Q4 2022 Plymouth Industrial REIT Inc Earnings Call

February 23, 2023

Good day and welcome to the Plymouth Industrial REIT fourth quarter 2022 earnings call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded.

Now I'd like to turn the conference over to Tripp Sullivan.

Let's see our partners. Please go ahead. Thank.

Thank you good morning, welcome to the Plymouth Industrial REIT Conference call to review the company's results for the fourth quarter of 2022.

On the call today will be Jeff Witherell, Chairman and Chief Executive Officer, Anne White, President and Chief Investment Officer.

Anthony Salad, Deno Executive Vice President and Chief Financial Officer, Jim Connolly Executive Vice President of asset management, and Anne Hayward General Counsel.

Our results were released this morning in our earnings press release, which can be found on the Investor Relations section of our website, along with our Form 10-K and supplemental filed with the SEC.

A replay of this call will be available shortly after the conclusion of the call through March 2nd 2023.

The numbers to access the replay are provided in the earnings press release.

Those who listen to the replay of this call. We remind you that the remarks made Iran. There as of today February 23, 2023 and will not be updated subsequent to this call.

During this call certain comments and statements we make a be deemed forward looking statements within the meaning prescribed by the securities law.

Including statements related to the future performance of our portfolio, our pipeline of potential acquisitions, and other investments future dividends and financing activities.

All forward looking statements represent plymouth's judgment as of the date of this conference call and are subject to risks and uncertainties that could cause actual results to differ materially from our current expectations.

Or is it urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filings with the SEC.

We will also discuss certain non-GAAP measures, including but not limited to core <unk> <unk> and adjusted EBITDA.

Finishing to these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with the SEC I'll now turn the call over to Jeff Witherell. Please go ahead.

Thanks, Tripp and good morning, everyone and thank you for joining us today.

To risk, stating the obvious 2022 wasn't interesting an exceptionally busy year.

Under the busy category, we expanded our vertical integration strategy by adding an office in Atlanta, and bringing close to 70% of our portfolio under in House property management. In addition, we leased 7.8 million square feet.

Acquired $254 million of properties.

And made major strides in simplifying our capital structure.

Under the interesting category 20, twenty-two was ear of rising interest rates ramp at inflation and then almost complete halt to the transaction market.

Amid all of this change there were a few constance, namely the commitment of our people to be responsive to our tenants' needs to find new opportunities to push the company forward and to create value for our fellow shareholders.

This commitment along with the backdrop of strong fundamentals in the Golden Triangle markets helped the internal growth of our portfolio come to the forefront in the fourth quarter.

Occupancy improved to 99% from 97.4% at the end of 2021.

Cash re leasing spreads were up 18, 1%.

The 18, 5% for the year.

<unk> store NOI on a cash basis was up 10.7% exceeding the top end of our full year forecast.

Rent collections remained well over 99%.

Core <unk> per share was 44 cents, bringing us to the midpoint for the year and a S. F O per share was up 7.7%.

Every week I canvas, our entire asset and property management team can begin with its simple question, how do you feel.

Their response remains unchanged we feel good.

Still not seeing indications of a slowdown in fundamentals our tenants are coming to us with space demands to meet their growth needs.

Leasing velocity is strong and our conversations around renewals continues to be robust. It's natural to expect that if the economy begins to come under stress that we would see that manifest in our tenants, but to date, we have seen very little evidence of that.

Our outlook for 2023 is best described as cautiously optimistic as Penn will describe later, we are seeing a large number of announcements on reassuring in near shoring initiatives that are impacting the golden triangle with new demand catalysts.

We are in front of that trend with our diversified focus on the Golden triangle markets and 90% of our properties located in the region.

While we are uncertain, if there will be a hard or soft landing in the U S economy in the second half of the year or for that matter no impact at all we believe we are well positioned for either outcome.

Our asset management and property management teams have addressed most of our 2023 lease explorations, putting our expiring leases below 10% of the overall portfolio for the first time in years.

To put this in perspective, the 7.6 million square feet, we signed and commenced in 'twenty 'twenty. Two the terms are longer than six months was equal to all the leases, we signed and commenced in 2020 and 2021 combined.

Well, that's a good thing from a real estate perspective, it will temporarily limit our ability to capture the 18% to 20% mark to market that exists within our portfolio.

Our development program is another example, we have unlocked the value of land held in the portfolio with over 643000 square feet completed or under construction with expected returns in the range of 7% to 9% on this 49 million dollar of investment.

We will get to the leasing done to hit these returns and that's a top priority the timing of the leasing and occupancy is more weighted to the second half of the year.

Well that's on average one to two quarters later than originally anticipated we have been able to source external growth at several hundred basis points above current market returns.

Our capital structure is another facet of the business that should see sequential improvement during the year as a gradual delevering takes place with higher EBITDA growth from the new developments coming online and strong organic growth from our same store properties.

We eliminated the series B preferred stock by conversion in 'twenty, 'twenty, two which was a big step in simplifying the balance sheet, we know where we need to be with leverage and we will get there.

Overall, I'm more confident than ever that we have the right strategy that our markets within the Golden triangle are going to deliver significant returns over the next five to 10 years and that we have a team who is fully committed to maximizing value in our portfolio.

Twenty-three is an important year for cleanup and we are laser focused on achieving each one of the priorities I've outlined today.

Penn why don't you take it from here.

Thanks, Jeff.

Good morning, everyone.

We've used the term strategic patients for several months now to describe our investment approach I want to give some color on what that means.

Our pipeline is active with deals, especially those that continue to come back to us from last year or haven't been a product of some recent re trading.

We are also in a number of discussions on potential upgrade transactions in our markets as well as joint venture opportunities that are single asset and our programmatic in nature.

But given the dislocation in the capital markets. We continue to focus on deals that provide us with the ability to secure above market rental increases and leverage our vertical integration strategy across our portfolio.

We had hoped to see more stabilization in price discovery coming into the new year.

But the overall direction of cap rates and interest rates remain unsettled at present.

We believe it will be the second half of the year before we see more clarity in the stats there.

There are a few clear trends that we continue to see though.

One the fundamentals on the ground in our markets remained strong with positive absorption. If you were competing new product deliveries and low availability rates and true.

Truncating supply chains, and onshoring reassuring initiatives are very real and are significant drivers of demand for industrial real estate companies.

Companies utilize multiple ports of entry.

Correct more onshore manufacturing and product Assembly and higher third party logistics providers to decrease supply chain costs.

<unk> against important disruptions.

A recent Bloomberg article referenced a survey of 300 transport and manufacturing executives, stating that 62% at the gun to employ reassuring and near shoring for their production.

The article also cited a deloitte publication estimating a reduction of 20% of shipments from Asia to the U S. By 20 to 25, and a 40% reduction by 2030.

So we're in the U S are these car companies going through them.

Well.

As we noted in our midyear report that focused on the Golden Triangle, where we previously highlighted Ford Motor company, and kind of see and Intel and Honda building in Ohio with billions of dollars in investments there.

We have seen a continuation of companies moving to the Midwest and southeast.

The Midwest and South East stand to gain most from the manufacturing reassuring phenomenon.

Virginia semiconductor electric vehicle and easy battery sectors are leading the way with the likes of Hot Die LG Chem envision group and BMW investing billions here.

The product suppliers to these companies needing to be close to their major clients continue to absorb additional industrial space.

They all benefit from the skills and availability of labor pools lower energy costs.

Excellent infrastructure and transportation.

Lower taxes and government incentives.

Friendly regulatory probe business environments, and quality of life and cost of living benefits.

In a recent chief Executive International Economic Development Council survey.

38% of the C E OS mostly mid market manufacturers responded that they are primarily focused on relocating or expanding to the mid west.

33% indicated the south east.

11%, we're considering in the northeast and 9%.

The southwest and California.

So with over 70% of the U S population half the U S. G D P mod.

More ports than any other region in the country and five of the seven class one railroads the Golden triangle continues to attract more companies and capital.

The nonprofit reassuring initiative based in Florida.

Noted that Ohio, Georgia, North Carolina, and Kentucky are there.

Top four markets in the U S for adding new jobs in 2022, due to reassuring and foreign direct investment.

Research from CBRE J L L and Richard Institute show that.

Supply chain resiliency was the main driver of demand for industrial real estate. That's companies tapped multiple ports of entry use more onshore manufacturing and hired third party logistic providers to lower supply chain costs and protect its important disruptions.

And while the rush to replenish goods has subsided.

Tiny inventory levels to protect against further supply chain disruptions or main demand driver for industrial real estate and 2023.

And the practice of reassuring is more important is supply chain blows continue to create backlogs at the ports.

Availability high rents and port congestion along the West coast.

Many occupiers to the South East region.

This year, the South East region was the top market in terms of demand accounting for 240 million square feet and requirements.

And reassuring and foreign direct investment could combined for over 350000 announced jobs in the U S. This year, an all time high by end of year.

The bottom line is that we see industrial fundamentals remains strong and our Golden triangle markets for some time, and that's where we see real opportunity for the future.

Now I'd like to turn it over to Jim Connolly to walk through the leasing activity and portfolio operations.

Thanks, Pat and good morning.

Leases commenced during the fourth quarter of 2022 totaled an aggregate of $2 3 million square feet, so leases greater than six months.

Easily says included point 6 million square feet associated with renewal leases and one 7 million square feet for leases with new tenants.

Weighted average lease term for these leases was three three years and rental rates increased 18, 1% over the prior lease rates on a cash basis.

The renewal rate for Q4 was 75%.

For the full year 2022 we leased 7.8 million square feet of which $7 6 million was leased for at least six months.

Of that amount the weighted average lease term on commencing leases was four years with an 18.5% cash rental rate increase over prior rents.

At least 99.3% of the $7 2 million square feet scheduled to expire in 2022.

Thing and only 47000 square feet not being leased we also leased point 7 million square feet of space that was vacant at the start of 2022.

Overall renewal rate for 2022 was 60%.

Through February 20th we have leased a total of $2 5 million square feet.

Related to leases scheduled to expire during 2023.

Which represents 47, 1% of the $5 2 million square feet of total 2023 expirations. This amount includes adjustments for acquisitions and it really terminations.

The renewal rate for these transactions was 92% with a weighted average lease term of three seven years.

The cash rental rate increase over expiring rents was 13, 4%.

10.6% for renewals and 37, 3% for new tenants.

We expect the overall weight to significantly increase within the range of the 2022 increase or higher.

As more leases with new tenants nearing execution are finalized.

Furthermore.

We leased 20000 square feet of space that had been vacant at the start of 2023, and 300000 square feet of new development space coming online during the year.

There are several leasing prospects.

For our remaining Atlanta, Cincinnati main development projects that we are actively working and nearing lease execution.

Also to February 20th we have leased 1 million square feet.

Scheduled to expire during 2024 and raised $19, 2% above expiring cash rents approximately 71% of this month is associated with renewables.

29 with new tenants.

We have advanced our solar program considerably over the last year, including our initial feasibility.

Identification of over $4 2 million square feet of rooftop deck will accommodate solar arrays.

People of generating approximately 42 megawatts of power.

First phase of the solar program comprised of 2.2 million square feet to be leased across 10 rooftops has been submitted to the Illinois community Solar program and is expected to be operational in early 'twenty 'twenty four.

Okay.

Portfolio wide occupancy at the end of 2022 was 99% up 20 basis points from the end of Q3 due to the commencement of the vacant space leasing previously mentioned.

In total there were 10 buildings with one 3 million square feet classified as being repositioned during 2022.

Due to the rollover into a planned renovations.

Approximately 70% of this space is now stabilized with long term tenants and achieving yields in excess of nine 5%.

Finally, food February 20th.

Had collected 99.9% of our range billed during Q4 2022.

And there are currently no active rent deferral agreements.

It was a strong quarter operationally due to the high level of performance by our asset and property management teams.

Buildings keeps you need to be made at least at a high occupancy level.

Rental rates continue to rise tenant relations are high and that buildings are well looked after.

At this point I'll turn it over to Anthony to discuss our financial results.

Thank you Jim.

We reported a fourth quarter that landed right at the midpoint for the year with our strong organic growth leading the way.

I'll add some color on the quarterly results and our capitalization and liquidity.

And then walk through a bridge for 2023 guidance.

Same store NOI was up 10, 7% on a cash basis.

Which put US 20 basis points above the high end of our full year outlook.

Same store performance reflects a sequential growth in revenue from our new and renewal leasing in the portfolio.

Supported by improved expense reimbursement as we convert expiring rollover to triple net lease structures.

Triple net leases now account for nearly 79% of same store a b R. As of quarter end that is up from approximately 74%. This time last year.

G&A for the quarter was up slightly more than anticipated. However.

We realized a 50 basis point improvement year over year.

As a percentage of revenues.

Yeah.

While slightly better than expected interest expense continues to reflect the increase in the borrowings on our revolver associated with completing phase one of our development program.

And the approximately 355 basis point increase in silver.

Over here.

The revolver remains our only debt that is not hedged or fixed.

As expected the weighted average share and unit count was up sequentially as we experienced a full quarter of the higher share count from the conversion of Madison remaining shares of the series B in Q3.

We did not utilize the ATM during Q4.

Turning to our balance sheet, we ended Q4 with net debt to adjusted EBITDA at seven three times.

And net debt plus preferred to adjusted EBITDA at seven seven times.

Nearly a full turn down from Q1 of this year.

As of December 31, 92% of our total debt carries a fixed rate or fixed through interest rate swaps with a total weighted average cost of debt.

372%.

With 57% of total debt on an unsecured basis.

Our liquidity position remains strong as presently we have $14 7 million of cash on hand, plus an additional $6 5 million and operating expense S grows.

And $262 5 million of capacity on our revolving line of credit.

Yeah.

Before I turn to our 'twenty three guidance.

I did want to expand on three notable carryover factors of performance that Jeff mentioned earlier.

2022 was a banner year for leasing and while we have less rollover to address in 'twenty. Three we are executing at a higher velocity.

Rental spreads comparable to prior year.

Further with no large move outs to create bumping us and a sharp focus on the remaining lease up of the development projects. The range of execution is tightly bound.

Another factor, while mitigated as the variable rate exposure on our revolver, which has only been used to fund our remaining development spend.

Initially projected to come online during Q4 'twenty two in Q1 'twenty three the development projects will now contribute to delevering the balance sheet by way of EBIT expansion during the second half of 2023.

And last but not least is the carryover effect of a full year of the higher share count from the conversion of the series B preferred stock into common last year.

While this paper work as intended and allowed us to build scale over the last several years that higher share count what's the tradeoff for simplifying our capital structure and creating greater capacity to take advantage of external growth opportunities as we continue to delever.

Now to our 2023 guidance.

We're projecting core <unk> of 184 to 186 per share or a midpoint of 185 with the main assumptions being.

No prospective acquisitions dispositions or capitalization activities assumed.

Same store NOI growth on a cash basis in the range of 725% to 775%, which includes 50 basis points of non specific vacancy in credit loss.

This range assumes pool occupancy of 98.4% to 98.8% with a pool now representing approximately 92% of the total in place portfolio square footage.

G&A at $15 nine to $15 5 million.

Which would show a year over year improvement at the midpoint and a sequential decline as a percentage of revenues.

Interest expense of $39 three to $38 5 million assumes incremental borrowings of $10 million to fund the remaining phase one of our development program and two small projects in phase two.

We are not assuming ATM usage, northern redemption of the series day, having said that should bridge decelerate there is capacity and the opportunity for positive arbitrage under the revolver to address the series a.

Yeah.

Simplification of the story and the capital structure of common themes, you've heard today and we believe those improvements will continue.

With our scale, we now have more options available to us to take care of our capital needs than we've had in the past and.

And our same store growth is a much larger component of our portfolio than it's ever been.

Operator, we're now ready to take questions.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If you're using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

Our first question comes from John Kim from BMO Capital markets. Please go ahead.

Thanks, and good morning.

I was wondering if you could walk through the same store NOI guidance for this year.

Seven 8% at the midpoint.

You talked about how can you keep going down a little bit it looks like you have 9% of leases expiring this year, probably at a 20% mark to market yourself and then yeah, that's annual escalators, but adding all that together it looks like there'll be shy of that.

That's definitely a half so I was just wondering what makes a difference.

Yeah.

Sure John Yes, I think maybe to start the same store pool was materially changed year over year growing from.

65% of the total.

Portfolio square footage to about 92%.

The 23 pool now includes those buildings that we acquired in 'twenty, one and the former JV properties in Memphis, which is I believe 28 buildings encompassing about too.

$2 3 million square feet.

Some of the growth actually transpired in.

In 'twenty two based on the timing of commencement in the latter half of 'twenty. Two so we're benefiting in 'twenty three for the full effect of that so there is a little timing to account for.

And the mark to market.

Is just north of 20% as it relates to.

The same store pool, so I think.

By those factors you get you get to somewhere just slightly.

Slightly outside of that range and then you you were range bound based on the assumption that we are.

<unk> used for vacancy in and credit loss.

Okay.

Acquisition for this year I'm, just wondering what your hurdle rate is.

Either going in yields or IRR, just given its most likely going to be funded with our line of credit and where the sofa curve it's trending.

Where are you looking at for that cause that admission yields.

Hey, John here John here.

We're not.

Right now we're Oh, we have a fairly steady pipeline, we had been on the sidelines honestly, but.

Cap rates. These days are kind of all over the map, it's hard to pinpoint.

Pinned down.

Or I should say I don't have an exact dataset for comparable deals.

Cap rates have increased obviously.

We're seeing anywhere from a 50 to 100 basis point.

Increase.

But right now were.

We have pressed the pause button and kind of what kind of.

It's still going through some price discovery and probably won't do so this.

This quarter next quarter.

Yeah.

Can you remind us what what your line of credit spreads and so forth.

Certainly it's a one 155 over sofa.

Right. Okay. Thank you so much all right yeah right now John we're sitting at.

About 6% just just north of 6% on the line.

Great. Thank you.

Our next question comes from Dave Rodgers from Baird. Please go ahead.

Yeah, Good morning, Jeff and Penn I've been doing this 23 years and that was the most bullish call on Ohio I've ever heard so I'll take all of that we can get here in the Midwest. So thanks for that.

I think with regard to the first question Jim on the leasing front.

I wanted to go back to the numbers you provided I think you said that the 47% you've achieved so far was around 13% there was a pretty big delta between renewal and the new spreads and then I thought you said you'd get to 'twenty two level spreads by the end of this year over the next maybe say year or so but I wanted to verify those numbers, but also then talk about kind of what might be.

The delta between the new and the renewal.

If theres any geography building side is different.

And then as you get to the rest of the leases if you're going to get to 18 or 20%. This year your mark to market.

What does that mean for the back half of the year or are we going to see an outsized increase in spreads related to the activity coming up later in the year.

Yes.

Those are accurate statements the.

The renewals are usually a little cheaper for a little less of an increase because of.

Several reasons why that is fixed rate renewal rates and some of them otherwise youre not doing any ti at all.

And in some cases, there's no commission. So there is a benefit for doing them.

And the tenants.

The tenants know what's in the market. So we can't really increase the rates, we're not going to give me a ti as much but we have in the works with several leases.

Large spaces that have that.

A couple of them are renewals and they're still going to jump up.

I mean.

Very high and also.

New tenants back filling that's going to bring up the rate and we don't see an issue, reaching the 22 members than we had last year.

Okay. I appreciate that that's helpful. And then maybe for Penn or Jeff you could talk about competitive supply in your markets. Obviously, it's been a concern.

I think theres a lot of discussion that that competitive supply might be hitting the Midwest markets, a little bit higher, but maybe you could talk about what you're seeing.

It doesn't really seem to be the case, but what are you seeing in terms of competitive supply.

Hey, dad pun here, yes.

So obviously, there's been more and more supply come on the market.

About 135 million square feet and was completed just in the last quarter, which was which was a record.

450 million square feet completed throughout the year.

As we've said in the past I don't think that the new supply.

Generally competes with with most of our.

Most of our buildings, but we're certainly mindful of it.

We also are mindful of the rental rates that are being charged for the new product coming online.

Asking rates are up 13% year over year.

Averaging $9 60 per square foot that still compares very favorably to our average in place rental rate of $4 33, So we feel pretty comfortable.

With that.

That situation, especially in the markets that burden.

Thanks, a lot for me, Jeff what would get you comfortable taking out the preferred.

Yeah.

Okay.

Well, Dave I think really what we're focused on here is yeah, where interest rates are going to go.

So we've got we've got availability on the line, but we're always looking at liquidity and we're trying to figure out where interest rates are going to settle in at I think we said in the past right I mean, seven and a half might be a great rate at some point in the future scary to think that way, but it could.

<unk>.

Every day I wake up David we look at the series that just so you know.

Understood. Thanks, everyone. Thank you.

The next question comes from Todd Thomas from Keybanc Capital markets. Please go ahead.

Yeah.

Hi, Thanks, good morning.

Just a couple of questions I guess on the guidance and an outlook I guess first you know back to the same store and then in terms of occupancy thinking about the occupancy forecast. There you had a nice pick up during the quarter and through year end, a little bit of a moderation factored into the guidance, which makes sense, but.

There been any change in occupancy since the start of the year and are there any known move outs during the year or is that just sort of an assumption.

Debt that you've made.

Yeah, Let me start and then Jim can add additional color if necessary.

Clearly the occupancy underscores the tightness across our markets.

The assumptions around vacancy is largely built.

To address conservatism there are no significant known move outs that havent been budgeted for or contemplated.

In the guidance and the conservatism as I mentioned is not tenant specific.

Hum.

So we don't we don't anticipate a lot of bumping is.

In that pool.

Through the duration of 23.

Okay.

Okay got it that's helpful and then.

In terms of I appreciate the color on on sort of the rent change and you know how youre expecting that to trend in 'twenty three relative to 'twenty, two what what about market rent growth.

The demand that Youre seeing you spoke about you know from onshoring of near Shoring I mean do you do you see potential for market rent growth to improve and do you have a market rent growth forecast for your portfolio in 'twenty three that you can share.

Okay.

Yes, Todd Penn here, yes.

Yeah in general.

Looking at.

Weighted average of about nine 2% actual and.

In 2022 of market rent growth.

Primarily.

Driven by kind of our I would say our top three markets, Memphis, Columbus, and Atlanta, where between 14 and 17% actual market rent growth.

Here, we see those numbers drifting down.

Maybe 30% to 40% for a projected market rent growth in 2023.

So we're seeing about an average of 4.5% to 5% across our across our markets.

Okay.

And then on on Anthony that the November debt maturities.

The $112 million, a little over 4%, what what's I'm, probably not a huge impact on the guidance for 'twenty three but what what's the you know what's embedded in the guidance there and what's the.

Expected outcome.

The guidance takes a pretty conservative approach to addressing that maturity I think we reflect another.

250 basis points above.

The current rate on that particular piece of that but.

As we sit here today.

We're in discussions not only with AIG to renew and extend but we've had.

Constructive conversations with the Bank group and we certainly have sufficient capacity under the facility to address that.

That becomes a mature at the end of the year.

Okay. That's helpful Alright, great. Thank you.

Our next question comes from Anthony Hau from Truest. Please go ahead.

Hi, Thanks. Good morning can you just provide a bit more color on the non recurring capex piece. It seems that you guys spent $60 million this year and only 22 million last year, which nearly triple despite now buying less asset. This year. So how much of that is already part of the acquisition cost and what are the other buckets and <unk>.

Should we expect a similar level next year as well.

Anthony the majority of that is attributable to development spend and.

That's going to taper in 'twenty three I think we provided some commentary around.

Im carryover spend that we're going to address that as it relates to phase one development there is.

Essentially a phase one point to that were.

<unk>.

That total budget is.

Fairly de Minimis and we don't.

Currently forecast ongoing development for the balance of 'twenty three.

Yeah.

Okay. Thanks, guys.

The next question comes from Bryan Maher from B Riley FBR. Please go ahead.

Good morning, so there doesn't seem to be.

Much issues with respect to releasing and getting rent increases, but there has to be some give and take it seems or one would think between tenants.

You might think that there is a recession coming whether it's yeah shallow or deep and trying to use that as leverage for for rate discussion is that actually go on or are they pretty much just happy to get the space. They.

We knew the space.

And acknowledged that there's inflationary pressures that you guys face also.

No we havent seen any indications of them trying to leverage that for our rates I think.

Maybe they take a little longer to get the leases executed they wait a wait up until.

Close to the exploration date, instead of doing them sooner.

But that's not true across the board we've got some people will be willing to be new 24 leases. This year as well so it's a mixed bag across the board.

And just two more from me on the operating expense side for those costs that you guys there.

What is your outlook this year I am sure it's embedded in your in your guidance, but what are the key cost increases that are impacting your P&L.

Yeah, Brian the usual suspects there are.

Real estate taxes insurance, and then weather related impacts.

Yeah. So what we're seeing is a sequential increase I think we budgeted about three 5%.

Across the board in terms of Opex, but I think a consideration for us is that as we continue to convert these legacy leases to triple net which will continue to do as we execute on the balance of the role for 'twenty three and beyond.

The leakage there is increasingly less significant.

Because that ultimately.

The responsibility of the tenant.

And so while we see an increase in opex in terms of performance, there's less and less impact on that year over year.

Okay and then just last for me you know in your prepared comments.

It's hard not to think that youre pretty optimistic about.

Your industry and specifically where you are located.

That as a backdrop what would it take for you guys to see this year.

You know more.

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