Healthcare Realty (HR) Q1 FY26 earnings call: guidance and Q&A

Given the 6.9% same-store NOI growth in Q1, why is the full-year guidance more conservative, implying deceleration? Was Q1 driven by easy comps?

Management acknowledged the strong Q1 was partly due to easier year-over-year comps but views the full-year guidance as an opportunity to raise it further. They expect continued strong growth, though perhaps not at the nearly 7% level, and noted the previous year's Q1 was tough.

“I don't really think about it necessarily as deceleration. I mean I think about it as an opportunity to raise guidance a few more times as the year progresses. So I like to look at it as the glass is half-full, not necessarily the glass is half-empty.”

asked by William John Kilichowski · answered by Peter Scott

How does the company balance accretive capital allocation (like buybacks) with maintaining a disciplined leverage profile, especially after significant deleveraging efforts?

Management emphasized a disciplined approach, noting that Q1 saw a mix of buybacks, JV acquisitions, and redevelopments, all accretive. They are open to selling more core assets to recycle capital into these priorities without solely relying on balance sheet capacity or increasing leverage.

“I would characterize this as a very, very disciplined capital allocation approach. And to your point about leverage, I would also point out that we will not shy away from selling more assets, including core assets, right?”

asked by William John Kilichowski · answered by Peter Scott

What is the timeframe for achieving the 92-93% total occupancy target, and what specific Signed Not Occupied (SNO) figures are tied to the development/redevelopment pool?

Management stated that the 90.5% current total occupancy does not yet reflect the benefit of pre-leasing in redevelopments. Rob Hull specified that nearly half of the 490,000 sq ft SNO pipeline is in the lease-up redevelopment bucket, which is a substantial opportunity to drive occupancy this year.

“Yes, I'll just add to that, this is a substantial -- in our SNO pipeline, 90,000 square feet, nearly half of that in that kind of lease-up redevelopment bucket. So a substantial amount, which is where we see a lot of the opportunity to drive occupancy over the course of this year.”

asked by Nicholas Yulico · answered by Robert Hull

Is the willingness to sell core assets merely an arbitrage opportunity, or is it also aimed at improving the long-term growth profile by divesting slower-growth assets?

Pete Scott explained that growing the joint venture exposure beyond the current 5% of NOI is a key driver. Selling core assets and recycling capital into JVs, which offer enhanced yields due to advantageous fees, is seen as accretive and beneficial for the portfolio and shareholders.

“I think 5% is low. I think 5% could grow. I won't give a number as to where it could grow, but I think it could grow well beyond 5%. And I think I'll look at selling core assets and recycling that capital back into potentially JVs as a use of proceeds could be done accretively and I think would be a good thing for our portfolio as well as for shareholders.”

asked by Nicholas Yulico · answered by Peter Scott

Given current outpatient medical occupancy, how high can retention rates and new lease economics (escalators, spreads) ultimately go?

Management noted that retention at 93.5% was strong due to large early renewals, but a more sustainable range is 80-85% (up from 75-80% historically). They are pushing for cash leasing spreads to improve beyond 4%, but acknowledge it will take time. The revamped leasing approach is driving better economics.

“I would say from a retention perspective, I don't know that I would model 93.5% going forward. But if it used to be 75% to 80%, I'd like to think that it could be more like 80% to 85% going forward.”

asked by Seth Bergey · answered by Peter Scott

How does the company avoid doing 'unnatural things' to achieve its desired growth level, especially if the broader MOB market doesn't adopt this new paradigm, and how is reputational capital managed?

Pete Scott stated that the current valuation implies minimal growth, which is backwards-looking. The goal is not a 'stratospheric' multiple but to move from 11x FFO to something commensurate with other REIT sectors growing at a similar level, which is 3-4 turns higher. This is rooted in realism and aims for significant value creation, not an 'unnatural' shift.

“Success for us is not going from an 11x FFO multiple to a 30x FFO multiple. ... Success for us is not going all the way to those stratospheric levels. It is taking our multiple from 11x to something commensurate with where I think other similar growth characteristics or other REIT sectors that grow at a similar level to where we can grow are.”

asked by Richard Anderson · answered by Peter Scott