Participants

James Christopher Douglas; Executive VP & CFO; Healthcare Realty Trust Incorporated

Robert E. Hull; EVP of Investments; Healthcare Realty Trust Incorporated

Ronald M. Hubbard; VP of IR; Healthcare Realty Trust Incorporated

Todd J. Meredith; President, CEO & Director; Healthcare Realty Trust Incorporated

Austin Todd Wurschmidt; VP; KeyBanc Capital Markets Inc., Research Division

John Joseph Pawlowski; MD of Residential and Health Care; Green Street Advisors, LLC, Research Division

Juan Carlos Sanabria; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research

Michael Anderson Griffin; Research Analyst; Citigroup Inc., Research Division

Nicholas Philip Yulico; Analyst; Scotiabank Global Banking and Markets, Research Division

Nikita Vyacheslav Bely; Analyst; JPMorgan Chase & Co, Research Division

Richard Charles Anderson; MD; Wedbush Securities Inc., Research Division

Presentation

Operator

Thank you for joining us today for Healthcare Realty's First Quarter -- hello and welcome to the Healthcare Realty First Quarter Earnings Conference Call. My name is Elliott, and I'll be coordinating your call today. (Operator Instructions)
I'd now like to hand over to Ron Hubbard, the floor is yours. Please go ahead.

Ronald M. Hubbard

Thank you for joining us today for Healthcare Realty's First Quarter 2024 Earnings Conference Call. Joining me on the call today are Todd Meredith, Kris Douglas and Rob Hull.
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 risks are more specifically discussed in the company's Form 10-K filed with the SEC for the year ended December 31, 2023. 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.
The matters discussed in this call may also contain certain non-GAAP financial measures such as funds from operations or FFO, normalized FFO, FFO per share, normalized FFO per share, funds available for distribution or FAD, net operating income NOI, EBITDA and adjusted EBITDA. 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 March 31, 2024. The company's earnings press release, supplemental information and Form 10-K are available on the company's website.
I'll now turn the call over to Todd.

Todd J. Meredith

Thank you, Ron. Healthcare Realty is pleased to report strong first quarter results. FFO per share was at the top half of our expected range as were most of our key operating metrics. Solid NOI growth was driven by robust cash leasing spreads, improved tenant retention, positive multi-tenant absorption and tight operating expense controls.
Most importantly, we're focused on 2 top priorities: capital allocation and operational momentum. First, our top near-term priority is accretive capital allocation. Our express goal is to accelerate FFO growth and improve dividend coverage as quickly as possible. More specifically, we intend to use proceeds from JVs and asset sales to repurchase stock on a leverage-neutral basis as long as the company trades at a substantial discount to NAV.
As a major first step, yesterday, we announced a strategic relationship with KKR that is expected to generate proceeds of $300 million within the next 60 days. And there is more KKR capital behind this initial JV seed portfolio, which I'll cover in more detail later.
We also expect another $300 million of proceeds in the next 90 days from separate transactions. And in April, we repurchased $42 million of stock at very accretive levels. The average price represents an 8% implied cap rate, which compares favorably to expected JV and asset sale cap rates in the 6.5% to 6.75% range.
Our second priority is operational momentum. This is primarily about increasing multi-tenant occupancy. Occupancy gains in the first quarter were on track with expectations that we communicated in our multi-tenant bridge. New leasing volumes remain elevated, and we expect absorption to gain momentum in the second quarter and into the second half of 2024.
Many of you will recall, we initially published our bridge 2 quarters ago. We expected absorption to increase by 150 to 200 basis points over 5 quarters, through the end of '24. Two quarters in, we have generated 70 basis points of absorption, which is exactly on track with our plan. I'm particularly pleased with the diligent effort and focus of our leasing and operations teams. Our leasing team has produced new leasing volume of more than 400,000 square feet in each of the last 3 quarters. This quarterly pace is an important indicator of our ability to continue elevating multi-tenant occupancy.
Our operations team is focused on accelerating NOI growth by quickly converting new leases to occupancy and controlling operating expenses. Total multi-tenant NOI grew 2.8% in the first quarter, well above 2023 growth of 2.3%. Looking ahead, we're on track to achieve the 4.4% to 5.5% multi-tenant NOI growth published in our bridge for the second half of 2024.
Our leasing confidence is boosted by the constructive backdrop for MOB supply and demand. Aging demographics and strong patient utilization are pushing demand steadily higher. Hospitals and providers are initiating more and more outpatient expansion plans. At the same time, a sharp rise in construction and financing costs has severely limited development starts. These tailwinds translate to positive absorption and rising rental rates. Typical replacement net rents are pushing $40, setting up for multi-tenant occupancy gains and robust rate increases for average net rents at existing buildings that are in the low $20 range.
Now I'll turn it over to Kris to discuss financial and operating results.

James Christopher Douglas

Thanks, Todd. The year is off to a great start on operational and capital allocation efforts. Normalized FFO per share of $0.39 was at the upper end of our guidance range for the quarter. Net income for the quarter was impacted by a $250 million goodwill write-off. This noncash accounting impairment was driven by the current macroeconomic environment and does not speak to the durability or growth potential of our assets. In fact, same-store cash NOI growth accelerated in the first quarter to 3%, up from 2.7% last quarter.
Cash NOI margins improved 30 basis points year-over-year as a result of holding operating expense growth below our average in-place rent escalators of 2.8%. First quarter operating expenses increased 1.7%. This was a significant improvement compared to 4.1% in the fourth quarter and 4.3% for full year '23. Disciplined and proactive efforts, especially on property taxes and labor costs helped to control operating expenses. The successful property tax appeals in the fourth quarter resulted in first quarter year-over-year property tax increases of just 1.1%.
Labor costs increased 2.7% in the first quarter compared to 10% in the fourth quarter and 9.5% for full year '23. The improvement was achieved through rightsizing and staffing and rebidding service contracts, particularly in markets with scale. We don't expect the 1.7% growth in the first quarter to be our new run rate, but we are on track to beat the full year expense growth assumptions in the occupancy and NOI bridge.
Revenue drivers were also strong in the first quarter. Cash leasing spreads were pushed to 3.7%, up from 3.3% last quarter. Initiatives to retain tenants were successful as tenant retention improved significantly from 78% in the fourth quarter to 85% in the first. Notably, the 85% was consistent in both the legacy HR and HTA portfolios. And as Rob will discuss in more detail, we achieved sequential occupancy absorption in line with expectations. The cash leasing spreads, retention and absorption are especially impressive given high scheduled lease expirations in the quarter. Over 1.6 million square feet of same-store leases expired and over 2 million square feet across the total portfolio.
Yesterday, we announced a JV agreement with KKR at a 6.6% cap rate that will generate near-term proceeds of $300 million and provide a source of additional long-term capital. In addition, we are in process on separate transactions that are expected to generate an additional $300 million of proceeds in the next 90 days. These transactions are expected to price in the 6.5% to 6.75% range. The total proceeds of $600 million will be used to fund existing capital commitments as well as leverage neutral share repurchases.
Applying approximately 50% to 55% of the excess proceeds to share repurchase will maintain debt to EBITDA within our target range of 6 to 6.5x. Last week, the Board authorized a new $500 million share repurchase program. In April, 3 million shares were bought for $42 million under the previous repurchase authorization. The average price was just over $14 per share, which represents an implied cap of 8% and FFO yield of approximately 11%. Given the current disconnect between our stock price and private valuations, recycling capital and to leverage neutral share repurchases, generate significant accretion and shareholder value. It also accelerates efforts to improve dividend coverage.
Second quarter and full year guidance does not reflect the KKR JV additional $300 million of transactions or associated leverage neutral share repurchases. Guidance will be updated at the end of the second quarter once the final timing and economics of these transactions are known.
I'll now turn it over to Rob for more details on our leasing momentum.

Robert E. Hull

Thanks, Kris. I will focus my comments today on multi-tenant occupancy gains and leasing momentum, which are right on track with our bridge. For the first quarter, multi-tenant occupancy improved 57,000 square feet or 17 basis points. Combined with our fourth quarter, we have achieved 70 basis points of absorption. This puts us on pace to deliver the 150 to 200 basis points of multi-tenant occupancy gains we communicated last November in our 5-quarter bridge.
It's worth noting that occupancy has increased by 130 basis points at the legacy HTA assets in the last 2 quarters. Our progress this quarter was driven by strong new lease commitments totaling 480,000 square feet. Move-outs were elevated due to high scheduled lease expirations of 1.6 million square feet in the first quarter. This was nearly double the volume of expirations in the previous quarter.
Although volume was high, the move-out percentage was in line with our expectations. For the remainder of 2024, our expiration schedule averages just over 1 million square feet per quarter. This is about 60% less than the first quarter. So we expect fewer move-outs through the balance of the year.
Turning to lease momentum. Our new lease pipeline remains robust at 1.7 million square feet, the top end of our historical range. The pipeline gives us visibility into future activity and positions us well to achieve projected absorption gains outlined in our multi-tenant bridge. Total signed not occupied leases or SNO in the multi-tenant portfolio remained solid, representing an additional 170 basis points of future occupancy.
The legacy HTA multi-tenant properties have 190 basis points of SNO. We expect the SNO pipeline to increase as we maintain our new signed lease volumes and move-outs moderate to lower levels moving forward.
Our strong leasing activity is supported by favorable supply and demand fundamentals. Occupancy across the sector is climbing, and new medical outpatient building starts are continuing to decelerate. This quarter, we saw the largest year-over-year decline in starts since the pandemic.
Health System top line revenue and operating margins continued to improve. Providers are seeing increasing admission rates and growing outpatient revenues. And healthcare employment remains robust, increasing at a rate more than 2.5x the rate of total job growth. The combination of rising demand and limited supply is creating a nice tailwind for leasing. New signed leases in the first quarter totaled approximately 440,000 square feet. What is noteworthy is this marks our third consecutive quarter above $400,000. Included in this activity were meaningful gains across our development and redevelopment projects. The combined lease percentage for these projects is now 70%, up 400 basis points over last quarter.
A significant contributor to this increase is a building here in Nashville that came online in the fall, and many of you have visited. A leading orthopedic group signed a lease that increased the building to 88% leased from 50% last quarter. With a fairly complex build-out, including the new surgery center, we expect this tenant to take occupancy in the first quarter of 2025.
I'm proud of the solid occupancy gains and sustained pace of new leasing our team has achieved. Our strong leasing momentum and the constructive supply/demand backdrop is the foundation from which we can produce projected new leasing activity. Coupled against moderating move-outs, we are poised for accelerating multi-tenant absorption in the back half of the year to hit our targeted growth levels.
Todd?

Todd J. Meredith

Thank you, Rob. Let me make a few more specific comments about capital allocation. The company is currently trading at a substantial discount to NAV. So we're focused on maximizing the opportunity to sell or JV assets and repurchase our stock at accretive levels. In terms of generating proceeds, we announced the KKR joint venture yesterday, where HR will contribute 12 properties to the joint venture at a gross asset value of $383 million, representing a cap rate of approximately 6.6%. KKR will make an equity contribution to the JV equal to 80% of the value of the properties, yielding proceeds to HR of probably $300 million.
Healthcare Realty will retain a 20% interest, manage the JV and oversee leasing and operations. HR will also earn various fees for overseeing the JV properties, which is not reflected in the 6.6% cap rate. The property contributions are subject to customary closing conditions and are expected to occur throughout May and June. Asset-level financing is not contemplated for this JV, which simplifies the management of leverage for Healthcare Realty.
The 12 JV properties represent a high-quality stabilized MOB portfolio. The properties are located in 7 top markets, including Austin, Seattle, Philadelphia and Los Angeles to name a few. They're located predominantly on or adjacent to leading hospital campuses. And in short, the portfolio looks a lot like Healthcare Realty as a whole.
Beyond the initial seed portfolio, KKR has also committed up to $600 million of equity to pursue additional investments in high-quality stabilized assets. This could increase the potential value of the JV to more than $1 billion. We may contribute more Healthcare Realty properties to the JV or pursue acquisitions depending on market conditions. In the near term, our capital allocation priority is to repurchase stock on a leverage-neutral basis.
Separate from the KKR JV, we're working on additional transactions that are expected to generate more than $300 million of proceeds within the next 90 days. We're very encouraged by the level of interest from capital partners and potential buyers. There's a deep pool of equity seeking to increase exposure to the MOB sector, which has been aided by a much improved financing market.
As I said at the top, we are focused on our top 2 priorities, capital allocation and operational momentum. We intend to execute quickly on the accretive capital allocation priorities outlined today. Coupled with multi-tenant occupancy gains and operational momentum, we're making progress toward our goal of accelerating FFO growth and dividend coverage.
Operator, we're now ready to move to the Q&A period.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from Nick Yulico with Scotiabank.

Nicholas Philip Yulico

I guess, first, in terms of the JV, nice to see that get done. Can you just give us a little bit more information on sort of how that process went? And I know you started talking about it last fall, I think. And so you closed it now. I mean did you -- how are the discussions with different buyer groups, did you ultimately change the types of assets you put in that initial seed portfolio? Anything else just more on sort of the background of the formation?

Todd J. Meredith

Thanks, Nick. The process, as you just alluded to, did start last fall. Obviously, we all watched the debt markets be a little tough last fall and which impacted equity as well. So we knew that was going to be a rough time to try to force the transaction. So we sort of took that slowly and really kicked it off more aggressively at the beginning of the year. So I would say -- as I mentioned in my remarks, we saw a much better and more constructive markets starting to open up with capital commitments on the equity side and then obviously, the financing market improved throughout '24 so far. And even though rates are still fairly high, I think people have settled into this is a little more stable, a little bit more where people should expect things to be. And so I think as we saw that the equity folks became much more confident.
In terms of the portfolio, we do have more potential JVs and asset sales underway. The portfolio has evolved a bit. But generally speaking, it involves a lot of the properties that we early on contemplated. Some of the properties that were in there will be under consideration for other joint ventures or other asset sales. So always a moving target a little bit in trying to find alignment with a JV partner, but we think we've landed on a very strong, stable -- stabilized portfolio that really is representative of the Healthcare Realty portfolio, which, as we said last fall, was our intent with the JVs versus asset sales, which tend to be a little bit more leaning towards single-tenant off-campus those types of characteristics.

Nicholas Philip Yulico

Okay. Just second question is on Steward. If you could just remind us, I know you give the square footage exposure in the supplemental, but -- just kind of remind us the composition and sort of location of those assets. And how are you thinking about the Chapter 11 filing affecting any potential rents? I wasn't sure if there's anything actually built into guidance to deal with any potential fallout there.

James Christopher Douglas

Yes, Nick, this is Kris. So we're on about a dozen different hospital campuses associated with Steward in 3 different states. But generally, we are on, considered to be their higher-tier performing hospitals. In fact, if you look at Green Street, their hospital scoring index that they had done. About 80% of our square footage is associated with what they rated as A or better hospitals. And I think that points to the ultimate potential outcome here, which is likely some sales of some of those hospitals because I do think that they are very critical to the communities that they're in. You've seen that through Massachusetts with the state coming out and making sure and confirming that they're going to do everything possible to keep those hospitals open to serve those communities.
And we really -- we kind of saw this last year when Steward sold some hospitals to Common Spirit out in Utah. So yes, you're right, about 580,000 square feet, 1.6% of our annual base rent for the company is associated with Steward. The ultimate outcome, I think, here is a little early, we have about $2.5 million of outstanding AR that's with inside the upper and bottom end of our range of guidance for the year of something that we could potentially absorb that if it is not repaid, but really, I think it's too early to call that. If these hospitals are ultimately sold and the outpatient facilities that are associated with them, we think are going to be critical to the new operator. So we'll continue to watch it, but feel generally positive about the locations that we're on.

Operator

We now turn to Austin Wurschmidt with KeyBanc.

Austin Todd Wurschmidt

So Todd, would you say it's fair to say that the transaction market for outpatient medical assets has fallen at this point? And I mean, are you guys done selling today? Or could we continue to see kind of go down a path towards additional dispositions after completing the $600 million that you've highlighted?

Todd J. Meredith

Sure, Austin. We are not done. I would say we have a lot more in the works. Obviously, what we tried to articulate today is what we have a high degree of confidence in like the KKR JV as well as these additional transactions. So we do have more behind that. Obviously, we're watching the markets. We're paying attention to what makes the most sense. But I wouldn't put that out of the realm of reason that we would look at additional JV transactions as well as additional asset sales. Obviously, we'll balance that as market conditions evolve.

Austin Todd Wurschmidt

Understood. And then just -- I was curious, it sounds like everything on the operating front is on track, but was there anything specific or unexpecting -- unexpected that drove the deceleration in the consolidated multi-tenant portfolio this quarter for same-store NOI growth? It looks like the JVs made up for that, but just wondering what's driving the delta between those 2 buckets?

James Christopher Douglas

Yes. It's really going back to just quarterly fluctuations when you look at a year-over-year and a quarter, you can end up with kind of onetime items that can have a particular impact on any specific stat. So you're right that I'd say the multi-tenant, those kind of went against them in terms of that 2.2% growth, and it was related to some property taxes that were accrued in the first quarter of '24 that really are associated with some '23 time period, and it was a bill that came in that we're actually contesting. So that's still a little bit up in the air what the ultimate impact will be for all of '24. But I will say on the flip side, you actually kind of had the reverse on the single tenant. So that single tenant growth was a little bit escalated versus what I would say you would expect for the long term, and that was related to, once again, a similar onetime item on the flip side that was to the positive. And so those 2 kind of offset each other that gets you back to what I think is a very normal and expected total same-store growth of 3%.

Austin Todd Wurschmidt

Would you expect those to convert them through the balance of the year? And that's it for me.

James Christopher Douglas

Yes. I think that as you start getting into year-to-date and full year performance, those kind of onetime quarter-to-quarter variations start to smooth out and don't have as large of an impact. So yes, I do think that, that will adjust and not have as big of an impact. But once again, like I said, kind of on the total, the multi-tenant versus single-tenant kind of set each other off. So I think as you look at that total same-store, it's indicative of where we think things are today, and we expect that to accelerate through the balance of the year with the absorption that we've talked about.

Operator

Our next question comes from Michael Griffin with Citi.

Michael Anderson Griffin

I wanted to ask a couple of questions on the joint venture. First off, can you give us maybe the leverage that was used in the deal and the amount of fees you expect to receive from us? And then are there any implications of the dividend as a result of the joint venture or potential asset sales?

Todd J. Meredith

Michael, this is Todd. On the JV, specifically the leverage, no leverage is being used in this initial transaction. It's also not being contemplated for the go forward as well. So very simple there, keeping that simple. It's all equity from KKR. Obviously, the 2 organizations can manage leverage outside of the JV. So no asset level financing.
On the fees, obviously, I'm not going to give specific fees, but certainly earned fees, various types of fees for managing the JV, leasing, operations and so forth. We have typically said that these JVs -- existing JVs we have as well as this would typically put you in that 25 to 50 basis point range of sort of net benefit relative to the cap rate. Just to give you a ballpark. But obviously, they're often tied to performance. So it's not an exact known quantity, but that's certainly helpful to the cap rate and to the economics of a JV.
And on the dividend, at this point, no change expected to the dividend or anything that would trigger a special dividend at that point. But that's something, obviously, we'll evaluate as the year -- it's early in the year, but not contemplated at this point.

Michael Anderson Griffin

And then just wanted to ask on the rent owed by Steward. It looks like it's about $2.6 million according to your 10-Q this morning. Is there any bad debt that's assumed in the guidance?

James Christopher Douglas

Generally, no, just kind of run rate kind of bad debt. In terms of our guidance, the range is large enough and that amount of $2.6 million, I think, is something that we'll contemplate as we look at updating guidance through the balance of the year. But in terms of percentage of the overall guidance and NOIs, it's pretty small. So I don't see it having a material impact there. And we -- we'll have to continue to watch that. We'll obviously be likely conservative in terms of our accounting of how we handle that and reserving that AR. But we are not in a position to say that, that's uncollectible.

Todd J. Meredith

And there's nothing past 90 days. So that (inaudible). I was just saying Michael, there's nothing -- Michael, can you hear us?

Michael Anderson Griffin

Yes, yes. Sorry. Sorry, there's something going on with my phone, apologies.

Todd J. Meredith

That's okay. I was just adding that there's no AR past 90 days. So that's kind of a key point on the bad debt question.

Michael Anderson Griffin

Got you. And then just, Kris, real quick, is there a current amount of bad debt like the range in your guidance? And what would be the total dollar amount assumed in terms of bad debt?

James Christopher Douglas

We generally will reserve anything that's over 90 days is the way that we handle our bad debt. But as you would even see this quarter, we actually had a little bit of -- that came down. We actually had a little bit of collections. And so we're still optimistic that we can bring that back down. Our guidance does not assume that we will have collections above what we have reserved. But if we're able to do that, that would certainly help and as well as potentially offset anything that could be associated with Steward. But like we said, I think it's just too early to say exactly what the impact of Steward yet is on that AR.

Operator

We now turn to Juan Sanabria with BMO Capital Markets.

Juan Carlos Sanabria

Just wanted to ask about the dispositions in the joint ventures and how we should think about the impact to FFO and earnings, granted that your stock is trading at a discount to where you see cap rates, but should we think of it as dilutive to earnings or accretive or what's the math that you guys are doing on your end?

Todd J. Meredith

Juan, this is Todd. I would say we view it as accretive. I think maybe your question is a little more technical just in the immediate term and how that might affect earnings. I think the simple math on the immediate term is that you would use proceeds to pay off variable rate debt, which is in the low to mid-6s. So I think that puts it right there at nearly neutral. And then it's just a question of how quickly you're repurchasing stock. And as you've heard Kris say, you're talking about potentially double-digit yields on the equity portion. So that's where you climb back quickly to very accretive.
The simple math we're looking at, which you can get it a couple of ways, but I'll look at it as the current implied cap rate for HR is in the high 7s to 8% range. And then we're looking at asset sales and JVs in the 6.5% to 6.75% range. So that's 100 to 150 basis points of accretion. You can also look at that math more specifically around FFO yield, cost of debt like a WACC basis versus GAAP cap rates and you get very similar math, so 100 to 150 basis points accretive. I think the specific question is about how quickly you can get all that done. And we think it's actually timed out pretty well where it should be absolutely accretive to 2024.

Juan Carlos Sanabria

And just to check, do you think it's accretive on a FAD or AFFO basis post CapEx and given the dividend gap?

Todd J. Meredith

Yes.

Juan Carlos Sanabria

Okay. And then just on the disposition front, it seems like the incremental $300 million is kind of at a 7% cap. Do you see that as indicative of kind of market cap rates today? And is that 7% cap roughly a good placeholder for that incremental $300 million of dispositions?

Todd J. Meredith

I'm not sure where you're getting the 7% cap one. Maybe you picked up something that wasn't intended.

Juan Carlos Sanabria

I think you said that JV was at 6.5% and -- the JV was at 6.5% and the blend is like 6.75%. So roughly the same amount (inaudible) figuring what was...

Todd J. Meredith

Okay. Okay. I see what you're saying. No, really, what we're talking about is the transactions between the JV and these other asset sales being in the 6.5% to 6.75% range, both of them being within that range. So we're not thinking -- I mean that doesn't mean an individual asset might not be at a 7% cap, but no, we're not thinking about the asset sales being at 7%. So I think 6.5% to 6.75% is really an indicative range where we think we can transact.

Juan Carlos Sanabria

Just one last one. Is -- so the $2.6 million that Steward owns, is that just the quarterly run rate that they did not pay in the first quarter? How should we think about that dollar amount?

James Christopher Douglas

Yes. It's a little over a month. It's about -- but less than 1.5 months, between 1 month and 1.5 months of rent. So mostly April, a little bit of March.

Operator

Our next question comes from Rich Anderson with Wedbush.

Richard Charles Anderson

So the contributed properties to the joint venture were on or adjacent, which has always been your sweet spot. So by definition, perhaps very much at the margin here, but you're reducing your exposure and increasing your exposure to off-campus as a function of this. Should we read into that, perhaps getting more jazzed up about your concentric circle sort of story? Or do you still remain largely committed to growing beyond or adjacent side of the business?

Todd J. Meredith

Rich, I wouldn't take this as some big signal. I think the bigger message here is that the JV idea as it has been in the past, but here with KKR is the idea to not only seed a portfolio that looks a lot like Healthcare Realty as a whole, but it's also a go-forward investment vehicle that would continue to be a source of capital and diversifying our sources of capital and allowing us to continue to invest in those types of assets. And that's a theme you've heard us for years talking about really making sure we have the right sources of capital to continue to invest in the types of assets we want to invest in. So this is part of that strategy. I wouldn't read into it that we're trying to lighten up or shift our exposure away. In fact, it's probably the opposite that we would continue to see our exposure to predominantly on adjacent to campus remaining consistent.
Obviously, you're right, at the margin, if you really do the math of 80-20 on the JV, maybe it tweaks it a little, but we would think, over time, that wouldn't change materially for Healthcare Realty. So no big signal there just really part of seeing that disconnect in our public valuation versus private taking advantage of that in the near term and then long term, having another source of capital.

Richard Charles Anderson

Okay. I know you're targeting 6% to 6.5% on a leverage basis. I think the market would love a 5% handle eventually, perhaps you would too. With the additional asset sales that you're looking to beyond the $600 million, would you think that a lot of that would still go toward buyback? Or would you might intermingle more in the way of deleveraging so that we can maybe test that sub-6% level at some point in the reasonable future?

Todd J. Meredith

Rich, I would say we're very comfortable at 6.5% currently. I think what you're talking about is a much longer-term view and not taking it away from you. But we're focused on the near term of really driving FFO and FAD per share accretion and managing our leverage. So we think there's a number of ways that it will naturally through operational improvements in NOI and EBITDA that it will naturally delever. But clearly, right now, we think the signal is repurchasing shares makes a lot of sense. So that's what we'll do. Obviously, as conditions evolve, we'll continue to reevaluate it. But not signaling a difference in our view on leverage at this point.

Richard Charles Anderson

Okay. Last for me. On the dividend, I know you're -- we're going to grow into that in terms of the payout. Is there any part of the situation and in dividend policy that simply you can't do like because of REIT guidelines, if you could just cut the dividend to get a better payout, but then you perhaps fall below that 90% threshold. Is that sort of intermingled into the strategy? Or are you nowhere near that number? And so that's not really influencing the strategy?

Todd J. Meredith

Rich, I would say it's not influencing the strategy. Obviously, we look at that every year and evaluate that, but that's not in our thinking that that's the concern. Our view is that we can grow into it. We think we can do that with operational improvements. It takes obviously a little longer by itself. And now when you add the transactions, the capital allocation priorities that we've talked about today, we can accelerate that. So it's really a confidence that we can get there.

Operator

We now turn to John Pawlowski with Green Street.

John Joseph Pawlowski

I just have a few more questions on the quality of the properties and the $600 million pool of dispositions. Can you share is the -- or maybe shorter way to ask it, average age of the properties and then kind of deferred CapEx profile, is it meaningfully better or worse than your portfolio average?

Todd J. Meredith

The average age is -- I don't have the average in front of me. But I would say, generally speaking, it's a little bit of a newer vintage, if you will, but not some material change. But I think, generally speaking, a little newer. And on CapEx, I don't have the percentage in front of me, but we would typically say it's sort of in that similar range of a very stabilized portfolio. So more in that 15% range versus we're spending currently a little bit more like last year, we were a little over 18%. Obviously, that had to do with absorption and spending more on tenant improvements, but more in that traditional stabilized range.

James Christopher Douglas

I don't have the weighted average, but can give you a range of age. The oldest building was originally constructed in '92 and the youngest was in 2017. So let's say, generally consistent with the portfolio.

Todd J. Meredith

Most in the last 20 years, predominantly the last 20 years.

John Joseph Pawlowski

Okay. And then the remaining lease term, the walls on the $600 million, is it pretty close to the portfolio -- your portfolio average?

Todd J. Meredith

It's a little bit longer. It's about 6 years versus we're a little over 4 years on the KKR JV assets. It's a little -- it's about 6 versus the overall portfolio being a little over 4 of remaining...

John Joseph Pawlowski

Okay. Final question from me. Still have about 35 properties in your -- what you characterize as an unstabilized bucket. There's been a lot of properties held over the last few years in this bucket. So just curious, what's the appetite to sell these unstabilized properties? These properties are not generating nearly any NOI and then redeploying that capital elsewhere in the business?

James Christopher Douglas

Yes, that's certainly something that we're always looking at. And also, sometimes it just -- it can be just a timing issue is that we're now occupancy dropped off, and it's been some time for us to release that back up. And we actually have that inside this portfolio already. We've got a significant amount. Just trying to count the number of properties, I would say, it's probably half a dozen to a dozen properties that are already at 100% leased. And so it's now just turning that lease percentage into occupancy and then converting it back. So I'd say it's -- overall, it's a combination of our efforts that you see going on right now to drive absorption in some of those assets and in some places that -- if it's not a market that we're looking to grow in long term or even a specific submarket or cluster that we could sell out of those assets as well. But yes, long term, our goal and expectation is to drive the number of properties in that unstabilized portion of the portfolio much lower.

Operator

(Operator Instructions) We now turn to Nikita Bely with JPMorgan.

Nikita Vyacheslav Bely

The term med tail has been starting to come up more on conference calls recently in the retail world of medical retail, right? And is that something that you see is there's some overlap with those properties, those kind of medical office and outpacing medical and the retail centers? Is there any similarity any overlap? Any impact that you're seeing on your business maybe?

Todd J. Meredith

It's a good question. I would say it's not a new concept, but it is certainly a trend that has been underway for quite a while. We've looked at those types of properties to buy or even develop over the years, and we're pretty selective about it. We tend to really try to focus more around the hospital and for more higher acuity services. What you tend to see in those med tail, medical retail locations, they're very convenient. They tend to have fairly low acuity services. They're very convenient for the consumer when they're doing other things in the retail setting. And so we think there's a lot of room for that. It's certainly needed and good for the consumer, but it is generally not our target. We haven't seen it be a big problem for what we're trying to do, which is focus more on the higher acuity services that tend to be closer to the hospital in location.

Nikita Vyacheslav Bely

Got it. And maybe any -- on the development side, any new major developments or redevelopments that you're planning to start over the next 12 months and maybe some return hurdles on those potential projects versus the ones that are already in process?

Todd J. Meredith

Sure. I'll just comment that generally speaking, we have disclosure around our pipeline or in terms of our active projects. We are sensitive to the fact that starting new projects right now can be a dilutive initial exercise, even though the long-term returns might be very attractive. But our comment would be that we're kind of pausing or cautious right now about starting new projects just for the moment, simply because we want to be mindful of that dilution effect in the near term. That said, we're looking at JVs that could involve development projects, both existing projects as well as new. So we're certainly looking at that as something we want to continue doing as an activity in creating shareholder value long term, but we're mindful of sort of that near-term impact. In terms of return, Rob, I don't know if you have any thoughts just in terms of -- I don't think it's changed from what you've seen us disclose. But the -- it's ticked up a bit.

Robert E. Hull

Yes. I mean I think generally, it's going to be dependent on how well leased it is and how much risk you're taking. But in prior quarters and years, we've sort of used the 100 to 200 basis points above where we think similar stabilized assets are trading today. So if they're in the mid-6s today, you're probably looking in that 8% to 9% range on a new development, redevelopment certainly, certainly we target higher returns for that.

Operator

We have a follow-up question from Austin Wurschmidt with KeyBanc.

Austin Todd Wurschmidt

Just another one on the asset sales. I guess, is the goal to sell some of the more stable assets into joint ventures or outright so that you can monetize that value? And I guess on the flip side, could we see any improvement in your same-store growth for either the single-tenant assets that you sold last quarter and the impact they have on single tenant growth and then kind of similarly for the multi-tenant assets that you announced this quarter?

Todd J. Meredith

Yes. Austin, I think you're right at the margin that it makes sense to be selling and JVing stabilized assets simply because we're looking at the assets we can really get that multi-tenant occupancy gain pushed through the company's bottom line. And so that's where we have a lot of optimism. Obviously, there are some that fall out of what Kris addressed earlier on the unstabilized properties where we may just say, "Hey, we don't think we can drive occupancy there. We'll go ahead and sell that." But on the margin, I would say, you would see us JVing more -- and selling more stabilized assets.
And certainly, today in the market, financing is more conducive to those types of properties. That said, as I just mentioned, we would also look at potentially JVing some development projects, whether they're existing projects or new projects. So we're looking at both of those. And I think -- I don't know, Kris, if you want to touch on the impact that could have. I think it's too early to really get too far into the impact on how that might change same-store. We'll obviously update that as we make progress on asset sales or JVs.

James Christopher Douglas

Yes, I agree.

Operator

This concludes our Q&A. I will now hand back to Todd Meredith for closing remarks.

Todd J. Meredith

All right. Well, thank you, everybody, for joining us this morning. We appreciate your time, and we look forward to visiting with many of you in the next few weeks at various conferences. Thank you, everybody. Have a great day.

Operator

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.