Mary Jensen – Vice President-Capital Markets Scott Peters – Chairman and Chief Executive Officer Robert Milligan – Chief Financial Officer Keith Konkoli – Executive Vice President- Development Amanda Houghton – Executive Vice President-Asset Management.

Jonathan Hughes – Raymond James Todd Stender – Wells Fargo Karin Ford – MUFG Securities Michael Knott – Green Street Advisors Rich Anderson – Mizuho Securities Tayo Okusanya – Jefferies John Kim – BMO Capital Markets Chad Vanacore – Stifel, Nicolaus Vikram Malhotra – Morgan Stanley Eric Fleming – SunTrust Robinson Humphrey Doug Christopher – D.A.

Davidson.

Good morning and welcome to the Healthcare Trust of America Second Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Mary Jensen, Vice President of Capital Markets. Please go ahead..

Thank you. And welcome to Healthcare Trust of America’s 2017 second quarter earnings conference call. Yesterday we filed our earnings release and our financial supplement after the close. These documents can be found on the Investor Relations section of our website or with the SEC.

Please note this call is being webcast and will be available for replay for the next 90 days. We will be happy to take your questions at the conclusion of our prepared remarks. During the course of this call, we will make forward-looking statements.

These forward-looking statements are based on the current beliefs of management and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict.

Although, we believe that our assumptions are reasonable, they are not guarantees of future performance. Therefore, our actual future results could materially differ from our current expectations. For a detailed description of some potential risks, please refer to our SEC filings, which can be found in the Investor Relations section of our website.

I will now turn the call over to Scott Peters, Chairman and CEO of Healthcare Trust of America.

Scott?.

Thank you, Mary. Good morning and thank you for joining us today for Healthcare Trust of America's Second Quarter Earnings Conference Call.

Joining me on the call today are Robert Milligan, our Chief Financial Officer; Amanda Houghton, our Executive Vice President of Asset Management and the newest member of our team, Keith Konkoli, our Executive Vice President of Development.

I’m proud to present the second quarter earnings today for Healthcare Trust of America for the first time as the largest medical office building owner and operator in the United States. The second quarter of 2017 was one of the most meaningful in HTA's 10 year history, surpassed only by our listing on the New York Stock Exchange in June of 2012.

During the period, we executed and closed on the most significant and the largest medical office transaction in the healthcare sector over the last 10 years, the Duke medical office portfolio and development platform. In addition, HTA continues to execute on its existing portfolio, delivering strong and consistent operating results.

A quick summary of the key accomplishments this quarter are, we invested and closed $2.6 billion of the highest quality medical office building in the United States, 91% located in our existing key markets; we acquired the most reputable and relevant medical office development platform, Duke Healthcare, which we have since renamed HTA Development.

We generated 3.1% same-store growth from our existing portfolio through continued revenue growth and margin expansion through our in-house asset management and leasing platform; raised $1.7 billion in equity primarily through a marketed transaction, which we upsized by more than 20% and significantly expanded our shareholder base; we raised $900 million in unsecured bonds priced at the level of our larger and higher-rated peers; and upsized and extended our credit facility, bringing our revolver to $1 billion and pushing maturities out five years.

These actions have made HTA the most prominent and most relevant company in the medical office sector.

Our portfolio is the highest quality and best performing in the country with 24 million square feet in total size with an MOB portfolio at least 10% larger than any other company and almost twice the size of our pure-play peers, 71% located on-campus and 97% on-campus or aligned with leading healthcare systems in the U.S., 93% located in the top 75 markets.

We have seven key gateway markets with 1 million square feet or more lead by Dallas, Houston and Boston and an additional 10 markets with over 500,000 square feet. The combined portfolio has produced 3% same-store growth over the last five years and has in-place rent escalators in the mid-2s.

And we have established significant stability in our cash flows with our top 10 markets making up less than 50% of total ABR and with no single tenant making up more than 3.8% of ABR. And finally, we have limited lease rollover with no more than 9% rolling in any given year through 2021.

And as always and most importantly, we have a strong investment grade balance sheet with approximately 30% debt-to-market capitalization and over $1 billion of available liquidity. Simply put, we are now better positioned than any other company to perform for our healthcare relationships and generate returns for investors.

This is a stable and growing sector, but one that is still very fragmented so that the scale and the relationships and key markets will provide a significant advantage as we move forward over the next three to five to seven years.

Looking at the details, we agreed to acquire their entire portfolio for $2.75 billion, including the acquisition of seven properties under development. After the execution of the $495 million of rights of first refusal we have now closed and finally closed on $2.3 billion related to this transaction.

This equated to a 4.75% cap rate in place year one, but results in a 5% cap rate once the development properties come in line in 2018.

Given this significant market overlap, we expect the elimination of third-party property management and engineered fees to result in an additional 20 to 25 basis points of yield, bringing the stabilized yield to 5.25% in 2018.

We think this is attractive pricing in state markets, where our peers, private equity and healthcare systems are acquiring fully occupied assets with limited growth or no management opportunities in the high 4s.

And in addition, we are also obtained a fully functioning development and construction platform that will continue to add to HTA’s performance for years to come. Despite this major acquisition, we also entered into and closed another $391 million of acquisitions, the majority on-campus and all located on our key markets at around the 6% cap rate.

As a result, our $2.6 billion in second quarter investment yields 5% in place growing to 5.25% with developments coming online and up to 5.5% with the synergies as we move through 2017 and into 2018. We financed these investments with a significant amount of equity, which we raised in a major transaction at the beginning of May.

We've always been committed to a low-leverage balance sheet and these acquisitions were no exception with us raising almost $1.7 billion of equity to allow us to end the period in the low 30s debt-to-total market capitalization. Ultimately, we believe the acquisition will allow us to push our investment grade ratings even higher than they are today.

And our bond market execution in the middle of May proved that opportunity out, raising $900 million at a blended interest rate less than 3.5%.

As we originally looked at this transaction, we expect that the size and complexity with multiple health systems, rights of first refusal and ground lease consent would require a three to four month closing process.

However, the level of preparation, the underwriting, the strength of our relationships and with our existing asset management platform that we have established in these markets, these all allowed us to substantially close the deal within 45 days.

While this was no easy process, we felt that minimized shareholder dilution like closing the assets quickly and utilizing the equity we raised has reduced risk related to ongoing leasing, allowed us to enter the debt markets on a timely basis, transferred the development, construction and property management employees from Duke effectively with minimal confusion, focused everyone's attention on the synergies immediately available for us and allowed us to quickly strengthen and reinforce our presence in key markets, where we now have seven key markets with over 500,000 square feet.

Finally, looking at our existing portfolio and its performance in the second quarter, we generated same-store growth for the period of 3.1% with continued support from both revenue growth and margin expansion opportunities.

Leasing activity remains strong with tenant retention of 78% with flat lease spreads for the 500,000 square feet of space we completed. We expect our lease rate to increase by the end of the year based on current levels of activity in certain key markets.

Our margin expansion continues to be a major focus and opportunity based on the new critical mass and the scale that we have established in these key markets.

Finally, as I look at HTA, the medical office space, I believe that this quarter acquisition activity with the quality and critical mass achieved in key gateway markets provides HTA and investors with a compelling opportunity for continued shareholder value creation for the next five to 10 years.

I will now turn the call over to Robert to discuss our financials for the quarter and the year..

Thanks Scott. This was obviously a monumental quarter for HTA from a strategic and positioning perspective. However, the focus on our financial performance and existing portfolio has remained strong. Given where we are with the acquisition and integration, we expect that to continue.

In the beginning of May, we announced Duke and other pending acquisitions totaling almost $2.9 billion before potential ROFR exercises, which we had estimated at $300 million to $500 million. To finance the acquisition, we immediately launched a two-day marketed equity offering to raise at least half the expected required proceeds.

Given the size of the acquisition, the amount of required capital and existing demand, we decided to upsize our deal to almost $1.6 billion, enough to lock in our strong balance sheet. This also gave us the opportunity to welcome in many new shareholders, important since we never did a traditional IPO.

With the equity issuance ensuring a strong conservative balance sheet, we were well positioned to come to the debt markets. Medical office is already one of the most stable sectors of real estate.

And our ability to put together the largest portfolio in the country with additional size and diversity, focused in strong markets only increases our stability, a clear credit positive. As a result, we are able to come to the debt markets at an attractive time.

After some early marketing, we launched a $600 million unsecured note offering split between five and 10 year notes.

We were pleased with the overall demand and ultimately upsize the offering to $900 million split between a $500 million 10 year issuance priced at 3.75% and a $400 million, five year issuance priced at 2.95%, for a blended 3.4% interest rate and a 7.7 year average duration.

While the prices were certainly attractive on an absolute basis, we were more pleased with the fact that these spreads came in right on top of our larger and higher rated peers. An important fact that we think will differentiate HTA as we continue to compete in this competitive sector.

These public offerings combined with $286 million of seller financing and nearly $500 million of ROFR exercises, we completed the financing of the two second quarter acquisitions before the end of the quarter and locked in low leverage, below 30% debt-to-total market cap and low 6x debt-to-EBITDA, which positions us for continued opportunities.

Our balance sheet was further enhanced by the credit facility that we closed last Thursday, which increased our revolver to $1 billion and pushed out the maturities of it in the $300 million term loan for another five years, ensuring limited debt maturities for the foreseeable future. Now let's turn to the numbers for the period.

Second quarter normalized FFO per diluted share was $0.39, a decrease from $0.41 in the first quarter and entirely driven by the significant capital raising associated with the second quarter investments. Even with that, our accelerated closings saved another couple of pennies of dilution compared to the majority of expectations.

Our normalized funds available for distribution increased 21% to $60.6 million compared to the prior year. In the second quarter, which includes all properties acquired through the first quarter of 2016, our same-store NOI growth was 3.1% driven by a 1.9% increase in cash revenue growth and an increased profitability from our operating platform.

Our cash revenue growth was negatively impacted by the number of leases in free-rent period, a result of our leasing maturities increasing almost 40% on our existing portfolio. Our operating expenses were up slightly, primarily as a result of property tax and utility expenses.

However, our operating profitability actually increased as we increased utilization of HTA's industry-leading property management and engineering platform. We expect this profitability growth to continue, especially as we bring the Duke portfolio on to our platform.

Our leasing activity remains high and in the period, we entered into over 520,000 square feet of new and renewal leases totaling almost 3% of our in-place portfolio. Our lease rollover increased in 2017 from a previous run rate of 6% to 8% per year to 11% in 2017, including month-to-month leases.

However with the combination of the Duke portfolio, our expected lease rollover will now run less than 8% in each of the years through 2021, numbers that should ensure a continuation of steady growth and low levels of recurring capital.

Occupancy in our same-store portfolio remained around 92%, demonstrating the strength of our markets and high-quality tenant base. Our tenant retention remained high around 80% and our re-leasing spreads were up over 1%.

We continue to expect our tenant retention to remain around 80% for the year and expect new leases to lead overall occupancy gains in 2018. Tenant improvements increased slightly year-over-year on a per square foot basis to $1.51 per year of term on renewals and less than one month of free rent per year of term.

New leases came in around $3 per year of term. Our recurring capital expenditures totaled $10 million and we expect this to run between 10% to 12% of NOI on a combined portfolio basis going forward, G&A for the period was $8.5 million and included the impact of the Duke platform coming online for one month.

We expect this to be a good run rate for the combined company as we go into the third and fourth quarters with each period in the $8 million to $8.5 million range.

This demonstrates a significant overhead efficiency we have generated through the acquisition and expect G&A to run between 4% to 4.5% of revenue on a consistent basis, which is very competitive with our much larger healthcare REIT peers, especially given the full-service operating model we employ.

Finally, we did book a $5 million impairment charge related to one property in rural Massachusetts that we are marketing for sale as part of a portfolio acquisition in 2010 and reflects the potential sales price. I will now turn it back to Scott for final remarks..

Thank you, Robert. We'll turn it back to the operator to open it up for question-and-answers..

Thank you. [Operator Instructions] And the first question will come from Jonathan Hughes of Raymond James. Please go ahead..

Hey, thank you for taking my questions. Looking at the tenant recoveries, debt ratio to expenses was about 69% versus kind of 67% over the past few years.

Could you just talk about what drove that increase and how you were able to achieve this?.

I'll let Robert go ahead and answer that. .

Yes, Jonathan, one of the things we spent a lot of time talking about is over the last couple of years, we’ve really build out our property management and engineering platform in each of the key markets been able to achieve scale.

So really one of the focus areas that we've had certainty coming into this year was not only how do we save tenants money but how do we start using our own services versus third-parties to start driving additional profitability to HTA. And so that's one of the things that you're starting to see come through there.

We're able to use HTA engineering versus a third-party. We both save money not only for us but for the tenants, but we're able to achieve additional recoveries from the tenants as we work through that process. That one of the things that we really think is going to pay dividends as we continue that process through the rest of the year and into 2018..

One of the things of that, that points out is that we've had the philosophy now over the last three or four years certainly starting with our discussion about moving our critical mass into what we think our gateway cities.

But it's more importantly just gateway cities, it's getting that critical mass, getting that square feet, getting the synergies that are associated with what we want to call the institutionalized utilization of asset management and leasing to medical office. I think we are still in the early stages of that.

We've talked about that now on pretty much all the calls that we've had. And as we continue to get more efficient as we continue to do, what Robert has said, and what Amanda does with the property management engineering types of opportunities that we have I think we continue to grow our margins..

Okay. And thanks for that. And then maybe a question for Keith, the Duke Development team that's now within HTA has done about 125 million projects a year.

You obviously bring relationships of your own but do you think that combined with HTA's prior operator network that, that annual development could increase may be closer to $175 million, $200 million a year? Just curious on the upside potential there..

Yes, you're exactly right.

We had a significant number of relationships that we brought over with us from the Duke platform, but there are certainly opportunities that exist as a result of the relationships that HTA has had, and there's also a number of overlapping relationships that really I think can do exactly what you just described, which is to drive some additional development volumes so that we can increase our – continue to increase our pipeline from what it was historically within just the Duke environment.

.

One of the benefits that we have is that with this acquisition, with the development team and construction team, there's some projects that we have with existing tenants that now really have started to progress in a much faster, more efficient positive manner because we're now integrated.

Number two, I do believe that as we continue to move through the MOB space over the next three to five years, the opportunity to have relationships that are integrated from asset management, leasing property management, up through acquisition, up through development are going to become more important to healthcare systems, more important to relationships.

So this really has helped us, and it's just the beginning. And the other thing that I think the combination of the construction platform along with HTA is that we're dedicated to the MOB. So that's where we're spending our time, that's where Keith and his folks are spending their time.

It's top-quality on-campus across-the-street occupied preleased assets that we're after that give us that 50 to 75 basis points that we get better than if we were a buyer once it was completed. So we're excited about that and they're out and talking to a lot of folks. .

Okay, that’s great. And just one more and I'll jump off. I appreciate the leasing spreads disclosure but I noticed they look to be kind of flat year-over-year – flat versus the expiring, I would thought they might have been up a little.

Can you just break down the spread between single and multi-tenant leases included in those numbers? I'm just trying to see the difference in growth between single versus multi-tenant assets..

Yes, Amanda and I may have a little bit of color as well. But think we're seem pretty consistent kind of spreads across the board.

We've over the last – really over the last two years, we've said we're in this environment what we see renewal spreads flat plus 1%, I think that continues to be the case, really across the board between single and multi-tenant. .

Okay. That’s it from me, I’ll jump off. Thanks..

The next question will be from Todd Stender of Wells Fargo. Please go ahead..

Thanks. You appear to be getting five to six years of lease term on new leases but closer to 4.5 on renewals. I just want to see is there have been any repeal and replace debates that are influencing doctors' decisions? I just want to hear maybe of how some of the negotiations are going when doctors are signing leases..

Its still the five to seven years, Todd. I mean that’s typically what we are seeing some of the larger practices that we've talked to some of the folks that they are really taking larger core spacing assets have actually looked at 10, they want the TIs, they want the infrastructure that goes into the location.

Certainly, not as many three-year deals, I would say. So I think maybe there's a little more – the uncertainty probably are for those that aren't as comfortable with the longer term prospect and but once they are comfortable, they are getting that five to seven year lease and that's what we're seeing..

Okay. And then my next question is kind of a two-part question.

As of today, how much of the Duke portfolio has been bolted onto your in-house property management platform? And then part two, if we could just talk about maybe some of the same-store revenue and tenant reimbursement drivers but maybe just start with how much of the Duke portfolios has been brought on?.

I’ll let Amanda talk about the transition..

Sure. So we completed the bulk of the property management transition that first week of June. I'd say despite the integration of that of 5 million square feet on to our in-house platform, we only had to open one new office and that’s in Baltimore.

We'll be opening that towards the latter part of this month and that will really complete our – the in-house transition process so will be completely in-house related to the Duke assets at that time. On the engineering side, we're about a third of the way through that process.

Duke, as I believe you already know, utilized third-party engineering throughout their platform. So that was a little bit of a different process for us transitioning from all the third-parties. So we're a third through that. We should complete that in-house transition by the end of Q3..

Great. All right, thank you.

And then I don't know if this is a question for you, Amanda or for Robert, just looking at same-store revenue expectations just looking at the top line where I'm going with this is how much tenant reimbursements are going to be influencing the NOI growth over the next couple of quarters?.

Well, I think from a tenant – first of all, the base revenue growth I think we continue to see between the retention around 80% and kind of the in-place escalators in the mid 2s. The baseline for our revenue growth should be in that 2% to 2.5% really on a quarterly basis.

I think the one thing that we're seeing on the cash revenue side is that on our existing platform, we really saw about a 40% increase in the number of lease maturities that we had. And what that impact is really the free rent periods.

Most of the leases, when we sign them, they have some amount of time where they're in a free-rent period in which they're not paying cash rent. So really seeing that increase in the lease maturities is a headwind on cash revenue growth, which is why we're at the lower end of that 2% to 2.5% now.

But I do think we would expect the next couple of quarters to see that margin expansion opportunity continue to be a driver for us similar to what we saw this quarter..

Great. Thank you..

The next question will come from Karin Ford of MUFG Securities. Please go ahead..

Hi, good morning..

Good morning..

How are you thinking about capital allocation, given all the changes with the company? And just given the current environment, are you willing to acquire additional deals at sub-5% cap rates? And if so what type of deals would those be?.

Well, I think as a bigger view of the marketplaces, I think, is that cap rates are continuing to compress key markets with key assets. There's still a lot of appetite for acquisitions. If you look at this acquisition for us, we've always said that 85% of the assets were in markets that we were in.

There was tremendous overlap Amanda has talked about the fact that we were able to not only close the assets quickly but brought Raymond [ph] onto our platform. We'll be able to get that 25, 50, 75 basis points of accretion through synergies through opportunities that we have in the market.

So when you look at an acquisition and when we look at the acquisitions now, we're really looking for the highest quality asset, multi-tenanted so that we can move rents, we're looking for same-store growth so that the escalators are in place and are solid and that there's energy within the building and within the market.

But we've got some things that I think that other folks might struggle a little bit with is we're not looking for secondary markets, we're not looking for one-off assets and we're not looking for assets that don't fit within our asset management and leasing platform so that we can bring that additional accretion to that transaction.

We're not typical sub-5 buyers. I think we like markets. We have relationships. You can see that with the $400 million that we acquired besides the Duke transaction.

And again, we think that the transaction with Duke was such a transformational opportunity for us not only from an asset quality perspective but from a key market perspective, from a credit perspective and I think ultimately, from a cost of capital perspective that it was something that warranted us looking at it, implementing it, executing it, and we've done that.

So we'll go back to and we will continue to be disciplined buyers in our 17 to 25 markets with relationships that we have with the opportunities when we acquire assets to get that supplemental yield that comes from bringing it on to our platform..

And would you say that given where risk-adjusted returns are today, though, that the priority from a capital standpoint is adding more to the development pipeline?.

I think our development opportunities, as Keith pointed out, we've got several within our own platform that will be very beneficial to us. And their talent and their expertise has really helped us move efficiently down that road. And as we get closer to fruition, we'll, of course, be reporting to folks what those are.

But I think the opportunities that they have are that $100 million to $200 million of quality assets with great relationships that we will take advantage of because it's, one, it's more accretive than just buying something perhaps with that same quality that's completed.

And it generates what we would really want to do that integrated relationship with the health care system..

Okay. Next question is just on same-store growth.

Recognizing that it's going to be a while before the Duke portfolio enters into your same-store pool, what are your thoughts on what pro forma same-store NOI growth will be when the two portfolios are done and you've gotten the transition onto your platform complete?.

Well, I think our view is that one of the great things about the Duke portfolio that we acquired is that it just has very consistent same-store growth similar to what we've historically been able to put up. So our view, generally speaking, is that we'll continue in the 2.5% to 3.5% range.

You're just going to see a lot – even more stability out of that as you combine the platforms and you really take a look at the diversification and the stability within there. I think one of the things that will impact us going into 2018 is really the timing of when we're able to achieve the synergies.

As Amanda pointed out, we already have the property management on our platform. Of the $5 million to $7 million in synergies, that's really a little bit more than half of that number there. So we should start to see that relatively quickly.

The other thing that will move it is really just through the engineering platform where we might see a little bit of benefit to the same-store pool at the end of 2018, really when the platform in that portfolio comes online. But generally, we would expect 2.5% to 3.5% with that strong growth for – really for our sector.

And it's something that we've been unique in being able to put together..

Great. And a question on the balance sheet.

Do you have a target for debt-to-EBITDA and a time frame for the target? And can you give us a sense for what the planned dispositions are for the balance of the year?.

Well, from a balance sheet perspective, we think certainly that this acquisition and that the opportunity to put the two platforms together really is a credit-positive. There's really hard to look out especially in the healthcare REIT sector to find another company with stability of cash flows that we have.

So long-term, our general target has been around 6x debt-to-EBITDA. As part of the acquisition we took on seven development properties that we've already paid for, but that the earnings really doesn’t start coming online until the beginning of 2018. So we think naturally we ended the quarter at about in the low 6s.

We expected to get down around that 6x really with just the development coming online..

And do you have dispositions teed up for the balance of the year?.

What we'll do is we'll continue to prune the assets we have there. We were in the process of marketing a couple assets that we think have maximized value or not in our key markets.

So I think some are between $50 million to $100 million on an annual basis is something that you'll see us continue to do just because it's normal and customary to make sure that you're always moving through a portfolio repositioning assets at the markets don't like in the markets you like.

We have picked up with this transaction, we picked up two really great markets that we feel very good about with Charlotte and Philly. That would be two markets, for example, that we would love to expand in. And if we had an opportunity to reposition some stuff from one to another we would certainly do that.

So I think you'll see us continue to do what we traditionally do..

Great. And then just last one for me.

Given the increasing complexity and size of the company, any thoughts about starting to give guidance to The Street?.

Well, that's something that we're going to look at moving forward. I know that one of the things that Robert just mentioned was that there's really not been a dedicated medical office building company the size of what we are today. It's always been when folks have looked at MOB portfolio this type of size; they've had to go to the diversified REITs.

And that of course, is a smaller part of their overall company makeup.

From a credit perspective, from an NOI stability perspective, from a – the fact that we are now I think going to be very consistent because what we've done is we've put a consistent portfolio with high-quality assets which was HTA to a very consistent portfolio of a group of assets with Duke that have escalators in the mid 2s that have lease term and that is very solid, so we're going to take a look at that as you move through this year and as we get a better handle on it moving in the third quarter, we might come back and give The Street a little more consistency from a guidance perspective..

Great. Thank you..

Your next question will be from Michael Knott of Green Street Advisors. Please go ahead..

Hey, guys. Just on the prior same-store guidance of 2% to 3%, you guys obviously have been above the high end of that so far this year.

Can you help us understand what the drivers are and how that sort of relates to some of your comments about what you expect for occupancy and rent spreads for the rest of the year?.

Sure. I'll start and I'll let Robert give you a little more color. But at the beginning of the year think, we were all very cautious. I think the whole sector was cautious about the Affordable Care Act the movement of the new election in November and how that may or may not impact, healthcare systems impact physicians and impact leasing.

And so we thought 2% to 3% was a very cautious consistent number to give folks some sort of comfort on. We performed now in the 2.5% to 3.5% range.

And I think Robert just mentioned that if we were going to say something different on this call, the difference probably that would come out of it would be that we're seeing more in the 2.5% to 3.5% range from a same-store growth perspective. We're midway through the year. We were seeing good leasing in a number of our markets.

We're seeing opportunities in Dallas at Forest Park now that HCA has seem to move towards some conclusion. And it seems to be getting into the market that that's going to move forward at a quicker pace and slower pace. We've had some opportunities where we've backfilled some space that has happened. So I think we like the 2.5 to 3.5 number.

We think that the two portfolios, the opportunities for the synergies, the opportunities to generate revenue through the services platforms that we have in place in these markets and we spent a lot of time and a lot of effort and our folks spent a lot of concentrated focus on property management and providing services to tenants that would otherwise be provided at market rates by third-parties.

I think 2.5% to 3.5% is pretty good. And I'll let Robert answer the rest of your question..

Yes, I think as we came into the year, really what we're focused on from a same-store guidance perspective was again going back to the lease maturities. It's really just the fact of seeing 40% more lease rollover and just mechanically the number of tenants that would then be in the free rent period.

We've seen that impact our revenue towards the lower end of where we've historically been in 2% to 2.5%. I think we've outperformed a bit has really just again our – Amanda and her team has done a great job focusing on how to really drive services now to our own people now that we've got the scale on there.

So I think that's what certainly has been putting us towards the higher end of that range. And we expected that to continue. I think that's where we have more confidence both between our ability to continue to drive those services as well as really seeing where the leases coming in from not only the renewals but also some of the new activity..

And a final comment would be that whenever you put together a platform the size of Duke’s and the size of HTA's and you look at it and when we underwrote it, we thought that the overlap in markets was just significant from a strategic perspective.

But we looked at it from an operational perspective and sat down and went market by market and really went through how we felt that we could move assets over, how quickly we could move them over. And we had calls with our property managers. We had calls with our engineers. And so frankly, we feel much better about having got this close.

We appreciate the cooperation that Duke gave us because they really worked with us on what I would consider just an extremely professional manner and once the transaction was done, helping us move these over quickly.

So we could focus the attention as a whole company on moving forward and generating synergies and introducing ourselves to the tenants and meeting the folks out in the field. And I'm happy to say that from 1 to 10, nothing's ever 10, certainly think that this was completed. And it's just a compliment to all the folks at HTA that they've done that..

Okay, thanks, And then just on the synergies a little bit more specifically, I think you guys said advertise $6 million to $8 million on the Duke transaction.

Any change to that or sort of feeling about odds of exceeding that perhaps?.

I think from an overall perspective certainly when we had said 5 to 7, to 6 to 8 I think that was pretty ROFR. And so as we acquired about 20% less of the portfolio, that kind of came down. But to that point though, really our synergies are focused on two main areas that we can point to specifically.

First on all, it's the property management fees certainly that we're in underwriting as third-party. That accounts for about 60% of our synergy target there. And we're able to achieve those pretty quickly. The second part that we really baked in there is really the utilization of our internal engineering platform.

And that's making good headway coming online and then ultimately being utilized by the property. So we'll really start seeing some of that benefit on the fourth quarter and on into the first quarter. So really those were the two items that we saw in specific we pointed to..

That said, there's a number of other benefits that we're seeing from a combined platform certainly from combined scale.

Amanda can talk a little bit about just from a staffing perspective, but anytime you get scale in a market you can do things more efficiently, you can do things more cost effectively and we can do things more with our platform to make HCA shareholders money. .

Sure. And just to add a couple of points to what Robert indicated, other than the in-housing process and the savings in fees, I think our team does a really good job in just specializing.

So on the property management side that means we're focused a lot on creating sort of centralized resources that allows our property managers to spend more time at the properties interacting with tenants.

And that ultimately improves our retention and it also allows us to spread cost more efficiently across the operations platform so that helps on the expense side. For engineers, we're really focused, especially with the new engineers that we're bringing on with Duke, really getting them trained and licensed.

And that's kind of been HTA's strategy is training our people, getting them to be in a position to do things that third parties would typically do but we could do in-house and recognize that savings. So we're really focused on training folks, getting that specialization.

And I think as a by-product of that, as we recognize those efficiencies in the Duke platform, our existing buildings are benefiting from that as well.

So I do think that although that $5 million to $7 million in synergies was specific to the Duke portfolio, we are starting to see some ancillary savings and NOI pickup that's kind of trickling over into our existing same-store portfolio as staff costs are being spread, engineers are providing additional services.

We've been able to in-house several of our properties not just with the Duke transaction but also the Dignity transaction, which we haven't talked a lot about, but we've been able to in-house several properties as a result of those acquisitions that are going to be able to show some same-store operating positive..

Okay. Thanks for all that. And just one other one, if I may. Just on the acquisition environment, just wanted to hear any thoughts you guys have on sort of how active that is today, your sort of expectations. It seems like you guys have been more active than probably most people would've expected post Duke.

And then maybe, just more specifically, just curious if there's any consistent theme not. It seems like you're buying everything from half-leased properties to fully leased in Fort Worth at something like over $500 a foot, which seems to be probably pretty far in excess of replacement cost.

So just curious how you're thinking about acquisitions generally and the environment..

Certainly, the environment continues to be very strong. I think this asset class continues to be under-invested in.

If you look at the performance, the quality of NOI, if you look at the continued tailwinds that everyone talks about, this is – and then you compare it to the rest of the health care sector, I just don't think you can find a better asset from a medical office building to invest in for long-term.

I think the prospects of rent, of rent increases, consistent escalators, continued usage, continued outpatient demand, they're all still there. Now yes, cap rates have compressed. And I think cap rates in different markets are reflective of the demand that reflects what people want to invest in.

But the most interesting thing, I think that came out of the transaction with Duke was that you saw the health care systems start placing valuations on their buildings because that represents mid 4s. And that seems to say to them that these are very valuable.

They have been reselling them to some of our peers, putting additional constraints on them from a leasing perspective or from a ground lease perspective if it wasn't there, but I think that you're going to continue to see more activity. I think the activity in the MOB space is just starting.

Cap rates, when they become competitive and there's buyers and sellers, and as we've all thought there is such a small percentage of MOBs that are really owned by the public REITs. And traditionally, the public markets own much more of an asset class and is in such great performance and in great locations. So I think you'll continue to see it.

We'll continue to be disciplined. We still like – now that we have the largest platform in the country and now that we've established such relevance in 17 markets, we know the markets we like. We know the relationships we have, but we'll be very disciplined and continue to focus on generating shareholder value.

And as you can see and I hope what you will see as we move through the next two or three or four quarters is that this combination of these two portfolios are going to generate very good returns on a same-store basis..

Thank you..

The next question will be from Rich Anderson of Mizuho Securities. Please go ahead..

Thanks, good morning everyone. So if I could just maybe big picture think about the Duke deal, let's just say, breakeven to keep the math simple. Earnings impact out of the gate for the first year or whatever. No real acceleration of same-store growth.

Robert, you mentioned 2.5% to 3.5% is sort of – going to stay there and tougher to grow off of a larger base, at least grow FFO off of a larger base.

So when you think about the merits of doing the deal and then really kind of throwing you a little bit of a thematic question, besides lower debt cost, I mean, does this just really make a stable business like super-duper stable? I mean, what's – what do you think of as the main positive outtake of combining the two portfolios?.

I think, Rich, I'll let Robert to answer in his view a minute, but I think it generates a dominant platform.

It adds a development and construction component that moves us now, I think, ahead of anyone from a competitive perspective of being able to have those relationships with healthcare systems that are going to look to develop something that is preleased and is critical to their location and so forth.

So I think that is something that we didn't have before. And it is something that if you're looking to continue a business and be a dominant owner of MOBs and have relevance in each of the markets that you want, you need to be able to offer that.

I think the opportunities, and I don't want to under underestimate what you said, but I think the opportunity to have synergies with a 25 million square-foot platform that continues to grow is something very impressive. I think the opportunity to do that on a very consistent basis is something that will generate tremendous returns for shareholders.

Again, you're never going to get 7% or 8% return – lease spreads or same-store growth, but you're going to be extremely consistent in that 2.5%, 3.5%, 4% range.

And if you can do that quarter over quarter over quarter with the highest quality portfolio in the United States, then they've put you in a position, I think, of being, as you say, very, very, very solid company that when someone invests in it, they're very comfortable with what they've got.

Robert?.

That’s – well, I was just going to say that's good enough for me. I mean, I don't want to like belabor it. But really, it's about growing a platform, feeding off of incremental relationships and just sort of being fully established in the space, if I'm kind of paraphrasing exactly..

I would – I have one other thing. I think that it gives us an advantage of being dominant in a manner that says that we're not small anymore. And I know that not small isn't – small isn't bad, but there are difficulties on it from growth perspective. We had said to the market that we could add $2 billion without adding any substantial G&A. We did that.

And one of the things that we haven't talked about as much is this G&A now moves us down into the 4s from a platform perspective. And that's just very, very efficient when you continue to run that over a period of time..

Okay. Maybe I have kind of a theory that you mentioned same-store growth profile kind of staying the same over the longer term.

But in the interim period before Duke becomes a part of your same-store pool, is it possible that you could see same-store accelerate sort of to the point that Amanda was making about kind of spreading engineering costs to neighboring non-same-store assets? And so in the period of time before you have the full company in the same-store pool that same-store could actually accelerate in that period of time from the legacy HTA portfolio.

Is that a reasonable outcome in the short term?.

Well, I'm going to give you an answer that – a cautious answer. We're very excited about the opportunity because there is, as Amanda points out, many benefits that come to our existing portfolio from this combination and from the synergies that we're putting in place..

Okay. Good enough, I guess. You ultimately over-equitized the transaction because of the ROFR. You don't provide guidance yet.

But would you be able to quantify how much over-equitizing – not a bad thing really in the – at the end of the day, but in terms of its impact on your earnings, how dilutive it might have been?.

Well, I think as we look at it, Rich, our target is to make sure that we are very conservative from a balance sheet perspective. So I think you hit the nail on the head.

As we look at it, we said how do make sure the balance sheet's in a good shape at the end of the day and get all the transactions out of the way? So I think that's ultimately how we viewed it. And I think we've got some ability to continue to grow from there.

So I think from a quantification perspective, our view is there's other opportunities as we get the Duke portfolio fully integrated onboard that now we can look to take advantage of. .

And then last question for you, Scott, for as long as I've known you up until you did this deal, you were against being a developer in medical office.

What made you – what were the two or two things that made you switch and get religion on development vis-a-vis this transaction?.

Well, there's two things. And you're right. The first one was the platform was in place. I think that starting a platform in development is extremely hard..

Okay..

You've got to start with people. You have to start with reputation. You have to start with a whole bunch of things that by the time you get it up in place, it's three, four years after you've started.

This opportunity for us was to get an established, reputable, disciplined existing platform that had a history behind it that I think is second to none in the industry. .

The health care systems were looking to us and saying, can you give us a full service? And we could have, but it would have been much more complicated. And it would've been with less discipline or a less in-house type of execution. So you put those two opportunities together.

And then you say you have to be flexible, you have to do what's in the best interest of long-term growth. And in this particular instance, I think we got both. .

Okay fair enough thanks..

The next question will be from Tayo Okusanya with Jefferies. Please go ahead..

Just two quick ones for me. First one, still around the Duke MOB portfolio and the integration process.

Could you talk on the development side, in particular, how much of the Duke development team is coming over to HTA? And if there are any key members of the Duke team that are not coming over, if there's anything in place around non-compete? So anything of that nature?.

We basically got 90% of the folks that came over. Keith, of course, was the leader of the team, which was very important, and he came aboard. And not only that, he's here in Scottsdale. So he became a key member of the team. There was a couple of people who did not join us, one retired.

And another person really wasn't – I would say wasn't of the tone or tenor of moving in to our type of platform. I mean, obviously, we have a desire to be active in construction and development. We have a desire to make sure that we're very competitive when it comes to getting things done. And so from that perspective, we got 90% of the folks.

And we've got 60% of the property managers, all the ones that we wanted that didn't overlap into markets. So from a transition perspective, I'll knock on the table here, it was very efficient.

And I guess I'm just very appreciative of Keith, I'm appreciative of the Duke folks allowing us to meet with the individuals and talk with them and then integrate them into both Amanda's asset management program. And then, of course, Keith continues to oversee them as he's continued to do that over the last three, four, five years..

Okay. That's helpful. And then the other question again, no one's asked this yet but, I mean, could you talk to us a little bit about the special bonuses that were paid in conjunction with the Duke deal and why the board made the decision to do, that those bonuses were warranted? Because it's just very unusual to see something like that. .

Well, I think first and foremost, we're very appreciative. I think the management team, Robert and I, are always very appreciative when get recognition of something of that type. Number two, any compensation in an annual basis will always be looked at on an annual basis.

So come at to the end of the year, if in fact this transaction doesn't work out or if, in fact, the numbers aren't met, that it will certainly be reflected in our compensation.

If you look at the accomplishments and the process and the type of actions that, I think, we went through here over the last 90 days, the things we just talked about, I think we checked off every one of those things that we talked through with the board 90 days ago that we said here are the complications, here are the issues, here's how we're going to go after this, let's go through this process.

So we're appreciative. Again, it's very disciplined. I think our board looks at it in a very, very concise manner. And really, the burden, frankly, is on Robert and I and the management team to continue to perform here in the next third and fourth quarter for this year and then more importantly, to perform in the next two or three years.

And I know Robert and I are very appreciative of the fact that we got our contracts extended a year. And those contracts do have significant noncompetes in them. So the company did get something of what, I think, is a big value in extending not only our contracts but we both benefited from that opportunity..

And Tayo, one – just one other thing to note real fast from an accounting perspective. I mean, it's certainly allowed us to put some of that in the second quarter really with the focus on what the board is looking at, is how do we make third and fourth quarter as clean as can be of what we're going to look at from an ongoing perspective.

So I think from an accounting perspective, everything is in the second quarter. And third and fourth quarter is really going to be clean as we look at how the platform is going to continue to operate and function financially on a go-forward basis. .

And how G&A looks on an ongoing basis on a normalized process. .

Okay. That's helpful..

The next question will be from John Kim of BMO Capital Markets. Please go ahead..

Looking at your top health relationships, six of your top 10 tenants today are below investment grade rating. And that's up from 3 last quarter. So I thought one of the benefits of the Duke acquisition was to diversify and improve your tenant mix.

Can you just comment on why this increase occurred?.

And I think as we look at from an overall perspective, the top tenants within the medical office space, our top tenant is only 3.8% of total ABR. As we look across the board, first of all, on the for-profit hospital site, certainly HCA is not investment grade, but they're a dominant player in all the markets they're in.

I think the second thing is we look at the level of the credit. The diversification is certainly significantly higher than it was before.

So I think you got to look at it a little bit differently than you would look at in, say, a traditional net lease type environment, where even throughout the rest of health care, where you're looking at top tenants that are 10%, 15%,20% of your overall revenues. So it's a very well-diversified tenant mix.

And I think as we look at within the markets, we like the hospital campuses that, in many cases, we're on or adjacent to..

And as part of that, are there any assets that you have that are on your watch list? For instance, Community Health, they've kind of warned of a weak second quarter results.

Anything out there that concerns you?.

Well, I think – speaking just specifically to Community, I know this is the conversation that we've had a number of times. As we look at them, it is again very hospital specific.

I mean, I think that's the case truly for the for- profits as well as the not-for-profits, where you're going to see how well a specific hospital campus is doing, and that's going to drive our specific performance in markets.

I think as we look at them, and Amanda can comment on it as well, you might be on one of the strongest health system into the region, but if you're on the wrong campus, you're not going to have performance and you're going to have leasing issues..

I think that you pointed out something that is going to start taking place in the medical office building space. This space is going to start being scrutinized from location, ownership of where you own assets. I think that the key markets – you want markets that are growing.

You want markets that, frankly, have above average demographics or above-average statistics. I know that when we get our transaction with Duke, we put out – we have a graph that shows growth population, average income. Those things are going to all drive the ability of health care systems or local campuses to be active.

And I think that, that makes a big difference. We have said and you will not see HTA investing in secondary markets. We're not interested also in former physician-owned assets because those tend to be assets that physicians move.

And when they sell it to you, they tend to move or have issues that may vary with the rent that they were paying versus the rent that they want to pay you. We've been very fortunate, knock on wood. We haven't had assets go dark on us. We try to get the multi-tenanted assets so that we can re-tenant something.

And we had an instance this quarter where we had a larger tenant move out. And what we've done is we re-tenanted the – or in the process we re-tenanted it with a diversified group of tenants, not one large tenant. So this is something.

If this space matures, as more dedicated owners of MOBs continue to report, I think you're going to want to make sure – or as an underwriting team and as an owner of assets, you really want to know the quality and consistency and vitality of the campus that you're investing on..

Appreciate the color. Thank you..

The next question will be from Chad Vanacore of Stifel, Nicolaus. Please go ahead..

Hi, thanks for squeezing me in down the end. A couple of quick-hit cash flow questions. You just raised dividend by $0.005.

So how are you thinking about dividend growth and the best use of the capital going forward?.

Well, I think we look at the dividend as something that's obviously important. But I think we've looked at paying out the dividend that's around kind of an 80% normalized funds available for distribution payout ratio.

So as we talked about the Duke transaction from an earnings perspective, we see the first six months as being relatively flat with where we've been. And then once the development starts coming on in 2018, you see some pickup from that. So I think as we look at capital allocation, I think the dividend is certainly important.

But I do think there's also other uses of capital that we can continue to put it to work very accretively for shareholders..

All right.

And Robert, just how should we also think about recurring CapEx and development CapEx expectations going forward?.

Yes, as we look across the sector and I think it's – capital in the medical office space has been something that's starting to get – an increased attention to it. I think the sector broadly is kind of a 14% of NOI kind of recurring capital type sector. I know a couple of you folks have done some analysis around that.

Some of our peers are a lot higher than that. One of the benefits we see really from the transaction with the Duke is it's tremendously young portfolio, about eight years on average with very low kind of recurring lease rollover. So we actually think one of the benefits is going to show up in the capital line.

So we have actually expected over the next couple of years a recurring capital to be about 10% to 11% to 12% of NOI. So we're going to get some benefit to the bottom line from the transaction that might not just show up in the NOI line..

So when you look at this from a big picture, just three things. One, we expect CapEx to be reduced to the quality of the portfolio. We expect our G&A to come down significantly because of the size of the company without adding any additional significant overhead to it.

And we think that the margins that we're able to create in the markets that we're in now are going to increase.

So when you look at those three specific parameters as a company you say I get an opportunity over the next 12 to 24 to 36 months to improve on each one of those statistics, I think that's something that's exciting for us as a management team and it should be very, very interesting to investors as they look at this company going forward..

All right. Thanks for taking the questions..

The next question will come from Vikram Malhotra of Morgan Stanley. Please go ahead..

Thanks. Just following up on sort of tenant health and monitoring that. Not sure if your acquisition or your underwriting process has changed in any way recently, just in an effort to monitor individual hospitals.

But are you thinking of changing the way you sort of monitor individual hospitals or you interact with personnel there? And as a quick follow-on, Robert, I don't know if you gave this, but do you have exposure to 21st Century Oncology..

Let's take that in reverse order. 21st Century Oncology, we had almost no exposure to them. I think we had one 4,000 square-foot space and one asset somewhere, but we really had no – almost zero exposure to 21st Century Oncology..

location, location, location and then it's the tenant, tenant, tenant and then it's the multi-use of the assets, and I think we are. I mean, you – we believe now that we have the highest-quality portfolio in the sector. We believe that we're in the markets that we want to be in, 17 to 25 markets.

And the most important thing for us to do is to continue to add quality assets that allow us to utilize our asset management and leasing teams in those markets. So we haven't loosened our underwriting. I think the sector continues to mature. The Affordable Care Act continues to be somewhat of an unknown.

But healthcare systems are still moving forward, and you just need to make sure that you got that relationship and knowledge when you go and buy something..

Okay.

And then just last one following several deals now we've seen with the sub-5 handle, I'm wondering if you've gone back to the portfolio and said how – how does our NAV look? How does the spread look between core community and on-campus and then just on off-campus based on the transactions you've been seeing?.

Well, I think one of the things, again, as we look at pricing and we've seen a couple of deals now get done with kind of high 4-handle type cap rates, we do continue to see cap rates come down. I think we see continued performance in both assets and I think that's from our underwriting perspective.

We're focused on where we're going to get the most consistent and steady performance from a rental perspective. And so I think we continue to see that in both on-campus assets, especially on high-quality campuses that you point out as well as in the core community locations..

And what would the spread be now today between sort of on, off-campus and between core community and on-campus?.

Well, I think that the spreads continue to be that, I want to say, up to 150 basis points. If you go to secondary markets, then you might stretch it little more. It depends on the buyer. I think there are buyers who are, frankly, ignoring some fundamentals when they look at some of these assets. And they push those cap rates a little aggressively down.

And in some cases, it doesn't pay off. I know the value-add guys are trying to find the things that they can add value to and then turn and flip.

And that's always a fear because you don't know how well tenanted it is or what the fundamentals are that they didn't, right, from taking it from 30 to 80 and then selling it and then have above-market rents. So we like the type of assets we're looking at.

We like the community core, where there's a large campus environment, where we can get size and scale and where there's a demand by health care systems and large physician practices and where we can continue to raise escalators and rent because it's such a key location to be at. We're not one-off buyers of assets in secondary markets.

So I think, again, you're looking at that probably 50 to 150 basis points difference and maybe from 4.5% to 6.5%..

Okay, great. Thank you..

The next question will be from Eric Fleming of SunTrust Robinson Humphrey. Please go ahead..

Hi, guys. I just need some clarification on a couple of numbers. I don't need to drag this out any further than we've already gone. So I can just follow up with you offline..

Well, thank you very much..

And the next question will come from Doug Christopher of D.A. Davidson. Please go ahead..

Great, thank you. I'll just ask one question. Mentioned the 2% to 3% or 2.5% to 3% same-store sales growth rates for NOI.

When might the per share items maybe start to grow or start tracking that type of rate?.

Well, I think from a per share perspective, our FFO per share before we had the noises in the quarter from the capital raises, we have been consistently growing our FFO per share and I’d say EBIT share kind of in the 4% to 6% range. It's been typically the model that we've seen.

And as we see this transaction coming together, A, it does provide a tremendous amount of stability. But really where we see that earnings accretion start to pick back up on a year-over-year perspective is going to be in the back half of this year.

But certainly, the impact from the Duke acquisition is going to be largely felt in 2018 as some of the development starts coming online, really in the first quarter but then throughout the rest of the year as the last two projects start paying cash rent..

We look at this and I know we've had some commentary about the size of the company now. It's harder to grow. I mean, we're still focused as a management team.

We're still focused as a – for shareholders to continue to grow certainly from a same-store basis inconsistently like we have and then also take advantage of accretive opportunities where we see acquisitions, where the appropriate cost of capital is involved in.

And then if we put on top of that now the opportunity to get the accretiveness that comes from specific development that we have, we like the opportunity that we see to be able to continue the growth that we have accomplished over the last five years as being public..

And just a clarification as well, I want to make sure I heard you correctly on the G&A side. You mentioned that the maintenance CapEx as a percentage of NOI. But on the general administrative side, you mentioned that, that kind of $8.5 million is a good run rate.

You would think that the run rate would be a little higher, given that the deal closed in the middle of the quarter. But that's a good run rate, like, for the full quarter..

Yes, we do think that $8 million to $8.5 million is the right number per quarter for both the third and the fourth quarter overall..

Thank you so much..

Thank you..

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Scott Peters for his closing remarks..

Well, I want to thank everybody for joining us. We had several new folks jump online and we appreciate that very much. And as always, we continue to look for – to create shareholder value. And if there's any follow-up questions, please don't hesitate to get a hold of myself, Robert or Amanda or Keith.

And we look forward to talking to you guys the next time we have an earnings call. Thank you..

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines..