管理層發言
Hello, everyone. Thank you for joining us, and welcome to Healthcare Realty's second quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. If you would like to ask a question during the Q&A, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Doris Lo. Doris, please go ahead.
Thank you for joining us today for Healthcare Realty's second quarter 2026 Earnings Conference Call. A reminder that, except for the historical information contained within, matters discussed in this call may contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These forward-looking statements represent the company's judgment as of the date of this call. The company disclaims any obligation to update this forward-looking material. A discussion of risks and risk factors are included in our press release and detailed in our filings with the SEC. Certain non-GAAP financial measures will be discussed on this call. A reconciliation of these measures to the most comparable GAAP financial measures may be found in the company's earnings press release for the quarter ended 06/30/2026. The company's earnings press release and earnings supplemental information are available on the company's website. I would now like to turn the call over to our President and CEO, Peter A. Scott.
Thanks, Doris. Joining me on the call today are Robert E. Hull, Daniel Gabbay, and Ryan E. Crowley. It has been exactly one year since we put out our strategic plan. At the core of the plan, we laid out clear and purposeful changes designed to improve operational performance, strengthen our portfolio, reestablish credibility, and maximize shareholder value. One year later, I am pleased to report we are outperforming every one of our key objectives over the last four quarters. Same store NOI growth has averaged 5.7%. Same store occupancy has increased to nearly 93%. Retention has averaged nearly 90%. Cash leasing spreads have averaged 4.1%. Leverage is down nearly a full turn. And we have raised guidance every single quarter along the way, including by another $0.02 this quarter, driven by strong operations and leasing, a successful convertible bond offering, and accretive capital allocation. Our outperformance has been a collaborative effort across the entire organization, and it would not have been possible without the hard work of all 500-plus employees and the support of our best-in-class board of directors. We have built a winning mentality and a culture of executing with purpose and intensity that is now pervasive throughout the organization. Shifting to our recent leasing success. Year to date, we have executed 3.5 million square feet of leases. That is over 10% of our total portfolio. You can see the benefit of our leasing success in our weighted average remaining lease term, which stands at 65 months today — an improvement of 15 months since we disclosed our strategic plan. Going forward, we have very limited near-term rollover risk, providing a clear path for earnings growth over the next several years. Our leadership team has also implemented a new leasing model designed to drive ROI across the portfolio. Over the last four quarters, lease IRRs have improved nearly 300 basis points and our payback period is down nearly 25%. As we keep executing quarter after quarter, our core earnings growth engine will re-rate meaningfully higher. Turning now to health system relationships, which was an important facet of our strategic plan. Our dialogue with health systems has increased exponentially over the last year, and we are constantly collaborating to assess mutual value creation opportunities. I want to highlight a couple of recent health system transactions. First, CommonSpirit. In late June, we executed approximately 160 thousand square feet of renewals in five states at a positive 7% cash leasing spread. As part of this transaction, we agreed to sell CommonSpirit 15 acres of land in Denver for $16 million, removing our current land carry costs. CommonSpirit intends to use the land to expand the hospital. On top of that, we also retained future medical office building (MOB) development rights on the site. A great win-win transaction for both sides. Second, Wellstar. Year to date, we have executed 215 thousand square feet of renewal leases at a positive 4% cash leasing spread, along with 27 thousand square feet of new leases. As part of our lease negotiations, we agreed to sell Wellstar the Kennestone Cancer Center for $36 million which equates to more than $600 per square foot and a mid-5% cap rate. We plan to recycle these proceeds into JV acquisitions at a substantially higher yield. Another great example of a win-win outcome. Third, Ascension St. Thomas. In early July, we executed an LOI for 203 thousand square feet of leases across three campuses in Nashville. The cash leasing spread is positive 11%, and we expect these leases to be executed in the third quarter. As part of this transaction, Ascension and Healthcare Realty will launch a comprehensive redevelopment of the Ascension St. Thomas West campus, located in one of the most vibrant submarkets in Nashville. We plan to invest $35 million in our three medical office buildings. The hospital and health campus will undergo a $120 million modernization led by Ascension to enhance the consumer experience and develop new service lines. This is a great win-win outcome and further deepens our partnership with Ascension St. Thomas. Shifting now to capital allocation, which is quickly becoming an important component of our earnings growth narrative. Our targeted approach continues to prioritize redevelopments, joint venture acquisitions, managing our balance sheet, and returning capital to shareholders. In the second quarter, once again, we did exactly what we said we would do. First, redevelopments. During the quarter, we invested approximately $25 million in this portfolio, and we have leased it up to 67% — an improvement of 1400 basis points over the last four quarters. We are underwriting 10% cash-on-cash yields across our redevelopment portfolio. We see some larger campuses in key markets like our West Campus in Nashville entering the redevelopment portfolio in the near term. Second, joint venture acquisitions. We are fortunate to have a great partner in KKR who has a stated goal to grow in the medical office sector. Since our last earnings call, we have closed on or have under contract or an LOI approximately $200 million of assets, or $40 million at our share. The going-in cash yield to HealthCare Realty on these transactions is approximately 7.5%, which is highly accretive relative to our implied cap rate of approximately 6%. All of these high-quality acquisition assets complement our existing sizable footprint within their respective markets, including Greenwich, Connecticut; Charleston, South Carolina; Port St. Lucie, Florida; Seattle, Washington; and Denver, Colorado. The medical office transaction market remains vibrant. Institutional capital clearly sees the same positive sector fundamentals we see: strong tenant demand, a severe lack of new supply, and rising NOI growth rates. Third, balance sheet and return of capital. During the second quarter, we moved quickly and decisively to address our near-term debt maturities. We raised $1.1 billion in capital through our convertible bond issuance and delayed-draw term loan. The blended interest rate on this capital is approximately 4%, saving us 100 basis points versus our original guidance. Importantly, we can be opportunistic and patient now before we access the debt capital markets again. We also bought back $75 million of stock in the second quarter. Since putting out our strategic plan, we have now repurchased $175 million of stock at a blended price of approximately $18.50, creating more than $30 million of value for shareholders. Our capital allocation priorities are currently being funded with free cash flow and disposition proceeds. Year to date, we have disposed of six buildings and three land parcels for approximately $75 million at a blended 5% cap rate. We also have an additional disposition pipeline of nearly $200 million in various stages. That amount could grow further if we are successful and opportunistically executing on low cap rate direct-to-health-system sales at premium pricing levels. Let me finish now with what is on the horizon for HealthCare Realty 2.0. We have proven we can execute a new superior medical office model. The next several years are about scaling it. We set out to become the trailblazer in medical office, and today, we are not just talking about that ambition — we are delivering it. In addition, the pillars of organic growth — occupancy, retention, cash leasing spreads, and consistent escalators — are real. And they are the engine underneath everything else we do. Now we are layering disciplined, accretive capital allocation on top of that engine. This is not a one-quarter story. It is a durable, repeatable framework and we intend to keep pulling on every lever. We are pleased to see our valuation improving, but let me be very clear: we are not satisfied, and we are not slowing down. We see meaningful upside ahead of us. As the only public REIT that is actively growing its medical office platform, we intend to lead this sector, not just participate in it. We have the team, portfolio, balance sheet, and momentum to define what best in class looks like for outpatient medical, and we are just getting started. With that, let me turn the call over to Robert.
Thanks, Peter, and good morning, everyone. Healthcare Realty delivered another strong operating quarter. We executed 23 leases, totaling 1.5 million square feet, including 350 thousand square feet of new leasing. Same store cash leasing spreads averaged 4.8%. Average escalators were 3%. And the weighted average lease term was nearly six years. Tenant retention was a standout at 88.5%, helping drive approximately 25 basis points of absorption and lifting same store occupancy to nearly 93%. We also ended the quarter with approximately 460 thousand square feet of signed-not-occupied leases representing roughly 140 basis points of future occupancy and giving us visibility into additional gains in the back half of the year. Our health system relationships are playing a major role in generating our outstanding results. Peter mentioned a few major deals in his remarks, but we also had significant second-quarter leasing activity with Baylor Scott & White in Dallas–Fort Worth, UW Medicine in Seattle, Kaiser in San Francisco, and HCA in Houston. This activity further demonstrates the great progress we are making with our partners. Redevelopment leasing also advanced. We executed nearly 60 thousand square feet of new leasing during the quarter, moving these properties to 67% leased. And we are building a strong pipeline of activity that will translate into additional leasing gains in coming quarters. Broader supply-demand fundamentals remain favorable. Medical outpatient completions as a percentage of inventory are hovering near all-time lows, while sector occupancy continues to reach record highs. We are also seeing increased health system M&A activity, as systems look to build scale, strengthen market position, and improve financial performance. Acquisitions can expand patient reach, broaden services, improve payer leverage, and create cost efficiencies. Over time, these benefits can support stronger margins, better balance sheets, and lower cost capital for these systems. For landlords, this activity can translate into stronger tenant credit and additional capital sources to support health system growth that drives demand for outpatient medical space. Against this favorable backdrop, our new and renewal lease pipeline remains robust, at more than 3 million square feet, including several large health system transactions that continue to progress. Finally, tenant satisfaction: our recent annual third-party tenant survey showed year-over-year improvement across every metric. These results are further evidence that the operating platform changes we made are improving the tenant experience and strengthening execution across the portfolio. As we move into the back half of the year, we expect strong leasing momentum, high tenant retention, and improving lease economics to continue driving same store NOI growth. With that, I will turn it over to Daniel to discuss financial results.
Thanks, Robert. I will briefly comment on our earnings, balance sheet, capital allocation, and our higher revised guidance for the year. Our momentum continued in Q2 with normalized FFO per share of $0.41 and same store cash NOI growth of 5.1%, which includes almost our entire portfolio. Additionally, FAD per share was $0.32, resulting in a quarterly dividend payout ratio of 76%. In May, we opportunistically accessed the capital markets during a reprieve in global conflicts and issued $700 million of exchangeable senior unsecured notes due 2032 at a coupon of 3%. The issuance was strongly received and was upsized by $100 million during the marketing process. We utilized proceeds to repay our $600 million senior unsecured notes due in August this year, which had a coupon of 3.5%. We also repurchased $75 million of shares with the offering, which was both financially accretive and additive to the overall deal execution. When factoring in the capped call, exchangeable notes have an effective conversion price of $27.41 per share, or 40% above our closing price on the day of marketing. Also during the quarter, we raised a $400 million delayed-draw term loan. The exchangeable notes and delayed-draw term loan effectively address our maturities through 2027, and with an additional $1.2 billion in liquidity on our line of credit, we have ample flexibility through 2029. In the meantime, we will remain opportunistic evaluating the bank and bond markets for any future steps to further extend our maturity profile at attractive rates. As Pete noted, we remain disciplined and decisive if there are acquisition opportunities in our joint venture with KKR. Since the end of March, we have closed on or are under contract or LOI for nearly $200 million in acquisitions, or $40 million at share. These transactions will be efficiently match-funded with dispositions throughout the year, such as our land sale to CommonSpirit and our MOB sale to Wellstar. Most importantly, we will continue to keep our leverage in the mid-5x area. Turning to guidance, which you can find on page 11 of our supplemental report, we increased full-year normalized FFO per share guidance by $0.02 to $1.64 at the midpoint, and we increased the upper end of the range to $1.66 per share. Our same store cash NOI outlook is now 4.25% to 5%, up 50 basis points at the bottom of the range and up 25 basis points at the upper end of the range. These results are driven by strong leasing outcomes and 4% to 5% cash releasing spreads year-to-date in our same store portfolio. Uses of capital increased $115 million for the year to reflect the incremental share repurchases we made alongside the exchangeable notes, as well as the $40 million to fund our share of the JV acquisitions mentioned earlier. Disposition guidance, therefore, increased by a similar amount. Again, recall our guidance only reflects acquisitions, redevelopments, or other uses of capital announced to date. One last housekeeping item before we go to Q&A. In addition to filing our earnings results, we will be refiling our shelf and ATM prospectus supplement since the shelf is due to expire in August. We will also file the resale registration statement as required by the registration rights in connection with the exchangeable notes. With that, operator, let's go ahead with Q&A.
分析師問答
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Kilachowski with Wells Fargo. John, please go ahead.
Hi, good morning. Thanks for taking my question. Peter, in the opening remarks, you talked about trending ahead. You are a year out from your strategic plan, and you are trending ahead on all. I'm kind of curious now, where does that put you in terms of your outlook on that $1.97 to $1.99 range that you gave in that strategic plan?
Yeah. Thanks, John. Hey, it's Peter here. Good question — you are looking for 2028 guidance. But it is AFFO and not FFO, AFFO just to be clear. As I said in my prepared remarks, we are tracking ahead of schedule. I think a couple of things I would just point to: thanks to the convertible deal and better-than-expected same store NOI this year, and actually what we are seeing as we look out to the next couple of years as fundamentals continue to firm up, we certainly feel like we are ahead of schedule on that. If you go back a year ago, 2026 was really expected to be a flat year of earnings since we had about $0.07 of dilution from portfolio optimization, and we also had some refinancing headwinds. Our $1.64 midpoint today — the year is not done, we are halfway through — that is actually $0.03 of growth when you look at this year versus last year. Also, we are only getting about a half-year benefit from that convertible this year. So I am not going to give an exact number, except to say that we feel quite good about how we are trending just a couple quarters into the 12 quarters of projections we put out in that three-year plan.
Thank you. And then my second one is on the KKR JV now. We are seeing you acquire alongside them. I noticed no flywheel image in the supplemental yet, but I'm curious about the sizing of that opportunity. And then also with the match funding piece, given the idea of getting out of noncore assets last year and some great pricing there, I'm curious what you are funding it with and how you are managing to keep this NAV accretive while selling some things you do not want to own but still achieving these great cap rates to afford that spread?
Yeah, it's a really good question. KKR has been a great partner. They came in as part of a recap a couple years ago and always had ambition to grow that vehicle. I would say HealthCare Realty was holding that vehicle back from being able to grow. There was not a lot of free cash flow and there was an optimization plan that had been discussed but not yet put into effect. So it was very difficult, and, obviously, the dividend issue was very difficult for that joint venture to grow. We are pleased now that we have done about a half dozen deals so far this year — it is about $300 million in total with the stuff that is either closed or under contract. It is attractive yields to us and to them. How we think about funding that, which I think is the crux of your question: to date, we have actually focused on capital recycling and free cash flow to fund all of our capital allocation initiatives. At the end of the day, it is our job as executives to maximize earnings growth. So as we think about funding capital allocation priorities, if funding them is more advantageous through dispositions because of the cap rate we are able to get, then we will certainly focus on that. If accessing the equity markets becomes more accretive than the dispositions, we could pivot to that. We have not done that to date. We will look at every lever to maximize earnings growth going forward. I will also point out, and I know this is a long-winded answer, you put out a good note last night: we are going to maintain discipline here. We will not create reckless leverage. Certainly it is accretive today for us to think about capital allocation priorities, but we are going to maintain discipline as we think about it.
Your next question comes from the line of Michael Mueller with JPMorgan. Michael, please go ahead.
Good morning, guys, and thanks for taking the question. You have Nahum on for Michael this morning. I guess my first question: it looks like you have built a pretty sizable redevelopment pipeline to this point. What does the shadow pipeline look like and do you think you will be able to sustain a size close to this over the next few years?
Yeah, I can take that one. It is Peter here. We are really pleased with the progress on the redevelopment pipeline and the preleasing. As I mentioned in my prepared remarks, when you look back a year ago, we have improved preleasing in that portfolio by 1,400 basis points, which is significant. We actually have a nice pipeline building on that. I would expect to see continued absorption as the year progresses. We have around 25 assets in redevelopment today. We have made a big push to identify the assets we want to go into redevelopment so they go in on the front end of our three-year plan. So that pool has increased the last couple of quarters and will increase a little bit more as the year progresses. We have not yet put the three assets of the Ascension St. Thomas campus in — those will go in as the year progresses. I would expect that number may go up to maybe 30 or so, and then we will get the benefit of assets completed that will cycle out. So I would think we will probably reach a peak towards the end of this year. Redevelopment will remain an ongoing part of the business. Given where rental rates are trending, there is a real opportunity to invest capital in assets in our existing portfolio, increase occupancy and rental rates, and get very nice returns. We are at the front end of that and it will be a continuous part of our business going forward, though not necessarily as large outside of the strategic plan as it is trending right now.
Got it. Thanks. And maybe just a quick follow-up sticking on redevelopment. I think the supplement shows about 9% to 12% returns for the current pipeline. Could you walk us through what would need to happen to achieve the low end and high end of that range, and maybe where you currently think the pipeline stands within that range?
I think the pipeline is probably right in the middle of that range. Some markets will get higher yields, others lower. Nashville is probably more like a 9% rather than a 12% for those assets. I'm referring to cash-on-cash yield, not NAV creation. It comes from two important pieces: an uplift in rental rates, which is real, and absorption within the assets. Some assets had been underinvested for quite some time, so we see significant upside in occupancy. If you get upside in occupancy plus an uplift in rate, you get to the higher end of those cash-on-cash yields. If you get mostly a rate uplift and less occupancy improvement, you'll be toward the lower end of the range.
Your next question comes from the line of Michael Carroll with RBC. Michael, please go ahead.
Thanks. I wanted to circle back on the Ascension agreement that you highlighted in your prepared remarks and in the supplemental. Can you provide some color on the extent of the $35 million planned investment that HR is making? Is that a revenue-generating investment? Or are Ascension's rents increasing? Or is that just reflected in the 200 thousand square feet of leases that you completed?
Mike, there are a couple pieces to that. We are really pleased to get this agreement announced. Ascension press released it a couple of weeks ago. We have a very close relationship with the Ascension St. Thomas team here in Nashville. Five-plus years ago there was a big redevelopment plan on the Midtown campus that was underoccupied and that campus is now effectively 100% leased and leading rental rates in the Nashville market. This campus is in West Nashville, closer to Belle Meade, right at the entrance to high-value submarkets. It's been underinvested for quite some time and is about 80% occupied today. The hospital hasn't been invested in a long time and Ascension has a real mandate to invest more capital into the Nashville market. We collaborated on what made sense. We extended the Ascension leases 10 years at the campus at a pretty meaningful mark-to-market — about an 11% double-digit mark-to-market — which was not in our numbers reported last quarter, so that will help when we report. We see that campus going from roughly 80% occupancy toward close to 100% over time, similar to the Midtown campus. It generates about $7 million of NOI today and we believe it will be $10 million-plus of NOI when all is said and done between absorption and the favorable leases we have put in place. This is in line with the 9% to 10% cash-on-cash yields in our redevelopment underwriting. You will also get NAV upside as cap rates are likely to compress on that asset.
Okay, that's helpful. And similarly on the CommonSpirit investment you talked about — is CommonSpirit building on that specific land site? When you say HR is maintaining future MOB development rights, is it within that campus that you would do a land lease where they own the land and you would develop it, or would it be other parcels nearby?
Mike, it will be on that site. It's a hospital with full beds and they need to expand; the only way they could expand was with the land we owned adjacent to the hospital. We retained the typical development agreement so if a medical office building gets built on that parcel, we have the first right to do it and it would be under a ground lease structure — very similar to typical campus developments. We were able to monetize a non-income-producing asset where we were carrying costs, and also achieve healthy leases alongside it. CommonSpirit gets what they need and we get what we need — and the relationship with CommonSpirit is as strong as it's ever been.
Your next question comes from the line of Michael Stroyeck with Green Street. Michael, please go ahead.
Thanks, good morning. Curious just on the magnitude of releasing spreads by occupancy. How large is the divergence of those spreads you are seeing between, call it, your stabilized portfolio and your lease-up portfolio?
Mike, I don't have all those numbers off the top of my head, but to achieve close to 5% this quarter on cash leasing spreads, you have to have the vast majority of leases rolling up at pretty nice levels. We're probably getting better cash leasing spreads on more well-occupied buildings as opposed to lease-up buildings because you have more leverage in a building that is full. We're ranking our buildings and on ones where we feel we have high occupancy and strong markets, I would not be surprised to see double-digit cash leasing spreads. In buildings where we are trying to lease up, you probably won't see as robust a cash leasing spread, but you'll get a lot of absorption. It all blends today to around the high fours and is trending favorably, so we feel quite pleased with the direction.
Then maybe we could switch gears and talk about the transaction market. What are you seeing in terms of the strength of the private market bid today? Have higher rates in recent months led to any sort of reset in pricing expectations or a thinning of bidding tents from some of the more levered buyers?
We track it closely and have not seen a big impact on cap rates to date despite rates backing up; it's early days. We like doing single-asset or small portfolio deals with KKR — the $200 million is spread over five transactions — so if there is any cap rate movement we can take advantage. We are an unlevered buyer within that vehicle, which positions us well. Not many REITs are showing up when assets are on the market today, so we have a competitive advantage. Institutional capital is active, but they typically need a partner to oversee assets. We'll remain disciplined in how we approach acquisitions and manage our balance sheet.
Next question comes from the line of David Rogers with Raymond James. David, please go ahead.
Good morning. Peter, you talked about the strength of lease IRRs and that those have improved. How much of that improvement is due to your execution versus simply the market improving on the leasing front? Could you dive into those IRRs and what you've done?
Dave, it's a couple of things. Fundamentals have firmed up, which helps. Retention has increased significantly, and that's a function of better service to tenants combined with lack of new supply. On renewal deals, the amount of capital required is a fraction of what's required on new deals, which helps IRRs. Renewal and retention were core pillars of our plan and have helped reduce capital intensity on leases and improve returns.
Maybe a follow-up on leasing. Robert mentioned the 3 million square feet in the pipeline. Historically, what execution rate should we expect and how does your recent pace compare?
The pipeline is strong at a little over 3 million square feet, about half of which is health system activity. We've seen an uptick in that as we improve relationships. We did about 1.5 million square feet of leasing this quarter. That is a bit down from last quarter's two million, which was a large number driven by several health system deals that had been in the works. Executing in the million-and-a-half range is a reasonable pace going forward. That combines renewals and new leasing. Demand for outpatient medical remains strong and is strengthening with the continued push from inpatient to outpatient settings, which supports ongoing leasing activity.
Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin, please go ahead.
Thanks. On the $3 million of upside of NOI at the Ascension campus in Nashville you highlighted earlier, is that part of the $20 million of upside within the lease-up or unstabilized pool? Are there other assets or relationships with chunkier upside opportunities you are evaluating that could help close the gap going from $75 million up to the $95 million stabilized number flagged in the presentation?
Hey, Austin. Short answer on Ascension is that when you think about that $20 million, Ascension is not in there. As we continue to look through the portfolio, there could be incremental opportunities versus the roughly $25 million in assets already in redevelopment. We look for incremental opportunities across all 560-plus properties all the time. These things can change as demand drivers improve in markets. The Ascension relationship is strong and we are glad to have that coming. We'll continue to find more upsides in the portfolio where we can.
As you move into the phase of scaling the portfolio through disciplined capital allocation, you mentioned nearing a peak on redevelopment. How close are you to evaluating more wholly owned opportunities through development or straight wholly owned acquisitions?
That's a great question. When we put out our three-year plan, we didn't assume much capital allocation beyond redevelopments, so the fact we're seeing prudent capital allocation through the JV with KKR a year in is faster than anticipated and positive. We'll be extremely mindful of accretion when deploying capital. Right now, putting capital out in JVs creates the most accretion, so we are prioritizing joint ventures. That is not to say we could not consider balance-sheet opportunities in the future — it will come down to the types of assets and the earnings benefit from them. We'll evaluate everything through that lens.
Your next question comes from the line of Seth Bergey with Citi. Go ahead, Seth.
Thanks, Seth. It's Nick Joseph here with Seth. Maybe just on internal growth: you are trending ahead on full-year same store NOI guidance. Could you touch on the back-half assumptions and what is going into any implied deceleration there?
Nick, let me start and Daniel will follow up on 2026. As we think about same store NOI growth and earnings growth, earnings growth and valuation multiples are highly correlated in the real estate sector. You can rest assured we'll focus on earnings growth and pull on every lever to achieve that. Last quarter I walked through the pillars of growth and how those are shaping up in outpatient medical. To be successful and get a better valuation multiple, same store growth probably has to be in the 4% area on a stabilized basis. We are doing better today because of occupancy and absorption. We want to see mid-single-digit earnings growth on a stabilized basis as well. I do not believe we are getting credit today for our ability to achieve those numbers, but that's the upside opportunity and what motivates the team. We're pleased with progress since the strategic plan, but there is still work to do.
Nick, thematically Peter hit it. Numerically, we increased our guidance range and raised the low end of the same store NOI range by 50 basis points and the top end by 25 basis points, which speaks to our performance year-to-date and conviction. We are over seven months into the year; if we continue to perform we feel good about the guidance. In terms of FFO translation, we've anniversaried dispositions that create a drag and we addressed the August 2026 maturity with the exchangeable notes. Everything we do is to drive core organic earnings growth in the business targeting mid-single-digit growth — on leasing, retention, pushing cash leasing spreads, and improving occupancy in the same store pool.
Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo, please go ahead.
Good morning, everyone. First, I want to focus on the KKR transaction and understand more about the roughly 7.5% yield on those deals. You are selling assets at sub-5% — so I'm curious about the pricing there. Is there anything unique? Is it market? It seems like really attractive pricing and opportunities to do more like that.
Tayo, when you think about dispositions, we classify assets as operating or land. There's some land in our dispositions, which impacts cap rates. Focus on the Kennestone Cancer Center: $600 per square foot and a mid-5% cap rate is the kind of asset sale we would consider to fund acquisition opportunities. Regarding the KKR transactions, the $200 million is across multiple deals. The going-in cash cap rate is in the low sixes, but the yield to HealthCare Realty — which is the driver of our earnings — is around 7.5% on a cash basis. We receive asset management fees in the venture which helps boost returns. Occupancy on those assets is in the low 90s with a weighted average lease term of about seven years, and there is mark-to-market upside in markets like Greenwich, Charleston, Seattle, and Denver. So even if going-in yields are as quoted, we think there is upside during hold periods given mark-to-market potential. Expect similar opportunities as we transact going forward.
On the JV side, any update on the Nuveen JV and whether we could see additional activity there apart from the KKR JV?
We talk to Nuveen frequently. Those are typically discrete JVs and not growth vehicles like the KKR vehicle. We have good dialogue with Nuveen but not much else to report there today.
On tenant improvements and leasing costs — those are coming down nicely and are still about 22% of net rent. Where do you see that going as demand improves and supply remains limited? Will this enable you to drive that lower and push annual rent escalators higher?
Great question. As noted in the supplement, these numbers are coming down year-over-year. For renewal leases, the percent of annual rent we provide in TIs and LC has consistently been in the high-teens to mid-double-digits this year. Renewal leases are less expensive than new leases. New lease costs have come down significantly in terms of percent of annual rent. Driving those results is our higher retention and higher-occupied portfolio, skewing more toward renewals which reduces capital intensity. We continue to focus on being efficient with every dollar of capital in the company.
Good execution here from you guys and the team. Well done.
Your next question comes from the line of Michael Goldsmith with UBS. Michael, please go ahead.
Morning. Thanks for taking my questions. Same store NOI growth in Q1 was 6.9% and in Q2 5.1%, well above the historical MOB norm. What is different today versus the past, or is this just the strategic plan playing out? You have discussed four drivers of the business in the past — have any of those changed and are driving these results?
Michael, we certainly are seeing benefits from absorption in Q1 and Q2. That will normalize over time, but cash leasing spreads are firming as well. We believe we can generate better growth than historical norms. The old 'steady Eddie' 2%-3% view for medical office was more relevant in a low-rate environment; in a higher-rate world we need better growth. We'll push on all the levers — occupancy, retention, cash leasing spreads, escalators — and we are pleased with the 3% escalators we've been getting so far. We see opportunities to continue to improve all pillars of growth.
Your stock has rerated meaningfully from the levels where you repurchased shares earlier in the year. How does today's expected return from share repurchases compare with the 7%-plus yield you are achieving through JV acquisitions and the 9% to 12% redevelopment yields you are underwriting? Has the relative attractiveness of buybacks changed?
Yes, the attractiveness has changed, and we will look at buyback math relative to recycling capital into redevelopments or other allocations. Buybacks are always a lever that provides immediate accretion when we decide to pursue them. We are active and will be opportunistic when the opportunity presents itself. At the moment, buybacks do not screen as favorably versus redeploying capital, but we can turn them back on quickly if dislocation occurs and they become attractive again.
Same store occupancy is now 92.7% and total portfolio occupancy continues to move higher. Has your view of a normalized occupancy ceiling changed given the lack of new supply? Or do you still view 92%–93% as the right long-term target?
There's certainly a bias for occupancy to increase, which is positive. Sector-wide occupancy has been trending higher for many quarters. We should be able to perform as well as the sector and possibly better. We see additional absorption in the back half of the year, so the trend is upward for sure.
Your next question comes from the line of Michael Gorman with BTIG. Michael, please go ahead.
Thanks. As you look at the transaction markets and your active dialogues with health systems and your partner KKR, have any tenants or systems expressed a preference not to have an institutional JV partner or manager involved in owning their assets? Has that been a limitation where you would need to buy something on-balance-sheet rather than through the partnership?
Michael, to date no. To tenants, it's seamless. They generally would not be aware whether an asset is wholly owned or in a JV. We are the asset manager within the venture and control leasing and property management. The HealthCare Realty brand and operating platform remain in place. The only potential issue would be contributing assets into a JV that triggers ROFRs for a health system, but that's not the context of these growth JVs. We have not encountered tenant unwillingness to have institutional JV partners in our transactions.
There are no further questions at this time. I will now turn the call back to Peter A. Scott for closing remarks. Peter, go ahead.
Great. Thank you, and thanks to everybody for joining us on this call. We look forward to continuing to communicate with you over the coming months. Everyone enjoy the rest of their summers. Talk soon. Thanks. Bye.
This concludes today's call. Thank you for attending. You may now disconnect.