Financial Data and Key Metrics Changes - Normalized FFO was $0.41 per share, a $0.02 increase from the previous quarter [6] - FAD per share increased to $0.33, representing a 96% payout ratio, a significant improvement from the first quarter [34] - Same store occupancy was 90%, a 40 basis point sequential increase [6] - Same store NOI growth was 5.1%, a 280 basis point sequential increase [6] - Net debt to adjusted EBITDA sits at six times [6] Business Line Data and Key Metrics Changes - The second highest new leasing quarter in the last three years, with year-to-date sales increasing to $211 million at a blended 6.2% cap rate [7] - The company executed nearly 1,500,000 square feet of leases, including over 450,000 square feet of new leases [28] - Current occupancy in the stabilized portfolio is 95%, with NOI margins over 65% [18] Market Data and Key Metrics Changes - Demand for outpatient medical space remains strong, driven by tightening supply and the ongoing migration of services into a lower-cost outpatient setting [28] - The company has a robust and balanced disposition pipeline, expecting asset sales of approximately $1 billion to close in 2025 at a blended cap rate of 7% [21] Company Strategy and Development Direction - The strategic plan, referred to as Healthcare Realty 2.0, focuses on an operations-oriented culture prioritizing earnings growth and strong tenant relationships [12] - Key action items include improved corporate governance, significant organizational restructuring, portfolio optimization, reprioritizing capital allocation, and improving the balance sheet [12][21] - The company aims to invest approximately $300 million over the next three years into the lease-up portfolio to drive NOI growth [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a 92% to 93% occupancy rate, citing improved macro conditions and a revamped asset management platform [88][90] - The company anticipates a positive earnings outlook and plans to utilize free cash flow to invest accretively in its portfolio [26][27] Other Important Information - The Board approved a dividend reduction of 23% to $0.24 per share on a quarterly basis to alleviate pressure from $1.4 billion of low coupon bonds maturing over the next three years [24] - The company has successfully completed the first phase of its derisking strategy, extending the maturity of its revolver and term loans [37] Q&A Session Summary Question: Can you talk about the composition of the lease-up portfolio? - Management indicated that the lease-up portfolio consists of properties primarily located in priority markets, with strong demographic trends supporting the potential for growth [42][46] Question: What is the expected upside in the lease-up portfolio? - Management clarified that the total upside is estimated at $50 million, with the majority coming from leasing up vacant space rather than solely from redevelopment [80] Question: How confident is the company in achieving the targeted occupancy rates? - Management expressed confidence based on improved market conditions and a strategic focus on asset management, expecting to see occupancy gains in the coming quarters [90][92] Question: What are the plans for capital allocation in the lease-up portfolio? - Management plans to invest $300 million over three years, focusing on ready-to-occupy suites and redevelopment opportunities to drive higher occupancy and rental rates [22][81] Question: How will the company manage the impact of asset dispositions on earnings? - Management acknowledged that while there may be some dilution from asset sales, they are implementing cost-cutting measures and focusing on revenue growth to offset this impact [99][105]