What is the sizing of the KKR JV opportunity, and how is match funding managed to ensure NAV accretion, considering disposition cap rates versus acquisition yields?

Management stated the KKR JV has closed or has under contract about $300 million in deals this year. Funding is primarily through capital recycling and free cash flow, with a focus on dispositions if favorable cap rates are achievable. They emphasized maintaining discipline and leveraging their position as an unlevered buyer in the JV to maximize earnings growth. “It's about $300 million in total with the stuff that's either closed or under contract. And it's pretty attractive yields to us. It's attractive yields to them. How we think about funding that, which I think is the crux of your question, to date, we've actually focused on capital recycling and free cash flow to basically fund all of our capital allocation initiatives.”

What is the future outlook for the redevelopment pipeline size, and what factors determine achieving the low versus high end of the 9%-12% return range?

Management indicated the redevelopment pipeline currently has around 25 assets and is expected to peak at about 30 with the inclusion of the Ascension St. Thomas campus. They expect it to be an ongoing part of the business but not as large post-strategic plan. Returns are driven by an uplift in rental rates and absorption, with higher yields from significant occupancy gains and rate increases, and lower yields from primarily rate uplift. “We've got around 25 assets in redevelopment today... I would expect that number to probably go up to maybe 30 or so. But then also you will get the benefit of assets completed that will cycle out. So I would think we'll probably reach a peak towards the end of this year.”

Can you provide color on the $35 million HR investment in the Ascension St. Thomas West Campus redevelopment, its revenue generation, and its relation to the 200,000 sq ft of leases?

Management explained the $35 million investment is part of a broader campus modernization. HR extended Ascension leases for 10 years at an 11% mark-to-market. The campus is projected to increase NOI from $7 million to over $10 million, yielding a 9%-10% cash-on-cash return and significant NAV value benefit due to cap rate compression. “We extended the Ascension leases 10 years at that campus at a pretty nice mark-to-market. I mean you're talking about a double-digit mark-to-market 11%. ... It generates $7 million of NOI today. We believe it's going to be $10 million plus of NOI when all is said and done.”

Healthcare Realty Trust (HR) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Real Estate· Jul 31, 2026

Source: earnings call transcript

Executive summary

Healthcare Realty Trust Q2 FY26 — Strong Operational Outperformance and Strategic Capital Allocation

Healthcare Realty Trust delivered strong Q2 FY26 results, outperforming key strategic objectives with robust same-store NOI growth and occupancy gains. The company successfully addressed debt maturities and executed accretive capital allocation through JV acquisitions and redevelopments, while maintaining a disciplined approach to balance sheet management and shareholder returns. Management is focused on scaling its medical office model and driving mid-single-digit earnings growth.

Highlights

Same-store NOI growth averaged 5.7% over the last 4 quarters, with Q2 FY26 at 5.1%.
Same-store occupancy increased to nearly 93% (92.7% in Q2 FY26), up 25 basis points from prior quarter.
Cash leasing spreads averaged 4.1% over the last 4 quarters, with Q2 FY26 at 4.8%.
Leverage is down nearly a full turn, and the company raised $1.1 billion in capital at a blended interest rate of approximately 4%.
Repurchased $175 million of stock at a blended price of $18.50 since the strategic plan, including $75 million in Q2 FY26.

Concerns

Leasing volume of 1.5 million square feet in Q2 FY26 was down from 2 million square feet in Q1 FY26.
The $35 million investment in Ascension St. Thomas West Campus redevelopment is part of a larger $120 million modernization by Ascension, indicating significant capital needs for campus upgrades.
Disposition cap rates averaged 5% year-to-date, lower than the 7.5% cash yield on JV acquisitions, indicating a spread to manage.

Guidance & targets

Category	Target	Timeline	Confidence
Full year normalized FFO per share	$1.64 at the midpoint high materiality	FY26	High
Full year normalized FFO per share	$1.64-$1.66 high materiality	FY26	High
Full year same-store cash NOI growth	4.25%-5% high materiality	FY26	High
Full year uses of capital	increased by $115 million medium materiality	FY26	High
Full year disposition guidance	increased by a similar amount medium materiality	FY26	High
Leverage	mid-5x area high materiality	Ongoing	High
2028 FFO range	$165 million to $185 million high materiality	FY28	High
2028 FFO per share	$1.85 high materiality	FY28	High

HR operating KPIs by quarter

HR operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2026 Q1 FY26	This call Jun 2026 Q2 FY26	Change vs prior quarter
Retention rate	93.5% During the first quarter, our retention rate was 93.5%. Source: earnings call transcript	88.5% Tenant retention was a standout at 88.5%, helping drive approximately 25 basis points of absorption and lifting same-store occupancy to nearly 93%. Source: earnings call transcript	-5 pt
Capital expenditures Redevelopment portfolio	$25M We bought back $100 million of stock, we completed in excess of $20 million of acquisitions and we invested $25 million in our redevelopment portfolio. Source: earnings call transcript	~$25M During the quarter, we invested approximately $25 million in this portfolio, and we have leased it up to 67% an improvement of 1,400 basis points over the last 4 quarters. Source: earnings call transcript	—
Properties Redevelopment	23 Third, redevelopment, which currently consists of 23 properties that are 64% pre-leased. Source: earnings call transcript	~25 We've got around 25 assets in redevelopment today. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Signed not occupied leases 460,000 square feet Q2 FY26

Represents roughly 140 basis points of future occupancy, providing visibility into additional gains in the back half of the year.

Disposition pipeline nearly $200 million Q2 FY26

In various stages, with potential to grow further through opportunistic direct sales to health systems at premium pricing.

Acquisitions under contract or LOI (KKR JV) approximately $200 million since end of March

Total value, with $40 million at Healthcare Realty's share. These are high-quality assets complementing existing footprints.

Leasing pipeline more than 3 million square feet Q2 FY26

Includes several large health system transactions that are progressing.

Deals & partnerships

CommonSpirit Executed 160,000 sq ft of renewals in 5 states at positive 7% cash leasing spread; agreed to sell 15 acres of land in Denver. $16 million (land sale)

Part of a transaction in late June where CommonSpirit intends to use the land to expand their hospital. Healthcare Realty retained development rights for a medical office building on the parcel under a ground lease structure.

Wellstar Executed 215,000 sq ft of renewal leases at positive 4% cash leasing spread and 27,000 sq ft of new leases; agreed to sell Kennestone Cancer Center. $36 million (MOB sale)

Part of lease negotiations, the sale of Kennestone Cancer Center was completed. This is another example of a win-win outcome, deepening the partnership with Wellstar.

Ascension St. Thomas Executed LOI for 203,000 sq ft of leases across 3 campuses in Nashville at positive 11% cash leasing spread; launched comprehensive redevelopment of West Campus.

LOI executed in early July, with leases expected to be executed in Q3. This deepens the partnership and involves a significant redevelopment of the West Campus, extending Ascension leases for 10 years at a double-digit mark-to-market.

KKR Acquisitions of medical office assets. approximately $200 million (total, $40 million at HR share)

Since the last earnings call, the JV has closed on or has under contract/LOI approximately $200 million in assets, spread over 5 different transactions. These high-quality assets complement existing footprints in markets like Greenwich, Charleston, Port St. Lucie, Seattle, and Denver.

Capital programs

Redevelopment portfolio underway

Period spend: $25 million

Funding: Free cash flow and disposition proceeds

Start: Ongoing

Benefit:67% leased, 1,400 bps improvement in pre-leasing over last 4 quarters

Investment made in Q2 FY26, underwriting 10% cash-on-cash yields. Expected to peak at around 30 assets by year-end, then become a continuous but smaller part of the business.

Ascension St. Thomas West Campus Redevelopment (HR share) underway

Period spend: $35 million

Start: Ongoing

Benefit:Expected NOI increase from $7 million to over $10 million

Investment in 3 medical office buildings as part of a comprehensive redevelopment. The hospital and health campus will undergo a $120 million modernization led by Ascension. Expected to increase occupancy from 80% to nearly 100% over time, yielding 9%-10% cash-on-cash returns.

Risks & headwinds

Near-term debt maturities Q2 FY26

Addressed by $1.1 billion capital raise (convertible bond and delayed draw term loan).

Mitigation:Capital raise provides ample flexibility through 2029, extending maturities through 2027.

Land carry costs Q2 FY26

Removed through $16 million land sale to CommonSpirit.

Mitigation:Retained future MOB development rights on the site, turning a non-income producing asset into a strategic opportunity.

Portfolio optimization dilution (historical) FY26 (historical expectation)

$0.07 of dilution

Mitigation:Addressed by current performance, now expecting $0.03 growth in FY26 FFO per share, overcoming prior expectations.

Refinancing headwinds (historical) FY26 (historical expectation)

Addressed by successful convertible bond offering.

Mitigation:Blended interest rate of 4% on new capital saved 100 bps versus original guidance, mitigating prior refinancing concerns.

What to watch in Q3 FY26

Ascension St. Thomas leases execution

Q3 FY26

Current LOI executed for 203,000 sq ft at 11% cash spread

Target Leases executed

Why it matters

Confirms significant lease-up and positive mark-to-market in a key redevelopment project.

In early July, we executed an LOI for 203,000 square feet of leases across 3 campuses in Nashville. The cash leasing spread is positive 11% and we expect these leases to be executed in the third quarter.

Find out whether HR delivers this. Inve re-checks your case every morning.

Q&A highlights

Where does the company stand on its $1.85 or $165 million to $185 million AFFO range for 2028, given current outperformance?

Management clarified the target was FFO, not AFFO, and confirmed they are tracking ahead of schedule on the 3-year plan. They noted 2026 was initially expected to be flat but is now showing $0.03 growth, with only a half-year benefit from the convertible deal this year.

“we are tracking ahead of schedule. I think a couple of things I would just point to thanks to the convert deal and better-than-expected same-store NOI this year. And actually, what we're seeing as we look out the next couple of years and as fundamentals continue to firm up. We certainly feel like we are ahead of schedule on that.”

asked by William John Kilichowski · answered by Peter Scott

3 min read 8 chapters

Detailed narrative

Strategic Plan Outperformance

The company is outperforming key objectives of its strategic plan laid out a year ago, including average same-store NOI growth of 5.7%, same-store occupancy near 93%, retention near 90%, and cash leasing spreads of 4.1%. This outperformance has led to raised guidance every quarter, including a $0.02 increase this quarter, driven by strong operations, leasing, a successful convertible bond offering, and accretive capital allocation.

Leasing Success & ROI

Year-to-date, the company executed 3.5 million square feet of leases, representing over 10% of its total portfolio, and increased its weighted average remaining lease term to 65 months, an improvement of 15 months. A new leasing model has improved lease IRRs by nearly 3,000 basis points and reduced payback periods by nearly 25%, aiming to meaningfully rerate core earnings growth.

Health System Partnerships

Dialogue and collaboration with health systems have increased, leading to significant transactions. This includes 160,000 sq ft of renewals with CommonSpirit at a 7% cash spread, coupled with a $16 million land sale and retained MOB development rights. With Wellstar, 215,000 sq ft of renewals at a 4% cash spread and a $36 million MOB sale at a mid-5% cap rate were executed.

An LOI with Ascension St. Thomas for 203,000 sq ft of leases at an 11% cash spread and a $35 million redevelopment investment is also underway.

Capital Allocation Strategy

The company's capital allocation prioritizes redevelopments, joint venture acquisitions, balance sheet management, and shareholder returns, funded by free cash flow and disposition proceeds. They invested $25 million in redevelopments in Q2, targeting 10% cash-on-cash yields. Year-to-date, they disposed of 6 buildings and 3 land parcels for $75 million at a blended 5% cap rate, with an additional $200 million disposition pipeline.

Balance Sheet & Liquidity

Healthcare Realty addressed near-term debt maturities by raising $1.1 billion through a $700 million exchangeable senior unsecured note issuance (3% coupon, due 2032) and a $400 million unsecured delayed draw term loan. This capital, blended at approximately 4% interest, saved 100 basis points versus original guidance and extended maturities through 2027, providing $1.2 billion in line of credit liquidity through 2029.

JV Acquisitions with KKR

The partnership with KKR has resulted in approximately $200 million in acquisitions (or $40 million at HR's share) closed, under contract, or LOI since the last call. These transactions offer an approximate 7.5% cash yield to Healthcare Realty, highly accretive relative to the company's implied cap rate of 6%, and are efficiently match-funded by dispositions.

Market Fundamentals

Medical outpatient completions are near all-time lows, while sector occupancy reaches record highs, creating a favorable supply-demand backdrop. Increased health system M&A activity is also observed, which can lead to stronger tenant credit and additional capital sources, driving demand for outpatient medical space.

Future Outlook

The company aims to scale its 'new superior medical office model' over the next several years, focusing on organic growth pillars (occupancy, retention, cash leasing spreads, consistent escalators) and disciplined, accretive capital allocation. They see meaningful upside as the only public REIT actively growing its medical office platform, intending to lead the sector.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.