Healthcare Realty Trust Reit Inc (NYSE: HR) Q3 2025 Earnings Call dated Oct. 31, 2025
Corporate Participants:
Ronald Hubbard — Vice President of Investor Relations
Peter A. Scott — Chief Executive Officer & President
Robert E. Hull — Chief Operating Officer
Austen B. Helfrich — Chief Financial Officer
Ryan E. Crowley — Chief Investment Officer
Analysts:
Nicholas Yulico — Analyst
Richard Anderson — Analyst
Austin Wurschmidt — Analyst
Robin Haneland — Analyst
Seth Bergey — Analyst
Michael Carroll — Analyst
Michael Gorman — Analyst
Michael Mueller — Analyst
John Pawlowski — Analyst
Presentation:
Operator
Good morning and welcome to Healthcare Realty’s Third Quarter 2025 Earnings Conference Call. All participants are in a listen-only mode. After the speakers’ remarks, we will conduct a question and answer session. [Operator Instructions] As a reminder, this conference call is being recorded.
I would now like to turn the call over to Ron Hubbard, Vice President of Investor Relations. Thank you. Please go ahead, sir.
Ronald Hubbard — Vice President of Investor Relations
Thank you for joining us today for Healthcare Realty’s Third Quarter 2025 Earnings Conference Call. A reminder that except for the historical information contained within, the 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 September 30, 2025. The earnings press release and earnings supplemental information are available on the company’s website.
I’d now like to turn the call over to our President and CEO, Pete Scott.
Peter A. Scott — Chief Executive Officer & President
Thanks, Ron. Joining me on the call today are Rob Hull, our COO; and Austen Helfrich, our CFO. Also available for the Q&A portion of the call is Ryan Crowley, our CIO. I wanted to open with some important feedback on the strategic plan. During the course of the third quarter, we met with over 100 investors across trips to Chicago, New York City, Boston, and the Mid-Atlantic. With the dividend decision behind us, the tone of the meetings differed dramatically from earlier in the year. The excitement around our strategic plan is palpable and the value creation opportunity is significant. The challenge ahead of us is simple to exceed our three-year growth framework. To that end, we are assessing every possible opportunity to improve earnings and the hard work is already manifesting into better results. Over the last two quarters: same-store NOI growth has averaged 5.25%, same-store occupancy has increased 180 basis points, and net debt to EBITDA has been reduced by 0.5 a turn.
We are also becoming increasingly more positive on the tailwinds for Healthcare Realty. First, the secular trends in outpatient medical continue to improve with demand far exceeding supply. For the 17th straight quarter, occupancy increased across the Top 100 metros and is approaching 93%, an all-time record. Second, our new leasing pipeline continues to grow and stands at 1.1 million square feet. Two-thirds of our pipeline is in the LOI or lease documentation phase indicating a high probability of completion. Third, with our improved occupancy levels, we can push harder on lease economics. Our primary focus is no longer on volume, but on economic returns as we seek to maximize retention, escalators, and cash leasing spreads. Fourth, with our rapidly improving leverage profile, for the first time in years we have capital to invest accretively into our portfolio and we are quickly building up dry powder to go back on offense.
Fifth, with the progress we’ve made on our strategic dispositions, our portfolio is uniquely concentrated within the largest and fastest growing MSAs. When combined with our exceptional health system alignment, these key portfolio attributes should lead to superior operating performance in the quarters and years ahead. Turning to the third quarter. We delivered excellent results with contributions across the platform. With the financial rigor we are instilling in the organization, we are quickly shifting from a company that fell short of expectations to a company that is exceeding them. Normalized FFO was $0.41 per share. We raised both our FFO and same-store guidance and for the first time since early 2022, net debt to adjusted EBITDA is below 6 times. A special thanks to the entire Healthcare Realty team for their extraordinary efforts this quarter. We followed up a win in the second quarter with a win in the third quarter. That is not an easy thing to do and the team rose to the challenge.
Turning to the transaction market. As evidenced by recent activity, the transaction market for outpatient medical is heating up. A variety of factors are contributing to this, including improving sector fundamentals, a favorable lending market, and strong health system appetite to own strategic real estate. The combination of these favorable dynamics are driving cap rate compression. We are benefiting from these improving trends and we have reduced the midpoint of the expected cap rate on our dispositions by 25 basis points. We are nearing completion of our lofty disposition initiatives. Year-to-date we have sold $500 million of assets at a blended cap rate of 6.5%. Our remaining disposition pipeline totaling approximately $700 million is almost entirely under binding contract or LOI. By our next earnings call, we expect to have closed on the vast majority of our remaining dispositions.
With every completed transaction, our go-forward NOI growth profile improved as demonstrated by our strong same-store growth results this quarter. In addition, with the potential for excess balance sheet capacity by year-end, we are monitoring the transaction market for select external investment opportunities that are both strategic to our portfolio and accretive to earnings. We wanted to elaborate more on the cap rates achieved on dispositions. Two-thirds of our dispositions or approximately $800 million are what we would characterize as non-core assets. We define non-core assets as those located in non-priority markets with suboptimal operating performance and significant capital needs. Non-core assets also include a few legacy office properties. The blended cap rate for these assets is 7.25%. The other one-third of our dispositions or $400 million are what we would characterize as core disposition assets.
We define core disposition assets as those with good operating performance and high occupancy, but are located in markets where we have limited scale and/or an inability to achieve meaningful scale. The blended cap rate for this subset of assets is 5.75%. A good example of a core disposition is our sixth asset Richmond, Virginia portfolio, which we are under binding contract to sell with an expected mid-November closing. We received unsolicited interest in this portfolio and opted to run a full sales process to maximize value. Final pricing was $171 million or roughly $425 per square foot achieving a high 5% cap rate. Richmond is one of our few remaining markets where we utilize third-party property management and we did not see an opportunity to grow our market share. With an occupancy rate above 93%, average building age of nearly 30 years, and strong tenancy; we believe the cap rate on this portfolio is a good representation of the value embedded within our remaining stabilized portfolio.
Turning now to our development and redevelopment platform. We have two projects in our active development pipeline. The All Saints II project in Fort Worth, Texas that is anchored by Baylor Scott & White and our Macon Pond project in Raleigh, North Carolina that is anchored by UNC Rex Health. The All Saints II project is now 72% leased, up from 54% last quarter and we recently placed the project into service. The Macon Pond project is 51% pre-leased and we expect to place the project into service in mid-2026. Stabilized NOI from these two projects is expected to be approximately $8 million providing a source of near-term upside. We see significant opportunity to harvest meaningful upside in our portfolio through targeted ROI driven investments. During the third quarter, we added five assets into our redevelopment portfolio with a total budget of approximately $60 million.
These assets are in strong submarkets and include Nashville, Seattle, Denver, Charlotte, and Dallas. The incremental NOI from these five projects is also expected to be nearly $8 million. In the coming quarters, we expect to have more assets enter the redevelopment pool as we seek to accelerate our capital spend and potential earnings upside. You will note that we enhanced our development and redevelopment disclosures in the supplemental. We have also included a table of our current non-income-producing land parcels. We own strategic land parcels in key markets such as Denver, White Plains, Atlanta, Nashville, and Austin with annual carry costs of approximately $1.5 million. We are in the process of assessing each parcel to determine if it makes sense to continue to hold or monetize.
In finishing, we are incredibly excited about the future at Healthcare Realty 2.0. Our operating performance is steadily improving. Our transition to an operations oriented culture is happening faster than anticipated. Our balance sheet initiatives are nearly complete. We are accelerating capital spend into our existing portfolio and we are rebuilding much-needed credibility with the investor community. On my first earnings call, I said we have one overarching objective, to be the first choice for equity investors when they are seeking exposure to outpatient medical. As the only pure-play outpatient medical REIT, our undivided attention allows us to singularly focus on this objective every day.
Let me turn the call over to Rob, who will expand more on operations and leasing.
Robert E. Hull — Chief Operating Officer
Thanks, Pete. We had an exceptional quarter on the operations front. Leasing activity was strong with 1.6 million square feet of executed leases, including over 441,000 square feet of new leases. Tenant retention increased to nearly 89%, the highest in six years and our sixth consecutive quarter over 80% and annual escalators of 3.1% improved the average across our total portfolio. Our activity this quarter contained several notable deals with some of our top health system partners. As examples: a 21,000 square foot lease was signed with Baptist Memorial in Memphis, an 18,000 square foot lease was executed with Baylor Scott & White at our on-campus development in Fort Worth, and a 25,000 square foot renewal was completed with MultiCare at our building on the Overlake Hospital campus in Seattle. The backdrop for industry fundamentals remains strong supporting further growth in our 1.1 million square foot lease pipeline.
This quarter, demand in the Top 100 MSAs outstripped supply by over 740,000 square feet and completions as a percentage of inventory remain near all-time lows. Health systems remain on solid footing and continue to rely on outpatient facilities as a key component to reduce operating costs and expand market share. Throughout this year, health system activity as a percentage of our total leasing has continued to climb. This quarter we saw health system leasing comprise nearly 50% of our total activity, up almost 20% from the low point in 2023. Turning to our same-store portfolio. Occupancy improved by 44 basis points sequentially ending the quarter at 91.1%. For the year, we have gained 77 basis points of occupancy placing us inside the range of our full year expectations of 75 basis points to 125 basis points. We expect our absorption momentum to continue in the fourth quarter.
Shifting to the operating platform. We have made considerable progress migrating to an asset management model. Recently we hired two additional asset managers and we expect to fill the last couple of positions within this new platform in the coming months. Full conversion is targeted for the end of the year providing greater accountability closer to the real estate. A key area of focus for the new asset management team will be the portion of our portfolio deemed lease-up in our strategic plan. This quarter we saw notable leasing activity from this segment of our portfolio. Out of the 441,000 square feet of new leases that I mentioned earlier, 217,000 square feet or nearly 50% came from these properties. I want to congratulate our team on the leasing and absorption gains we made this quarter. With a robust leasing pipeline, strong tenant retention, and tightening supply; our portfolio is poised to see further leasing momentum and NOI growth throughout the remainder of the year and into 2026.
I will now turn it over to Austen to discuss financial results.
Austen B. Helfrich — Chief Financial Officer
Thanks, Rob. This morning, I’ll provide an overview of our third quarter 2025 results, our capital allocation activity, and our updated 2025 guidance. Our strong year-to-date momentum carried into the third quarter with normalized FFO per share up 5% year-over-year to $0.41 and same-store cash NOI growth of 5.4%. Additionally, second quarter FAD per share was $0.33 resulting in a quarterly payout ratio of 73%. Our outperformance this quarter was broad-based, including 90 basis points of year-over-year occupancy gains, 3.9% cash leasing spreads, and strong expense control. We are at or above the high end of all of our core operational expectations for the year driven by our focus on pushing accountability and decision-making closer to the real estate as well as a natural uplift from the sale of the disposition assets.
We moved rapidly in the second quarter to reduce expenses across the organization. This progress showed in the third quarter with normalized G&A of $9.7 million. While we are still building out key teams, we have a clear line of sight on our target of $45 million of G&A in 2026 and are well on our way to completing the build-out of our best-in-class platform. Proceeds from disposition activity during the third quarter and through October funded the repayment of approximately $225 million of our 2027 term loans decreasing our leverage to 5.8 times. Inclusive of our bond repayment earlier this year, we have paid down approximately $500 million of notes and term loans in 2025. The revolver in 2027 term loans will continue to be the use of proceeds for near-term dispositions as our leverage continues to move into the mid-5s.
Now turning to our updated 2025 guidance. We are increasing the midpoint of our FFO per share guidance by $0.01 to a new range of $1.59 to $1.61. Additionally, we now see same-store cash NOI growth of 4% to 4.75% and G&A of $46 million to $49 million. Before we turn to Q&A, I want to note that this quarter we received Board authorization for a $1 billion ATM equity program and up to $500 million in share buybacks. The prospectus for the equity program will be filed in the fourth quarter. Our existing share repurchase authorization expired this quarter and this new authorization is part of our normal course business. It’s good practice to have both programs approved and available should we need them.
Operator, we’re now ready to move to the Q&A portion of the call.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from Nick Yulico from Scotiabank. Please go ahead, your line is open.
Nicholas Yulico
Thanks. I guess — good morning. First question is just in terms of as you think about like the NOI impact on the whole portfolio over the next several quarters, it’s a little bit easier to model the asset sales, but can you talk some more about the redevelopment? You talked about more assets entering that pool. Presumably, there’s some earnings drag from that, but then you also have occupancy sort of picking up in the rest of your pool. So just any sort of high level thoughts about how to think about that impact over the next couple of quarters. Thanks.
Peter A. Scott
Yes. Nick, it’s Pete here. So I think from the stabilized portfolio perspective, as we’ve talked about and as we laid out in our strategic deck, we think a good stabilized year-over-year growth rate is probably more like 3% to 4%. And if fundamentals continue to improve, we’ll continue to assess if you can even do better than that. But I think we’ve laid out 3% to 4%. I think on the incremental $50 million of upside to NOI over the next three-plus years, we did forecast probably $20 million to $40 million was the range over the next three years since the capital spend does take time to go out the door and ultimately the NOI you achieve from those redevelopments takes a couple of years to earn in.
So we have laid out a revamped table in our supplemental and we’re open to any feedback from people on any additional information to include in there to help from a modeling perspective. And I think as you think about the $50 million of NOI, probably half of that is coming from redevelopments and we added five assets in this quarter. I would expect to add probably another 5 to 10 over the next couple of quarters. One of the things I’ve challenged the team here to do is to identify those assets sooner rather than later so we can start to work towards the higher end of that incremental NOI upside and that’s why you saw a lot more come into the pool this quarter and you’ll see more come in in the next couple of quarters as well. And we’ll continue to provide information for everybody to track.
The other kind of $25 million of the $50 million of upside is going to come from the lease-up portfolio that is not redevelopment. A lot of those are in same store and I think that’s one of the reasons why you’re able to see some better than 3% to 4% NOI growth numbers that are coming out today as we’re beginning the lease-up and the absorption in those assets. I could see that continuing for another year or two as well as we selectively invest capital into suites and not do redevelopments there, but targeted specific suite by suite capital investment. So that’s the way we’re thinking about it. I know there was a lot to unpack within that, but I wanted to give the two big buckets within the $50 million of incremental NOI over the next couple of years.
Nicholas Yulico
Okay. Great. Thanks. And then the second question is just in terms of the health system share of leasing picking up this quarter. Is that — was that also just like skewed by renewals for those health systems in the quarter versus prior quarters or are you having you think more success in terms of actually capturing a higher health system share in your new leasing, which I know has been a focus for you guys? Thanks.
Peter A. Scott
Yes. Maybe I’ll let Rob handle that one.
Robert E. Hull
Yes. Nick, yes, I think that the volume that I talked about was total leasing. And certainly we’ve seen a pickup this year, it’s sort of been a gradual trend upwards this year and really going all the way back to ’23, as I mentioned, that low point in ’23. And so it’s what we’ve continued to experience in terms of the continuing trend from moving services out of the hospital into the outpatient setting, which is certainly a tailwind for us. But then I think it also is continuing to improve tenant relations with our health systems and the effort that we’ve been doing over the past couple of years, you’re really seeing that pay off for us. So it’s a combination of health systems are continuing to grow and to grow their market share, but then I think also just better tenant relations and continuing to work the relationships we have.
Peter A. Scott
Yes. And Nick, on the revamped asset management platform, I think this is one of the really big benefits of it is the asset managers are really going to be point on the health system relationships and with the local teams out in their various markets and dialog from our company to them has picked up pretty significantly over the last couple of quarters and I expect that to continue to pick up going forward.
Nicholas Yulico
All right. Thanks, guys.
Operator
Our next question comes from Richard Anderson from Cantor Fitzgerald. Please go ahead, your line is open.
Richard Anderson
Hey, thanks. Good morning. So you lowered your cap rate assumption for dispositions by 25 basis points to 6.75%. You’ve been able to achieve 6.5% year to date. I’m wondering if that’s conservatism or if you think more, well, I guess you did say more of the remaining is coming out of the non-core bucket. Is that right? We would expect that the cap rate number for the remaining disposition to be higher for that reason. Do I have that logically correct?
Peter A. Scott
Yes. Obviously we’ve been pleased with the execution so far and year-to-date we’re at 6.5%, Our expectation is some of the assets that are taking longer to get done and it shouldn’t be a surprise or those with value-add components associated with them. Good assets just maybe in different markets or markets we’re not going to be concentrated in going forward. So I’d say the balance of what is remaining to close is probably skewed more to the value-add component and, like I said, there’s also some legacy office assets as well that we’re looking to shed. So I would not look into anything other than it’s just the mix of the assets remaining is probably a little bit higher from an unlevered IRR perspective as the way the buyers are looking at it.
Richard Anderson
Okay. And then there’s a lot going on in medical office these days largely in terms of dispositions. You, Welltower, DOC are all in the market to sell total about $9 billion or $10 billion at least just from those three companies. What does that tell you in terms of the appetite? I mean does it give you any pause to see that level of selling when this is your business and if not — I assume you’re going to say no and if not, tell me why?
Peter A. Scott
I think what it’s showing is that there’s a very, very strong bid for outpatient medical in the private markets right now. It’s probably the best way to characterize it. Our focus on dispositions is really to create the best portfolio going forward from an NOI growth perspective and our balance sheet was overlevered and that dates back multiple years. And we need to get our balance sheet leverage metrics to a more appropriate level and they’re almost there at this point in time. So our intent is to complete the dispositions that we are working on right now. We’re pretty darn close to that. It’s a pretty lofty goal to get all that done this year or really before our next earnings call.
But we’re really happy with the strong bid for the asset class. I think it shows that investors see a lot of value in it and we look forward to continuing to generate pretty strong returns on the portfolio that we’re keeping and going forward. We’d like to be switching to going more on offense as opposed to going on or really playing more of a defensive game at the moment and I think that’s going to come pretty soon. We’re going to have balance sheet capacity to be able to shift to go on offense as well. So I look at it and say great, there’s a lot of product on the market and maybe there’s opportunities for us in joint ventures or even on balance sheet to start to take advantage of that.
Richard Anderson
I guess the thing that I concern myself with is like the one thing that we’ve been waiting to happen is to extract some of the medical office ownership by the systems and get at stuff that’s sort of tied up there. Is a lot of this sale activity going back to the health systems and hence so you’re kind of going backwards in time in terms of the ownership structure of medical office. I’m just wondering I guess the buyer pool and what the long-term ramifications are of it.
Peter A. Scott
Health systems have certainly picked up their purchasing and we’ve noted that we’ve actually generated some pretty strong cap rates. I’d say the health system deals tend to be on the lower end of the cap rate range of what we’ve been quoting. So I think that’s great. We can take advantage of that to the extent that we need to, but the majority of what you just quoted, the $8 billion to $10 billion is not going to health systems. I mean health systems have ROFRs and some of it will end up in their hands because they want to control the strategic real estate on their campuses. But most of that $8 billion to $10 billion that you just mentioned is going to non-health system buyers.
Richard Anderson
Okay. Great. Thanks, Pete. Thanks, everyone.
Operator
Our next question comes from Austin Wurschmidt from KeyBanc Capital Markets. Please go ahead, your line is open.
Austin Wurschmidt
Hey, good morning, everybody. Pete, just going back to the plans to add additional assets to the redevelopment pool in the coming quarters, I’m just wondering are these currently occupied assets that there could be an initial move out before you add that into the pool. It looked like there was a move out in that bucket this quarter or are these just normal course assets that are in that lease-up bucket that needs a little bit of capital in order to achieve the returns that you’re focused on?
Peter A. Scott
Yes. I would say that most of it is current vacancy and we see an opportunity to invest capital or it’s perhaps there’s near-term role coming up and we see an opportunity with some investment to get the anchor health system to extend on a long-term lease and at a pretty healthy mark-to-market. That’s the majority of it. Every now and again you will have a vacate although if you look, our retention numbers are pretty darn high. So I’d say this is in the minority where you have a tenant vacate and you say what do we want to do with the asset? It may require some pretty significant capital investment to reposition it to get the appropriate increase in rates within that market. But I’d say that happens probably less frequently than it is for us today current vacancy or an opportunity to invest some capital and also get a pretty nice markup on the existing rent roll roster.
Austin Wurschmidt
That’s helpful. And then Peter or Austen, I mean Pete, you had referenced kind of looking forward to pivoting and potentially moving on offense and then Austen kind of flagged that you put in place the ATM as a capital allocation tool and a source. I mean is that something that we should expect in the near term from you guys to start to lean into that a little bit? And given the fact that the transaction market is heating up and there are opportunities out there that maybe you could mine through it and find something that kind of fits with the profile that you’re looking for today and sort of the Healthcare Realty 2.0?
Peter A. Scott
Yes. I would say I think as a matter of course, it makes sense to just always have an active ATM in place. We’re not intending to use it based upon where our stock is trading today. We do have some balance sheet capacity that we are building though through delevering below our target leverage levels. And as we think about going on offense, it’s not huge numbers as a result of the fact that we are constrained. We’re not going to issue equity at today’s levels, but we certainly could look to grow some of our joint ventures and we are talking to our joint venture partners actively on that. And then we could look to do some selective smaller deals, tuck-in acquisitions in core markets or on core campuses, but that’s the way we’re thinking about it right now. And I don’t want anyone to come off this call and think oh, they’re putting an ATM in place, they’re going to start issuing equity again. I just think it’s important to have it up and running. It hasn’t been up and running for years so that’s really why I had Austen say what he said in the prepared remarks was to just tell people it’s coming, but I wouldn’t read anything into it.
Austin Wurschmidt
Yeah, that’s a helpful clarification. Thanks for the time.
Operator
Our next question comes from Juan Sanabria from BMO Capital Markets. Please go ahead, your line is open.
Robin Haneland
Hey, this is Robin sitting in for Juan. On the $700 million of dispositions under contract, just curious if any of them are in the same-store pool, if anything, any of them are targeted for a JV and what pricing you’re expecting?
Peter A. Scott
Yes. None of them are targeted for joint ventures so they’re all going to get sold 100%. And then are any in the same-store pool? I would say at this point in time, no, given how far along we are and the probability of those closing — not the high degree of probability of them closing. They’re all in held for sale at this point in time and that was the big move where you saw, I don’t know, 40-plus assets go from the operating portfolio into held for sale this quarter.
Robin Haneland
And so on the recent dispositions, there wasn’t any impact to the same-store NOI increase as they were not part of the same-store pool and on the recent dispositions either.
Austen B. Helfrich
Hey, good morning, it’s Austen. If you look at the increase in same-store NOI guidance for the year, I’d say the vast majority of that is being driven by, especially looking at the third quarter, 4% same-store revenue growth, 90 basis points of year-over-year occupancy gains, and sub-2% property operating expenses. I would say the core portfolio, the stabilized portfolio continues to perform extremely well. And even including the assets moving into held for sale, we still would have been at the top end of our revised guidance range for same-store growth. That being said, there is, as I mentioned in my prepared remarks, a little bit of an uplift just given the disposition portfolio as we showed in the strategic deck does grow slower than the core stabilized portfolio.
Robin Haneland
Thank you. And shifting to the external growth opportunity. Could you maybe level set the expectations with us when you earlier see a possibility to go on offense?
Peter A. Scott
Well, I think just from a balance sheet capacity perspective, we said we wanted to be kind of in the mid- to high 5 times net debt to EBITDA. We’re at 5.8 times. We’d like it to come down a little bit from here. But when you factor in $700 million more of sales still yet to go and some debt repayment there. We will go likely less than 5.5 times net debt to EBITDA. So it’s probably anywhere from $150 million to $300 million of capital we can put out without taking our leverage levels beyond what our targets are. So we’re building up a little bit of dry powder and that doesn’t give us any benefit for EBITDA growth in future years and so on and so forth. It’s just the immediate amount of capital. So there’s some tuck-in acquisitions we could do and they would be accretive since we’d be financing that with 100% leverage.
Robin Haneland
And then lastly for me, if I may. On the margin improvement timeline, you outlined in the recent deck the 65%, 66%. Can you maybe just elaborate a little bit on that on timing?
Peter A. Scott
Yes. I think I’ll talk both about occupancy and I’ll talk about margins. We did lay out a three-year growth framework and we did lay out the pieces to that. I think selling some of these we call higher IRR value-add assets, you get an immediate benefit from that and you’re seeing that right now with our same-store occupancy at a little bit better than 91% and our total occupancy in the very high 80s, I think it’s 88%, 89%, it’s probably 89% plus at this point in time. And our margins are in that 64% to 65% area last quarter and this quarter. So it’s probably over multiple years that we would see that stabilized occupancy and margin levels, but we’re working our way towards that. pretty darn fast. And the more and more absorption we get, the better the leasing environment, the quicker we can get there. But I think this quarter was a very good example as to how fast we could get there through sales and then going forward, it’s really going to come through organic leasing as well as expense controls.
Robin Haneland
Thank you.
Operator
Our next question comes from Seth Bergey from Citi. Please go ahead, your line is open.
Seth Bergey
Hi. Thanks for taking my question. I just wondered if you could start off by maybe commenting, this has been talked about a little bit, but just overall changes to the buyer pool depth, the buyer pool since you kind of started the dispositions?
Peter A. Scott
Yes. Maybe I’ll have Ryan Crowley jump in on that.
Ryan E. Crowley
Hi Seth. I would say buyers have always been there. We’ve been selling — we sold material assets in ’24 and more so this year. The buyer demand and the buyer appetites remain strong all along. The biggest change has been the steady end market improvement in the lending environment. Bank liquidity is way up in our space. Today, bank originated loan rates are dipping into the high 4s and so that’s really fueling that buyer appetite. The buyer appetite is being led by primarily private institutional capital and, as Pete referenced earlier, the health systems. Health system percentage of MOB acquisitions this year is about as high as it’s been in recent memory. But for the full year for us on the $1 billion or so of dispositions, our mix — our buyer mix will be roughly half and half private buyers and health systems.
Seth Bergey
And then, I guess, just a second one, with the $700 million kind of under contract, do you think — is that just kind of like a timing issue of some of those closing kind of into next year in terms of why the disposition guide remain unchanged?
Peter A. Scott
Some of them may close in early January, but there’s not much more to read into it than that.
Ryan E. Crowley
I’ll just add it’s a high number of transactions. Year-to-date the 35 properties we’ve sold have been 24 different discrete transactions. We have over a dozen remaining so it’s just — it’s not one or two large transactions that dictate the timing. It’s the number.
Seth Bergey
Great. Thanks.
Operator
Our next question comes from Michael Carroll from RBC Capital Markets. Please go ahead, your line is open.
Michael Carroll
Yeah, thanks. Pete, I wanted to circle back on your comments on HR can be more offensive or a little bit more offensive in this market. I mean how difficult is it to find these strategic investments just given the strong private bid? I mean is there options or opportunities where HR has specific relationships that they can lever to get these deals? I guess can you talk a little bit about that?
Peter A. Scott
Sure. Why don’t you jump in on this, Ryan, and then I’ll touch on it on the end.
Ryan E. Crowley
Sure, Michael. I mean our reputation in the acquisitions market has historically been that of a sharpshooter. During our growth in years past, we bought assets typically one at a time and primarily frankly in relationship-driven off-market transactions that would be a majority of the deals we had historically done. Today, we have an active inventory of what we call Tier 1 acquisition targets that we’ve already identified in our Top 20 priority markets with the systems we want to align with and specifically on the top performing hospital campuses where we’ve already done the analysis. We’ve catalogued over 400 Tier 1 acquisitions that our team tries to sharp-shoot via these direct relationships that we have with owners, brokers, and key relationships and health systems in these markets. What does that represent? Probably 20 million square feet, over $8 billion of volume — of value and our team actively pursues that. The only other thing I’ll add is as cap rates have steadily declined from the beginning of the year, we have definitely noticed over the recent months an uptick in the number of assets and the quality of assets coming to market. So there is more opportunity out there today.
Peter A. Scott
Yes. Mike, I just want to jump in for a second on this. I’m glad we’re obviously talking about going on offense just a little bit. But our focus is first and foremost on our three-year growth framework and generating organic growth and reinvesting capital into our real estate. When we talk about going on offense. This is some modest balance sheet capacity that we have and if we can find ways to put that capital to work to generate some nice accretion primarily in joint ventures where we get an enhanced yield, that’s stuff that we will look at. But to the extent that it’s not additive to what we’ve laid out in our strategic plan, we certainly can remain underlevered. So I just want to be a little bit careful when everyone hears the term offense that all of a sudden we’re disregarding our strategic plan and just looking at a bunch of acquisitions. I mean there’s just some tuck-in things that we would like to do if the math pencils, but we do not need to do those. And our focus is primarily first and foremost on the strategic plan and the three-year growth framework that we laid out.
Michael Carroll
That’s helpful. And now I guess, Pete, you also made a comment earlier in the call in the prepared remarks that given where occupancy is that you can be a little bit more aggressive pushing price? I mean can you provide some color on what that means? Are you going to try to push it on spreads, annual bumps and is this kind of something newer that you can do just given that the market is getting tighter over the past few quarters?
Peter A. Scott
Yes. As we think about maximizing lease economics, we have implemented a payback period model as well as an IRR model over the last couple of quarters. So it’s just trying to get the absolute best possible economic returns with all the leases that we end up signing. I think where we’re seeing success today is certainly on the escalator front. We’re also seeing higher retention since there’s just a lot less supply out there. And I think the last piece is you think about the rent mark-to-market opportunity, which I think is helpful to get and we’ve been able to achieve kind of the low single digits. If occupancy continues to increase, then there’s an opportunity to continue to move more and more, push harder and harder on that. But I think most importantly, it’s the high retention as well as getting the strong escalators because high retention you have no downtime and you have no capital really that you have to invest. There’s limited capital you have to invest on renewals relative to new leasing. So that’s the way we’re thinking about it.
Michael Carroll
Okay. Great. Thank you.
Operator
Our next question comes from Michael Gorman from BTIG. Please go ahead, your line is open.
Michael Gorman
Yeah. Thanks. Good morning, Austen, maybe you could just spend a minute, you talked a lot about balance sheet strategy and proactivity. The unsecured market has been pretty strong in the REIT space of late. Can you just talk about how you’re thinking about access to that market into the end of the year and strategy around kind of the ’26 maturities?
Austen B. Helfrich
Good morning, Michael. It’s a great question. We have $600 million of a bond maturing in August of next year. So I would say first and foremost, we do have a lot of time. But to add to that, your point is not lost on us that especially since we put out the strategic plan, rates up until maybe two days ago had moved slightly in our favor and you are seeing spreads at or near all-time lows. So it’s certainly something that we’re paying close attention to. We’ll be opportunistic I think given the amount of time that we have until the bond refinancing, but certainly could look at doing something if the opportunity — an attractive opportunity presented itself.
Michael Gorman
That’s helpful. Thanks. And then maybe just switching to the portfolio side. For the 2026 lease maturities, can you just talk a little bit about how those back up compared to some of the escalators that you’ve been able to achieve in the third quarter? And maybe how the ’26 expirations look relative to that just to give us a sense for the potential opportunity there.
Robert E. Hull
Yes. I think if you look out at ’26, I mean we’ve got a good number of renewals coming up and the escalators on the total portfolio right now I think are in the — averaging in the high 2%s. I mentioned in my remarks that we’ve been achieving 3.1% on average across all of the renewals and new leases. In our new leases, we’ve even achieved a little bit higher than that. So I think as we look out at ’26, we see an opportunity to kind of move that up over 3%. We’ve been consistently getting greater than 3% escalators. And as supply tightens and the portfolio improves through asset sales, we see an opportunity to move that even potentially higher. So certainly looking at improving on the average that we have and achieved this quarter as we look to next year trying to move that up into the mid-3%s.
Michael Gorman
Great. Thanks for the time, guys.
Operator
Our next question comes from Mike Mueller from JPMorgan. Please go ahead, your line is open.
Michael Mueller
Yeah, hi. Just how are you thinking about what’s the right level of development, redevelopment to have underway at any given time? I know pre-leasing levels come into it, but just a little more color on how you’re thinking about that would be great.
Peter A. Scott
Yes. Obviously on the development side, those developments are legacy developments that have been ongoing for a while. I would not expect us to commence a new development unless we do have that land bank unless it was a very, very heavily pre-leased attractive yield to us. And I would say there’s nothing imminent on the horizon on that. From a redevelopment perspective, it’s going to be a little bit higher initially just because we’re going to be reinvesting capital, first and foremost, into our portfolio. And by the way, we see a pretty darn good yield from that as well. You would calculate something in the 9% to 12% cash on cash yield with the IRRs being even higher than that. So it’s a really good way to invest capital. I think that bucket will have some assets cycle out, some assets cycle in. There have been some assets in redevelopment for a while that are near completion at this point in time. But I could see having 25-ish or so assets in that bucket and I would say on average, it’s $10 million to $15 million of redevelopment spend across each project. So you can do the math on that, but I think that’s probably a comfortable level for us going forward and we obviously have the free cash flow opportunity to do that as well with our payout ratio being in the low 70s right now.
Michael Mueller
Got it. And one other question. Once you’re through the $700 million of asset sales that are under contract letter of intent, should we be thinking of any additional dispositions on a go-forward basis or just something nominal and opportunistic as well?
Peter A. Scott
I think it would just be nominal and opportunistic, Mike. There would not be like a large program, but perhaps there could be some pruning on an annual basis every year, but that would be just very nominal stuff and done opportunistically.
Michael Mueller
Great. Okay. Thank you.
Peter A. Scott
Thanks, Mike.
Operator
Our last question comes from John Pawlowski from Green Street. Please go ahead, your line is open.
John Pawlowski
Hey, thanks for the time. Just 2 questions for me on the restructuring. I believe there’s $12 million of restructuring cost this quarter, $22 million-ish in the last two quarters. Can you just give us a sense of the total restructuring costs expected? And just in general, Pete, like I know you guys are moving fast, but what kind of inning are we in in terms of your organizational restructuring of HR?
Peter A. Scott
Yes. I think we’re in the later innings on that. But if you think about the organizational restructuring charges, but you also factor in that we had $2 million to $3 million less of G&A this quarter, right? It’s working its way into less G&A, a smaller cost structure. So I would say we’ve made really good progress. Are we done? We’re getting closer to that level, but we’re certainly in the later innings.
John Pawlowski
Okay. And then last one for me. I know you guys highlighted in your strategic review document a little bit of a drag from 100,000 square foot single-tenant lease expiration in ’27. Has there been any other additional single tenant vacates that we should expect in ’26 and then you have a lot of lease rolling in the single-tenant portfolio in ’27. So any other vacates that popped up in recent months that we should be aware of?
Peter A. Scott
Yes. I’d say nothing material. Obviously we highlighted the ’27 on in the strategic deck and that really is the large lease roll in 2027. That tenant occupies two buildings. We are having conversations with them on extending in the entire other building that they are in. So I’d say we’re making good progress on that. But to your question is there anything additional that’s popped up? No, there is not.
John Pawlowski
Okay. Thanks for the time.
Operator
We have no further questions. I’d like to turn the call back over to Mr. Pete Scott for any closing remarks.
Peter A. Scott
Great. Thanks, everyone, for joining us here. Like I said, we’re very excited about the direction that we’re headed in in HR 2.0 and proud of the quarter we put up and look forward to continuing to talk to you over the coming months as we finish out the year. Thanks very much.
Operator
[Operator Closing Remarks]