Healthcare Realty Trust (NYSE:HR) reported third-quarter results marked by higher occupancy, leasing spreads and same-store net operating income growth, while raising its full-year outlook for the third time in 2026.
President and CEO Pete Scott said higher interest rates have pressured real estate stock prices but have not weakened the company’s operating fundamentals. Healthcare Realty reported normalized funds from operations, or FFO, of $0.42 per share, same-store cash NOI growth of 5.1%, and same-store occupancy of 93.1%.
The company signed approximately 1.5 million square feet of new and renewal leases during the quarter, including 430,000 square feet of new leases. Cash leasing spreads reached 8.6%, which Chief Operating Officer Rob Hull said was the company’s highest level in nearly a decade. Retention was 88% during the quarter, while the company’s redevelopment portfolio reached 72% leased, up from 67% in the prior quarter.
Leasing Momentum and Outpatient Demand
Hull said more than 480,000 square feet of signed-but-not-occupied leases at quarter-end provide a path for additional occupancy gains in the fourth quarter and into 2027. The company’s new and renewal leasing pipeline exceeded 3 million square feet, with health systems accounting for roughly half of that opportunity.
Health systems represented more than 600,000 square feet of quarterly leasing. Notable activity included Ascension Saint Thomas, which signed 18,000 square feet of new leases and renewed 185,000 square feet for 10 years in Nashville. Healthcare Realty also plans a $35 million redevelopment of three properties on the Ascension Saint Thomas West Campus, alongside the health system’s $120 million investment in the campus.
Other health-system leasing during the quarter included transactions with Cedars-Sinai in Los Angeles, Trinity Health in Columbus, Ohio, and Indiana University Health in Indianapolis.
Scott said medical office demand continues to benefit from an aging population, the migration of care to outpatient settings, and limited new construction. He pointed to a growing number of procedures leaving inpatient-only settings and cited recent outpatient-focused transactions involving health systems, including Ascension Saint Thomas’ acquisition of AMSURG and Bon Secours’ announced plan to acquire Surgery Partners.
Management said it is emphasizing lease economics rather than leasing volume. Scott said the company’s revised leasing approach has improved lease internal rates of return by nearly 3,000 basis points and reduced payback periods by 25%. The company has sought to limit tenant-improvement spending, although redevelopment projects can carry higher capital requirements because of prior underinvestment in those assets.
Capital Allocation, Buybacks and Joint Ventures
Healthcare Realty repurchased $75 million of stock during the quarter and through October at an average price of roughly $17.75 per share, bringing year-to-date repurchases to $250 million. Chief Financial Officer Dan Gabbay said the September and October repurchases represented an accretive FFO yield above 9%.
The repurchases were funded in part by previously announced asset sales, including the $36 million sale of Kennestone Cancer Center and the company’s near-complete exit from the Chicago market. Healthcare Realty has monetized more than $200 million of assets year to date, with more than $100 million under contract or subject to letters of intent. The company expects its average disposition yield for the year to be in the mid-5% range.
The company also continued to invest through joint ventures. It has acquired eight medical office buildings and has one additional property under contract, representing $338 million in total investment and $67 million at Healthcare Realty’s share. Scott said these investments carry a mid-7% initial cash yield to the company before additional platform benefits.
Management said it will continue to balance stock repurchases and joint-venture acquisitions based on relative value. Scott said the company may use additional strategic asset sales to fund capital allocation opportunities if its shares continue to trade at what management views as a significant discount to net asset value.
Healthcare Realty ended the quarter with leverage of 5.5 times, slightly lower than the prior period and in line with its mid-5-times target. Gabbay said the company had more than $1.2 billion of liquidity available on its credit line after commercial paper balances, as well as a $400 million delayed-draw term loan that backstops its July 2027 bond maturity.
Raised Full-Year Outlook
Healthcare Realty increased its full-year normalized FFO guidance to a range of $1.65 to $1.67 per share, raising the midpoint by $0.02 to $1.66. It also raised projected same-store cash NOI growth to 5% to 5.25%.
Gabbay attributed the higher outlook to leasing performance and portfolio-wide mid-single-digit cash leasing spreads. The company increased projected sources and uses of capital by $85 million to reflect incremental share repurchases and joint-venture acquisitions, while raising disposition guidance by the same amount.
Scott said the company expects cash leasing spreads to remain around 5% or better over time, while noting that the third-quarter 8.6% result benefited from leasing associated with the Ascension Saint Thomas West Campus. Excluding that activity, he said quarterly spreads still exceeded 6%.
Management expects occupancy to continue improving as signed leases commence. Scott said the company’s signed-not-occupied pipeline could bring same-store occupancy closer to 94%, while total portfolio occupancy, currently trending near 91%, remains another earnings-growth focus over the next one to two years.
On transaction conditions, Scott said core medical office cap rates remained in the 5.5% to 6% range, while core-plus transactions were in the 6% to 6.5% range. He said demand from private buyers remained deep, particularly for higher-quality assets, even as higher rates may have a greater effect on weaker, more leverage-dependent properties.
About Healthcare Realty Trust (NYSE:HR)
Healthcare Realty Trust Incorporated (NYSE: HR) is a real estate investment trust focused on owning, managing, acquiring and developing outpatient healthcare properties. Its portfolio primarily includes medical office buildings, ambulatory surgery centers, outpatient facilities and other properties used by healthcare providers.
The company leases space to health systems, physician groups and other healthcare organizations, with properties generally located on or near hospital campuses and in growing outpatient care settings.
