of debt, the pricing of debt, and obviously, the LTVs that buyers are able to achieve. That has been probably the biggest benefit to why transaction volumes have picked up. I will also say that the perpetuation of demand exceeding supply, continued absorption just nationwide, in outpatient medical assets has certainly piqued the interest of private capital. And there is no shortage of private capital that is looking to enter this space or increase their exposure into this space. And I think you have seen that in some of the volume numbers that are out there. I will ask Ryan to maybe comment on cap rates for a second.

Sure. We are beginning to see more assets come to the market and those are pricing at cap rates in the high 5s to low 6s, while core plus is pricing in the low 6s to upper 6s depending on property attributes. And, of course, value-add properties are primarily IRR driven, not cap-rate driven. But as Pete alluded to, buyer demand remains high, and the transaction volumes have been really elevated in the space.

Your next question comes from the line of Austin Todd Wurschmidt with KeyBanc Capital Markets. Your line is open.

Thanks. Good morning, everybody. Pete, you have discussed in the past just how precious capital in this business is, and your intent to target high retention. I think kind of putting a goal or maybe a stretch goal out there of 85% or better. What are you guys assuming as far as retention this year? And how much visibility, I guess, beyond single-tenant deals you described, do you have into the remaining expirations for this year? Thanks.

Yeah. Hey, Austin. The expiration question did come up a call or two ago. And I will say that has been top of mind for us, and I would expect to see a significantly improved lease expiration schedule when we come out with our next supplemental, especially working our way through the 2026–2027 expirations. I mean, we have a pretty good line of sight at this point into those, as you would expect. With regards to the multitenant portfolio, I would say that we are expecting to be kind of in the 80% to 85% range. It will ebb and flow a little bit. In the third quarter of 2025, we were at, I think, 88%. And this past quarter, we were at close to 83%. That kind of blends to 85%. So I think the 80% to 85% number is probably a pretty good assumption that we have embedded within our guide for this year. That is helpful. And then, Peter or Rob, you guys footnoted and also flagged the 64,000 square foot lease in January of new lease. Was there any additional new leasing component to the nearly 1,000,000 square feet that have been signed year to date? And then can you just kind of talk about how negotiations are moving along for the 1,300,000 square foot pipeline? Thanks.

Yeah. I will have Rob jump in and talk about that deal. Obviously, I mentioned that one quickly, and he could talk about new leasing in general. I mean, that is with Saint Peter’s and we just had a ribbon-cutting ceremony with them up at that building. They took some other space as well in the building too, and hopefully have some appetite to grow even more. But it is a big lease, and we are excited to be expanding our exposure with them. Rob, why do you not talk generally about the million square feet, though?

Yeah. I think the million square feet certainly is off to a strong start. There is additional new leasing inside of that million square feet that we have executed this quarter, as well as a number of renewals, some of which I covered in my prepared remarks. But I think in general, we are extremely encouraged by the level of activity that we are seeing. We expect that to continue as we move forward. The 1,300,000 square foot pipeline that I did mention is an active pipeline that is growing every day. Our team is continuing to add to that, and that will certainly feed our new leasing expectations in 2026. And we are just very optimistic on demand as you can imagine. Health systems continue to move services from the inpatient setting to the outpatient setting, which is driving a lot of that demand. And we think that we are well positioned to continue to capture that.

Your next comes from the line of Michael Patrick Gorman with BTIG. Your line is open.

Yeah. Thanks. Good morning. Pete, maybe just a couple of questions here on the CapEx number. I appreciate the guidance. I am just curious, when we think about the stabilized portfolio and all the work that you have put into it as we move through 2026, do some more leasing, get the asset management program for a full year here. Is that kind of 15% of NOI the right range for the maintenance CapEx, second-gen leasing CapEx number on this platform going forward?

Yeah. I would say it is probably 15% to 20% is a little bit of a wider range that I would go with. But I think you are right. We have been achieving 16%, 17%. So maybe I am just being slightly conservative with bucketing that into the 15% to 20% range. But I think that is a good run-rate number. I would say if your retention continues to go up, I would expect that number to perhaps even tick down a little bit. But, obviously, look, we are making a concerted effort to invest capital back into our portfolio, and that was one of the reasons why we decided to rightsize our dividend a couple of quarters ago to take that additional retained earnings and reinvest it back into redevelopment. We think that is probably the highest and best use of our capital right now. So what I quoted before was purely just a maintenance capital number, and we are certainly investing above and beyond that at the moment. I think that will obviously be a more near-term investment that will eventually tail off, in a couple years. But we think it is the right place to invest capital today. Got it. That is helpful. You certainly made it clear kind of the discipline that you are putting forward when you are thinking about deploying capital. I am just curious again with the improvement that you have managed to generate on the asset management side, maybe some success that you are seeing on the redevelopment side. Does that expand the scope of opportunity that you are willing to look at whether it be in the JV structure or on balance sheet in terms of the type of assets that you would be comfortable bringing into the portfolio now with the confidence that you have on the asset management side?

Yeah. I mean, look. As I think about how we would bucket assets between what we would acquire and what we would do on balance sheet, I think we have got plenty of value-add on balance sheet at the moment, and that is our redevelopment portfolio. And, again, we enhanced our disclosures last quarter. People can track the progress that we are making there. So we have a report card every quarter to see how we are doing, and I would say we got a pretty good grade in the fourth quarter on that. With regards to the external growth, I think you have got capital that is more wanting to chase core and core plus right now that, frankly, we do not have the cost of capital to allow us to do that on balance sheet alone. So I think for the current time being, we are going to do any type of acquisition primarily through JVs. Right? And like I said, we have got partners that want to grow in this space. We do have some advantageous fee arrangements that allow our going-in yield to be much better than what the cap rate is for the transaction. And that is where our focus would be today on any kind of external growth. But again, there is a finite amount of capital we have with that to put to work this year. And we will compare that to what is our FFO yield from a share buyback perspective. What are we looking at from a redevelopment perspective? But it all goes back to our balance sheet is in much better shape, and we have much needed free cash flow from the dividend adjustment to reinvest into our portfolio. So we are in a much better position nine months henceforth from when I began to actually be able to talk about these things.

Your next question comes from the line of William John Kilichowski with Wells Fargo. Your line is open.

Pete, maybe if I still back to your strategic plan and I look at some of these pages, you laid out $90,000,000 of NOI up and RTO portfolio and then another $50,000,000 of NOI from expansion. Due to these processes, I guess I am curious how much of that do you feel like was captured in 4Q, what is included in guide, and then what is sort of longer term down the road, if you could help us bucket those.

Yeah. That is a good question, John. Let me see if I can give a couple of pieces on that. As I said in my prepared remarks, we are tracking generally ahead of schedule. And that would also be attributed to how we are thinking about the $50,000,000 of NOI upside. But just to be clear, within our strategy deck, we just assumed $20,000,000 to $40,000,000 of NOI within the first three years just because there is a lag. You spend the capital. You sign leases. But the commencement of those leases and when you get the full run-rate benefit just takes time. Right? So as I would think about the $20,000,000 to $40,000,000 and the leasing we have done, it is not just what we did in the second half of 2025, but also to start the year in 2026. As Rob mentioned, we have got about a thousand basis points of incremental lease percentage within that bucket. So that is a long preamble to basically get to I think we have probably identified about $15,000,000 of the $50,000,000 at this point in time through the leasing activity we have done since the strategic plan went out. So that is probably about a third of the $50,000,000 of upside. But when you think about that relative to the $20,000,000 to $40,000,000 that was in that earnings framework, we are probably about halfway there. And I would say that is good progress, and it is ahead of schedule. I am not expecting it to be a benefit to 2026, purely because of the reason I gave before. You sign a lease, it takes a while to do the build-out and for that to commence, but we should start to see pieces of it build up in 2027 and then further benefit in 2028.

Got it. Very helpful. And then you answered this partially in the last question, but just kind of flushing out here on the guidance is no further buybacks. But is that simply a yield question for you when determining does incremental dollars go there versus even maybe more deleveraging, although we have got some extra asset sales that are going towards the revolver? And then, as you are considering JVs, as you mentioned, is it simply what is most accretive, or would you probably tilt towards the JV as you look to grow the business as long as that is greater than your implied? Just would love to get your thoughts there.

Yeah. Look, I think it is going to be a combination of the three. We think about capital allocation priorities. I know for a fact it is redevelopment that we will spend money. So it is really what about the other two? And I would say that we will look at both of those. I would like to think we can accomplish a bit of both, but stock buybacks, we do not control where our stock trades. So hard for me to give you an exact number there, but I will say we have turned on at least the underwriting engine here with one of our partners to certainly look at deals that we can do within JVs. And, again, as I said, you should expect any yield that we would get would be greater than the implied cap rate we trade at right now.

Got it. Thank you.

Your next question comes from the line of Michael Strojek with Green Street.

Thanks, and good morning. Have you seen any change in the number of office repositionings across your markets? Is there any trend there, either up or down in terms of just shadow supply from traditional office?

Not nothing of note, I would say. No. I would say that, no. We have not. You have heard stories of one-off opportunities where people have been successful in that. But I would say, generally, that shadow sort of supply, we are just not seeing it in our markets, and with the space that we are leasing. We are doing a lot of health system leasing where they are growing critical service lines inside of those buildings that require certain parking ratios, certain building design. And so I think for what we are doing, that is generally not a factor in our day to day.

Makes sense. One on the balance sheet then. As interest rate swaps begin to burn off later this year, what sort of mix between fixed and floating rate debt are you targeting?

Yeah. I am going to let Dan take that one.

Yeah. Thanks. Finally got one. Appreciate it. It is the first one. It is a great question. I think you have seen the balance sheet repair the company has undergone over the last nine to twelve months just from the dispositions. I think that is something particularly important to protect that balance sheet and our leverage levels. I think when you think about fixed and floating mix, especially with the new commercial paper program, we are always looking to be most efficient with our balance sheets. We are also looking to extend our maturities overall. We have got some good term loans and bonds in that cap structure right now. I think a floating rate mix is, generally speaking, mid-single digits to upper-single digits proportion with respect to our overall debt, especially as we are spending money on redevelopments this year. So something we will be prudent about. May fluctuate up and down, but you are not going to see us go all floating rate debt all of a sudden.

Great. Thanks for the time.

Thanks.

Your next question comes from the line of Michael Carroll with RBC Capital Markets.

Yes. Thanks. Pete, I want to circle back on your comments regarding the joint venture. I mean, it sounds like the conversations are pretty far along. I am not sure if it was just with one of those partners or if it is a broader group. But what could these deals look like? I mean, would Healthcare Realty Trust Incorporated create some type of fund to go pursue deals? Or could Healthcare Realty Trust Incorporated contribute assets into the fund to expand it and be a little bit more active? I guess, how do you think about

Yeah.

Michael, maybe I would say specifically that our comments have been on existing joint venture arrangements we have today, where we could look to grow and where our partners want to grow, and we already have those ventures effectively solidified. So we are not talking about a new joint venture at the moment. But, frankly, since you bring it up, I think that it is something that we will continue to consider. I think we have some real opportunities we could do with our current existing partner, and we would like to grow with them. They would like to grow with us. But we certainly could look to expand that. It is tough to compete in this space today with all the private capital that is looking to chase deals, and our private counterparts that are GPs and have raised a lot of capital from those LPs are having the time of their lives buying assets right now. I talked a bit about this in my prepared remarks about private capital seeing a lot of benefits to investing in this space. We see it too. And so we cannot just go out and buy core, core-plus assets on balance sheet. Our cost of capital would get, I think, impacted quite significantly to the downside. Right? So we would have to figure out ways to manufacture better returns. And it is something we are actively considering. But at the moment, we would do deals with our existing partner or partners, and we have very good structures lined up with them and a good dialogue.

Great. And I do not know if it is premature to talk about this yet or not, but that private capital that is looking to get into the MOB space, what type of returns are they typically targeting? Are they just looking for the stability and have kind of a lower unlevered IRR hurdle they are typing and achieving? I guess, how are they thinking about the space?

Maybe I will answer that. Sure. It really runs the spectrum. I mean, if you are looking at a value-add JV with institutional capital, they are targeting high leverage, upper teens IRRs. But there is also plenty of institutional foreign and domestic capital in the space that is looking for very core product with credit, long-term wallets, very high acuity, newer vintage. They are targeting much lower returns than that. So it runs the full spectrum depending on the institutional capital you are talking about.

Great. Appreciate it. Congrats, Dan, for joining the team.

Thanks. Bye.

Your next question comes from the line of Michael William Mueller with JPMorgan. Your line is open.

Yes. Hi. So for the two questions, I guess, what is the typical scope of the redevelopment that is on your redevelopment page? Looks like they average about $10,000,000 to $15,000,000 each. Is it any square footage, lightening, brightening, just what in general? And then the second question, Pete, you talked about the areas where you have kind of met or exceeded expectations so far with the turnaround. Can you talk about any aspects of it or areas you may have run into more obstacles or things were more challenging than you originally thought?

Well, maybe I will start with the second question first. I will tell you since I have joined this organization, every interaction I have had with people here has been a positive one. And the toughest part of that is when you have to tell somebody that they can no longer be a part of this team and no longer be a part of the exciting things we have moving forward. That is not fun. And that is unfortunately something that we have had to do. But it has been a very necessary thing in order for us to get our cost structure in line and get our earnings growth and trajectory headed in the right direction. I probably underestimated how difficult that was going to be. And I am being totally open and honest with everybody on this call on that one. With regards to the typical scope, I would say the average project is probably in the $10,000,000 area, and it is probably in the $200 to $300 per foot overall. And you are really taking a building from a much older vintage, and you are improving all the common areas. You are improving the elevators. You are improving the built out of the space with regards to each one of these individual tenants. I mean, it is a significant reinvestment into an asset that probably has not been invested into for, call it, twenty to twenty-five years. And so it is really soup to nuts taking something that is much older vintage and converting it to, I would not call it the equivalent of a new development, but it gets pretty darn close to it, and you get some really good rental rate pickup. If you go back to our strategy deck, we actually put a really good example of the projects we are doing in White Plains and the amount of leasing we have been able to generate with White Plains Hospital there, which is a Montefiore subsidiary. And we did soup to nuts on that, and it looked fantastic. You skin the outside. You put new windows in. You are putting all new systems in, and you are bringing it up to basically brand-new product.

Got it. Okay. Thank you.

Your next question comes from the line of Omotayo Tejumade Okusanya with Deutsche Bank.

Yes. Good morning, everyone. Appreciate all the hustle on the operational improvement and the capital allocation discipline. Dan, congrats. Welcome aboard. Always good to have a fellow HBS guy in a seat like that. Question wise, curious on the build-to-suit side of things. Again, just given how strong demand seems to be at this point with a whole bunch of hospital systems. Kind of curious on the BTS side, what that is looking like. Whether we can expect to see more activity on that front.

Yeah. Hey, Tayo. And by the way, for someone that completed the Antarctica Marathon, Ronald M. Hubbard did not do you any favors putting you towards the tail end of our Q&A list. I dialed in late, not Ron’s fault.

Yeah.

Yeah. I know. Well, next time, we will get you a little further up. That was quite an accomplishment. You looked a little cold in some of the pictures I saw, but congrats.

Thank you.

Build-to-suits. Yeah. Build-to-suits are happening. I would say developments, generally speaking, you do not see spec development happen right now in the outpatient medical space. And I just do not know of any capital that is looking to chase spec development. So development that gets done is definitely heavily preleased. So I do not know that I would call that a build-to-suit, but I would put it in a similar category. I think the challenges with new developments today, and it is really one of the reasons why you have seen the deliveries and starts come down considerably, is costs have gone up so much the last three to five years, especially coming out of COVID, that the rental rates needed to get to the return necessary for a developer to want to start that project is pretty significant. So you have to have a health system or a tenant willing to step up and pay much higher rental rates than what is in place right now. And so if they get done, great. I think there is plenty of demand to allow for some development to happen in the space. I do not think you are going to cannibalize existing product from that. If anything, we would like to try and draft off of those rental rates that are required in order to get those types of deals to pencil. So they are happening out there in select markets, in select circumstances, but they are happening a lot less than they have been in the past.

Gotcha. That is helpful. And then my second question, again, you do see some of the health care actively selling out of MOBs. Again, the argument being they are trying to move to higher growth asset classes. I mean, what is your rebuttal to that? Given this viewpoint that MOBs are also benefiting or should also be benefiting from the changing U.S. demographics? How do you think about the space? And when you think five years out, are we dealing with an asset class where the earnings growth profile has improved materially just given some of these secular demand drivers that are happening.

Yeah. Probably a good question, I think, maybe to end on. Look. I think this is a pretty significant value creation opportunity, and that is really what got me excited to take on this job and move to Nashville. As you think about where we trade, it is probably somewhere in the 10x to 11x FFO at the moment. And I think, personally, that kind of multiple is typically reserved for companies or sectors that are struggling. Right? Let us just be pretty candid about it. And, frankly, I think that kind of multiple significantly undervalues our platform. Right? As I said in the prepared remarks and as Dan said, we have entered 2026 front footed. Fundamentals in outpatient medical are strong. Our portfolio is best in class with our dispositions now complete. Our balance sheet is a source of strength. We have overhauled our team, and we are posting strong results. Right? I also think it is important to just note the way we look at it. We think we are in a subsector of one. There is not one direct peer out there in the public markets. There are those that have exposures to this space, but do not have 100% exposure to it like we do. So we are starting to expand our thoughts about our peer sets and looking at other property types with similar earnings growth characteristics. And based upon this, we think that there is expansion in our multiple that could be in front of us if we continue to execute on the strategic plan. And we think that that will create value for shareholders. So that is our mission, and that is what we are focused on right now.

Fair enough. Good luck.

Thank you, Tayo.

I will turn the call back over to Peter A. Scott for closing remarks.

Great. Well, look. We thank everybody for joining the call today, and we look forward to seeing all of you in person, at least many of you in person, in Florida in a couple weeks at the Citi Conference. Thanks very much.