Healthcare Realty’s Turnaround Accelerates — But 2026 Growth May Slow

Date of Call: Feb 13, 2026

Guidance:

• Normalized FFO per share guidance of $1.58 to $1.64, representing $1.61 at the midpoint.
• Same-store cash NOI growth expected to be 3.5% to 4.5%.
• G&A expense anticipated between $43 million and $47 million.
• Full-year leverage expected in the mid-5x net debt to EBITDA range.

Business Commentary:

Strategic Transformation and Operational Improvements:

• Healthcare Realty achieved a 60 basis point improvement in cash leasing spreads and a 220 basis point improvement in tenant retention, with a meaningful uptick in lease IRRs and lease payback period.
• The improvements were driven by the revamp of the asset management platform, incorporating a new leasing model, and enhanced alignment between asset management and leasing.

Financial Restructuring and Balance Sheet Strength:

• The company reduced its net debt to EBITDA ratio by nearly a full turn to 5.4x, improved liquidity, and refinanced debt maturities, leading to stable outlooks from Moody's and S&P.
• These results were achieved through strategic debt paydowns, extending maturities, and a focused balance sheet initiative.

Asset Dispositions and Geographic Optimization:

• Healthcare Realty completed the sale of $1.2 billion in assets at a blended cap rate of 6.7%, exiting 14 noncore markets and improving its geographic footprint.
• The sales were part of an ambitious asset disposition plan aimed at focusing on high-growth markets and enhancing portfolio quality.

Capital Allocation and Shareholder Returns:

• The company executed $50 million in stock repurchases in January and has authorization for further buybacks, with a current FFO yield of nearly 6%.
• The disciplined capital allocation strategy includes prioritizing redevelopments, returning capital to shareholders, and pursuing accretive joint venture transactions.

Leasing Activity and Market Demand:

• In 2025, the company executed 5.8 million square feet of leases, including 1.6 million square feet of new leases, with annual escalators averaging 3.1%.
• The leasing success was supported by strong demand from health systems and favorable market conditions, with robust tenant retention and occupancy gains.

Sentiment Analysis:

Overall Tone: Positive

• "2025 was a transformational year at Healthcare Realty 2.0." "We are tracking ahead of schedule." "Our total G&A expense now sits at $45 million and ranks favorably to peers." "Our dividend is appropriate, well covered..." "Same-store NOI growth was 4.8%, exceeding the midpoint of our original guidance by 140 basis points."

Q&A:

• Question from Juan Sanabria (BMO Capital Markets): Just curious on the same-store NOI guidance for '26, you obviously had a strong year for '25 but just curious on the implied decel on the '26 guidance and the piece parts or assumptions assumed in that same-store NOI, whether it's occupancy retention, et cetera.
  Response: The 2026 same-store NOI guidance of 3.5% to 4.5% considers drivers like escalators, retention (targeting mid- to low-80s), expected absorption, and cash leasing spreads, which remain supportive despite a slight deceleration from 2025's strong 4.8%.

• Question from Juan Sanabria (BMO Capital Markets): And then just on the CapEx piece. Curious if you can give any guardrails with regards to that relative to the $1.61 normalized FFO expectation for '26?
  Response: FFO and FAD are expected to be flat year-over-year, with maintenance capital expenditures detailed in the guidance, allowing for modeling consistency.

• Question from Nicholas Yulico (Scotiabank): I just want to be clear that you said some of that potential. Was that just the same store number? Or is that also applying to redevelopment and leasing? And maybe if you can just give us an update on kind of how to think about redevelopment project, timing, delivering lease-up and how that ultimately could create some earnings benefit beyond this year?
  Response: The absorption potential quoted applies only to the same-store portfolio. For redevelopment, a significant 500 basis points of lease-up was achieved in Q4 2025, with more expected in Q1 2026, providing a key driver for future earnings growth, though major benefits accrue from 2027 onward.

• Question from Nicholas Yulico (Scotiabank): And then second question is just going back to acquisition potential. I know you talked about stock price not being exactly where you want to be to fund that. But can you also just talk about like just a profile of potential acquisitions because clearly, there's this sort of issue where you're dealing with cap rates or low in some cases when you're -- which is good for selling assets, but it makes it difficult to buy assets. I don't know if there's also a profile of what you're looking at that would sort of enhance your yield and future growth from acquisitions, when you decide to do it?
  Response: The company has modest balance sheet capacity (~$200-$300M) but will be highly disciplined in any JV or acquisition, requiring yields above their low-7% implied cap rate, and no accretive deals are included in current guidance.

• Question from Nicholas Joseph (Citigroup): How are you thinking about the dispositions going forward? Obviously, you were able to execute on a lot at good pricing and faster than expected. So what's the plan from here? Is it more being on offense with dispositions for any potential? How are you thinking about the portfolio?
  Response: For 2026, $175M in sales are guided, including $70M from prior plan leakage and a $45M loan payoff; the company may sell noncore assets but will consider any transaction that maximizes shareholder value.

• Question from Nicholas Joseph (Citigroup): And then just given how active you have been as part of the transaction market, are there any insights either from buyers or competition that you've seen change over the last, call it, 6 to 9 months?
  Response: The biggest change is improved debt availability and pricing, driving up transaction volumes, while cap rates for core assets are in the high 5s to low 6s, with strong demand continuing.

• Question from Austin Wurschmidt (KeyBanc): What are you guys assuming as far as retention this year? And how much visibility, I guess, beyond the single tenant deals you described, do you have into the remaining expirations for this year?
  Response: For 2026, multi-tenant retention is expected in the 80% to 85% range, with significant line of sight into the 2026-2027 expiration schedule, leading to an improved lease expiration outlook.

• Question from Austin Wurschmidt (KeyBanc): And then Pete or Rob, you guys footnoted and also flagged this 64,000 square foot lease in January new lease, was there any additional new leasing component to the nearly 1 million square feet that have been signed year-to-date? And then can you just kind of talk about how negotiations are moving along for the 1.3 million square foot pipeline.
  Response: The 1 million square feet signed year-to-date includes additional new leasing and renewals. The 1.3 million square foot pipeline is active and growing, supported by strong health system demand for outpatient services.

• Question from Michael Gorman (BTIG): When we think about the stabilized portfolio and all the work that you put into it, as we move through '26, do some more leasing, get the asset management program for a full year here. Is that kind of 15% to 16% of NOI is the right range for the maintenance CapEx second gen leasing CapEx number on this platform going forward?
  Response: Maintenance capital is expected to be around 15% to 20% of NOI, but the company is investing above this in redevelopment, with a focus on high-return opportunities.

• Question from Michael Gorman (BTIG): And you certainly made a clear kind of the discipline that you're putting forward when you're thinking about deploying capital. I'm just curious, again, with the improvement that you've managed to generate on the asset management side and maybe some of the success that you're seeing on the redevelopment side, does that expand the scope of opportunity that you're willing to look at, whether it be in the JV structure or on balance sheet in terms of the type of assets that you would be comfortable bringing into the portfolio now with the confidence that you have on the asset management side?
  Response: The focus remains on high-yield redevelopment on balance sheet and potential JV deals for core assets with partners, but only if returns exceed their low-7% cap rate threshold, given current cost of capital constraints.

• Question from William John Kilichowski (Wells Fargo): I'm curious how much of that do you feel like was captured in 4Q? What's included in guide? And then what sort of longer term down the road, if you could help us bucket those?
  Response: Of the $50M NOI upside target from redevelopments, about $15M has been realized through leasing since the strategic plan, roughly one-third, with full benefits expected to build up in 2027 and 2028.

• Question from Michael Strojek (Green Street): Have you seen any change in the number of office repositionings across your markets? Is there any trend there either up or down in terms of just shadow supply from traditional office?
  Response: No significant trend in office repositioning or shadow supply is noted, as the company's leasing focuses on health systems requiring specific building designs, making office conversion a minor factor.

• Question from Michael Strojek (Green Street): Makes sense. Maybe one on the balance sheet. And as interest rate swaps begin to burn off later this year, what sort of mix between fixed and floating rate debt are you targeting?
  Response: The company aims for a prudent mix, with floating rate debt typically in the mid- to upper-single digits proportion, focusing on balance sheet efficiency and extending maturities.

• Question from Michael Carroll (RBC Capital Markets): I want to circle back on your comments regarding the joint venture. I mean it sounds like that these conversations are pretty far along. I'm not sure if it was just with one of those partners or if it's a broader group. But what could these deals look like? I mean would HR create some type of fund to go pursue deals? Or could HR contribute assets into the fund to kind of expand it and be a little bit more active? I guess, how do you think about that?
  Response: Discussions are with existing JV partners, not new funds; the focus is on expanding current partnerships and structuring deals that provide attractive yields, though no specific new fund is mentioned.

• Question from Michael Mueller (JPMorgan): What's the typical scope of the redevelopment that's on your redevelopment page. It looks like they average about $10 million to $15 million each. Is it any square footage, lighting brightening or just wet in general? And then the second question, Pete, you talked about the areas where you've kind of met exceeded expectations so far with the turnaround. Can you talk about I guess, any aspects of it or areas where you may have run into more obstacles or things were more challenging than you originally thought?
  Response: Redevelopment projects average $10M-$15M, involve comprehensive upgrades ($200-$300/sq ft) to older buildings. The most challenging aspect was restructuring the team, which was necessary but difficult.

• Question from Omotayo Okusanya (Deutsche Bank): Curious on the build-to-suit side of things. Again, just given how strong demand seems to be, at this point, what's going on with a whole bunch of hospital systems. Just kind of curious on the BTS side, what that's looking like, whether we can expect to see more activity on that front.
  Response: Build-to-suit developments are happening but are heavily pre-leased; spec development is rare due to high required rental rates, and new development activity is less than in the past.

• Question from Omotayo Okusanya (Deutsche Bank): And then my second question, again, you do see some of the health care REITs actively selling out of MOBs. Again, the argument being -- they're trying to move to higher growth after classes. I mean what kind of your remodel for that, given this viewpoint that MOBs are also benefiting or should also be benefiting from kind of the changing U.S. demographics. How do you kind of think about the space and when you kind of think 5 years out, are we dealing with an asset craft where the earnings growth profile has improved materially just kind of giving some of these secular demand drivers that are happening.
  Response: The company views its current trading multiple (~10x-11x FFO) as undervalued given its strong fundamentals, best-in-class portfolio, improved balance sheet, and strategic execution, seeing significant value creation potential.

Contradiction Point 1

Future Balance Sheet Capacity and Acquisition Strategy

Contradiction on using balance sheet for core acquisitions versus relying solely on JVs.

What are your thoughts on the recent regulatory changes impacting the sector? - Michael Gorman (BTIG)

2025Q4: The focus for external growth remains JV transactions with existing partners... The company lacks the cost of capital to pursue core/core-plus acquisitions on balance sheet. - Peter Scott(CEO)

Does this expand the scope of assets you're willing to include in the portfolio now? - Austin Wurschmidt (KeyBanc Capital Markets Inc.)

2025Q3: The company has balance sheet capacity to pursue modest, accretive tuck-in acquisitions or joint ventures, but its primary focus remains the strategic plan and organic growth. - Peter Scott(CEO)

Contradiction Point 2

Near-Term NOI Contribution from Redevelopment

Contradiction on whether redevelopments contribute significantly to 2026 NOI guidance.

What is Nicholas Yulico's question for the earnings call? - Nicholas Yulico (Scotiabank Global Banking and Markets)

2025Q4: The previously mentioned absorption potential applies only to the same-store portfolio. Redevelopment is a separate, significant driver of future portfolio occupancy and earnings. - Peter Scott(CEO)

Are the numbers for same-store sales also applying to redevelopment and leasing, and can you provide an update on redevelopment projects, their timing, lease-up progress, and potential earnings benefits beyond this year? - Nicholas Yulico (Scotiabank Global Banking and Markets)

2025Q3: Of the ~$50M incremental NOI upside over the next 3+ years... about half will come from redevelopments... The other half will come from targeted capital investments in the lease-up portfolio (often in the same-store pool). - Peter Scott(CEO)

Contradiction Point 3

Strategic Focus on Joint Venture (JV) Transactions

Contradiction on openness to creating new JVs versus only expanding existing ones.

What are your key takeaways for investors? - Michael Carroll (RBC Capital Markets)

2025Q4: The focus is on expanding existing JV arrangements with current partners... While not currently pursuing new JVs, it remains a consideration. - Peter Scott(CEO)

How do you envision the structure of these JV deals and your strategic approach to them? - Michael Carroll (RBC Capital Markets)

2025Q3: The company has an active inventory of ~400 'Tier 1' acquisition targets... With cap rates declining, more quality assets are coming to market. - Ryan Crowley(CIO)

Contradiction Point 4

Timing of NOI Upside from Lease-Up/Redevelopment Portfolio

Contradiction on when the $50M NOI upside from portfolio improvements will be fully realized.

How has Wells Fargo performed recently? - William John Kilichowski (Wells Fargo)

2025Q4: The benefit will build in 2027/2028 as leases commence. - Peter Scott(CEO)

How much of the $90M NOI upside (redev/RTO) and $50M margin expansion was captured in Q4, what's included in the guide, and what's the longer-term outlook? - Nicholas Philip Yulico (Scotiabank Global Banking and Markets)

2025Q2: The $50 million represents the total incremental NOI upside for the lease-up portfolio. Realistically, this upside will be phased in over more than 3 years, as redevelopment projects take 12-18 months. - Peter Scott(CEO)

Contradiction Point 5

Capital Allocation Priority for Joint Ventures (JVs) and Acquisitions

Contradiction on whether JVs are a current focus for new acquisitions or solely for growing existing partnerships.

Michael Carroll (RBC Capital Markets) asks: What are your thoughts on the current quarter's performance? - Michael Carroll (RBC Capital Markets)

2025Q4: The focus is on expanding existing JV arrangements with current partners, not creating new funds. JVs allow the company to participate in core/core-plus assets with better returns than possible on balance sheet alone. While not currently pursuing new JVs, it remains a consideration. - Peter Scott(CEO)

What could these JV deals look like, and how do you think about them? - Richard Anderson (Wedbush)

2025Q1: The company likes having JVs as a toolkit and maintains good partner relationships, but the focus is on growing JVs through acquisitions, not contributing more assets. Portfolio optimization currently focuses on selling 100% of assets in underperforming or unscaled markets, not contributing them to JVs. - Peter Scott(CEO)