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    Earnings call· Mar 2026(Q1 FY26)

    Healthcare Realty Trust Q1 FY26 earnings call HR

    May 1, 2026 Source

    Executive summary

    Healthcare Realty Q1 FY26 — Strong Performance Drives Raised Guidance and Strategic Capital Allocation

    Healthcare Realty delivered a strong Q1 FY26, exceeding expectations with record leasing activity and same-store NOI growth, prompting an early-year guidance raise. The company is actively executing its 'Healthcare Realty 2.0' strategy, focusing on organic growth drivers and disciplined capital allocation across stock buybacks, joint venture acquisitions, and redevelopments. Management expressed confidence in achieving mid-single-digit core earnings growth, aiming to redefine the sector's growth profile.

    Highlights

    5

    • Same-store NOI growth of nearly 7% (an all-time high) in Q1 FY26, leading to raised full-year guidance.

    • Signed over 2 million square feet of leases, an all-time high, with annual escalators averaging 3.1% and cash leasing spreads of 4.2%.

    • Same-store occupancy improved by 110 basis points year-over-year to 92.3%.

    • Repurchased $100 million of stock year-to-date at a weighted average price of $17.38, with $400 million remaining authorization.

    • Secured a new $400 million unsecured delayed draw term loan at SOFR plus 90 basis points, derisking a $600 million bond maturity.

    Concerns

    2

    • 13% of lease renewals had negative spreads, though management noted these were strategic decisions for overall IRR.

    • The 10-year treasury rate is at 4.3%, impacting the historical low-risk appeal of medical office properties.

    Guidance & targets

    6
    CategoryTargetConfidence
    Normalized FFO per share
    $1.59 to $1.65
    high materiality
    High
    Same-store cash NOI growth
    3.75% to 4.75%
    high materiality
    High
    Capital allocation to KKR joint venture
    $50 million to $100 million
    medium materiality
    Medium
    Year-end leverage target
    mid-5x area
    high materiality
    High
    Core earnings growth (excluding 2025 dilution)
    above 5%
    high materiality
    High
    Disposition program progress
    halfway towards midpoint of target
    medium materiality
    High

    Segment performance

    1
    SegmentRevenueYoYQoQMargin
    Same-store portfolio
    Achieved an all-time high for same-store NOI growth, driven by occupancy gains and margin expansion. Q1 had an easier year-over-year comparison.
    Occupancy: 92.3%Occupancy YoY increase: 110 bpsCash leasing spreads: 4.2%NOI included in same-store pool: 95%
    		—6.9%—60 bps expansion

    Operational metrics

    33
    Portfolio NOI
    $650 million
    Annualized

    Annual escalators on leases are a primary driver of core earnings growth for this portfolio NOI.

    FFO per share
    $0.41up sequentially from $0.40
    Q1 FY26

    Normalized FFO per share.

    FAD per share
    $0.32
    Q1 FY26

    Resulted in a quarterly dividend payout ratio of 75%.

    Dividend payout ratio
    75%
    Q1 FY26

    Based on FAD per share of $0.32.

    Stock repurchases
    $100 million
    YTD

    Opportunistically repurchased shares, including $50 million in March.

    Stock buyback capacity remaining
    $400 million
    Current

    Under current authorization.

    Cost of debt assumption
    5%
    FY26

    The new delayed draw term loan's all-in pricing of ~4.8% is inside this assumption.

    All-in pricing of delayed draw term loan
    4.8%
    Current

    Inclusive of transaction costs, for the new $400 million unsecured delayed draw term loan.

    SOFR locked in on swaps
    3.3%
    Through 2029

    Extended maturities on swaps associated with existing unsecured term loans.

    Commercial paper outstanding
    $250 million
    Current

    Fully backstopped by the line of credit, with borrowing costs 40-50 bps lower than the line.

    Borrowing costs on commercial paper
    40 to 50 bps lowervs line of credit
    Current

    Compared to the line of credit.

    Implied cap rate
    —
    Current

    JV acquisitions target initial cash yields greater than the company's implied cap rate.

    Initial cash yield on JV acquisitions
    >7%
    Initial

    Target for external acquisitions done in joint ventures.

    Cash-on-cash yield for redevelopment portfolio
    10%
    Average

    Achieved through increased occupancy and/or increased rental rate.

    Cap rates for core assets (private market)
    5.5% to 6%
    Current

    Core-plus assets are not much above these levels.

    Initial cash yield on Birmingham JV acquisition
    low 7s
    Initial

    For a $90 million core asset, 100% occupied, newly developed, 12-year WALT.

    10-year treasury rate
    4.3%
    Current

    Compared to an average of low 2% from 2010-2020.

    Stock FFO multiple
    11x
    Current

    Management believes this implies minimal to no growth.

    Leases signed
    2 millionall-time high
    Q1 FY26

    Strongest ever quarter for leasing.

    Annual escalators on signed leases
    3.1%
    Q1 FY26

    Average for both new and renewal leases.

    Cash leasing spreads
    4.2%
    Q1 FY26

    Strong performance, with a focus on pushing this metric higher.

    Retention rate
    93.5%
    Q1 FY26

    Significantly reduces lease maturities through 2027. Management expects a sustainable range of 80-85% going forward.

    Lease percentage of redevelopment portfolio
    900 bpssequentially
    Q1 FY26

    Gain in lease percentage, indicating progress in pre-leasing.

    Core earnings growth
    above 5%
    FY26

    Tracking ahead of schedule for 2026, demonstrating the effectiveness of the core earnings growth model.

    Weighted average lease term
    nearly 8 yearsalmost up a year this quarter
    Q1 FY26

    Bolstering the portfolio's long-term growth profile, driven by early renewals.

    Total occupancy
    90.5%
    Q1 FY26

    Significant near-term earnings growth driver as lease-up and redevelopment portfolio stabilizes.

    JV exposure as % of total NOI
    5%
    Current

    Management believes this can grow well beyond 5%.

    Redevelopment properties
    23
    Current

    Primary source of $50 million NOI upside in the 3-year forecast.

    Liquidity
    $1 billion
    Post-term loan draw

    Provides meaningful flexibility for future capital markets alternatives.

    Average tenure of remaining directors
    less than 2 years
    Current

    Following Jay Leupp's retirement, as part of Board refreshment initiatives.

    New completions (industry)
    drop in recent quarters
    Recent quarters

    Contributing to favorable sector fundamentals where absorption outstrips completions.

    New starts (industry)
    1%well below historical average of 1.5% to 2%
    Current

    Remaining fairly flat and below historical averages.

    Balance sheet capacity
    $100 million to $200 million
    Beginning of year

    Management stated they had this range of capacity at the start of the year, some of which has been used.

    Industry KPIs

    4
    MetricValueDetails
    Senior housing occupancy92.3%%
    Operator tenant concentration—
    Same store noi growth by segment6.9%%
    Investment volume and sourcing mix$18 millionUSD

    Orderbook & backlog

    2
    Signed Not Occupied (SNO) pipeline490,000 sq ftQ1 FY26

    Substantial amount (nearly half) is in the lease-up redevelopment bucket, expected to drive occupancy gains.

    New leasing pipeline1.4 million sq ftQ1 FY26

    Robust pipeline, a good leading indicator for future occupancy gains.

    Deals & partnerships

    6
    KKRGrowth JV for external acquisitions

    Currently encompasses 5% of total NOI. Management sees ample room for this to grow and expects to allocate $50 million to $100 million of capital in 2026.

    WellstarNew and renewal leases for clinical spaceaverage term of 5 years

    176,000 square feet across 6 on-campus buildings in Atlanta, including a 59,000 sq ft cancer center. Wellstar is an A+ credit rated health system.

    Advocate HealthRenewal leases for clinical spacemore than 7 years

    6 renewal leases totaling 154,000 square feet in Charlotte. Advocate Health is a AA credit rated health system with over 50% market share.

    Trinity Health St. Peter's HospitalLease for clinical and surgery center spacenearly 6.5 years

    64,000 square feet in Upstate New York. Trinity Health is a top 10 national health system with a AA- credit rating.

    MUSC HealthRenewal leases9 years

    3 lease renewals for 55,000 square feet in Charleston, maintaining 100% occupancy across 2 buildings. MUSC is South Carolina's only comprehensive academic health system.

    Undisclosed JV partnerAcquisition$18 million

    Pro rata share of a JV acquisition closed at quarter-end.

    Capital programs

    4
    Redevelopment portfolio NOI upsideunderway$50 million

    Benefit: NOI upside

    Primary source of NOI upside in the company's 3-year forecast, tracking ahead of schedule.

    Tufts Medical Center MOB redevelopment (Boston)underway$25 million
    Start: Q1 FY26

    Benefit: 155,000 sq ft MOB, 100% pre-leased with 10-year term and 3% annual escalators

    New project added in Q1, connected to Tufts Medical Center.

    Novant Health Huntersville Medical Center MOB project (Charlotte)completed$35 million
    Start: Q1 FY26

    Benefit: 2 MOB buildings, 98% leased with stabilized yield of 9% to 12%

    Completed in Q1, adjacent to Novant Health Huntersville Medical Center. Will move into same-store after a full calendar year since completion.

    Unsecured delayed draw term loannearing completion$400 million
    Funding: Bank partnerships

    Benefit: Liquidity to repay $600 million bond maturity

    Fully committed facility, expected to close in May. Drawn pricing at SOFR plus 90 basis points, all-in pricing approximately 4.8%.

    Risks & headwinds

    3
    Deceleration in same-store NOI growthRemaining quarters of FY26

    Implied by full-year guidance (3.75%-4.75%) compared to Q1 (6.9%)

    Mitigation: Management views guidance as conservative with potential for further raises; expects continued strong growth, though Q1 benefited from easier comps.

    Negative lease renewal spreadsOngoing

    13% of Q1 renewals had negative spreads

    Mitigation: Strategic decision to retain tenants when overall lease IRR is better than re-leasing costs (downtime, CapEx). Management focuses on blended numbers and overall financial package.

    Impact of higher interest ratesOngoing

    10-year treasury at 4.3% today

    Mitigation: Company secured a new delayed draw term loan at 4.8% (below 5% assumption) and extended swaps at 3.3% SOFR, derisking debt maturities and managing cost of debt.

    What to watch in Q2 FY26

    5

    Same-store NOI growth

    Q2 FY26 results
    Current6.9% (Q1 FY26)
    TargetCloser to Q1 level, or above current FY26 guidance midpoint of 4.25%

    Why it matters

    To confirm if Q1's strong performance was sustainable beyond easy comps and if management can raise full-year guidance further.

    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.

    Q&A highlights

    6

    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

    2 min read6 chapters

    Detailed Narrative

    01

    Healthcare Realty 2.0 Strategy and Performance

    CEO Pete Scott highlighted significant progress in the year since assuming his role, transforming the company into 'Healthcare Realty 2.0' with revamped operations and a rightsized balance sheet. The Q1 FY26 results, including record leasing and same-store NOI growth, are seen as a solid foundation for outperformance against the 3-year earnings forecast. The company aims to redefine success in the outpatient medical sector, moving beyond the 'Steady Eddie' stereotype.

    02

    Organic Growth Pillars

    The company's organic growth strategy is built on four pillars: occupancy, annual escalators, retention rate, and cash leasing spreads. Same-store occupancy improved to 92.3% (up 110 bps YoY), with total occupancy at 90.5%. Average annual escalators on new leases are over 3%, contributing to the portfolio's $650 million NOI. Retention rate was 93.5%, reducing downtime and capital expenditures. Cash leasing spreads averaged 4.2%, with 1 in 4 leases exceeding 5%.

    03

    Capital Allocation and External Growth

    Healthcare Realty maintains a disciplined capital allocation approach, focusing on stock buybacks, joint venture acquisitions, and redevelopments. In Q1, the company repurchased $100 million of stock, completed $20 million in JV acquisitions (pro rata share $18 million), and invested $25 million in redevelopments. The company has $400 million in buyback capacity remaining and expects to allocate $50 million to $100 million to its KKR joint venture in FY26, targeting initial cash yields greater than 7%.

    04

    Redevelopment Portfolio Progress

    The redevelopment portfolio, consisting of 23 properties, is 64% pre-leased and is a primary source of $50 million NOI upside in the 3-year forecast. The lease percentage in this portfolio gained 900 basis points sequentially. Two new projects were added in Q1, including a $25 million redevelopment in Boston (100% pre-leased) and a $35 million project in Charlotte (98% leased with a 9-12% stabilized yield). The average cash-on-cash yield for the redevelopment portfolio is 10%.

    05

    Balance Sheet and Liquidity

    The company reported normalized FFO per share of $0.41 and FAD per share of $0.32. A new $400 million unsecured delayed draw term loan is expected to close in May at SOFR + 90 bps, with an all-in pricing of approximately 4.8%, below the 5% cost of debt assumption. This facility will help repay a $600 million bond maturity in August. The company also launched a commercial paper program with $250 million outstanding and extended $400 million of swaps to 2029 at SOFR 3.3%.

    06

    Market Fundamentals and Health System Relationships

    Demand for medical outpatient buildings remains robust, with favorable sector fundamentals including absorption outstripping completions and rising rental rates. Health systems are investing in higher-margin outpatient services, leading to increased activity. Notable health system leasing activity included 176,000 sq ft with Wellstar in Atlanta, 154,000 sq ft with Advocate Health in Charlotte, 64,000 sq ft with Trinity Health in Upstate New York, and 55,000 sq ft with MUSC Health in Charleston.

    AI-generated summary of the company’s earnings call. Not investment advice.