Healthcare Realty Trust Q1 Earnings Call Highlights

Key Points

• Record leasing and occupancy gains: The company signed over 2 million sq ft across 290+ leases, achieved 93.5% tenant retention and saw same-store occupancy rise to 92.3% (total occupancy 90.5%) as demand for outpatient medical space outstripped completions.
• Stronger operating results and raised guidance: Same-store cash NOI surged 6.9% and normalized FFO was $0.41; management raised full-year 2026 normalized FFO guidance to $1.59–$1.65 per share (midpoint $1.62) and lifted same-store NOI growth guidance.
• Disciplined capital allocation and debt actions: The company repurchased $100 million of stock YTD (with ~$400M remaining capacity), is pursuing JV-led acquisitions (notably with KKR) and redevelopments, and secured a $400 million delayed-draw term loan to help refinance a $600 million bond while maintaining roughly $1 billion of available liquidity.

Healthcare Realty Trust NYSE: HR reported what management called a better-than-expected start to 2026, driven by record leasing activity, higher occupancy, and improved same-store performance. On the company’s first-quarter 2026 earnings call, President and CEO Pete Scott said the organization has made “significant progress” since he assumed the role just over a year ago, pointing to a revamped operating platform, a refined portfolio, and a “right-sized” balance sheet.

“We signed over 2 million sq ft of leases, an all-time high,” Scott said, adding that same-store NOI growth of nearly 7% was also an all-time high. The company also increased share repurchases during the quarter, completed its first joint venture acquisition, and continued stabilizing its redevelopment pipeline.

Record leasing, higher retention, and improving occupancy

Chief Operating Officer Rob Hull said the quarter was “the company’s strongest ever for leasing,” with more than 290 leases executed representing over 2 million square feet. Hull said lease economics improved across new and renewal leasing, with annual escalators averaging 3.1% and a weighted average lease term of nearly eight years. Tenant retention was 93.5%, supported by early renewals, including eight single-tenant renewals totaling nearly 740,000 square feet and an average extension of approximately 10 years.

Hull and Scott both emphasized demand conditions for outpatient medical space, with Hull noting that “absorption outstripped completions during the quarter” and rental rates continued to rise. Scott said sector occupancy is approaching 93% due to “strong demand and limited supply growth.”

Within Healthcare Realty’s portfolio, Scott said same-store occupancy increased to 92.3%, up 110 basis points year over year, while total occupancy improved to 90.5%. Scott described total occupancy as a “significant near-term earnings growth driver” as the company works to stabilize both lease-up and redevelopment portfolios.

Hull highlighted health system leasing activity in several markets, including:

• Atlanta: 176,000 square feet of new and renewal leasing with Wellstar across six on-campus buildings, including a 59,000-square-foot cancer center; blended cash leasing spread of about 4% and average term of five years.
• Charlotte: six renewal leases totaling 154,000 square feet with Advocate Health; average term of more than seven years and blended cash leasing spread over 5%.
• Upstate New York: 64,000 square feet leased to Trinity Health St. Peter’s Hospital; average term nearly 6.5 years and 3% annual escalators.
• Charleston: three renewals totaling 55,000 square feet with MUSC Health, maintaining 100% occupancy across two buildings; average term nine years and average cash leasing spread nearly 14%.

Looking ahead, Hull said occupancy gains are expected to be supported by a new leasing pipeline of approximately 1.4 million square feet and a signed-not-occupied (SNO) pipeline of 490,000 square feet. In response to a question about occupancy targets, Hull added that “nearly half” of the SNO pipeline is tied to lease-up and redevelopment.

Same-store NOI surged 6.9%; company raises 2026 guidance

Chief Financial Officer Dan Gabbay reported normalized FFO per share of $0.41 for the quarter, up from $0.40 sequentially, and same-store cash NOI growth of 6.9%. He said FAD per share was $0.32, resulting in a quarterly dividend payout ratio of 75%. Gabbay attributed the quarter’s outperformance to occupancy gains, cash leasing spreads of 4.2%, and what he described as an improved balance sheet. Same-store margins expanded by 60 basis points year over year, and Gabbay noted that 95% of total NOI is included in the company’s same-store pool.

For full-year 2026, Gabbay said the company increased normalized FFO per share guidance by $0.01 to a range of $1.59 to $1.65 per share, with a midpoint of $1.62. The company also raised same-store cash NOI growth guidance by 25 basis points to a range of 3.75% to 4.75%.

Scott said the strong first-quarter same-store result reflected a “pretty significant ramp up in occupancy year-over-year” and margin improvements, while also acknowledging the quarter benefited from an “easier comp.” Still, he said he views the full-year guidance range as an opportunity to raise expectations as the year progresses, adding that while the company may not repeat a near-7% quarter, he expects growth to remain “quite strong” versus historical norms.

Capital allocation: buybacks, joint ventures, and redevelopments

Management reiterated a “disciplined” capital allocation approach. Scott said the company repurchased $100 million of stock in the first quarter, completed more than $20 million of acquisitions, and invested $25 million in the redevelopment portfolio. He added the company has $400 million of remaining repurchase capacity under its current authorization.

Gabbay provided additional details on repurchases, saying the company bought back 5.7 million shares year-to-date for $100 million at a weighted average price of $17.38, including an additional $50 million repurchase in March amid broader market volatility.

On external growth, Scott said acquisitions will be pursued through joint ventures, and he referenced the company’s relationship with KKR as its primary “growth JV.” Scott said joint ventures currently account for about 5% of total NOI and suggested that figure could increase. He also said he could see the company allocating $50 million to $100 million of capital into the KKR joint venture in 2026, while targeting initial cash yields greater than 7%.

During the Q&A, Chief Investment Officer Ryan Crowley said transaction-market momentum from last year has carried into 2026, with “plenty of demand and liquidity” and financing “readily available.” Crowley said core asset pricing is in the 5.5% to 6% cap rate range, with “core plus” not much higher. Scott later cited a Birmingham deal as an example, describing it as a $90 million, 100% occupied, newly developed asset with a 12-year weighted average lease term, a 6% going-in cap rate, and a cash going-in yield “in the low 7%s.” Scott emphasized that the yield referenced was “year one,” not a stabilized figure, and Gabbay added that joint venture yields include “advantageous fee arrangements” with partners.

On redevelopment, Scott said the portfolio includes 23 properties that are 64% pre-leased and represents a primary source of a projected $50 million of NOI upside in the company’s three-year forecast. Hull said the redevelopment portfolio’s leased percentage improved by 900 basis points sequentially during the quarter. He also highlighted two projects: a $25 million redevelopment of a 155,000-square-foot building connected to Tufts Medical Center in Boston that is 100% pre-leased with a 10-year term and 3% annual escalators, and the completion of a $35 million, two-building redevelopment in Charlotte adjacent to Novant Health Huntersville Medical Center that is 98% leased with a stabilized yield within the company’s 9% to 12% targeted range.

Balance sheet actions and upcoming debt maturity

Gabbay said the company expects to close a new $400 million unsecured delayed draw term loan in May. He said drawn pricing is SOFR plus 90 basis points, with all-in pricing including transaction costs of approximately 4.8%, which he said is inside the company’s 5% cost of debt assumption for 2026. The company plans to draw the term loan in late July to repay a $600 million bond maturity, with the remainder funded on its line of credit. Gabbay said the company would still have about $1 billion of remaining liquidity on its line after the transaction.

Gabbay also said the company has about $250 million outstanding under its commercial paper program, fully backstopped by the credit line, and that borrowing costs are currently about 40 to 50 basis points lower than the line. Additionally, he said Healthcare Realty extended maturities on $400 million of swaps tied to existing unsecured term loans, locking in SOFR at 3.3% through debt maturity in 2029.

Scott said the delayed draw term loan meaningfully reduced risk tied to the August bond maturity, describing recent market volatility as an impetus for the company to move quickly. He said the facility’s all-in cost in the “mid-fours” compared favorably with bond pricing, which he said would likely be “50 to 75 basis points wider.”

Strategic plan, asset sales flexibility, and board update

Scott said the company’s three-year earnings framework is focused on organic drivers including occupancy, annual escalators, retention, and cash leasing spreads. He said the average annual escalator on signed leases is now “3%+,” and described escalators as a primary driver of core earnings growth going forward given portfolio NOI of about $650 million. Scott also said that, excluding the impact of portfolio optimization and deleveraging, core earnings growth in 2026 is tracking above 5%.

Management also said it remains open to asset sales, including core assets, to recycle proceeds into priorities such as buybacks, joint venture acquisitions, and redevelopments. Scott repeatedly characterized the approach as “disciplined,” and said sales would not be about liquidating the highest-quality assets.

On governance, Scott said longtime director Jay Leupp plans to retire following the upcoming annual meeting. Scott said that after Leupp’s departure, the average tenure of remaining directors will be less than two years, and the company plans to add a new director later in the year with a focus on experience and diversity.

About Healthcare Realty Trust NYSE: HR

Healthcare Realty Trust NYSE: HR is a real estate investment trust specializing in the ownership, acquisition and management of outpatient medical facilities. Headquartered in Nashville, Tennessee, the company's portfolio is focused primarily on medical office buildings and outpatient healthcare properties that serve hospitals, health systems and other healthcare providers. Its business model centers on securing long-term, triple-net leases to generate stable income streams from a diversified tenant base.

The company's properties are located across key metropolitan markets in the United States, including major healthcare hubs in the Southeast, Southwest and in select coastal regions.

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